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Published: March 7, 2023

How to save on your Pharmacy Bill:


Pharmacy costs can feel like a black hole for long-term care organizations. You know you’re probably being charged more than you should be, but your monthly invoices aren’t exactly intuitive.

It’s not as though you can comb through your invoice like a Target receipt to find potential discrepancies. With hundreds (or thousands) of individual line items, how would you even know where to start?

You want to maximize your pharmacy contract, but the truth is you don’t have the time or expertise to make that happen.

What can you do? Take it one step at a time. The first step is answering the following 5 questions to help identify areas where you could save costs and avoid overpaying.

1 - Is My Pharmacy Pricing Competitive?

Pricing in long-term care pharmacy is typically based on a pricing standard called Average Wholesale Price, or AWP. There are 3 unfortunate realities related to AWP that can negatively affect your organization:

  • AWP is not publicly available
  • AWP is constantly changing
  • AWP is increasing all the time

With so many pharmaceutical products in the market and the constant changes in AWP, it is nearly impossible for long-term care organizations to keep up with what a competitive price is for each drug. This creates blind spots making it very easy (and likely) to overpay.

In order to get truly competitive pricing, you’d have to have a pharmacy expert in-house. But that would be expensive and who knows if the savings would justify the investment. More on that later, but for now go to question 2.

2 - Are My Pharmacy Bills Correct?

There are two factors to consider when determining if your pharmacy costs are correct.

  • Is the pharmacy billing the correct rate (based on AWP)?
  • Is the pharmacy billing the right entity (based on when Medicare D kicks in)?

First, you must verify the accurate price is being billed. Since AWP is not publicly available, it can be difficult to know if your pharmacy bill is based on the correct baseline.

First, you must verify the accurate price is being billed. Since AWP is not publicly available, it can be difficult to know if your pharmacy bill is based on the correct baseline.

Second, you must verify that the correct patients are being billed. Is the pharmacy billing you only for the patients it should? Your organization’s pharmacy costs are affected by how many days a patient is in your facility and whether they have Medicare D/Medicaid. In a best case scenario, your pharmacy would verify each day that they are billing for the right patients. But that is not always the case.

3 - Is My Pharmacy Proactive In Reducing My Pharmacy Costs?

Does your pharmacy actively manage your formulary program? For example, inhalers and insulins are very expensive and are available in a short stay quantity. Is your pharmacy billing the appropriate quantity?

When your pharmacy gets the prescription for an inhaler, for instance, they can either fill it with a big one or a small one. In many cases, patients are only on your bill for a short period before they roll onto Medicare D or Medicaid. If the pharmacy bills you for the larger inhaler, you’re paying for a month’s supply when you’re only responsible for 3-7 days. The same goes for insulin. You can save valuable operational cash by not paying for prescriptions that could be covered under Medicare or Medicaid.

4 - Does My Pharmacy Dispense The Most Cost-Effective Medicines?

Almost all generic medications have multiple manufacturers, each with their own established AWP. The AWP varies by generic manufacturer, with some having major differences that can make a major impact on your billing. 

For example, a common anticoagulant may be 5x as expensive depending on which manufacturer the pharmacy chooses to dispense.

In addition to these variations in cost related to the pharmacy’s choice, there are also meds with an extremely high AWP cost with a low actual cost to the pharmacy (think: as low as 10% of the AWP).

These two concerns alone can increase your billing significantly. Fortunately, our model resolves both of these issues. At HMS, we manage these cost variations and high AWP meds through implementation of our cost-based pricing model. Our team reviews all of the pricing options for each generic medication and determines an industry recognized cost basis to reimburse the pharmacy.

The result? Greater margin for your organization and potentially more cash on hand to invest in your residents, staff, and facilities.

5 - Do I Know When My Pharmacy Contract Is Up For Renewal?

Each renewal is an opportunity to review pricing and terms compared to the current market. Consider:

  • How has pricing evolved?
  • Where are the pricing opportunities now versus when you executed your original agreement?
  • Is there any new technology available?
  • Would an early pay discount be beneficial?

It is always worth a review prior to renewal. One of the key factors is making sure you end your current contract in time to go to RFP. Once that cancellation window is closed your contract automatically renews and you may have lost your negotiation power.

Now What?

You may be feeling overwhelmed by how much work it would take to evaluate each of these questions. We get it. And that’s where we come in.

The previous questions are just some examples of the criteria we review on your behalf as part of our comprehensive cost management services. At HMS, because we work with clients across the nation, we’re able to see trending opportunities through our national market presence that may not be apparent locally.

At HMS, you get the expertise you need to save big. We have a pharmaceutical subject matter expert on our team who will personally walk you through your agreement, help you negotiate better rates, and set you up for immediate and on-going savings. In other words, the expertise without the sunk cost!

To read more examples of how HMS addresses each of these 5 questions on your behalf, and to see real-life examples of cost savings, download the extended PDF version below. Or set up a call today to set up your no-risk, free cost savings analysis.

HMS works with long-term senior care organizations to review and negotiate expenses to lower costs, increase purchasing power, monitor continued savings, and improve margins. The result? Peace of mind and more cash on hand to invest in your residents.
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