Pharmacy DIR Fees Hit a Record $9 Billion in 2019—That’s 18% of Total Medicare Part D Rebates (rerun)


We estimate that these funds reached $9.1 billion in 2019. This determine signifies that about 18% of whole Medicare Part D rebates at the moment are paid by pharmacies, not producers. Details under.

To deal with considerations about how these charges are computed, the Centers for Medicare & Medicaid Services (CMS) has proposed some minimal transparency necessities for monitoring the metrics behind DIR charges. I think that the proposal could have no near-term affect on slowing the expansion traits.

Our very long time readers know that I’ve been skeptical about pharmacy homeowners’ claims relating to the affect of DIR charges. But it does now seem that these funds have change into a important financial burden. When the info change, I alter my thoughts. What do you do?


In the Medicare program, rebates are half of direct and oblique remuneration (DIR), a broad time period that encompasses numerous sorts of funds made to a Part D sponsor. At the top of annually, plans report back to CMS all rebates and different worth concessions as DIR.

Rebates from producers represent the bulk of DIR. However, most Medicare Part D plans additionally accumulate post-point-of-sale (POS) worth concessions from pharmacies. These worth concessions, that are collected from pharmacies after declare adjudication, are thought of DIR underneath federal necessities. The funds from pharmacies to Part D plans due to this fact perform like rebates. I consult with pharmacy-related worth concessions as pharmacy DIR charges.

Part D plans base pharmacy DIR on quantitative efficiency standards utilized to pharmacies. The pharmacy earns much less reimbursement—and pays a larger worth concession—when it achieves decrease ranges of efficiency on quantitative metrics of high quality. Conversely, the pharmacy earns an incentive fee—or avoids a deduction—for higher efficiency.

Pharmacy DIR is handed by to plan sponsors, not retained by PBMs. That’s as a result of Part D plans compensate PBMs with charges paid by the plan sponsors, not by allowing PBMs to retain producer or pharmacy rebates. However, the PBM/plan distinction turns into much less related once we take into account that the largest PBMs are vertically-aligned inside the similar organizations that sponsor Part D plans. See Insurers + PBMs + Specialty Pharmacies + Providers: Will Vertical Consolidation Disrupt Drug Channels in 2020?.

Rebates (DIR) can create some perverse incentives in Part D and might increase out-of-pocket prices for sufferers. See my feedback in the “Patient Impact” part of Why Part D Plans Prefer High List Price Drugs That Raise Costs for Seniors.


The chart under reveals the online worth of pharmacy-related DIR worth concessions in Medicare Part D. It additionally illustrates these funds’ share of whole pharmacy trade allotting revenues.

Over the previous two years, important new disclosures have clarified the worth of pharmacy DIR charges. The whole greenback worth of pharmacy DIR from 2013 to 2017 mirror precise knowledge printed by CMS and the U.S. Government Accountability Office (GAO). The greenback values for 2018 and 2019 had been computed by multiplying Inmar Intelligence knowledge on DIR as share of pharmacy revenues by Drug Channels Institute’s estimates of whole pharmacy trade revenues.

The knowledge present that pharmacy DIR charges at the moment are giant sufficient to have a important impact on a pharmacy economics:

  • The web worth of pharmacy worth concessions has grown considerably, from $229 million in 2013 to an estimated $9.1 billion in 2019. Pharmacy DIR charges accounted for greater than 18% of whole DIR paid to Part D plans in 2019.
  • These DIR charges have additionally grown as a share of pharmacy trade revenues, from 0.08% in 2013 to an estimated 2.04% in 2019.
  • Pharmacies pay out extra to plans than they earn in efficiency funds. For 2016 (the latest 12 months for which knowledge can be found), the GAO reported that Part D plan sponsors obtained $2.three billion from pharmacies—however paid solely $211 million to pharmacies. The web worth of these quantities, $2.1. billion, seems in the chart above.

It’s ludicrous accountable retail pharmacies’ aggressive challenges completely on pharmacy DIR charges. But DIR are a contributing issue, as I famous in The State of Retail Pharmacy: Independent Pharmacy Economics Stabilize—But Dropping, Owner Salaries Are.


CMS has sharply criticized the design of present pharmacy DIR computations, primarily based partly on how plans and PBMs measure pharmacy efficiency to generate worth concessions. CMS has additionally raised considerations in regards to the unbalanced nature of pharmacy efficiency funds. I highlighted some key excerpts in CMS Considers Point-of-Sale Pharmacy DIR: Another Prelude to a World Without Rebates?

DIR charges are half of confidential contracts between pharmacies and Part D plans, so restricted public knowledge exist on the exact charges and metrics for any specific plan.

Last week, CMS took a child step towards bringing some transparency to those charges. The particulars seem in § 423.514 of Contract Year 2021 and 2022 Medicare Advantage and Part D Proposed Rule (CMS-4190-P).

CMS proposes that:

  • Part D plan sponsors disclose—and CMS publish—pharmacy efficiency measures
  • The trade develop standardized metrics

CMS supplied the next considerably imprecise suggestions for pharmacy efficiency measures in Part D. Per CMS, these metrics ought to:

  • ”Improve remedy use and outcomes for the beneficiaries served
  • Be specified on the proper stage of attribution and acceptable stage of comparability contemplating pharmacy kind
  • Factor in each pharmacy accountability and drug plan efficiency objectives
  • Have clear specs and be established previous to the measurement interval
  • Be dependable, clear and truthful
  • Use threshold minimums if acceptable”

As you may see, there’s a lot of wiggle room in these tips.

We’ll have a full replace on DIR economics in our forthcoming 2020 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers, which will probably be out there on March 10.

In the meantime, keep watch over the Prescription Drug Pricing Reduction Act (S. 2543), which comprises a provision that may require plans to incorporate the worth of pharmacy DIR charges in the negotiated worth. It additionally addresses pharmacy high quality measures and disclosure necessities.