Category: Business

I don’t know about you, but the amount of actual postal mail I receive today is significantly diminished from a decade ago. But unlike land lines (phones that were attached to your house, for those that grew up in the cellular phone era), the mailbox isn’t going anywhere soon. Electronic mail may be good for a lot of things (I must get back to that Nigerian Prince one of these days…), but official correspondence, while uncommon, needs a landing strip.

When you receive certified mail, you know something important just arrived. Postal mail has a certain gravitas: even if you refuse delivery of certified mail, the contents are considered “served” from a legal perspective. If something appears in your mailbox from your insurance company, it is probably significant.

As a pharmacy owner, I am regularly approached by patients, some not even my own customers, asking about mail they received from their insurance company or PBM. They correctly assume that the document may contain important information, and the message is not always clear or easily comprehended. A great example are letters from PBMs informing their customer that their pharmacy won’t be in network starting at some point in the future. 

From a consumer standpoint, this is confusing. Many consumers consider their choice of a pharmacy as a given freedom. Being told you must change providers creates confusion, anger, and even fear. This is why I see so many of these letters every year. They are disruptive to the patient.

From a pharmacy owner’s perspective, these letters are often unfair. The letters, while factually accurate, do not convey all the ramifications and alternatives available to the patient. For example, around the end of the year, when open enrollment is approaching, a lot of these letters go out when a pharmacy opts out of a bad contract for the next year. The letter tells patients that they must change pharmacies. What it doesn’t tell them is that they could also elect to change plans. That is an important part of the equation, but because it isn’t in the plan’s best interest, they omit this information!

These letters are a fact of life. Sometimes a patient will have alternatives like switching plans. Other times, when an employer elects a plan change that excludes local pharmacies, there isn’t an obvious way for the patient to maintain their pharmacy choice. The important part, for both patients and pharmacy owners, is to be proactive. 

As a pharmacy owner, you need to have your finger on the pulse of your community. This usually means inculcating loyalty with a few dozen community members. Let them know you want to hear about anything they encounter that might impact pharmacy and healthcare. When one of their friends mentions a letter they received from their insurance impacting their pharmacy choice, YOU want to know about it because you cannot plan if you are not aware that change is afoot. 

As a member of the community, and a consumer of local healthcare, it is important to share plan changes with your local providers. If your local providers are excluded from any plan, their long-term viability as a local provider becomes questionable. Healthcare is a local service. Proximity to care, be it physicians, clinics, or pharmacies, is important, and often it is only after a clinic or pharmacy closes you recognize the impact of the loss. 

Changes being made by healthcare plans impact accessibility. It doesn’t take long in today’s economic environment to be left with one or no options in your area. Healthcare plans might tell you that fewer providers creates efficiency. While this is true to a degree, it also eliminates competition and choice. What happens when the remaining options are also squeezed out, and the next closest option is in the next town, city or state?

On the consumer side, it is about maintaining access to your local providers. On the provider side, it is about maintaining access to your patients. Health plans and PBMs are not necessarily concerned with the patient or the provider. They are concerned with their own bottom lines. To them, it boils down to dollars in their pocket. To the local community, it is far more important. 

For consumers, if you receive mail regarding changes to your care plans that might impact your providers, share it with them! Take time to ask questions. There may be options available to you to continue to use your providers of choice.

Today we have a few more details of the contract discussed in yesterday’s blog. If you have not read the blog post yesterday here, please take a moment to do so now.

1. It is being assumed (I do not have official confirmation) that any existing rural contracts would not be included in this contract. Theoretically, they would continue to see the same reimbursement the have as this contract is explicit for retail stores. Always confirm this with the payer before making any decisions.
2. The contract does appear to have language in it that would prevent a pharmacy from leaving the plan during the year once it has “elected” to participate (recall that this is an Opt-Out contract, doing nothing means you are in). This means that once you are in, you are in for the whole plan year.
3. Sources indicate that the very aggressive terms for this contract are a “worse case scenario” and that the enforced contract will be “significantly shallower”, whatever THAT means. We believe that one has to assume that the contract will be enforced as written. A non-contractural promise that the contract won’t be as bad as it is written is not something you can count on. As always, your level of trust may vary.
4. This plan is going to be used heavily by the PBM next year. In fact, the anticipated plan sponsor crosswalk from the payer shows that only a few plans will be using a different contract next year. The PBM is going all-in with this very aggressive (and bad for pharmacy) contract.

