FEATURE: Increasing Profits

When the Price Is Right

How three progressive pharmacy owners use automated prescription pricing to stay competitive, maximize third-party reimbursements, and increase profits.

Barry Klein, Dave Schultz, and Greg Paisley are pharmacists who either own or manage longstanding retail pharmacy operations in the Midwest. In addition to the R.Ph. after their names, the three also share a passion for an automated prescription pricing service from Rx-Net, which they say has worked wonders helping them stay competitive, grow  profits, and get the most out of third-party reimbursements.

Keeping an Eye on the Competition

Barry Klein first heard about Rx-Net from fellow members of the Southeastern Ohio Pharmacy Group, which he belongs to along with Greg Paisley.

“One of the challenges I was facing at the time was how to correctly price all the generics that were coming out in the marketplace,” Klein explains. “Take lisinopril 10 mg, for example. If you have five different manufacturer’s products in your system already and a sixth comes out, how do you make sure you price the products consistently?”

“Another challenge was making sure we were being competitive — but not too competitive,” he says. “Before Rx-Net my father spent several hours a month checking competitor prices. We also subscribed to a service that gave us some competitive insight, but it wasn’t integrated with our PMS and was an imperfect solution at best.” So in the summer of 2011, Klein signed up for a 60-day trial of the basic pricing service, which automatically adjusts usual and customary (U&C) prices for the top 2,100 brand and generic drugs — 65,000 NDCs — in a store’s competitive area.

Klein’s first step was to define the size of his “competitive area.” This is done by telling Rx-Net whether you want your area based on the first two digits of the zip code, the first three digits, etc. The more digits, the smaller the area.
“We chose two digits,” Klein says. “Our stores aren’t that far from each other, and some of our customers shop at more than one location. In order to be consistent across all stores, we had to go with the larger competitive area.”
Next, Klein had to decide which competitors he was most concerned about. Was his real competition the chains, the big box stores, or other independents?

“After talking with the Rx-Net folks we decided to set the system up so we were pricing 10% under the chains for brands or generics,” he explains. “It was our first attempt at implementing a consistent, across-the-board pricing strategy.” 

Klein says setup was easy and straightforward, with Rx-Net technical staff doing all the work remotely (no in-store visit required). Klein uses a generic “price load” application provided by his pharmacy system vendor, QS/1, to load the data from Rx-Net’s  server. He then uses the standard price formulas on QS/1 — fueled by the data from Rx-Net — to determine his selling prices.

“It’s completely transparent, with no impact on my pharmacy workflow at all,” he says.

Barry Klein, M.S., R.Ph.
Klein’s Pharmacy
Cuyahoga Falls/ Akron, Ohio

Three stores located within 15 minutes of each other with a combined volume of 18,000 to 20,000 prescriptions a month. In 1990, Klein joined the business with his father who’d founded it.

Maximizing Profit Margins

In the days before $4 scripts, when the percentage of cash business his store did was higher, Dave Schultz had a simple goal: be as competitive as possible while maintaining an acceptable profit margin. Sounds easy, but it became more difficult to do as the percentage of third-party business grew and the number of generics on the market, with widely differing AWPs, increased.

“I also struggled to understand the chains’ apparent strategy of pricing unpopular drugs only a few dollars over cost,” Schultz explains, “or the lack of rhyme or reason to the amount of profit they seemed to seek based on the quantities dispensed.”

All of this left Schultz wondering about his own pricing. With new and additional government regulations on the horizon, Schultz saw his business growing more and more complex, leaving less time to look into and follow up on these important pricing issues.

The real eye-opener came one day as Schultz reviewed claim reimbursement data he receives monthly through Access Health’s McKesson Reimbursement Analysis program. The reports clearly showed he was leaving $2,300 to $2,700 on the table each month due to underpriced prescriptions and the impact those scripts had on his U&C price and, therefore, his third-party reimbursement.
“The interface with my McKesson EnterpriseRx system is great — seamless and transparent,” Schultz says. “If you didn’t know you were using the service, you’d have no idea you were even on it.”

Schultz says the service is flexible in terms of controlling pricing strategies for different product groupings.

“You can set up one methodology for your top 25 products, and something completely different for the next 25, etc.” Schultz explains. “You can get as granular as you like or keep it simple.”

Further review of the Access Health reports told Schultz the service was doing what he’d hoped.

