Prescription drug pricing and reimbursement are complicated and confusing as it is. DIRs have only made them more so. And much more painful for community pharmacies.
What are DIRs?
DIR stands for Direct and Indirect Remuneration. The term was initially used by the Centers for Medicare and Medicaid Services (CMS) to refer to all price concessions which PBMs and plan sponsors (insurance companies, HMOs, chains and PBMs offering Medicare Part D plans) receive for Part D prescription drugs that were not included in the point of sale transaction (i.e., when the drug was dispensed to the patient and the charge sent to the plan sponsor or PBM). CMS reconciles payments to plan sponsors at the end of each year and one of the reconciliation involves reducing plan reimbursements by the amount of the DIRs received by plan sponsors.
Retail pharmacies, despite the fact that they face high competition, low reimbursement rates, and limited-to-no control over their pricing, continue to be profitable. Census data quoted in the Drug Channels blog indicate that gross margins in retail pharmacies have actually increased over the last few years. Data from the NCPA Digest indicates that most independent pharmacies continue to be profitable. But how do they do it? My calculations, using publicly available sources, indicate that pharmacies are probably taking a loss on most prescriptions that they dispense.