Category: Business

Does Size Matter?

The other day, during a conversation I was involved in, an employee questioned the number of persons employees by small businesses in the United States. I recalled having heard that the number was significant and might even have been more than 50%.

When I was younger, I would have had to go to an encyclopedia to find the information, but today the answer is easily found using the Internet. As it turns out, I was fairly close. According to statistics taken from the most current US Census data, small businesses make up [1]:

  • 99.7 percent of U.S. employer firms
  • 64 percent of net new private-sector jobs
  • 49.2 percent of private-sector employment
  • 42.9 percent of private-sector payroll
  • 46 percent of private-sector output
  • 43 percent of high-tech employment

The origins of pharmacy are squarely rooted in the small business world. Back in the 1950’s, even small towns had one or more independent pharmacies. My own father-in-law, a long time pharmacist, regularly recounts more than a dozen pharmacies in our area, most of which resided downtown.

Mergers and Acquisitions

Over the years,  the number of small, independent pharmacies has decreased. Today, they are actually becoming rather rare in many areas of the country. Where once there were over a dozen in my area, today only a few continue to survive.

Chain stores with pharmacy departments have slowly taken the place of the neighborhood drug store. In fact, these chains routinely purchase and then close independent pharmacies to expand their own business. Rarely a month goes by that we don’t receive multiple inquiries asking if we want to sell our practice.

This merger and acquisition process is not limited to chain stores buying independent pharmacies, either. Recently, CVS purchased Target’s pharmacies [2]. In a response reminiscent of the cold war arms race, Walgreens is now looking to acquire Rite Aid [3]. This merger would combine the nation’s second and third largest chain stores, which would catapult Walgreens over CVS in number of stores.

Mergers have not been limited to pharmacies, either. The business of pharmacy involves pharmacy benefit managers (PBMs). A decade ago, dozens of national benefit managers serviced insurance companies and pharmacies. Today, however, the merger and acquisition bandwagon has left just 3 or 4 very large PBMs responsible for almost all prescription claims processing in the United States.

The Price of Big

If one goes back and compares small businesses to the much larger corporations, some things become very obvious. A Small business employs, on average only a few employees. Recall that almost half of all workers are employed by small businesses, and that small businesses represent 99.7% of all firms. By contrast, then, the remaining 0.3% are large firms who employ the other half of all workers.

These larger corporations have a some advantages over smaller businesses. They are capable of generating significantly more revenue than smaller companies. This gives these companies considerably more clout when it comes to politics, were money and influence go hand in hand. The proliferation of mega PBMs and Mega Chain Pharmacies, is in part, a power struggle.

But larger corporations also have weaknesses. The larger a company, the slower it is able to adapt to market conditions. Recently, an executive for a large company visited our store to evaluate one of our proprietary pieces of technology. The process of this evaluation has continued over many, many months, and we were becoming frustrated by the pace of the progress. The executive explained that his company was “like an aircraft carrier — taking several miles to make a turn.” Our small business, on the other hand, was essentially a jet ski running circles around them. The analogy makes a lot of sense.

What is the Goal?

The idea of four dollar generics did not come from independent pharmacies. This idea from larger companies was designed to loss-leader their pharmacy department to drive customers into their stores with the goal of making money on their other purchases. The loss-leader programs played into the PBM industry’s main tool: reducing drug costs. The PBMs used these programs to further push reimbursement for these products well below that four dollar level. Both large and small companies alike  continue to look for ways maximize efficiencies and reduce costs as reimbursement continues to plummet. Today, many products are being reimbursed at levels well below the cost to dispense them. This is not a sustainable goal.

Given the current emphasis on quality care at reduced costs, community pharmacists have been tasked to make sure that the patient achieves their therapeutic goals. The least expensive medication may not be the one that saves the health care system the most money. Pharmacy with an emphasis on patient care is increasingly being recognized for its ability to decrease total health spend. This is aligns well with the new goals Medicare and other payor are gradually adopting. Care is the new goal.

It will take a lot of effort for the large chains to turn their ships in this new direction. Without reimbursement for this professional service, however, the large ships have little incentive to change course. While small independent pharmacies can change course quickly, they are faced with an equally difficult challenge: with reimbursement levels now so anemic, sustaining a practice without other revenue streams is becoming near impossible. This pharmacy driven care initiative is in jeopardy. The jet skis can lead larger ships only if they continue to have fuel.

Congress needs to recognize the problem and take action. Congress needs to look past the large and powerful lobbies preaching savings from reducing drug cost. The real game is patient care. Congress needs to recognize the contributions made by pharmacists and allow them to be paid for these contributions. This is going to involve more than pharmacists receiving provider status under Medicare.

To make care a driving force, Medicare Part D plans must have a stake in the total health spend. This will force them to broaden their product-only strategy. Congress should reward the Part D plans for reducing Medicare’s health-spend, and the Part D plans should pay pharmacists for making this happen. A care-centered revenue stream is what pharmacy practice needs. This will also create the necessary incentive required to help the larger ships at sea to start their turns.

Pharmacists need to unite in a grass roots campaign to reform the system at the federal level. Now is the time. Make your voice count.