Before we discuss how to proceed, let’s make a few more observations:

As mentioned above, PBM seems to be all-in on this plan. It is counting on having enough pharmacies involved to make this feasible. Payers, including Medicare, require network adequacy, and even if the PBM owns a lot of stores, they are required to have alternative options. This is likely one reason that this contract is using the Opt-Out language. They may hope to meet their needs thru subterfuge.

In many ways, it is imperative that pharmacies, including independent stores, regional chains, and even some national chains critically evaluate this contract to understand its egregious terms and effect on the financial viability of their practice.  By not doing anything, the pharmacy opts in, automatically accepting the terms and conditions of the contract.  If enough pharmacies opt-in (by not opting out), the plan may reach network adequacy, and community-based pharmacy becomes far less relevant to the healthcare landscape. On the other hand, if pharmacies opt-out, and network adequacy is at risk, this may require the PBM to revisit the contract terms.

From a Pharmacy Services Administrative Organization (PSAO) aspect, I suspect that unless serious concessions are made, most PSAOs will not sign the contract on behalf of their stores. In some ways, this is becoming a referendum on PSAOs. The PBM industry has been at odds with PSAOs for a long time now. Failure of the PSAOs to achieve a fair contract for their pharmacies could spell the beginning of the end for this type of service organization.

So what do you do? Here are the four possible scenarios. If you don’t belong to a PSAO, your options are effectively binary.

Scenario A) You accept the contract (do nothing) and your PSAO elects to decline the contract. You are in the contract, for good or for bad, for the original terms of the contract for the duration of next year.

Scenario B) You accept the contract (do nothing) and your PSAO Accepts and negotiates better terms than the base contract. You are now going to receive the better terms, as your affiliation’s contract supersedes your own contract.

Scenario C) You opt-out and your PSAO opts-out. You are not in the plan next year, and you will need to work to ensure that your patients know this and can make an informed choice come open enrollment in October thru December of this year. You may lose some patients that either miss their opportunity to change plans or elect to use the plan despite your non-participation.

Scenario D) You opt-out of the contract and your PSAO opts IN to the contact. You are now back in, even if the PSAO negotiated rates are not enough to keep you happy.

If you end up in scenario D, and you still don’t want to participate, you do have one more option. You can elect to contract direct with the payer. Doing this would invalidate your inclusion in the PSAO contract, and you then can choose which plans you do wish to participate in yourself. Keep in mind that you still would not be able to service any of your customers that elect to participate in that plan.

From an independent pharmacy perspective, there are a lot of reasons to opt-out. If you have a PSAO, your store opting-out gives the PSAO more leverage to negotiate a better contract for you and your peers. If you don’t have a PSAO, there is little reason to take a contract that would cause a long-term hemorrhage of cash for your store(s).

Ultimately, each pharmacy owner needs to decide about this contract by either doing nothing (opting-in) and waiting for the inevitable negative consequences, or taking action, standing up for your professional convictions, and controlling your destiny. 

It is only April, but we are having to make decisions on upcoming Medicare Part D plans for 2025. Anymore, pharmacies just expect poor reimbursement. Unfortunately, the menu this year includes not only unsavory contracts, but also some tricky maneuvering by some plans.

First, let’s revisit: most pharmacies can purchase brand name drugs at Wholesale Acquisition Cost (WAC) minus 4-6% if they do a decent book of business with a wholesaler. I know very few that do even marginally better than 6%. Purchasing brand name medications from the few secondary wholesalers that carry them generally does not result in a discount of better than WAC – 3%. In other words, there is a hard floor for the purchase price of brand name products for ANY pharmacy. Going below that floor means you need to make up the difference (loss) somewhere else.

Today I was looking at a national contract featuring reimbursement of brands at AWP – 22.7%, which is equivalent to WAC – 7.24%* plus a negligible ($0.10) dispensing fee. The extended day supply arm, something that the contract deliberately emphasizes because it makes THEM more money, was listed as AWP – 24.7% (WAC – 9.64%)* plus no dispensing fee.

Reported conversations with the plan note that the rates above are the maximum discount that can be applied to a prescription. It is reported that they have stated that the actual discount will be “significantly shallower”. Yet the maximum rates are so egregiously low that even if they are “shallower” they would still likely to at best be a break even proposition. Any time the maximum was used, it would be a severe loss. These terms are not something that any rational business person would ever accept. But that isn’t the limit to the devious tactics being set forth in this contract. It gets worse.

