The Thriving Pharmacist

If we think back to our time in pharmacy school, many of us remember the excitement of learning new clinical skills, discovering drug therapy problems, and the satisfaction of patient care. These are all important, and to this day I still get excited for the unknown clinical realms that I will venture into any given day: no two days are alike. 

As a pharmacy owner, I also think back on how little time was spent in pharmacy school learning about the various aspects of running a business. And let’s face it, back when I went thought pharmacy school, we did spend time on this. Today, with the emphasis increasingly on clinical skills, new pharmacists have even less exposure to the business aspects of running a pharmacy. It is left for them to learn this on the job. 

Ironically, I also have noted an uptick in young pharmacists with interest in pharmacy ownership, in part due to dissatisfaction with some of their first experiences in the pharmacy work force. Having a solid grasp on the mechanics of operating a business is again becoming more important. Today we will look at an important concept in any retail facing business: Turns.

The standard definition of inventory turns is the cost of goods sold (CGS) / average inventory. This is closely related to two other metrics, sell-through rate and days of inventory on hand. A store’s “Turns” metric is a benchmark for inventory turnover. The average retail store nationally has just under 11 “turns” of its inventory each year. Another way of stating this would be: the average item on your shelf sells 11 times a year.

Turns are important because inventory is money. For example, my pharmacies have between $100,000 and $260,000 of inventory on their shelves at any given time. That represents cash on the shelf, not in my bank account. Yes, you need inventory on the shelf to do business. With too little inventory and you will be known as the “out house” and with too much inventory you will suffer cash flow issues. Optimizing your turns is optimizing your cash position.

Like any financial measure, it is simple to see how one can impact turns. Given the two parameters — Cost of goods sold and inventory on the shelf, one can logically increase turns by increasing sales or decreasing inventory. Being a pharmacy, however, makes this a little more nuanced. In a pharmacy in the United States, the inventory is typically not unit of use (one bottle is one patient prescription): we tend to have a lot of items that will have a remainder once something is used. 

In pharmacy, therefore, the trick is to balance the reorder points for items to cost of and demand for the product. Because your turns equate directly to dollars, it makes sense that the best way to positively impact the metric is to concentrate on the high dollar items. Let’s look at three examples:

At one of my pharmacies, Atorvastatin 20 mg tablets are dispensed 40-50 times a month and we use 2500 to 3000 tablets every month. This is a low cost and high use item. Selling more Atorvastatin 20 mg would not appreciably increase my cost of goods sold (as it is inexpensive) and having a month’s supply on my shelf might represent $100-$150. This is not a good candidate.

On the other end of the spectrum might be Ozempic 4mg/3ml. This product is unit-of-use: we don’t have to worry about having a partial box on the shelf after we dispense it. Each month we dispense 7 prescriptions, representing 20-30 boxes. Each box costs between $800-$900. With this product, I can significantly impact my turns because sales represent roughly $250,000 per year, which is about my average inventory on the shelf. 

My goal the Ozempic is to keep the absolute minimum necessary in my refrigerator. This takes a little work: I need to know who is taking the medication and when their next prescription is due so I can order it shortly before the prescription will be filled. I determine that I only need to keep one or two boxes of the drug in my refrigerator for any new patient started on the medication.

By performing a variant of Medication Synchronization (MedSync) on all patients with this medication might be able to decrease the number of boxes of the medication in inventory from 10 to 2. A pharmacy with an average $210K of inventory and $2.3M in CGS/yr has 10.95 turns. Taking 9 boxes out of inventory over the course of the year increases turns to 11.3, a significant change with one medication.

Not all medications are unit of use. Our third example is a vaccine: Shingrix. We currently give 8-10 doses of this every month and the product comes in a box of 10 doses. The drug isn’t quite as expensive as our Ozempic, having just 12 doses in the refrigerator puts the value north of $2,000. With this drug, I cannot adjust the quantity I keep on hand: I have to order 10 doses at a time. 

