Choosing a Wholesale Distributor

Published - Written by Aine Cryts

The number of independent pharmacies continued its decline in 2019, to 21,683 stores, according to the 2020 National Community Pharmacists Association’s Digest report.1 Drug Topics® reported in July 2019 that there were 23,106 independent pharmacies in 2011, a number that fell to 21,909 in 2017.2

Of course, there are efforts around the country by independent pharmacists—often orchestrated by the Community Pharmacy Enhanced Services Network—to provide services that not only affect the communities they serve but generate the revenue needed to support their businesses. However, it is an independent pharmacy’s relationship with a wholesale distributor that is pivotal to its success. Stacy Ramirez, PharmD, a clinical assistant professor at Oregon State University College of Pharmacy in Corvallis, explained that although the cost of drugs is part of the equation, many wholesale distributors also offer pharmacy software and inventory services, and facilitate arrangements with payers.

“If you get it wrong, it’s not just about switching to another wholesale distribu- tor; it’s about switching your entire operation. That’s where the challenge is,” said Ramirez, who also serves as director of pharmacy at Community Health Centers of Benton and Linn Counties in Oregon. “You’d have to be really dissatisfied to take that step. If you’re a new independent pharmacist, you have invested a certain amount of time and capital into that decision. It makes it difficult to walk away,” she said.

Importance of Drug Costs

Because wholesale distributors offer more than drugs, Ramirez encourages new independent pharmacists not to look at the cost of drugs as their first consideration.“Oftentimes, there’s not much variation...it’s usually a few pennies in either direction,” she said.

Instead, she encourages new independent pharmacists to ask about the level of service the company can provide. For example, in metropolitan areas, such as New York, New York, a pharmacist can get “spoiled” with access to deliveries 6 days a week, said Ramirez. Independent pharmacists in rural areas may need to base their decision on a wholesale distributor’s ability to deliver more often than 1 or 2 days a week. If it takes 4 or 5 days to get a drug, that could have a negative impact on customers, she explained.

Christopher J. Daly, PharmD, MBA, BCACP, a clinical assistant professor at the University of Buffalo School of Pharmacy and Pharmaceutical Sciences in New York, said the cost of drugs is an important consideration. “There are [independent pharmacy] owners out there who will shop vast and wide [to buy cheaper drugs],” he said.

To remain viable as a business, independent pharmacists should consider not being loyal to a single wholesaler, advised Daly, who’s a third-generation pharmacist. 

Amelia Arnold, PharmD, director of pharmacy operations at Augusta, Maine–based Community Pharmacies and an adjunct assistant clinical professor at the University of New England School of Pharmacy in Portland, Maine, said pharmacist-owners need to consider the cost of goods, possible rebates, ordering thresholds that must be maintained, and payment terms.

In addition, pharmacists should ask about exclusions for the cost of goods. For example, they should ask whether a particular specialty drug will have a different payment term, said Arnold.

Beyond the Cost of Drugs

Daley describes the decision about working with a particular wholesale distributor as multifactorial. The primary characteristic pharmacy owners should look for in a wholesaler is their being invested in the pharmacy’s outcomes. Specifically, Daly points to a company’s ability to provide access to contracts through its pharmacy services administrative organization (PSAO).

Tom Wadsworth, PharmD, BCPS, assistant dean for Alaska programs and an associate professor at Idaho State University College of Pharmacy in Pocatello, encourages pharmacy owners to realize they’re also picking a business model that has control over the cost of generic and brand-name drugs. “You’re choosing your identity and how you’re going to run your business. This includes the sign outside your store and the wholesaler’s purchasing group,” he added.

Previously, Wadsworth led a company that included 3 independent pharmacies. When he bought the first pharmacy, which was located inside a grocery store, the gross profit was $22 per prescription. When he sold the pharmacies 10 years later, the gross profit was approximately $7.80 per prescription. He advises pharmacy owners to track this metric on a weekly, monthly, and yearly basis and then adjust their business model in response.

Daly said new pharmacy owners should consider a wholesale distributor’s interest in serving as a capital partner. This can help by the partner’s providing access to lines of credit, which allows the pharmacy to purchase fixtures, shelving, and everything else a new owner needs.

Arnold also stressed the importance of the agreement signed with the PSAO, which negotiates contracts on behalf of the pharmacy with health insurers. For example, it’s important to know the terms of the contracts and, specifically, whether the pharmacy is listed in a Part D preferred network; otherwise, the pharmacy could lose out on volume, she said.

Other services of interest to independent pharmacists can include marketing and help with training and regulatory requirements, added Arnold.

According to Daly, it’s important to work with a wholesaler that can vet medications to the FDA’s standards. He said pharmacy owners should ask about the company’s ability to comply with the FDA’s “track and trace” program, which ensures that suspect and illegitimate products don’t enter the supply chain.

Exclusive or Primary Relationships With Wholesalers

Ramirez said pharmacy owners already have a lot of responsibility. She made that observation because, although financial savings are possible when working with more than 1 wholesale distributor, each one of those companies represents another relationship to manage and another set of invoices to pay.

“A new pharmacy owner has a lot of balls in the air. It probably makes more sense to have a primary wholesaler,” she noted. But maintaining relationships with wholesalers who have items not sold by the primary wholesaler can be a good idea. Independent pharmacists in rural areas should consider partnering with more than 1 wholesaler if a company delivers only 1 or 2 days a week, added Ramirez.

Outsourcing

Wadsworth stresses that pharmacists who are also owners should hire a business manager who’s responsible for sorting through the nonclinical aspects of running the pharmacy. This can include managing relationships with wholesale distributors and reviewing contracts.“It’s hard to be the owner and the staff-pharmacist,” he explained.

It may be appropriate to outsource reading contracts or regulatory issues to an attorney, or training and other employment issues to a human resources consultant. But any aspects of the pharmacy that are customer facing must be kept in house, insisted Wadsworth.

One way independent pharmacists can continue to distinguish their stores from Amazon’s PillPack or large chains is by ensuring the phone is picked up quickly by a staff member—or even better, by the pharmacist. “[You won’t get that] at a larger store; there you get a voice recording,” said Wadsworth.

Tapping the expertise of your state’s pharmacist association also helps. Specifically, Arnold recommends that pharmacist-owners seek out a mentor. “There are people out there who have a passion for independent pharmacy. You don’t have to do this alone,” she observed.

Secure a Go-to Contact at the Wholesaler

Long after a contract has been signed, problems will occur. Issues can range from a manufacturer falling behind in the production of drugs or syringes or a shipment getting lost. That’s why Arnold insists it’s important to have a named contact at the company to troubleshoot issues.

“My pharmacy can call customer service about a return, but what happens if we don’t understand the answer or we’re getting the runaround?” she said. The go-to contact could be a sales representative or another person at the company.

Daly advises new independent pharmacists to work with a wholesaler that’s active in their state’s pharmacists association. It’s a measure of the company’s role as an advocate for pharmacists and shows an investment in the profession, he said. 

References

  1. NCPA releases 2020 Digest report. News release. NCPA. October 19, 2020. Accessed April 5, 2021. https://ncpa.org/newsroom/news-releases/2020/10/19/ncpa-releases-2020-digest-report 
  2. Appold K. Independent pharmacies: not dead yet. Drug Topics®. 2019;163(1). Accessed April 5, 2021. https://www.drugtopics.com/view/independent-pharmacies-not-dead-yet

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