Nearly a year after the change to direct and indirect remuneration fees, pharmacy owners talk about how the ruling has impacted their lives.
On January 1, 2024, the direct and indirect remuneration (DIR) fees landscape changed drastically for pharmacists. Although the health care community formally referred to the changes as “DIR reform,” the shift was better known as the “DIR apocalypse” or the “DIR hangover” among independent pharmacists. And unfortunately for those impacted, the DIR hangover was one that couldn’t be cured with a good night’s sleep and a jug of Pedialyte.
Here’s why.
In 2022, the Centers for Medicare & Medicaid Services (CMS) issued a ruling that eliminated retroactive DIR fees.1 Prior to the ruling, various retroactive fees would often be imposed on pharmacies weeks or months after prescriptions had been filled.1 Although the ruling moved all fees up front to the point of sale, allowing pharmacists clarity of costs and more consistency for pharmacists and patients in general, it opened up a whole new world of worry for pharmacies—particularly community and independent pharmacies.
Independent pharmacies have struggled ever since DIR fees were first imposed in 2006. In 2021, B. Douglas Hoey, MBA, RPh, CEO of the National Community Pharmacists Association (NCPA), put out a call to action after the CMS reported that pharmacy benefit managers (PBMs) increased retroactive fees on pharmacies by a staggering 91,500% over the previous several year period. “This is absolutely unsustainable,” Hoey said. “It’s completely out of control. The PBMs are pillaging pharmacies…and it’s way overdue for policymakers to act.”2
Already struggling to stay afloat, independent pharmacies now faced a new challenge: Prior to the 2024 ruling, a pharmacy would wait weeks—or sometimes months—for these additional fees to be imposed. But beginning in January 2024, pharmacies were required to pay all fees up front. At that point, pharmacies would experience the one-two punch of paying 2024 DIR fees while still paying DIR retroactive fees from 2023. The pain threshold became much higher for small- and medium-sized independent pharmacies when PBMs also reduced reimbursements, although it does allow for bonus payments based on improved performance, such as medication adherence, patient outcomes, or other factors tied to the CMS Star Ratings system.1,3
READ MORE: Midyear Pharmacy Update: Evaluating the Impact of DIR Fees
“[DIR] was initiated with best intentions,” said Lari Harding, senior vice president, health care marketing and sales enablement at Inmar Intelligence, a technology company that offers services for pharmaceutical companies, pharmacies, and health care providers.4 “DIR was originally introduced to create a pharmacy reimbursement model wherein payers would reimburse pharmacies based on patient outcomes––a pay-for-performance model. This intention has since mutated into a punitive and complex matrix of rebates and risk models that have decimated pharmacy profit margins. Since the inception of DIR fees, these assessments have grown from less than 0.5% of total prescription sales in 2015 to 3.7% of total prescription sales in 2023, while reimbursement rates have declined over the same time period.”4
According to Lisa Faast, PharmD, consultant, CEO of DiversifyRX, and a multistore pharmacy owner, the change to front-loading the DIR fees “became a double-edged sword. Yes, it has brought clarity—to how much pharmacies are losing, because we discovered that every brand-name medication on Medicare is essentially a loss,” Faast explained. “The transparency that it did not bring is understanding, after submitting the National Council for Prescription Drug Programs (NCDPD), what part of that reimbursement is actually reimbursement and how much of that is a DIR fee. Looking at it that way, there is actually less transparency.”
“The DIR apocalypse has ruined pharmacies,” Faast added. “Back in 2023, when we knew this was coming, it strangled pharmacy cash flow. Many [pharmacies] closed; many have gone into debt. I’ve talked with many pharmacy owners who are $100,000 or more in debt because of this rule change. This has probably been the worst 9 months for pharmacies that I can remember. It has irreparably changed the face of independent pharmacy. Many owners are never coming back from 2024.”
Benjamin Jolley, PharmD, a pharmacist at Jolley’s Compounding Pharmacy, Salt Lake City, Utah, and senior fellow of health care policy at the American Economic Liberties Project,
agreed. “This is certainly in part why so many independent pharmacies are closing. And it seems like this was part of a tumbling that’s been happening since 2006, when DIR fees first started. And independent pharmacies, who don’t have that backing of a large chain, really suffered.”
