Pharmacy Service Agreement

							Using a Contracted
 Retail Pharmacy
   to Support a
  340B Program




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                            Agenda
1. Challenges of Running an In-House Pharmacy
2. Financial Implications
3. 340B Regulations for Using a Contracted Pharmacy
4. Challenges of Using a Contracted Pharmacy
5. Case Study
6. Components of a Successful Program




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             Challenges of Running
             an In-House Pharmacy
1. Availability of Full Time and Part Time/Temporary Pharmacist
    a. National Pharmacist shortage

        •   Supply of new pharmacists does not meet the industry demands measured by
            open positions. As a result, there are estimated to be 7,000 open pharmacist
            positions.
    b. Covering for vacation and sick leave for Pharmacist

1. Overhead Costs to run an in-house Pharmacy




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                Challenges of Running
                an In-House Pharmacy
3. Maintaining pharmacy software (updating) is expensive

4. Drug Utilization Review is not complete – no cross checking between what
   patient receives at in-house pharmacy and what is filled at outside sources

5. Liability insurance is costly

6. Minimal formulary due to space constraints

7. Lack of reporting capability to properly control and report on 340B issues

8. Health Center must contract with third-party payers to capture revenue
    •   They won’t contract with a closed-door pharmacy



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                   Cost Comparison
In-House Pharmacy:
       Pharmacist              $100,000
       Pharm Tech              $ 40,000
                                          $140,000

       22% Taxes/Benefits      $ 30,800
       Payroll                 $178,000 (usually ½ total cost)

       Total In-House Pharmacy
            Cost            $356,000
       12,000 Rx/Year                        $ 29.66/Rx



Contract Pharmacy:
    Dispensing Fee                           $ 6.00
    Virtual Inventory Vendor
        Admin Fee                            $ 4.00

    Total Cost                              $ 10.00 / Rx


    TOTAL SAVINGS IN THIS EXAMPLE is                   $19.66/Rx
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             340B Regulations:
         Contracted Retail Pharmacy
1. Covered entity will purchase all drugs (Bill to/Ship to)
2. Contractor will provide all pharmacy services
3. There is a one-to-one relationship between Health Center and Pharmacy
4. AMDP (Alternative Method Demonstration Program) is required in order to allow
   Health Centers to expand the 340B Program to multiple pharmacies
5. Health Centers are required to replace drugs for exact NDC11 match
6. Patient can choose to fill prescription from pharmacy provider of his/her choice
7. Adherence to all Federal, State, and local laws and requirements and all rules
   and regulations established by the grant funding office




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         340B Regulations:
     Contracted Retail Pharmacy
                                (Continued)

8. Contractor must provide quarterly financial statements, a detailed status
   report of collections, and a summary of receiving and dispensing
   records
9. Contractor will maintain a tracking system to prevent diversion
10. Contractor will not resell or transfer a 340B drug to a non-eligible
   person
11. Contractor will not use 340B drugs to dispense Medicaid prescriptions
12. Both parties are subject to audits by PHS or manufacturers
13. Copy of Contracted Pharmacy Service Agreement available on request
    to manufacturers
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                 Challenges of Using a
                 Contracted Pharmacy
• Inventory Control and Management
     • Very difficult to do manually
     • Physical vs. Virtual Inventory
     • Timely replenishment to the Pharmacy
• Eligibility Management
     • Ensuring that only eligible patients receive 340B medications
• Managing a Sliding Fee Scale and Multi-Tiered Formulary
    • Providing the greatest discount to the most indigent patients
     • Why have 10 tiers/levels for medical but only 2 for Rx
• Invoicing, Collecting and Reporting
     • Relying on the pharmacy to tell the Health Center what prescriptions were filled
• Diversion
     • Regulations provide steep penalties to the Health Center if the pharmacy
       uses 340B drugs for their other customers

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                        Case Study - Before
Health Center Landscape:
•3 Health Center Locations
•1 Contracted Pharmacy Arrangement

Program Layout:
•Initially a virtual inventory model
•Eligible patients identified on script pad went to pharmacy for prescriptions
•Pharmacy handled ordering on the Health Center’s behalf
•Moved to a physical inventory model after several years of issues

