Read time: 4 minutes
Published November 2, 2023
By: McKesson Health Systems Editorial Team, Ram Arumugam
With just 60 days until January 1, 2024 – when the CMS final rule prohibiting Medicare Part D plan sponsors and PBMs from retroactively assessing DIR fees on any claim submitted by pharmacies under Medicare Part D will go into effect – we recently sat down with one of our McKesson experts, Ram Arumugam, RPh, MBA, to ask six important questions about the upcoming DIR fee changes and how pharmacy and health systems leaders can prepare for January 1st. Before answering the questions, Ram provided a brief recap of what is happening with DIR fees, when it’s happening, and why it may matter to your health system:
RA: Thanks for having me, team. So, I can't believe we are just 60 days out of DIR fee changes taking effect. I'm looking forward to answering any questions to help our customers and health system pharmacies get prepared.
The CMS final rule that goes into effect January 1st, 2024, will prohibit Medicare Part D plan sponsors and PBMs from retroactively assessing DIR fees on any claim submitted by pharmacies under Medicare Part D. This will effectively eliminate “clawbacks.” So, while the rule eliminates retroactive post-adjudication DIR fees, it does not eliminate the fees entirely. Instead, these fees or price concessions will be included in the point-of-sale price, known as the negotiated price under the new rules effective January 1st. The new rule is a positive step towards reimbursement transparency and predictability, as the pharmacy will have more visibility in all fields reflected in the negotiated price. However, in the near term, they may be financially impacted by the new negotiated price rates in 2024 while also paying any remaining retroactive DIR fees from 2023. This could potentially result in revenue and cash flow issues. Again, as we have said earlier, we're just 60 days out. Time is of the essence.
Q1: Back when we first started talking about the DIR fee changes, we heard people calling it the DIR “double whammy.” Then it shifted to the DIR “hangover,” and now it's being referred to as the DIR “apocalypse.” Why has that narrative changed, in your opinion?
RA: So, I think the narrative hasn't really changed. It relates to the awareness, the understanding of the status quo of health system pharmacy P&L and making strategic changes to mitigate the impact of having the new negotiated price assessed at the point of sale in 2024, while also paying any remaining retroactive DIR fees from 2023. And these are the things that we've always been speaking about. What has changed is the time. The time is now narrower. So, if you're not addressing those narratives, then the “double whammy” or the “hangover” could eventually be damaging if an entity fails to address any mitigation strategy.
Q2: With this so-called “apocalypse” looming - now just 60 days away – if I were a health system, is there really still time for me to act on it, or have I missed my window?
RA: The answer is simple: It's never too late. So, make the assessment now, strategize, keep the stakeholders informed, and then create a process for optimization. It is definitely not too late.
Q3: Some health systems may be asking whether they can just “wait and see.” What are your thoughts on that? What could potentially happen if a health system doesn't do anything to prepare for the DIR fee changes?
RA: Well, before we make a deduction, we have to understand that every health system has a different patient population and payer mix. So, it's very difficult for us to make the deduction, but it's very crucial for us to recommend that the providers of the patient care perform the financial analysis now in order to estimate the amount of DIR fees that they may be due for. At the very least, they can create the awareness on these looming changes and keep the stakeholders, especially the C-suite, informed of the changes now.
Q4: As we all know, DIR fee changes aren’t not the only pressing issue that many health systems are facing right now. Would you consider this, in your opinion, to be in the top five or even the top three concerns that pharmacy leaders should be bringing to their leadership?
RA: For any pharmacy leader, it’s important to be aware of and appreciate that this is a positive step towards reimbursement and transparency and also creates predictability for the pharmacy. We also have to take into account the financial implication of the negotiated price rates for 2024 while also paying for any remaining retrospective DIR fees from 2023. If this could result in revenue and cashflow issues, or any financial viability issue for the health system, then it should be categorized as top three in my opinion.
Q5: At this stage in the game, what are your top three must-dos for health system pharmacy leaders in the next 60 days, with respect to DIR fee changes?
RA: While ultimately each health system will have to set its own priorities, I think they need to create awareness and understanding of the potential impact. They also need to perform analytics and assessment of their current reimbursement rate. And finally, they need to create mitigation efforts, and this could include preserving cash flows, improving processing operations, a tighter control of the inventory, or even creating additional revenue stream channels.
Q6: With creating awareness, mitigation strategies, analytics, all of these things – and just having 60 days left –some health systems may be asking, is this something we can do ourselves? And if not, where can we turn for help? How would you answer that?
RA: There are various resources for them to reach out for help, and the best way is to speak to your trusted partners to help to prepare for this event. For example, if you're a McKesson Health System client, reach out to the Payer Solutions for Health Systems team or your resource for professional advisory services. If you're a Health Mart Atlas PSAO member, reach out to your dedicated agents to help you navigate the complexity. We’ve said this before – truly we are in this together.
If I can leave everyone with one last thought, it will be again, that it's not too late to start implementing strategies, having critical conversations, and preparing for January 1st.
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