You live by the set-in-stone issues faced by community pharmacies every day. The dog-eat-dog competitive business environment. The constantly changing pricing, laws, regulations and restrictions. And the ever-decreasing third-party reimbursements. What can you do to change these bedrock challenges?
While you can’t change them, you can control your operations, which begins with managing your inventory and optimizing your purchasing. This part of your business is so important because of the monumental cost of your pharmacy’s inventory, which makes up 80 percent of an average pharmacy’s total expenses. How can you better manage inventory and optimize purchasing? Your primary wholesaler agreement is the first place to start.
Know your contract
You know your primary wholesaler contract is the most important key to the future of your business. But do you know it well enough to unlock the best cost of goods for your pharmacy? Many pharmacists think they do, but they don’t. These contracts are notoriously and purposely complicated documents that can run 30 pages long. Once signed, the details of this contract are often not top of mind.
Wholesalers make most of their money on generics, so they incentivize pharmacists to purchase more through a measurement known as the generic compliance ratio (GCR). While you’re likely aware of your GCR, you may not be using it to your full advantage, and you may not realize how much cash you’re leaving unclaimed.
If you buy enough generics from your primary wholesaler each month, you’ll get a rebate. The more generics you buy, the bigger your rebate will be. However, not every generic drug applies to the incentive. Each contract contains a source list of generic medications that count toward your incentives, which means you need to know your list.
Wholesalers use a tiered system to determine how much your rebate will be. If 10 percent of your volume is generics, you might expect a rebate of about 10 percent. A 15 percent volume might produce a 20 percent rebate. And so on.
For example, average rebates for generic compliance can range from $2,300 a month for the lowest tier to $17,500. That’s a lot of money to overlook.
Review your buying behavior
In order to optimize your rebates, you need to know exactly where you stand each month and each day before you make a purchase. Track your generic purchases versus your brand purchases for the last few months. How does it stack up against your wholesaler’s rebate structure?
You might find that you’ve been spreading out your purchases to too many different secondary suppliers. What’s wrong with that? Shouldn’t you buy what’s cheaper, regardless of whether it’s from a secondary or primary wholesaler?
Yes, you could save $10 here or there. But that might push your GCR from 20 percent to 19.99 percent—dropping you down a performance tier and decreasing your rebate for the month. For the average pharmacy that .01 percent difference could cost $3,000 of a rebate.
By tracking every item you purchase line by line, you can also ensure that your wholesaler is actually giving you the discounts and rebates agreed to in your primary contract.
To be successful, all you have to do is negotiate the best deal on your primary wholesaler contract, make sure you know every jot and tittle, track each purchase you make, correctly calculate your GCR and ensure your wholesaler follows through.
ProfitGuard will help your bottom line
ProfitGuard, a service from PBA Health, can help. ProfitGuard forms groups of community pharmacies and uses that group’s combined purchasing volume to negotiate better terms, pricing and discounts for everyone. They also engage multiple wholesalers to bid for the group’s business, which earns you an even better deal.
ProfitGuard negotiation experts know what to ask for and what to look for to deliver the best possible contract that suits your pharmacy. You direct the negotiations, decide which wholesalers you want to bid on your business and determine the specific provisions you want included in your contract. You receive a selection of contract options throughout.
“I signed my primary wholesaler agreement not because I trusted the wholesaler, but because I trusted PBA Health,” said Tawnee Taylor, PharmD and owner of Roy’s Discount Pharmacy in Wilburton, Oklahoma.
ProfitGuard doesn’t stop at contract negotiation—it’s an end-to-end purchasing solution. ProfitGuard experts use a sophisticated modeling system that takes everything into account: your contract incentives, every purchase from the last 90 days, trends, current prices, availability, volume commitments, personal preferences and more. With this data, combined with the details of the primary wholesaler contract, they are able to model the most efficient, effective and profitable ways to purchase what the pharmacy needs by also taking into account market demands and daily fluctuations in costs or shortages.
You might say the team examines data at a microlevel to improve and maximize your overall macro-purchasing behavior.
The model’s advanced technology delivers each ProfitGuard pharmacy an individual report with simple step-by-step purchasing recommendations. The comparison shopping is done for you, so you can easily see if there is a lower price on a comparable product you purchase. It also shows you where you currently stand for the month. If you can’t save that day on your purchases, you won’t get recommendations.
With this data, combined with the details of the primary wholesaler contract, they are able to model the most efficient, effective and profitable ways to purchase what the pharmacy needs by also taking into account market demands and daily fluctuations in costs or shortages.
These analytical tools haven’t failed to improve a pharmacy’s profits or operations, with some users reporting an average increase of 2%-6% in overall profitability and a reduction in time spent ordering from 1-2 hours a day to 1-2 minutes a day.
“I feel like I have an army on my side with ProfitGuard,” said Taylor. “ProfitGuard worked for us. It helped us see the way we were purchasing was hurting us. We literally doubled our rebates.”
From the Magazine
This article was published in our quarterly print magazine, which covers relevant topics in greater depth featuring leading experts in the industry. Subscribe to receive the quarterly print issue in your mailbox. All registered independent pharmacies in the U.S. are eligible to receive a free subscription.
More articles from the September 2022 issue:
- Expand your Revenue Streams
- New COVID-19 Subvariant Threatening the U.S.
- Coming Soon: Over-the-Counter Hearing Aids
- Planograms Lend a Helping Hand
- Reducing Patients’ Fall Risk
- ProfitGuard Helps You Hold the Line
- Mastering Inventory Management
- Addressing Social Determinants to Health
A Member-Owned Company Serving Independent Pharmacies
PBA Health is dedicated to helping independent pharmacies reach their full potential on the buy-side of their business. Founded and run by pharmacists, PBA Health serves independent pharmacies with group purchasing services, wholesaler contract negotiations, proprietary purchasing tools, and more.
An HDA member, PBA Health operates its own NABP-accredited warehouse with more than 6,000 SKUs, including brands, generics, narcotics CII-CV, cold-storage products, and over-the-counter (OTC) products — offering the lowest prices in the secondary market.