Independent Pharmacy Accounting, Pharmacy Growth

DIR Fee Apocalypse- The Bottom Line for 2024

On this episode of The Bottom Line Pharmacy Podcast, our hosts discuss the upcoming DIR fees in 2024 and how they will affect independent pharmacies. We stress the importance of planning and knowing your pharmacy’s current burn rate with DIR fees in 2023. This video is a must-watch for pharmacists looking to prepare for upcoming DIR fee clawbacks and point-of-sale changes to ensure their pharmacy’s bottom line is protected.

The Bottom Line Pharmacy Podcast is your regular dose of pharmacy CPA advice to fuel your bottom line, featuring pharmacists, key vendors, and other innovators.

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If you prefer to read this content, the video transcript is below.

Bonnie: Welcome to the Sykes, The Bottom Line Pharmacy Podcast, your regular dose of pharmacy CPA advice to fuel your bottom line, featuring pharmacists, key vendors, and other innovators.

Scotty: Welcome back to another episode of the Sykes Bottom Line Pharmacy Podcast. We’re here in 2023. And with 2023, there’s a lot of talk going around with the dreaded DIR fees and what’s around the corner with DIR fees. As most of you out there listen and know that the DIR fee rule is going to kick in the first part of 2024. When that happens, the DIR fees essentially are going to be at the point-of-sale with lower reimbursements there.

But you’re also going to have what they call the hangover effect of 2023 DIR Fees coming due in the first quarter of 2024, so you’re going to have reimbursements cut at the point-of-sale there for 2024, beginning in 2024, but you also have those DIR fees from 2023 coming due in that first quarter.

So that’s kind of what’s ahead and where things are going. And that’s getting the discussion going on DIR fees and, of course, what can pharmacies do to plan around that.

Bonnie: Yeah, it’s interesting. We were talking about that a few days ago, Scotty, just kind of on an accounting perspective how that’s going to look.

As far as keeping track of what those DIR fees are, it’s kind of nice right now as far as we’re concerned; we’re able to pull those reports from those that have third-party reconciliation services and get an idea of what those third party or those DIR fees are and make adjustments for those.

And we have line items for those so we can track them and see what kind of percentages they’re running, but when they’re done net at point-of-sale, it’s going to be interesting to see how that plays out.

Scotty: Yeah, it is.

Kendell: And I think,

Scotty: Go ahead, Kendell.

Kendell: Yeah, I was going to say, I guess with planning obviously, you got to know where you’re at to know where you’re going.

So, Bonnie, you said having a third-party reconciliation report, if right now you don’t have access to it, you can’t see what your current burn rate is with DIR fees, then it’s going to be twice as hard to plan into the future, so I think that’s a key takeaway is to go in there and look out what is your percentage of DIR fees, and if you don’t have the reports you need to get on the line with whoever’s providing your reconciliation service and get an idea of where you stand currently, and then you can start to plan for it in the future.

Bonnie: Yeah, there’s definitely going to be a bottleneck there for that few months, I guess, in 2024, where those clawbacks come back at the same time as point-of-sale DIR fees hit.

Scotty: Yeah, there’s going to be a bottleneck, and you know we often heard, and Kendell going off of your point, we often heard pharmacies really say a lot where, well, my accountant says I don’t need to be tracking DIR fees because it’s all net and my bottom line’s still the same whether I record the fees or not.

And that’s a correct statement; however, those pharmacies are not measuring their DIR fees as a percent of revenue, so they don’t know where they stand relative to their peers, industry average. We’re talking about trends in DIR fees you know, we saw two and a half percent or so- what was that, 2019?

Three and a half percent in 2021, last year, 2022, I’d say, as DIR fees were closer to four and a half percent to 5% of revenue. So, for 2023, you have to expect, you know, these are going to go up again. Five and a half percent of revenue. I don’t know. We’ll have to see. You got to have this information available to know and plan and be prepared.

And the accounting system is a critical piece of this. You got to be able to use your accounting system here to plan and understand what you can do, from a cash flow perspective to be prepared here. If you don’t have any accounting system or your accounting is unreliable, I think that’s step one for those pharmacies in 2023. Get a pulse of where exactly your pharmacy stands, what the issues and concerns are, and where the cash flow issue is in your pharmacy, and then address it.

Bonnie: Yeah. And you’ve got this year to do it, so, you know, you got it. It’s a new year.

Scotty: You’ve got a year to do it.

Bonnie: It’s a good time to, you know, obviously it’s tax season.

People have to get their corporate returns and personal returns done, get those wrapped up, and then look forward and if there’s any changes that need to be made to get your financials in better shape. Obviously, we are talking about a third-party reconciliation system is key, perpetual inventory is key. Those are two big areas to make sure, that you’re getting good information.

Make sure that your financials are up to date with that information each month.

