Mail-Order Pharmacy Startups:
The startup of mail-order pharmacies is on the rise and mail-order pharmacies are becoming a lucrative business model. This market segment of specialty pharmacies is undergoing rapid growth and equally rapid change. Independent mail-order pharmacies are now thriving by specializing in a specific niche or disease. Examples include cystic fibrosis, hospice, nuclear, COPD and respiratory medications, plus oncology and cancer medications. The large mail-order pharmacies can no longer dominate the mail-order pharmacy marketplace.
The major mail order pharmacies are associated with many insurance providers and large retail chains such as Walgreens, Humana, Aetna and Caremark. The three largest are Express Scripts, OptumRx (UnitedHealthcare) and CVS Health. Historically the majority of specialty pharmacies have contracts with Pharmacy Benefit Managers (PBM), but the number of independent mail order pharmacies specializing in specific niches or diseases is increasing at a rapid pace and independent mail-order pharmacies are exponentially increasing in both volume and market share.
The Catalyst for Change and the Rise of the Independent Mail-order Specialty Pharmacy
To better understand the cause for this spike in the startup of independent mail-order pharmacies, one needs to take a look at the topics of both Pharmacy Benefit Managers and the repackaging of medications.
Pharmacy Benefit Managers (PBM) are third party administrators (TPA) of prescription drug programs for commercial health plans, self-insured employer plans, Medicare Part D plans, the Federal Employees Health Benefits Program, and state government employee plans. According to the American Pharmacists Association (APhA), “PBMs are primarily responsible for developing and maintaining the formulary, contracting with pharmacies, negotiating discounts and rebates with drug manufacturers, and processing and paying prescription drug claims”. Their role is to work with government programs and self-insured companies to help reduce drug costs and pharmacy expenses covered by the insurance plan. The problem that has arisen regarding Pharmacy Benefit Managers is that many feel that the PBMs prevent competition. As noted by the National Community Pharmacists Association (NCPA), the pharmacy benefit managers actually have multiple incentives and monetary reasons to prevent their mail-order pharmacy operations from having to compete with the local community pharmacies. As stated in a recent NCPA publication, “pharmacy benefit managers are the only companies that are allowed to process transactions for their rivals, set prices for their rivals, and determine how their rivals will compete”. It is clear that because the pharmacy benefit managers are able to establish both the billing rates and the copayment rates that the retail pharmacies charge their patients, the PBM is able to manipulate the contracts to direct the prescriptions to their own mail-order pharmacy operations for fulfillment. This puts the community pharmacy at a distinct disadvantage.
The repackaging of medications therefor has become a key factor in the emergence of independent mail-order pharmacies. To better understand this, one must note that by repackaging drugs the mail-order pharmacy operation can basically set up their own pricing. This is based on the following facts:
– Private insurance plans most often use AWP (Average Wholesale Price) for establishing the payment rates.
– The AWP is determined and associated with an NDC (National Dispensing Code) and there typically are multiple AWPs for every drug and medication.
– By repackaging drugs and medications the mail-order pharmacy can create new NDC numbers and then select any AWP they want to use when it comes to billing.
One other factor to consider is that the PBMs control the formulary and the Maximum Allowable Cost (MAC) lists for the health plan provider. The MAC list is basically the pricing ceiling for a drug, or the maximum that a pharmacy can get reimbursed for. The PBMs commonly establish MAC lists for the community pharmacies for generic prescription drugs, but rarely use a MAC list at their own mail -order pharmacies. Once again the community pharmacy must operate at a clear competitive disadvantage.
Many independent mail-order pharmacies have now turned these factors to their advantage and are thriving. Many have become extremely profitable business enterprises by specializing in a specific niche or disease. Examples include cystic fibrosis, hospice, nuclear, COPD and respiratory medications, plus oncology and cancer medications. This specialization has led to increased efficiency, decreased waste, improvements in production and shipping, and ultimately increases in profit and market share. Additionally, many independent mail-order pharmacies have embraced customer service, thus leading to significant customer satisfaction and loyalty. Medication Therapy Management (MTM) programs have also been embraced by many independent mail-order pharmacies to help patients improve in regards to drug compliance and medication outcomes.
Find an Experienced and Reputable Pharmacy Consulting Firm to Partner With –
The mail-order pharmacy startup has become a lucrative business venture for many entrepreneurs. Yet there are complex challenges and issues regarding the start-up or opening of a new mail-order pharmacy that must be addressed. As with any new pharmacy start-up, the planning and execution are key to a smooth pharmacy operation being opened and becoming a successful business. Just a few of the considerations and tasks that are required for any successful pharmacy start-up operation include:
– The creation and review of a business plan
– Guidance regarding type of corporation to form – Limited Liability or LLC, C-Corporation, S-Corporation, Sole Proprietorship or a General partnership
– Startup cost estimates
– Obtaining financing
– Work flow design
– Assistance and guidance with the DEA & State Board of Pharmacy application process
– Creating Policy and Procedure manuals and Continuance Quality Improvement (CQI) manual
– Purchasing the equipment and supplies
– Obtaining legal support
– Staffing (not only the pharmacist, but technicians and ancillary support staff personnel)
As always, please contact us here at HCC if you have questions regarding establishing or running a mail-order pharmacy. With over 27 years in the Pharmacy Consulting business, HCC can assist with expert advice in any area of your pharmacy business or practice. We urge you to contact us today to see how our Pharmacy Consulting services can help. With a full-time staff of in-house Pharmacy Consultant specialists, HCC can answer any questions that you may have in all areas of your business. Contact us online or call us at 800-642-1652.