Cover Story | Protecting Revenue

Will Lockwood

a tremendous amount of
complexity in every
pharmacy’s day-to-day
activities. Certainly a
great deal of this is
clinical in nature, but
then of course there’s the
astounding array of
administrative details that
go into submitting
every claim. Pharmacies are
required to successfully
navigate a complex set of
rules unequaled in
almost any other business
environment, simply to
ensure that their patients
get the medications
they need and the pharmacy
earns the revenue it
deserves. Not surprisingly,
technology plays a
prominent role in helping
pharmacies create a
smooth and efficient
dispensing flow.

What Are the Tools?

Parmacies have had claims management tools available to them for a while now. Typically, the conversation centers on claims editing: Preedits that analyze claims prior to adjudication, with the goal of submitting them as cleanly as possible, and postedits that analyze the responses coming back from payers and help pharmacies identify and resolve rejections and pricing issues. These edits continue to be central. However, in talking to pharmacists you’ll find that there is a range of management tools that impact decision-making, claims processing, patient service, and pharmacy revenues, beginning at the point of buying inventory.

The Importance of NDCs

ParMore Drugs is among those pharmacies looking all the way back to purchasing to begin the claims management process, according to Randall Peck. The pharmacy is using a service called PharmSaver when submitting orders from its SoftWriters pharmacy management system. Peck reports being attracted to the service initially because of its potential to reduce cost and improve margins by allowing him to shop his purchase orders among wholesalers for the best price. But he has also found some features that help him streamline his dispensing operations. The focus is on a data element attached to a prescription that we’ll see you really need to pay attention to if things are going to proceed smoothly: the NDC number.

« Randall Peck, Pharm.D.
Pharmacist in Charge

PharMore Drugs. Skokie, Ill.
The largest independently owned long-term care pharmacy in Illinois. Employs a staff of approximately 250 and serves over 10,000 beds in skilled-nursing facilities in Illinois and Indiana.

In this case, Peck is able to quickly determine if a particular product NDC (national drug code) is subject to short-cycle dispensing requirements. These are NDCs that Peck prefers to avoid whenever possible. At this stage, he is also using the service to make sure PharMore Drugs isn’t buying specific product NDCs that will result in insurance reimbursement issues. “The system lets us identify potential negative margins prospectively,” he explains, “as opposed to the norm, which is at the time of filling or even after the fact.”

David Figg uses an alert in the PioneerRx pharmacy management system at Rice’s Pharmacy that flags a product as out of stock right at data entry, which saves time later on in the dispensing process. He is also able to readjudicate on equivalent NDCs automatically. “This meets our contractual obligations,” Figg says, “but it also takes care of our inventory issues.” For example, when you have multiple equivalent NDCs on the shelf, you can’t easily control which one staff are going to pick off the shelf. But then at the time of final pharmacist verification, Figg’s system will issue an alert that the NDC dispensed, while equivalent, doesn’t match the one adjudicated. Instead of having to send the completed prescription back for rework, Figg can simply readjudicate for the actual NDC dispensed and avoid potential trouble with the claim.

Gary McCrory is also paying close attention to NDCs right from the start of his claims management process using his pharmacy management system from PK Software. In his case, this takes on extra importance because in a compounding pharmacy a claim may not just have the one product NDC of the typical retail prescription, but anywhere from two to five NDCs. “D.0 actually supports up to 25 ingredients,” McCrory notes. Choosing the wrong NDC can affect the average wholesale price (AWP) being submitted and reimbursed due to the fact that NDCs reflect a package size. McCrory notes that NDCs also validate the ingredients, the dosage form, and the route of administration for a compound. Therefore, getting the right NDC for the ingredients in the compound is important for the proper adjudication of a claim. All this information is in turn critical for populating the worksheet that McCrory’s PK Software system produces for each compound. “We have to have an accurate log for each prescription,” he says. “When we start with the right NDC number, then we know we will have the right average wholesale price and the quantity signed off on, for example.” And then McCrory can be assured that he’s billing the PBM for exactly what was compounded. “There’s no margin for error here,” he says.

Managing Cost and Pricing

And as we already heard from Randall Peck, attention to the NDC has a big impact on pricing. There are several versions of price that require attention. At Reasor’s, a service from Rx-Net is evaluating pricing relative to maximum allowable cost (MAC) values and monitoring the usual and customary (U&C) pricing, according to Andy Becker. This service flags every claim paid at U&C and raises the price automatically, and on every NDC associated with that drug. “So if our U&C means that we’re not asking for enough on claims,” Becker says, “Rx-Net lets us automate managing that.” Becker makes a regular practice of reviewing reports on pricing and actively manages parameters within the service to ensure that he’s aware of any pricing issues the service has identified.