I would not sign this contract. It is a poison pill that would kill my pharmacies. Any patients enrolled on this plan and filling insulin, inhalers, or other brand medication, would gradually bleed the life from the pharmacy. But I don’t get the opportunity to sign this contract. No. This contract will automatically become effective for 2025 if I don’t EXPRESSLY OPT-OUT before April 29th.

There are a few possible reasons that the plan might be doing this, but the most likely one is that they know that the contract is, at best, non-profitable for the pharmacy. If pharmacies were given the option to join in, they would not do so on their own. There is no incentive to opt-in. By making this an opt-out only contract, they stand a chance to keep enough pharmacies in the network come January 2025 simply because they missed their opportunity to opt-out. Having pharmacies participate in the contract is important to the plan because they have promised Medicare a certain level of network accessibility. If pharmacies didn’t enroll, the plan could be in trouble.

But this isn’t the end of the funny business. You see, we have not actually seen this contract. We have only been shown the reimbursement rate schedule. While the schedule is very important, there are other aspects to the contract that are important to understand. For example, the contract will outline how a pharmacy can exit the contract, normally by giving, say, 90 days notice of termination. But this contract, which we have not seen, had an interesting blurb in the information they did provide: “You will be enrolled as a provider in the [redacted plan name] for the ENTIRE (emphasis added) plan year under the terms detailed in the attached Network Enrollment Form.”

Once again, I have not seen that actual contract, therefore I cannot say what is in the termination section. It is possible that if you fail to opt-out and find you are losing money next January, you actually may still be able to exit. We have exercised this type of termination clause in the past for poor plans. But for some reason, the document sent with the notice for this plan explicitly states “for the ENTIRE plan year (emphasis added). In other words, there is a real possibility that a pharmacy would be stuck in the plan for the year if they don’t opt-out!

It stands to reason that the plan is probably concerned with maintaining network adequacy. If I were trying to sell this plan, I would also be worried. Why in the world would any pharmacy take a contract which will lose them money on any brand dispensed? There is no upside. No Carrot. Only a stick.

This article is, of course, targeted to pharmacy owners. But it is important that patients that use independent pharmacies understand that their access to their pharmacies is under attack. If you use an independent pharmacy, and they end up in bad contracts like this, they will may not be your independent pharmacy much longer.

The decision to opt-out of contracts like this has to be made by each individual store owner. If they are not aware of events like this contract opt-out deadline, then they cannot make an informed decision. The result of this inaction could be the end of that store. Make your Encounter with this article today Count. Be sure to alert your local independent pharmacy or pharmacies. Make sure they know that there is an opt-out contract coming due imminently, and it is a contract they may not want come the 2025 plan year.

Likewise, as pharmacy consumers, it is important to understand that the open enrollment period beginning this fall (October) is becoming a mandatory engagement event. Like this opt-out only contract, not managing your plan for 2025 when you have the window of opportunity can result in your choices in pharmacies being very limited!

Make this viral so access to independent pharmacies isn’t further eroded!

* When converting from WAC to AWP, WAC = AWP – 16.67%, This applies when there are no additional discounts. If discounting off AWP and then converting to WAC, the WAC has to be adjusted based on the discount. This means that AWP – 22.7% = WAC – 7.24% and AWP – 24.7% = WAC – 9.64%

Do you have a store or shop you regularly patronize? Have you ever stopped to consider why? There are numerous reasons, of course, but it boils down to one concept. Given a choice between two alternatives, the store you prefer offers sometime that the other doesn’t. That something might be an employee, or customer service. It might be convenience of location or hours. We call patients with an allegiance to a business sticky customers.

If you are operating a pharmacy, your goal is to attract and maintain long-term, loyal, sticky patients. But what differentiates one pharmacy from the next? It likely isn’t the medications: most every pharmacy has access to the same product. Patients perceive that all community (retail) pharmacies to the same thing. Jerry Seinfeld’s observation on pharmacy sums up what many believe pharmacists do

“I’m workin with pills up here. I’m taking pills from this big bottle and then I’m gonna put them in a little bottle!”

Jerry Seinfeld

Many customers really don’t understand what pharmacists and pharmacies actually do. As a result, a lot of patients are sticky to chain or box store pharmacies simply because they don’t know that not all pharmacies follow that model.

Of course there is always churn in pharmacy. The most common reason a patient switches pharmacies is customer service. Even just one bad customer service experience can result in a patient transferring to a new pharmacy. While customer service can help with achieving a sticky customer base, and poor service can certainly result in the loss of customers, customer service alone doesn’t really differentiate a pharmacy.

