PBMs, wholesalers, and contracts 101


Independent pharmacists can benefit from negotiating their own contracts, but they've gotta keep their eye on the ball. Here are a few tips.

Gary EllisCommunity pharmacists - or those wishing to enter the exciting business of independent pharmacy- face challenging times. However, there are important options that a pharmacist can control to enhance revenue and ensure viable options in the conduct of business.

Historically, the major income flow for pharmacists comes through fulfillment of PBM contracts. Although reimbursements have tumbled, a knowledgeable pharmacist can increase them by following a few tips.

See also: The independent pharmacy battle plan for 2016

Contracting individually

First, many pharmacists allow their PSAOs (pharmacy support and administrative organizations) to develop national contracts for the store. Many PSAOs mandate total compliance, meaning there is no “opt-out” clause for a store’s personal business choices (e.g., local health contracts). However, any pharmacist can contract with PBMs individually, allowing for true independence.

Many stores qualify for “rural” rates, generally more than double a standard reimbursement. Rural qualifications, generally, are granted for stores more than 25 miles apart or for one store per zip code. Because large PSAOs don’t focus on the needs of individual stores, the pharmacist can and should contract individually with the PBM.

One note of caution! Each PBM contract asks the standard question: “Do you offer mail order?” Your answer must be “No,” even if you mail a few prescriptions to just a handful of customers. PBMs will not allow competition to their mail-order operations, so if your answer is “Yes,” you will not receive the contract.

By the way, compounding pharmacies are facing new challenges, as well. PBMs now require a “licensing” fee to participate in their networks. They may choose to weed out compounding pharmacies for two reasons: 1) legal challenges or 2) the PBM wants to fulfill the prescription.

See also: Community pharmacy's secret weapon

Read that contract

There are more than a dozen contracting “red flags” to watch for, so it’s important for you to take a few minutes to make sure you understand what you’re looking at.

Every pharmacist needs a wholesaler. Every wholesaler purports to be the “best” etc., so be aware that finding a wholesaler is like buying a car.

First, ensure that the agreement is in writing. It’s amazing how many issues fall through the cracks when push comes to shove. For example, we noticed recently that the old game of “if you don’t sign this contract your store is automatically enrolled ...” is making its way through the contracting routes again. No, it’s not legal, and numerous court rulings deny anyone who is “automatically” enrolled.

You wouldn’t buy a home without an agreement, so doesn’t conduct your business by any other method. Wholesalers are not “partners” with the pharmacist - they are vendors.

When signing that agreement, there are many issues to examine carefully.


Litigation location

One clause indicates the state in which you can litigate your wholesaler in case of problems. The major wholesalers insist on this activity occurring in their home states.

Do you feel like flying from Alaska to Pennsylvania to deal with a contractual issue? No? In your wholesaler agreement, insist that any litigation occur in your state.

Yes, the wholesaler will explain that their legal department won’t allow for this change. You stand firm. Either they want your business or they don't.

Cancellation notice

Another loophole to watch for is the phrase “the wholesaler may cancel this agreement with 30 or 60 days’ notice.” You should add that “either party” may cancel. In some states, such as California, there is an automatic “adhesion clause” implied through the courts, which simply means “if it applies to you, it applies to me.” But rather than leave this issue to the courts, make the simple change.

Of course, you again will hear that “our legal won’t allow changes to this contract,” but there are countless examples of times this alteration has prevailed.

The bottom line is that an independent pharmacist must also be a businessperson to thrive in today’s environment. If you’re interested in the challenge, independent pharmacy may just be for you.

Gary Ellisis president of Ellis Management Consultants LLC, for many years CEO of Managed Pharmacy Care, RxPR1DE LLC, and the Independent Pharmacist's Contracting Network (IPCN). You can order his book,The Independent Pharmacist's Survival Guide, throughAmazon/Kindleor by calling 877-578-6578. E-mail him atemchealth1@gmail.com

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