July 31, 2023

Navigating the upcoming 2024 DIR fee changes: What independent pharmacies need to know

Navigating the upcoming 2024 DIR fee changes: What independent pharmacies need to know?

As an independent pharmacy owner, staying informed about the impending DIR fee changes set to take effect in January 2024 is crucial. These changes have been designed to enhance transparency, financial predictability, and reduce the financial burden on independent pharmacies. However, it's important to be aware that the new rule also presents some challenges that pharmacies should be prepared to address.

Understanding DIR Fees

DIR (Direct and Indirect Remuneration) fees are additional charges imposed by Pharmacy Benefit Managers (PBMs) on pharmacies. These fees are based on various factors, including pharmacy performance reports, drug prices, and negotiated price concessions. The amount of DIR fees are charged retroactively, meaning the fees are applied weeks or months after the prescription has been filled by the pharmacy. This lack of real-time visibility makes it challenging for pharmacies to accurately predict how much their reimbursement will be adjusted due to DIR fees.

Understanding the Role of PBMs and their impact on the Healthcare System

PBMs, or Pharmacy Benefit Managers, were originally created to act as intermediaries between pharmacies, drug manufacturers, and health insurance plans. Their primary objective was to negotiate lower drug prices, pass on discounts to pharmacies, and improve access to medication for patients. However, the lack of government oversight has allowed some PBMs to exploit the complexities of the drug distribution system, leading to negative consequences for consumers and pharmacies alike.

Over time, the growth of DIR fees charged to pharmacies by PBMs has been staggering. According to CMS reports, these fees have surged by a shocking 107,400% between 2010 and 2020. The retroactive nature of DIR fees has enabled PBMs to amass record-high profits, often at the expense of consumers and independent pharmacies who bear the financial burden.

Reforms Ahead: Changes in DIR Fees for 2024

In response to these concerns, the Centers for Medicare and Medicaid Services (CMS) announced it will bring significant reforms in DIR fees effective from January 2024. One of the most significant updates in the final rule issued by CMS is the elimination of PBMs' retroactive application of DIR fees. This means that independent pharmacies will no longer have to face the uncertainty of fees charged weeks or months after prescriptions are filled. The reforms are designed to ensure fairer reimbursement and empower pharmacies to better plan their finances.

Inside the CMS final rule: Key Changes and Implications?

  • Transparent Pricing: Under the new rule, all price discounts and DIR fees will be incorporated into the negotiated price that consumers pay at the point of sale. This means that consumers will have a clearer understanding of the actual costs and will not face surprise charges later on.
  • Point-of-Sale Negotiation: While the reform retains the existence of DIR fees, it shifts these fees to a point-of-sale negotiated price. This change empowers pharmacies to plan their finances more effectively and ensures fairer reimbursement for their services.
  • Price Concessions: The final rule categorizes various fees such as "network access fees," "administrative fees," "technical fees," and "service fees" as "price concessions." These concessions will be fully reflected in the negotiated price at the point of sale.
  • Floor for Pharmacy Payment: CMS has set a floor for pharmacy payment to ensure a minimum reimbursement level. At the same time, the rule allows for bonus payments to reward improved performance, encouraging pharmacies to provide the best possible care to patients.

Pros of DIR Fee changes:

Increased Transparency

The reforms in DIR fees will make the PBM industry more transparent. With the changes in effect, PBMs will be required to provide comprehensive and explicit details about the fees they charge, leaving no room for ambiguity. This increased transparency will prove instrumental in assisting independent pharmacies to better comprehend and negotiate their contracts with PBMs.

Increased Predictability

With the new reforms, the DIR fees will be seamlessly integrated into the negotiated price, offering pharmacies unprecedented financial clarity. By knowing the precise DIR fee deduction and having a clear view of reimbursement, independent pharmacies can now make well-informed financial decisions and plan for the future with confidence.

Reduced Financial Burden

The new rule limits the type of fees charged by PBMs and requires PBM to be transparent about what DIR fees they will charge, and why they charge at the time of price negotiations. Moreover, substantial fees based on unpredictable metrics such as pharmacy performance reports, drug utilization reviews, and medication therapy management will no longer burden pharmacies' financial planning. Those metrics were hard to forecast and budget for in the beginning. 

Certainty in Reimbursement

In the new rule, DIR fees are incorporated into the negotiated price, ensuring pharmacies know their exact reimbursement from the start. PBMs won't be able to add surprise deductions later, offering increased financial security and control over revenue. 

Cons of DIR Fee changes:

Cash Flow Interruptions

Pharmacies are set to encounter a significant challenge related to Direct and Indirect Remuneration (DIR) fees. They will need to meet an initially steep acceleration in these fees, as not only will they be required to pay an extensive retroactive charge by the end of 2023, but they will also start paying DIR fees at the point of sale from January 1, 2024. This double burden can be likened to a 'DIR cliff' they are poised to face.

Potential Failures of Small Pharmacies

Small pharmacies heavily reliant on drug dispensing revenue could face substantial challenges with the new rule. Paying double fees at the beginning of 2024 may lead to cash flow shortages, potentially forcing some pharmacies to shut down. Urgent measures and alternative revenue sources are crucial to safeguarding their future.

Decreased Profitability

Pharmacies may face decreased profitability in 2024 due to increased expenses. The double DIR fees can lead to a significant reduction in revenue, impacting day-to-day operations and the ability to fill prescriptions as usual. It's crucial for pharmacies to adapt their financial strategies to mitigate these potential challenges and ensure continued service to their patients.

Embrace the Future with Signetic

At Signetic, we understand the challenges posed by the upcoming 2024 DIR Fee changes, and we are here to help pharmacies create new sources of revenue. Our comprehensive solution enables pharmacies to transform into clinical service destinations, offering medical services like immunization, point-of-care testing, smoking cessation, and diabetes management.

With streamlined workflows, timely reporting, and centralized EHR, Signetic empowers pharmacies to a prosperous future.

To learn more, visit our website today.

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