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Latest news and updates about the Medicare and pharmacy industries.

Recognizing DIR Fees in Your Pharmacy Contracts

Posted on February 6, 2020 by Amplicare Team

DIR fees have a significant effect on the profitability of your pharmacy. Because most of these fees are tied to performance measures set by plans, there are a few ways to mitigate their impact. However, the first step lies in knowing how to recognize DIR rates in your direct contracts. If you’ve ever looked through a direct contract for your pharmacy and struggled to identify DIRs, this post is for you. Understanding what to look for is important when you’re considering a contract. In some cases, the right information can help you calculate an estimate of what to expect for your pharmacy financially. 

Many contracts don’t refer to DIRs or generic effective rates (GERs) explicitly. Instead, they use terminology such as “rate guarantees” to describe these fees. This means that it’s possible to miss a few important details when reading through a contract if you’re not aware what exactly to check for. Below, we outline some key phrases to look out for when reviewing a direct contract or deciding to opt in or out of a contract. 

Contract Terminology for DIR

When looking at your contracts, you may come across phrases such as performance adjustments and post point-of-sale adjustments. These are just two of the many terms often used to signify DIRs. Some other alternate terminology includes:

  • Post settlement adjustments
  • Performance reconciliation
  • Withhold amount
  • Network variable rate
  • Network participation fee
  • Network processing fee
  • Program fee
  • Administrative fee

For GERs, expect to see the following:

  • Effective rate
  • Effective rate guarantees
  • Effective average discount guarantees
  • Average Discount Aggregate
  • Med D Aggregate

You may also see language about reconciling the difference between the system adjudicated rate and the effective rates in order to achieve the contracted effective rates. This is how the GER amount is calculated. In addition, most contracts follow a lesser of or lower of logic. Here, the reimbursement you receive is equal to whichever of the possible models or payment methods is lower. These models usually include — but are not limited to — the usual and customary price (U&C), Average Wholesale Price (AWP) discount, maximum allowable cost (MAC) list pricing, and the provider ingredient cost + dispensing fee.

Another situation you may encounter is an overlap between PBM and plan sponsor contracts. When this happens, the reimbursements or pricing rates outlined in one contract may be described as being superseded by the reimbursement or pricing of another contact. The contracting language may also note that more than one rate or discount may be in effect. This means that either rate may apply.

Here’s a quick example. Say your pharmacy signs a contract with a plan sponsor that uses a certain PBM, and you also have a contract with the PBM, either directly or through a PSAO. The PBMs or plans often indicate they are allowed to use the contracted rates/pricing/reimbursement rates from either contracts (i.e., the plan sponsor network contract or the PBM contract). This is done at their discretion, which means it’s in your best interest to understand what both rates are. 

Remittance Statements

Similar to contracts, the ability to accurately review your pharmacy’s remittance statements is invaluable to understanding your business’ finances. Some PSAOs will provide the DIR estimates for the pharmacies in their networks. But, if you’re going through your remittance statements, here are some common adjustment codes to help you identify DIR/GER: 

  • B2:65, B2:66, B2:67, FB:CF, AH:43
  • CS:62, CO:89
  • CS:32D, AH:32T
  • CS:2
  • CS:03
  • CS:Med D Dir Fee

DIR and GER fees may not be the most straightforward to understand, but there are resources available to help you. If you have questions about your contracts, reach out to your PSAO to see how they can help. And, if you’d like to learn more about the steps you can take to improve performance measures and reduce DIR fees, reach out to us

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