Pharmacy direct and indirect remuneration (DIR) payments for Part D have been finalized by the Centers for Medicare and Medicaid Services (CMS) and will take effect in 2024. Pharmacy benefit managers (PBMs) receive DIR fees from pharmacies in return for access to patients’ prescription medication business. Currently, these charges may be prospective or retrospective. Retrospective DIR costs are paid after the medication is given out. These can be substantial, and in some instances, they have even gone beyond the amount that the pharmacy was reimbursed for the medicine. A final change was published by the CMS to eliminate retroactive DIR fees and mandate that PBMs reflect costs based on the agreed-upon price paid at the time of sale rather than months later. These changes are part of a larger effort by CMS to increase transparency and competition in the prescription drug market.
The Impact of DIR Fee Changes
Pharmacists will experience both positive and negative impacts from these changes. Positively, patients will now have easier access to information on the price of their prescription medications. Therefore, patients will have greater control over their healthcare expenses and find it easier to choose the appropriate treatments for them. Patients will be able to view the full cost of their medications, including any DIR fees, at the moment of purchase. This could lead to increased patient loyalty and satisfaction.
However, there’s a detrimental impact due to these changes. Pharmacies’ cash flow will be negatively impacted because in Q1 and Q2 of 2024, pharmacies will be paying double DIR fees: retroactive DIRs from 2023 and the new DIRs occurring at the point of sale. The DIR Changes could also lead to changes to contracts between pharmacies and PBMs. With PBMs no longer able to collect retrospective fees to offset the cost of providing pharmacy services, they may lower reimbursement rates. PBMS may be less willing to negotiate favorable contracts. The DIR changes could also lead to increased competition among pharmacies. With possible lower reimbursement rates and DIR fees occurring at the point of sale, patients will be more likely to shop around for the best price, which will put pressure on pharmacies to compete on price.
How Can Pharmacies Overcome These Challenges?
The reforms will require PBMS to provide more detailed information about the fees charged, making it easier for independent pharmacies to understand and negotiate favorable contracts. This is especially important for independent pharmacies, which may be more vulnerable to the DIR changes. Pharmacies can negotiate for higher reimbursement rates or other concessions, such as increased access to patient data. The new changes will also require PBMs to provide timely and accurate reimbursement rates. Increased transparency fosters better decision-making and contract management, ensuring that pharmacies receive fair compensation for their services. This will allow pharmacies to better manage their cash flow and plan for the future.
Due to the significant impact of DIR fee changes, it’s important for pharmacies to be prepared. To prepare for the upcoming changes, it’s crucial to have a solid financial plan in place, especially considering the cash flow interruptions in the first part of 2024. Increased profit margins, exploring additional revenue streams and optimizing operational efficiency are vital steps. With the predictability of DIR fees, pharmacies can now plan and manage their finances more effectively. Pharmacies should also leverage digital tools to significantly enhance efficiency and profitability.
The Smarter Purchasing Solution™: Paving the Path to Success
Amidst the uncertainties surrounding the new DIR fee landscape, SureCost empowers pharmacies with comprehensive tools and solutions designed specifically to improve pharmacies’ bottom lines, find additional savings and increase operational effectiveness in order to overcome the obstacles posed by these changes. With SureCost, pharmacies gain control of their purchasing to improve their margins. Pharmacies decide who they want to do business with. They can choose to not only purchase from their primary vendor but from secondary vendors as well, expanding their visibility of better prices in the market. With unlimited access to pricing from all their vendors, catalogs and contracts, pharmacies avoid price-shopping and find the best prices to optimize their purchasing decisions. Pharmacies also know the true cost of goods because the costs shown include rebates, enabling them to maximize their rebate program. With inventory management and real-time reports, pharmacies reduce inventory due to better forecasting of on-hand quantities, reduce excess and make data-driven replenishment orders. Pharmacies identify stale or slow-moving products and automate transfers to other departments or locations.
SureCost enables pharmacies to identify additional savings opportunities in several ways. If a vendor is non-compliant and invoices more than the contracted price, ships more or less quantities than expected or does not ship the correct item, SureCost will display a flag alert. Pharmacies are also alerted if vendors substitute a product without their consent or charge a higher price. Although these may be small or one-off situations, they add up and improve a pharmacy’s bottom line.
The upcoming DIR changes are a significant challenge for pharmacies. However, by focusing on boosting operational effectiveness, increasing profit margins and finding new sources of income, pharmacies continue to provide high-quality care to patients and remain viable businesses. Pharmacies that are able to adapt to the DIR changes by accepting change and leveraging new technology and resources will be well-positioned to success in the future. By implementing SureCost’s smarter purchasing and inventory management solution to streamline processes and improve the bottom line, pharmacies will offset the financial impact of DIR fees, maintain profitability and streamline their operations. From accurate forecasting and proactive cash flow management to optimized reimbursements and streamlined operations, SureCost equips pharmacies with the necessary resources to thrive in the face of reform.
Book a demo today to learn how SureCost will help your pharmacy overcome DIR fee challenges!