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									  A Journey to Success:

      Establish 340B
    Pharmacy Services
in a Rural Community
      Health Center

           June 2005

           As told by
           Jim Fethe, RPh
           Pharmacy Director,
           Southern Ohio Health Services Network
                                                   TABLE OF CONTENTS

       About Southern Ohio Health Services Network . . . . . . . . . . . . . . . . . . . . . . . . .                         1

       Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    2

       Starting Point . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    3

       Plan of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      5

       Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       11

       Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   14

       Appendix I: The Numbers Summary of Our Pharmacy . . . . . . . . . . . . . . . . . . .                                15

       Appendix II: Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         16

Prepared for
The National Rural Health Association
One West Armour Blvd., Suite 203
Kansas City, Missouri 64111

NRHA Publication No. PU0705-75

This publication was made possible by grant number
U30CS00212-03-00 and its contents are solely the responsibility
of the author and do not necessarily represent the official views
of the Health Resources and Services Administration (HRSA).
About Southern Ohio Health Services Network
Southern Ohio Health Services Network (the "Network"), or SOHSN, was founded in 1976 to address the problem of the inadequate
supply and inaccessibility of primary care physicians in the rural Appalachian communities of Adams, Brown, Clermont, Fayette, and
Highland Counties. The Network is a private, non-profit organization and is designated as a Community Health Center and a Health
Professional Shortage Area by the federal government. This designation allows the Network to receive federal grants in order to provide
comprehensive services on a sliding fee basis to those patients below poverty level.

The Network has grown from one health care center in 1976 to eleven primary care offices and two elementary school-based health
centers. Family practice, internal medicine, pediatrics, obstetrics and gynecology, psychiatry, dental, counseling and pharmacy
services are offered. Currently, there are 38 physicians, four dentists, two physician assistants, two nurse practitioners, three licensed
independent social workers, two clinical pharmacists and approximately 200 support staff. The Network also operates the WIC
Women, Infants and Children (WIC) program in Georgetown for the benefit of Brown County residents and in the Seaman office for
Adams County residents. All programs and services are available to residents of the service area regardless of ability to pay. Fees are
based upon family size and income.

One of the Network’s primary goals is to provide the best patient-focused care to the community. The total number of patient visits in
2004 was 189,000. Six hundred twenty-two babies were delivered by Network family physicians and obstetricians.

A federal grant enables the Network to provide services to uninsured individuals and families who lack the ability to pay for the full
cost of care. The Network’s current operating budget is approximately $17,500,000. Federal grant funds account for less than twenty
percent of the budget. Medicare/Medicaid reimbursement provides 46 percent of the budget, with the balance coming primarily from
private insurance billings and contract revenues.

The Network continually strives to provide quality, cost efficient health care services to the residents in southern Ohio. In 1999,
SOHSN was accredited by the Joint Commission of Accreditation Healthcare Organizations.

(Excerpt from; accessed 1/2005).

About Jim Fethe
Jim Fethe is a registered pharmacist currently working as Pharmacy Consultant for Southern Ohio Health Services Network. He has
served in this capacity for 11 years. Jim graduated from the University of Kentucky College of Pharmacy, and has worked in retail
pharmacies, including one he owned. He left the retail business and became a Purchasing Officer in the Department of Finance for the
state of Kentucky. This entailed purchasing all drugs/pharmaceuticals used in state-owned and operated facilities. Jim then became a
Pharmacy Investigator for the state of Kentucky, from which he retired. He was hired by SOHSN as a Pharmacy Consultant, where he
helped satellite offices in regard to onsite pharmaceuticals. In late 1999, the Network decided to build a large Health Center and
incorporate a pharmacy. The health center qualified for the 340B Drug Program, and it was decided to use this program in the
pharmacy. Mr. Fethe designed and the pharmacy, prior to its opening in August, 2000.

   Does the prospect of offering pharmacy services sound appealing? Do the financial, regulatory or operational details of implementation
   deter you from taking the first step?

                                                                                 Despite the fact that I was an experienced pharmacist who
“Having a 340B Pharmacy in our community has been a God-send.
                                                                                 had carefully considered the decision to implement
This community has had a need for such a pharmacy for a long time.
It has allowed patients to get medications that they would not have              pharmacy services in our rural community health center,
been able to afford in the past.” Dr. Phillip Swedberg, S.O.H.S.N.               I was cautious to begin the journey. Two especially
                                                                                 uncomfortable areas for me were the regulations
“Having an on-site pharmacy is invaluable in promoting                           surrounding the 340B Drug Pricing Program and the fact
communication between the pharmacist and physicians, which allows                that I was fully aware that pharmacy financial predictions
for a partnership that greatly improves patient care.” Dr. Blair Chick,
                                                                                 did not guarantee a successful outcome! Five years after I
Medical Director, S.O.H.S.N.
                                                                                 warily began the journey to establishing an in-house
   pharmacy, our health center is proud to offer a pharmacy service that is operationally and financially sound. In fact, here is what two
   of our physicians have to say about our in-house pharmacy services:

   This paper shares the experiences and lessons learned on our journey toward establishing pharmacy services. I disclose these details
   in hopes that other decision makers may benefit from this information. Our journey consisted of three steps, and this paper will present
   each of these steps, in order:

          1. Starting Point                                  2. Plan of Action                                  3. Implementation

   In addition to the narrative text, Appendix I provides numerical data about our pharmacy, and Appendix II lists resources that guide
   health center administrators and pharmacists in making decisions about their own, site-specific, pharmacy needs and solutions.

   While I will share details about our success story, it is not the purpose of this paper to propose a plan for pharmacy services that would
   be appropriate or successful for every health center. If you are interested in tools to help you begin your own journey of establishing
   pharmacy services, I highly recommend that you visit The Bridge to 340B Comprehensive Pharmacy Services Solutions in Underserved
   Populations, located at this website:

   This document contains very detailed information and templates that will help you analyze your pharmacy needs and develop an
   individualized pharmacy solution for your health center. I’ll begin by describing the first step of our journey: our starting point.

