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Long-Term Care Pharmacy Billing: 101

How Drug Costs End Up Being Left for SNFs to Pay

How your long-term care (LTC) pharmacy bills your facilities is an important process to understand. Pharmacy spend is one of the largest cost centers for every skilled nursing facility (SNF) and understanding how you’re being billed gives operators and administrators vital insight that can help them control rising costs. 

As care needs in facilities become increasingly complex, the medications residents require are also becoming more specialized. Specialty drugs often come with a high price tag, but experts in pharmacy operations can work to lessen their financial impact by establishing relationships with pharmacy networks that can source these medications at lower costs. The right advisors are intimately familiar with terms and rates, helping operators obtain favorable relationships with their vendor pharmacy.

How LTC Pharmacies Are Reimbursed

Let’s begin by understanding how LTC pharmacies are reimbursed. Approximately 60% of revenue for pharmacies comes from Medicaid patients, which is reimbursed on a fee-for-service basis for drugs dispensed to nursing facility residents. These rates only cover dispensing and ingredient costs, but not other services provided to nursing facilities, such as drug utilization review, delivery services, or supplying an emergency medication cart. 

Medicare Part A pays for some amount of skilled nursing care for up to 100 days per benefit period, placing a certain amount of risk on both SNFs and their LTC pharmacy. Usually, a fee-for-service (FFS) rate matches the Medicaid rate for the state, although a negotiated per diem rate can be negotiated that shifts some risk to the pharmacy. 

With Medicare Part A plans, there are exclusions for some specialty drugs and other clauses that lower costs to the pharmacy, but potentially increase costs to SNFs. Under Medicare Advantage, or Part C plans, SNFs can benefit from drug exclusions to get reimbursed for these more costly specialty medications. 
Wherever a LTC pharmacy cannot be reimbursed for the cost of a service or medication by a patient’s plan, that cost is then passed on to the SNF caring for the patient. The importance of ensuring proper coverage for each of your residents cannot be overstated, not only to help cover medication costs, but also any other therapies being performed in the facility.

Pharmacy Costs That Land On Nursing Facilities

While reimbursements to pharmacies cover ingredient costs and dispensing fees, other services aren’t explicitly covered. Below is a list of services and their cost to LTC pharmacies compared to fees charged to SNFs.

Just like a SNF, pharmacies provide services not covered by care plans, leading them to rely on small margins in medication costs to make up a majority of their revenue. This is important to understand when it’s time to renew a contract and you’re entering into negotiations with your pharmacy partner. A good partnership will include fair pricing, but a SNF cannot expect rock-bottom prices, since this is where pharmacies recoup the majority of their operating costs. 

Once a pharmacy has billed a plan directly for costs that are covered, the remainder falls on the SNF. For the facility, some of these costs will be covered by Medicare, Medicaid, or third-party plans. Almost inevitably, however, SNFs receive monthly invoices from their contracted pharmacy and must pay the remaining balance. 

By managing an effective formulary, SNFs can lower drug costs that aren’t covered by their residents’ plans. Certain brand-name medications can be replaced with generics that provide equivalent treatment and are more cost-effective, or therapeutic equivalents that are eligible for valuable drug manufacturer rebates, a process called therapeutic interchange. Over-the-counter medication spend can also be reviewed in detail, often highlighting instances where a series of near-identical OTCs can be purchased in bulk as one version and eliminate dispensing fees.

How SNFs Can Manage Pharmacy Costs

With the right technology, SNFs can significantly lower their pharmacy costs by gaining greater insight into their costs. 

As payers of Part D medications for residents, SNFs are entitled to drug manufacturer rebates. SRX’s technology automates drug rebate submissions and delivers SNFs a guaranteed amount each quarter, often adding up to hundreds of thousands of dollars, depending on the size of the operation. 

Our experts in pharmacy operations work side-by-side with administrators and operators to improve practices, audit workflows, and even work directly with their contracted pharmacy to review contract terms and engage in informed negotiations.
With technology developed specifically for the needs of SNFs, SRX is the unified solution for managing drug costs that helps operators and administrators achieve their lowest net drug cost.

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Related Articles:

Why You Need To Be Thinking About OTC Management at Your LTC Facilities

See How SRX Is Tackling the Problem of Rising Drug Costs

5 Ways to Take Control of LTC Facility Drug Costs


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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


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