So how can I impact turns? In my case, giving 10 doses/month on average, I reorder only when I get down to one dose (called a Re-Order Point or ROP of 1). This means that I will never have more than 11 doses in my fridge and I’m risking being out of the vaccine on occasion, when we have several walk-ins near the end of the box. But I can also take an additional step: I can schedule my vaccinations. This way, I can ensure I have stock on hand. Scheduling can also allow you to use the entire box in a short period of time: schedule 10 doses over a few days and order what you need immediately prior.

This drug, using the prior example, will add 0.1 turns if we can decrease our average inventory on hand from 12 to 1. This might not seem like a significant change, but it represents, on average, having and extra $2000 in your bank account over the course of the entire year. This helps take pressure off of paying other bills, like payroll, by having additional cushion in the checkbook.

This is the essence of managing turns. Obviously, a pharmacy has hundreds or even thousands of different items in its inventory. The trick is to identify which items have the most impact and work with these first. There are, of course, tools you can use to further manage and even predict demand. These can used to further increase your turns and improve your cash flow. 

As always, if you have questions, or need further help, our consultants can help. In this case, help you Make Every (inventory) Encounter Count!

Ask any pharmacy employee how many calls they received weekly from secondary sources for product, and you will likely see a quick eyeroll. Personally, I received up to a dozen calls per week: it is a veritable alphabet soup of companies. 

The companies run a gamut of philosophies: short-dated drug product, DME specific, compounding ingredients, OTC and front end, and of course the traditional drug product offerings, sometimes even including brand items. The reason they call so often is that they aren’t your first choice for purchasing. You likely have a primary wholesaler where you purchase most of your product.

Most pharmacies have a primary wholesaler contract for a reason — they require a full catalog of brand and generic offerings–something that most secondary suppliers generally cannot do. If you do have a primary wholesale relationship, chances are that there are provisions within that agreement (sometimes called levers) that allow you to achieve a better cost of goods as the levers are triggered. 

Common metrics used by the wholesaler to unlock progressively better cost-of-goods (CGS) include things like purchase volume, Generic Purchase Rate (GPR), Generic Compliance Rate (GCR), and Brand Purchase Rate (BPR). The savings in CGS is often reflected in rebates on generic purchases, with rebates increasing when the pharmacy performs better in the metrics.

The primary wholesaler is trying to create a sticky customer — one that purchases all, or at least most, of the product they need from them. Many of these metrics reflect generic purchases: the wholesaler is interested in capturing the generic purchases from the pharmacy because this is where they themselves have a margin. Here is a not-so-secret: wholesalers often sell brand name products at or below cost to their customers, hence the focus on the generic sales. (This secret doesn’t take the sting out of the pharmacy also selling the brand below their cost much of the time.)

But with reimbursement from payers continuing to drop below the pharmacy’s costs more and more often, pharmacies feel pressure to find savings on generics in the secondary market. This is where the challenges begin. While purchasing a small amount of generic product periodically will likely not impact your GCR or GPR, significant leakage can drastically lower this metric, increasing your Cost of Goods for your primary and negating any savings you might achieve by decreasing your rebates in two ways. First, a lower percent rebate and second, lower generic purchases to base the rebate on. 

What the primary wholesaler wants, of course is all your volume, and they know that you generally cannot just forgo having a primary wholesale relationship. The wholesaler, therefore, has leverage on the pharmacy thru the levers and the necessity of having a primary source. The pharmacy’s only leverage on their primary wholesaler is the possibility to of changing primary wholesalers — a proposition that is very painful, and generally doesn’t save the pharmacy any real money in the end. So, what is the pharmacy owner to do? What they want, what the NEED, is to minimize their CGS in the face of the overwhelming pressure of falling reimbursement given their position in the wholesale equation.

