by Todd Fisher, RPh, OmniSYS Product SME
Maintaining profitable margins is a challenge, with pharmacies facing lower reimbursements and higher back-end fees than ever before.
The secret to solving this challenge lies in cash pricing. By establishing optimized prescription pricing, you will not only improve your margins on cash prescriptions, you’ll also improve your third-party reimbursements.
So, where do you start?
Setting prescription prices: good and bad news
Let’s start with some background.
When a pharmacy sells a prescription drug to an insured customer, reimbursement comes from the pharmacy benefit manager (PBM). PBMs negotiate reimbursement rates with pharmacies that are the lesser of the following:
- The Average Wholesale Price (AWP) minus a percentage plus a dispensing fee
- The Maximum Allowable Cost (MAC) plus a dispensing fee
- The pharmacy Usual & Customary (U&C) price
There is good and bad news here. The good news is that you have full control over establishing U&C prices. The bad news? If you set your U&C prices too low (below the AWP or MAC), you’ll be leaving reimbursement revenue on the table from PBMs.
AWPs: staying ahead of the curve
Submitting a prescription when the AWP has increased but your pharmacy management system still has the old AWP will result in a loss of revenue. That’s why it is so important to validate that all of the products in your pharmacy management system reflect the most recent AWP. Do you know how often these updates are currently happening in your pharmacy management system? Without an automated process to ensure that your AWPs stay up-to-date based on changing prices, you risk losing revenue.
Similarly, are you also monitoring your U&C’s to adjust them accordingly in your pharmacy management system when acquisition costs increase for products? An increase in the acquisition cost without a corresponding U&C adjustment will result in less profit every time that product is dispensed.
Your purchaser should be frequently evaluating the products available from your wholesaler to ensure you are controlling costs wherever possible. This seems simple, but it’s something that can easily get lost in the shuffle.
Make sure you have a way to verify that you are purchasing the lowest cost products available. Why purchase a bottle of #100 tablets for $20 if there’s another manufacturer offering it for $15? Similarly, purchasing a larger package size (#500 count) results in a lower cost per tablet than purchasing five bottles of #100 count for fast-moving products that are dispensed most frequently.
The balancing act
Market pricing changes rapidly. It’s important to stay on top of of competitive prices in your local market to ensure you’re not losing cash-paying customers to the pharmacy down the street. But here’s the catch: you not only need to be competitive for cash-paying customers, but you also need to ensure you don’t lose money with the PBMs who reimburse based on contracted rates or your U&C. If your U&C is less than the contracted rate, the PBM will gladly reimburse you the lower amount. This is called a “paid at U&C event”, and indicates that you left money on the table with the PBM.
Enter the balancing act called optimized prescription pricing. By monitoring paid at U&C events as well as competitive market pricing on a routine basis, you can adjust your prices accordingly to ensure you are not priced lower than your contracted rate with the PBMs. This will improve your opportunities for higher reimbursements, while also keeping you competitive with cash-paying customers.
Technology to the rescue
If you’re still with me, you’re likely thinking this all sounds great, but isn’t it an incredible amount of work to keep up with all of that? And the answer is yes. Manually monitoring changes in AWP’s, acquisition costs, local market pricing and third-party reimbursements is a time-consuming and, quite frankly, losing battle. There are simply too many complexities and changing variables for anyone to be successful.
Enter the robots! Technology can tackle the seemingly insurmountable challenge of optimized prescription pricing for you, by leveraging market intelligence to constantly monitor and adjust your U&C prices based on changing market conditions.
When looking for the right technology, here are three key considerations:
- Be wary of solutions that simply add a percentage on top of your acquisition costs or adjust your U&C based on a percentage of the AWP. While it will protect you from charging less than your cost, this oversimplified approach will not result in an optimized and competitive price that increases your overall margins.
- Look for technology that takes into account multiple data sources to make informed decisions on optimized prices. This is where technology really shines: by pulling together multiple, disparate pieces of data that would take an enormous amount of time and effort to do on your own. Key data sources to look for include all prescription reimbursements, acquisition costs, cash prices in your local market and non-optimized insurance payments.
- You should be able to automate it and forget it. Any necessary adjustments to keep your U&C prices competitive yet profitable should be automatically updated within your pharmacy management system.
Winning the pricing battle
As pharmacists, we find ourselves locked in a battle to maximize profits while optimizing third-party payer reimbursements and providing a fair and competitive price to cash-paying customers. It’s exhausting just thinking about it!
Don’t let the complexities around prescription pricing get you down. It is a complex issue, but that’s where the right technology can help you win the battle for optimized prescription pricing. Let technology fight this battle for you, so you can get back to doing what you do best: focusing on patients.