                            A SNAPSHOT OF OUR JOURNEY: A SUCCESSFUL PHARMACY IN 2004
                                                                                                2004 Data

                         Total annual # network health center encounters                        189,000
                         Total annual # Seaman Center encounters                                29,916
                         Total annual # prescriptions                                           27,529
                         Pharmacy hours of operation                                            M, Th 9:00AM -7:00 PM
                                                                                                T, W, F 9:00 AM-5:30 PM
                         Pharmacist FTE                                                         2.0 FTE Pharmacists
                         Technician FTE                                                         2.0 FTE Techs
                         # Drugs offered on the formulary                                       Open formulary; all drugs available
                         Space for pharmacy                                                     900 sq. ft.
                         # Network providers                                                    42
                         # Seaman providers                                                     15
                         Cost to start-up the pharmacy                                          $375,000.00
                         Cost to maintain the pharmacy                                          $1,191,148 (2003)
                         Net profit per year                                                    $3,113.54 (2003)

What should we do with an extra 900 square feet of space in our newly constructed medical and dental facility? That was the question
that initiated the idea of having an in-house pharmacy. Our newly constructed community health center would provide much needed
services such as Ob/Gyn, prenatal, pediatrics, family medicine, dental care, mental health, and WIC/nutrition, all under one roof for
the residents of Adams and surrounding counties in southern Ohio.1 Even with all of these services, something was clearly missing
from our new facility: pharmacy services.
Were we capable of offering pharmacy services? We weren’t sure! We didn’t even know what was required to offer pharmacy services!
The whole idea of jumping into the pharmacy “unknown” was scary for the administrator and board. Uncertainty surrounded us in
the form of additional questions. For example:
■    Would the pharmacy venture operate in the black, or would it be a sinkhole for finances?
■    Would we fill a need in the community, or would patients choose to go elsewhere for drugs?
■    What type of pharmacy services should we offer — should we own and operate the pharmacy, contract with someone else to offer
     services, or provide limited physician dispensing in the space?
■    Since we had a large percent of uninsured patients and drug costs were quickly escalating, how would we ever sustain the service?
■    Although we were eligible for the 340B Drug Pricing Program, affording our center an approximate savings of 50 percent on drug
     purchasing, could we meet the regulatory requirements of the program?
■    Would we regret the decision to offer pharmacy services?
Confidence was hardly the word to describe the mood during our pharmacy starting point.

    Assisting with the building construction project were the U.S. Department of Agriculture, and the Fifth-Third Bank of Ohio. The Department of Agriculture provided a
    $1.7 million loan for the project and guaranteed 90 percent of another $1 million loan from the Fifth-Third Bank.

                                                Our confidence quickly grew as we came into contact with a pharmacist who
When we sat down with the                       had recently established a successful community health center in-house
consultant, we gathered the limited             pharmacy, much like ours, in nearby McKee, Kentucky. We made a site visit
amount of information we had that               to this health center and realized that it shared many of the same
we thought would help us make                   characteristics as ours: similar patient demographics, provider types, and
decisions about how to structure                services offered. Since the Kentucky health center was similar to our health
our pharmacy service. The facts                 center, we began to warm up to the idea that our health center could
we had at this point included:                  possibly have a successful pharmacy as well. With the assistance of this
■ Our administrator, board, and providers       pharmacist, we were guided through the process of obtaining a grant,2
  preferred an in-house pharmacy due to         deciding on the type of pharmacy service best suited for our health center,
  the convenience, potential cost-savings       and determining the steps needed to establish the pharmacy.
  long term to patients, potential revenue      The Kentucky pharmacy consultant looked at this data from our health
  for the health center, and the control that   center and helped us arrive at the conclusion that an in-house 340B
  an in-house pharmacy offered.                 Pharmacy should have the capability of becoming financially sustainable.
■ We had not been successful contracting        Two pieces of key data that helped us determine to implement an in-house
  with a community pharmacy to access           pharmacy were:
  340B pricing in the past. Our rural sites
  were scattered out over a tremendous area,    1. Our health center providers had the ability to generate
  and there were not pharmacies available          a significant enough volume of prescriptions to justify
  near every site. The pharmacies that did         an in-house pharmacy.
  exist in some communities were unwilling      At the Seaman site there would be 15 providers generating an average of one
  to participate in 340B and/or unwilling       to two prescriptions per visit. If each practitioner could see about four
  to provide adequate delivery services to      patients per hour for at least five hours a day, (five hours allows for the fact
  other sites.                                  that not all providers would work every day, and for those days that the
■ We had 42 providers, and they did not have    providers did work, they would have charting time that would take away
  the time to dispense drugs. The Seaman        from seeing patients all 8 hours of their day) the number of patient visits
  clinic site would have 15 providers.          would be approximately 300 per day. If the clinic was open 250 days a year,
■ We had 900 sq. ft. of existing space in our   we had the capacity to generate approximately 75,000 prescriptions per
  newly constructed health center that was      year. Of course, the capacity to generate this volume of prescriptions did not
  not dedicated to any service.                 guarantee that our clinic would “capture” the prescriptions at our in-house
■ We had the ability to apply for a
                                                pharmacy; patients could choose to take their prescriptions elsewhere. In
  demonstration grant from the Office of        addition, other factors could influence our estimate for the number of
  Pharmacy Affairs for the amount of at least   prescriptions generated, including the fact that some practitioner types tend
  $250,000 to assist with pharmacy services     to prescribe more prescriptions than others. For example, OB/GYN doctors
  implementation.                               tend to prescribe about half as many prescriptions as internal medicine
■ Our health center payer mix was:

       11.8 % Cash                              Since we knew that one pharmacist could fill approximately 90 prescriptions
       17.9 % Sliding fee                       in an eight hour day, we felt the potential volume of prescriptions from the
       13.4 % 3rd party                         one site would justify having at least one pharmacist. (75,000 potential
       56.9 % Medicaid                          prescriptions per year, or 300 potential prescriptions per day, if the clinic was
                                                open for 250 days) We anticipated that at some point we would have to
■ Our total annual number of network
                                                increase the number of pharmacists and technicians as our prescription
  encounters in 2000 was approximately
                                                volume grew to reach its potential.
■ We surveyed our physicians and

  determined the “top 20” drugs that each
  of the providers dispensed. With this list    2
                                                    The grant was for a Clinical Pharmacy Demonstration Project, available in 2000 from the Office
  we knew the most popular drugs that we            of Pharmacy Affairs, an Office within HRSA. The grants are no longer available in 2005. For more
                                                    information about the past grantees, visit:
  were likely to dispense.                      3
                                                    For estimates of prescriptions prescribed by medical specialty type, visit pgs. 60-61 of The Bridge
                                                    to Comprehensive Pharmacy Services Solutions in Underserved Populations http://pssc.aphanet.

2. Third party and Medicaid payers accounted for at least 70 percent of our business, and the reimbursement from these
   payers was adequate.
One note about this decision: federal law requires that Medicaid reimburse drugs purchased through 340B at cost plus a dispensing
fee. In our state, the Medicaid dispensing fee of approximately $3.70 was not adequate to cover our actual cost to dispense a
prescription, which was approximately $7.00. However, if we purchased drugs for Medicaid patients using a non-340B contract, we
could bill Medicaid the way non-340B pharmacies bill.4 This non-340B reimbursement is more generous than merely recouping the
340B cost, and it would enable us to obtain adequate reimbursement to at least break even. Knowing that Medicaid was over half of
our clinic’s business, we decided to use a non-340B drug purchasing contract to buy drugs for Medicaid patients, thereby preventing
us from losing money on Medicaid prescriptions. For all of our other, non-Medicaid patients, we would use a 340B contract for
purchasing. Having two contracts is not as complicated as it might sound, as we are able to use a single drug wholesaler to provide
both inventories. We have a single inventory and keep track of the different purchasing contracts electronically. It is certainly worth it
financially for our health center to go through the extra step of having two purchasing contracts.
At the time we were making the decision to institute an in-house pharmacy, we had to trust the pharmacy consultant’s
recommendations. There were no tools to guide health center administrators as to the type of pharmacy service that would be best
suited for a particular health center. In fact, we were unsure of all the 340B options available to us!5 Fortunately, as of 2005, there is a
resource that provides the format for a pharmacy needs assessment, a decision analysis, and a financial predictor spreadsheet that tests
the potential financial success of different models using health center data: The Bridge to 340B Comprehensive Pharmacy Services Solutions
in Underserved Populations. 2004. Medpin/Pharmacy Services Support Center.
Our starting point on our journey toward pharmacy services can be characterized as a time of gathering information, trusting our
pharmacy consultant’s experience, and using these to overcome our pharmacy fears. The next step on our journey involved formulating
our plan of action.

Devising our plan of action was greatly simplified with the help of the Kentucky pharmacist consultant. The three biggest concerns
relating to our plan formulation included:
1. How do we know if the pharmacy will comply with state and federal regulations?
2. How much will this cost and how do we structure the finances of the pharmacy to ensure it is sustainable?
3. What steps are necessary, and in what order should they be taken, to implement this pharmacy?
Our plan of action addressed these three issues in the following ways:

1. Concern #1: Complying with regulations
Pharmacies and pharmacists are predominately governed by state and federal laws, but the majority of laws are state based. Each state
has a board of pharmacy 6 or similar body that makes guidelines and regulations for pharmacies and pharmacists practicing within that
state. Pharmacy is a highly regulated profession, and state boards typically make rules about minimum equipment, space, staff ratios,
hours of operation, etc. In order to ensure that a new pharmacy meets the state requirements, the board of pharmacy usually will
provide a checklist. This checklist was very helpful as a guide for us to follow to make sure we met all the state requirements. Before
opening and licensing our pharmacy, the state board sent an inspector to certify that we complied with their regulations.

    At a formula based on average [wholesale price (AWP)-a percentage] + a dispensing fee.
    For a chart summarizing the different 340B implementation options available to health centers, visit pages 9-11 of The Bridge to 340B Comprehensive Pharmacy Services
    Solutions in Underserved Populations
    For a listing of boards of pharmacy, visit:

340B Highlights
                                                     A significant federal “unknown” we had was participation in the 340B Drug
1. The Office of Pharmacy Affairs (OPA) 8 is         Pricing Program. Although we knew that this program was the result of
   responsible for administration of the 340B        federal legislation passed in 1992,7 we were unsure exactly how to comply
   Program.                                          with the requirements. The Kentucky pharmacist walked us through the
2. There are only certain “eligible entities 9”      enrollment and implementation process using the published Federal Register
   that qualify for the discounted pricing.          guidelines as a resource. Since that time, several helpful references
3. The drug discounts have been estimated to         (summarized in the table below) have been created that address all areas of
   be at least a 35 percent savings to health        the 340B Program.
   centers (our health center determined the         Given that the intent of this document is to describe our experience opening
   savings were closer to 50 percent).               a pharmacy, not to cover all aspects of the 340B Program in detail, I will
4. Patients of eligible entities must meet           highlight the key points of the 340B Program, and suggest that for more
   certain criteria to be eligible for 340B          detailed information you consult the resources listed in the table.
   pricing (definition of a patient).10 In
   summary, the entity must maintain records
   of the individual’s health care, the patient
   must receive services from a health care               For more detailed information about 340B

   professional employed by the entity or                 1. Office of Pharmacy Affairs Website:
   under contractual or referral agreements for           2. PSSC Website:
   consultation such that the responsibility for
                                                          3. Brief 340B Handbooks (under 15 pages each):
   care remains with the covered entity, and       
   the individual must receive services from        percent208 percent20CP.pdf
   the entity that is consistent with the type of         4. Comprehensive 340B Guide (over 150 pages): The Bridge to 340B
   grant funding or look-alike status that has               Comprehensive Pharmacy Services Solutions in Underserved Populations. 2004.
   been provided. If the only service a patient              Medpin/PSSC.