“Before we began using Rx-Net I’d have 65 to 75 drugs where claims were being paid at U&C or below,” Schultz explains. “In essence, I was being too competitive with my cash pricing and, in the process, losing money.”

“At the same time,” he continues, “there are times when I feel my specific situation allows me to charge a higher cash price for a drug than what Rx-Net thinks I should charge. For those situations you have the ability to exclude specific drugs from the competitive pricing component. If there’s any doubt, you can always go online at any time to the Rx-Net website and check how the different competitive groups are pricing a specific drug.”

By May 2013 the 65 to 75 drugs being paid at or below U&C and totaling approximately $2,500 had been reduced to eight drugs totaling less than $60 — and, of the remaining eight, six are drugs Schultz himself had set up to be excluded.

Adding a Second Safety Net

Barry Klein goes a step further, adding another layer to the pricing service, Rx-Net’s AcquisitionGuard, which lets him protect his gross margin by enabling him to automatically adjust U&C prices so that no prescription is priced below a store’s minimum profit margin goals. He calls it his “pricing safety net.”

“If the market-based pricing component of Rx-Net calculates a selling price below my preset margin or below my cost, which happens” Klein explains, “AcquisitionGuard prevents that price from being used. The service has saved us from selling something below cost on many occasions.”

Shrivers’s Greg Paisley also likes the safety net that AcquisitionGuard provides.

“It’s pretty simple, but so very important,” Paisley explains. “AcquisitionGuard reviews my claims retrospectively, looking for any that I filled below cost. Take doxycycline, for example. Earlier this year the 500-count bottle spiked in price almost overnight to close to $2,500 per bottle. Without Rx-Net, our U&C for this drug would have been below cost until someone noticed it. AcquisitionGuard automatically changed our U&C the day after the cost increased. It’s saved us quite a bit of money.”

Getting a Handle on Third-Party Reimbursements

Another Rx-Net service Klein uses is ReimbursementGuard, which he compares to Google Analytics. This service identifies claims paid at U&C and adjusts the associated drug record until the U&Cs are slightly higher than third-party MACs (maximum allowable costs).

Taking the lisinopril 10 mg example again, with ReimbursementGuard, Klein can look at a hundred different 30-count dispensings across all payers and rank the reimbursements from highest to lowest to clearly show him which NDC numbers will yield him the most profit.

“If the analysis shows a $7.99 reimbursement for product A and a $2.99 reimbursement for product B,” Klein says, “we dispense product A, which increases our U&C price for that product. Some drugs are MAC’d by payers, some aren’t. You just don’t know. ReimbursementGuard takes away the guessing. Market-based pricing for this same script might show a $4.99 price. But if a third party’s going to reimburse at $7.99, do I really want to accept $4.99 and leave $3 on the table?”

Paisley uses ReimbursementGuard to manage the fine line between charging the highest possible competitive price for his cash customers and not charging so much that it triggers a third-party audit.

“Each night a file with information about the third-party claims we processed that day is sent to Rx-Net, which runs the data through the ReimbursementGuard ‘mill.’” Paisley says. “A file is returned with suggestions about price adjustments that should be made. It’s very easy for us to modify the U&C for a drug, or even a group of drugs, if we realize things are getting out of whack.”

One of Paisley’s initial concerns was the impact that raising his U&C might have on patients covered by local, self-insured plans. “I didn’t want those patients bopping down the road to CVS, where they’d find a much lower price.” Paisley says.

Greg Paisley, R.Ph.
Shrivers Pharmacies

Four retail stores in southeastern Ohio, featuring large, open front ends, but the focus is on prescription processing. Two stores do 700 to 800 prescriptions on Mondays; the other two average 250 to 350 prescriptions a day.

Rx-Net addressed his concern by enhancing the system so he could exclude specific plans by bank identification number (BIN) or processor control number (PCN). “This way I can raise prices on the drugs I want to, and leave them alone elsewhere,” he explains.

All Paisley has to do, now that ReimbursementGuard is working, is to review his MRA (maximum reimbursement amount) report.

“The claims paid at or below U&C have dwindled to next to nothing,” he says.

Consulting and Analytics

Paisley says he gets great value from Rx-Net’s “shrink-wrapped” data products, but he gets fired up when he talks about the company’s consulting and analytic services.

Paisley points out that one of the key advantages that chains have historically had over independents is their ability to capture, analyze, and take action on all the data they collect about the prescriptions they process.

