Ask an Expert: Strategies for DIR Fees

An expert explains the impact of DIR fees and strategies for health system pharmacies.

By: McKesson Health Systems Editorial Team

Read time: 4 minutes

Pharmacy Direct and Indirect Remuneration (DIR) fees have recently created a number of challenges for pharmacies – from a lack of visibility to decreases in revenue. Christina Hadler, manager of pharmacy engagement at Health Mart Atlas explains more about the impact of DIR fees and strategies for health system pharmacies to lessen the impact in order to focus more on patient care.

Q: Before we dive into the impact, can you share a little on the history of DIR fees?

A: The Direct and Indirect Remuneration (DIR) fee system was originally created by CMS (Centers for Medicare and Medicaid Services) in 2006 and subsequently adopted by Medicare Plan Sponsors, designed to lower costs and improve outcomes for patients. Pharmacies may see pharmacy benefit managers (PBMs) and plan sponsors charge DIR fees separate from administration fees, and they are generally paid after the point-of-sale.

As explained here by Pharmacy Times, the fee is based on the “performance” of the pharmacy, which means PBMs can collect money from the pharmacy based on the pharmacy’s performance metrics, leaving pharmacies to plan for any variable DIR fee collection.

Q: How do DIR fees affect health system pharmacies, specifically?

A: DIR fees are collected from pharmacies at varying times throughout the year, making anticipating and planning for them critically important and potentially difficult for pharmacies. The fees may create cash flow challenges for pharmacies for claims billed through Medicare Part D, especially if a pharmacy is not meeting performance goals and planning for DIR collection.

DIR fees may be a percentage of average wholesale price, a flat fee at the point of sale, or a percentage of ingredient cost paid. Plans offer the ability to recoup some of this money if your pharmacy is a high performer. Some plans look at pharmacy performance at the pharmacy level while others look at a network level, with the latter plan calculating the average for your Pharmacy Services Administrative Organization (PSAO) or other contracting group to which your pharmacy belongs.

Q: What are some challenges you’ve seen firsthand for health systems?

A: Because many DIR fees arise from adherence and gap therapy, patients can benefit by pharmacists focusing on helping them address any barriers to medication use.

The biggest challenge is understanding performance measures and where to focus. Patients are attributed to the pharmacy they fill at greater than 50% of the time. This can be challenging for health system pharmacies since patients often fill once after a procedure or hospital stay and then transfer their prescriptions to their local pharmacy.

PBMs use DIR fees to offset patient out-of-pocket costs for services such as providing transportation services, access to dietary needs, or vision, hearing, and dental services. DIR fees generally do not reduce the cost for members at the point-of-sale where cost sharing is based on negotiated price.

Q: What are some actionable steps health system pharmacies can take to reduce any negative impact from DIR fees?

A: There are a few steps to help:

  1. Focus on patients that visit your pharmacy frequently. You can utilize tools such as EQuIPP to identify outlier patients who are attributed to your pharmacy and impacting your performance scores. While this tool may be included in your PSAO membership, you can also gain access to the tool on your own; however, there is a fee to use it.
  2. Understand the plans you fill for most often. Many plans use different metrics, and if you initially focus on the top three plans you fill for, you can cover a lot of ground.
  3. Finally, you may be able to retain patients after a discharge fill and engage them to come to your health system pharmacy for their routine prescription needs. One way to engage with patients is through Medication Therapy Management (MTM) cases. MTM cases may be available to your pharmacy for patients who only filled one prescription at your location. MTM cases also offer access to additional revenue.

Q: How can health system pharmacies plan for DIR fees?

A: Get to know the contracts your pharmacy fills for most. Depending on the plan, there may be different measures that the plan uses to calculate and collect DIR fees. Your PSAO may have tools and resources to help guide you through the types of plans with which they have contracted. These guides will identify the plans that utilize DIR fees and provide insight on what the plans are measuring, Generic Effective Rate, Generic Dispensing Rate, Adherence Measures, or other measurement focus areas.