[1] https://www.sba.gov/sites/default/files/FAQ_Sept_2012.pdf

[2] http://www.nytimes.com/2015/06/16/business/dealbook/cvs-agrees-to-buy-targets-pharmacy-business-for-1-9-billion.html

[3] http://money.cnn.com/2015/10/27/investing/walgreens-rite-aid-deal/

 

Catch-22

Recently I have been in a discussion about several 2016 Medicare Part D plan that are appearing at the top of the savings lists when comparing plans with Medicare.gov and iMedicare.com (a third party plan comparison tool using the Medicare information). The issue we are regularly seeing is generics being listed around $1.00 per month. That is not a copay, but the entire reimbursement for the product. Examples include:

  • Atenolol 50 mg #30: $1.02
  • Simvastatin 20 mg #30: $1.21
  • HCTZ 25 mg #30: $1.40
  • Doxazosin 2 mg #30: $1.20
  • Captopril 25 mg #90: $5.29
  • Lantanoprost 2.5 ml: $1.37
  • Warfarin 6 mg #30: $1.38

Note that this is not an extreme example: this is a reproducible trend.

There are two possible explanations for this consistent low valuation for generic drugs by the plan: 1) the numbers are correct or 2) the numbers are incorrect and have not been updated on the Medicare web site since being published in October

Case: If the Number are Correct:

Let us consider the implications of the above mentioned reimbursement levels being correct. The plan in question lists a dispensing fee for 30 day supplies for 2016 of $1.00/rx. This means that the product reimbursement in each of the above cases is actually lower (by $1.00) than the number above. Let that sink in for a moment.

These prices would be MAC (Maximum Allowed Cost) prices set by the plan. When a contracting organization looks at signing contracts, one of the items it considers is GER (Generic Effective Rate). This is the average discount on Average Wholesale Price (AWP) taken by the plan for generics. GER is typically specified in contracts. Historically, GERs for plans have been in the ballpark of AWP – 78%. Some very aggressive plans this year quote a GER greater than AWP – 90%.

If the prices above are correct, the effective GER for the 7 drugs listed is AWP – 99%. This GER (granted that it is on just 7 drugs) is significantly lower than even the most aggressive GER listed by our contracting organization (and is much lower than the GER listed in this plans contract). Theoretically, the plan is required to reimburse network pharmacies for the difference if their GER is higher than that specified in the contract, though this might not happen until well into the next plan year. It is also worthwhile to note that the captopril actually costs a pharmacy about $65 after rebates, so the MAC price for this single drug loses the pharmacy $60 by itself. Any GER greater than 43% would result in a loss on this product, but contracts do not have address cases where AWP is not high enough.

There is not a pharmacy in existence than can make a reasonable profit on numbers as low as these. Given that a prescription vial, lid, and label cost nearly $0.20 alone, the remaining $0.80 certainly does not come close to covering overhead, labor, and a reasonable profit, even if one fills many hundreds of prescriptions an a day.  A pharmacy filling 1000 prescriptions a day would show revenue just over $1000 before expenses. If the pharmacy filled 100 prescriptions per hour over only 10 yours, this revenue  does not even cover the salaries for a single pharmacist and three technicians (what many might consider the bare minimum necessary to fill this volume) for the day. The pharmacy would not be capable of providing any care at this pace, either.

Case: The Numbers are in Error:

This scenario is just as troubling as the previous one, because if the numbers are systematically lower now than they will be starting January 2016, the patients that chose the plan will effectively be subject to a bait-and-swith scheme. Remember, the plan consistently shows up at the top of the Medicare.gov plan finder only because the adjudicated about for the medications are so much lower than other plans for the same medications. This  makes the plan have the lowest reported total cost when considering both premiums and copays.

The copays are so low, in fact, that the plan actually does not share any of the drug cost. An analysis of the plan often shows that the patient pays 100% of the drug cost for the entire year because they do not meet the deductible for the plan. Let that sink in for a moment. The patient pays a premium to the plan for the privilege of paying 100% of their drug expenses. Once the patient does meed the deductible, the patient continues to pay most of the drug cost because the copay is lower than the advertised copay for a generic drug.

If the prices are significantly higher in January, the patient’s actual out of pocket would be significantly higher, resulting in a patient reaching the coverage gap sooner than they anticipated or having a much higher than anticipated True Out-of-Pocket (TrOOP) expense.

Only Losers?

A similar bait-and-switch also occurred in the Medicare Part D landscape last year. One plan last year advertised a much larger pharmacy network during enrollment, but come January patients were told that their plan had a much more limited network of pharmacies. This meant that many patients would be forced to switch pharmacies despite choosing a plan than originally allowed them to continue to use their pharmacy of choice. Last year, Medicare stepped in and gave pharmacies the opportunity to sign-up or patients to switch.

It would seem that a similar scenario is on tap for January. Either pharmacies and their contracting agents are going to complain about lower than contracted reimbursement due to a GER close to 100%, or patients will be duped into a plan that does not perform as advertised. If I had to make a guess, I would lean toward pharmacies being slighted by the plan, because Medicare is less likely to censure the plan unless significant numbers of pharmacies terminate their contracts, leaving the plan with insufficient pharmacies to meet federal Medicare access requirements.

