Pharmacy Contracting Objectives to Maximize Your Contracts
The devil is in the details when it comes to maximizing your current and future agreements

Last month, Pharmacy Angle published a great article on four cost containment strategies your pharmacy can implement. Excellent strategies that can be achieved with clinical programming and committee approval. These initiatives are key to every successful pharmacy, although can take a long time to implement and even longer to yield results. So, what can you do in tandem to get as fiscally lean as possible in the meantime while you await approval?

While you are looking for change in the sofa cushions, start by examining all the ways you’re currently spending, perhaps and most likely on non-reimbursable money, so explore where you can make redundant change. It’s possible you are leaving money on the table by not leaning into your contracting with revenue streams/drains with your GPO, distributor, direct ships, technology, and consignment for example as fully as possible.

If you haven’t seen them already, ask for a copy of your supplier/partner contracts and take note of key milestones in the terms. You can take some simple steps to mix and match results that can make all the difference in truly maximizing your unrealized opportunities, or simply to point out areas where the contracts could be better suited to your practice.

Look at the cost minus structure of your distribution contract. Observe the milestones you need to reach to realize the maximum savings, and where you can bundle to take advantage of direct shipments or alternative delivery options such as consignment cabinetry that does not interfere with the purchase requirements of your primary distribution contract. There is always a little wiggle room in the contract. Use it to your advantage. You know how we Starbucks fans chase after those coveted stars for buying stuff? Sometime it’s best to forego the stars by not spending the money at all.

That said, use one primary distributor and stay loyal to the contract. Distribution partners will pay for that loyalty and contract compliance, and that brings more money back to your hospital in the long run.

Reduce delivery fees by voluntarily reducing your delivery days. Use a daily budget to give your purchaser guidelines to meet, and base that on the days that you get free delivery, eliminating weekends if there is an extra charge for example. You will reduce fees which can really add up, and the budget will give your pharmacy a way to anticipate costs while spreading out necessary purchases if you plan it well.

Make full use of the failure to supply clauses. It can be a pain to keep up with it, but it is lucrative and often an untapped portion of the overall agreement. Make it part of your daily activities, and you will secure contract pricing when you can’t get a contracted product.

Be as close to contract compliant as you can get. You will most likely reach milestones by simply making sure you are buying on contract, and this in turn brings more money back to your hospital. The distributor makes money when they move contracted items first, and they will share that wealth if you ask nicely.

Lean into any technology that your distributor offers. Let them help you make the most of your inventory turns, automatic conversions from non-contract to contract items, and have a plan in place for any overrides that may need to occur. Have them reviewed before the daily order is approved.

Analyze your spend and avail yourself of quarterly reviews. Your account manager can help you identify where you are not maximizing opportunities, which opportunities have changed with contract rolls for example, and what changes need to happen. Look towards this as it can be very helpful. This spend will also help you understand which clinical programming is working, what needs to be revisited and what is driving your budget. This gives you a good place to further analyze spend to pinpoint problem areas.

Just a few ideas on distribution. Next time we meet let’s talk GPO and technology. Applying some of the same principles to other contracting helps to create the full picture of how to make the most of the agreements you have in place, and where you can make changes that will be specific to your strengths. 

About the author:

Fern Kaufman, BS, MBA, PharmD is a clinical, operational and administrative pharmacy expert with thirty years of experience at every level of pharmacy practice. The founder and principle of Naufragato Clinical Consulting, Dr. Kaufman’s experience encompasses pharmacy practice from retail, hospital and administrative as well as pharma in every demographic spanning the country. Naufragato Clinical Consulting employs an analytical hands-on methodology to align costs, operations and clinical programming delivering a message and blueprint for operationalizing redundant change across any organization, all on a contingency basis to eliminate barriers to access to all in need of sustained change.