March 15, 2019
In 2013, pharmacy owners Randy McDonough and Mike Deninger thought seriously about how their pharmacy could remain financially viable. The business had been thriving, but suddenly the PBM of the largest payer in Iowa was absorbed by a larger PBM. After that, things drastically changed.
“We saw the floor fall out from under us,” said McDonough, co-owner and director of clinical services at Towncrest Pharmacy, Solon and Iowa City, Iowa. “We literally saw our effective rate of reimbursement go down by 50 percent across the board for 40 percent of our patient population.”
If McDonough and Deninger hadn’t found a way to step into the thriving medical side of healthcare and get paid directly by payers, their pharmacy may have become a memory.
McDonough and Deninger are far from alone. The traditional healthcare divide has long disadvantaged independent pharmacy. Ninety percent of healthcare expenditures are spent on products and services outside of the drugstore. And the remaining 10 percent gets devoured by PBMs before ever reaching the door of an independent pharmacy. On top of that, national chain pharmacies box out independents as they continue to consolidate with payers.
“Payment models are not in community pharmacies’ favor,” said Jay Williams, director of marketing communications at CPESN® USA, a clinically integrated network of community pharmacies. “They’re designed for those who fill prescriptions fast, accurate, and cheap. Community-based pharmacies are never going to be able to compete in that. They’re competing against large, vertically integrated corporations that own PBMs, own payers, and own health insurers.”
Those realities are quickly drying up the profit on the prescription benefit side of healthcare. Prescription margins have dropped five years running. The number of independent pharmacies has steadily declined over the last four years. Salaries for pharmacy owners have plummeted four years in a row, falling to the same level as employed pharmacists.
Meanwhile, on the other side of the fence, a different payment model exists. Medical spending continues to rise year after year. In 2017, nearly $2 trillion went to physicians and hospitals, without middlemen siphoning off reimbursements.
“It’s time to get out of the pharmacy silo, the pharmacy spend part of the healthcare benefit,” said Kurt Proctor, senior vice president of strategic initiatives at the National Community Pharmacists Association (NCPA). “It’s time to focus on the 90 percent of the medical care spend.”
To get to the medical side, pharmacies have to prove they can help payers’ wallets. More and more, medical payers continue to prioritize value-driven care because healthier patients cost them less money. Payers want lower total costs, which means fewer emergency room visits, hospitalizations, and physician visits.
Independent pharmacies are already achieving those outcomes for their patients and have been for a long time. The problem is that payers still perceive pharmacies as mere dispensaries, Williams said. “Independent community pharmacies in America have been commoditized over the years. What community-based pharmacies have to prove to these payers is how we can impact that 90 percent piece of the pie because of the way we deliver care. And it’s not just pills in a bottle.”
Individual pharmacies on their own won’t be able to cause such a drastic transformation to payers’ perceptions and the entrenched payment model. “One store really doesn’t meet a potential payer’s need,” Proctor said. “So they need to work together. The other thing that an individual store isn’t going to have is the kind of quality metrics and data and analysis and things that these payers will demand.”
McDonough came to this realization even after he’d successfully negotiated a pilot, value-based reimbursement program with a major insurance company on his own and was being paid directly for offering clinical services. “You have to do it by having a high-performing network of pharmacies,” he said. “This is the way for community pharmacy to not only survive in the future but to thrive in the future.”
Community Pharmacy Enhanced Services Networks (CPESN®) provide a comprehensive and consistent way for independent pharmacies to impact the 90 percent—and to prove it. The networks combine pharmacies’ capacities to deliver enhanced services with measurable results for payers.
Once these networks start demonstrating results, the whole payment model changes. “It’s a new concept to pharmacy,” Williams said. “When you become a clinically integrated network and can demonstrate your value, then you have the ability to go and talk to the true payer of those costs and get paid in a different way.”
A CPESN network is a clinically integrated network of community pharmacies that provide enhanced services and work together to facilitate coordination of care to improve patient outcomes and decrease overall healthcare costs. The networks engage with payers to receive a share of the dollars they save them in patient costs.
“It’s a network of providers that come together and by virtue of working together are able to bring new improvements, quality improvements, higher quality services to the marketplace,” Proctor said. “It’s bringing something new to the market.”
CPESN networks are solely run by and composed of the local pharmacies involved. And the individual networks are autonomous and self-sustaining. They negotiate with the payers on their own and they collect 100 percent of the negotiated payments. “This is truly a network by, of, and for community-based pharmacies,” Williams said. “This is their network and it’s as successful as the energy that they put into it.”
