Responding to Ever-Decreasing Drug Reimbursement Margins: Strategies for Sustainability of Independent Pharmacy

Challenges to the independent pharmacy community are fast and furious, and 2016 appears to be no different than past years in terms of change and opportunity.

Challenges to the independent pharmacy community are fast and furious, and 2016 appears to be no different than past years in terms of change and opportunity. “Think outside the box” is the quick message, but a deeper dive into the trends, and the options available to independent pharmacies, drives an understanding of what can lead to change and growth.

One recent challenge is the impact of changes in direct and indirect remuneration (DIR) fees. For the full story, review the National Community Pharmacists Association (NCPA) hearings with the Centers for Medicare & Medicaid Services (CMS) on how these fees are calculated and what that means for a pharmacy’s bottom line. One thing is certain; DIR fees will continue to affect gross margins for community pharmacies, as well as big box and chain stores. It is important to ensure that a store’s contracted pharmacy services administrative organization (PSAO) is helping to identify DIR fee changes, and is adept at negotiating with third-party payors.

Consolidation within the industry continues to move at a breakneck pace: CVS with Target and Omnicare, and Walgreens with Rite Aid, just in the past few years. The financial strength of the mega chains offers the big box formats ample room to grow, build on real estate with parking, and provide drive-through windows, and the like, in convenient, high-traffic areas.

Competition will remain fierce among pharmacists, as more and more newly minted professionals enter the job market each year. The output from professional college programs simply outstrips market demand. This trend can also affect community pharmacy, as pharmacists, displaced by the influx of new recruits, can drive seasoned professionals to seek start-ups where they live--a trend also indicated by the higher number of start-up funding requests at lending institutions. The pressure to keep independents, independent, is also prevalent from a prescriber and a patient perspective. Health plans, distributors, and manufacturers also have an interest in maintaining a high-performing independent pharmacy pool.

Innovate for Growth

Although changes to reimbursements and narrow networks have posed threats to margins over the past 3 years, it is not all gloom and doom for the independents. Innovation is the key driving force for 2016. Several initiatives, often coupled with widely available technology solutions, have paved the way to drive new income for the future. Independents can combat bottom-line pressures with services that make sense for their community.

Each of these initiatives also plays a role in the availability of funding for start-ups and acquisitions, as well as in the selling prices for existing businesses.

Medication synchronization, or “med sync,” is one sure way to help the bottom line, increase interactions with patients, and develop relationships with prescribers. Med sync coordinates the refill orders for patients requiring 3 or more medications per month on the same day. A program can be developed with a low-tech or high-tech solution that offers advanced reporting and measurement of success. Coordinating scripts also increases patient adherence and facilitates harmonization with prescribers.

A medication therapy management program and a patient adherence packaging solution are often added to the med sync program. These scheduled one-on-one consultations provide an opportunity to drive patient adherence and build customer relationships. Adherence not only keeps patients healthier, but also increases script counts. A study by the NCPA found that 21% of patients enrolled in a med sync program are less likely to discontinue treatment and 2.5 times more likely to be adherent to medications.

Patient-centered care is the wave of the future. Personalized service cultivates loyalty and trust for long-term relationships with customers. Convenience is a factor, too. Consider technology for refills or reminders. An online presence is essential for allowing current customers to access services in the format they prefer, or in many cases, educating a caretaker for a customer.

Innovate: deliver better care than your competitors. This will help compensate for some of the challenges of falling reimbursements. In fact, pay-for-performance measures, such as those determined by the CMS Five-Star Quality Rating System, are directly affected by adherence measures. Plans that receive the highest ratings pass along bonuses to individual pharmacies.

Many independent pharmacies have gained traction by offering compounding services onsite or at a complementary, ancillary facility. With new technologies available, more pharmacists can expand highly personalized service levels by creating solutions for unique patient needs. Compounding medications provides a tailored approach to wellness. It enables complementary disease-state management, drives customer loyalty, and delivers solid margins. It also enhances working relationships with prescribers, adherence measures, and patient interaction for success in expanding business.

Consider becoming an expert in a disease state for which specialty medications are available. This growth area offers advantages for prescribers and patients seeking attentive care for patients requiring specific therapeutic regimens for diseases and conditions, such as HIV infection, hepatitis C virus infection, rheumatoid arthritis, organ transplantation, and multiple sclerosis. The associated treatments can cost $600 or more. In addition, specialty medication favors community pharmacies that offer an in-person, high-touch approach.

It begins with referrals from physicians and depends on managing the communication continuum (physician, patient, pharmacist, manufacturer). Research and evolving technologic solutions are bridging these gaps.

A New World of Marketing

Independent pharmacy will continue to be challenged by the financial resources that chain stores and pharmacy benefit managers use for targeting your customers. Predatory marketing is luring unwitting patients to specific branded pharmacies. From targeted messages in prescription plan member materials to online, telemarketing, and direct-mail campaigns, tactics are being employed that are cost-prohibitive for most community pharmacies. A proactive approach is essential. Evaluating regional demographics and hard data from network administrators to product distributors provides valuable insights for developing a strategic plan. Build a tactical plan by assessing the competitive landscape, researching local marketing opportunities, meeting with local providers, and developing staff training programs to meet higher service level expectations.

Independents should rely on affordable resources, such as web-based and traditional print advertising, as well as marketing programs offered by PSAOs, distributors, and local media outlets. Programs may include public health events and health screenings at community or extended-care facilities, schools, churches, and large employers. Use these tactics to help differentiate community pharmacy from mega chains. Focus on personalized services, accessibility, delivery, direct interaction with a pharmacist, prescriber relationships, franchise affiliations, and any other innovative services you offer.

Planning and Execution

Innovation means developing new approaches to deliver medicine to your customers and drive adherence to it. You can implement programs and processes that are patient-centered, promote adherence, and increase intervention and communication, while driving incremental increases to your margins. Tactics and technologic solutions that help pharmacists integrate with prescribers, distributors, and health care plans increase opportunity to grow margins and meet business goals.

Great resources for driving innovation are available to independent pharmacies. Use Google. All of the drug distributors have practical solutions and are focused on helping you drive adherence. If you are frustrated and do not know where to begin, call me, and I will help get you started.

Sidebar: Top 4 Strategies for Sustainability of Independent Pharmacy

  • Focus on a disease state. Become the local pharmacist expert and promote your knowledge to local specialists.
  • Concentrate on medication adherence driven by medication synchronization.
  • Optimize technology to identify opportunities, such as refills and vaccinations.
  • Advertise more. Reconsider cable, radio, and local newspapers.

This article is published in collaboration with the Directions in Pharmacy CE Conference program.

Jimmy Neil is the general manager of Pharmacy Lending at Live Oak Bank based in Wilmington, NC. You can reach him at jimmy.neil@liveoakbank.com or 910-212-4951 (phone).