   receives from the entity is the dispensing of
   drugs, the individual is not considered a
   patient of the entity for 340B purposes.
5. There is a prime vendor program which
   provides a mechanism to access 340B
   prices, functions to negotiate sub-340B
   prices, and provides value added services to
   eligible entities.11
6. The savings realized by the entities belong
   to the entity and are to be used by the entity.
   There are no mandates as to how the
   savings are to be used.
7. The eligible entity must agree to preventing
   diversion of 340B drugs to non-eligible               Public Law 102-585, The Veterans Health Care Act of 1992, codified as section 340B of the Public
                                                         Health Service Act
   patients and prevent duplicate discounts (in      8
                                                         The Office of Pharmacy Affairs is located in the Health Resources and Services Administration of
   other words, prevent Medicaid from                    the Department of Health and Human Services, and administers the Public Health Service (PHS)
                                                         340-B Drug Pricing Program. The Office may be contacted at: 5600 Fishers Lane, Pkln Bldg., Mail
   requesting a rebate on a drug that already            Stop 10C-03, Rockville, Maryland 20857. Fax: 1-301-594-4982
                                                         Phone: 1-800-628-6297
   has a 340B discount applied to it).12             9
                                                         A complete list of 340B eligible entities is available at:
8. If an entity does not or is not capable of            /whoiseligible.htm
   having an in-house pharmacy, there are            10
                                                         Federal Register October 24, 1996 (Vol. 61, No. 207, pp. 55156-55158)
                                                         HealthCare Purchasing Partners International website 2004:
   guidelines that address contracted                12
                                                         More detailed information may be found in the Federal Register notices or at:
   pharmacy services (contracting with a       
   community pharmacy to provide access to               or The Bridge to 340B Comprehensive Pharmacy Services Solutions in Underserved Populations.
                                                         2004. Medpin/PSSC.
   340B prices for patients).13                      13
                                                         August 23, 1996 (Vol. 61, No. 165, pp. 43549-43556) Final Notice Regarding Section 602 of the
                                                         Veterans Health Care Act of 1992 Guidelines Regarding Contract Pharmacy Services.

2. Concern #2: Finances
This section provides a sample budget and break even analysis discussion.

                               BUDGET FOR PROPOSED 340B IN-HOUSE PHARMACY 14
                   Project management and oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          $10,000

                   Administrative Staff Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $10,000

                   Pharmacist (cost of two registered pharmacists) . . . . . . . . . . . . . . . . . . . . . . . . . . . .                $180,000

                   Pharmacy support staff (2 pharmacy techs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               $32,000

                   Travel and Communication: (includes any travel that may . . . . . . . . . . . . . . . . . . .                            $5,000
                      be required, and telephone, fax, postage, and any other
                      charges of this type)

                   Computer Hardware/Software and Fax machines . . . . . . . . . . . . . . . . . . . . . . . . .                           $14,000
                     (this includes high level computer system and printers) with appropriate
                     proprietary pharmacy database software and service fees that will be placed
                     in the site for pharmacy operation, as well as an office computer system
                     for pharmacy administration.)

                   Pharmacy Opening Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            $90,000

                   Pharmacy Office Equipment/Furniture/Supplies and References . . . . . . . . . . . .                                      $3,000

                   Pharmacy Security System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           $1,000
                     (the pharmacy needs to have a stand alone security system)

                   Pharmacy Licenses and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            $500

                   Administrative Costs (Bookkeeping and Support) . . . . . . . . . . . . . . . . . . . . . . . . .                        $30,000
                                                                                                                               Total      $375,500

 Construction costs were not included in our budget, but may be significant depending on the degree of construction needed.

                                                     Break Even Analysis (BEA)
Calculating the Break Even Point
                                                     Analysis to determine the pharmacy’s break even point (BEP)
                                                     A simplified math model to determine what the pharmacy needs in sales to
■ BEP is the volume where:
                                                     break even or better, is to calculate the pharmacy total cost of operation and
  Total Revenues (sales) = Total Costs
                                                     multiply by a factor of two. This is because the gross profit is anticipated as
■ Can be shown as:
                                                     45-49 percent for the operation. For every dollar in sales, profit should be
  Graphic — the convergence of cost of               $0.45 – 0.50. This includes giving a generous discount to sliding fee patients
  acquisition and revenue generated                  compared to cash customers.
  Contribution margin — formula giving a
  numeric value                                      After the expected patient demographics and the sales revenue needed are
                                                     determined, then it is possible to formulate the sliding fee and cash paying
BEP Assumptions                                      formula. This discount pricing of the sliding fee benefit is the point of
                                                     greatest variability in the model. Although we didn’t have access to it at the
■ Valid and reliable revenue and cost data.
                                                     time of pharmacy implementation, the financial predictor tool included in
■ Costs correctly classified as fixed or variable.   the document The Bridge to 340B Comprehensive Pharmacy Services Solutions
■ Costs and revenues act in a linear manner          in Underserved Populations, can help sites make estimations about sliding fee
  over sales volume range.                           scales and cash pay formulae.15
■ Applicable to a restricted, relevant range of
                                                     Our patients’ average prescription price would be lower than the national
  sales volume.
                                                     average, given the fact that we could purchase many prescriptions at up to
■ Pharmacy’ product mix static over time.
                                                     50 percent off of the regular cost using the 340B Program, and we fully
                                                     intended to pass a significant portion of this savings to the patient. In
                                                     addition, our providers were more likely to prescribe low cost generic drugs
                                                     due to the cost barrier for the patients. Because of these factors, we anticipated
                                                     that our patients’ average prescription price would be about $30-35.

