Hiding in Your Pharmacy Costs: DIR Fees No One Ever Sees

What Are DIR Fees?

Your PBM contract has a fee you'll never see on an invoice. It doesn't show up at the point of sale. It doesn't appear on your plan's remittance.

It gets collected weeks or months after the prescription is filled, buried in the pharmacy supply chain. That's a DIR fee. Direct and Indirect Remuneration.

DIR fees started as a legitimate Medicare Part D accounting tool. Plan sponsors needed a way to report post-point-of-sale transactions to CMS. Rebates, clawbacks, performance adjustments. Reasonable enough.

Then PBMs expanded the definition. DIR grew to include network access fees, performance-based clawbacks, generic effective rate penalties, and brand effective rate adjustments. Pharmacies now pay these fees just to participate in a preferred network, assessed on metrics that are often unknown, unpredictable, and outside the pharmacy's control.

The timing makes it worse. Fees are often assessed retroactively, sometimes more than six months after a prescription is filled. A pharmacy can't know its actual reimbursement rate when it signs the contract.

How Big Did DIR Fees Get?

Between 2010 and 2020, pharmacy DIR fees in Medicare Part D grew 107,400%. That's not a typo. They went from $8.9 million to $9.5 billion, according to NACDS citing CMS data.

As a share of gross pharmacy revenue, DIR fees escalated from 2.5% in 2020 to 5.5% in 2023. These aren't rounding errors. They're a structural transfer of pharmacy revenue to PBMs that happens entirely outside the employer's line of sight.

Pharmacies are closing at a rate of more than one per day. 48.4 million Americans now live in pharmacy deserts, up from 41.2 million in 2021, according to GoodRx. CVS and Walgreens closed nearly 770 stores in 2025 alone. Rite Aid shut down its remaining 89 stores after filing bankruptcy twice.

96.5% of independent pharmacists say PBM reimbursement threatens their business viability. The fee structure that was supposed to bring transparency to Medicare drug pricing is helping destroy the pharmacies that fill the prescriptions.

Where Does the Money Go?

An analysis by NCPA and XIL Consulting walked through a single prescription. The PBM collected a DIR pharmacy transaction fee of $100.65 from the pharmacy. It kept $12.07. The administrative fee it charged the plan sponsor for that same claim? $1.25.

The PBM collected nearly ten times its disclosed admin fee from the pharmacy on one claim. The plan sponsor never saw it.

That example is a single claim. Scale it across your plan and the numbers get serious. The FTC's January 2025 report examined just 51 specialty generic drugs. On those 51 drugs alone, the Big 3 PBMs generated $7.3 billion in excess dispensing revenue at affiliated pharmacies over five years, plus another $1.4 billion in spread pricing income.

Twenty-two percent of the specialty generics the FTC examined were marked up more than 1,000%. Half of those exceeded 2,000%. Tadalafil for pulmonary hypertension was marked up 7,736% for commercial payers in 2022.

The PBMs reimbursed their own affiliated pharmacies at higher rates than independent pharmacies on nearly every drug examined. They're steering the most profitable prescriptions to their own pharmacies and collecting the margin on both sides.

Did the CMS Reform Fix DIR Fees?

For Medicare Part D, CMS eliminated retroactive DIR clawbacks starting January 2024. All pharmacy price concessions must now be reflected in the negotiated price at the point of sale. Patients see lower copays. CMS projects $26 billion in out-of-pocket savings from 2024 to 2032.

For pharmacies, the reform backfired. PBMs converted the retroactive fees into lower upfront reimbursement. The net economics didn't improve. Pharmacies faced a double hit in early 2024: paying 2023 retroactive clawbacks while simultaneously absorbing the new lower point-of-sale rates. That cash flow crunch cost some pharmacy owners $100,000 or more.

Brand-name medications on Medicare became essentially a loss for pharmacies. Thirty-two percent of independent pharmacies considered closing in 2024. Ninety-three percent said they might drop out of Medicare Part D in 2025.

The fee changed form. The economics didn't.

