Friday, October 12, 2018

DIR Fees: A Prescription While You Wait

Today’s guest post is sponsored by Elsevier and written by Todd Grover, Co-Founder, Glass Box Analytics and President, PharmacyFocus.

Todd discusses some of the challenges associated with Direct and Indirect Remuneration (DIR) fees. He explains how Elsevier’s Predictive Acquisition Cost (PAC) pricing tool helps pharmacies better manage DIR fees and challenge insufficient reimbursements.

Learn more by downloading Elsevier’s infographic: Managing the Impact of DIR Fees.

Read on for Todd’s insights.

DIR Fees: A Prescription While You Wait
By Todd Grover, Co-Founder, Glass Box Analytics and President, PharmacyFocus

Having been pushed past the boundary of their original intent, Direct and Indirect Remuneration (DIR) fees are now at the center of contention, and even enmity, between pharmacies and Pharmacy Benefit Managers (PBMs).

Created by the Centers for Medicare & Medicaid Services (CMS) in 2006, the DIR process required PBMs to report rebates and other adjustments that would reduce the contracted price of prescriptions under Medicare Part D, channeling those savings back to CMS to offset costs. Since 2013, however, the program has morphed into a completely different animal as the definition of DIR fees became more fluid and the concept swept into commercial network arrangements and retail pharmacy operations.

This migration is perceived to have been a reaction by PBMs to state Maximum Allowable Cost (MAC) transparency laws around generic drug pricing, with DIR charge-backs to pharmacies enabling PBMs to publish higher MAC rates. Today, the DIR fees assessed retail pharmacies stretch far and wide and, whatever their impetus, the reported impact on retail pharmacy margins is profound.

This situation dovetails with changes in another CMS initiative, the Medicare Star rating system. Originally created to identify and reward high-performing providers of Medicare services, including Part D drug plans, the system also has evolved to encroach upon pharmacy profits, imposing DIR-driven prescription adherence performance metrics to pharmacies in order to improve their ratings. Effectively, according to a Cleveland Clinic pharmacy executive, this extension turned a rewards-based program into a penalty-based system that pulls margins from the pharmacy and “sends it over to the PBMs.”

This puts both retail and specialty pharmacies in a lose-lose situation, taking on additional risk of profit loss and not having access to incentives.

A concomitant issue involves so-called “clawbacks.” Here, pharmacies are hampered by the fact that CMS sees only what is reported by insurers and manufacturers and has no data specifically from the pharmacy. This creates “a disconnect,” as CMS is not required under law to get these specific data from PBMs.

Beyond the fees themselves are issues of the lack of both a timeframe for assessments and clarity as to which prescription they refer, according to the National Community Pharmacists Association. The vast majority of the organization’s members, in fact, report that they don’t know what their final reimbursement will be at the point of sale, and it can take as long as a year to find out. They add that reimbursement cost could possibly be less than the drug dispensed. Interwoven in this problem is the fact that fees vary by PBM, drug and performance, among factors.

This sphere of uncertainty and retroactive assessments can make it difficult for retail pharmacies to plan appropriately, manage costs and maintain profitability. It also inhibits their ability and motivation to create new patient care services, as it can be unclear whether they will be reimbursed. Consumers are further affected by possibly higher out-of-pocket costs despite the stated intent of DIR fees and rebates as a means to reduce drug prices.

As the industry voice on DIR grows louder, increasing numbers and forms of redress are being sought in the courts, legislatures and regulatory agencies. Obviously, this will take time. That said, there are tools pharmacies can employ now to help.

It’s a given that a comprehensive analysis of reimbursements before and after the application of DIR fees is critical to any pharmacy. Having the right tools to measure loss files (e.g. claims where reimbursement was less than acquisition cost), calculate generic effective rates (GERs) based on acquisition cost, and understand the impact DIR fees have on a pharmacy business is vital to sustained growth and profitability.

Elsevier’s Predictive Acquisition Cost (PAC) is a pricing solution that tracks a more accurate drug acquisition cost and can be an effective tool in managing the impact of DIR fees. The PAC pricing solution establishes a fair acquisition price range to determine the performance of network contracts, control cost and pricing issues, and challenge problematic reimbursements. PAC can help manage the impacts of DIR fees by:
  • Performing Loss File Analysis to determine both reimbursement and sourcing issues
  • Calculating GER comparisons (AWP vs. acquisition cost) and detailed mark-up analysis
Review of loss file claims, before and after DIR fees are applied provides a critical justification for challenging underwater reimbursement and sets expectations for anticipated issues with future claims. In addition, the use of PAC to calculate GERs and mark-up analysis before and after the application of DIR fees provides clear evidence of reimbursement issues as they relate to a pharmacy's drug acquisition cost.

To sum it up: DIR fees create a complex problem that hopefully is working toward remediation. Until that time, however, there are steps pharmacies can take to clear some of the murk and confusion, informing their businesses for better decision making in a volatile environment.

Learn more by downloading Elsevier’s infographic, Managing the Impact of DIR Fees.

Sponsored guest posts are bylined articles that are screened by Drug Channels to ensure a topical relevance to our exclusive audience. These posts do not necessarily reflect our opinions and should not be considered endorsements.

To find out how you can publish a guest post on Drug Channels, please contact Paula Fein (

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