Here at PDS, we have many incredible solutions partners that have the ability to revolutionize pharmacies through their products and services. We’re so excited to share with you one of them — First Financial Bank. Read on for their guest blog post below about refinancing your pharmacy debt. Enjoy!
Cash flow is critical to any small business, and the world of independent pharmacy is no exception. In today’s environment, a rising number of business owners are acquiring debt with unreasonable repayment terms. In this case, refinancing may be a viable option for business owners. When looking at a potential refinance, you need to evaluate your existingdebt and analyze the repayment requirements to see if this option contributes to improving your business’ overall financial health.
There are many different types of debt in addition to traditional bank loans and lines of credit. Those include owner financing, Small Business Administration (SBA) or conventional loans, wholesale debt, business credit cards, and merchant cash advances that require daily payments. An independent pharmacy owner may have one or any combination of these debts. Refinancing can potentially reduce loan payments, extend the term of the debt, consolidate multiple loans into one lower payment, and improve working capital. Additionally, paying off creditors enhances the business reputation of the pharmacy, reduces the possibility of litigation, and helps re-establish solid relationships between the pharmacy and key suppliers.
If you are considering refinancing; you will want to ask yourself several questions before deciding to refinance.
- What is your current interest rate?
- Does your loan have a balloon payment coming due?
- Are there prepayment penalties on the current debt?
- Do you have stacked debt (multiple loans: bank loans, credit cards, etc.)?
- Do you have a good credit score?
- Does the pharmacy have prepared financial statements?
- Will the pharmacy’s cash flow support the refinanced loan?
- What is the cost of refinancing?
- Do you have the patience to deal with the paperwork involved?
- Will this improve your cash flow?
- Is the Small Business Administration (SBA) a viable option?
Interest rates are at historically low levels, even with the recent increases. If the business owner has stacked debt or higher interest rate loans in place, a reduction in your interest rate could significantly improve cash flow.
A credit score is also something to consider in the refinance process. A score of 680 or higher is usually preferred by lenders. The pharmacy also needs to have credible financial statements that show that the refinanced debt can be supported by the pharmacy’s current cash flow after removing the old loan payments.
Owners should also examine the cost of the refinancing. Loan fees, appraisals, title work, and other costs associated with refinancing range from 3% to 6% of the loan amount. However, these fees can be included in the loan and paid over the term of the note. Typically there is no equity injection, also known as a down payment, required for refinancing debt.
The SBA is a viable option for refinancing business debt for independent and community pharmacies. Because of the complexity of the SBA loan, choosing a lender with a dedicated SBA division and expertise in the pharmacy segment is highly preferred.
Refinancing your current debt to improve cash flow may be a useful option for independent pharmacy owners to free up cash flow. If you think this could be an option for you, find a knowledgeable lender that specializes in Independent Pharmacy Financing to answer all of your questions.
When it comes to offering your patients the latest options in their health, wellness, and medical care, size matters. Chain pharmacies are logical places patients expect to be introduced to the latest in their personal health options because they are equipped with their expanded footprints, buying power, and national brand recognition. Though, much like mighty ships require expansive space to maneuver, so do national chain pharmacies.
Independent pharmacy owners are at a unique advantage in their ability to adapt and maneuver when they need according to where the market leads. These owners who recognize their opportunity to create for niche offerings and leverage them, elevate their pharmacies above national recognized brands.
Not sure which niches first deserve your attention? We’ve pulled together five of the juiciest underserved niches in pharmacy today, now it’s your turn to learn about and pick that low-hanging fruit.
- NICHE: Pharmacy Genomics
Pharmacogenomics, also known aspersonalized medicine, is exploding within the pharmacy industry. The ability to tailor drug therapies to a patient’s specific metabolic and DNA blue print is a hot-button innovation. Pharmacy owners are staying ahead of the curve by investing in both themselves and their staff through current research and training. Be the first pharmacy in your community to offer personalized medicine.
