Pharmacy DIR Fees Explained: What Changed in 2024, and What It Did to Cash Flow

CMS’s own example: one drug at $95, $100 or $101

The final rule works one example through, and it is the clearest way to see the change. A performance arrangement says the plan will take back 5 percent of its payments at year end if the pharmacy performs poorly, take back nothing for average performance, and pay a 1 percent bonus for high performance. On a drug the plan agrees to pay $100 for at the counter, the pharmacy ends the year with $95, $100 or $101.

• Before 2024: the negotiated price was likely reported as $100. The pharmacy was paid on $100 and, if it scored poorly, paid $5 back later.
• From 2024: the negotiated price is $95 in all three cases, the lowest the pharmacy can receive. A patient with 25 percent coinsurance pays $23.75 instead of $25.
• At year end: the plan reports the difference as DIR. In CMS’s example that is $0 for poor performance and minus $5 and minus $6 for average and high, because the pharmacy is now owed money rather than owing it.

Read the example as a cash timeline, not only a price. Before 2024, the average performer held $100 from the day the claim paid. Where a plan pays the $95 at the counter, the same pharmacy holds $95 that day and the other $5 when the plan settles: the same total, later. As the section on the claim and the 835 shows, CMS also allowed plans to keep paying more at the counter and flag the amount that could be taken back, so which pattern a pharmacy sees depends on how each plan carried out the rule.

How a pharmacy claim is priced: ingredient cost, dispensing fee, AWP, WAC, MAC and NADAC

A claim pays an ingredient cost for the drug and a dispensing fee for filling it, and the total is split between the plan and the patient’s copay or coinsurance. The FTC staff report lists the parts of a point-of-sale payment as the pharmacy’s ingredient cost, its dispensing fee and taxes, other PBM incentive amounts, the patient’s out-of-pocket cost, and the PBM’s claim or transaction administrative fee.

The ingredient cost is not what the pharmacy paid. The FTC staff describe it as set by an equation in the network contract that picks the lowest of several price indexes, “lesser of” logic, for example the lesser of AWP, WAC, the usual and customary price, the submitted cost or the MAC. In the report’s words, ingredient cost “is not the pharmacy’s actual cost to acquire drugs from pharmaceutical wholesalers.” The indexes, in plain terms:

• AWP, average wholesale price: a published list-price index. The FTC report notes that generic drugs “can be acquired by pharmacies for over 95 percent less than AWP prices in certain markets,” so a rate written as AWP minus a percentage says little about margin until it is set against the invoice.
• WAC, wholesale acquisition cost: federal law defines it as the manufacturer’s list price to wholesalers or direct purchasers, “not including prompt pay or other discounts, rebates or reductions in price” (42 U.S.C. 1395w-3a(c)(6)(B)).
• MAC, maximum allowable cost: the PBM’s own price list for generics, which the FTC staff describe as proprietary lists “created, maintained, and continuously updated by PBMs, sometimes on a weekly basis or even more frequently.”
• U&C, usual and customary: the pharmacy’s own price to a cash customer. Because the formula takes the lowest index, a low cash price can cap what a plan pays.
• NADAC, national average drug acquisition cost: CMS’s weekly reference file on data.medicaid.gov, priced per unit for each 11-digit NDC and calculated from surveys of chain and independent pharmacies. It is a public benchmark of what pharmacies pay, not what this pharmacy paid.

Medicaid fee-for-service has a federal rule of its own. Under 42 CFR 447.512, a state’s payments for drugs without a specific federal upper limit must not exceed, in the aggregate, the lower of actual acquisition cost plus a professional dispensing fee set by the state, or the pharmacy’s usual and customary charge to the general public. Actual acquisition cost there means “the agency’s determination of the pharmacy providers’ actual prices paid to acquire drug products” (42 CFR 447.502). Put together, a Part D claim since 2024 reads: ingredient cost from the lesser-of formula plus the dispensing fee, priced at the lowest performance tier the contract allows or flagged down to it; minus any fee taken on the remittance; plus any incentive earned later. Against all of it sits the invoice cost of the units dispensed.

Why cash flow got worse when concessions moved to the counter

The rule moved concessions to the counter; it did not set their size, which stays with the contracts. Three things changed in the pharmacy’s bank account.

• The timing reversed. Where a plan pays the lowest tier at the counter, money that used to arrive with the claim, and sometimes leave months later, now arrives only when an incentive is settled, and only if it is earned. CMS’s own cost estimate assumed pharmacies would try to keep a small share of the concessions “to compensate for pricing risk and differences in cash flow.”
• Two years of fees could land at once. Commenters told CMS that fees owed on the previous year’s claims would come due just as the lower counter payments began. CMS said it expected the same concerns to apply on January 1, 2024, that it “does not have the authority to mandate payment plans” between plans and pharmacies, and encouraged plans to consider them.
• The good performer waits. Where its plans pay the lowest tier at the counter, a pharmacy that scored well and paid little DIR before 2024 now receives the lowest tier’s price first and the difference only when the plan settles.

CMS put the risk in writing in the final rule: “We acknowledge the possibility that changes in cash flow may cause some already struggling pharmacies to decrease services or medication availability, and/or be unable to remain in business.” For example, a hypothetical pharmacy fills $150,000 a month of Part D claims at its average-tier prices, and its contracts set the lowest tier 4 percent below that. If its plans pay the lowest tier at the counter, about $6,000 a month arrives later instead of with the claim. If those contracts settle incentives once a year, a full year of that, about $72,000, is owed by the plans by the time the first settlement comes due, and it is paid only if the pharmacy earns the average tier. Settlement timing is set by each contract; the PSAO can say what applies. A second delayed stream started in 2026: on January 1, 2026, negotiated maximum fair prices took effect under the Medicare Drug Price Negotiation Program, and the Medicare Transaction Facilitator began operating, through which pharmacies can receive the manufacturer refunds that arrive after those claims.

