Taking Action on DIR Fees

September 15, 2016 | Jeremy Johnson

This week, four senators (Shelley Moore Capito, R-W.Va., Jon Tester, D-Mont., John Boozman, R-Ark., and Tom Cotton, R-Ark.) introduced bipartisan legislation to prohibit retroactive DIR fees in the “Improving Transparency and Accuracy in Medicare Part D Spending Act.”

NCPA—on behalf of the independent pharmacies it represents—has been a strong advocate for the move: 

“In banning retroactive DIR fees, S. 3308 / H.R. 5951 would improve transparency in Medicare Part D as many members of Congress, Medicare officials and NCPA have urged. The bill would also lower beneficiary cost-sharing at the pharmacy counter without increasing Medicare Part D costs.”

How did we get here?

Direct or Indirect Remuneration fees [DIR] were originally created by CMS to track rebates, charge-backs, cash discounts, and other price adjustments received by plans that impact Part D medications. In theory, rebate savings negotiated by PBMs get passed back to CMS. In reality, DIR has become a fee—and not a very clear one—that pharmacies must pay. 

How does it work?

  • All pharmacies pay DIR fees, including chains, mass merchants, and independents.
  • By definition, DIR fees go to the Part D plan, not the PBM. These fees are reported to CMS.
  • Medicare Part D plan sponsors file DIR reports after the end of a plan year.
  • DIR reports are used to reconcile actual plan costs for the plan year to those projected in the actuarial bid that was used to establish monthly premiums for the plan year.
  • Reconciliation can result in sponsors receiving additional monies or owing a payment back to CMS.
  • DIR fees are deducted POST-adjudication from each paid claim and appear as an adjustment on the pharmacy’s remittance advice.

Much to the consternation of pharmacies, there has been little consistency on what the fees will be. They can be a percentage of ingredient cost (example, 3.0%), or can be a flat fee (example, $3.25).

What’s a pharmacy to do? 

Historically, the ultimate financial impact of a reimbursement has been unknown for any given prescription at the point of sale. 

The proposed legislation (S. 3308 / H.R. 5951) would bring greater clarity to independent pharmacists like us on reimbursements for many scripts filled under Medicare Part D by prohibiting PBMs and plan sponsors from retroactively reducing payments on clean claims. For now, here’s what we know: 

  • DIR fees will be variable in 2016 for some Part D plans.
  • Variability will be based on either the PSAO’s or the pharmacy’s performance metrics. For example, a pharmacy with better performance metrics may have a 3% DIR fee, while a pharmacy with worse performance metrics may have a 5% DIR fee.
  • It is important that your accountant understands DIR fees. If you are not accounting for DIR fees correctly, you could be paying more in taxes than you should be, or at the very least your margins may not match up with your pharmacy system.
  • Check with your reconciliation vendor about DIR report options to make sure you are tracking how much in DIR fees you are getting charged. You have to take into account the DIR fee and not just the adjudicated amount when you are calculating your net profit. 

The continued development of DIR policy and guidance is of critical importance to independent pharmacies. Engage your legislative representatives to urge them to push this legislation


Jeremy Johnson

Jeremy is a U of M Pharmacy grad and is Smart-Fill's COO. He has worked with Astrup Drug/Smart-Fill for 22 years and won the MPhA Excellence in Innovation award in 2005. He lives in Austin, MN, with his wife and two children.