If you want to increase pharmacy profits, then you must optimize your PBM-based revenue.
Most independent pharmacies’ revenue comes through a PBM. In fact, it is normal for over 95% of a pharmacy’s sales to come from a PBM. This reliance on PBMs leads to almost all of a pharmacy owner’s headaches. Audits, clawbacks, DIR fees, true-ups, negative margins, low margins are just a few of the strings attached to PBM revenue.
So, should you just dump the PBMs? While pharmacy owners everywhere dream of this, for most, it is not practical. Patients deserve to get the best care they can afford and that their insurance pays for. Let’s face it. Better care comes from independent pharmacies rather than the chain alternatives. To continue to serve your community at the highest level, you need to learn the strategies necessary to optimize PBM revenue so you can maximize the good and minimize the negative.
6 Secret Strategies To Optimize PBM Revenue
Now, I am not revealing the location of the Holy Grail here. But, these secrets aren’t talked about out in the open. Unfortunately, most pharmacy owners aren’t aware of them. Even if you know 1 or 2, I am willing to bet that most of these strategies will be new to you. The other side of the coin is implementation. You may intellectually know a process, but have you implemented it? Have you been able to enjoy the changes that strategy can bring to your pharmacy? If the answer is no, then its power is still a secret.
- Pricing Table Optimization
- Know Your Contracts
- Go Direct
- Know Your Winners
- Manage DIR Fees
- Leverage Benefit Claims Checks
Pharmacy Profit Secret #1 Pricing Table Optimization
If you are anything like me, I thought that you program your PMS to calculate a super high number to the PBM so you can maximize your reimbursement. As long as your number is higher than the insurance’s, then you are gold. Recently, an old friend reconnected and blew my mind in this area. Robbie proceeded to tell me that there is a better way. By specifically programming your tables based on local market research, you can boost your reimbursements.
Robbie used to be a pharmacy owner, just like you. After selling his pharmacy, he found his way to become the CEO of Lifeline Rx Solutions and has been digging into this data like a bulldog. Frankly, no matter how much I like Robbie, I just couldn’t believe it. I trusted him enough to give his program a try. In the first two months, my per script revenue increased by about $1.87. We didn’t change anything else as we were onboarding a new PIC and setting up a compounding lab. The results have continued to pour in for months 3, 4, and 5.
Pharmacy Profit Secret #2 Know Your Contracts
I had it easy when I opened my first pharmacy in 2005. Contracts weren’t nearly as confusing as they are today. To really navigate the PBM landscape, you need to understand what type of contract you have. Here are some questions to consider.
- If using a PSAO, how do they handle “escrow money”?
- Are you under effective rate contracts?
- When is the true-up period?
- Are adjustments taken at the point of sale or in post-adjudication only?
- What are your DIR fees?
Without knowing these answers, your reimbursement at the point of adjudication isn’t a real number in my book. Once you know your contracts, you can program some of the parameters into your PMS. I highly, highly (did I say highly?) recommend you get your DIR fees into your system and if you need help, call Benjamin Jolley. Ben is not only the DIR wizard; he is a “reimbursement wizard” (my name, not his!) as he can help you understand your reimbursement rates and adjudication numbers. Depending on which PSAO you are with, they can be a great source of information as well.
Pharmacy Profit Secret #3 Go Direct
Ok, so you don’t like the confusion that comes with a PSAO. You also don’t like their effective rate contracts and the seeming lack of ability to negotiate better deals. You can drop a PSAO and contract directly with insurers. Even with a PSAO these days, you have to direct contract with many of the big ones anyway. Surprisingly, going direct can get you better contracts (at least from an effective rate perspective). It does take time and patience. I began to move my pharmacy to direct contracts, and frankly, I got contract fatigue. I was spending hours filling out the same info over and over. If you go this route, I highly recommend you get an assistant to do the brunt of the heavy lifting. You have better tasks to do with your time.
Pharmacy Profit Secret #4 Know Your Winners
Knowing your winners used to be so easy. The good ol’ days. You bill a claim, get a reimbursement amount, subtract your cost, and viola, you know your profit. If you don’t know the parameters of your contracts, this has become almost impossible. You might need to wait a few months for a true-up period to lapse or wait for your rebate calculation. However, just because it is hard doesn’t mean you shouldn’t try.
Many times reimbursements are a math problem (even the dreaded effective rate contracts too). Once you understand the math, you can figure out what is a winner. Often, the best products will be the ones with the largest spread between AWP and cost. This math means that the cheapest product isn’t always the most profitable. One of my most favorite industry emails is from TRxADE. They send out an email that shows cost as a percentage of AWP. This email quickly helps identify potential winner drugs for your pharmacy. A recent winner is Clemastine.
You need to analyze your own data. For years I have been advocating for digging into your data. To do more of what is working and less of what isn’t. Right now, Atrium24 is offering its data platform for free. Their software will get you on a path of betting understanding your data so you can make better financial decisions.
Pharmacy Profit Secret #5 Manage DIR Fees
DIR fees suck. I don’t think anything in pharmacy is as terrible as DIR fees are. You can choose to take one of these actions. Runaway from Medicare or mitigate as much as you can. I prefer to reduce DIR fees as much as possible. And then, of course, monetizing those patients on the backend for more revenue!
After spending years analyzing pharmacies’ dispensing data, I am still flabbergasted that single patients can cost pharmacies thousands of dollars. Yes, you read that right. For many pharmacies, it is not hundreds of patients that are costing you money. Many times it is one or two. You can identify these troublemakers patients with software such as FDS Amplicare. The information and the action you take from the data are worth far more than your subscription fee.
Pharmacy Profit Secret #6 Leverage Benefit Claims Checks
Your PMS probably has a function you haven’t used before. It is called a benefits claims check. You can eliminate all need for “test claims” by using this function. When you send a check through this, you will get almost all the information you would get when running a typical claim, EXCEPT the reimbursement amount. You will get:
- covered/not covered status
- copay amount
- refill too soon
- deductible amount
How does this help you? You can easily check for alternative therapies for your patients without violating your contracts with test claims. You will know exactly what to recommend to the physician for a specific patient based on what their insurance will cover. You probably don’t use this in your PMS because most don’t make this function very user-friendly, which is why I recommend EZScriptRx. They do the same benefit check but visualize the results in easy-to-use dashboards and graphics. With their software, you can harness the power of benefit checks to help your patients.
Optimizing your PBM revenue is one of the 6 pillars of pharmacy profitability. If you want to have the pharmacy of your dreams, then improving each of the 6 pillars should be on your to-do list. If you have any questions or want help tackling a problem, join our private Facebook group for free and ask away.