May 14, 2019
Inside: Without a buying group, pharmacies are dying. With them, they’re thriving.
As an independent pharmacy, it can be easy to feel alone in the complicated world of prescription wholesalers and manufacturers.
But you don’t have to navigate generic compliance ratios and other confusing contract terms on your own. Pharmacy buying groups exist to rescue your small community pharmacy from an ocean of giant corporations and confusing contract terms.
A pharmacy buying group gives independent operations a leg to stand on when faced with stiff competition from large chains. They do this by bundling together many independent pharmacies, giving the lot of them more buying power and leverage than they’d each have as a single entity.
Though buying groups have been around for decades, they have become increasingly crucial for small pharmacies in an age of dwindling reimbursements and a constantly complexifying industry landscape.
Like your pharmacy, wholesalers need to protect their bottom line. When negotiating a contract, both wholesalers and independent pharmacies want to get the best deal possible.
With an effective and strategic relationship, pharmacies and wholesalers can achieve a win for both sides. But to make the relationship equal, your pharmacy needs someone who knows wholesaler contracts inside and out. Wholesaler contracts are notoriously complicated. They come with unique terms, foreign jargon, and complex incentives that can be tough to understand for the savviest pharmacy owners.
That’s why you need someone who’s read, written, and negotiated hundreds of contracts. Who knows what details to look for. And who can protect you with the right terms.
Buying groups can provide that. Most likely, a lone independent pharmacy can’t.
But the best buying groups don’t just negotiate for you, they empower you. They sit on your side of the table, educate you, and collaborate the whole way through. You learn the ins and out of contracts and you make the final decisions. You’ll understand everything you need to know to make the most of your contract.
How much time do you spend trying to track down the best rates from suppliers, all while balancing the rest of your business?
If you are meticulous and dogged about finding the best combination of order, you’re probably sacrificing other parts of your business.
Because buying groups land you a better contract, you’ll have better prices that are based in part by your volume commitment to your primary. That means that your pharmacy will buy a lot more straight from your primary, saving you hours of time that you otherwise would have spent chasing down deals from secondaries.
Joining a buying group allows you to get big pharmacy benefits while still remaining a community-oriented operation—the best of both worlds.
A great buying group knows you and knows your needs. With their assistance, you can strategically grow your pharmacy. Things that might have seemed impossible before—like maximizing your rebates—are now within reach.
You get to keep your small staff and focus on delivering the best care to your patients while your buying group does behind the scenes work to secure the lowest rates for you.
Depending on the buying group, you may get these additional business perks:
A buying group gives you something you didn’t have as a lone indie pharmacy: negotiating power. When independent operations are represented by buying groups, wholesalers have to make an effort to court you instead of taking your business for granted. It puts power in your hands rather than the wholesalers’ by doing two crucial things:
1. Increases your volume to make wholesalers vie for your business
2. Creates competition among wholesalers to incentivize a better deal
Volume is the main reason national chains get better pricing. The distribution costs for servicing an independent are about the same, yet the revenue is paltry in comparison.
To make it more worth wholesalers’ while, buying groups pool multiple pharmacies’ book of business into one bucket, getting the total volume closer to chain pharmacies. Earning a lot more money using far fewer resources, the wholesalers will be much more interested in winning your business. That means they’ll give you better pricing to earn your exclusive commitment.
The best buying groups gather bids from several different wholesalers.
Competition is essential to motivating lower prices. This is the bedrock free market economics. If one company isn’t giving people fair prices, then another company will. When you negotiate with a single wholesaler, you give that wholesaler considerable power over your contract terms and pricing. When you negotiate with several wholesalers, you gain considerable power by making them compete to earn your business.
On Drug Channels, Adam Fein wrote, “Pharmacy owners have responded to their own profit pressures partly by collaborating with peers via Group Purchasing Organizations (GPOs). These pharmacy buying groups have altered and accelerated wholesaler competition for the business of independent pharmacies … As the GPOs have grown, wholesalers have had to compete more aggressively to win and retain the business of the groups and their members. When a buying group switches its primary wholesaler, the non-selected wholesalers will work hard to retain as much business as possible.”
Ultimately, all the numerous perks your pharmacy receives by being part of a buying group come down to one thing: a better bottom line.
With profit margins for prescription drugs only getting thinner, every penny matters. As long as PBMs determine reimbursements, the only way to increase your margins is to spend less on your inventory. Since you can’t change the sell side of your business, take control of the buy side.
At the end of the day, what benefits you also benefits your patients. Whether it’s passing on some of your savings to make their medications more affordable or reinvesting in your customer service, joining a buying group will help you do your job better.
Does your buying group offer all the perks above? Don’t settle for what you have. Seek what you deserve.
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.
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