For long-term care (LTC) operators, drug costs represent one of the largest cost centers outside of labor.
One of the most important factors in controlling these costs and taking charge of pharmacy spend is having the right contract with the right pharmacy. As operators are increasingly seeking opportunities to control costs, many are re-negotiating contracts or finding pharmacy partners that better align with their objectives.
While regularly reviewing contracts, terms, and relationships are best practices for any LTC operator, it’s equally important you understand critical components of pharmacy contracts that impact cost, transparency, and the quality of your relationship with your contract pharmacy in the long run.
Before switching pharmacies or re-negotiating contract terms, keep the following in mind:
1. Drug Manufacturer Rebates Belong to LTC Operators
As the payer for medication costs, operators should receive rebates for eligible medications that commonly add up to tens of thousands, if not millions, of dollars annually, depending on the size of the operator.
Operators need to check their pharmacy contracts for language that may be signing rebates over to their pharmacy who may or may not factor the savings into the pricing. Most operators prefer to keep rebates transparent, knowing their value by submitting through a third-party pharmacy benefits manager (PBM). LTC operators should be clear on the following terms:
- Exactly who is submitting rebates
- How are the savings getting back to the facilities
- What are the value of the rebates in dollars
- What guaranteed rate should a facility expect to receive
- What is the time frame for receipt of rebate payments
This requires accurate and transparent billing, reporting, and submission processes. Without the right contracts in place, and transparent terms, many facilities end up missing out on thousands in critical rebate dollars.
2. Look for a Pharmacy Willing to Adjudicate
Adjudication is a process that integrates technology into the pharmacy relationship to automate the enforcement of contract terms, formulary parameters, and contract rules. This added level of transparency prevents errors from occurring in the first place by alerting pharmacies when terms or rules are being broken. In turn, this reduces the need to chase down credits and returns and provides operators with the insight needed to control pharmacy spending.
Adjudication can also control for quantity restrictions, days supply, refills-too-soon, preferred/excluded drugs, and more. If a pharmacy isn’t using adjudication, operators should, at a minimum, expect digital files and reports to be delivered in a timely manner that can be exported and analyzed.
3. Pricing Should Be Based on Published Drug Pricing Sources
There are a variety of pricing models used in pharmacy relationships. Transparency and pricing are some of the key variables that impact whether terms favor pharmacies or facilities. The best pricing models are typically built on published drug databases (AWP, WAC, NADAC, FUL), plus a dispensing fee. This structure allows operators to verify pricing and know exactly how their costs are calculated. Other pricing structures, like “Pharmacy Costs” allow pharmacies to charge without justification. “Flat Fee” structures fail to protect pharmacies from rising drug costs, which won’t set the relationship up for success.
4. Not All Pharmacies (or Contracts) Are Created Equal
It’s not just about comparing pricing. Without understanding the fine print and the implications of all contract terms and conditions, a lower quoted price may not translate to a lower actual price. Due diligence is critical and starts with evaluating multiple pharmacies. Be comfortable requesting sample reports, data exports, communications, and ask to see demonstrations of processes and procedures. This will help to set expectations and present opportunities to ask questions and potentially request customizations that will make for a smooth relationship.
5. Use an Expert to Review and Negotiate Terms
Most operators do not have the expertise on staff to fully understand, evaluate, or negotiate contract terms. Much like hiring a lawyer for critical legal contracts, hiring a pharmacy negotiation expert can provide the level of expertise needed to establish contract terms and pricing that ensure future success and secure the quality of the pharmacy relationship.
SRX has a team of advisors that includes registered pharmacists and drug cost experts who employ proprietary technology to evaluate contracts and advise operators throughout the evaluation and negotiation process. With these tools in place, operators are better positioned to control costs and improve processes that impact their pharmacy spend.
If you are currently thinking about renewing a contract or switching pharmacies, SRX has experts and technology to help you negotiate the best terms and feel confident in your pharmacy relationship.
SRX is a unified drug cost management solution for long-term care operators. We achieve unrivaled drug cost savings by combining our proprietary technology with expert advisors. SRX’s solutions automate drug rebates, optimize pharmacy management practices, increase managed care exclusion reimbursements, and provide cost-effective employee prescription benefits. SRX guarantees quarterly rebates are paid on time, every time, with no out-of-pocket cost.
Learn more about SRX’s cost-saving solutions