- NICHE: Travel Vaccines
Between packing, securing their passports, making arrangements at work, hiring pet sitters, and financial planning, most travelers put getting up-to-date on their travel vaccines on the very end of their to-do lists — if they remember them at all. This is your opportunity to promote pharmacy services that provide the most common (and even uncommon) vaccines travelers need before their big cruise, backpacking trip through Europe, or visit to their family. You’ll not only earn their business by offering them this service, but make their lives easier. They’ll appreciate not having to make an appointment with their general physician.
- NICHE: Fertility
More and more women are taking charge and control of their fertility, more specifically those who have recently been diagnosed with infertility. As these women face the emotional, physical, and mental struggle of receiving, facing, accepting, and treating their diagnosis, create a safe place in your pharmacy they can utilize as a resource. Providing the medications, supplies, and support they need as they navigate their fertility journey will make your pharmacy more than just a convenient stop on their way home – you’ll create a relationship that will last through their journey and into their pregnancies.
- NICHE: Hospital Discharges
Whether your patients are leaving the hospital with a brand new member of their family, or going home to recover from major surgery – the last thing on their mind is having to stop at their community pharmacy to pick up their new medications. Establish new relationships with patients, right when they need you the most by offering Bedside Delivery. They won’t soon forget the exceptional service they received and who provided it to them.
- NICHE: Wellness Testing
Health and wellness is no longer a trend, but a lifestyle many people are committing to. With incentives from their insurance, physicians, and even employers, your patients are health conscious and it means that you should be, too. Providing testing gives your patients access to services they could previously only obtain through their physician. Save them the additional cost of a doctor’s office copay and give them the freedom to take charge of their health.
Now you can watch the on-demand webinar 5 Niches Chain Pharmacies are Neglecting, where Dr. Lisa Faast will go deeper in why you need to implement these niches and the benefits they’ll bring to your pharmacy and community. Click below to watch.
Bedside delivery is a profitable service you can implement that will connect your independent pharmacy with new and existing patients in an effort to provide the best care possible.
Are you ready to take your Bedside Delivery program to the next level? Here are the 5 steps for successful Bedside Delivery implementation that will help get you started.
1. Research Your Hospital
Before jumping headlong into a Bedside Delivery project, you have to do your homework! As yourself questions like:
- How many beds are your local hospital?
- What specialties does it service?
- Does it have an outpatient pharmacy or does it already provide any Bedside Delivery (spoiler alert: even if they do, there is still an opportunity for you!)?
- How far away is the hospital from your pharmacy?
- What are current penalties for readmissions and where are they hurting?
2. Request a Discovery Meeting
Once you know more about your hospital and its pain points, you can set up a meeting to present to the administration about the benefits of developing a strategic relationship. They will want to see a detailed plan for your pilot phase, implementation, staff training, clearance, expansion, follow-up, and the entire workflow. You must be confident on what your pharmacy can provide and how you can help the hospital reach its readmission goals.
3. Follow-up and Persistence is Key
If your hospital is anything like the norm, you’ll have to practice your patience, be persistent, and follow-up at regular intervals to push the project forward. Most hospitals have many layers to maneuver before getting the green light, so persistence should be your main skill here. Do not become discouraged! Typical Bedside Delivery initiatives take anywhere between 1 to 2 years to get fully rolling hospital-wide, but when you’re seeing 15-20 new patients a day from an average 300 bed hospital, you’ll be glad you took Step 3 to heart.
4. Sign the Contract, Jump the Hoops
Once you wow the hospital with your presentation and persistence, you can reveal your Bedside Delivery contract. Agree on a contract detailing the services you provide and the support and access the hospital will provide. Then you can finally set your start date! Next, will come the various screenings, clearances, BAA and vendor details, and HR requirements you’ll need to execute before the hospital gives you a badge and lets you step your foot in their door to peek in the charts. Again, be persistent.
