Perhaps you felt the earth shift, or maybe you felt a disturbance in the force. The Centers for Medicare (CMS) ordered a drastic change in the pharmacy landscape back in mid 2022. It was a seismic shift for pharmacies. A shift with implications that took a while to fully understand.
The change, which takes force on January 1st 2024, surrounds how pharmacy benefit managers and the plans they work for collect DIR fees. If you don’t know what DIR fees are, you can refresh your memory by looking back in the archives here. Up until next January, these fees were collected from pharmacies well after the pharmacy-patient transaction occurred. In essence, the price a pharmacy is reimbursed by the plan isn’t finalized until months later, and this made it very hard to know if you made or lost money on any given transaction.
Starting in January, a pharmacy will know exactly what it is being paid for the service it provides at the same time the service is provided. This is good, right?
Well yes. But it creates other problems, and the savvy owner needs to be aware of several implications.
- DIR fees aren’t disappearing. The net price paid starting in January will simply be lower at the point the product is adjudicated.
- Contracts for 2024 will continue to press reimbursement lower than it was in 2023.
- Retroactive DIR fees for 2023 will continue to be withheld from reimbursement well into the first quarter / half of 2024.
In summary, starting in January, pharmacies will be receiving less money up front due to the first two bullets above AND they will continue to see remittance from payers withheld to cover 2023 fees. This will undoubtedly cause strain on pharmacies cash flow early next year. This event has been called a lot of things: the DIR Cliff, the DIR Hangover, and the DIR tsunami. The name doesn’t matter. Cash on hand matters.
To be ready, pharmacies need to be planning. If this plan to shore up cash flow early next year hasn’t already been hatched and implemented, it needs to start now. Setting aside funds to cover the double whammy is one way. Arranging for a line of credit might be feasible for others.
Other help might be available as well. Independent Pharmacy Cooperative (IPC), an independent pharmacy focused buying group with several thousand members, is planning on an early pay out of millions of dollars in retained member equity to its members early next year to help them with cash flow.
Having cash on hand to weather the pending hangover is a short term play. Working to find new revenue streams for your pharmacy and different models of business will be critical steps to the next generation of Thriving Pharmacist. For more information or help, visit Innovative Pharmacy Solutions.
