April 12, 2023 / By Ryanlyfe

Cracking the Code: How to Reverse Engineer Third-Party Tools and Outsmart the Administrators

Cracking the Code: How to Reverse Engineer Third-Party Tools and Outsmart the Administrators

In rural America, independent pharmacies and onsite entity-owned pharmacies provide vital services to their communities that are not necessarily offered by national organizations. However, these pharmacies face fiscal and market challenges that chain pharmacies and other large controlling players do not experience. These obstacles affect their short-term revenues and long-term sustainability, and not just in the 340B drug pricing program but in their ability to consolidate and localize care for their communities.

Reimbursement Reduction: DIR, MAC & GER

One major challenge for independent pharmacies is the increase in Pharmacy Benefit Manager (PBM) fees. Direct and indirect remuneration (DIR) fees have increased by 45,000 percent since 2010, and pharmacies see these fees in many forms. One common DIR fee is for payment to the PBM to “pay to play,” or participate in a preferred network. Additionally, PBMs instruct pharmacies to collect an elevated copay amount from patients and then later recoup the excess amount from the pharmacy. These clawback fees negatively affect pharmacies’ revenues.

Furthermore, reduced reimbursement rates overall erode pharmacies’ bottom lines. In many instances, reimbursement falls below acquisition cost, reducing pharmacies’ revenue per prescription after the point of sale or adjudication of the claim. Downward pressure on reimbursement rates also comes from maximum allowable cost (MAC) adjustments and generic effective rates (GERs) that usually are not made transparent by the PBMs.

Changing Regulatory Landscape

The changing regulatory landscape also significantly impacts the financial viability of 340B and community pharmacies. Since the inception of the 340B Drug Pricing program, the regulations and reimbursement strategies of the government programs significantly impact the financial viability pharmacies. For rural covered entities that are not currently operating their pharmacies, they must consider creating on-site pharmacies to cope with the new changes and regulation.

Specialty pharmacy expansion

The specialty niche in pharmacy is an expanding market that requires significant investments and infrastructure. Independent pharmacies seeking to enter the specialty pharmacy market must carefully consider whether it is ready for the challenge.

Narrow Networks

PBMs tend to narrow their networks of pharmacies, affecting pharmacy reimbursements negatively. Some PBMs steer patients to affiliated pharmacy chains or mail-order pharmacies, at the detriment of local rural pharmacies.

Thus, these third-party administrators deliver a service that over the years has become highly over-valued, has extracted trillions of dollars every year from your 340B and community pharmacy alike in rural America, and yet it can mostly be overcome. By undermining their pricing models, utilizing their adjudication tools, and delivery mechanisms, rural pharmacies have the ability to remove these barriers to improving pharmacy within their rural health system.

In the upcoming 3-5 years, the 340B drug pricing program will inevitably encounter several challenges. Therefore, it is crucial for rural covered entities to consolidate opportunities locally and start freeing themselves from the multitude of third-party vendor contracts that they have utilized for years. Instead, they should establish a single program integrated into their clinical operation to safeguard the integrity of their current program, put a stop to the extraction of more professional fees by multiple vendors and consultants, and create new opportunities for generating revenue that promote circular economics in pharmacy supply and demand within their community.

Consolidate

To implement this strategy effectively, covered entities should consolidate their infrastructure by selecting a technology and operations vendor that can completely integrate pharmacy benefit administration into their supportive platform. The entire 340B program infrastructure, from administrative technology to management services, should be situated behind the rural health care organization as a practical tool to ensure high-quality, equitable careā€”not as a tool for middlemen to extract a percentage of what the organization is due.

Commercialize

In rural communities, organizations must commercialize their pharmacies by considering the creation of entity-owned or on-site pharmacies to dispense 100% of every drug. They should shift their focus towards community health building and utilize every resource available to explore new ways to create specialty care and rehab medical deserts. This would enable organizational leaders to establish public-private partnerships within the rural community to ensure all payers and stakeholders understand the financial benefits and local necessity of keeping expenditures at home.

Localize

Currently, rural organizations are spending a considerable amount of money on specialty and LDD drugs, sending them thousands of miles away to be filled by PBM-owned specialty pharmacies. Rural organizations must create a mechanism that disintermediates commercial PBMs from obstructing them from filling. This includes building high-performing entity-owned specialty pharmacies and developing carve-out programs that can serve the entire rural community, regardless of the patient’s eligibility status or disease state. To further reduce costs, entities should remove contract pharmacies from their rural strategy and consolidate all local independent pharmacies into an entity-owned cooperative. Building public-private partnerships is a must, as many businesses and institutions that are paying for your patients’ drugs would be happy to have you as their primary vendor.