If you’re an independent pharmacy owner or pharmacist, you’re probably aware of the upcoming changes to DIR fees that will take effect in 2024. These changes are intended to reduce the financial burden on independent pharmacies and increase transparency in the pharmacy benefit management (PBM) industry – but the journey to get there may have some hurdles to jump when it comes to cash flow. In this blog post, we will discuss the evolution of DIR fees leading up to the DIR fee changes coming in 2024, and the pros and cons independent pharmacies owners should prepare for.
DIR Fees: An Overview
DIR fees, or Direct and Indirect Remuneration fees, are fees paid by pharmacies to PBMs. These fees are based on a variety of factors, including performance metrics and drug prices, and are typically calculated retroactively. That means that pharmacies may not know how much they owe in DIR fees until months after they have dispensed a drug.
DIR fees have become a significant concern for independent pharmacies, as they can significantly impact cash flow. In some cases, pharmacies may owe more in DIR fees than they earned from dispensing the drug in question. This can make it difficult for pharmacies to plan and manage their finances effectively.
The Evolution of DIR Fees
Over the years, DIR fees have evolved significantly. Originally intended to incentivize pharmacies to provide high-quality care, they have instead become a source of revenue for PBMs.
Between 2010 and 2020, CMS reported (§ 423.100) that retroactive DIR fees increased by an astonishing 107,400%.
The increase in DIR fees has had a significant impact on independent pharmacies. In a survey conducted by the NCPA, 84% of independent pharmacies reported that DIR fees have a moderate to severe impact on their business. Furthermore, 54% reported that DIR fees have caused them to delay or reduce hiring, and 52% reported that they have reduced hours of operation.
Changes Coming to DIR Fees in 2024
In response to these concerns, the Centers for Medicare and Medicaid Services (CMS) announced that it will implement significant reforms to the DIR program beginning in 2024. The reforms aim to increase transparency and predictability in pharmacy payments and reduce the financial burden on independent pharmacies. While the reform is a huge step in the right direction when if comes to transparency and predictability in the long term, there are some short-term challenges that independent pharmacies must consider and prepare for as well.
The Pros for Independent Pharmacies:
✅ Reduced Financial Burden
One of the main benefits of the new DIR changes is that they will reduce the financial burden on independent pharmacies. Currently, PBMs can charge DIR fees for a variety of reasons, including performance metrics, drug utilization reviews, and medication therapy management. These fees can be substantial and are often difficult for independent pharmacies to predict and budget for. The new changes will limit the types of fees that can be charged and require PBMs to provide more transparency around the fees that are charged.
✅ Increased Transparency
Another benefit of the DIR changes is that they will increase transparency in the PBM industry. PBMs will be required to provide more detailed information about the fees they charge, including the amounts charged and the reasons for the charges. This will make it easier for independent pharmacies to understand and negotiate their contracts with PBMs.
✅ Fairer Reimbursements
The DIR changes will also lead to fairer reimbursement for independent pharmacies. Currently, DIR fees can be charged retroactively, meaning that pharmacies may not know the final reimbursement amount for a prescription until months after it has been filled. The new changes will require PBMs to provide timely and accurate reimbursement rates, which will make it easier for independent pharmacies to manage their cash flow and plan for the future.
The Cons for Independent Pharmacies:
❌ Uncertainty & Implementation Challenges
❌ Potential for Decreased Competition
There is also a risk that the new DIR changes could lead to decreased competition in the PBM industry. Some smaller PBMs may struggle to adapt to the new requirements, which could lead to consolidation in the industry. This could ultimately result in higher prices for consumers and decreased access to care.
❌ Cash Flow Interruptions
In the first quarter of 2024, pharmacies will have the retroactive DIRs from 2023, and the new DIRs they will occur at the point of sale. This means pharmacies will be paying double the amount of DIR fees that they normally would for the first part of 2024 until all of the retroactive fees have been paid.
With this increased transparency on prescription profit, pharmacies will begin declining to fill more scripts as data on a prescription’s profitability will be available at the point of dispensing, as opposed to months later with the prior retroactive model.
How Independent Pharmacies Can Prepare
To prepare for these changes, pharmacies should make sure to stay informed on the latest news and developments with DIR changes and ensure that they have a solid financial plan in place. With the cash flow interruptions, it is imperative to increase your profit margins and look for ways to offset fees and drive additional revenue streams. In our latest eBook, we have some great strategies to make sure you set your pharmacy up for success in 2024.
In conclusion, DIR fees have evolved significantly over the years, and more changes are on the horizon. The new rule, which will take effect in 2024, is designed to provide more transparency and predictability for pharmacies long-term. While these changes should ultimately benefit independent pharmacies, they may experience some challenges adjusting to these changes and preparing for cash flow interruptions in the short term. By understanding and preparing for these changes, pharmacies can ensure that they are well-positioned to weather any challenges that come their way.