« David Figg
Rice’s Pharmacy. Beaver Dam and Fordsville, Ky.

Independent pharmacy with two locations in Western Kentucky. Offers a range of services, including compounding, immunizations, durable medical and respiratory equipment, diabetic supplies, and mastectomy prostheses and supplies, as well as delivery.

Average wholesale price is also an important pricing metric to apply edits to, according to Gary McCrory. This is true whether it’s for a compounded prescription with multiple NDCs or a standard drug claim with one. AWP needs to be kept current to ensure proper reimbursement. “With the multiple NDCs of a compound,” notes McCrory, “the magnitude of the attention required to be sure a claim is submitted cleanly has increased.” McCrory relies on his PK Software system to do the hard work of figuring out the combined AWP for all the NDCs in a compound formula. He also reports being able to click a couple of buttons and get a true acquisition cost. “We can actually expand that functionality out to include the delivery device for a compound as well,” he says.

This sophistication in calculating pricing and costs helps McCrory’s Pharmacy with its financial analyses, according to McCrory, and gives better insight into the success of his business model. Using price edits during the claims management process also helps pharmacists find more time to spend on their patients, notes Steve Clement. He counts on the AWP edit from RelayHealth to manage the burdensome task of updating prices. “When our system sends a claim and we haven’t updated the pricing,” says Clement, “the claim is automatically corrected and sent with the current AWP.” This protects his reimbursement automatically.

Watching Your Margins

Randal Girouard is using a variety of preedits and postedits in his QS/1 pharmacy system at Rayne Pharmacy, but puts a particular emphasis on watching another pricing metric for claims: the maximum allowable cost (MAC). “Today this is so very important,” he says. “In a community pharmacy, you can’t come to work and fill prescriptions like you would at a chain, where corporate takes care of all the pricing and everything else. You have to do this individually yourself, and it’s very, very time-consuming.” Girouard’s method for combating the risk of MAC pricing losses is to keep an eye on margins, both at the purchasing and at the claims submission stages. “This is also where our wholesaler, Louisiana Wholesale Drug, has the vital role in purchasing drugs with the lowest acquisition cost,” he says, “giving us a

« Gary McCrory, R.Ph.
McCrory’s Pharmacy, El Paso, Texas

Professional compounding pharmacy serving a broad array of needs. McCrory, who grew up in the pharmacy business, is in his 39th year of practice and has been compounding since 1984.

To this end, he reports leveraging data from his QS/1 software that lets him anticipate potential reimbursement issues by looking at the spread between MAC and wholesale acquisition cost (WAC). “This allows us to make more-intelligent buying decisions,” he says, “and avoid situations at the point of initial purchase where a negative margin would result upon dispensing.” Girouard then checks again for negative margins by having staff verify acquisition cost against the adjudicated reimbursement on every prescription label.

Management tools that give insight into the key components of margin, costs, and pricing are important at Reasor’s, notes Andy Becker. However, pricing isn’t just about making money, in his view. “Just because you’re pricing above your cost doesn’t mean you’re pricing effectively,” he warns. “Every drug priced too low means margin dollars that you’ve lost.” With this in mind, Becker is using Rx-Net’s services to ensure that he’s looking not just at dollars-over-acquisition cost, but that he’s priced medications appropriately within his market by comparing Reasor’s pricing to competitors. This is particularly significant since Becker has to manage appropriate and competitive pricing for all Reasor’s locations. “You don’t want to find out you’re losing money you could have made on a script because you’re not pricing a drug at the level you could have in the local market,” he says.

Trying to manage pricing manually is a full-time job, according to Becker. “Some generics have 15 manufacturers,” he notes. “If you monitor that manually, try to keep up with generic price volatility, and try to keep your pricing competitive, then how are you going to do other things like MTM? And how are you going to invest time in the future of where pharmacy is going, if all you’re doing is spending your time on prescription pricing?”

And Becker brings up how significant it is for pharmacy to also stay on top of MAC pricing as best as possible. “If tracking MAC isn’t on your radar you need a new radar,” he says. Getting paid at MAC often means you’re looking at prescriptions sold at a loss, he notes. In Oklahoma, a proactive approach even allows for the pharmacy to report to payers when claims paid at MAC are below the pharmacy’s cost. “Then Oklahoma law says that the third party has to raise their price or they have to show where you can get the drug,” says Becker.

