Pharmacy Profits

Offsetting The Impact of Decreased PBM Reimbursements

Learn how lower PBM reimbursement can impact your pharmacy's financial stability and how smarter purchasing is essential to staying competitive.

Offsetting The Impact of Decreased PBM Reimbursements
Nathan Taylor

Nathan Taylor

Nathan Taylor is the Vice President of Sales and Business Development at SureCost. Nathan is responsible for overseeing all aspects of the company’s sales, business development and its operations. During his 25-plus years in the healthcare industry, Nathan has served in leadership roles with nationally recognized providers, including Home Nutritional Services (HNS), a Healthdyne company; CuraScript, an Express Scripts company; Kindred Pharmacy Services and PharMerica Corporation.

Even if you haven’t noticed dips in PBM reimbursements, you’ll probably feel the effects on your bottom line. Lower margins on PBM-negotiated products are another obstacle to a pharmacy’s financial stability, and financial instability can impact the quality of patient care. 

In this article, we’ll discuss the strain of lower PBM reimbursement and why smarter purchasing is essential to counteracting it. 

How PBMs Affect Your Pharmacy

There’s a lot of debate around PBMs, their impact on pricing, their level of transparency and other issues. This article will focus on how they affect pharmacies and what you can do to stay competitive amidst those challenges. First, here’s a brief refresher about PBMs. 

Think of a PBM (pharmacy benefit manager) as a representative for health insurers and other larger payers. PBMs are a third party managing prescription benefits. Their role is to negotiate with drug manufacturers and pharmacies. PBM negotiations include the medications covered by payers (i.e., formularies), rebates offered by drug manufacturers and reimbursements available to pharmacies. Along with drug prices and patient access, these negotiations affect payment to pharmacies for the products dispensed. 

PBMs charge fees for their services and receive portions of the rebates and discounts negotiated with drug manufacturers. But they also earn profits from spread pricing: the difference between how much insurers have to pay and what pharmacies ultimately get paid, which includes those negotiated reimbursements. Lower payouts to pharmacies mean higher income for PBMs. There’s an incentive to shrink reimbursements to pharmacies. That means lower margins on some products. 

Beyond hindering your financial stability, lost revenue compromises the care you can provide patients. You’re unable to cover operational costs, invest in better technology or maintain optimal staffing levels. Yet all of these elements are crucial to your patients’ treatment and their relationship with your pharmacy.

Why Smarter Purchasing is Essential

Shrinking PBM reimbursements are more than just another financial challenge. They’re another example of a pharmacy purchasing ecosystem that’s not designed for transparency. To offset these challenges, it’s crucial to maximize your pharmacy’s savings. This means a different approach to savings. It means using smarter purchasing to make savings integral to your pharmacy’s strategy and process while enhancing your existing operations. 

Here are five ways smarter purchasing enhances your savings potential and compensates for factors lowering your margins.

1. Find the Best Prices Quickly and Consistently

You can’t just try to spot better prices on your own. With potentially thousands of product listings, including duplicates across categories, you’ll miss things. Comparing multiple catalogs across different websites and then uploading separate purchase orders for each interface also takes too much time. Don’t leave savings up to manual processes when you and your staff have time to pore through everything. 

To stay competitive, you must quickly and consistently find the lowest price within all that data. There are tools to consolidate all of your vendor catalogs, including your primary vendor, secondaries and other trade partners. With intelligent automation, the technology scans all that information and finds the best price.

A smarter purchasing solution eliminates hours you’d spend on price shopping and avoids “apple-to-oranges” price comparisons. You can quickly identify which item from which vendor best fits your pharmacy. But don’t just streamline price comparison. Find technology that enables unified purchasing: the ability to upload purchase orders to multiple vendors through a single interface. 

2. Discover Better Purchasing Options

Smart purchasing means finding the true best purchasing option, and that’s not always the lowest cost you see. 

It may be the best cost upfront, but have you factored in rebates on higher-priced items? You may save more in the long run by purchasing items that hit rebate targets. Do the prices listed account for benefits like GPO pricing? You may miss savings opportunities if you’re switching screens or crunching the numbers yourself. With all these other considerations, are you still ensuring compliance with vendor agreements? The cheapest product listed doesn’t necessarily mean the highest savings potential. You might purchase an item with a higher catalog price that yields a better spread. 

Leverage tools that instantly adjust for factors that lower your cost of goods sold (COGS). This is another capability that will keep you competitive. The best tools on the market automatically calculate discounts and rebates while ensuring compliance with your vendor agreements. In addition to flagging savings opportunities, technology should bring insight into all aspects of your pharmacy’s procurement.

3. Check Your Vendors’ Compliance at Every Step

Everyone, even your vendors, makes honest errors. With that in mind, are you sure that your pharmacy always gets the correct amount of the products you actually ordered for the agreed-upon price when you expect them? 

Short quantities, a negotiated price not being honored or a vendor substitution that won’t meet patients’ needs: there are too many variables to consistently confirm and follow up on amidst everything else on your plate.  You might be overpaying or getting products you didn’t want without knowing it.

A unified procurement system tracks purchasing at every step, from uploading a purchasing order to verifying products at your receiving area. Along the way, intelligent automation alerts you of any discrepancies so you can quickly resolve them. When integrated with accounts payable, pharmacy management and other systems, you can address issues and strategize based on a holistic view of your operations.

4. Optimize Your Stock Through Perpetual Inventory 

Backorders, excess, spoilage and other issues with wasted stock lead to lost revenue. But just managing your inventory itself may mean lots of lost hours. Plus, any lengthy, tedious process is prone to manual errors. That means losing more time and money.

An integrated purchasing and inventory solution lets you do more than count what’s on your shelves. Instead of solely relying on a physical inventory, add a  perpetual inventory system: a constantly updated picture of your stock, including what’s on hand, what’s been ordered, what’s on the way, what was removed (and why) and items that should be transferred to another location.  

This is your true inventory beyond what’s on your shelves. You’ll cut back on unnecessary orders and products spoiling on your shelves. You also have a virtual “paper trail” detailing how you got there. Integrated with purchasing, you can accurately calculate your products’ actual monetary value when you conduct inventory, which is helpful for periodic inventory reports or tracking turnover ratio. 

5. Unify Purchasing, Inventory and Compliance

Smarter purchasing streamlines your purchasing and inventory into a single source of truth while ensuring compliance. You can save more without worrying about satisfying both contracts and regulations. For example, an integrated solution will verify and store DSCSA compliance data as part of your operations (not as a separate siloed system for you to “marry” with other data). Or, if you find a better purchasing option through a secondary vendor, you can model potential reimbursement or how it will affect primary vendor targets.

These strategies empower pharmacies to save money and time, counteracting the financial impact of lower PBM reimbursements while enhancing their purchasing and inventory as a whole. But make sure you’re leveraging the right solution that allows you to leverage all of these strategies.

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