August 27, 2019
Inside: Between your primary wholesaler and secondary distributor, learn how to get the lowest possible price when you buy pharmaceuticals.
The amount you spend when you buy pharmaceuticals has a substantial effect on your pharmacy’s viability. Inventory is by far the largest business expense for any independent pharmacy. And with no control over reimbursements, savvy pharmacy owners know that buying better is the best way to increase profit.
Although you’re tied to a contract with a primary wholesaler, there are plenty of secondary distributors trying to attract you with lower prices. Knowing when and why to buy pharmaceuticals off-contract can be a challenge. The right approach can result in sweet savings, but the wrong approach can end up significantly eat into profits.
Here’s how to buy pharmaceuticals from your primary and secondaries to lower costs, maximize rebates, and boost your profit.
Buying pharmaceuticals from your primary wholesaler is the best strategy more often than not—the practice unlocks rebates and discounts that aren’t available when spreading out purchasing over multiple suppliers.
However, there are occasions when it’s smart to deviate from your primary contract.
When your primary wholesaler is out of a medication, or doesn’t have as much as you need, don’t wait for it to become available. Your patients need their medications, and if you don’t have what they need, they’ll move on to another pharmacy that does.
This is the reason you need to establish a relationship with a reliable secondary distributor. They can fill the gaps that sometimes arise with your primary wholesaler.
You can also save money with secondary distributors in other ways. If your primary tries to charge you an exorbitant price for a particular medication, your secondary might have the same medication available at a lower rate.
If you’re already meeting your contract incentives with your primary wholesaler, saving on the sticker price from secondary suppliers lowers your costs even further—as long as you aren’t spending too much time price comparing.
Not all secondaries are created equal, and you should be discerning when deciding which secondary distributors to work with.
You might shop around to try to buy pharmaceuticals for the lowest price, but buying from the secondary distributors with the best deals might have some unintended consequences for you and your patients.
Instead of risking buying fraudulent or substandard medications, make sure that your secondary distributor is both licensed by their state pharmacy board and accredited by VAWD. VAWD accreditation often has stricter requirements than state licensing, and they apply equally to every pharmacy across the country.
Other factors to consider when choosing a secondary distributor include whether they are getting their pharmaceuticals directly from the manufacturer, their speed and accuracy, and the range of products they offer.
After considering all these factors, the secondary distributor you settle on probably won’t offer the lowest, bargain-bin prices, but for the sake of your patients’ health and safety, the extra cost will be worth it.
While it may seem smart to buy pharmaceuticals from a secondary distributor whenever individual medications have a cheaper price than your primary, that won’t necessarily translate into bigger profits.
Because your contract with your primary wholesaler relies on a delicate balance of conditional discounts and rebate structures, it’s best to approach buying from your secondary distributor with a strategy.
Occasionally nabbing medications at a lower price from your secondary can definitely save you money, but constantly searching out the best price from a host of secondaries will upset the buying conditions of your primary contract and end up costing you more in the end.
Having a large stable of secondaries that you buy from may seem like a good idea to find all the best prices, but that can actually be a mistake. Your time will be sucked up by the chase for deals. Instead, work with one or two trusted secondaries so you can spend time working with your team or caring for your patients.
Your goal should be to minimize disruptions in your pharmacy—which means that your secondary distributor is most useful to you when your primary wholesaler can’t keep up with your demand.
Having a reliable secondary supplier is important in a pinch, but independent pharmacies should buy most of their pharmaceuticals from their primary wholesaler.
The relationship between independent pharmacies and wholesalers is one of symbiosis. When you establish a relationship with a trustworthy primary wholesaler, you should have a lower cost of goods. (If that’s not the case, it means you’re not getting the contract you deserve, while other pharmacies are.)
In the long run, meeting the volume requirements and incentives in your primary wholesaler contract results in rebates and savings that earn you a lower overall cost of goods than any secondary supplier can provide. By maximizing your generic compliance ratio, as well as all your other contract incentives, the average pharmacy can save $15,000 per month.
Your individual primary wholesaler contract is chock-full of nuances and stipulations, making it hard to know what any individual purchase will do to your overall cost. Keep in mind these things when you buy pharmaceuticals to keep costs low.
Take advantage of rebates
Hidden in your primary wholesaler contract are conditions for all sorts of rebates. Prioritizing those rebates when you buy pharmaceuticals can dramatically lower your final bill.
One of the most lucrative rebates rewards generic volume. This is typically referred to as your generic compliance ratio, which pays rebates based on the percentage of generic volume compared to your overall volume. Aim for the highest tier by reaching the max generic volume percentage and earn up to 35 percent back in some cases.
Other potential rebates and discounts come from volume commitments, brand discounts, specialty items, and performance incentives. Get to know your contract to know what your pharmacy is potentially eligible for.
Watch out for automatic substitutions
Sometimes, when your primary wholesaler is out of a brand name product you ordered, they’ll send you a substitute. This might seem like a convenient service, until you realize that the substituted item is not eligible for rebates and doesn’t count toward your generic compliance.
To avoid this double whammy of extra costs, turn off automatic substitutions and look for an alternative from your secondary distributor.
Savvy inventory management
Always having the inventory your patients need is important, but if you’re buying too much inventory, you risk drugs expiring on the shelves and you tie up valuable cash.
There are a few ways to practice inventory control, but the key is to hold as little as you can without running out of products. More precise and accurate ordering means a lower cost of goods and lower holding costs.
Get a better contract
Ultimately, if you’re working with a bad contract, the perks promised to you by your primary wholesaler might not trickle down to your pharmacy.
Assess your current contract and ask yourself if you are really getting the best deal. Becoming a member of a group purchasing organization will give you more leverage when negotiating your contract and open your eyes to all the hidden conditions and terms that prevent you from getting the deal you deserve.
Striking the right balance between your secondary and primary purchases can be a struggle. If you buy pharmaceuticals from your secondary to save a buck, you may risk decreasing your generic compliance and lose a valuable rebate.
And even if you have figured out how to make those judgment calls, the process will inevitably take more time than it’s worth—and probably more time than you can commit.
Luckily, you don’t have to navigate this maze alone. By using a service like ProfitGuard, you have a guide that takes you through your purchasing data. ProfitGuard’s Navigation Report arrives in your inbox daily to recommend the purchases that will get you the biggest rebates and best prices from both your primary and secondary distributors. You can trust the recommendations because they do what a human can’t. Using a sophisticated modeling system and all of your pharmacy’s purchasing data, the tool calculates how every single purchase will affect your total cost of inventory. And it harnesses that precise, predictive data to maximize your savings.
PBA Health is dedicated to helping independent pharmacies reach their full potential on the buy side of their business. The company is an independently owned pharmacy services organization based in Kansas City, Mo., that serves independent pharmacies with group purchasing services, expert contract negotiations, distribution services, and more.
PBA Health, an HDA member, operates its own VAWD-certified warehouse with more than 6,000 SKUs, including brands, generics, narcotics CII-CV, cold-storage products, and over-the-counter (OTC) products.
Want more pharmacy business tips and advice? Sign up for our e-newsletter.