Buying groups: A powerful resource for indie pharmacies

April 10, 2016

They arose to give independent pharmacies buying clout with wholesalers. Now these groups have become full-service organizations with the tools and talent to support successful competition in a chain- and PBM-dominated world.

Buying groups have been an important part of the community pharmacy landscape for nearly four decades. Their original purpose was to give independent pharmacies buying clout with wholesalers. Now these groups, estimated to number more than 30, have become full-service organizations with the tools and talent to help single-store independents and regional chains compete successfully in a chain- and PBM-dominated world.

See also: Independent pharmacy battle plan for 2016

The common good

Don AndersonDon Anderson is the CEO of the Independent Pharmacy Cooperative (IPC), a 4,000-member group headquartered in Sun Prairie, Wis. He also serves as the chairman of The Federation of Pharmacy Networks (FPN), a consortium of groups out of Laguna Niguel, Calif., that work together for the common good.

In explaining the core function of his and other groups, he said, “Naturally our members look to us to provide them purchasing power.” But, he adds, “Perhaps even more important is our ability to help our members manage, advertise, and run a more profitable pharmacy.”

See also: Community pharmacy's secret weapon

Size matters

Mel BrodskyWhile Anderson runs one of the largest groups, Mel Brodsky is CEO of The Keystone Pharmacy Alliance, a regional group based in Philadelphia, Penn. Keystone boasts several hundred members centered in the mid-Atlantic area. When asked how his group can compete with larger ones that have thousands of members, Brodsky noted several characteristics of smaller groups that appeal to his members.

For one thing, his group can arrange for contracts from regional suppliers who simply do not have the ability to service a national group. He cited as examples a greeting card company and a regional candy maker.

“Both companies provide products, prices, and extra care to our members that generate meaningful sales and profits,” said Brodsky, adding that there is no way they could service a group with thousands of members spanning a large geographic space.

Next, Brodsky said, is the purely personal side of business. “Our members know one another, enjoy sharing ideas with one another, and like knowing they can contact the home office at any time and get the help they need.”

Best of both worlds

Still, Brodsky admitted, there are things the bigger groups can do that are beyond the capability of his small staff. To counter that, he and many regional groups have affiliated with larger groups, providing small-group members with the best of both worlds. In these situations, small-group members are able to access the contracts the larger group has negotiated. This increases sales to endorsed vendors and strengthens the hand of the larger group when it is time to renew or review contracts.

Anderson noted that one of the benefits provided by his group and several others among the larger buying groups such as American Associated Pharmacies (AAP) in Scottsboro, Ala., and PBA Health in Kansas City, Mo., is warehousing. These groups operate large, sophisticated drug-distribution centers that collectively ship hundreds of millions, if not billions, of dollars’ worth of pharmaceuticals, OTC drugs, and other products important to the success of community pharmacies.

Multiple memberships

Thomas Cory, RPh, owner of Standard Drug in Fall River, Mass., is currently a member of two groups.

One, the Northeast Pharmacy Services Corporation (NPSC), a regional group based in Framingham, Mass., helps him with a number of business and regulatory issues.

The second, which he joined a few years ago, is the Compliant Pharmacy Alliance (CPA), a national group headquartered in Stoughton, Wis. This group, Cory said, has a major focus on negotiating contracts with a single national wholesaler and prides itself on driving what Cory describes as “a hard bargain.”

Cory said he finds the combination works well for him and credits both groups for making it possible to stay in business.

 

Benefits of group power

Tim HamrickTim Hamrick is CEO of American Pharmacy Cooperative Services, Inc. (APCI), based in Bessemer, Ala. According to Hamrick, one of the many ways his group differentiates itself from others is by providing a circular program. This monthly program provides his members with an advertising vehicle that can be customized to the size, product mix, and budget of most of his members.

APCI also offers a direct-mail distribution service, he said, that helps his members get the circular into the hands of customers in the stores market area.

Robyn Amberg is an independent sales agent who offers her services to companies trying to sell to the independent and small drug-chain market. She believes one of the most important functions buying groups provide is the ability to find, validate, and support vendors whose products or services help boost sales, simplify operations, or control expenses.

