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Saving Costs Through Increased Transparency in Your Pharmacy Relationship

Part Three: Achieve Pharmacy Costs Savings Through Transparency

As a skilled nursing facility or nursing home operator or administrator, you know that managing medications for your residents is not only complicated, it’s costly. So costly, in fact, that for most operators pharmacy spend represents the largest cost outside labor. While the need for medications is unlikely to decrease, there are many opportunities to better manage costs and take full advantage of rebate-eligible medications that can make a significant impact on lowering the overall costs. The key to lowering costs is increasing transparency and insight into what is in your pharmacy contract, what ends up on your bill, and what your rebate submission process looks like. 

Understanding Pharmacy Contracts

Do you know what’s in your pharmacy contract? You may have paid a lot of attention when the contract was signed, but if that was more than a couple of weeks ago, the answer is probably not, and that answer can cost you. Even if you do know the general terms, you may not fully understand the implications of what you signed or whether or not the pharmacy is offering what’s best for your facility.

When negotiating contracts, most facilities look primarily at the pricing component (AWP, WAC, etc.). Without knowing what to look for, few operators understand how to analyze contracts for other terms and conditions that will impact their bottom line. When pharmacies respond to requests for proposals (RFPs), they put in their most competitive offers and pricing because this is the easiest area to beat out competition. They also know, however, that few operators are going to be regularly reviewing and analyzing their pharmacy invoices, leading to loopholes in the details.    

Analyzing Your Pharmacy Invoice

Let’s start with where information comes from. What ends up on your pharmacy bill is based on information coming from multiple sources: electronic health records (EHRs / EMRs), clinical professionals writing prescriptions, pricing databases, and more. This information is then processed according to the terms of your pharmacy contract and therapeutic interchange which should outline details like rates, excluded and preferred drugs, maximum quantities, day supply parameters, etc. 

Inevitably, there’s a lot of room for error. An operator’s ability to not only identify and reconcile errors with the pharmacy, but prevent errors from occurring in the first place is one of the most critical determinants in lowering costs, and is largely only possible through automation and technology.

The right technology should allow you to build rules and preferences from your contract into an automated process. This process—adjudication—enables your pharmacy to prevent manyerrors from occurring in the first place. An example of this is your clinician putting in a request for a prescription that is not on your formulary. Proper adjudication should send real-time, automated alerts to your clinicians, suggesting (or forcing) that they use an approved alternative. Adjudication prevents a lot of chasing down credits and returns on the backend. 

Not all pharmacies are created equal, and not all pharmacies are willing to adjudicate. In this case, having accurate reporting is your next line of defense. Operators need reports that provide actionable information. Simply re-organizing the information on your pharmacy bill is not enough. Facilities need reports that provide insight and analysis that can then be used to present information needed to clearly document requests for credits and returns, and hold pharmacy partners accountable to agreed upon terms and conditions. 

Maximizing Rebate Dollars

Do you know who is submitting drug manufacturer rebates on your behalf? Did you know that as the payer on Medicare Part A claims, long-term care facilities are entitled to associated rebates on those drugs? If not, you may be surprised at how quickly those rebates can add up to substantial dollars. 

The first step in maximizing your rebate dollars is understanding who is submitting claims on your behalf. Typically, rebates are either submitted by the pharmacy, a third-party administrator (TPA), or by the facilities themselves. Unless facilities are submitting rebates directly, you should know exactly how many rebate-eligible claims are submitted on your behalf, and how much of those claims go to you, your pharmacy, or your TPA. Expecting transparency from partners allows you to not only understand what rebate dollars to expect, but how much your partners are receiving for submitting claims on your behalf. Remember, these rebate dollars belong to you, and you should be receiving the lion’s share of their value. 

If your facilities are submitting rebate claims directly, there are a couple of things to keep in mind. First, not all rebates are easy to identify. For instance, IV compounds may not break out the individual components on the invoice. One or more components may be rebate eligible, and without carefully sifting through each claim, you are likely leaving rebate dollars on the table. Technology can help operators to automate this review process by more efficiently auditing monthly invoices and identifying rebate-eligible line items.

Another critical step in maximizing your rebates is through a close examination of your formulary. Many facilities are unaware of alternative medications that meet patient needs with therapeutically equivalent drugs that also have available manufacturer rebates. A well thought-out formulary can lead to capturing thousands of additional rebate dollars.

Own Your Pharmacy Spend

The only way for LTC operators to ensure they are paying the lowest net cost on pharmacy spend is for facilities to fully own the auditing and management of spend. Few facilities and operators have the institutional, industry, and specialized expertise to do this on their own. Without the use of technology and automation, coupled with pharmacy experts, most facilities are left to manually review claims and manage efforts to recoup costs, receive credits and returns, reduce waste and maximize rebates. Without the insight and accountability offered by technology, this lack of transparency in the pharmacy relationship is costing the industry billions of dollars, and represents a huge opportunity to recapture significant dollars that can be used elsewhere. 

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Related Articles:

Part 1: Achieving Transparency in Long-Term Care Pharmacy Management

Part 2: Taking Back Time Through Transparency in LTC Pharmacy Management

Part 4: How to Increase Transparency in Your Pharmacy Relationship to Ensure Compliance

Top 3 Things to Look for in a Pharmacy Partner

How to Maximize the Rebate Dollars You Put Back Into Your Long-Term Care (LTC) Facility

3 Opportunities for Managing Costs at Long-Term Care Facilities

How Automating your Drug Utilization Review can Transform your Pharmacy Relationship

SRX is a technology and advisory company that helps LTC operators realize the lowest net cost on pharmacy spend. We help our customers improve drug utilization, manage pharmacy relationships, reduce costs and waste, and maximize rebates. SRX technology also analyzes pharmacy contracts, identifies areas of concern, and makes recommendations regarding cost savings opportunities through automation, adjudication, and drug utilization. We are committed to transparency and accountability, and guarantee quarterly rebates that are paid on time, every time. Contact us at 833 633 6833.

Learn more about our cost-saving solutions.


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