                                                          BEP by Contribution Margin
                                                          Revenue                            $892,000
                                                          - Variable costs                   -643,300
                                                          Contribution margin                  248,700
                                                          - Fixed costs                       -207,300
                                                          Net income                           $41,400
                                                          CM % = Sales - VC                  CM % = 892,000 - 643,300
                                                          Sales                                               892,000
                                                                                             CM % = 100% - 72.1% = 27.9%
                                                                                             BEP = $207,300 / 0.279 = $743,011


3. Creating a timeline
The consultant pharmacist provided us with a timeline, but we had to make changes as we went along because at that time there was
no other resource to guide us. A revised and updated sample timeline appears below.

               Note. These are suggested steps for action to open a traditional in-house pharmacy.

                 MONTH 1
                  1. Hold initial meetings with CHC board and clinic directors to determine need and available funding for
                     pharmacy services.
                  2. Perform market analysis or feasibility study.
                       ■   Fixed and variable costs                                 ■   Pricing of pharmacy benefit
                       ■   Projected sales                                          ■   Break-even analysis
                  3. Initiate relationship with wholesalers and begin to compare contract terms.
                  4. Contact an organization for technical assistance or for help in locating a consultant pharmacist.
                  5. Develop staffing plan. The results from the decision analysis and feasibility study will help you with this.
                  6. Contact state board of pharmacy to request material. They should have a procedure for opening a new
                     pharmacy. Also, be sure to ask for rules and procedures relating to operating a pharmacy, e.g., requirements
                     such as a separate counseling area, sink, reference books, prescription balance, etc. Determine what type of
                     license you need, as some states license according to site — it will most likely be a retail/community license.
                     Ask if there are any state requirements that apply to the 340B Program.
                  7. Initiate communication with other pharmacies in the area. You may want to do this to ensure a good
                     relationship with the other pharmacies. This may also provide you with contacts of pharmacists who may be
                     looking for another job. Sometimes existing pharmacies will see a new pharmacy as a threat to their business.
                     You may be able to explain that the pharmacy is opening for the primary benefit of serving CHC patients, most
                     of whom need access to a special discount program to help them afford pharmaceuticals.
                  8. Begin pharmacist recruitment process. The earlier you hire a pharmacist, the better. It will be very helpful to
                     have a pharmacist perform functions such as ordering the starting drug inventory and dealing with the board
                     of pharmacy.
                  9. Enroll in 340B Drug Pricing Program by completing and submitting the enrollment form.

                 MONTH 2
                 10. Determine plan for pharmacy layout and fixtures. This may involve construction or renovation to your existing
                     site, as well as purchasing fixtures. A good place to start would be with drug wholesalers for estimates; they
                     may provide this service or will connect you with companies who will.
                 11. Purchase pharmacy fixtures and have existing space remodeled to suit your needs. If construction is involved,
                     allow an extra 2-3 months, depending on the degree of construction needed.
                 12. Negotiate wholesaler contract.
                 13. Conduct pharmacist interviews and hire pharmacist ASAP This may actually take months until the process is
                 14. Consider and prepare for JCAHO reporting requirements (if desired).

 Based on timeline developed by McIntosh 2001. Taken from: The Bridge to 340B Comprehensive Pharmacy Services Solutions in Underserved Populations. 2004.
 Medpin/PSSC. Timelines for contract and physician dispensing pharmacy options are available from this reference as well.

                                                TIMELINE (continued)
 15.   Review and select pharmacy computer system.
 16.   Review and select a system to handle indigent drug programs.
 17.   Conduct pharmacist assistant interviews.
 18.   Select multidisciplinary team of clinicians to form P & T Committee and begin formulary development process.
       ■ Review clinical guidelines and standards of care related to drug therapy and combine this with existing

         knowledge of provider drug selection and cost in developing the formulary.
       ■ Develop policies and procedures for the medication use process and for approval of non-formulary

       ■ Streamline the pharmacy product line to decrease the inventory and improve cash flow.

       ■   Promote quality, cost-effective prescribing using evidence-based medicine.

 19. Develop Third party/Medicaid contracts.
 20. Determine and purchase necessary equipment and supplies (this will include items such as: prescription labels,
     bottles, counting trays, spatulas, automated counting equipment, cash register, tape/dispenser, prescription
     pads, receipt pads, pens, pencils, highlighters, paper clips, fax, telephones, prescription balance and weights,
     pharmacy reference books, distilled water, dispensing equipment, mortar and pestle, ointment slab, etc.) The
     state board of pharmacy will have a complete list of the required equipment and supplies.
 21. Complete pharmacy licensure forms with state.
 22. Schedule Board of Pharmacy inspection to occur in month 6 or within close proximity to opening the
 23. Complete DEA licensure/HIN.
 24. File for Federal tax ID #/local tax/state tax.
 25. Research and select liability insurance/pharmacy insurance.
 26. Research pharmacy security systems.
 27.   Establish clinic formulary.
 28.   Select pharmacy security system.
 29.   Ensure pharmacy staff is trained on pharmacy software system.
 30.   Hold meetings with CFO to discuss pharmacy revenue/expenses.
 31.   All staff should be hired at this point. Select pharmacist to be pharmacy manager.
 32.   Purchase pharmacy opening inventory and stock. Most drug wholesalers have suggested initial orders if you
       need help deciding what to order.
 33. Open Pharmacy.
 34. Consider adding clinical pharmacy services and pursuing reimbursement for cognitive services.
After conquering our three biggest concerns regarding formulating our plan,
1. How do we know if the pharmacy will comply with state and federal regulations?
2. How much will this cost and how do we structure the finances of the pharmacy to ensure it is sustainable?
3. What steps are necessary, and in what order should they be taken, to implement this pharmacy?
We were ready to implement our plan.

