Preparing for the 2024 DIR Fee Hangover

Preparing for DIR Fee Hangover image

AAP is helping our Members prepare for the 2024 DIR Fee Hangover

According to a survey by NCPA, approximately 98 percent of pharmacists are concerned about the upcoming 2024 DIR fee hangover and the impact it could have on their pharmacies. Many are even worried that it could lead to pharmacy closures. So, the time to prepare is NOW!

Here are five useful tips to help you prepare.

#1. According to NCPA, the first tip for preparing for the DIR fee hangover is going back to your accounting basics and understanding your cashflow.

There are many key performance indicators, or KPIs, in pharmacy. One cash flow KPI is the Current Ratio, which is current assets divided by current liabilities. How you classify those current assets and liabilities is vital to an accurate ratio. The industry average is around 2.5 to 1, so $2.50 of cash, receivables and inventory for every $1 of current debt. It is wise to know your ratio and aim for a 3 or 3.5 to 1 current ratio going into 2024. This would give you a cash flow cushion to hopefully weather any DIR unknowns.

#2. Our second tip to help you thrive during the 2024 DIR hangover is by increasing your gross margin. The average pharmacy gross margin is anywhere from 23-24%. Increasing this margin will go a long way to improving your cash flow.

One way to increase revenue is to find niches markets, such as women’s health, travel vaccines, pet meds, or nutritional supplements, to fill the holes in your community’s healthcare. Offering unique services to your patients will go a long way to improving your gross margin.

#3. You can find our third tip in the EnlivenHealth DIR Fee Hangover Playbook. To predict the DIR fees that PBMs will attempt to collect in the first quarter of 2024, look at the DIR fees collected from the same timeframe in 2023. (This should be easy to do in your third-party reconciliation platform.) Once you have that number, set it as your savings benchmark. That’s the amount of cash you need to set aside by the beginning of 2024 to avoid the sting of the DIR Fee Hangover.

#4. Our fourth tip is keeping your expenses in check. Your expenses are one of the most important factors to your cash flow and bottom line. When you are trying to figure out the best ways to combat the DIR hangover, your time is best spent focusing on the expenses that will make a big impact: cost of goods sold and wages.

Maximize your PVA

Make sure you are maximizing your purchasing with your Prime Vendor Agreement (PVA). AAP now offers multiple options for stores to help create a buying plan to fit your needs. A good PVA can increase your margin percentage. Contact our team to see which PVA option is right for you.

Keep wages in check

Technology and automation are two ways to help run payroll effectively. Check out the AAP Preferred Partners to see if any of them can help with your store’s needs.

#5. Our fifth tip is to open a business line of credit. If you are worried about cash flow next year, it can be a useful tool to have available for short-term cash flow issues. 

Funds are typically drawn from the line of credit by using a business checking account, a small business credit card or even a mobile banking app.

But a word of caution, these can be dangerous cash flow tools in a pharmacy because they are NOT free money. Lines of credit are usually higher-interest debt. These are not mid- or long-term debt cash flow solutions for a pharmacy, and you shouldn’t rely on them for those needs.

Any time access to a line of credit is utilized, there must be a plan in place on how and when it will be paid back. Long-term cash flow issues within a pharmacy should not be addressed with short-term debt solutions such as a line of credit.

If we learned anything from the COVID-19 pandemic, it’s that independent pharmacists are innovators. Preparing now will help you thrive in 2024.

Categorized as Updates