5. Begin the Pilot
It’s go time!! You’ve laid your foundation, you’ve trained your team, you’ve met with the nursing staff on the pilot unit, you’re ready! Your persistence is not done yet. Doctors and hospitals will need to be exposed to your services on a daily basis. They will become increasingly more comfortable as they realize you’re doing all the heavy lifting. Patients will appreciate you helping them transition home and your follow-up. Do a great job, and you’ll retain them, their families as well as hospital employees and their families.
Bedside Delivery is an enormous opportunity whether you have a 10 bed, 100 bed, 300 bed, or 1,000+ bed facility. You just have to know how to get started!
PDS has created a Bedside Delivery workshop that will make you the expert and teach every aspect of selling and delivering a Bedside Delivery Service in your local hospital. The next course is May 19-20, 2017, so register today! From researching profitable hospital units, to navigating how to penetrate the hospital administration — this course will ultimately let the attendee become the subject matter expert on transitions of care.
Want more information? Watch this short video from our course facilitator, Dr. Nicolette Mathey on why you shoud consider a Bedside Delivery program.
Watch Dr. Nicolette Mathey Below:
Need even more information? Download our free Bedside Delivery Guide. The next training starts soon! Visit the Bedside Delivery training page to register for the next session today!
Know the Red Flags, or Sink.
Pearson’s Law: Everything measured improves, and everything measured and reported on improves exponentially.
When is the last time you measured your pharmacy’s financial progress? We’re willing to bet that most reading this don’t take a deep dive into what makes their pharmacy thrive — and what is bogging the business down.
Understanding your financial statements is a necessary game business owners must play if they intend to win. Far from a boring topic, speaking your pharmacy’s financial language will become fun once you can interpret what your statements are trying to say to you. Once you tap in, it will start telling you if you are on the right track, what initiatives or tactics are viable, and what ventures you should drop immediately.
Waiting until symptoms manifest shouldn’t be the time to look into your data. You must be able to identify what’s happening in your business long before things go south. Below are some red flags you should look out for that signal a vital need to look into your statements immediately.
Red Flags to Look Out For:
- Your pharmacy cash balance is low.
- Your payables are growing, but your cash is not.
- You have little or no understanding of what your true accounts receivable balance is.
- Your payroll is not the ideal of 11-13% of revenue.
Learn to Speak Your Business’ Financial Language
Cashflow and understanding financial records are your keys to discovering what your business is saying to you. Pharmacy Development Services offers two ways to take control of your financial data.
- Cash Flow 101 Workshop: This training course teaches you to understand the language of your statements and how to check the pulse of your financials so you can determine the next course of action you need to take as a business to keep that arrow moving up. In this workshop, pharmacy owners step into the lion’s den to learn how to read, understand and interpret financial statements along with other pharmacy data to help you make better management decisions and seize opportunities. Get an insider’s look at what the Cash Flow 101 course is all about by watching this video of one of the workshops below. Find more details and catch the next session here.
- PDS Bookkeeping Services: Level up your pharmacy by taking control of your finances. We take your messy pharmacy financial records, clean them up, make them easy to read and enable data-driven decisions. We’ll also standardize your chart of accounts, convert your old QuickBooks and fully reconcile all of your bank and credit card accounts — plus more! Find out more about our comprehensive pharmacy package and inquire about the service here.
Get an insider’s look at Cash Flow 101 from an attendee’s eyes below:
Don’t wait until those red flags sink your ship. Understanding your financials can mean the difference between thriving and closing your doors for good.
For more information on Pharmacy Development Services Pharmacy Training Courses, click here.
Anyone who manages an independent pharmacy knows how intractable the challenge of inventory management can be, whether perpetual or not. Cycle counting, managing C-II logs, order point adjustments, and tracking expired stock are among the labor intensive processes that can drastically impact the profitability of your business. How can a pharmacy with competing demands on technician and pharmacist labor keep perpetual inventory without a significant time investment?