Implementation of the plan was relatively straightforward. This section presents the challenges of plan implementation,
explains how we were able to overcome or deal with the challenges, and lists additional thoughts and services we considered
in our quest to implement pharmacy services.

Challenges Overcome
  1. Interest rates: Because we were borrowing money for our new clinic and the pharmacy was part of this new construction, we
     were closely following interest rates. If the rates became too high, we might have been at risk for being in more debt than we
     predicted or were able to carry. Fortunately, the rates behaved for us! If the rates had increased five times, as occurred in 2004,
     we would have been very nervous.
  2. Deciding what drugs to purchase to start our initial inventory: The drug wholesaler would not provide us with a “340B drug
     list,” so we were forced to try and guess which drugs to carry initially. The initial inventory is important because we wanted to
     have enough drugs on hand so that patients would have a convenient experience using our pharmacy and be more likely to
     return. If during the first visit we had to tell the patient we didn’t have their drug, they might not want to use our pharmacy
     service again. However, we didn’t want to stock too many drugs, as that would represent a significant cost. To help us make
     inventory estimations, we surveyed our providers to determine the “top 20” drugs each provider commonly prescribed. In
     addition, we used another CHC’s formulary as a starting point to help us design our inventory list. We contacted the OPA and
     asked them to work with our wholesaler to ensure the wholesaler was able to provide us a list of all available 340B drugs. (It
     turns out that any drug manufacturer that participates in the Medicaid rebate program must also sign an agreement to provide
     a 340B price for all of its outpatient drugs; thus nearly all outpatient drugs are available under 340B.) Because we had not
     expected so much delay in determining our initial inventory, we were forced to rush our inventory order. We were biting our
     nails in hopes that the drugs would arrive by the time the pharmacy opened. The order did make it, but it was less than two
     weeks from opening the pharmacy doors for the first time!
  3. Making “guesstimates” about statistics: Since there was no existing pharmacy data, we had to make educated guesses based
     on clinic visits, utilization patterns, etc. We hoped that we had made accurate estimations about the types of patients and
     prescriptions we would see in the pharmacy. Fortunately, our clinic data turned out to be a good predictor of our pharmacy data,
     but there was no guarantee this would have been the case. For example, even if we knew the number of patient visits, perhaps
     only the uninsured patients would choose to use our pharmacy and there would be no way for us to generate revenue.
  4. Establishing billing: We had to start by contacting each insurance plan that the clinic accepted, and ascertain whether or not
     they offered a drug plan. Then we had to evaluate the reimbursement to determine if the pharmacy should accept the plan, and
     ultimately sign the contract. These steps took much longer than a month, and we were still contacting plans after the pharmacy
     opened. We wanted to have as many plans accepted as possible for patient convenience, but there was no way to predict all of
     the plans that could be presented to the pharmacy. We are still adding contracts, one by one, as they are presented…some five
     years after opening!
  5. Making decisions in an orderly way: Although the consultant pharmacist helped us by providing a timeline, we were on a
     steep learning curve and our particular situation had certain timeline items that took longer or shorter than projected. While the
     initial timeline did give us a general sense of order, we were challenged to take this timeline and make it flexible. The timeline
     presented in this document was prepared after our pharmacy was complete and better reflects our experiences than our initial
  6. Deciding whether to sell over-the-counter (O.T.C.) items: In our small pharmacy, we chose not to stock a large section of
     O.T.C. items. We made this decision because we would be limited in space and might not be able to offer competitive prices.
     Some items that we stock include: analgesics, nasal spray (Afrin, Saline Nasal Spray), vitamins, topical creams and ointments,
     braces, splints, and bandages (e.g., Ace bandages). We decided to stock items that the physicians would tell patients to get in an
     emergency situation or items that would provide significant convenience to the patient.
  7. Hiring two pharmacists amidst a nationwide pharmacist shortage: Although we initially budgeted $75,000/year each for
     two pharmacists’ salaries, the market had forced salaries into the $95,000/year range in our area. Of course, we didn’t realize this
     until after we had created the budget and were trying to hire a pharmacist. Fortunately, we were able to convince the health
     center administration that this was a priority, and eventually garnered the extra funds from the health center to hire pharmacists.

      8. Obtaining a Federal grant: Pharmacy grants are relatively scarce, and we felt fortunate to be awarded a grant to help us with
         start-up costs. This was extremely valuable for the first two years of the pharmacy’s operation, considering that the pharmacy
         was not profitable during this time.
      9. Generating and capturing enough prescriptions (with the number of providers at our facility) on a daily basis to survive
         financially: Merely generating the prescriptions did not ensure that our pharmacy would capture them. In addition, we needed
         to capture enough 3rd party/Medicaid prescriptions to offset any losses we might incur from our sliding fee patients. Keys to
         ensuring a high capture rate included marketing the pharmacy service to the providers and patients, giving excellent and
         convenient service to patients and providers, ensuring the pharmacy had operating hours that were convenient and consistent
         with the clinic, accepting local drug coverage plans, obtaining a “low-cost provider” reputation for the pharmacy, and
         maintaining a broad enough drug inventory to ensure that patients’ needs were being met. The key to becoming profitable was
         being able to capture enough prescription volume to cover and eventually exceed our operating costs.
     10. Staying the course, even in financially discouraging times: Over the first three months, the pharmacy showed a loss of
         $80,000. The second year brought a loss of $100,000, but from that point on the pharmacy started losing less and less…until
         in 2003 (about 3 years from opening), it started making money. The keys for us to overcome this challenge included capturing
         the prescriptions we needed, being able to financially “float” the pharmacy for the first few years (the grant helped), remembering
         that when we started our journey, we anticipated that it would take at least a year or two to recoup our costs and break even,
         and reminding ourselves that every prescription that we filled at our pharmacy was a prescription that we potentially had to
         “win” from another pharmacy. Patience was the key for us in light of the discouraging financial picture the first few years. We
         knew we had the potential prescription volume to break even or turn a profit, but we just had to have patience and win the
         prescriptions, one by one!