Medicare, pharmacies and patients are all being abused by the pharmacy benefit managers. Unless Medicare and Congress take steps to hold the PBMs accountable, this will continue. With the recent hearings on PBM transparency, now is the time for pharmacy leaders and grassroots pharmacists to make themselves heard.

The Origin of the Voodoo DIR?

 

The DIR fee, a subject of several posts on this blog, can be calculated in a variety of different ways. In 2016, Medicare/CMS directed plans to calculate the DIR at the point of sale (the time of adjudication) whenever possible. A DIR fee doesn’t have to be complicated to save the plan money. Yet after reviewing the 2016 Medicare Part D Prescription Drug Plans (PDPs) and their associated DIR fees, I became distressed to see even more “retrospectively calculated” DIR fees appearing despite the CMS’s direction to simplify the DIR.

So why are PDPs going out of their way to create these retrospectively calculated Voodoo DIR fees? One possible conclusion is that the PDP is trying to hide something. If we agree that this is a possible conclusion, the next question would be: what are they trying to hide, and from whom are they hiding it?

While it might seem logical to assume that the plan is trying to hide something from the pharmacy, I believe that this is in fact not the case. Instead, I believe that this might be a direct result of PBM consolidation. Over the past several years, there has been significant consolidation in the Pharmacy Benefit Manager arena, with only a handful of larger PBMs remaining in the market. I have dubbed the remaining large processors the PBM Titans. This lack of homogeneity in the processor arena has created an interesting dynamic between the PDPs and the PBMs that process for them.

Impact of PBM consolidation on the PDPs

10 years ago, our pharmacies received dozens of remittance advices and checks weekly from different PBMs and plans. Today, it is a very different story. Each remittance from a PBM Titan represents many different plans, both Medicare and commercial. In today’s world, this means that the processor of all of these claims has access to a virtual cornucopia of data.

Remember that the PBM Titans not only process claims for other PDPs, but also run their own commercial and Medicare plans. The Titan PBMs have direct access to the smaller PDP’s claim data, which includes their Maximum Allowable Cost (MAC) for each drug product and the dispensing fee(s). It is not hard to imagine that the PDPs run by the Titan PBMs could leverage their under-the-hood knowledge of the smaller players to match up their plans favorably by comparison and therefore maximize their own PDP enrollment.

The VooDoo DIR Fee

When a major national PDP started using a retroactively calculated DIR fee last year, pharmacies had a very hard time determining exactly how much they were actually being paid for each prescription. The DIR fees for last month’s claims were attached by the PDP to the current claims. This obfuscation not only created confusion for the pharmacy, but is also hid the DIR fee logic and impact from the PBM doing the processing. It is my belief that this is not a coincidence.

The Consequences

Pharmacy is in the midst of a transition. Historically, pharmacies were paid for product, and the services that accompanied the product were essentially given away. The profitability of the drug product will soon be gone. It may already be gone for some pharmacies. The revenue streams for pharmacy service, however, are still in their infancy. It is going to take some time before a pharmacy and pharmacist can run a successful business charging for their services.

The time is now to focus your pharmacy on services. The transition to a service based revenue stream will have to be taken in small steps, so the process must start now. Both pharmacists and their patients will be outside of their comfort zones during this time, and it is going to be a learning experience for everyone. There is not a better time than now to make every encounter with your patients count!

Pharmacy Games

Recently, I have spent some time trying to lend some understanding of the inner workings of the pharmacy world to a financial reporter interested in DIR fees (among other things). The most recent discussion with this reporter left me thinking about how far the profession of pharmacy has been corrupted by outside interests. Pharmacy today is a lot like a game of Russian Roulette.

Narrow Networks and Choice

This blog has discussed the benefits and difficulties facing pharmacy with respect to access to lives. Consider a pharmacy invited to participate in a narrow network. The pharmacy has to make a decision on their participation. The idea with narrow networks is that not every pharmacy will be invited to participate, creating an illusion of exclusivity and access to the patient group represented by the narrow network. This exclusivity comes at a price: lower reimbursement to the pharmacy for servicing these patients.

If a pharmacy elects to participate in the network, they are forfeiting the current level of reimbursement for the services (medications) they provide and accepting a much more aggressive (lower) reimbursement in its place. The carrot, as it were, is the potential of this exclusivity to drive patients to come to your pharmacy. If a pharmacy rejects the lower reimbursement, the pharmacy risks losing most or even all of the patients (even current customers) in the narrow network. If a pharmacy elects not to participate, the patients then have to make a decision: pay more at their pharmacy, or switch pharmacies to one that is preferred by their plan. Make no mistake, many, or even all, patients will eventually succumb to the lure of a lower copay and leave the non-participating pharmacy. A preferred network is, metaphorically speaking, the Pharmacy Benefit Manager (PBM) placing a gun to the head of the pharmacy. Choose between lower reimbursement, or fewer patients (customers). 

The wild card in this choice is the reimbursement the pharmacy is going to receive. Reductions in the contract are usually specified as the lesser of either Average Wholesale Price (AWP) minus a percentage or Maximum Allowable Cost (MAC). This lower reimbursement may also be accompanied by Direct and Indirect Remuneration (DIR fees) taken from the remittance advice (withheld from the payment at a later date).

