Here at PDS, we take pride in highlighting some of our incredible exhibitors. We know these companies have the potential to revolutionize pharmacies just like yours through their products and services. We’re excited to introduce Associated Pharmacies, Inc. (API), the warehouse subsidiary of American Associated Pharmacies (AAP). Read on for their sponsored blog post about avoiding transactional anxiety related to purchasing.
You fill a prescription and your pharmacy dispensing system shows that you lost money on the transaction. Then a second and third prescription still yield little or no profit. Your current solution: find an alternative source to purchase items at a price below the reimbursements. But there are many more transactions throughout the day and the time spent sourcing alternative suppliers multiplies.
We call this transactional anxiety related to purchasing. You ask, “what is that?” and “how did I get it?”
It begins with a lack of understanding of how to purchase pharmaceutical inventory – Brand and Generic Rx. As a pharmacy owner, making the right purchasing choices helps ensure the profitability of your business. This can be difficult in today’s market.
Newton’s third law states that for every action, there is an equal and opposite reaction. For independent pharmacy owners, action equals Brand Rx and Generic Rx equals reaction. For years pharmacy owners have pressured suppliers for lower acquisition costs on Brand Rx to match reductions in reimbursements received from payors, sometimes pushing them as low as cost minus 5%, 6% or 7%! Should it be expected that suppliers sell Brand Rx below acquisition cost?
Percentages vs. Dollars
To keep up with declining pharmacy reimbursements wholesalers must dollar cost shift Generic Rx profits, in the form of higher prices or lower rebates, to Brand Rx discounts. To ensure these dollars are available, pharmacies are required to purchase a minimum dollar amount or ratio of Generic Rx in addition to Brand Rx needs. This chase for a lower Brand Rx cost of goods percentage, in turn, reduces dollar profits on Generic Rx prescriptions. For an average pharmacy, 90% of prescriptions filled are for Generic Rx and 10% are Brand Rx.
Because of this brand/generic dollar cost shifting, there is no individual prescription transaction clarity. Dollars that would be considered Generic Rx profits are used to improve Brand Rx profits. Brand and generic transactions do not stand in separate silos, which means individual prescription profitability can no longer be truly measured. The probability must be evaluated based on the total combined net cost of inventory, not a single transaction; and not assessed by a rebate amount or Brand Rx discount percentage.
Are you experiencing low or negative profitability on your Generic Rx prescriptions? Do you find yourself or your staff spending valuable time searching for suppliers for less expensive inventory? If so, your Brand Rx cost of goods percentage is likely eating up Generic profits.
You need to consider the impact “shopping around” has on generic purchase compliance requirements, and how that, in turn, affects Brand Rx pricing. Balance is required, and profitability is built on an understanding of the “big picture” of the cost of inventory.
The Bottom Line Is What Matters
No matter how profitable each individual prescription filled may appear, or each individual purchase made, low margins and poor cash flow can be deadly for your pharmacy business. Don’t allow yourself to stay transfixed on small gains on each transaction and miss out on opportunities to maximize the overall bottom line.
Not sure how to be confident in this approach? The good news is you don’t have to sort through it alone. Don’t be afraid to ask questions of your supplier or buying group representative. A representative can explain the intricacies in understanding terms, and how supplier offerings will affect your bottom line. If they are not willing or able to disclose details of a prepared analysis or the contents of a calculation methodology, you should see red flags.
You have options, and independent pharmacies’ preferred Generic Rx partner is now better than ever. API’s warehouse program is designed to improve cash flow, starting with a 20% instant generic rebate deducted from invoice. Keep more money in your pocket from the beginning and enjoy monthly accrued Generic Rx rebates on these same purchases!
Visit RxAAP.com today for more information, and a representative will help you map out the best purchasing plan unique to your pharmacy.
About the Author
Associated Pharmacies, Inc. (API), the warehouse subsidiary of American Associated Pharmacies (AAP), is designed to lower operating costs and increase profit margins. Make API your pharmacy’s NEXT improvement.