Citing the example of her client Prescribe Wellness, Amberg said that it was able to get its medication compliance program up and running in a matter of weeks rather than months, thanks to the support of the corporate and field staff of the Keystone group.

Standard Drug’s Cory could tell similar stories. He said, “I know when I buy a product or service endorsed by my group, that if any problems come up, I can get the group involved to help me remedy the situation.”

And lobbyists too

Many groups employ full-time lobbyists. Their efforts are often coordinated with those of other organizations such as the National Community Pharmacist Association (NCPA) or the American Pharmacists Association (APhA). But, Hamrick adds, “When circumstances dictate, our people can go it alone to fight for our members.”

Brodsky adds that in addition to being able to work at the local level, his organization also supports their members’ specific state pharmacy associations by paying each member’s dues and encouraging Keystone members to be actively involved in their state associations.

The culture of groups

One key differentiator for indies is that groups have different cultures.

When he meets with prospective members, Hamrick said, he invites them to visit APCI’s corporate offices. There they meet department heads, not only to learn about their programs but also to get a feel for their values and management style.

The point, according to Hamrick, is that there are many buying groups and most of their programs will be similar.

His advice? Find a group that reflects your style and values, and then support it fully.

Other group services

So, what other services do groups generally offer? High on the list is help with third-party contracts. Here groups such as EPIC Pharmacies, in Nottingham, Md., and others manage their own PSAOs. Most smaller groups support the one owned by their endorsed wholesalers.

According to Anderson, it is essential for a pharmacy owner to know what contracts a group supports, as coverage and reimbursement rates can differ greatly, depending on a pharmacy’s location.

Trade shows

Many groups, including PBA Health, AAP, and EPIC, have a standalone proprietary annual convention and trade show. This allows for program-specific training and an opportunity to meet with endorsed vendors.

Most of the other groups work in close cooperation with their wholesalers and strive to get their members to attend their events.

 “Each spring for the past five years, IPC has held our own ‘trade show,’” said Anderson. “Three years ago we changed it from the Independent Pharmacy Cooperative Annual Conference to the Independent Pharmacy Conference. We have stores from many different buying groups actually attend, as it is not a recruitment of members for IPC.”

Each approach has advantages and disadvantages. This is another way groups strive to differentiate themselves.

 

Purchasing and operations

One mainstay of the group model is helping to arrange special purchasing privileges for members from suppliers of all sorts, including front-end merchandise, technology, service providers, etc.

Discounts or rebates from approved vendors help to reduce costs, and the threat of losing an endorsement tends to encourage the vendor to go the extra mile when dealing with a problem.

Hamrick said APCI also has a Pharmacy Retail Operations (PRO) Program that helps a pharmacy operate more efficiently. “We coach our members on how to provide the highest level of customer service while being cost-efficient. This is allows independent pharmacies to compete in this highly competitive market.”

The next big thing

So, what’s next? Anderson said IPC has joined forces with other groups that include the Pharmacy Franchisees and Owners Association (PFOA) in St. Louis, Mo., and Keystone to create a PBM called Choice Rx Solutions. The new PBM is up and running, said Anderson, and is bringing on new employer contracts every week.

The PBM has two functions: First, it will help employers provide a better, more affordable prescription benefit. Second, it will provide small chain and independent pharmacists with third-party plans that make use of their professional skills and compensate them for their services.

STAR Ratings

APCI sees clinical services and STAR ratings as a big part of the future, said Hamrick; therefore APCI is offering members incentives for using the Prescribe Wellness program, which supports medication synchronization, monitors compliance, and makes outbound refill calls - all designed to improve results under the STAR rating performance criteria.

Incentives, said Hamrick, come in the form of a sign-on bonus when members enroll and a performance bonus when they demonstrate improvement.

It appears that one longstanding attribute of independent pharmacies is true: They relish their independence - so much so, said Hamrick, that there are still some independents who have chosen not to join a group.

Still, with 30 or more groups to choose from, any pharmacy owner looking for ways to improve profits is likely to find a group that would meet the needs of his or her pharmacy. One good way to find a group is to visit the FPN website at www.fpn.org and click on the Member Groups tab.

Elder Bruce Kneeland is a retired industry consultant living in Prescott, Ariz. Contact him at brucekneeland@kneelandservices.com.