While a pharmacy might be able to estimate the impact of AWP – % or a simple DIR fee, without a clear definition of the MAC price (a price that the PBM considers to be a trade secret), there is no real way to know how participation in the narrow network will actually effect the bottom line before signing up.

Access to Lives

An optimistic pharmacy, chain, or PSAO might look at the numbers and decide to participate, hedging that with the published reimbursement rates, the pharmacy will maintain a profitable margin. The pharmacy will have to find other ways to generate revenue using the “access to lives” it has negotiated. Independent pharmacies using Pharmacy Service Administrative  Organizations (PSAOs) heard exactly this logic when preferred network contracts were signed for the 2015 year. Large chains undoubtedly made similar decisions.

A pessimistic pharmacy (or chain or PSAO) might elect to not sign the contract. In the end, they undoubtedly will lose customers. This is revenue that drops from the bottom line. And if the customer doesn’t come into the store, you cannot offer them services or other items to purchase.

The real question for any pharmacy, chain, or PSAO, is which chamber the bullet is in when the pharmacy pulls the trigger on the contract. And each year, the chamber rotates around, so if a pharmacy survived 2015 with a preferred network, it has to pull the trigger again in 2016.

Even a large chain (like WalMart), with some very smart lawyers and accountants, appear to have miscalculated for 2015. WalMart’s recent, lower than forecast financial disclosure blame, in part, pharmacy reimbursement for lower than expected profits. It is not an accident; WalMart participates more narrow network contracts than any other pharmacy chain.

Two Edged Sword Revisited

Earlier this year, I wrote about access to lives (see A Two Edged Sword), and in the end I wrote:

I don’t like the current landscape of pharmacy and healthcare, and it is going to take hard work to change it. Giving up access, to me, is simply wrong.   Micheal Lefoeuf once said “Every company’s greatest assets are its customers, because without customers there is no company.”  Access to our patients is our lifeline!

Even given the stark reality that the past 6 months have revealed (with reimbursement in some networks well below break-even), I am sticking with my previous assertion. The difference today, though, is the realization that one cannot necessarily generate enough new revenue to cover the losses realized by participation in some of these narrow networks. In order for my pharmacy to continue to service our patients, we are going to have to optimize every aspect of our care. This will be difficult to do while maintaining high quality service. The goal now is to survive long enough to see the end game, where pharmacy and pharmacists are reimbursed not for product, but for the value they provide to the system.

That time is coming, of this I am certain. A significant number of pharmacies will close before that time, and pharmacists not performing clinical services and adding value will find themselves in a difficult position. The pharmacy transformation is coming, and I am certain that we are ready. Ask yourself what you need to be doing to be ready in your practice, and work to make every encounter count.

Access to Lives and the Biggest Big Box Store

Walmart has long been a polarizing force in pharmacy. It is best known to pharmacists as the innovator of the prescription loss-leader. The goal of the loss-leader prescription (the $4 program) was to draw customers into Walmart store in order to drive non-Rx sales. Recently, Walmart’s financials were revealed, and the results were poorer than expected. Pharmacist frustrated with these tactics may have cracked a secret smile upon hearing these financial results. Analysis of these financial results implicated poorer than expected pharmacy reimbursement, at least in part, was responsible.

For an excellent analysis of the impact of preferred networks (and how Walmart may have miscalculated the benefits of these closed networks), follow this link to “Walmart Wrestles with the Reality of Preferred Networks” at AccessRx America

The DIR and the Pharmacy Rebate

Recently, I was discussing DIR fees with a journalist writing a story about DIR fees for a national financial publication. Among the things we discussed was one PBM’s description of the reason DIR fees exist today: to pass a part of the rebate savings pharmacies receive back to the payor. This is not a quote, of course, but the implication is clear: pharmacies are making money on rebates and some of that should be shared with the payor.

While I disagree with the sentiment above, I understand the payor’s desire to lower its costs. With that said, I figured it was time to go back to some actual numbers and see how our DIR fees compare to our rebates.

Methodology

The rebates are available to pharmacy are product specific. For a given generic drug, there may or may not be a rebatable product available to the pharmacy. Sometimes, the rebatable product is actually more expensive (after rebates are accounted for) than another product. Rebates for the purposes of this analysis were calculated based on the actual rebate available for the product submitted to the PBM. If a cheaper, non-rebatable product was submitted, no rebate was calculated. Pharmacies do not generally receive rebates on brand name drugs.

There are two flavors of DIR fees currently being used by PBMs: Flat Fee DIRs and what I refer to as voodoo DIR fees. The former is specified as either a percent of a claim or is a flat fee known to both parties before the transaction takes place. The latter is calculated by the PBM using a variety of variables and the pharmacy generally has no way to know what the DIR fee being assessed for a prescription is until much later.

A two week period of claims assessed a Flat Fee DIR fees for our pharmacy was analyzed to compare the total DIR fees returned to the payor. For each claim, the estimated rebate (assuming the rebate requirements were fully met) was calculated using on the after-rebate NET price per unit (tablet / capsule etc).  The sum of both the DIR fees and the per-claim matched rebates received by the pharmacy was calculated.