“Simply put, Rx-Net data analytics takes this massive amount of information that exists about claims you’ve processed, and makes it available to you in a usable, actionable way,” he says. “It’s a huge leg up in terms of competing with the chains.”

Paisley says the staff at Rx-Net is always open to suggestions that expand the functionality of existing offerings. Sometimes such discussions lead to the creation of new products, as was the case with AcquisitionGuard and ReimbursementGuard. Other times it’s custom development that simply enhances prescription processing.

One such example Paisley cites is functionality developed jointly by Rx-Net and Transaction Data Services that alerts Rx30 users during the dispensing process that choosing a different, but generically equivalent NDC would yield more profit.

This new functionality looks at a robust database of third-party claim information collected from Rx30 users. An analysis is made based on Paisley’s store’s dispensed NDC numbers and payment history across all payers, and pharmacists are alerted to situations where a third party’s pricing for a specific NDC is based on AWP, not MAC.

“Access to this granular level of information enables both my inventory person to make smarter purchasing decisions and my pharmacists behind the counter to select the right product while dispensing,” Paisley says. “The entire project grew out of a conversation I had with Chuck Cannata from Rx-Net and Steve Wubker from Rx30 at NCPA in 2012. The functionality was delivered in the spring of this year. It’s a great example of how responsive Rx-Net can be when you put a business issue in front of them.”

Bottom Line Improvement

All three of the pharmacists report that Rx-Net services have had a positive financial impact on their businesses. Klein says his gross profit has grown slowly but steadily since he implemented Rx-Net and continues to do so today.

“The services are very enabling from a business perspective,” Klein says. “It reminds me of something my wholesale rep said to me years ago. As an independent, we look at the chains as competition, and certainly they are. But the smart independents are ones who manage the financial side of their business like the chains do. Rx-Net gives you a set of tools that lets you do just that.”
“At the same time,” Klein continues, “there’s no magic bullet. Even with Rx-Net you have to put some time and effort into managing how you price. But compared to how we were doing it before, we’re spending much less time, and the outcome’s a whole lot better. My only regret is that I didn’t get started sooner.”

Schultz says Tobin’s gross profit has grown about $5,000 per month in the two years he’s been using Rx-Net. He attributes this largely to how the service has helped him stay competitive and maximize his third-party reimbursements.

Dave Schultz, R.Ph.
Tobin’s Drugs
Oconomowoc, Wisc.

Schultz describes Tobin’s as “a department store with a pharmacy attached to it.” The 20,000-square-foot front end offers everything from natural products and supplements to high-end cosmetics, ladies, and children’s clothing, and fine jewelry. The pharmacy fills 140 prescriptions a day.

“Unlike some services that you can use for a while, get everything under control, and then cancel, there’s no law of diminishing returns with Rx-Net,” Schultz says. “The service continues to pay for itself as long as you continue to use it. If you stop using it, you immediately expose yourself to the same problems you were experiencing before. The industry challenges that drove us to start using the service two and a half years ago have only gotten worse, and Rx-Net is the best solution we’ve found to deal with them.”

“And it’s great being able to take that five hours a month we were spending on pricing and get out from behind the counter or out of the office and talk to patients,” Schultz says. “I’m passionate about natural products, and having the extra time has really helped me focus on promoting this important part of our business.”

“There’s an analogy I like to use that’s very appropriate,” Schultz continues. “Most pharmacists run their business as though they’re in the dining room of the sinking Titanic, where everything seemed fine for a while until the reality of striking an iceberg far below set in and the ship started to list, then go down. Obviously, you want to get a handle on serious business problems before they become a painful reality and your ship lists and sinks. Rx-Net lets you do that.”

Paisley was reluctant to say exactly how using the Rx-Net services has impacted Shriver’s bottom line, but he says the impact’s been positive and significant.

“Managing your prescription pricing is an ongoing process,” Paisley adds. “It’s like inventory control — you can’t just count everything you have once and then forget about it. It’s a perpetual process, and understanding and controlling your pricing is the same. Rx-Net is a tool that makes managing the ongoing process much, much easier.” CT

After spending over 20 years as a sales and marketing professional in the pharmacy automation industry, John Becker is now a freelance writer and consultant based in Atlanta. He can be reached at jnbecker@me.com.

GSL Intellicab