What Independent Pharmacy Owners Should Expect from a Pharmacy Buying Group

Choosing the right pharmacy buying group is one of the most important business decisions an independent pharmacy owner can make.

Purchasing economics are obviously a big part of that decision. Brand and generic pricing, rebates, contract terms, and wholesaler relationships all matter. But they are not the only things that matter.

Independent pharmacy owners sometimes hear some version of the same idea: a wholesaler is a wholesaler, and a buying group is a buying group. A wholesaler and a pharmacy buying group serve different functions. A wholesaler supplies medications and other products to the pharmacy. A pharmacy buying group brings pharmacies together to use their collective economic strength and also may provide additional benefits beyond purchasing.

In practice, there can be significant differences among wholesalers and buying groups, and those differences can have a real effect on a pharmacy’s business.

The right buying group can create value for a pharmacy well beyond what it pays for medications. It can provide access to expertise, resources, and support that an independent pharmacy would have a difficult time developing on its own.

So, when considering a buying group, it makes sense to look beyond a discount, rebate percentage, or line on an invoice, and take a broader view – what does the entire relationship do for my pharmacy?

Even if you have worked with the same buying group for years, that is a question worth asking from time to time. At the end of this article, there is a list of questions you can use to evaluate your current or prospective buying group.

Start with the economics, but understand the entire equation

Cost of goods is typically the largest expense for most independent pharmacies, so it makes sense that purchasing would be one of the first things you consider.

The problem is that comparing buying groups is not always as simple as putting two proposals side by side. Different groups may present their value differently. One may put more emphasis on acquisition cost. Another may focus heavily on rebates. Another may show a projected total savings figure.

That can make an apples-to-apples comparison surprisingly difficult.

In addition to on-invoice pricing, pharmacy owners need to understand how brand and generic purchasing economics work, how rebates are calculated and paid, what fees may apply, and what purchasing or performance requirements must be met.

Just as important, look closely at the assumptions behind the proposal. Do they reflect the way your pharmacy actually buys?

Here are a few questions worth asking:

• What purchases count toward rebates?
• What requirements do I have to meet?
• Are there fees that offset some of the advertised savings?
• Are the projections based on purchasing patterns that resemble my own?
• What happens if my purchasing mix changes?

Obviously, price matters. Nobody is suggesting otherwise.

Know your wholesaler commitments

The wholesaler relationship deserves just as much scrutiny as the buying group. Some groups require members to purchase primarily through a single wholesaler. Others may have purchasing commitments or compliance requirements tied to their contracts.

These are not small details.

Your primary wholesaler touches almost every part of the pharmacy’s day-to-day operations. Deliveries, product availability, ordering systems, account support, and cash flow can all be affected by your wholesaler.

Additionally, changing wholesalers can be disruptive, particularly for an established pharmacy that has spent years building its processes around one supplier.

You also should look at the wholesaler’s strength in your market. A wholesaler’s service level in one part of the country may not tell you much about its service in another. Ask about deliveries, product availability, local account support, and the resources available to pharmacies in your area.

Before joining a buying group, understand exactly what wholesaler relationship is required and what purchasing expectations come with it. If joining a buying group means changing wholesalers, ask what help you will receive during the transition.

The numbers on the contract matter. So does whether the wholesaler can get your order to the pharmacy tomorrow morning. A good buying group should be willing to talk openly about both.

Expect someone to answer the phone when the numbers are not the problem

Eventually, every pharmacy runs into a problem that cannot be solved by looking at a purchasing report. That is when service matters.

Who do you call when you have a contract question? What happens when you need help understanding a program? Can you reach someone who understands independent pharmacy and what you are trying to accomplish?

Those questions can be easy to overlook when you are comparing proposals. They become much more important after the agreement is signed.

Find out whether you will have an established point of contact with the buying group. Ask what kind of field support is available. Find out whether the people working with members understand pharmacy operations or whether their role is primarily to manage an account.

The value of a buying-group relationship can become most apparent when something goes wrong. Your buying group should not disappear after you sign the contract.

Audit support should begin before an audit notification

For most pharmacies, audits are not a question of if; they are a question of when. That makes audit support another area where access to expertise has significant value.

Independent pharmacies deal with an increasingly complicated mix of payer requirements, documentation standards, contract requirements, and audit procedures. Trying to understand all of it for the first time after an audit notice arrives is not an ideal situation.

Ask a potential buying group what kind of audit support they offer.

Can someone help you interpret an audit request or review a response? Does the buying group provide education before an audit occurs? Are resources available to help staff recognize common documentation and compliance problems?

No buying group can prevent every audit, and no pharmacy should expect someone else to take over its compliance responsibilities. But there is a big difference between facing an audit alone and having experienced people available who deal with these issues every day.

Better yet, good audit support can help a pharmacy identify problems before the audit letter ever shows up.

Look for resources that help you operate a stronger pharmacy

Independent pharmacy owners wear a lot of hats. They manage inventory, employees, compliance, patient care, payer relationships, finances, and dozens of other responsibilities. Depending on the day, they may be the pharmacist, HR department, IT department, marketing department, and building maintenance department, too.

Most independent pharmacies do not have extensive corporate resources sitting down the hall when specialized help is needed. That is one place where a buying group can provide value well beyond purchasing.

Look at the operational and business resources available to members. These might include regulatory education, staff training, merchandising assistance, business guidance, or access to specialists who regularly work with independent pharmacies.

However, do not get too caught up in the number of programs on a list. A list of 25 programs is not particularly valuable if 20 of them do not apply to your pharmacy or are too difficult to use. The better question is whether the resources address problems your pharmacy faces and whether you can realistically take advantage of them.