For the voodoo DIR fees, it was necessary to wait for a quarterly report compiled by our PSAO in order to match a DIR fee to each claim. This report represented DIR fees for 3 months. The sum of these DIR fees was then calculated along with the corresponding claim-matched rebates estimate.

Results: Flat Fee DIRs

There were 201 claims processed with Flat Fee DIR Fees in the most current remittance for our pharmacy. The total DIR fees withheld by the PBM to pass along to the payor was $546.51. After applying rebates to the products eligible for rebates, the total rebate the pharmacy will eventually see for these prescriptions was $545.39.

Where things get interesting is when one looks at brand name drugs. The pharmacy receives no rebates for these (though the PBM may actually receive a rebate from the manufacturer for having the medication on formulary). The pharmacy was still assessed a DIR fee on many brand name drugs. Of the 201 claims, 26 were brand name drugs without pharmacy rebates. 415.74 in DIR fees were assessed to the pharmacy on these non-rebatable claims.

I will let that sink in for a moment. For the period analyzed, all of the rebates that would eventually be received by the pharmacy for the drugs dispensed was wiped out by the DIR fees. Remember, the rebate won’t actually hit the pharmacy’s bank account for several months, so this is a real hit to the pharmacy’s cash flow.

As a point of reference, these 201 claims generated only $611.59 in profit for the pharmacy after DIR fees were subtracted and the rebate check was received. That is an anemic $3.04 per prescription.

Results: voodoo DIRs

Because this report represented a larger time span, there were 805 claims compiled. The total of the DIR fees withheld (which includes any negative DIR fees that are returned to the pharmacy because the MAC price was even more aggressive than the contract allows) was $12,512.23. The rebates that these sales will reap the pharmacy came in at $3985.88, It does not take a rocket scientist to figure out that the DIR fees not only have eliminated the rebates the pharmacy would eventually receive, but also have dragged the pharmacy’s bottom line significantly into the red. For reference, the 805 claims LOST the pharmacy $5741.55 (an average loss of $7.13 per prescription). Like the last DIR analysis done here, most of this was due to several drugs significantly underwater. Note that the PBM has not addressed these underwater claims despite 6 months worth of regular reporting done by our PSAO. 

Like the Flat Fee DIR fees above, the voodoo DIR fees also assessed DIR fees on brand name drugs. Brand Name drug claims were limited to only 60 claims and represented only $450.99.

Conclusions

In order to be included in the preferred networks, pharmacies have had to agree to very aggressive terms. The MAC Pricing being used today leaves very little profit to be made by the pharmacy on the product. In recent years, the primary driver for profit for pharmacies has been rebates. With the advent of DIR fees, rebates are effectively being completely absorbed in DIR fees as “provider savings,” leaving pharmacies with little profit to cover overhead, salaries, and a reasonable profit on their investment.

I have no problem with rationalizing DIR fees existence on the existence of pharmacy rebates. Unfortunately, just like MAC price schedules, the PBM’s grasp on reality appears to be questionable. The PBMs severely underestimate real-world acquisition prices, and their MAC prices are too often below actual the pharmacy’s acquisition price. Likewise, the PBMs appear to be severely overestimating the rebates pharmacies generate.

Post Script

At the end of my conversation with the reporter, he asked me if there was anything that I would ask the PBM (that he was scheduled to talk to next) about DIR fees. That answer was simple: Pharmacy sacrificing their own profits to generate savings to the payor through the acceptance of contracts with DIR fees. What is the PBM industry (as one of the more profitable industries in all of health care) sacrificing to provide savings to the payor? I doubt that question will get a serious answer, though.

Complacency

Over the last 8 months, I have worked hard to lose 50 pounds and become much more physically fit. This did not happen by itself. It took a lot of hard work and dedication. There was a point where I had to dedicate myself to fitness and set goal. Once I achieved these goals, another dedication (to maintain my level of fitness) was necessary. Unless this dedication becomes life-long, I risk a return to my much heavier, and less healthy self.

Dedication is an amazing thing. Over the course of the month of August, I ran more than 100 miles, a feat I did not think possible. I also managed to run a half-marathon (twice). Again, not something I reasonably thought I would be able to do. I even plan on attempting a marathon distance this fall. Dedication takes will power and perseverance.

The other morning, a day after I logged 12 miles of running, my alarm went off (as usual) at 5:20 AM. The little voice in my head rationalized that because I ran 5 of the last 6 days, I should sleep in and rest today. It was tempting to get a little rest, to let my sore muscles heal. I deserve some rest because I put all of that hard work in last month and achieved so much! All of a sudden, my mind was beginning to be complacent.

Complacent
adjective: showing smug or uncritical satisfaction with oneself or one’s achievements ORIGIN mid 17th cent. (in the sense ‘pleasant’): from Latin complacent- ‘pleasing,’ from the verb complacere

Needless to say, dedication prevailed, and I got up and put in my miles. After the run, I felt much better. But such is the battle with complacency. You know what you should do, but you still feel you don’t need to do it again because you have proven yourself.

The Thriving Pharmacist vs. the Complacent Pharmacist.

This little store above was not meant to publicly brag about my accomplishment in a national forum (though it does feel good!). It is, instead, a way to talk frankly about pharmacy and pharmacists becoming complacent. One of the first things my business partner tells our residents every year is to “not become complacent.”