Obviously, there are strategies that can be applied to try to accomplish this goal. Generally speaking, here is an outline of the options available:

1. Stick with the primary wholesaler and maximize your rebates to achieve the best CGS possible with the primary. 
2. With a GCR based contract, manage the GCR ratio (generic purchases to total purchases) to make room for savings in the secondary market.  
3. Don’t play the rebate game at all. Always purchase the cheapest product available from the cheapest source. 
4. Rethink your pharmacy model.

The first option is the easiest. Your CGS may not be completely optimized, but you may also be able to achieve a better brand CGS, offsetting some of the loss on underwater generics. This may require negotiation with your primary wholesaler to optimize your cost of goods. We are on a GPR contract, and this is the strategy that we are currently using at our pharmacies. 

The second option takes extra work and planning. This can be done successfully, but in my experience, the amount of savings possible depend on the effort put into the strategy. You always must compromise on something in the equation: for example, accepting a lower generic rebate target and an increased cost for brands in exchange for generic savings. If you do go this route, and are on a GCR model, you will need secondary source that has a significant brand drug catalog.  The is the only way you can balance your GCR is to push brand name purchases away from your primary wholesaler.  There aren’t that many secondary sources with significant brand catalogs. One good choice is Independent Pharmacy Cooperative warehouse. We have used this strategy in the past when we were on a GCR contract. 

The third option has become more popular with some of my colleagues in recent years. I hear them swear that their overall CGS is better, but at what cost? The time spent chasing deals, and the excess inventory often stocked when they find a good deal both hurt the financials in other ways. Another down-side of this option is the increased burden of DSCSA record keeping that will eventually become required — using dozens of sources could make this a nightmare. A further risk of this options is losing your primary wholesaler. If you are not purchasing adequate volume with them, you may not be worth their time. This could leave you without access to some products. A successful implantation of strategy requires both managing purchasing and maintaining a delicate balance with your primary. 

If the amount of effort for the middle options frightened you, the last option is probably not feasible for you either. In this option you transition to other business models for your pharmacy. Examples might include converting to a cash-based pharmacy model, or perhaps focusing on compounding. You might work with a concierge medical provider and provide a subscription-based model with a limited generic formulary. The goal here it to not take insurance. This removes the pressure on CGS, as you can market the product at a fair cost: a cost that makes you margin and saves the patient / provider money. 

This article is a bit long, but I promise that is could have been a LOT longer. The complexity here only goes up when you start to look at any given pharmacy and the variables important for that practice. The bottom line is that there are options. Not all are easy. If you need additional information or help, our consultants may be able to help. Be sure you take the opportunity to evaluate your purchase model, or even practice model: Make Every Encounter Count!

We are well into the fall seasons, with Halloween right around the corner and Thanksgiving is not far behind. Besides the costume fun and turkey with all the fixings, we are also preparing our pharmacies for the new year. Medicare Part D Open Enrollment has begun and Retroactive DIR fees will soon be a thing of the past.

While that all sounds pretty normal, there is a reason that this blog post is titled as it is: the future of pharmacy is very uncertain, murky, and potentially terrifying. One only has to look at the news to understand that things are shifting quickly, and not for the better. Consider:

• Pharmacy Employees walking out in protest of working conditions
• Pharmacy departments closing earlier or even unexpectedly due to insufficient staff
• a large national pharmacy chain filing for bankruptcy
• An uptick of independent pharmacies closing

This is an abbreviated list, but the theme is the same: pharmacies of all types are struggling.

Consider the first two bullet items above: Poor wages and lean staffing results in unhappy, over-worked employees and difficulty hiring new employees. These both are things that a company would normally address. But pharmacy is unusual: it is one of the few examples of a business where supply and demand don’t truly apply.

This is because of insurance: pharmacies and other health industries don’t set their selling price. It is dictated to them by a contract. So you re-negotiate the contract, right? That would work if the pharmacy had significant leverage. These contracts are largely one-sided: take it or leave it.

The last two bullet points fall into place once you understand this current dynamic in healthcare. Pharmacies are being squeezed by the insurance–paid less and less for the product and service they provide. Given that there is only so much a business can do to decrease its cost of goods, they have to become more efficient elsewhere. Eventually, this leads to lower staff levels, unhappiness, walkouts and ultimately bankruptcy or closing.