You can hit a “profitability home run” by maintaining accurate perpetual inventory that can reduce the overall inventory carry, minimize stock-outs, and enhance the overall standard of patient care. The problem is one of automation—how can a pharmacy with competing demands on technician and pharmacist labor keep perpetual inventory without a significant time investment? How does a pharmacy balance profit vs. cashflow?
The current model for keeping perpetual inventory should be well-known to anyone who manages daily operations in an independent pharmacy:
Manual Perpetual Inventory Management Cycle
The end result of these processes is, hopefully, accurate perpetual inventory. But the major drawback is the amount of time investment required to have someone cycle count, manage par levels and reordering, check in totes against a manifest, and physically place bottles on shelves. And if someone calls in sick, or it’s a busy Monday and there’s no time, or a technician forgets to cycle count, it can quickly become extremely difficult to keep up with the management cycle. The result is often the “garbage in, garbage out” problem, which is the tendency of manual inventory systems to drift over time, leading to inaccurate data, which in turn causes stock-outs, incorrect order quantities, and ultimately poorer customer service this crushes cashflow and suppresses profit.
Automating the cycle eliminates the problems inherent in the manual process, and is now finally achievable with the introduction of the RxSafe 1800.
Automated Perpetual Inventory Management Cycle
With the RxSafe System, manual processes are replaced by automation, and stock bottles are actually stored in native packaging. This video explains the basic functionality of the system in more detail. Essentially, the RxSafe system is completely unique to the marketplace and shifts the focus of pharmacy automation from vial filling to inventory management, control, and efficiency. The time you save will allow you to pay closer attention to money-making opportunities, adherence programs, pharmacy services, and patient consulting, to name a few.
Add Datarithm to your RxSafe and realize the complete automated perpetual benefit from the cloud! Datarithm’s innovated features include: automated demand forecasting, order point updates, inventory returns and transfer recommendations, along with advance analytics in easy to understand reports. Datarithm’s customizable inventory solution adapts as your business changes ensuring you have what is needed, in the proper amounts, secured in your RxSafe!
Check out our FREE webinar with RxSafe to learn more about what automation can do for your pharmacy’s inventory. Being able to get a handle on this vital side of the pharmacy business will pay dividends down the road.
The Annual Wellness Visit (AWV) is a trending pharmacy business tactic, with more and more owners adding the service to their repertoire. It’s an annual check up intended to update and review patient history, assess a patient’s vitals, screen them for risks and establish a list of their health care providers and medicines.
The AWV can be provided by any healthcare professional, including pharmacists, with physician approval, and is covered by Medicare B – which is great news for patients! Additionally, it is the perfect opportunity for independent pharmacies to offer value-added, relationship-building services to doctors.
According to a study conducted by the University of North Carolina Eshelman School of Pharmacy, in about 40% of a pharmacist’s available working time, AWV could cover $120,000 of their annual salary, making it a particularly lucrative endeavor for increasing profitability. However, surprisingly, only 11% of patients are taking advantage of the opportunity for an AWV – mostly because they haven’t been asked – making this a hugely untapped market for pharmacy businesses.
Pharmacists who invest the time and resources in setting up the clinic in a doctor’s office and proactively reaching out to existing and new patients to get them scheduled for an AWV have huge potential for increased earnings.
The numerous advantages of AWV include…
- A better understanding of patient needs
- An opportunity to update files
- Increased profits by offering ancillary services, such as diabetic shoes and pharmacogenomic testing
- And, an important check-in with your patient, guaranteed to happen at least once a year!
It’s clear Annual Wellness Visits are a pharmacy business’s secret weapon!
5 Reasons Why Annual Wellness Visits Are Pharmacy Business’ Secret Weapon
1) Gain greater involvement in patient care
An Annual Wellness Visit is an opportunity to check in with your patients. It’s a great way to keep your patient files streamlined and up-to-date, which makes offering the best standard of care to your patients that much easier.
Having this guaranteed face-time with your patients also allows your team to share new programs and opportunities with your patients efficiently, as well as ensure your patients are following proper protocol when it comes to their medications.