It takes a lot of energy and commitment to be an active, patient-care-centered pharmacist. I know a lot of pharmacists that started out committed to patient care, only to slowly become complacent. Little financial benefit is seen by both the pharmacist and the pharmacy for quality pharmacy care. Complacency comes easy in this situation, and a pharmacist may gradually become a simple dispensing pharmacist, doing only the bare minimum required by the state board of pharmacy.

Dedicate Yourself

For me, complacency in my overall fitness came gradually over the last several years. My wake-up call to get fit came from my loving wife in the form of a gift certificate to a local gym. It sometimes takes a push to recognize that complacency has set in.

Fortunately, my dedication to my pharmacy career has been fairly constant over the years. While I regularly am challenged with complacency, I work in an environment that helps me stay dedicated to patient care. Occasional “wake up calls” come from my business partner and my employee pharmacists. We all work hard to challenge each other to stay dedicated to patient care. It is certainly not easy, and often reimbursement for quality care is non-existent.

The Thriving Pharmacist openly challenges every pharmacist to reaffirm their dedication to patient care. Strive to create a supportive work environment that helps everyone maintain a level of dedication to patient care. Become a dedicated interventionist, or re-affirm your dedication quality care. Be proactive, and not simply reactive in clinical recommendations for your patients. Pharmacists have ready access to their patients, seeing them far more often than most physicians see them. Use your access to make every encounter with your patients count!

An Appetite for Inventory

Last Week we wrote about the new addition to our pharmacy, baby Maximus (a Parata Max). Today, I wanted to discuss our experience with inventory as we adapt to life with our new robotic child.

An Appetite of Inventory

The Parata Max, as it came configured for our pharmacy, has the capacity to hold 186 different medications. It has two different sizes of canisters; regular, and the “super cell.” A regular size canister can accommodate:

  • 300-500 larger tablets (e.g. atorvastatin 80 mg) or
  • 1000-1300 regular size tablets (e.g. metoprolol 50 mg) or
  • 2000-4000 small size tablets (e.g. levothyroxine or atenolol 25 mg)

The super cells, on the other hand are really best suited for larger tablets and capsules or very, very high volume drugs. Super cells hold roughly twice the capacity of the normal cell.

If it is not apparent, using an average cell capacity of more than 1000, the robotic dispensing apparatus has a capacity of more than 170,000 tablets or capsules, with a ceiling much, much higher than that. Even if the machine is filled entirely with inexpensive generics averaging $0.05 per dose, the inventory capacity is about $10,000. In our case, the actual inventory value is likely going to be higher.

Dual Edged Inventory Sword

One of our learning experiences has been with the re-stocking of the robot. The goal it to find a balance between too much stock (several months worth of inventory) and too little stock (requiring regular re-loads) in the robot. Our goal is to keep 2-3 weeks worth of inventory in the machine at any given time.  For fast-moving drugs (e.g. gabapentin 300 mg capsules), a single super cell only lasts a couple of days, using a second super cell with the same drug in it might be warranted.

The goal of restocking any given medication every 2 to 3 weeks is a significant change in our inventory patterns. In the past, we used a JIT (Just In Time) inventory model, keeping only several days worth of inventory on the shelves, and ordering each time a bottle was consumed. Because we receive deliveries 5 days a week, this model worked well to keep overall inventory down and to maximize the number of “turns” of our inventory every year. The new model, with the robot, is going to require additional inventory for many items, meaning that for medications in the robot, we will turn our inventory much less frequently.

As we learn how much stock to keep in the robot, we have decided to keep the same level of stock on our shelves (several days of inventory). This has essentially doubled our inventory of these drugs. Until we have a better understanding of how much inventory to keep in the robot, we want to keep a safety net of inventory on hand. Fortunately, only a few of the medications we have chosen to put in the machine are costly.

Smarter Inventory?

With time, the Parata Max is supposed to get a feel for our inventory usage. The reports generated by the replenishment wizard are designed to give us notice of when it is time to re-order inventory, and then how much stock to put in the machine. This has the promise to help minimize the added inventory required to leverage the robot in our workflow.

The one difficulty, though, is the nature of today’s pharmaceuticals market. On any given day, it is a challenge to get several generic medications due to supply chain issues. If we depend on the replenishment reports to order stock, we risk not being able to get the product in a timely fashion and running our supply completely out.

The other side of this is the frequent substitution that occurs in the market today. Even though the cells in the Parata are not NDC specific, each change of product requires the cell to be re-configured and calibrated. The also means that the cell must be completely empty before replenishing it. Frequent changes in generic products are certainly not ideal.

Substitution Confusion

In our practice, we place a small warning sticker on the prescription vial letting the patient know that a change in generic occurred (and that the product looks different). We generally add these notices for up to 90 days after changing a product in order to alert all customers at least once. When the product was filled off of the shelf, knowing when a product was changed was a matter of a small label or note on the bottle. When coming out of the robot, however, this is much more difficult to track, and we have not yet determined a work-around for this.

Closing

Like any new program, the inclusion of a robot into our workflow is a learning experience. With some time, we hope to minimize the impact of this change on our overall inventory levels. Next week, we will discuss the impact the robotics are making on our workflow, especially as it relates to medication synchronization.