To be fair, there are some pharmacy operators that doing better than others at balancing the lower reimbursement. The most successful pharmacies share one thing in common: having other revenue streams including front-end sales, selling groceries, or perhaps owing the insurance company.

But none of this is easy, and smaller operators and independent pharmacies are perhaps the most challenged. If it isn’t enjoyable and profitable to provide patient care and fill prescriptions, why own and operate a pharmacy? Pharmacy is rapidly reaching a breaking point.

What does this mean? Well, we are already seeing chains struggle. Target sold their pharmacies to a competitor — one that also owns an insurance company. Where historically some chain pharmacies were opening a new store every week, they are now closing stores instead. Overall, the country is losing access to pharmacies.

Some might say that this contraction of the pharmacy market is a good thing. I disagree: the contraction is not due to over-supply. It is due to an artificial constraint on the profitability of these pharmacies. It is due to insurance. If we ultimately arrive at a point where only a few chain pharmacies and mail order options remain, we will all suffer.

We are already seeing pharmacy deserts emerge. Places where larger operations cannot justify opening or maintaining a presence. Without access to a pharmacist, drug safety suffers, access to immunizations and point of care testing decrease.

We envision that pharmacies of all types will ultimately have to make some hard choices if they want to survive. Some possible outcomes of the challenges facing pharmacies are:

1. Pharmacies drop out of insurance plans that are not reimbursing them adequately.
2. Pharmacies stop carrying brand name medications — as these are paid well below the pharmacies acquisition cost and are costly to keep on the shelf
3. Pharmacies stop taking insurance entirely
4. More pharmacies close.



If a handful of pharmacies in an area drop some, or even all insurance contracts, those patients will be forced to use the remaining pharmacies that accept that insurance if they want to use their plan. If stores stop caring brand medications, that business will also shift to those that continue to stock them. And unless the stores that took these actions were very wrong about the actual impact of those decisions, the added unprofitable business that the remaining stores receive will likely be detrimental to them as well. The spiral would then continue.

The possibilities above are drastic, but real. While there is significant risk in doing something drastic like eschewing brand name medications drugs entirely, or dropping unprofitable plans, inaction is equally risky.

What is right for your pharmacy? Are you able to ride out the next 12-24 months without making a drastic change? If you do survive, what then? We cannot see the future with any certainty, but we know that now is the time so start planning. investigate your options. Get an outside opinion. There is opportunity, you must make the decision to Make Every Encounter Count.

Since its inception in back in the early 2000’s, Medicare Part D has become firmly entrenched as a fixture in the pharmacy landscape. The U.S population age 65 and over has grown nearly 5 times faster than the total population over the last century and represents nearly 17% of the population.

A vast number of this population is covered by Medicare Part D plans. This represents an even greater percentage of total prescriptions. For example, in most of my pharmacies, Medicare Part D prescriptions represent 25-35% of prescriptions dispesed. This is precisely why pharmacies need to pay more attention to Open Enrollment.

Overall, pharmacy benefit managers (PBMs) have generally failed to appreciably steer patients to “preferred” pharmacies. As it turned out, a patient is more likely to choose a Part D plan that works in THEIR pharmacy than choose a plan that requires them to switch pharmacies. This speaks volumes for the trust that our patients put in us as pharmacy owners.

This also represents an important opportunity for the pharmacy owner: it is more critical then ever before to ensure that your patients — the lifeblood of your business — are enrolled in plans for next year that both benefits the patient and your business. With the anticipated DIR hangover looming, now is the time to act.

To make matters more dire, the coming year’s Part D plans are changing significantly. Premiums are going up as well as patient copays. Patients need to be aware that looking at their plan is even more important than ever before.

What can you do? The Centers for Medicare Services (CMS) has strict rules on pharmacy participation in Open Enrollment, and it is critical these are followed. That being said, there are a lot of things you can do to be sure you maintain your patient base and optimize your exposure to next year’s plans.

