5 Common Blunders that Hurt Independent Pharmacies
As an independent pharmacy owner, your responsibilities are vast. You have patients, employees, regulatory agencies, and wholesalers that are counting on you to be at your best. Your services will change the lives and communities that you are involved in.
When your contracts are outdated, skimmed over and/or seem too good to be true, it’s not a matter of if there will be pricing problems; it’s simply a matter of when. Hidden fees, high compliance ratios, limited formularies and more can cause devastating cash flow issues.
We’ve seen many pharmacies struggle after they are contracted with a group purchasing organization (GPO), and we don’t want that to happen. That’s one of the reasons AAP exists. We built our member-owned cooperative to help save you from bad and inefficient practices that could delay your pharmacy from improving your bottom line and being profitable.
Let’s look at some common mistakes and how you can avoid them.
5 common blunders that hurt independent pharmacies the most when choosing a group purchasing organization:
Mistake 1: Demanding High Brand Pharmaceutical Discounts
Learn to be aware of where the money is coming from for a supplier’s Brand Rx discount prices. If a group offers deep brand pharmaceutical discounts off of the Wholesale Acquisition Cost (WAC), it will have to come from somewhere. Likely it will come out of your rebates, or result in higher generic pharmaceutical pricing.
Don’t just look for the highest brand pharmaceutical discount percentage. Look at the supplier’s entire program, and consider how those trade-offs will affect your bottom line overall. What are your pharmacy’s usual buying patterns? Do you tend to order more generics, or more brands, and what kind of program would most benefit you?
Mistake 2: High GCR’s
How much volume in Generic Rx will you have to purchase to meet the supplier’s Generic Compliance Ratio (GCR)? If your GPO requires you to contract with a wholesaler that has a high GCR to be a member, you may be stuck buying from them even if the price is higher than market value just so you can meet your compliance standards. Keep an eye out for these required ratios, and protect your ability to make the best decisions for your bottom line.
Mistake 3: Excluded Items
How many items are excluded from rebates in the GPO’s Generic Rx portfolio? How many items in the Brand Rx portfolio are excluded from discounts?
These exclusions can hurt a pharmacy’s ability to meet contract requirements, and reduce rebates and other discounts that you may depend on for cash flow.
There are several ways that suppliers can exclude items, and you should be aware of them upfront. Even parts of a supplier’s contract that seem like a good deal may be hiding nasty exclusions, such as price matching programs. Often when you ask for a price match under the program, you will not receive a rebate for that item. Items can also be price-matched if a supplier is currently out of an item in your generic contract program, and they send a substitution instead. In either of these cases, those items are usually not counted toward a GCR requirement on top of depriving you of a rebate.
Mistake 4: Evergreen Contracts
Another contract quirk to look out for are evergreen clauses. These clauses allow a contract to automatically renew for a certain amount of time - often a year - if they are not actively renegotiated or canceled before expiring. As quickly as the pharmaceutical market changes, this can severely hurt your profitability.
Mistake 5: Small GPO = Less Buying Power
It may seem like simple math and not worth stating, but smaller buying groups have less buying power and a harder time negotiating higher discounts with manufacturers and wholesalers. Before you commit, find out how many stores the group has and how much power they bring to the table.
Smaller groups can also mean fewer benefits for you outside of pricing. Does the group you’re looking at offer contracts with or discounts from other vendors? Do they offer other programs like a PSAO, specialty pharmacy, business intelligence tools, or patronage dividends?
Learn everything you can before making a decision, and get the most for your membership!