Independent Pharmacy Accounting

DIR Fees and How to Manage Them

DIR fees are the third largest expense in any independent pharmacies. Proper management can help mitigate these fees. In this video, Ollin Sykes, CPA, and Kathy Blanchard of Sykes & Company, P.A. discuss what trends they are seeing with DIR fees, the importance of your third party reconciliation system and some of the ways you can manage them in your independent pharmacy.

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

What is relevant in the pharmacy world today regarding DIR fees and adjudication costs?

Well, the relevancy of DIR fees and adjudication costs is that more and more third party reconciliation systems are reporting that information, to the pharmacist. However, what we’re seeing in the real world is that many pharmacists don’t understand that they have this information available, or what it means or what to do with it once they receive it. So obviously, we are trying to educate and have educated our clients with respect to, how they’re able to find out what those DIR fee costs are, on a monthly basis and then how to make those adjustments each and every month to make sure that accurate reporting on the profit loss statement is made. So Kathy what would you say about this process?

Well, I think you’ve touched on a couple of points previously in conversations about making sure their star ratings are as good as they can get them, to mitigate those DIR fees. Remembering that the third party reconciliation services can only report on what the insurance providers will tell them, they’re deducting from payments. So DIR fees are one component. Claims adjustments can be another component, as well as transaction service fees. So it’s not just DIR fees, there’s other things that they’re deducting from that payment, and you’re only getting the net amount. So when you’re recording that, you need to make sure that you’re recording it properly. Recording everything you can get out of your third party reconciliation system, is the biggest concern. There great reports in those systems. If you’re on a platform within that system that gives you those detailed reportings, some call it concierge, some call it prime services. But making sure that as you are adjudicating those claims, and getting your payments, that you’ve got a third party reconciliation service in place, that you’re doing your part to log in, making sure you’re acknowledging payments, acknowledging paper check payments, but giving your analyst at that service, as much information and feedback from you, to make sure that you’re doing your part to keep that system up to date.

And also, as Kathy mentioned, the star ratings which typically can pull down from your equip system. We’re seeing most pharmacies in the 2-4%, as far as DIR fee adjudication costs. However, those that have star ratings at five right at five, we’re seeing some of those under 2%, 1.7-1.8%. So clearly you can monitor and with DIR fees and education costs being your third, most important element on your P & L behind gross margin and payroll related benefits. If you want to try to keep your DIR fees under control, you’ve definitely got to put resources and action into keeping those equip scores at five and it will make a huge difference, as far as your expenses are concerned and your P & L.

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