Additional helpful hints and services to consider
Once the basic pharmacy services have been established, there are a few additional considerations that may enhance the viability of
the pharmacy.
      1. Consider providing medications through satellite offices, those offices associated with the covered entity. This may take
         the form of a dispensing person (or pharmacy technician) at the health center that would be available on a schedule to allow
         patients or physicians to call in refills. These could be filled at the main pharmacy, then on a regular basis, depending on the
         number of satellite facilities, delivered to the dispensing person who would then provide the medications to the patients. Check
         with your state board to ensure this is allowable in your state.
      2. Establish a fund for employees to contribute money from their payroll checks to assist indigent patients with affording
         medications. Our health center established a “Joyce Stump” fund (created as a memorial fund to honor a past employee of our
         network that passed away). The funds are used directly for purchasing medications for indigent patients.
      3. Think about delivery options. Using the postal service or other package carriers would enable home-bound patients to acquire
         refills without the need to leave home or having to find an individual to make a trip to the pharmacy. Payments through the use
         of credit/debit cards allow the pharmacy to secure payment prior to mailing the medications.
         Since we have multiple clinic locations, not all clinics are close enough to our pharmacy site to enable patients to conveniently
         visit our in-house pharmacy. To bridge the gap at these other sites, we have instituted a few programs:
         ■   We have an extensive medication sample program, whereby drug representatives supply our clinics with commonly used
             medications, free of charge.
         ■   We utilize a mail order program for some of our sites called MedShare,17 that ships discount medications for indigent patients
             directly to our health centers so that the patients can pick up their medications at the center.
         ■   We contract with community pharmacies to provide medications at cost to our indigent patients. Because the 340B Program
             allows you to have either an in-house pharmacy OR a contracted community pharmacy (not both, unless you have a special
             waiver18), the contracts we have with local pharmacies are not for drugs at the 340B price, but rather at the pharmacy’s cost.

 Contact: Neighborhood Health Care, Inc., MedShare Pharmacy 2415 Auburn Ave, Cincinnati, OH 512-412-5441
 For more information about the Alternative Method Waiver program, visit:

     4. Consider marketing your in-house pharmacy to other 340B entities; your pharmacy could serve as a 340B contract
        pharmacy for other entities. The 340B Program only allows medications to be provided to “patients 19” of that covered entity.
        This means that even if another, 340B organization wanted its patients to access 340B prices at your pharmacy it would not be
        permissible. Only patients of your entity may be served by your pharmacy, unless a 340B contract pharmacy relationship is
        established. Because your in-house pharmacy staff is familiar with the 340B Program, you may be able to use this expertise to
        effectively contract with other entities in your area. The other 340B entities would pay your pharmacy a per-prescription
        dispensing fee (usually $8-10 /Rx), purchase their own 340B drugs and have them delivered directly to the contract pharmacy.
        In most states you can share a physical inventory of your 340B drugs with the other clinic’s 340B drugs, which reduces inventory
        costs for both sites. Federal law mandates that you keep separate electronic inventories.20

        Consider offering samples and patient assistance program medications.
        For detailed information about establishing a Patient Assistance Program, visit the Patient Assistance Program (PAP) Resource
        Center on the web at: This center is made available by the American Society of Health System
        Pharmacists and HRSA’s Pharmacy Services Support Center.
        In addition, become familiar with state patient assistance programs, if any are available. For example, Ohio has the, “Golden
        Buckeye” ( program for adults over 60 years of age, and a gross taxable income under $30,000
        (single) or $40,000 (joint) per year. Pharmacies must apply for membership to participate in this program, and it is free. The
        Golden Buckeye then sends a formulary to the participating pharmacies, but not all drugs are on this formulary. The program
        sends a card to members when they qualify, and a list of participating pharmacies. All the member has to do is go to one of the
        approved pharmacies, present their card and prescription, and if the drug prescribed is on the formulary, the prescription will
        be filled and the member will pay a special state-contracted price or the pharmacy’s normal cash price, whichever is lower.
        Additional special assistance program savings are available to those who have annual incomes below certain levels and have no
        public or private prescription insurance coverage.
     5. Inquire about the National Health Service Corps Pharmacist and Chiropractor Loan Repayment Demonstration Project.
        We were fortunate to be able to use this opportunity as a recruitment tool to entice a pharmacist to work at our health center.
        What follows is a general description of the program.
        During the 107th Congress, legislation passed, and was signed by the President reauthorizing the National Health Service Corps
        (NHSC), and federally qualified health centers (FQHC). Included in the legislation was a provision (Section 338L PHSA)
        authorizing the Secretary to implement a demonstration project that would make pharmacists and chiropractors eligible to
        participate in the NHSC loan repayment program. The Health Resources and Services Administration (HRSA) would administer
        the demonstration project. The demonstration project would help HHS determine whether pharmacists enhance the
        effectiveness of the NHSC, and if so, should become explicitly eligible to participate in the NHSC.
        The demonstration project would extend over a period of three years, and would include an evaluation component. Two-year
        loan repayment contracts would be awarded to a total of 36 individuals. At that time, $3 million was available to support the
        demonstration project. Loan repayment awards would pay up to $25,000 a year for loans associated with the individual’s
        pharmacy education. Tax assistance equal to 39 percent of the total amount of the loan repayment would be provided as well.
        The program was open for applications on April 21, 2003, and close on June 16, 2003. Awards would be made in September
        2003. However, this program was closed, November 1, 2003, and has not been reopened as of, March 2004. There is hope, and
        a lot of effort by many people, that the program will be reopened, and this will be available to pharmacist in the near future.
        This program is especially VERY IMPORTANT in obtaining pharmacists in the rural areas. Without this incentive, it is difficult
        to hire a pharmacist in rural areas due to competitive salaries and location.
        In absence of a notice printed in the Federal Register, more information can be obtained by contacting:
                                                                National Health Service Corps.
                                                                  5600 Fishers Lane, 8A-55
                                                                    Rockville, MD 20857
                                                          (800) 221-9393 •