Issues:
•Pharmacy could not manage either the virtual inventory or physical inventory – extremely manual process
      •Too much physical inventory – overstocked and expired drugs
•Pharmacy replenished their own inventory by ordering on the health center’s account with the distributor No
cross check or controls on patient eligibility for 340B pricing
•Pharmacy had access to 340B prices
•Health Center too dependent upon Pharmacy causing negligence in ordering and finances
•Patients co-pays were not managed properly therefore charging patients inappropriately
•Drugs were sold out of physical inventory to non-340B Patients – DIVERSION ISSUES

   Pharmacy diverted $250,000 of Health Center medications at 340B prices – Pharmacy had to
                           spend $500,000 to solve diversion issue



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                          Case Study - After
Changes implemented:

      •Implemented an Inventory Management and Control System
            •Through automation moved from Physical inventory to Virtual inventory
            •Automated ordering process for HC

      •Began using a PBM to capture all sales
           •Utilizes eligibility management system
           •Provided patients with ID cards

Current Program Layout:

      •Pharmacy uses a virtual inventory model
      •Claims are adjudicated at pharmacy causing complete check on patient eligibility and co-pay structure
      •System automatically generates order when 80% threshold is reached at NDC11 level
      •No unnecessary inventory is ordered
      •Third Party Sales captured

Results:

      •Diversion - NONE
      •Inventory Control - managed at 100%
      •Moved from a Cost Center to a Profit Center



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Components of a Successful Program
 Utilization of Claims Adjudication Technology
 • Use of a third party claims adjudication removes the control from the
   Pharmacy and allows unbiased management of sliding scale and formulary
 • Claims adjudication/PBM will set up the sliding scale and formulary
   requirements according to the goals/needs of the Health Center
 • When claim is received by the PBM, system will verify:
     • Patients eligibility to receive 340B medications
     • Prescribing Physician is employed by the Health Center
     • Dispensed medication is on the current formulary
     • Patient Sliding Scale information in order to return the correct co-pay to
       the pharmacy
 • PBM tracks all claims and claim status – providing data for 340B required
   audits and reports
 • Drug Utilization Review
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Components of a Successful Program
 Electronic Inventory Management
 • Ability to track inventory as Physical Inventory or Virtual Inventory
 • Inventory tracked at the NDC11 level
 • Automatic order creation when item reaches preset threshold
 • Electronic ordering to Wholesaler
 • Information received from Wholesaler with available items

 Automatic Pricing Updates
 and Price Checking
 • System updated with pricing
   information from Wholesaler
   on a daily basis
 • Price checking to ensure that
   orders are being placed at
   340B pricing
 • Orders placed at alternate pricing flagged to ensure proper credit is received
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Components of a Successful Program
Invoicing and Reporting
• System provides automatic invoices to capture:
    • Amount collected by the Pharmacy and due to the Health Center
    • Total dispensing fees owed by the Health Center to the pharmacy
• All 340B/PHS reporting requirements are covered:
      • Quarterly financial statements
      • Detailed status report of collections
      • Summary of receiving and dispensing records
• Additional reports available as required
  by the Health Center:
     • Claims filled per patient – ensures
       that the patient is following prescribed
       therapies; reduces overall health costs
     • Amount invoiced by Wholesaler
     • Price changes over time
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Components of a Successful Program
Eliminate Diversion
• Only claims from eligible patients are
 approved and paid by the PBM/claim
 adjudication

• Only approved claims are counted
 toward the 80% threshold
• An order cannot be created by the
 Pharmacy prior to the 80% threshold
 being reached without that order
 being considered “Physical Inventory”

• Every claim and every order is tracked
 – constant ability to see how many
 pills are owed to the Pharmacy or are
 owed to the Health Center

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Components of a Successful Program
  Ability to Capture 3rd Party Revenue
  • Using a contracted pharmacy allows the Health Center to make use of the
    Pharmacy’s contracts with third party payers
  •Health Center replaces the pill at 340B pricing, pays a dispensing fee and
   keeps the spread between what was collected and what was paid
  •Successful programs will allow the Health Center to capture these claims
   and collect the money from the Pharmacy
  •Revenue from third party prescriptions can be used to offset other
   pharmacy programs




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