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Inventory Management, Independent Pharmacies

3 Ways Pharmacies Can Prepare for Coming Changes to DIR Fees in 2024

Datarithm Team April 03 2023

Independent pharmacy owners face a number of challenges in today’s healthcare landscape, from increasing competition to decreasing reimbursements. One of the biggest challenges they face is the issue of DIR fees, which are a form of clawback that Medicare Part D plans use to recoup funds from pharmacies.

DIR fees have been a source of frustration for independent pharmacies for years, as they are often unpredictable and can significantly impact a pharmacy’s cash flow and bottom line. However, starting in 2024, there will be changes to the way DIR fees are calculated and reported, which means pharmacy owners need to start preparing now. In this blog post, we’ll discuss what DIR fees are, why they are changing, and what pharmacy owners can do to prepare for these changes.

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DIR Fees Have Long Been a Source of Pain for Pharmacies

DIR fees, or direct and indirect remuneration fees, are a form of retroactive reimbursement adjustments that Medicare Part D plans make to pharmacies. These fees are meant to account for any discounts or rebates that pharmacies may have received from drug manufacturers, but they are often applied in a way that is unclear and unpredictable.

Between 2010 and 2020, CMS reported that retroactive DIR fees increased by a staggering 107,400%. —Pharmacist.com

DIR fees can be applied in a variety of ways, including as a percentage of a pharmacy’s total prescription volume or as a flat fee per prescription. They can also be applied retroactively, meaning that pharmacies may not know how much they owe until months after the prescriptions have been filled.

The issue with DIR fees is that they make it difficult for pharmacy owners to accurately predict their revenue and cash flow, which can impact their ability to invest in their businesses and provide quality care to their patients.

Why Are DIR Fees Changing?

In 2020, the Centers for Medicare & Medicaid Services (CMS) announced that they would be making changes to the way DIR fees are calculated and reported. 

Starting in 2024, DIR fees will be based on the actual transaction price of a drug, rather than the list price. This means that pharmacies will be reimbursed based on the price they actually paid for the drug, rather than the price that was listed on the invoice. In addition, the Centers for Medicare & Medicaid Services (CMS) will require Medicare Part D plans to report their DIR fees more frequently and in a more transparent way. 

Even though the DIR structure is changing, many in the industry are saying they would be surprised if fees don't actually go up. These independent pharmacies will experience a double hit to their cash flow as this change goes into effect. On one hand, they won't be getting overpaid for prescriptions at the point-of-sale, yet will still be responsible for paying out retroactive fees from 2023. Pharmacy Owners need to build liquidity now in order to prepare for what's going to happen early next year. That's one of the ways Datarithm can help, by moving inventory off the shelf and money into the bank." -Dave Belinski, Datarithm

3 Ways to Combat DIR Fee Changes

Pharmacy owners should start building liquidity now to be ready when the new regulations go into effect.

  1. One of the key steps pharmacy owners can take is to review their contracts with Medicare Part D plans to ensure that they are getting the best possible rates. This may involve renegotiating contracts or even switching to different plans altogether.

  2. Providing high-quality patient care is another way to build a loyal customer base that will continue to support the business in the face of changing regulations and reimbursement models. Today's independent pharmacist is quite often the face of community healthcare.

  3. Finally, pharmacy owners should invest in a Perpetual Inventory method and automation technology for greater visibility and control over all the activities that directly impact pharmacy financials. This is where Datarithm can help. Our system reduces inventory by an average of 20% and many customers experience a 4-plus point improvement in turns compared to the industry average of 12. See how it works.

Pharmacy Owners: Now is the Time to Build Liquidity

The changes to DIR fees that are coming in 2024 represent a significant shift in the way Medicare Part D plans reimburse pharmacies. By reviewing their contracts with Medicare Part D plans, investing in technology, and focusing on providing high-quality care, pharmacy owners can position themselves for success in the face of these changes.

While the road ahead may be challenging, the independent pharmacy industry has shown time and again that it is resilient and capable of overcoming even the toughest obstacles.

Download Guide: Is DIR Relief Actually within Reach

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