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GER And DIR Fees From PBMs

Tuesday, February 23rd, 2021
purchasing the assets of a pharmacy

Pharmacies and pharmacy benefit managers have had a business relationship with each other since the 1960s. Today, PBMs function as intermediaries between insurers, drug manufacturers, and pharmacies. Because they do so much within the industry, it is logical for them to charge fees for revenue. These include GER and DIR fees, which affect pharmacies in different ways.

Understanding GER fees

Generic effective rates (GERs) are contractual and should equal the average wholesale price over a certain period. Also known as effective rate guarantees, these do not have to equal the AWP all at one time. The goal is to make sure pharmacies are reimbursed properly throughout a given year.

Methods for calculating GER fees

There are two ways that pharmacies can calculate these costs. Pharmacies must understand which works better for them in order to adhere to their contractual obligations.

  • The first is the point-of-sale model in which the GER is calculated upfront. A PBM will sometimes change the reimbursement amount from month to month to maintain the contracted GER. This is especially important if the amount could not be equaled out at the point-of-sale.
  • The second model works retroactive, which means after a sale to a patient is complete. It is applied to the total amount of generic drugs sold over a certain period. The retroactive model uses the same calculations as the point-of-sale method, but it can cause issues later on. For example, you may not catch where you are losing revenue until it is too late.

How to manage your GER fees to avoid losses

Because these fees are set into a contract, any losses cannot be mitigated by changing processes to enhance profitability. There are some things you can do to be more prepared, though.

  1. If you work with a pharmacy services administrative organization (PSAO), speak with them about your contacts. They will be able to tell you which contracts include GERs. They will negotiate on your behalf, but you should still be aware of your agreements with PBMs.
  2. If any of your plans use the retroactive GER calculation method, run an audit every quarter. This can help determine whether the PBM will be reaching for more fees or less.
  3. It is the practice of some pharmacies to have a completely separate inventory with higher AWPs for their GER contracts. This can help get rid of some of the complications.

Understanding DIR fees

Direct and indirect remuneration fees (DIRs) are those that PBMs (and Medicare Part D plans) charge to offset member costs. These come in a variety of forms, some that pharmacies aren’t even aware of. DIR fees include administration, network access, and services fees.

DIRs were originally created by CMS to account for all prescription medication costs. The fees included price concessions that would affect the retroactive gross prescription drug costs of Medicare Part D plans. If this is confusing to you, don’t worry: you aren’t alone. Not only are they complicated, but DIR fees usually come with a lack of transparency, whether intentionally or not.

Because of the nature of DIR fees, they are hotly debated. Many pharmacies report being charged DIRs without prior knowledge of the costs or timing. Pharmacists don’t have the opportunity to plan for the fees. This ultimately affects pharmacies AND patients.

Working with an attorney to handle contracts with ease

Staying compliant and efficient are both vital for running a successful pharmacy. To learn more about dealing with PBMs, contact the Healthcare Attorneys at Brown & Fortunato. You can reach us at (833) 228-6300 for more information about our Practice Areas.