“Who has time to read through their entire contract and keep checking on their pharmacy’s compliance?”
At SureCost, we hear this question all the time. It turns out the answer is “successful pharmacies.” Compliance can drive savings and deliver business insights. In a competitive pharmacy industry, pharmacies must leverage data to do more than follow the requirements; they must monitor compliance to optimize purchasing through their primary vendor and the entire market.
In this article, we’ll show you how compliance with your primary vendor can actually enhance your purchasing.
The Cost of Non-Compliance
To start, we’ll admit it: primary vendor contracts are complex. These agreements stipulate a range of requirements, including:
- Source compliance rate
- Included/excluded products
- Multiple rebate tiers for generic and brand name products
- Minimum purchase volume on total and minimum spend
- Generic spend both as total percentage and total spend
- How long do pharmacies have to report discrepancies
When they don’t adhere to all of these terms, pharmacies leave money on the table. You miss out on rebate savings—money that vendors are otherwise obligated to pay. You also risk incurring costly penalties for non-compliance. If you’re not consistently following the terms of your contract, it can also impact the relationship with your primary vendor. You’ll have less room to negotiate better terms in the future. It might even mean longer wait times for customer service issues.
Plenty of factors are already raising your cost of goods sold (COGS) and taking up hours of the day. Be sure you’re not adding to the burden because of non-compliance.
Be Careful With Low Prices
Non-compliance is costly, so the lowest price for a product isn’t necessarily your best purchasing option. You may spot cheap prices from other vendors. But make sure you’re adhering to your primary’s contract terms. It’s not worth paying less upfront for a specific product if you’ve missed out on savings through rebates or have to pay penalties for not meeting your minimum purchase volume. Shopping for a better price without accounting for the impact on compliance is risky.
Maximizing rebates and taking advantage of other terms in your contract can lower COGS and yield better margins for your pharmacy. Yet, in most cases, pharmacies must rely on their primary vendor to report on their compliance ratios. That’s usually every quarter, hardly enough time to make dynamic decisions or adjust purchasing strategy in real time.
Pharmacies need to ensure compliance without limiting their purchasing. That may sound complicated, but you can use a smarter purchasing solution to track compliance, unlock savings on other products through an expanded purchasing portfolio and evaluate how those purchases impact your primary vendor’s compliance.
Compliance is a Two-Way Street
Just as your pharmacy has to meet the requirements outlined by your primary vendor, your primary vendor has to follow the pricing and terms they agreed to. A smarter purchasing solution provides you the data you need—when you want it—to track and monitor how effectively your vendor is complying.
Even vendors make mistakes. It’s important to check that they’re always shipping the correct items in the right quantities and invoicing you at the agreed-upon prices. A smarter purchasing solution enables you to compare catalogs, upload purchase orders and then scan received items. Each step of purchasing is tied together into a single interface to quickly and easily automate the verification process.
That includes verifying that rebates are calculated and applied properly per your contract. Don’t just purchase enough to reach higher rebate tiers; make sure you have a tool to confirm you’re getting your reimbursements on time. Having your own solution (and not just waiting on the vendor’s reports) also empowers you to review data on rebate performance. You can then identify opportunities for improvement and adjust purchasing strategies to hit higher rebate tiers.
Internal compliance is also key. You may know your primary vendor agreement inside and out. What about the rest of your team? A smarter purchasing solution helps establish and maintain purchasing guidelines across your staff and other locations.
Instead of sticky notes and company emails, purchasing through a single solution allows you to drive purchases to preferred products, so pharmacy teams always buy the correct items. Since you have all the data at your fingertips, you can also conduct internal audits to assess adherence to purchasing rules.
The Solution for Optimal Compliance
A single vendor’s contract is complex. Their catalog alone may list thousands of products in multiple categories. But a smarter purchasing solution streamlines purchasing. It analyzes all vendor catalogs—primary, secondaries and even buying groups and GPOS—to find the true best purchasing option. It also accounts for primary vendor compliance, so you’re not buying cheap and losing big on rebates.
Primary vendor compliance means more than checking boxes. It goes beyond avoiding penalties. Compliance can be another element of your purchasing strategy. It can help your pharmacy unlock savings and business intelligence. Achieving those goals requires consistent compliance and the right solution to optimize contract management.