There are currently 47 local networks in 42 states. The number of pharmacies in each network varies widely, ranging from around 15 pharmacies to 200. To be a part of the network, pharmacies have to agree to offer five core services as well as document their care electronically through the Pharmacist eCare Plan, owned and developed by NCPDP and HL7.
All of the local networks across the country are part of a centralized network called CPESN USA. This parent network serves as a resource to help the local networks maximize their potential by helping with scale, replication, and most importantly, quality. With data from all the pharmacies across all the networks, the CPESN USA team can distill what works and what doesn’t into best practices and quality improvements for the individual networks.
“How do we help pharmacies get better at what they’re doing? How do we help pharmacies assess what they’re doing and how well it measures across the whole of the network or across the individual network?” Williams said. “That’s where CPESN USA is trying to help all these local networks work out and become thriving networks in their respective areas.”
All pharmacies must offer at least these five services to participate in a CPESN network.
1. Medication reconciliation
2. Clinical medication synchronization
4. Comprehensive medication review
5. Personal medication record
CPESN USA is also involved in managing the most critical component for the success of these networks: proof.
Pharmacies can say all day that they are improving outcomes and saving payers money. Without data to back it up, it’s just shouting into the wind. “‘If you don’t document it, it didn’t happen’ is the mentality of most payers,” Proctor said.
And up until now, documentation hasn’t been a strong suit of independent pharmacies. That’s why CPESN USA invests a lot of its efforts ensuring every pharmacy has access to the eCare plan, which allows them to document their care plans and clinical activities electronically. “Having a standardized document, we’re able to share that information with the people it needs to be shared with, to sum up for payers what’s been done on their behalf,” Proctor said.
In addition to being shared with payers, the information can also be used across networks to help with quality improvements and quality assurance, ensuring that patients receive consistent care no matter who’s working the counter that day, Proctor said. “It’s the right way for pharmacies to be practicing.”
Although CPESN networks ultimately earn the pharmacy revenue directly from the payer, pharmacies shouldn’t expect to see instant returns. The CPESN goal is broader and bigger than a quick financial fix. It seeks to alter the whole position of pharmacy and the current payment model.
“This is about establishing yourself in a marketplace and generating a whole new revenue stream that your pharmacy has never experienced and building a future for your pharmacy based on the services you can provide,” Williams said.
Before the investment starts generating returns, the networks first have to build out and start performing. Getting to the point where your pharmacy is reaping consistent and substantial revenue may take some time. “You’re not going to get reimbursed for the services you provide patients unless you can build the network and prove yourself,” Williams said. “CPESN networks need to build and demonstrate their value, and those payer engagements are going to continue to happen.”
CPESN pharmacies get paid from the medical side of healthcare, directly from the payers. Payment methods vary for each agreement and can take these different forms.
In addition to meeting certain performance requirements, networks need to reach a certain size to garner interest. Payers need assurance the network has the capacity to handle all of their clients. Williams refers to this as “network adequacy,” a term CPESN USA borrowed from the insurers.
Once payers agree to engage with the network, the pharmacies get paid in various ways, typically through a fee structure. All of these payments come from the medical bucket, whether it’s a private health plan, ACO, hospital system, Medicare Advantage, or some other payer. Every negotiation and payment structure is specific to that local network and that particular payer.
McDonough’s primary payment method with a large payer in the state of Iowa is a per-member per-month fee, which he earns if he saves the company a certain amount of money on its total cost of care and affects patient clinical metrics of interest to the payer. “Between our two pharmacies we have about 800 individuals, so you can see that adds up very, very quickly,” he said.
He also has a fee-for-service contract with a payer for medication therapy management that includes performance incentives for patient satisfaction and physician acceptance of recommendations of drug therapy.
Even if the CPESN road is long, pharmacies can’t wait for things to get better. “Too many times I hear pharmacists saying, ‘I’m going to wait until I can get paid.’ Well that’s too late,” McDonough said. “Start transforming your practice now. You do have to invest in your practice, but the payout will be much greater for you. If you think you’re going to make it just dispensing medications, you’re not.
“Ultimately I believe you need to belong to the network because patients do better. We realize that when we start working as a group, all of us start to improve because we have to. We have to demonstrate our value to the payer. Ultimately the patients start to benefit from that. And if it’s right for the patient, then it’s right for the pharmacy. It’s just the right thing to do.”
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.
Read more articles from the March issue:
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.