It’s funny because it’s true.

Our perspective on Pharmacy DIR Fees

There is a Japanese proverb that says, "A joke is often the hole through which truth whistles." In our case, our latest ads (below) seem to 100% measure up to the wisdom found in that proverb. You may have seen them lately, and we think it's worth explaining the seriousness of the truth behind them. We believe Pharmacies DIR Fees are unclear, and -to a degree- conflated with the Star Rating system. Many Independent Pharmacies in the US are surprised by Pharmacy DIR Fees and their scope and guidelines are seemingly arbitrary. We think its time for these fees to become standardized and possibly regulated in order to maintain a thriving, competitive, and patient focused pharmacy industry.
For those new to us, Keycentrix is a Kansas-based technology company, we focus on software and tech services in healthcare, most prominently serving pharmacies. A few folks like to say we are in the pharmaceutical industry, and it's important to note, that is hecka wrong. Pharmaceutical concerns how medicines (drugs) are produced, whereas pharmacy is focused on how medicines are dispensed and managed. All this to say that our clients are pharmacists who run pharmacies vs. drug manufacturers that sell pills. Recently, we placed these ads, jokingly referring to Pharmacy DIR Fees (Direct and Indirect Remuneration Fees). You might ask, what exactly are Pharmacy DIR Fees?

...nobody truly knows.

What are Pharmacy DIR Fees?

If you are interested, you can read what the National Community Pharmacists Association says on the subject. Or watch this video from the National Association of Specialty Pharmacies. After researching this and sorting out the alphabet soup of acronyms, you'll find that no one fully understands the mechanics of what is labeled a DIR Fee. That ambiguity is the heart of the problem.

Imagine you just sold a house and closed. Months later, the bank that financed part of the house says to you, "Actually, we paid you too much," and proceeds to charge you thousands of dollars. That doesn't sound right, but figuratively speaking, that is what is happening to independent pharmacies across the nation, translating to thousands or even millions of dollars in unexpected fees every year.

If you subscribe to a "laissez-faire" economic policy in healthcare, you might think Pharmacy DIR Fees are okay. Kudos for you, we applaud your steadfast belief in karmic justice. However, it might interest you to know that as community and specialty pharmacies close down, many patients are left with one option – integrated pharmacies that are owned by the same companies assessing Pharmacy DIR Fees. Here is a look at a few:

Whoa... conspiracy theory? Nope. Weird? Yes. Real weird.

The unintended consequences.

Here's the crux of the issue. Since the fees are ambiguous, those who assess them control the flow of money through the supply chain, all the while vertically integrating services and competing with the pharmacies they pressurize with these fees. This creates a clear disadvantage for the pharmacies not owned by one of these industry giants. When challenged, interested parties lean heavily on a patient-centered “canned response” – that Pharmacy DIR fees are about holding pharmacies accountable to delivering positive patient outcomes. This suggests, Pharmacy DIR Fees are about penalizing pharmacies for poor outcomes.

From what we can tell, nobody is arguing that pharmacies should be measured and held accountable. In reality, many pharmacy organizations are pushing for objective and standardized metrics to ensure a level playing field. Let’s not forget that Pharmacies are already evaluated with the Star Rating system, which – in spirit – was designed to reward pharmacies that prioritize patient outcomes. However, we think that performance-based fees would be conflating the Star Rating system with Pharmacy DIR Fees. Which to us software developers is called "mixing concerns," and when you are writing software that is a big no-no. Mixing concerns leads to confusion in causality. The last thing we need is confusion about what is leading to improved patient outcomes.

What PBMs say.

Admittedly, there is another side of the story about how DIR Fees work and why they may be necessary at this link. However, consider the statement made in this press release by CVS Health:

"CVS Health's profitability would not be materially affected by a change in DIR pay-for- performance networks.”

The notion that the Pharmacy DIR Fees would not materially affect CVS Health’s or any other PBM’s profitability is probably true, but it does significantly impact the small margins independent pharmacies operate on. Let’s examine this tweet:

Take a moment to consider the patient. He is expected to pay a markup more than 16 times the cost of the prescription. And what if he doesn’t have the money? Then no medicine. Let’s look even closer. What did the pharmacy keep? $3.58. What did the PBM keep? $164.61. Now imagine getting a Pharmacy DIR Fee on $3.58

We at Keycentrix have no issue with everyone making a buck, but we do perceive an imbalance in the market. This imbalance is squeezing independent pharmacies out of high-touch and high-care transactions in an increasingly complicated payor landscape. Ultimately, in the end, this means there will be people underserved, and we can't see how that will improve patient outcomes. If Pharmacy DIR Fees are necessary, then let's reform them so they – at a minimum – are not a surprise.

Then again, what do we know? We just make great software.

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