Scotty: And that balance sheet is a critical component. If that balance sheet is out of whack, everything is out of whack, so get that balance sheet tied down. Go line by line, each account, make sure it makes sense and reconciles.

So you can get a good grasp of exactly what your pharmacy’s doing there.

Bonnie: Yeah. And then heading into 2024 you’ll be prepared, like Scotty said, to know what kind of cash you truly have available – what kind of cash flow is available, and you know, if there’s things you need to do to get prepared for this. Is this apocalypse, DIR fee apocalypse? Is that what you told me this morning?

Scotty: It’s always been a DIR fee apocalypse- those DIR fees. It’s a shame that these are even in the marketplace in the industry, but, you know, they are. And as NCPA would say, and they’ve done a good job bringing attention to this matter, but as they would say, this is the beginning of the end for DIR fees. Hopefully, they’re right there and we continue to see improvement, but with that accounting piece when you have that fundamental system in place and you can get a pulse of where you are, then you can start to see where maybe I need to be focusing on in my pharmacy, whether it’s expanding my revenue to cash-based, revenue sources, niche services, clinical services whatever it is to bring in some additional cash-based revenue in your pharmacy, not just relying on scripts is could be a, I think it’s going to be a big piece for all pharmacies, but it could be a bigger piece for some pharmacies over others. It could be a technology issue or a workflow efficiency issue with payroll, it could be a DIR fee issue in general. What we see, pharmacies that are below average with DIR fees, they’re engaged with DIR fees.

Bonnie: They’re doing everything they can to keep them down.

Scotty: They have a grasp on their DIR fee, they understand what can impact those DIR fees, you know, sync, adherence, the right medications.

They have the DIR fee estimates in their point-of-sales system, they’re engaged in that process with those DIR fees as much as they can be, and they’re oftentimes below average. It could be a debt issue, it could be a shareholder or an owner draw, taking too much money out of the pharmacy.

So, there’s a whole lot of things you can explore with that accounting system to help build up that cash flow for 2023 going into 2024.

Bonnie: Yeah, I agree, I mean, it’s the first step. You really have to get that in order to be able to move forward with anything else.

Kendell: And I think as you’re looking at the DIR fees, some clients I hear are looking at it, and the way they lower their DIR fees is once they know what’s going on and which prescriptions are just eating them alive, sometimes actually losing money.

If they’re looking at the DIR fee report, they see that after the DIR fees, they’re losing money, so you’re paying someone to fill scripts that you’re losing money on. Once you eliminate those scripts, then, all of a sudden, your DIR fee percentage can look better also. You got to track how are you are performing, what’s your percentage, and then you also have to track what changes do I need to make, and even which scripts I’m filling based on the impact of the DIR fee, so this could be something that can improve your business going into 2024, in general, outside of the, I’m afraid to attempt to say the word, the DIR fee apocalyptic.

Scotty: Apocalyptic. Say it three times.

You know, it’s a shame. It really is a shame, when you think about it, where a pharmacy, a patient comes in your pharmacy, and you can’t fill that script because you’re going to lose $300. I’ve heard several instances where pharmacies were like, “Well, I’ve never put in my DIR fee estimates in my point-of-sale. I thought I was making a thousand dollars on the script,”

They’re losing $300. You know, it’s an absolute shame and I have pharmacies tell me all the time, we’re going to have to just stop filling this brand or that brand because we’re losing.

Bonnie: And it’s hard for the patients to understand.

Because some patients don’t understand, they just think, the pharmacist just told me they’re not going to fill my script, and so it’s tough, and sometimes, I’ve had pharmacists tell me, they will continue to fill some scripts for patients where they’re losing money.

That’s really where you have to make that decision. If they’re looking at the full picture to keep that patient. They’ve got eight other things they’re doing for them, and maybe they’re only losing $20 on that one, or whatever, and so they keep it to keep the patient; it’s a patient-by-patient thing.

It’s like you said, it’s terrible that you have to even have that issue arise.

Scotty: It really is, and let’s not overlook, in addition to that accounting, and using that here in this important time, the importance of, where the rubber is meeting the road here with pharmacies being that wellness center, bringing in other services and other lines of service, cash-based services to the pharmacy, it’s really hitting the road right now because Covid kind of jumpstarted that, and you really, if you’re not fully involved or fully engaged in some sort of ancillary revenue into the pharmacy, other than just filling those scripts, you got to do something because, you got to start bringing in new revenue lines, new cash into the pharmacy.

You’ve got to, this is it, this is the year, so, you know, between those two things and managing and understanding the cash flow in your pharmacy is going to really, I think, prepare a lot of pharmacies for 2024. And lastly, I’ll just say here typically you’ll see that the current ratio in a pharmacy is around two to two and a half to one.