1. Get the word out. Bag stuffers, signs, social media posts, and word of mouth. Make sure everyone knows that this year it is CRITICAL for Part D participants to review their plans.
2. Actively aid your patients in choosing a plan. This can be with your own staff (following the CMS rules) or working closely with an insurance agent.
3. Leverage tools to increase your efficiency (or the efficiency of the insurance agents) to provide objective data for patients to use to make optimum decisions. TDS Clinical and Prescribe Wellness both offer these types of tools.
4. Actively approach those turning 65 to offer assistance in navigating this new arena.

Be sure your pharmacy continues to Thrive next year. Be proactive and make this Open Enrollment season a success for both you and your patients. If you need help with your plans, our consultants are waiting to help! For more information, visit Innovative Pharmacy Solutions.

Vaccines are a low-hanging fruit for pharmacy. Immunizations provide decent reimbursement and can attract new customers into your establishment. With chain pharmacies joining the party, it is becoming more important to carefully manage and curate your immunization program to best serve both your patients and your store’s health.

Vaccines are generally more labor intensive as compared to traditional pharmacy prescriptions. They require special storage, a qualified pharmacist, technician, or nurse to administer them, different billing aspects and other clinical and legal requirement. This accounts for the administration fee being paid to the pharmacy being orders of magnitude larger than a prescription dispensing fee.

But today, managing a vaccination program is more challenging. Let’s look at some of the pain points in running such a program.

1. Inventory: vaccines are generally not inexpensive. Like any product, we have to ensure we have product to administer but also have adequate turns of the inventory.
2. Packaging: you often cannot purchase one dose of vaccine. You must purchase, in most cases, a minimum of 10 doses. If purchasing directly from a manufacturer, the minimums go up from there. This makes the cost of entry into this program higher up front.
3. Cash Flow: Insurance payment for these more expensive items often take longer to be processed, especially those submitted to the Medical benefit. It is likely you will have to pay for the vaccine well before you receive the reimbursement.
4. Workflow: a successful vaccination program will be able to efficiently process and administer a lot of vaccines / patients in a short period of time. This requires space or creativity / planning. Space is at a premium in most stores, essentially mandating creativity and planning strategies.

There are a lot of ways to optimize your Vaccination program. The easiest and most efficient way is to actively use a scheduling system. Covid vaccinations at most pharmacies were almost exclusively by appointment, and today it generally acceptable if not expected by patients that all vaccinations are done by appointment. This affords you several opportunities to minimize some of the above challenges.

First, scheduling allows you to order the vaccine to arrive immediately prior to the scheduled clinic time. This affords the minimum time between your purchasing terms and the delay in reimbursement.

Scheduling also allows you to open appointments for just the number of packages of vaccine you have. If you open 10 slots for Shingrix Vaccine on a day or week, and schedule 10 patients you maximize the chance that you won’t have excess vaccine sitting in inventory.

Scheduling also allows you a chance to look at the patient’s vaccine history prior to their appointment. By spotting other vaccination opportunities for that patient, you can contact the patient and arrange additional vaccines at the same appointment to maximize your effort and return on investment.

Finally, knowing what you will be doing on a given day allows you better schedule resources and staff to make everything run smoothly.

Scheduling vaccines is one great tool to help you better manage your resources and your profitability. For other ideas, or for additional help, our consultants can help! Visit Innovative Pharmacy Solutions.

Perhaps you felt the earth shift, or maybe you felt a disturbance in the force. The Centers for Medicare (CMS) ordered a drastic change in the pharmacy landscape back in mid 2022. It was a seismic shift for pharmacies. A shift with implications that took a while to fully understand. 

The change, which takes force on January 1st 2024, surrounds how pharmacy benefit managers and the plans they work for collect DIR fees. If you don’t know what DIR fees are, you can refresh your memory by looking back in the archives here. Up until next January, these fees were collected from pharmacies well after the pharmacy-patient transaction occurred. In essence, the price a pharmacy is reimbursed by the plan isn’t finalized until months later, and this made it very hard to know if you made or lost money on any given transaction.

