DIR (“Direct and Indirect Remuneration”) Fees are a burning issue in retail/ambulatory pharmacy today. Pharmacy Benefit Managers (PBMs) arbitrarily “claw back” amounts previously paid to pharmacies for dispensing prescriptions under various theories by simply offsetting current payments. Legal experts have stated that these charges have no basis in law or regulations and may in fact violate certain laws. But the charges continue and are growing despite severe and distressing impacts on pharmacies and patients.
Inception of DIR Fees and the PBM Shell Game
DIR arose out of Medicare Part D, the Federal program created by the Medicare Modernization Act of 2003 to provide pharmacy benefits to Medicare beneficiaries. The Centers for Medicare & Medicaid Services (“CMS”) contracts with private sector plan sponsors to administer Part D benefits. Plan sponsors typically use PBMs as middlemen to manage formularies and pharmacy payments.
CMS recognized that pharmaceutical manufacturers pay rebates and similar fees to PBMs as compensation for having their drugs placed on plan formularies. In order to base reimbursements on the lowest price as required by law, CMS required plan sponsors and PBMs to report all direct and indirect remuneration (i.e. DIR) received from manufacturers and other third parties. Since this periodic reporting occurs after prescriptions have been dispensed, there is a subsequent “true up” that may result in a CMS chargeback to the PBM. PBMs have deflected this by incorporating open ended mechanisms in contracts with participating pharmacies to pass on these charges to them in the form of DIR Fee clawbacks.
But that was just the beginning. Some PBMs saw an open door to run through with theories to boost clawbacks under the guise of DIR Fees. They have invented a host of charges that far exceed the intent and extent of DIR as contemplated by CMS. These include program fees, network participation charges, penalties for not achieving generic dispensing rates or Star Ratings, etc. Similar to the way they arbitrarily use Maximum Allowable Cost (“MAC”) and other gymnastics to limit reimbursement at the point of adjudication, many PBMs now piggyback on the DIR vehicle with other creative ways to offset what they pay pharmacies.
PBMs assume pharmacies have no choice but to accept whatever they are paid. They rely on deception and confusion to prevent pharmacies from understanding and evaluating what is going on. They bury DIR clawbacks in the maze of electronic payment codes and make it difficult or impossible to match dollars taken back with the original transactions they relate to. It is even more difficult (or impossible) to determine the theories under which PBMs supposedly justify the charges in order to audit and challenge them.
ScriptPro TPMS Reports Spotlight DIR Fees, Helping Pharmacies Take Action
How can pharmacies cope with DIR? ScriptPro’s centrally hosted Third Party Management System (“TPMS”) works with all pharmacy management platforms to address the latest challenges in third party management. Our most recent TPMS enhancements have been laser focused on DIR Fees. Here are the steps we have taken:
- Measure and Report. On November 7, 2016, ScriptPro deployed functionality within TPMS to isolate DIR Fees in the electronic data feeds, reporting their magnitude and which plans they are coming from. TPMS users were then able to see the size and trend of DIR clawbacks.
- Link and Classify. At the end of this week (July 30, 2017) ScriptPro will upgrade TPMS to link DIR Fees to related prescriptions and classify them by factors such as plan, group, BIN/PCN, and therapeutic class. This will provide a basis for TPMS users to audit and challenge DIR Fees.
- Predict and Accrue. Our next TPMS release, planned for November 1, 2017, will predict future DIR clawbacks based on daily prescription activity so the charges can be accrued in liability and cost of sales accounts for the period in which they are incurred rather than coming as surprise adjustments after the accounting period is closed. This release also reconciles actual DIR fees to accruals.
TPMS is shining a bright light on DIR Fees and linking them to source transactions so pharmacies can push back against PBM clawback tactics.
Addressing DIR is another example of how ScriptPro’s Third Party Management System is much more than an A/R reconciliation package. It is a powerful financial management system. TPMS can help you identify, predict, and take action to challenge insidious DIR clawbacks that are a serious threat to pharmacy performance.