If you start to compare chain and independent pharmacies, you start to recognize that there are a lot similarities beyond just prescriptions. Things like a drive-thru window, over-the-counter medications, greeting cards, and sundries are all common features in pharmacies. Things like delivery and durable medical equipment might be less common, but again, there are multiple options typically available to the pharmacy customer. This begs the question: what can one do to truly differentiate a pharmacy?

Differentiation

When trying to define something that truly differentiates a pharmacy, it essentially boils down to the same question. “Where else can I go to get this?” In a small market, if the answer is more than zero, it isn’t a differentiator. In a larger market, it can be more than zero, but it still has to be fairly small.

It isn’t enough to offer something uncommon, it also has to be in demand and the quality has to be high. This applies to services as well as product. Ultimately, a well differentiated pharmacy is the only place you can go in the area to get something that is in demand. Of course, this isn’t an easy thing to achieve. It requires thinking outside of the box. Once you determine your niche, it requires marketing and effort to grow it.

Perhaps the easiest path to differentiation is to know what your competition does and compare it to what your pharmacy offers. These things are not differentiating your store. The trick is to identify what you might add as a service or product that they don’t do. Ideally, it would also be something that your competition cannot offer because if you do hit a home-run, the competition will want in on the action.

We obvioulsy cannot offer individualized suggestions to every independent pharmacy here in this article. Today, we will discuss one example that many independent pharmacies could implement.

Professional Supplements.

One way to differentiate an independent pharmacy from the chain pharmacy competition is supplements. Every pharmacy can order national brands of vitamins and supplements. You can go to almost ANY pharmacy and pick up a bottle of Nature Made Stress B-Complex. If the pharmacy doesn’t stock it and there is demand, they can add it. But what if you could order a supplement line that was unavailable to the chain pharmacies?

Professional Supplements refer products that are not sold by the traditional wholesale channels in pharmacy. Companies Ortho Molecular only sell their products to independent pharmacies. These are high quality products that one cannot purchase from your local big-box pharmacy.

Just putting in a quality product that is unavailable elsewhere isn’t generally enough. While there may be existing demand for the products in your area, the public needs to know that you have the product and learn why they need it. In other words, adding a professional supplement line is just step one. Marketing and education follow, to raise awareness and create demand.

In order to create the demand for professional supplements, it is necessary to reach out to practitioners and prescribers that understand the importance of quality supplements and are receptive to general aspects of functional medicine. It also will require the pharmacists and staff to become familiar with nutrition, nutrient depletion and supplementation, and to become comfortable with the basics of functional medicine. This requires ongoing, significant professional commitment and work in marketing and education. Is it worth it to go down a path like this? It absolutely can be a big win for the pharmacy. Margins on supplements are very good, and the patient interactions can be very rewarding.

In a given market, it is possible that two pharmacies might both sell one or more professional supplement brands. While this may or may not be an issue depending on the market saturation, it does diminish the differentiation factor. If you achieve respectable sales of a profesisional product, you might then consider private labeling some of the products. This means that the professional product X becomes YOUR own product, under its own brand, with a different name. Now, even your local competitor cannot offer your product (unless you sell it to them).

Obviously, there are lots of different ways a pharmacy can create truly sticky customers. Differentiation is necessarily an individual process, and there may be a variety of ways to achieve this goal. The important lesson: you have to make the effort. If you don’t make Every Encounter Count in your pharmacy practice, you will miss opportunities!

Pharmacy is a difficult business for a lot of reasons. The PBM industry, years ago, turned the profession upside down by transitioning from selling a service to pharmacy (processing claims) to selling access to their pharmacy networks, and later also selling patients of those networks as a commodity. This pivot made pharmacies essentially dependent on the PBM industry for access to their own patients.

When a PBM is involved, pharmacies do not have any real control over what they are paid for product or work. If a PBM wants to pay a pharmacy less than the product costs, a pharmacy has few alternatives. The only way to take back control is to cancel contracts with a PBM network. Of course, this also carries the risk that patients using that insurance will go to a different pharmacy to use their insurance. A serious Catch-22.

There are examples, however, when pharmacies do cancel contracts. I have seen pharmacies drop major payers due to poor reimbursement. The question becomes, if I am being reimbursed so poorly that I will go out of business if I continue to take the insurance, then the loss of that bad business might be enough to keep the doors open. This is akin to amputating a leg with gangrene. Tough choices need to be made in order to survive.