So, the current ratio is current assets divided by current liabilities. The accounting of where those current items accounts are is very important there. But, you typically see two and a half to one there. So, you have $2.50 of cash receivables inventory for every $1 of current debt. And so going into 2024, I think a good goal to shoot for in a pharmacy is a three to one current ratio.

I think we’re going to have to start adjusting our KPIs going into this year and looking forward. So, yeah, that’s just one kind of byproduct I think what we’re going to be seeing out of this year but it really is a mess out there. You got to hand it to the NCPA and a lot of other organizations out there, pharmacy groups, that have brought attention to this, that are working around the clock really to bring attention to this matter with Congress and so on and so forth. So, to me, with pharmacies having the opportunity to be those wellness centers in their communities, that opportunity right there couldn’t be more exciting, if I’m a pharmacist. I couldn’t be more excited about the future of pharmacy but there’s just going to be some bumps along the road, and this is just one of them.

Bonnie: There’s always going to be something, to keep it interesting, I’m sure.

Scotty: There’s always going to be something.

Bonnie: On to the next thing.

Scotty: There’ll always be something.

It’s like we always have tax changes or tax updates or court cases or whatever it is, it’s always something.

Bonnie: We’re like, one year, one tax season is going to be nothing new.

It’s just going to be,

Kendell: No, no, not since I started. No.

Bonnie: It hasn’t happened yet, but maybe.

Scotty: Yeah, we had clients that, I had a client who got a notice from the IRS yesterday, and it was from a matter two years ago. You know, I mean, what kind of crud is that? Luckily, it was a good notice, you know, wasn’t a bad one.

Bonnie: Usually, you don’t see those, the good ones.

Scotty: Yes, you do, all the time, with Sykes & Company, you always get good notices. What are you talking about?

All you listeners out there, I guess my bottom line, we’ll go into the bottom line here.

I think my bottom line is pharmacies control what you can control this year, which is your accounting system, your accounting, your books and records, understanding what’s going on in your pharmacy, understanding that cash flow in your pharmacy, where the cash flow concerns are, how does it all work in your pharmacy.

And then I think another thing you can control is, you know, what lines of revenue you’re bringing in the pharmacy. Find that niche, find that area in your pharmacy that you can that works for your community, and jump on that and service your patients.

Kendell: I’ll jump in there, I would say figure out where you’re at, and then next, figure out where you’re going, especially when it comes to DIR fees. If whatever mechanisms that you have to track currently, I’d utilize those and to say, where am I at right now, and then from there you can kind of get an idea of the cash flow you need for the end of the year, and that can be where you’re going, that’s where you’re headed.

Make whatever changes, whether it’s not the same distributions you usually take, or not the same bonuses you used to give, or whatever internal processes that you need to do but you have several months to plan for it, but you have to know where your starting point is first.

Bonnie: Yeah, my bottom line would just be to use these bumps in the road, like these DIR fees, the DIR fee apocalypse as an opportunity.

There’s always something, you know, Covid hit. You have to figure out how to, to make it work. There’s always going to be something there that you’ve got to figure out, how to keep the pharmacy going. Obviously look outside of the box, like we keep talking about. Have your accounting in order but look outside of the box at different revenue options like we’ve mentioned.

Scotty: As T.W. Taylor would say, it’s the mindset, have that mindset.

Bonnie: Yeah. Have a good mindset, be positive, figure out a way to work around it. There’ll be something the next day. But there are definitely opportunities out there and other options out there to increase revenue, increase cash flow to make it through this DIR fee fun.

Kendell: Yeah, if you need ideas, watch the podcast that we did with T.W. That one kind of blew everyone’s mind, lots of ideas there, I’ve heard a lot of great feedback from that one.

Scotty: If you haven’t already, like, subscribe, save, I don’t know, what do they say, like, subscribe.

Kendell: Thumbs up,

Scotty: Save, thumbs up, comment.

Kendell: Definitely comment, we watch the comments, we answer the comments, and it gives us ideas of what’s on the minds of the listeners for future podcasts, so if there’s something that you want to hear about or something you’re thinking about getting into we have a great resource of pharmacists that we lean on, that’s tried it and done it, and we can tell some of those stories and experiences, so definitely a way to get the content that you want to hear just by commenting, “Yeah, we love some, some information” or anything you want to hear.

We’ll be glad to try and work it into our podcast schedule, you know, we got a big lineup this year, so we’re excited and we appreciate everybody listening in and your support and keeping us on the top of your podcast lineup. So, with that, we’ll say best of luck this 2023.

And don’t be too scared by the DIR fee apocalypse. It will be okay; we’ll get through this together.

Bonnie: We’ll make it.

Scotty: Alright.

Bonnie: Alrighty.

Kendell: And that’s the bottom line.

Bonnie: That’s the bottom line.

Scotty: That’s the bottom line.


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