DIR fees are a hot button item for many pharmacies and pharmacy owners. These fees are not well understood and their impact on the health of pharmacy as a profession is significant. Recent conversation with both our PSAO and (surprisingly) representatives from a major PBM have me questioning why pharmacies are even being involved with DIR fees.
Medicare created the concept of the DIR fee as a way to capture rebates that PBMs were receiving from pharmaceutical manufacturers. The DIR fees are not kept by the PBM, but instead are passed back as a savings to the payor (in this case, Medicare). The format of these fees, however, involves not just the PBM and Medicare. Pharmacies have been dragged into the equation, and the equations are complicated. Trying to understand the logic behind a DIR fee and how it is calculated has become very challenging.
I have been told that Medicare would prefer that DIR fees not come thru pharmacies, but they do not enforce this, allowing PBMs to create complicated logic on how these savings are directed back to the payor (Medicare). In their simplest form, a DIR fee is calculated in one of two different ways:
- A flat fee per claim (say $3)
- A flat percentage (say 3%)
If a contract without DIR fees read Average Wholesale Price (AWP) – 18% + dispensing fee, the DIR contract would read AWP – 15% + dispensing fee. The DIR fee would be the difference between the first and second calculation. This seems simple enough, but many pharmacists are still scratching their heads, you would not be alone. The use of MAC prices hides the AWP logic completely from the pharmacy. Remember that the PBM industry does not publish how it calculates MAC rates, and retains the right to change these rates at any time for any reason.
Example DIR fees from a Medicare Part D PDP
Consider a generic drug claim and the AWP for the 90 day supply of the medication is $100. The plan will typically invoke a MAC rate for this drug. MAC rates have been estimated by some PSAO’s as averaging about AWP – 79% across the industry. Given this estimate of MAC, the claim would adjudicate at $21 plus a dispensing fee (which is almost universally trivial, often $1 or less).
At the end of the month, the PBM would then apply the DIR fee schedule to this claim. If the DIR schedule for generic drugs was agreed to be AWP – 84.5%, an the pharmacy would have an additional 5.5% withheld from its payment as a DIR fee for this prescription. As an aside, it is possible that the DIR could be negative if the MAC price is actually below AWP – 84.5%, and in this case, the pharmacy would receive credit in the form of a DIR. This may have the potential protect pharmacies from some overly aggressive MAC prices, though the significance of this unknown.
It is important to recognize that the basis of the MAC price is unknown to the pharmacy, so in order to know what it actually made at the point of sale, the pharmacy would have to be able to identify each DIR eligible claim and apply a corrected calculation to the sale in the ledger each time.
Another problem with this methodology is that nowhere in those calculations is the ACTUAL COST of the medication considered. With an effective generic discount rate of AWP – 84.5% many pharmacies are seeing over a third of prescriptions being reimbursed underwater after the DIR is taken into consideration at the end of the month. This is primarily on generic drug products, but the same thing also occurs with some brand name drugs.
When a pharmacy or PSAO evaluates a narrow network / preferred provider plan, they need to be able to assess the impact of the overall contract on both. Given the above logic, this is certainly possible, though challenging (because MAC price is not explicitly defined). To make matters more complicated, plans are calculating DIR fees retroactively. In other words, the DIR fees for January are being assessed in February. Not complicated enough? Some plans document retroactive DIR payments by attaching the DIR to a different prescription and fill date in the current remittance document for the DIR being charged for another prescription filled during the previous remittance period. Think about this for a moment. There is no way for the pharmacy to double check the DIR calculation because the prescription it is attached to is not actually the prescription that the DIR fee represents. Pharmacies now have to simply trust that the DIR fees being levied are accurate. In our case, DIR fees for one plan are easily exceeding $5000 every month. This is not inconsequential and is having significant implications to the bottom line for the pharmacy.
Pharmacy Should Not be in the Middle
In the end, it makes no sense to include pharmacies in DIR calculations. Pharmacies are providers. They are not in the middle like the PBM. If savings are to be passed on to the payor (Medicare) then they should be transparent. They should not involve the pharmacy at all. The pharmacy should expect to be paid the adjudicated amount, and that amount should be specified directly in the contract. Anything else infers that he PBM is trying to hide something in the shell game of transactions.