2) Sync your patients
AWVs are also a fantastic time to focus on getting patients who haven’t taken advantage of medication synchronization. Your team can easily make the sync set up part of the visit and even look at offering applicable patients adherence services if that’s something your pharmacy offers.
3) Implement profit chart recommendations
During the AWV, you and your patient will both be focused on the conversation about their health care needs. This is an ideal time to implement strategic switches that your team may have identified through data mining and regular use of the PDS Profit Chart.
In some cases, you may be able to recommend a switch, such as a pain cream that yields superior results for your patient’s care and is also incredibility profitable to your business.
4) Complimentary products and add-ons
Due to the general nature of the Annual Wellness Visit, you’ll receive a comprehensive picture of your patient’s up-to-date health care needs, and your patient will likely be more receptive to a conversation about supplementary products.
With this style of visit, most patients are not in a rush and will be open to talking further about their needs and potentially beneficial products from their trusted healthcare provider.For example, the AWV is a great time to speak to diabetic care patients about diabetic strips and pain creams.
5) Nurture relationships with physician partners (and grow your client base)!
Working with a local physician to offer AWV in partnership is a great way to develop and build strong doctor-pharmacist relationships.
This can be extremely valuable when it comes to requesting medication switches with physicians, as well as a valuable way to grow your business through new patient opportunities.
Additionally, working in partnership with a physician (or a few physicians for AWV services) is a good gateway into developing other mutually beneficial clinics in partnership. For example, rolling out pain clinics, diabetic clinics and flu clinics with physician partners is a great way to nurture your business and optimize your opportunities for growth.
Launching Your Annual Wellness Program
If you’re ready to offer Annual Wellness Visits in your community, chat with one of our Business Growth Advisors. They can discuss how PDS Members fast-track their success with our Clinical Services Profit Ignitor workshops and a team of Business Coaches and Performance Specialists. For more money-making and patient-focused strategies, download our eBook – The Pharmacy Business Blueprint for Massive ROI – now!
For most independent pharmacy business owners, it often feels as if small changes in daily activities could rarely contribute to a substantial increase in pharmacy profitability.
Your team spends countless hours every day filling scripts, restocking shelves, staying up-to-date on inventory orders, offering your patients premium care, and if you’re really on top of your game, syncing patients.
Most pharmacy owners feel as if they don’t have a spare moment, let alone an hour for a new project. Spending 60 minutes, every day, analyzing your dispensing data can drastically improve your pharmacy’s gross profit margin per prescription. Read on to learn the first three steps toward improving pharmacy profitability by analyzing your dispensing data.
Make an impact on your bottom line with RxAnalytics
Greg, a Utah-based PDS member, and pharmacy owner increased his gross margin by 5% in a few short months when he started the program. The result? His team was able to add almost $400,000 to their annual profit by analyzing their pharmacy’s dispensing data. Read more stories like his here! This strategy is not only a great way to increase your pharmacy profitability, but it also ensures your patients are receiving the best possible medications for their needs.
What does it mean to analyze dispensing data?
Data analysis is a new way of thinking and looking at your business using PDS’ proprietary software, RxAnalytics. There is a wealth of information at your fingertips and most likely it goes unused every day. A part of this strategy is running daily reports on your existing patient database to identify profit-driven opportunities within your pharmacy business. For example, a simple, doctor-approved switch from one low-profit drug to one in the same drug class, but with a higher margin, can increase your profits every month that patient is on the prescription, and often lead to fewer side effects.
Step 1: Running Reports Daily
You probably already know what your volume is on a daily, weekly and monthly basis. The fact of the matter is that you’re focusing on the wrong metric! Pharmacy owners need to concentrate on their gross profit per prescription.
PDS members utilize the PDS Profit Chart to identify exact therapeutic optimization switches, and working with Profit Gurus to identify opportunities specific to their pharmacy; enabling the creation of pharmacy systems that allow their teams to find more of that type of business. It’s about working smarter, not harder, and focusing your efforts to earn more from your existing patients. However, you’ll also start to identify trends which is the next step in this strategy.
