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The Effects of DIR Fees

DIR fees are to community pharmacy what a millstone is to the neck of a distance swimmer. They drag us down, they keep us from doing what we are trained to do, and eventually they will suffocate us. So why are we accepting them? Is anybody doing anything to stop, roll back, slow, delay, or prevent these onerous fees from destroying practices?

Maybe we first need to ask, “Who really cares?”. If DIR fees are impacting your profitability, does anyone other than you really care? Nope! No one will care until it impacts them. They will only care when they can no longer get a prescription filled because your pharmacy is not there to provide the services they need. The current cry against DIR fees is almost universally community pharmacy driven. The chains don’t care. Chains can sell another package of Fruit of the Loom’s or another TV and make up the difference. Patient based, community pharmacies do not have that luxury. We depend upon the care we give to fund the care we can give. Therein lies the rub. We (community pharmacies) are being charged a premium in order to be able to provide inferior service to patients. When, all the while, we should be paid more to provide superior patient care.

Take a look at “performance DIR fees”. Supposedly a DIR fee based on performance will allow a “high quality pharmacy” to receive a greater reduction in fees as compared to a “low quality pharmacy”. (Understand that quality here is defined by a third party based on numbers not designed to “rate” pharmacy performance.) In fact, if you have a pharmacy that is perceived as high quality based on things like PDC adherence rates and MTM completion rates you should expect to receive lower fees and more patients because of that performance. If you receive more patients it is quite probable they will be less adherent and less likely to respond to MTM requests. In which case, your “quality numbers” tank, your DIR fees rise, and you have more patients that cause you to lose more money on each prescription filled. That is bad for the patient, bad for your pharmacy, bad for CMS, and bad for the healthcare system.

So, who’s doing something about this? We are. And we’ve got help. MedHere Today is assisting NCPA in their efforts to address this legislatively, we’re talking to CMS about access and quality issues, we’re speaking out in national forums to raise awareness, and talking to congressional and senatorial officers to help them understand the issues.

You think DIR fees are not fair? A fair is a place you go to eat greasy food and watch creepy clowns make balloon animals. Fair has no place in this discussion. This discussion must be joined around patient access (my pharmacies are dropping plans with particularly onerous DIR fees limiting those patients access to care) and quality of care. This discussion must center on the patient, not the impact the DIR fees have on your business. Once we convince congress of the deleterious effects of these impossibly high fees, and the limited positive impact on patients, we can then speak to their effects on our small businesses and what Main Street will look like without us.

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The Structure of DIR Fees
I liken DIR fees to purchasing a baby alligator.  At first, it’s interesting, you feed it a little hamburger and pretty much leave it alone.  After a while, however, the alligator grows and is threatening to eat your poodle.  Our poodle is in danger.  DIR fees have grown from very few dollars per claim to, in some cases a clawback worth more than the claim itself.

The DIR fee structure varies from plan to plan.  There are some plans that extract a flat fee per prescription.  Other plans determine the fee based on a percentage of the sale.  Still others, perhaps the most onerous of all, develop plan specific metrics that qualify a pharmacy for a “performance rebate“ of a portion of an inflated DIR fee.  This fee supposedly cannot be calculated at point of sale, but must be calculated months later, to be extracted from pharmacy claims much later, perhaps even well beyond the patient’s enrollment in that plan.

Many of these DIR fees are higher within a plans preferred network.  The theory, at least as far as pharmacy is concerned, is a trade off of higher prescription traffic for lower reimbursement.  The belief that lower fees and copays incentivize patients to flock to community pharmacies in favor of the PBM sponsored chain or mail order has not been realized.  The PBMs that contract with the plans spend a lot of advertising dollars trying to push patients to their brick and mortar or mail order pharmacies.

So, independent pharmacy owner, what are you to do?  How are you expected to survive in this landscape?

First and foremost you must quantify your DIR fees.  If you do not know the cost, you cannot make an intelligent decision. You must know what preferred networks you are in, and decide if you wish to remain in them. Did I mention that you must quantify your DIR fees?  Know what each plan requires, know what the financial impact is on each prescription you fill.  Only then will you get a true feel for the impact DIR fees have on your practice.  Know how your PSAO, if you belong to one, determines whether or not to sign a standard or preferred contract.  Some will sign most preferred contracts, some will sign no preferred contracts, some will pick and choose, and all will have criteria for signing any contract.

Knowing and quantifying your DIR fees will allow you to look at your practice, your patient mix, and plan mix to see if you, in fact, are able to continue with that plan, or need to opt out.  That decision is difficult if you have quantified your DIR fees, and impossible if you haven’t.  Continuing with a plan that costs your practice tens of thousands of dollars with no benefit, makes no sense.  If you lose fifteen dollars on each prescription in a plan, you would be better off dropping that plan and giving a patient ten dollars to go somewhere else.   You would come out five dollars ahead.
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An Overview of DIR Fees

Community pharmacies are facing large DIR fees associated with Medicare Part D plans.  Surprisingly few community pharmacists are aware of the history and significance of DIR fees.  The Direct and Indirect Remuneration (DIR) fees were included in the original Part D legislation as a way for Health Plans to benefit from drug manufacturer rebates in order to pass those rebates on to patients as a way to improve healthcare and/or lower costs.  

In the first years of Part D, pharmacy was not included in the DIR structure.   That began to change as PBMs began assessing pharmacies fees related to DIR.  These fees are assessed multiple ways.  They can either be assessed as a percentage of price, a set fee, or as a “performance based” fee. Some can be quantified at point of sale, some (the “performance” based ones) cannot be assessed until months later. However they are assessed, DIR fees mean large quantities of money flowing backwards from the provider of a service, to a middle man.  Currently, the benefit to the patient of these PBM derived fees, if any, rests with the PBM and the corresponding health plan.

Combine these onerous fees with drug prices set below cost for reimbursement, and you have a recipe for community pharmacy disaster.  Community pharmacies are paying fees in the tens to hundreds of thousands of dollars annually.  No practice can long withstand that sort of cash drain

What can be done?  Actions on DIR fees are taking both short term and long term views.  On the national level, NCPA is leading a legislative effort to define, quantify and, make transparent the DIR process.  The contention is that pharmacies, or any business, cannot function within a payment methodology where the reimbursement cannot be determined at time of sale.  Other national efforts, being led by MedHere Today and others, are focusing on “performance” based DIR fees.  Many are of the opinion that the PBM dictated performance metrics do not represent a pharmacy’s true value to the health system, and in fact create barriers to quality patient care.

Even though there are ongoing efforts to quantify, define, and mitigate the effects of DIR fees on your pharmacy.  Until, and if, these efforts come to fruition DIR fees as designed by PBMs will be a part of the pharmacy landscape. The question becomes: “What can I do at my practice to mitigate those fees and survive another year?”

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