Some contracts that are bad for a pharmacy have less draconian implications. A good example is a discount card with high transaction fees leaving little or no margin for the pharmacy. These cards may advertise themselves to patients as a good option, but they are bad business for pharmacies. As there are many options for discount cards, cancelling an egregious contract for a discount card is not as risky to the pharmacy as cancelling a network based insurance contract.

Pharmacy is also a very dynamic industry. One cannot become complacent as things are always changing. The PBM industry has a new trick up its sleeve: piggyback discounts. The PBMs claim that they need to offer their clients (businesses and insurance providers) better copays. Never mind that the PBM completely controls the copay structure. They want to reduce copays but not impact their own pocketbook or cost their customers more money. And they have found a way to achieve this.

Today, when some PBMs receive a claim electronically from the pharmacy, they then submit the claim to one or more discount cards. If the discount card offers a better price than the PBM’s logic, it uses that instead. This all happens outside of the normal claim response loop. In other words, the claim is sent to and returned from the insurance, but it also took a stop elsewhere. Essentially, a bait-and-switch tactic on the pharmacy.

This extra (and secret) hop can create problems. For example, some of the discount card partners being used by the PBMs are the same one that many independent pharmacies went out of their way to cancel. The PBM, with this new program, has essentially overridden the pharmacies preference to not do business with what they perceived as a bad player by piggybacking the discount plan’s contract onto the PBM’s contract with the pharmacy. The PBM contract has vastly more significance to the pharmacy if it wanted to opt-out.

The biggest challenge with the new tactics is that it is essentially transparent to the pharmacy. Unless you are looking closely at the claims, you will be unlikely to notice that it happened. We have also been told that patients and payers are also unaware that this switch is taking place. So how can a pharmacy ascertain if this is happening? There are a few things you can do to flag these claims in your pharmacy system.

1. Ask your switch to capture any of these types of claims and then return a soft-reject, essentially giving you an alert that something has happened. At this time, our switch is working on an implementation, and expects that it will be ready to deploy in April of 2024. If this is not soon enough for you (and it isn’t for us), then continue below.
2. Create a filter or restriction on claims based on an ingredient cost paid field returned by the insurance. Look for when the returned value is less than $0. This is NCPDP D.0 field 506-F6. Discount cards in general return a negative value here (this is the claw-back or fee the card takes). This is a very GENERAL test for claw-backs and discount cards.
3. Finally, and most specific, create filters or restrictions on claims based on the Network Reimbursement ID field. This is NCPCP D.0 field 545-2F. What you look for here depends on the payer. The values and their affiliated plans to capture in the field are:

######GDRX for GoodRx where the ###### are numbers (often a BIN number) *  
######SSRX for SureScripts with the ###### like above again *
CNTRCT5001 for the Caremark internal discount card
CASH for Cigna patient not covered anymore discount card
NET=9185 for the Humana OTC discount / not covered item
OPTPRP is the Optum Patient Relief (no longer covered)

*Because the ###### component may change, you will need to look for the static part by using logic like "Contains GDRX" Alternatively, you may find PBM published payer sheets that outline the actual numbers. In my state, for example,  the insurance using GoodRx returns 999999GDRX in 545-2F.

Most of the above programs have very high fees. These fees fall on the pharmacy, and not the PBM or the patient! The list above is not guaranteed to be complete, and values can change.

Personally, I consider this tactic unethical. As the tactic is just now appearing in our area of the country and we don’t have enough data at this time to fully comprehend the implications nor the significance of the change. One expert on pharmacy contracting indicated that the strategy was used in other areas of the country in the fall of last year. That plan phased the strategy out, apparently using what it learned from the discount card partnership to lower their own Maximum Allowable Cost (MAC) pricing.

Assuming that this practice is here to stay, what can a pharmacy do? A pharmacy refusing to run these claims has to understand the contractural implications. Refusing to run claims might put your pharmacy in violation of a network contract and run the risk of being terminated from the network.

At this point, our pharmacies are collecting data: we have implemented filters to flag these claims as they occur. Our staff has been instructed to document the information and forward for analysis. Until we understand how this strategy is being used in our area, we cannot formulate our response. With more information, we can decide what our response might be going forward. Your assignment this week: put these types of flags into place in your pharmacy and prepare to make Every Encounter with your claims Count!

Footnote: If you are not sure how to implement a restriction or alert on your pharmacy system based on returned claim information, contact your pharmacy management software vendor. I am familiar with two common systems being used by independent pharmacies, Pioneer and Liberty. Both allow this type of implementation. Others undoubtedly have similar features.