Step 2: Identifying Dispensing Trends and Profit Opportunities
Daily reports help owners to identify commonalities in your customer database, which is critical to optimizing your pharmacy profitability.
For example, look to identify a number of patients that suffer from the same ailment who are registered with the same insurance provider. Half the patients may have been prescribed medication A, while the other half have been prescribed medication B. If medication B pays out significantly higher and is known to produce better results, it’s worth attempting to switch the first group over to medication B from medication A.
Typically, you or a key employee can assess opportunities either by looking at disease-based or prescription-based pathways. It’s best to check both pathways regularly, and once you’ve identified a strong opportunity to improve patient care and profitability, you want to move on to Step 3 – Replicating Your Success.
Step 3: Replicating Your Success – Dispense and Repeat
When a profitability opportunity identified, the most efficient way to benefit from the discovery is by identifying all candidates within your database that meet the same criteria.
For example, rather than identifying one patient who should be switched from medication A to medication B. Identify all your patients that meet the same criteria and work on switches across the board for maximum profitability.
Getting Results With RxAnalytics
After running your reports to identify opportunities and analyzing trends, you will be ready to work toward increasing profitability with strategic medication switches. Your team will be in an excellent position to reach out to patients with recommendations for better medications, supplementary products, programs and services that will both improve patient care and increase revenue.
RxAnalytics is arguably the most impactful change you can make when it comes to your pharmacy business profitability and the change can easily be executed in an hour a day. If you’d like to learn more ideas for increasing your profits, download our eBook: Pharmacy Business Blueprint for Massive ROI where we outline three proven tactics that help owners get out of the profitability rat race while providing world-class healthcare to patients.
Three Game-Changing Business Strategies to Achieve Massive ROI in Your Pharmacy Business!
Have you been struggling to create the pharmacy business you once dreamed of as a staff pharmacist?
Battling to get through another year just to stay afloat?
Are you asking yourself, ‘How are other owners expanding and sparking growth?’
We operate in an industry full of questions and unknowns, and many are seeking the same answers and opportunities you are; business strategies that increase profitability without sacrificing patient healthcare.
When we put the question to our team of experts (including bankers, business coaches, corporate executives, marketers, pharmacy owners, and trainers!) about which pharmacy-specific growth tactics are worth it and which ones flop, they all said the same thing – focus on profitability and data.
Download our new blueprint for pharmacy business owners who want to provide world-class healthcare AND boost your pharmacy profits.
We repeat – if you want to see massive ROI this year – follow the profit!
- Get proactive.
- Don’t wait for business to come to you – go out and get it.
- Look for the business initiatives that are the most profitable.
Jumpstart Your Pharmacy Business Roi, It’s as Easy as 1,2,3.
- Leverage Your Dispensing Data – Create opportunities by analyzing your existing database while identifying and anticipating patient needs.
- Attracting the Most Lucrative Customers – Get rich by maximizing the opportunities that serve the needs of your best customers.
- Leveraging Strategic Partnerships – The more you connect with like-minded peers, the greater your own success will be.
While many independent pharmacies operate with the majority of their patients yielding $10 prescriptions, the most successful owners know that they can tap into their same database to yield hundreds, if not thousands, of dollars in prescriptions every month. You can apply this same strategy to your pharmacy, too!
If you’re ready to stop focusing on obstacles that are beyond your control, like low-paying insurance providers, download our newest eBook – The Pharmacy Business Blueprint for Massive ROI – now! Or, to see results even quicker, chat with one of our Account Executives. Tell us how we can help you.
Here at PDS, we have many incredible solutions partners that have the ability to revolutionize pharmacies through their products and services. We’re so excited to share with you one of them — iMedicare. They would like to share with you the blog they wrote below about how you can join the revolution to reshape Medicare Part D. Read on!