Do DIR-Style Fees Still Exist in Employer Plans?

Yes. The CMS reform only applies to Medicare Part D. Employer-sponsored plans sit under ERISA. The CMS rule doesn't reach your contract.

PBMs continue to use performance-based clawbacks, pharmacy network access fees, generic effective rate penalties, and brand effective rate adjustments in commercial plans. All are functionally identical to DIR fees. 40.8% of independent pharmacists report being paid below drug acquisition cost on more than 40% of prescriptions, according to the NCPA 2025 Digest.

A 3 Axis Advisors study of 9 million claims in Washington state found PBMs charge employers more for the same medications while simultaneously paying pharmacies less. Both sides get squeezed. The PBM retains the difference.

Ohio's Medicaid audit found PBMs pocketed $224.8 million in spread on $2.5 billion in drug spend. A 31% spread on generics. After Ohio carved out PBMs, it saved $140 million over two years. West Virginia carved out PBMs entirely and saved $54.4 million in the first year, even while paying pharmacies higher dispensing fees.

Your plan is funding a fee structure that was already reformed out of Medicare. And right now, nothing requires your PBM to tell you about it.

What Does the CAA of 2026 Change for Employers?

The Consolidated Appropriations Act of 2026 is the first federal law to directly address PBM fee practices in employer plans. The key provisions:

• 100% rebate pass-through. PBMs must pass through all rebates, fees, alternative discounts, and other remuneration to the plan. Only "bona fide service fees" at fair market value are exempt. Payments due quarterly, within 90 days.
• Spread pricing elimination. PBMs can no longer retain the difference between what they charge the plan and what they pay the pharmacy.
• Drug-level reporting. Semiannual reports to employers with 100-plus employees, including contracted compensation, spread pricing, pharmacy data, and formulary details. Machine-readable format.
• Penalties. Up to $10,000 per day for disclosure failures.

The catch: most provisions don't take effect until plan years beginning August 3, 2028 (January 1, 2029 for calendar-year plans).

The DOL published a proposed rule on January 30, 2026, that would require PBMs to disclose pharmacy clawback payments and spread pricing revenue to employer plan fiduciaries. That rule could take effect as early as January 2027, closing part of the gap before the CAA provisions kick in.

Between now and 2029, your plan is exposed. DIR-style fees, spread pricing, and affiliated pharmacy steering remain legal and undisclosed in most employer contracts. The Benefits Blake Compliance Calendar tracks every CAA and DOL deadline so you know exactly when each protection takes effect.

What Should Self-Funded Employers Do Now?

The CAA of 2026 will eventually force transparency. But "eventually" is two to three years away. In the meantime:

1. Demand pharmacy fee disclosure now. The CAA doesn't require it yet. Ask anyway. Request a full breakdown of any post-point-of-sale pharmacy fees, what the PBM retains versus remits, and how network access fees are structured. Get the contract language right before you renew.
2. Define "net cost" in your contract. Your PBM agreement should define net cost to include all downstream pharmacy fees, clawbacks, and spread. A vague definition is a blank check.
3. Audit pharmacy fee transactions. Standard claims audits only cover adjudication. You need audit rights that reach pharmacy fee flows. The CAA gives you that right by statute for contracts after 2028. Build it into your contract now.
4. Evaluate a pharmacy carve-out. A carved-out PBM breaks the vertical loop that enables affiliated pharmacy steering and hidden fee retention. Ohio saved $140 million. West Virginia saved $54.4 million.
5. Benchmark your pharmacy spend. Compare your plan's reimbursement rates against NADAC (National Average Drug Acquisition Cost). The gap between what your PBM charges you and what pharmacies actually receive is your spread exposure.
6. Simplify the stack. The more PBM touchpoints in your plan, the more places fees hide. The Benefits Control System maps your vendor relationships and flags conflicts.

DIR fees were designed to bring transparency to Medicare drug pricing. They became a hidden revenue stream. Your plan doesn't have CMS watching over it. Until 2029, the oversight is yours.