Baby Maximus Arrives

Several weeks ago, this blog discussed our use of a Parata Pass robot and our implementation of SuperSync. At that time, we announced (somewhat like proud parents) that our Parata Pass (named Phyllis) was going to be a big sister. Well Maximus (a Parata Max) entered our pharmacy almost 2 weeks ago and this blog post will address the details of preparing for and implementing automation in our retail pharmacy space. We will discuss the results of the implementation as they relate to improvements in workflow and our MedSync program in a later post.

The Purchase Details

Before finalizing the purchase, several decisions were made with respect to features that would be shipped on the machine. A couple of these decisions were made without a complete understanding of implications. And while a better understanding might not have changed the decisions made, I believe that these questions deserve a bit of discussion as it might benefit someone else down the road.

Vial Sizes. The Parata Max has the ability to label, fill, and cap, and sort prescriptions (start to finish). It is truly a marvelous example of modern automation. The machine can be equipped to use two different vial sizes. Our machine shipped with the standard 13 dram / 30 dram vial size combination. This is well suited for most retail implementations. The other option is the 20 dram / 40 dram vial size combination. This combination may be better suited for pharmacies that deal in a significant 90 day fill business. Be sure your choice of vial sizes matches your needs as changing the vial configuration is not something  that is easily accomplished after the machine ships.

Standard vs. Locking Cells. The second item that was discussed prior to placing the order was the option of locking cells. The sales person emphasized the use of locking cells as being important for scheduled (e.g. narcotic) medications. While locking cells are useful for this, they also offer an additional safety feature. With locking cells in the machine, the user (often a technician) can only have ONE cell open at any given time, minimizing the chance that a mistake is made during the filling process. Proper training, of course, also minimizes this risk, and ultimately the added cost was not worth this for us.

The Delivery Game Plan

Like any major addition to a pharmacy workflow, a lot of work was required after the purchase of the equipment but before the delivery and installation. This is very similar to parents preparing a nursery for a new arrival. A lot of attention is paid to details beforehand knowing that after the delivery there will be a lot going on. Parata, of course, has a detailed handbook of requirements that needs to be followed. These included:

  • Adding a dedicated power outlet on its own breaker for the robot
  • Network access near the installation point
  • proper space around the installed robot (three feet of open space around three of four sides and one foot on the end)
  • consideration of workflow

In our case, a small remodel was necessary to make space for the machine. The delivery crew visited about 1 week before installation to be sure the equipment could be brought into the space and all installation requirements would be done by the time they arrived for installation. I’m not sure they were confident that everything would be done in time, as the “nursery” looked far from complete at that point. Like most remodeling projects, this one finished the night before the installation was to occur.

The Arrival

After much anticipation and preparation, the big day finally came. As this was our second delivery, we were likely a bit more prepared and relaxed. Unlike the delivery of Phyllis 2 years earlier, which involved the equivalent of a c-section, Max breezed into the pharmacy without any problems. It was not until after delivery that a few problems surfaced. The “doctor” in the delivery room (the Parata technician) quickly discovered that Max had a birth defect. He was wired incorrectly at the factory for our installation (the power and network access points were on  the top of the machine instead of the bottom). Dr. Zach, however quickly created a temporary fix and scheduled a minor surgery the next day to fix the problem. Outside of this, installation and training occurred without any significant difficulties, and within a few days we were up and running. Like any new parents, we spent the next several days getting to know our new arrival.

 

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Preparing for delivery

The installation technician taught us how to change the labels, add vials and lids, and (of course) how to “feed it” (load) medications. Boy, can this boy eat! By the time the installation technician left us (three days later), we had only filled about 100 of the 186 different cells. At one week, we were filling about 50% of our total prescription volume on the Parata Max.

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Max in the “nursery”

Coming soon, we will share our experiences with now automation has improved (hopefully!) our workflow and our Medication Synchronization program.

Search Engines and Pharmacy

One trait of a thriving pharmacy is a good patient base, and a patient base is always in a state of flux. Patient move away, move into nursing homes, or otherwise just evaporate. To continue to thrive, a pharmacy needs to continue attract new customers. Advertising, therefore is important.

The advertising continuum can range from simple to inexpensive. For example, word of mouth and reputation can result in regular referrals from current patients or other health care providers. Other times, advertising is broader (and more expensive), like a television or radio advertisement to let the public know about a new or important service you offer.

Every pharmacy will have a favorite advertising outlet. Some might find newspaper most effective, others might find that television, radio or a medium like a billboard on a busy road are superior. One newer method of advertising is the placement of materials online within search results. Google, Bing and Yahoo! all sell advertising space that matches your advertisement to searches that are likely to be associated with potential patients and customers for your services.

Computers were becoming mainstream in the late 70’s and early 80’s, and those that grew up in that time period (Generation X) are generally very computer savvy and now in their 40’s and 50’s. Generation X is also starting to required medications as they enter middle age. In other words, Generation X’ers are prime targets as new potential pharmacy customers. Online advertising (e.g. Google AdWords and other programs) is a very appealing way to target these individuals to get your pharmacy’s message across. Internet advertising has real potential to a business like a retail pharmacy. Internet advertising, however, is still in its infancy, and its effectiveness for pharmacy is largely unknown.