Starting in January, a pharmacy will know exactly what it is being paid for the service it provides at the same time the service is provided. This is good, right?

Well yes. But it creates other problems, and the savvy owner needs to be aware of several implications.

• DIR fees aren’t disappearing. The net price paid starting in January will simply be lower at the point the product is adjudicated.
• Contracts for 2024 will continue to press reimbursement lower than it was in 2023.
• Retroactive DIR fees for 2023 will continue to be withheld from reimbursement well into the first quarter / half of 2024.

In summary, starting in January, pharmacies will be receiving less money up front due to the first two bullets above AND they will continue to see remittance from payers withheld to cover 2023 fees. This will undoubtedly cause strain on pharmacies cash flow early next year. This event has been called a lot of things: the DIR Cliff, the DIR Hangover, and the DIR tsunami. The name doesn’t matter. Cash on hand matters.

To be ready, pharmacies need to be planning. If this plan to shore up cash flow early next year hasn’t already been hatched and implemented, it needs to start now. Setting aside funds to cover the double whammy is one way. Arranging for a line of credit might be feasible for others.

Other help might be available as well. Independent Pharmacy Cooperative (IPC), an independent pharmacy focused buying group with several thousand members, is planning on an early pay out of millions of dollars in retained member equity to its members early next year to help them with cash flow.

Having cash on hand to weather the pending hangover is a short term play. Working to find new revenue streams for your pharmacy and different models of business will be critical steps to the next generation of Thriving Pharmacist. For more information or help, visit Innovative Pharmacy Solutions.

If you have been following the Thriving Pharmacist, you undoubtedly saw an abrupt halt in the posting of content. One could have attributed this to Covid. While the crisis did contribute to the dearth of written content, we also put our efforts into a podcast during that period to support pharmacies called Thrive Subscribe.

As that project wound down, another distraction consumed time to create content in this space: acquisitions. Since I last wrote in this space, we have purchased four pharmacies. The process of purchasing a pharmacy is involved, time consuming, and tedious. After completing the purchase of even one store, energy is required to assimilate new organizations into the culture of the parent organization.

In a sense, the Thriving Pharmacist went on sabbatical to practice what it preaches: thriving.

And to be fair, during the Covid pandemic, pharmacies that were putting effort into immunization and other projects were rewarded. In many ways, the pandemic was one of best periods in recent history for pharmacy owners. The new and unanticipated revenue stream from vaccination provided many owners a respite from the difficult challenges of ownership. Not that pharmacies and staff weren’t stressed during this time. But the stress was related to workflows and business and not trying to find ways to pay the bills.

We enjoyed the respite from worries about reimbursement woes and DIR fee worries during the pandemic. These worries weren’t gone, but instead, masked by other revenue. Covid is now endemic, and the stark reality of these challenges, for a while forgotten, are back.

Since we last chatted here, The DIR landscape has changed. Significantly. These fees, starting next January, will instead be applied at the point the pharmacy adjudicates the prescription. This is both good news and bad. We will know what we are going to receive for our efforts (service and product) before it goes out the door. That is good.

The bad news is that the middlemen (PBMs) continue to squeeze reimbursement to pharmacies. And while it is too early to tell right now, by next week we will have a much better idea what 2024 will look like. Medicare Part D Open enrollment starts October 15th, and at that point we will start to see what reimbursement will look like in this new era.

A spoiler: we anticipate reimbursement to be significantly worse come January. The respite is over. I am hearing a rapidly escalating fervor from pharmacy owners that the sky is again falling.

I won’t argue that we face some stiff headwinds. But panic is not the answer. To thrive, one needs to plan. To act! And that means disseminating ideas and information. It means that it is time to get back to work here at the Thriving Pharmacist.

Hello again. We are back.