How to see the concession on each claim and on the 835

There is no dedicated field for it. A few commenters told CMS that the claim standard pharmacies use, NCPDP D.0, cannot support another cost field to carry amounts taken back after the sale. CMS acknowledged that a dedicated cost field “is not available under D.0,” disagreed that there was no way to carry the price, and set out two methods within the standard:

• Method 1: the plan pays the negotiated price at the counter. Ingredient cost plus dispensing fee already equals the lowest possible reimbursement, so nothing more is flagged. The concession sits inside a lower price and shows only against the contract’s rates for the other tiers.
• Method 2: the plan pays more at the counter and flags the difference. CMS’s example pays $100 against a negotiated price of $90 and puts “Negative $10” in the Additional Message Information, the structured text on the claim response that shows what could be taken back after the sale. Any amount later paid back could be reported at the claim level (CLP) on the 835.

Ask each PBM, through the PSAO, which method it uses for Part D, and ask the dispensing system vendor whether that message text is stored with the claim and can be exported. Under the second method, the amount at the counter overstates what the pharmacy keeps, and a later take-back looks like a short-pay unless the flagged amount was recorded first. On the 835, X12’s claim adjustment reason code 295 reads “Pharmacy Direct/Indirect Remuneration (DIR),” and amounts that belong to no single claim sit in the payment-level adjustments. Commercial plans are where to keep watching: the FTC staff wrote that post-sale adjustments there can require a pharmacy to make payments back to the PBM “months after the relevant prescriptions are dispensed.”

What to record, and what to check each week

All of this comes from records the pharmacy already receives: the claims export from the dispensing system, the 835s, incentive or settlement statements, and wholesaler invoices. Every row carries plan and drug identifiers, with no patient fields. Three levels of record keep it straight:

• Each claim: BIN, PCN and Group; program (Part D, commercial, Medicaid); fill date, NDC and quantity; ingredient cost paid, dispensing fee paid, patient pay and total paid; any amount flagged in the message text; and the invoice cost of the units.
• Each plan, each month: claims, total paid at the counter, flagged amounts, amounts taken back on the 835 (code 295 or payment-level), transaction fees, and incentive payments received with the period they cover.
• Each contract, once a year and at every amendment: the performance tiers and measures, the lowest tier’s rate, how and when incentives are settled, and the date each amendment takes effect.

Then the weekly check, in four steps, kept by one named person, with anything unusual going to the pharmacist. First, Part D claims paid below invoice cost after the dispensing fee, by plan. Second, generics below cost that can still go to a MAC appeal inside the PBM’s window. Third, flagged amounts set against take-backs on that week’s 835s. Fourth, incentives expected against incentives received, set next to wholesaler due dates so a late settlement shows up before a payment date does.

Why some plans pay so little, and what the pharmacy can do

When a plan pays too little, the cause sits in one of four places, and each has its own answer. The FTC staff summed up the position of independents as one in which they “struggle to navigate contractual terms imposed by PBMs that they find confusing, unfair, arbitrary, and harmful to their businesses.” None of the answers below changes that. Each one turns a complaint into a number the pharmacy can act on.

• The index. The lesser-of formula takes the lowest price the contract allows, and a MAC that trails a wholesale price increase pays below the invoice. Answer: appeal it, claim by claim, inside each PBM’s window, and log the outcome.
• The tier. Since 2024, plans that pay the lowest tier at the counter pay the worst case first. Answer: know the measures and the score each plan reports, and carry the expected incentive as money owed until it arrives. Which clinical steps improve a measure is the pharmacist’s call, not a bookkeeping one.
• The contract. The FTC staff found that after a pharmacy enrolls in a PBM network, later amendments to its terms and rates “are often unilateral in effect, due in part to how difficult it is for pharmacies to opt out in time.” Answer: read every amendment with the PSAO before its effective date and price it against the last 90 days of claims.
• The purchase price. A drug bought above what the market pays loses on every plan. Answer: check invoice unit costs against NADAC for the same NDC; a wide gap is either an invoice error or a sourcing question.

Whether to stay in a network, decline a below-cost fill or take a contract question to a regulator is the owner’s decision, made with the PSAO and the pharmacy’s attorney. State laws differ.

When this needs no outside help, and where the Review fits

If the PSAO or the dispensing system already reports Part D claims by plan with the lowest-tier price, flagged take-backs and incentives received, and the owner reads that page beside the wholesaler due dates every week, there is nothing here to hire anyone for. Keep the routine.

For an independent pharmacy that cannot pull those numbers together, the Revenue Review counts this under the Invoice → Payment hand-off. From read-only aggregate exports of claims, 835s, settlement statements and wholesaler invoices, it lists by plan and month what was paid at the counter, what was flagged and taken back, what incentives are still owed, and which claims paid below cost, in dollars. It gives no legal, clinical or tax advice and does not negotiate with PBMs or file appeals. It takes two weeks and ends in a written report the pharmacy keeps.

The next step is a free 20-minute call, where we say whether the weekly routine above, kept in-house, is enough.