Like PDS, iMedicare shares the same dedication and passion to helping community pharmacies win. Recently, we conducted a survey that polled 5,000+ of our pharmacy customers and discovered that many want to see real change in the industry. A change that serves the independent community, while being patient-focused. So we decided to investigate how pharmacies like you could create a profitable Medicare Part D plan.
Curious? We hoped you’d be! The following will be a thorough step-by-step plan on how to get started building your profitable Medicare Part D plan and help patients along the way:
Step 1: Start an insurance company.
All Medicare plans must have a license from the Department of Insurance (DOI) of the state they want to do business in. Each state has different requirements, the most important one being the capital and surplus requirement.Capital and surplus refers to cash in the bank (assets minus liabilities) and some states require as much as $10 million, as in the case of Iowa.Find each state’s capital requirements from the NAIC (National Association of Insurance Commissioners) here.
So what do you do? You start the new insurance company in North Carolina, which has a $1.1 million capital requirement, then fill out all the forms and get a Certificate of Authority for Insurance. Next, you apply toNAICto get a risk-bearing entity code. Now, you can apply in other states as an out-of-state insurance company to get the Certificate of Authority for each state. Note: you will still need to fulfill the capital requirements for each state. So,you will need around $10 million to ensure all state requirements are satisfied.
Why would you want to apply in every state? Because more states equals more Medicare patients, and more premiums. Having a large number of patients on your plan is key to Medicare plan financials.
But here’s the real reason: Around 400,000 LIS (low income subsidy) patients lose their coverage due to plan and premium changes every year. These low income patients are auto-assigned into one of the LIS-eligible Medicare Part D plans offering a $0 premium for LIS patients. There are 6 LIS-eligible plans in each state, on average. So, if you have a LIS-eligible Part D plan, you will capture 400,000 / 6 = 66,000 new patients in your plans without doing anything – simply due to the way the system works. Let me say this again:
If you have a plan with a premium below the benchmark in all 50 states, you will automatically get 66,000 Medicare patients on your plan each year.
But before you get too excited, you must start a Part D plan and go through the Center of Medicare and Medicaid (CMS) application process. There’s an important CMS rule to be aware of: In the2014 Final CMS Rule, CMS introduced the requirement thatall new Medicare plans must have 2 years of experience in health insurance OR 5 years of experience as a PBM for health insurance.
This CMS rule makes it much harder for new plans to enter the market. You have 2 choices:
- Run your new health insurance company for 2 years before applying to CMS.
(i.e., offer Medicare Supplement plans)
- Buy a failing insurance company with 2 years of experience.
Based on our research, the buying route seems to be the preferred method for many companies.
- Ascension Health (a hospital system) bought a small Health Insurer in February of 2015 for $50 million.Click here for press release.
- Symphonix, now a national Medicare Part D plan, acquired Vista Health for around the same amount.Click here for details of the deal.
The most cost-effective option is to buy aninsurance shell company. These companies go for about $80,000 per state license (that’s about $4 million for 50 states). This does not include the capital and surplus, soyou are looking at a minimum investment of $14 million. The risk with these transactions is the unknown liabilities they bring from previous insurance policies they may have used in the past. While there are some preventive measures to minimize this, trust is a big factor in these transactions.
Step 2: Hire a Pharmacy Benefit Manager (PBM)
While the health insurance company has the licenses, the name, marketing, and contract with CMS, the day-to-day operations of a Part D plan are done by a pharmacy benefit manager.
PBMs do the work behind the scenes. PBMs create and administer the plan formularies, pharmacy networks, rebates, reimbursements, enrollments, phone calls, prescription claims processing, reporting to CMS, and compliance.
You may be tempted to start your own PBM, but it is unlikely that you can comply with all the CMS requirements your first few years.Others have tried, and failed:
By freezing all new enrollments, CMS can put any plan out of business with a stroke of a pen.
To hire a large PBM for all the functions above, you will likely have to pay a signup credit of a few hundred thousand, and then $10-$15 per member per month (PMPM). Or you can get a smaller PBM for $4-$5 PMPM.
