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Jan 29, 2016

Pharmacy Podcast Health Policy Check-up segment Government Affairs Strategist – Ron Lanton III, Esq. interviews Susan Pilch Vice President, Policy and Regulatory Affairs of the NCPA about Direct and Indirect Remuneration Fees. 


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Frequently Asked Questions (FAQs) About Pharmacy “DIR” Fees

Q. What does “DIR” stand for?

A. “DIR” stands for “direct and indirect remuneration” and was initially a term coined by the Centers for Medicare and Medicaid Services (CMS) related to the Medicare Part D benefit to address price concessions (e.g. drug manufacturer rebates) that would ultimately impact the gross prescription drug costs of Medicare Part D plans that were not captured at the point of sale. Plans/PBMs are required to submit an annual “DIR” report to CMS, which is used by CMS in tandem with Prescription Drug Event (PDE) data to “true up” what is paid to a Medicare Part D plan by CMS for a given plan year.

Q. Exactly what are pharmacy “DIR Fees”?

A. The use of the term “DIR Fee” to describe arrangements between Plans/PBMs and pharmacies is somewhat of a misnomer--it is really a “catch-all” term designed to encompass a number of different types of “fees” including “pay to play” fees for network participation as well as periodic reimbursement reconciliations. For example, Plans/PBMs have used the term “DIR Fee” to describe a “true-up” between a target reimbursement rate in a participating pharmacy agreement and the aggregated effective rate actually realized by a pharmacy as well as a “true up” between the aggregate MAC/adjudicated rate and the aggregate contracted rate. In addition, the term “DIR fee” is also used to refer to a payment mechanism to pharmacies for the fulfillment of various quality measures or alternately a fee assessed to pharmacies for non-compliance with quality measures. One reason why the term “DIR fee” may be used by a Plan/PBM is to bolster their assertion that these fees cannot be determined at the point of sale—which would explain why these fees are collected from pharmacies after claim adjudication.

Q. Are DIR fees assessed to pharmacies legal?

A. As mentioned above, “DIR fee” is simply the terminology that Plans/PBMs are currently using to categorize certain pharmacy network participation fees and the reconciliation of certain contractual terms with actual reimbursement. When CMS defined DIR and mandated the annual reporting of DIR, the intent was mainly to capture rebates from pharmaceutical manufacturers to Plans/PBMs related to formulary positioning and other similar remuneration which impacts a Medicare Part D plan’s gross prescription drug cost that is not passed through at the point of sale. CMS certainly did not foresee that “DIR fees” would be used to describe the types of fees charged by Plans/PBMs to pharmacies under this moniker. The fees themselves are legitimate; however, it could be argued that there does not seem to be adequate disclosure to the pharmacies or the contracting entities by the Plan/PBM as to exactly how these fees are calculated either at contract initiation or at the time these fees are actually assessed and reported to the pharmacy or contracting entity. The detail level of the disclosure of assessed DIR fees varies based on the information provided by the Plan/PBM. As such, more transparency around “DIR Fees” is needed.

Q. How Are “Pay to Play” DIR Fees Assessed at the Pharmacy Level?

A. Sometimes, pharmacies will be assessed a fee to participate in a “preferred” network. These types of fees are typically assessed as a flat fee per-claim or as a flat percentage that is assessed at regular intervals. The “fees” are essentially price concessions and Medicare Part D plans typically reflect them in their annual DIR report to CMS rather than at the point of sale in PDE records. Q. How are “Payment Reconciliation” DIR Fees Determined and Assessed at the Pharmacy Level? A. Sometimes pharmacies will be assessed DIR Fees that are the result of a “true-up” of a target reimbursement rate in a participating pharmacy agreement to an aggregated effective rate across all prescriptions, branded prescriptions and/or generic prescriptions at designated intervals. The reconciliation process is usually conducted at certain intervals (usually quarterly or annually). 

Susan Pilch

Vice President, Policy and Regulatory Affairs

National Community Pharmacists Association (NCPA)

Susan Pilch is the Vice President of Policy and Regulatory Affairs for the National Community Pharmacists Association (NCPA). Prior to this position, she worked as a multi-state lobbyist representing primary wholesale pharmaceutical distributors as well as served as Director of state legislative and regulatory advocacy for another health-related professional association.

Susan began her career in the health policy/legislative arena immediately following her graduation from law school when she worked for the Maryland House of Delegates Judiciary Committee.