Putting an advertisement to appear in search results from providers like Google, Yahoo! or Bing is not straight forward if you are a pharmacy, though. All of the major search engine companies have policies on advertising pharmaceuticals or pharmacy services, and these policies state that internet pharmacies must have a VIPPS or e-advertiser credential (both available from NABP) in order to advertise.

The VIPPS Program is designed to identify legitimate internet pharmacies from the plethora of illegal internet pharmacies that exist. NABP describes the benefits of certification  as:

With thousands of rogue sites illegally selling prescription drugs, VIPPS offers a way for legitimate sites to set themselves apart.

A NABP VIPPS endorsement will set a pharmacy back $6000 initially and up to $5000 annually. The endorsement involves an on-site survey and verification of licensure along with verification of compliance with a host of policies that lend credibility to an online pharmacy. Internet pharmacies often do not cater to walk-in customers, and may not even have a storefront. The site survey to verify the legitimacy of the business is an important part of this certification.

Welcome to Pharmacy Jeopardy

Alex Trebek: “The answer is: A brick-and-mortar store with a simple website selling prescriptions to local customers in for in-store pickup.”

You: “What is a retail pharmacy, Alex?”

BZZZZZT!

Alex: Sorry, that is incorrect. The correct question is “What is an Internet Pharmacy”

You see, if…

  • your customers pick up in store, or receives home delivery from your own employee, and
  • only rarely do you have to mail a prescription (then and only into areas you are licensed already) and
  • your store also has a website of any type, and
  • your current customers can request refills from this website…

Your pharmacy is categorized as an internet pharmacy by the search engines.

The sticking point, as far as the search engine companies are concerned, is the ability to request refills online. This is a service that is critical in today’s pharmacy world. Even patients with little aptitude with computers regularly use online refill pages at their pharmacy website (independent and chain alike). They have come to expect and demand this of their pharmacy. Unfortunately, this one service makes every brick and mortar pharmacy, in the eyes of the search engines, an internet pharmacy. And internet pharmacies have to have a certification in order to advertise on the search engines.

A VIPPS certification is overkill in this respect, and NABP recognizes this. NABP also offers an e-advertser certification that will allow the pharmacy to advertise on the search engines if it only offers online refills on its website. This certification does not involve an on-site survey; the emphasis is on a review of the pharmacy’s web site. This makes a lot more sense for actual pharmacies in established communities, but astonishingly,  NABP charges $2000 per year for this certification. When asked how they justify this cost, NABP officials referred to the “extensive website review” that they do to ensure that the pharmacy meets their criteria.

I am not sure who is doing the review of the website at NABP. I have personally reviewed hundreds of pharmacy websites over the last 10 years while involved with an pharmacy accrediting organization.  Most websites took between 5 and 30 minutes to thoroughly explore and evaluate for compliance with stringent accreditation rules. Few were exceedingly information dense> The worst of these were not difficult to review in less than 60 minutes. It doesn’t take a Ph.D. in mathematics to calculate that this works out to more than $2000/hr to review a website.

Advertising ROI

Every dollar spent on advertising is supposed to bring in profit to offset the costs of advertisement. This return on investment (ROI) is often difficult to calculate, as bringing in one new patient to a pharmacy might result in a anywhere from a few dollars per year to thousands of dollars per year in sales.

But this yearly certification is not advertising. It is only a license that allows you to spend money advertising with the search engines. One still has to purchase advertising space. The yearly tax (in the form of a certification) effectively makes each advertising campaign with a search engine substantially more expensive. The high expense, coupled with the unknown ROI on an unproven advertising medium, makes the proposition dubious for all but the most aggressive pharmacies.

Conclusions

I generally try very hard to put a positive spin on everything covered on the Thriving Pharmacist, and it is difficult to spot a silver lining for pharmacies. Even so, I will try not to disappoint.

First Conclusion: if one really wants to advertise using this method, consider disabling web based refills. This should enable an exception to be made with the search engine provider (though this is not a promise). For those patients wanting access to easy refills on the go, look into companies that offer cell phone app based refills instead. This might allow you to maintain a balance between online advertising and convenient refills.

Second conclusion: Look at search results using terms like “local pharmacy” on several search engines. Chances are that your competitors (even the chains) are suffering from the same restriction. This means that you are not at a competitive disadvantage. In my case, our pharmacy appears above local chains every time (for what reason I really don’t know). If you feel like becoming the first one to test the uncharted waters of this advertising forum, go back to the first conclusion and read it again.

Third conclusion: It would take a very large response to search engine based advertising to break even after one includes the up front and annual certification costs to advertising. That does not mean, however, that a positive ROI is not possible. With great risk, comes great reward…maybe.

Finally, if being labeled an internet pharmacy by Google, Yahoo! and Bing bothers you, let them know. Contact their advertising departments and explain why you are not an internet based pharmacy and lodge a complaint. If you would be willing to spend money advertising on their site (without a NAPB certification), ask them why they don’t want your money. With enough traction, maybe the rules will relax and allow brick-and-mortar pharmacies to avoid the NABP “internet pharmacy” tax.