Collaborator Corner

Health Systems Search for Optimum Retail Pharmacy Business Model

Businesses serving the healthcare industry are finding huge benefits in forming a collaborative relationship with HIMSS Innovation & Conference Center in Cleveland, Ohio. Learn from their experiences and thought leadership in this feature called “Collaborators’ Corner.” This month features, ScriptPro, a company that incorporates robotics, workflow, and pharmacy management software within a unified architecture.

By Michael E. Coughlin, President, CEO and CFO, ScriptPro

Hospitals and health systems are beginning to recognize that empowering their retail pharmacies can reduce readmissions, increase medication adherence, improve patient satisfaction measures, and generate substantial revenues - especially when 340B drug pricing is available. Even without 340B, hospitals can leverage other forms of special pricing such as "own use" that enable them to excel in a crowded retail marketplace. To compete in this market, a highly functioning, retail-oriented pharmacy business model is required.

In searching for the correct model, IT leadership may be inclined to set up the retail pharmacy core as an outgrowth of the EHR system that runs the hospital. In a desire to have a single, unified platform they may lead down a path that requires interfacing the core with five to ten downstream systems to obtain functionality that is essential for a retail operation. These include applications such as point of sale, patient charge accounts, mobile apps for staff and patients, interactive voice response, inventory management, class-of-trade pricing management, etc. So instead of reaching their goal of avoiding headaches by having a unified platform, they end up with exactly what they were trying to avoid: a collection of vendors, applications and interfaces to manage.

University of Kentucky (UK), in the process of migrating to a new EHR, looked carefully at this issue. They decided to stay with their comprehensive ScriptPro ambulatory pharmacy platform that incorporates all of the functionality needed and has a short list of interfaces to synchronize retail operations with the EHR. According to Gary Johnson, UK's chief innovation officer, "Our ambulatory pharmacy program has grown to become a huge advantage in patient care and a major underpinning of UK's financial success. Why would we change that?" 

Hospitals and health systems provide the heaving lifting of patient care, especially for complex cases treated in sub-specialty clinics. When medications are prescribed, health systems should be able to fill these prescriptions and help patients avoid medication therapy failures that can lead to unnecessary patient readmissions with associated costs and penalties. According to Johnson, "If we did not have an attractive retail pharmacy program, these patients would be going outside where they may experience delays and confusion and not be adherent to their therapies."

A related question is whether retail pharmacy should be treated as a separate, entrepreneurial business instead of another hospital cost center such as lab, radiology and inpatient pharmacy. Health systems with the most successful retail pharmacy programs have followed the entrepreneurial model and have shown that retail pharmacy can make substantial contributions to covering health system operating expenses and losses from providing below-cost care to populations in need.

As a retail enterprise, ambulatory pharmacy is very different from all other health system business units. Instead of appointment-based, scheduled operations where customers (patients) are captive, pharmacy customers choose when, and if, to use the health system's retail pharmacy services. Instead of doctors, nurses and other healthcare staff administering to patients, retail pharmacy staff are tasked with educating, motivating and monitoring patients to ensure they are compliant, and managing non-compliance. Another difference is the complex and ever-changing maze of third party reimbursement sources which are the lifeblood of retail pharmacies. Retail pharmacy billing challenges are unfamiliar to health system financial staff who work in a world where hospital revenues are reported based on theoretical charges. Hospital finance routinely absorbs contractual allowances, meaning write-offs, equal to 50 percent or more of charges. Retail pharmacies would close within a year if managed like a hospital.

There are also class-of-trade pricing complexities, such as 340B, which is only available to the ambulatory business. Again, inpatient-oriented financial staff are typically unaware of these ever-changing complexities and often lose financial opportunities by outsourcing this business. 

The most successful health systems have embraced entrepreneurial strategies by utilizing the guidance below.

  1. Implement a highly functional, fully integrated ambulatory pharmacy operating platform that supports, in addition to prescription dispensing, other must-have retail functions such as point of sale with staff mobile apps, patient charge accounts, class-of-trade (340B) management, pharmacy benefit administrator functionality, inventory management, interactive voice response, etc.
  2. Attract talent by searching, hiring and compensating outside of health system constraints.
  3. Embed IT talent within the pharmacy team to enable deployment of technologies such as mobile point of sale that are beyond the scope and limits of the health system IT organization.
  4. Secure contracting staff and/or expert third party contracting support to negotiate PBM and direct to manufacturer agreements.
  5. Leverage retail pharmacy revenue cycle management services, including lockbox-based collections from PBMs, reconciliation of retail pharmacy claims, and enforcement of payer contract compliance.

Industry leaders have used these strategies to build ambulatory pharmacy programs that are competitive in the retail market, deliver outstanding patient care, and play a critical role in the financial well-being of health systems.            

The views and opinions expressed in this blog or by commenters are those of the author and do not necessarily reflect the official policy or position of HIMSS or its affiliates. Please note that HIMSS is a vendor-neutral organization and references to external brands, products and services are not endorsements.