The use of Direct and Indirect Remuneration (DIR) in Medicare Part D has gained significant attention from policymakers in recent years. Manufacturer DIR (including rebates) and pharmacy DIR (such as discounts or payments that a pharmacy pays to a Part D sponsor or that a Part D sponsor pays to a pharmacy) account for the two largest categories of DIR in the Part D program. While manufacturer DIR—which accounts for the majority of DIR in Part D—has been a focus of previous policy proposals, the Centers for Medicare & Medicaid Services (CMS) recently finalized changes to pharmacy DIR in the Calendar Year (CY) 2023 Medicare Advantage and Part D rule. Under this policy change, Part D plans and pharmacy benefit managers will be required to reflect pharmacy price concessions (including retrospective payments made by pharmacies to Part D plans) in the Part D negotiated price and the price paid by beneficiaries at the point of sale (POS) beginning in 2024.

In this issue brief, Avalere provides an overview of:

• The role of DIR in the Part D bidding and payment structure and current Part D plan incentives related to DIR
• The mechanics of Pharmacy DIR
• How the finalized policy for pharmacy price concessions in the 2023 Medicare Advantage and Part D rule will change plan incentives for pharmacy DIR

Under the changes to pharmacy price concessions in the CY 2023 rule, the Part D negotiated price must reflect the lowest possible reimbursement a pharmacy could receive from a Part D plan sponsor. As such, Part D plans will only be able to make positive post-POS payment adjustments to pharmacies, which would be considered “negative DIR” and increase plan net costs for plans and plan premiums. As such, this policy change will reduce plan incentives for pharmacy DIR and is likely to lead to adjustments in pharmacy contracting.

This new policy for pharmacy DIR along with broader changes to the Part D benefit in 2024 and beyond under the Inflation Reduction Act raises important considerations for plan and manufacturer contracting and patient access strategies.

Read the issue brief to dive deeper into the implications of policy reforms on DIR.

Funding for this research was provided by CVS Health. Avalere Health retained full editorial control.

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