Direct and Indirect Remuneration, most commonly known as DIR, refers to price concessions that affect the gross prescription drug cost of Medicare Part D plans that are not captured at point-of-sale. In compliance with requirements of the Social Security Act, disclosure of DIR informs CMS in its calculated reconciliation of Part D subsidies, including risk-sharing and reinsurance payments, to plan sponsors.
What Constitutes DIR?
Total DIR consists of multiple categories that are specifically defined by CMS, but at its core, these are dollars that offset Part D benefit claim costs. These offsets contribute to the overall costs of the benefit in a way that is intended to create opportunity for lowered drug costs through premium decreases. What counts or does not count as DIR has been the subject of some debate and the topic has been historically debated among industry stakeholders, particularly where it includes monies clawed back from pharmacy providers and repeated legislative delays of mandating point-of-sale rebates.
Non-DIR Has Meaning Too
Each year when a plan sponsor reports its DIR to CMS, it also includes financial reporting that is collectively referred to as ‘non-DIR’. Non-DIR is monies that do not meet the definition of DIR, but which otherwise inform CMS policy. Examples include point-of-sale rebates/other price concessions, and bona fide service fees. Using the latter as an example, bona fide service fees are paid by a drug manufacturer and are directly received and retained either by a plan sponsor or its PBM. This is for services performed on behalf of the manufacturer, which would otherwise be performed by the manufacturer or its contractor, and which hold values that is necessary and useful to the manufacturer in its efficient distribution of drugs. CMS uses a fair market value barometer to distinguish between bona fide services fees and DIR, with the amount exceeding fair market value reportable under DIR 4, Administrative Service Fees Reported as DIR. Affirming a fair market value methodology has been followed is important to ensuring correct DIR reporting. Furthermore, reporting accurate bona fide service fees is important to CMS, as well as oversight of stakeholders because it has impact to the federal government as a customer of the manufacturer industry in its provision of government-funded programs by influencing pricing and reimbursement scales.
The Importance of Getting it Right
Accurately reporting DIR and non-DIR has financial and compliance implications to a plan sponsor. Report validation is critical for a high-functioning plan sponsor organization prior to CMS submission. Not only do plan sponsors attest to the accuracy of this reporting, but it is also tested as part of the CMS Financial Audit review, where cited observations or findings can lead to costly and time-consuming compliance actions. Furthermore, correctly reporting DIR has a direct and indirect impact on the Part D annual bid, specifically with plan sponsors relying on DIR when developing bids and formularies for the following year and CMS using reported DIR to help inform capitated prospective payment values.
At PillarRx we believe that validating DIR and non-DIR reporting is so important to a plan sponsor that we have developed a robust and extensive process of tracking rebates to the PBM contract throughout the year and using that information when reconciling DIR reporting, as well as validating other DIR and non-DIR values. We are familiar with CMS guidance and clarifications regarding the submission requirements, how CMS and its auditors are applying DIR and non-DIR defined values and allocations, and we work collaboratively with our clients and their PBMs to resolve any inconsistencies in the data prior to submission to CMS.
To learn more about how PillarRx’s DIR reconciliation and validation process can help your organization maintain best-in-class oversight, contact us today.