Direct and indirect remuneration fees (DIR) refers to compensation received by Medicare Part D sponsors or their pharmacy benefit manager (PBM) after the point-of-sale. Although initially related only to Medicare Part D, they have crept their way into commercial plans as well.

The Centers for Medicare and Medicaid Services (CMS)
DIR fees were introduced by CMS when Medicare Part D was implemented. Plans/PBMs are required to report the DIR fees to CMS on an annual basis. CMS proposed the reports would capture rebates from pharmaceutical manufactures to PBMs that were being provided for formulary positioning and other remuneration.

The fees were intended to provide an incentive to pharmacies by offering discounts, rebates, coupons, up-front payments, or any other price concessions. Lately though, they are being scrutinized for their ambiguity and year over year increases.

Pay to Play
DIR fees have also been considered a fee for network participation, or a “pay-to-play” fee. PBMs will impose this fee long after the initial point-of-sale and can actually cause a pharmacy to lose money on the dispensing of a prescription. PBMs affirm the fees are for fulfillment of quality measures that cannot be determined at the point-of-sale and therefore impose the fees at a later time. These types of fees are a flat fee per claim or a percentage assessed at regular intervals.

Payment Reconciliation
DIR fees that are assessed as a way to true-up a targeted reimbursement rate are called a payment reconciliation. They are generally imposed during a reconciliation process that occurs at regular intervals, such as quarterly or annually.

Performance Metric
How a pharmacy performs with respect to specific measures can be associated with a DIR fee. For example, pharmacy refill rates, error rates, generic or preferred product rates, audit performance, and quality measures can be associated with a reimbursement reduction.

Theoretically, these performance metrics could also be responsible for bonus payments to a pharmacy.

The 5-Star Quality Rating
The 5-star quality ratings program is a way for CMS to rate insurance plan sponsors. They are rated on a scale from 1 to 5, with 5 being the highest rating. They fall into 5 categories:
 
  • staying healthy, including whether members received various screenings, tests, and vaccines
  • managing chronic (long-term) conditions
  • member satisfaction with independence and their providers, including access to care
  • member complaints and changes in independence’s performance
  • customer service, including timely appeal decisions

PBMs will use the 5-Star Quality Rating as a basis for quality measures and a means to get extra incentive payments from CMS.

Clawbacks
When the PBM assesses a DIR fee and takes money back from the pharmacy after the point-of-sale, it is referred to as a clawback. These fees may create a negative reimbursement for the drug that was dispensed, leaving the pharmacy and the patient picking up the difference. Many pharmacies are concerned that this practice of clawbacks and DIR fees will not be sustainable, thereby reducing the amount of smaller, independent pharmacies that can compete with larger, corporate entities.

Effect on Patient
The price the patient pays for a prescription drug is based on the cost of the drug; however, PBMs use the drug price without subtracting the DIR fee, inflating the actual drug cost. This results in higher out-of-pocket costs to the patient.

Increasing drug costs for patients often results in poor medication adherence and subsequently a decline in one’s health. It may also increase the use of emergency services and retroactive care.

DIR Reform
In December 2019, legislation was introduced that will require the DIR fees and other price concessions to be included in the negotiated price at the point-of-sale. Also known as the “Prescription Drug Pricing Reduction Act,” it would also prohibit plans from imposing fees on pharmacies.

The PDPRA is one of several major drug pricing bills Congress is considering and still requires a full Senate vote for advancement. It is gaining bipartisan support due to the growing concerns of the sustainability of the current practices related to DIR fees and other price concessions.

About the Author
Nicole Kruczek, RPh, MPBA
, earned her BS Pharmacy from Temple University, School of Pharmacy and her Masters in Pharmacy Business (MPBA) degree at the University of Pittsburgh, Joseph M. Katz Graduate School of Business, a 12-month, executive-style graduate education program designed for working professionals striving to be tomorrow’s leaders in the business of medicine. She has spent the last 10 years as a Manager, Pharmacy Operations leading a high performing team of pharmacists and technicians.