Five insights into understanding DIR
Although DIR is typically a finance and analytical responsibility within a Part D organization, the compliance department also needs to be engaged in this effort. Direct and Indirect Remuneration (DIR) typically involves external vendors and therefore should be part of a comprehensive Compliance Effectiveness Program. Here’s a brief overview to gauge your preparedness.
1. What is the definition of DIR when related to Medicare Part D?
The actual definition of DIR can be found in 42 CFR 423.308, in short: DIR is the total dollars in which the Part D sponsor received or an entity in which they are affiliated with (e.g., PBM) received that ultimately would reduce the incurred drug cost experienced by the plan after the transaction at point-of-sale; principally the net amount.
2. How do Medicare Part D Plan sponsors use DIR?
Each year a plan sponsor is required to submit a bid to CMS for the upcoming plan year. This bid estimates expenditures such as drug costs, administrative fees, operational costs, formulary and plan design, and DIR amounts. In the end, it calculates the premium in which the plan will charge beneficiaries to be a member of their Part D plan. DIR is a key component of this calculation as it helps reduce the premium amount in which a beneficiary will pay.
3. Isn’t DIR just rebates received from the drug manufacturers?
DIR can include several other components. Part D sponsors are also to report any other sources of remuneration that would have decreased the cost of the drug incurred by the plan. A few examples include generic dispensing incentive payments and adjustments between the plan and the pharmacy, legal settlements that were in relation to the drugs dispensed, free/reduced-price goods or services received, and performance guarantees.
4. What happens to these DIR payments received by the Plan sponsor?
At the end of every plan year, a Plan sponsor is required to report to CMS DIR amounts incurred by the plan during the previous plan year. These amounts are to be used for the plan to reconcile with CMS and calculate reinsurance amounts and risk-sharing arrangements.
5. DIR seems to be a finance component, what other departments should be involved with DIR?
Although DIR focuses primarily on financial aspects of the Part D benefit there are several other departments within a Plan Sponsor’s organization that should be involved. Notably the compliance team should be heavily involved. For most plans, majority of DIR is received through delegated relationships with Pharmacy Benefit Managers and/or third party rebate aggregators. These vendors will all serve as First Tier, Downstream, or Related Entity and part of an effective compliance program.