Meeting Obligations

Another complex area of the claims management process is the rules pharmacies need to follow in order to meet the obligations imposed by payer contracts. David Figg, who brought a background in software engineering when he joined the pharmacy his father started 45 years ago, puts a premium on using edits to allow Rice’s Pharmacy to operate as efficiently as it can. “What I am always asking,” he says, “is what are we doing so that we know that claims are correct before they go out the door rather than chasing them after the fact?”

Andy Becker, R.Ph.
Director of Pharmacy

Employee-owned grocery store chain with a pharmacy in every store. All locations are within a 50- to 60-mile range, and the stores are run as one unit. About 130 pharmacy staff members process over 19,000 prescriptions a week.

As a result, Figg is applying edits within the system to look for missing or invalid data that will mean that a claim does not meet contractual obligations and that creates risk of rejection or lower reimbursement. What’s important, in Figg’s view, is to make sure that the edits are flagging such claims issues during the prescription-dispensing process, while keeping workflow moving. “PioneerRx allows us to set an edit that flags an issue without putting a hard stop on the prescription,” he says. This lets staff at Rice’s Pharmacy work to resolve issues, while still allowing prescriptions to continue through the workflow. “This saves the patient’s time,” says Figg, “and it saves us time and makes sure that we are meeting our legal obligations.”

David Figg’s list of claims data elements that require stringent preediting has a number of items on it. There’s the DAW (dispense as written) code, for one. “If we’re filling a brand prescription for a patient,” he explains, “the edit is going to flag it before we ever finish entering the prescription. We may need to check the DAW to make sure that the doctor has written on the script that they want brand-name versus generic.” Next are edits that check for correct days’ supply, expiration date for different schedules, and correct package size. “We used to have terrible issues with package size,” Figg says, “and we’d get hit by the PBM and audited on this all the time.” The focus here is medications such as creams and ointments, where a staff member might enter an NDC for a 60-gram package, but the pharmacy would ultimately dispense the 30-gram size. “It was caught by the PBM every time,” Figg says.

Gary McCrory and Steve Clement add a few more pieces of information that they consider critical. McCrory reports using an edit to validate the physician’s NPI (national provider identifier) number, while Clement uses an edit from RelayHealth that catches blank, invalid, or improperly formatted DEA (Drug Enforcement Administration) numbers. “These are elements we need to have right, or we’re putting our payment at risk,” says McCrory.

The Operational Side

When there are claims management tools that address operational aspects. For example, Steve Clement points to the E1 transaction, which he calls a lifesaver. “We can check a patient’s Medicare eligibility and find out if there’s secondary insurance based on the Social Security number,” he explains. And Clement has found that consistent application of this eligibility-check transaction as part of the dispensing process provides Copper Bend Pharmacy patients a level of service they may not get elsewhere. “We see people who don’t realize they have secondary insurance,” he says. “And we’ve heard from some patients that they don’t get this service from the chain pharmacy they were going to.” Clement notes that this is a simple task for his staff, since they just submit one claim from the CompuSolve pharmacy system, and RelayHealth does a complete review, including the E1.

« Steve Clement,R.Ph.
Copper Bend Pharmacy, Belleville, Ill.

Community pharmacy serving a medical office park, as well as the general community. The pharmacy has expanded into three buildings and has been remodeled to facilitate a focus on patient counseling.

Another good example of an operationally focused edit comes from David Figg, who explains that whenever the staff enters a new prescription, the pharmacy system at Rice’s Pharmacy is set to look for an identical prescription with refills still available. “If we have a refill on file from the prescriber for the same drug and the same strength,” he says, “then we can use that, which increases the efficiency of our process tremendously.”

Figg is also using an edit to keep an eye out for high co-pays. “We’ve set an alert for a specific threshold,” he says. “This has been great for our customers because we can look for a coupon or a lower co-pay alternative. It gives us an opportunity to really provide better customer service, and not waste our time filling prescriptions that are aren’t actually going to go out the door.”

Reconciliation and Reporting

Even with everything pharmacies are doing to manage and streamline the claims submission process, there turns out to be plenty of need to deploy post-adjudication technology and analytics. “We need to reconcile every remittance advice that comes in from a third party,” says Randal Girouard. “We did this manually at one point, and it was taking one of our employees between two to three hours a day.” Looking for a better way, Girouard signed on for the reconciliation service offered by FDS. As Girouard describes this service, it grabs claims as they leave the pharmacy system and creates a file. FDS then collects the 835 remittance advice transactions coming back from payers and looks for discrepancies. “At the click of a few buttons we know exactly how much is owed to us from third parties,” says Girouard. In cases where claim and remittance don’t match, or the very rare instances when a payment is missing altogether, Girouard only has to initiate a request for a correction, and then FDS pursues it from there. “You have to ask yourself if you really have the time and resources to keep up with all this, if you are trying to do it yourself,” Girouard says.