 Federal Register October 24, 1996 (Vol. 61, No. 207, pp. 55156-55158)
 Implementing a Comprehensive 340B Contracted Pharmacy Service

Although making the initial decision to implement a 340B pharmacy service was difficult, the result provided a much-needed service
to patients and revenue for the health center. The journey to a successful pharmacy service for our health center consisted of assessing
our starting point, developing a plan of action, and implementing that plan. Patience was a virtue for us, and after twenty-two months,
our pharmacy started showing a net profit. We continue to show an increase in the prescriptions filled each month, to establish new
programs to serve to our community, and to create revenue for SOHSN We are presently getting certified with Medicare, which will
enable us to offer more services and aid to our customers in light of the new prescription drug legislation.
Was it daunting to undertake the establishment of a pharmacy? YES! But was it worth it? ABSOLUTELY! For health center decision-
makers that wish to begin their own journey to instituting a successful pharmacy service, please use Appendix II, Resources, as a
starting point.

The “numbers” summary of our pharmacy.

                              GRAPHICAL PRESENTATION OF SALES                                                                       AUGUST 2000
                              Sliding        Third                                      Number       Total
         Date                   Fee          party       Medicaid            Cash       Patients Prescriptions                                                  28.3%

         8/00                    15              0            33               5           38            53
         9/00                    70           11              218              80        180            379
         10/00                 116            34              303              89        249            542
         11/00                 101            45              357            104         291            607                                                            9.4%
         12/00                   97           38              360            102         289            597
         01/01                 122           108             546             117         395            893
                                                                                                                                   JANUARY 2001
         02/01                   99          128              430            103         343            760
         03/01                 151           146              513            100         375            910
         04/01                 122           110              534            113         381            880
         05/01                 154           140              686            141         454        1121
         06/01                 147            73              496            120         387            836
         07/01                 183           137             583             121         427        1024             61.1%

         08/01                 183           141              733            147         474        1204
         09/01                 185           133              704            156         482        1178                             JULY 2001
         10/01                 227           199              975            179         609        1580                                                       17.9%

         11/01                 264           235              834            181         606        1514
         12/01                 241           187              911            157         613        1496
         01/02                 238           244             1152            191         705        1825

                                                                                                                     56.9%                                         13.4%

        1000                                                                                                                       JANUARY 2002



                  0   8/00       10/00   12/00       02/01    04/01    06/01    08/01    10/01   12/01

                      ■   Sliding Fee    ■   3rd Party        ■   Medicaid                                       Percent by Payer
                                                                                                                 ■   Sliding Fee    ■   3rd Party   ■   Medicaid        ■   Cash


Source/Contact Information                                      Assistance

340B Prime Vendor Program/HPPI                                        Enables safety net providers to purchase outpatient
125 E. John Carpenter Freeway                                         pharmaceuticals at discounted pricing, thereby expanding
Irving, TX 75062-2324                                                 access to care to low-income and vulnerable segments of
Phone: 888-340-BPVP (2787)                                            the population. HPPI is the 340B Prime Vendor, and is                                                responsible for sub-340B price negotiation and improving
                                                                      access to affordable medications by establishing a
                                                                      distribution network for medications to covered entities.

HRSA Pharmacy Services Support Center (PSSC)                          Manages the PharmTA Program to provide technical
2215 Constitution Avenue, NW                                          assistance to 340B eligible entities via a cadre of
Washington, DC 20037                                                  experienced consultants. Assistance varies from phone
PSSC Call Center: 202-429-7518 and 1-800-628-6297                     consultations, provision of materials, sample forms,
Fax: 202-223-7193                                                     documents, as well as limited site visits.
                                                                      Maintains a website with useful information regarding
                                                                      340B and related pharmacy issues.

Medicine for People in Need (Medpin)                                  Works with safety net providers to improve access to
505 14th Street, Suite 810                                            medicine and pharmaceutical care for people in need.
Oakland, CA 94612                                                     Provides training and education, direct technical
Phone: 510-302-3300                                                   assistance services, policy analysis and research. Conducts
Fax: 510-444-8253                                                     teleconference training, regional and statewide meetings.
Email:                                                Provides instruction to pharmacists on consulting or                                                 contracting with safety net providers.

National Association of Community Health Centers (NACHC)              Provides technical assistance to community health centers.
7200 Wisconsin Ave., Suite 210
Bethesda, MD 20814
Phone: 301-347-0400
Fax: 301-347-0459

Office of Pharmacy Affairs                                            Provides technical assistance to eligible entities regarding 340B and
Health Resources and Services Administration                          other pharmacy issues.
5600 Fishers Lane, Pkln Bldg., Mail Stop 10C-03,
Rockville, Maryland 20857
Technical Assistance Hotline
Phone: 800-628-6297
Fax: 301-594-4982

American Society of Health System Pharmacists                         A comprehensive information/web site concerning patient
Patient Assistance Program (PAP) Resource Center                      assistance programs and the use of these programs to
American Society of Health-System Pharmacists                         increase medication access.
7272 Wisconsin Avenue
Bethesda, MD 20814
Phone: 301–657-3000

Headquarters                                Government Affairs Office
One West Armour Boulevard, Suite 203      1600 Prince Street, Suite 100
Kansas City, Missouri 64111-2087       Alexandria, Virginia 22314-2836
Telephone: [816] 756.3140                   Telephone: [703] 519.7910
FAX: [816] 756.3144                                FAX: [703] 519.3865

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