Prescribing Transparency as the Solution to Pharmacy Owner Woes

Drug Topics JournalDrug Topics March 2022
Volume 166
Issue 03

Without transparency, pharmacy owners must clear numerous hurdles to run an effective business.

Transparency is a buzzword these days. We hear about it on the nightly news in reports about our government, schools, restaurants, and even social media. Transparency in the pharmacy industry is undoubtedly an active discussion topic, and pharmacy owners have been fighting for it for years with little success. Let’s discuss some key areas where a lack of transparency hurts pharmacy owners and, ultimately, patients. 

Controlled Medications

Because of past situations involving the over-prescribing and over-dispensing of controlled medication, both the Drug Enforcement Agency (DEA) and wholesalers closely monitor pharmacies’ ordering habits. On the surface, this is a good thing: No one is a proponent of pill mills. However, the lack of transparency in this process hurts pharmacy owners and patients.

Pharmacists will regularly turn away legitimate prescriptions from legitimate patients who present with a new controlled prescription. Why? Likely, these pharmacists are worried about going over ambiguous thresholds and ratio limits. The pharmacist is concerned that if they increase their purchases of these controlled substances, they will trigger a controlled medication audit and perhaps prevent the pharmacy from ordering what they need to fill prescriptions. This confusion comes from a lack of transparency from wholesalers and enforcement agencies. 

The Worst-Case Scenario Does Happen

Many pharmacy owners have heard horror stories of pharmacies forced to close or their ability to order controlled medications taken away. For West Virginia pharmacist Martin Njoku, these horror stories became real life when the DEA raided Oak Hill Hometown Pharmacy and revoked Njoku’s right to dispense controlled substances. The raid, according to previous reporting,1 came a few years after Njoku began dispensing buprenorphine to customers, both local to Fayette County, West Virginia, and those displaced by flooding in nearby counties.

Although Martin was cleared of all wrongdoing, the damage was done. He was forced to close his pharmacy and his community lost critical access to the care it needed. 

There is a shroud of secrecy surrounding everyone from the wholesalers to state and federal agencies about what triggers these drastic actions. No one will talk about it and no one will help pharmacy owners and pharmacists on the front line maneuver legally within the system to best help patients. Pharmacists want to help combat the opioid epidemic; we need transparency and collaboration with the key players to do our part while still providing care for our patients. Instead, we feel like we have no choice but to turn patients away.

Drug Pricing

Another area that lacks transparency is drug pricing. From the patient’s point of view, there has been some significant, positive headway where drug pricing transparency is concerned. However, many pharmacies must still deal with smoke-and-mirrors pricing in the drug acquisition process.

In the traditional wholesaler model, the pharmacy places orders for medication and pays an “invoice cost,” which is an inflated price for its inventory. The pharmacy can earn rebates over the next several months to lower its acquisition cost, but because rebates come in long after the medication is dispensed, pharmacies don’t know the actual cost of a product at the point of sale. They are left to make educated guesses.

Guessing Game

Some pharmacies will not bet on getting the total rebate—as it is not guaranteed—so they keep the invoice cost in their pharmacy management system. In contrast, others will accept the theoretical rebate as a given. The ambiguity of each product’s price leads to decisions at the point of care. If the pharmacy assumes it will lose a significant amount of money, it may choose not to dispense the prescription. Conversely, a pharmacist may think they are making a profit on medication—but in reality, their cost is higher than anticipated and they are now losing money. 

These “leaked” dollars add up to significant unrealized revenue for pharmacy owners. For a typical independent retail pharmacy, between 15% and 20% of the prescriptions it dispenses are a negative reimbursement at the point of sale. This loss not only puts a strain on a pharmacy’s ability to stay in business, but it also impacts both clinical decisions and the service offerings provided to their community. The purchasing process needs to be infused with transparency so pharmacy owners can focus on patient care instead of playing purchasing games. 

Reimbursement Rates

A lack of transparency around pharmacy payments has the same deleterious effects as pharmacies not knowing drug costs. Frequently, pharmacists are either left guessing how much money they are losing or assuming they are making money only to never see those revenues realized. 

Confusion on the reimbursement side comes in many forms, but the 2 most egregious culprits are effective rate contracts and direct and indirect remuneration (DIR) fees. 

Effective Rate Contracts

Under an effective rate contract, the pharmacy has a maximum profit percentage cap across an insurance's entire book of business. This cap causes a reimbursement amount at adjudication to become, essentially, a made-up number, with the payment processor guessing at what the rate should be. A “true-up” will happen later, typically resulting in the pharmacy paying back large sums of money to the pharmacy benefit managers. Pharmacy owners are left in limbo for months, wondering what their actual revenues will be. Any business owner can easily empathize with the trouble this unknowing causes.

DIR Fees

DIR fees for Medicare claims are the most significant source of concern for pharmacy owners. The lack of transparency comes from several questions: 

  • How much will the pharmacy be charged?
  • How is the pharmacy graded?
  • How can the pharmacy improve its performance?
  • When will the pharmacy be charged?

While these seem like easy questions to answer, the lack of transparency makes answering nearly impossible. Each Medicare plan has published DIR fee ranges, but these ranges are wide and the difference to a pharmacy’s bottom line is critical if it is, for example, 11% vs 15%. There also never seems to be a straightforward answer for how each pharmacy earns its score and ensures the data are clean. A patient who passes away, for example, counts as missed fills, lowering the pharmacy’s adherence score for many months until the patient drops from its calculation. No one intended for deceased patients to cost pharmacies thousands of dollars. 

Fighting For Transparency

Many pharmacy industry organizations and individuals are fighting long, hard battles to improve transparency throughout the industry. It is critically important to talk to your elected representatives at all levels of government and to support organizations like Pharmacists United for Truth and Transparency or the National Community Pharmacists Association in their quest for change. Most importantly, pharmacy owners must understand the impact that a lack of transparency has on their business. Knowing where there are information blind spots may help owners see the bigger picture and make better choices for patients and the pharmacy alike.


  1. Pattani A. DEA takes aggressive stance toward pharmacies trying to dispense addiction medication. NPR. November 8, 2021. Accessed January 3, 2022. 
Related Videos
fake news misinformation | Image Credit: Bits and Splits -
Dr. Charles Lee
Dr. Charles Lee
Dr. Charles Lee
Related Content
© 2024 MJH Life Sciences

All rights reserved.