Besides the PBM cost, you will need to spend an additional $550k per year: Actuary ($100k), a lawyer ($100k), CMS consultants ($100k), and a Statuary Accountant required on staff full-time ($250k)
Step 3: Create a business plan for your Part D plan
Every year, Medicare plans place a bid on the premium for their plan. For 2017, the average premium was $35.63/month.Click here for the CMS announcement.
CMS subsidizes the premium with an additional $25.45/month per patient, depending on the health risk score of each patient. Moreover, CMS covers 80% of the costs in the Catastrophic phase through what is called “Federal Reinsurance,” which will be around $70 in 2017, judging from theMillimanandKaiser Family Foundationreports. So, added up,Part D plans will receive over $1,500 per member in 2017.
Then there’s DIR. Direct and Indirect Remuneration (DIR), refers to rebates and fees from manufacturers and pharmacies that the PBM negotiates on the plan’s behalf.From 2012 to 2015, DIR has increased from $10 billion to 23 billionaccording to a recent CMS factsheet.The same study shows that DIRs lower the plan’s liability from $1,077 to $666 per member per year (PMPY).
A Part D Plan’s gross profit is $1,500 – $666 = $834 PMPY. PBMs take at most $180 PMPY. Other G&A expenses such as compliance, IT, rent, employees take another $216 PMPY.So the EBITDA of a Medicare Part D plan comes to around $438 per member per year.
So given the $438 in profit per member per year, what do we need to make this a reality?
- Q: First, how many enrollments do you need to make a Part D plan profitable?
A: Depends on the expenses to win an enrollment. With $0 marketing expenses, 100,000 enrollments would put a plan definitively in the black. By pricing the plan premium below the low income benchmark (as we discussed in the last article), your national Medicare Part D plan will receive ~60,000 enrollments automatically from the low-income patients auto-assigned in a plan each year across all 50 states. However, for a Part D plan to truly win the market, it will need closer to 1 million enrollments.
- Q: How does the competition get enrollments?
A: Some Part D plans price their premium below profitability in order to beat the competition. Other plans use insurance brokers to drive enrollments. The commission for these enrollments are around $28 per patient per year for a Part D plan, and ~$400 for a Medicare Advantage plan.
- Q: How can a start-up plan beat the competition?
A: One of the best ways is by partnering with pharmacies.
A start-up plan can partner with pharmacies in each community to drive down patient costs. By lowering patient costs, the Medicare Plan would surpass any other plan’s profitability, and have a key stakeholder in each community.
- Q: Why would pharmacies partner with a Part D Plan?
A: Because pharmacies would have ownership in the Medicare Plan entity.
Hence, the best way for a new Medicare Plan to succeed is if pharmacies themselves own the majority of the new entity.
To make this collective plan a reality, pledge below.
The moment $50 million in pledges is reached, iMedicare will help with the plan setup, to help make pharmacies a real player in the insurance market.
If you’ve been paying attention to or attended the 2017 PDS All Star Super-Conference, you know that we unleashed some profit-rich programs and strategies that boast incredible ROIs to our attendees.
5 programs, in particular, have generated a buzz among independent pharmacies. These are:
- Tax Savings
- Data Mining
- Clinical Services
PDS member pharmacies have the advantage of a complete guide and walkthrough to get started on these profitable programs. But now you can download the free 2017 MVP Summary to get the basics of how to get started on these 5 programs.
Keep your engines roaring for PDS 2017 and download your free MVP Summary today! This short, high-level summary will provide a basic recap of these 5 strategies so you can get more information on how to get started and any resources you may need.
Remember, these are only 5 of the many popular strategies we offered at the conference — and we intend to make them your most successful initiatives of 2017. Help us set you up for success and download the free report today!
Dreaming of February 2018? Reserve your tickets for the 2018 PDS Super-Conference today and take advantage of early ticket pricing!