The collective scale of a buying group should give an independent pharmacy access to resources that would be difficult, expensive, or simply impractical to develop on its own.

Clinical opportunities should come with practical support

Clinical services have become increasingly important to the independent pharmacy business model. Vaccinations, testing, medication-related services, and other patient-care opportunities can help pharmacies expand their role in the community while generating additional revenue.

The opportunity may be obvious. Implementation usually is not.

If a buying group offers clinical programs, look at what happens after the opportunity is presented. Are educational resources available? Can someone help you understand program requirements? Are there tools that make implementation easier for your staff? Is there someone to call when questions come up after the program launches?

Pharmacy owners hear about new programs and opportunities all the time. The harder question is which opportunities make sense for their pharmacy. Good clinical support should help answer that question, too.

Marketing support should make promoting your pharmacy easier

Independent pharmacies compete with national chains, mail-order operations, online pharmacies, and other companies with advertising budgets that dwarf what a local pharmacy can spend. Those companies also have marketing departments. Most independent pharmacies have neither.

That makes practical marketing support another area where a buying group can help.

Ready-to-use social media content, seasonal campaigns, patient communication materials, in-store signage, and other resources can help a pharmacy remain visible without requiring the owner to build every piece from scratch.

But more is not always better. A library with hundreds of marketing pieces is not worth much if the materials are outdated, difficult to customize, or take more time to use than the pharmacy can spare.

Good marketing support should save the pharmacy time. It should not create another job.

Your buying group should have a voice when independent pharmacy needs one

Many of the forces shaping independent pharmacy happen far outside the pharmacy itself. PBM practices, reimbursement policies, state regulations, federal legislation, and regulatory decisions can directly affect whether a local pharmacy can continue serving its patients and community.

Pharmacy associations play an essential role in representing the profession. Pharmacy owners also should consider whether their buying group is involved in the issues affecting its members.

Does the organization keep pharmacies informed about important developments? Is it involved in state and federal public policy work affecting independent pharmacy? Does it help owners understand what is happening and when their voices are needed?

A buying group can represent the combined interests of a lot of pharmacies. That collective voice matters, particularly when independent pharmacies are up against organizations many times their size.

Understand who owns the organization and whose interests come first

Not every pharmacy buying group is built the same way. Some are privately owned. Some are part of larger corporations. Others are owned by their members.

There is no single ownership model that automatically makes an organization the right choice for every pharmacy. But owners should understand who owns the organization they are considering and how that ownership may shape its priorities.

Who has a voice in major decisions? Who benefits financially when the organization performs well? How accountable is leadership to participating pharmacies?

Those are reasonable questions to ask.

Ownership can influence incentives, priorities, and where value ultimately flows. Before joining an organization, it is worth understanding who owns it and whose interests it was built to serve.

Periodically ask whether the relationship still makes sense

Pharmacies change. Buying groups change. Wholesalers change. Contracts change. That means choosing a buying group does not have to be a once-in-a-career decision.

Maybe your pharmacy has grown. Maybe your business model has changed. Maybe you offer services today that did not exist when you chose your current buying group.

The relationship that made sense five or 10 years ago may still be the best choice today. Or it may not be.

The organizations around your pharmacy have changed, too. Purchasing contracts can improve or deteriorate. New programs are introduced. Service levels change. Wholesaler capabilities change. Leadership changes.

A buying group that was not the right fit several years ago may be very different today. By the same token, an organization that once served your pharmacy well may no longer provide the same value.

That does not mean owners should jump from one buying group to another every time a new offer arrives. Changing an important business relationship carries costs and disruption of its own, particularly when a wholesaler change is involved. But there is nothing wrong with taking a fresh look.

Evaluate the decision based on what the organization provides today, not solely on an experience from several years ago.

Evaluate total value, not one number

There will always be numbers to compare when evaluating a pharmacy buying group. There should be. But the best evaluation looks at the entire relationship.

• Consider the economics: purchasing, rebates, fees, and contract requirements.
• Consider the support: service, audits, operations, and access to expertise.
• Consider the opportunities to strengthen the business through clinical services, marketing, and other resources.
• Consider alignment: public policy involvement, ownership structure, and whether the organization’s interests match those of an independent pharmacy owner.

Then come back to the question we started with:

What does this relationship do for the overall strength of my pharmacy?

The answer may tell you more than any single percentage on a proposal.

What Independent Pharmacies Can Expect from APCI

Founded by independent pharmacists in 1984, American Pharmacy Cooperative, Inc. was built on the idea that independent pharmacies are stronger when they work together.

APCI is a member-owned cooperative that combines the purchasing strength of independent pharmacies with practical support for the businesses those members operate every day. That support includes expertise and resources in pharmacy audits, operations, clinical services, marketing, public policy, and other areas important to independent pharmacy.

Just as important, APCI members have access to people who work with independent pharmacies every day and understand the issues owners deal with.

APCI also maintains a primary wholesaler relationship with McKesson. That relationship includes purchasing requirements, and a pharmacy considering APCI membership may need to change its primary wholesaler.

We do not pretend that is a minor decision. A pharmacy owner should understand the commitment, the economics behind it, and what a transition would involve before deciding whether APCI is the right fit.

Because APCI is not simply a purchasing agreement. The goal is to use the collective strength of independent pharmacies to help each member operate a stronger business.

If you are evaluating your current buying-group relationship, or if it has simply been a while since you looked at APCI, take another look.

Learn More About APCI Membership

Posted in Industry Insights