On September 10, 2024, an article in South Dakota’s Brandon Valley Journal reported on the shuttering of Brandon Pharmacy, owned by Tom Wullstein, PharmD, a shop that had served the community for 14 years.5 The article ended on a dire note: “Tom Wullstein could see the writing on the wall for several years now. His longtime dream of a career as a community pharmacist was coming to an end. And the reason: The pharmacy is taking a loss on every prescription sold, as reimbursements from insurance companies took a sharp drop.”5
A few days later, Jolley interviewed Wullstein for his blog, Ramblings of a Pharmacist. “It’s not the way I wanted it to go,” Wullstein said. “You do what you’re supposed to do. You go to college, get a doctorate, start a small business in a small town, support the community, and it’s not even close to being a viable option. This isn’t because the community didn’t support us. It’s because we lose money on every prescription we fill.”6
Considering the current struggles, what would an ideal future for independent pharmacies look like? “We should just eliminate these fees,” Faast said. They are absolutely not necessary. They simply don’t belong anywhere in health care, and they certainly do not belong on the backs of pharmacy owners and pharmacists on our reimbursements. We deserve to get reimbursed, not just for the cost of the drugs, but also for our professional services in delivering and dispensing the drug to the patient.”
Jolley also didn’t mince words. “It’s just an incredibly stupid system—that we have pharmacies pay for drugs on a basically random basis of just whatever the PBMs decide they want to pay,” he said. Jolley believes that Medicare payments should operate on a platform similar to Medicaid. “If I could wave a magic wand, I would just make all…the Medicaid fees-for-service rules apply to Medicare. Pharmacies that dispense mostly Medicaid prescriptions can predict how much money they’re going to make. They can expect that if they expand their operations, they’re going to make more money. Medicaid considers the average cost of the drug and its dispensing fee. It also pays the pharmacy a professional dispensing fee, basically what it costs to run the pharmacy. It’s fair and reasonable.”
The good news—yes, there is some—is that pharmacists are making their frustrations known through legal action. Federal legislation to address DIR fees has begun making its way through the Senate: In June 2023, S 2052, the Protect Patient Access to Pharmacies Act was introduced.7 As written, the bill seeks to reform “payments to pharmacies by prescription drug plan sponsors under the Medicare prescription drug benefit and Medicare Advantage.” In a summary of the bill put out by the NCPA, its goal is to stop the “abusive business practices that have permitted the monstrous growth” of DIR fees collected by Medicare Part D plans. “The legislation ensures that, at a minimum, a pharmacy’s costs to acquire and to dispense a covered Part D drug to beneficiaries are covered so that pharmacies have at least the option to participate in a Part D network.”7 As of this writing, the bill was still in the early stages of the legislative process.
Another bill, HR 9096, the Pharmacists Fight Back Act, was introduced in the House of Representatives in July 2024.8 This bill is also designed to address how PBMs operate, particularly in relation to federal health programs such as Medicare, Medicaid, and Tricare.8,9 The bill includes a push for clearer, fairer reimbursement practices; prevents PBMs from steering patients to certain pharmacies; caps the prices patients have to pay for medications and bans practices like “spread pricing,” where PBMs charge insurance companies more than they pay pharmacies for medications; and notes that PBMs who violate these rules can face severe penalties.9,10
Several other bills to address PBM reform are also pending in Congress.10 “I would love to see HR 9096 pass,” said Jolley. “It’s just a fundamentally fairer way to pay and a way to get rid of these manipulations of the market in the form of DIRs.”
Outside state and federal legislation, Faast also urged pharmacy owners to look at their businesses in a different way. “I think it’s up to those of us [who] are left to rebuild our industry and to look forward. We need to be true pharmacy CEOs,” she said. “It’s not OK anymore to just be a pharmacist who happens to own a pharmacy. Our industry is far too cutthroat to operate a pharmacy by the seat of your pants. You need to understand financials, cash flow, revenue generation, marketing, and team development. The survivors need to bring independent pharmacy back and rebuild the powerhouse to serve our communities in the best way possible.
To read these stories and more, download the PDF of the Total Pharmacy December issue here.
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