Randal Girouard, R.Ph.
Rayne Pharmacy, Rayne, La.

Independent pharmacy offering deliveries, a drive-thru, and a gift shop to a community of more than 8,000 in this town west of Lafayette. Girouard is also a stockholder and chairman of the board of Louisiana Wholesale Drug Co., which is owned by 160 independent pharmacists and has the mission of providing the best prices for brands and generic drugs for stockholders.

David Figg is using reporting in his system to track the edits that claims trigger. “We use this to look at what’s going on throughout the day,” he says. “From an administrative standpoint, I’m able to go back and isolate issues, assess the rules we’ve set up, and build new ones to meet developing needs.” This kind of analysis gives Figg the ability to see trends and set up new protocols. And he can also create notifications based on these reports. “Once we notice a trend, we can set up a text message so that we don’t have to wait for the technician to recognize a problem and alert us” he says. “The pharmacist will get a text message and know there’s something to go look at, or I’m getting a text message and I know who to talk to.” This is all supported by the fact that Figg is himself creating the edits and alerts used in Rice’s Pharmacy’s claims management process right within the PioneerRx system.

Customize and Innovate

David Figg’s examples show how important it is to be able to work within your system to set up management and process rules that can address specific issues you are seeing. Andy Becker has found this to be the case when it comes to pricing management as well. “We really value being able to set the parameters in Rx-Net based on the results we’re looking for,” he says. “So if we’re looking at pricing to maximize third-party reimbursement, or drive sales, or drive margins at a particular store, we set specific parameters and automate this.” Becker also uses this flexibility to remove specific medications from the pricing automation rules. “This applies to a few drugs where we want to use pricing to differentiate us from our competitors,” he says. “With Rx-Net we can select specific drugs, set parameters if the market hits a certain price, change our price, and keep the same price structure even if cost continues to go up.”

Technology Versus Complexity

“If you are focusing on these pennies and dollars, you lose focus on the patient. I think you’re missing the boat if you’re not using these kinds of services.”

– Steve Clement

There’s nothing new about the concept of claims management tools in pharmacy, but that doesn’t mean that they have diminished in importance or that there aren’t good examples of innovation as needs change. “The pharmacy business continues to change rapidly, and reimbursement models are changing,” notes Andy Becker. “As the focus shifts to positive patient outcomes, we will have to use resources to support outcomes and be ready to free up revenue to do that. Optimizing pricing for an individual store can have a huge effect on gross and net dollars, and it means even more for a chain.” It’s not likely anyone will argue with the idea that the practice of pharmacy is only getting more complex, and pharmacy staff are getting busier.

“It takes all we have just to fill prescriptions,” says Randal Girouard. That’s why he sees services that look out for a pharmacy as so important. “There’s the satisfaction in the back of my mind that I know we’re tracking each claim, and that’s a big deal,” he says. “I was doing it before, and I had to come back and print logs, print all kinds of reports, and everything else. Now I’ve got someone doing all that for me.”

The point, according to Steve Clement, is that when you are looking to services that take care of the pennies, that builds into dollars, and that means Copper Bend Pharmacy can continue providing the best service to its patients. “If you are focusing on these pennies and dollars, you lose focus on the patient,” he says. “I think you’re missing the boat if you’re not using these kinds of services.” CT

Will Lockwood is VP and a senior editor at ComputerTalk. He can be reached at

The Clinical Side 

This issue’s examples focused on primarily what might best be called operational areas. There’s a whole other side of management tools that focus on the clinical aspects of pharmacy, and in general they fall outside of the scope of this story. It’s worth noting, however, that there are valuable clinical edits in play as well. For example, Steve Clement points to an edit offered by RelayHealth for age-related dosing.

And David Figg offers two more areas of impact for system-driven rules application. First is when there are drugs that require specific patient communications, such as those subject to REMS (risk evaluation and mitigation strategy). “We use the settings in our software to make sure that we have all the required documentation for these prescriptions,” he says. And then there’s the need to standardize the collection and management of patient information and demographics. “Keeping up with patient information is one of the hardest things in pharmacy,” he says. “We have set up prompts that make sure that we are applying a consistent set of rules to updating medical conditions or checking on any new allergies, for example.” –WL