Independent American pharmacies can feel small and powerless in the consolidated world of massive PBMs and behemoth national chain pharmacies. That’s why they are turning to buying groups to overcome the unfair system monopolized by giant corporations and inadequate contract terms.
American pharmacies and buying groups
A pharmacy buying group bundles the business of multiple independent pharmacies to give them more buying power and leverage than they’d each have as a single entity. The buying group takes the total book of business of all the pharmacies combined to the negotiation table with wholesalers. When pharmacies combine their purchase volume, they get the wholesalers to fight for their business, rather than the other way around. Which gives them the power to demand a better deal.
Though buying groups have been around for decades, they have become increasingly crucial for small American pharmacies in an age of dwindling reimbursements and a constantly complexifying industry landscape.
How buying groups improve profitability for American pharmacies
Here are some of the essential benefits of buying group for American pharmacies.
Better negotiations
Like your pharmacy, wholesalers need to protect their bottom line. When negotiating a contract, both wholesalers and independent pharmacies want to get the best deal possible.
With an effective and strategic relationship, pharmacies and wholesalers can achieve a win for both sides. But to make the relationship equal, your pharmacy needs someone who knows wholesaler contracts inside and out. Wholesaler contracts are notoriously complicated. They come with unique terms, foreign jargon, and complex incentives that can be tough to understand for the savviest pharmacy owners.
That’s why you need someone who’s read, written, and negotiated hundreds of contracts. Who knows what details to look for. And who can protect you with the right terms.
Buying groups can provide that. Most likely, a lone independent pharmacy can’t.
But the best buying groups don’t just negotiate for you, they empower you. They sit on your side of the table, educate you, and collaborate the whole way through. You learn the ins and out of contracts and you make the final decisions. You’ll understand everything you need to know to make the most of your contract.
Better pricing and bigger rebates
A buying group gives you something you didn’t have as a lone indie pharmacy: negotiating power. When independent operations are represented by buying groups, wholesalers have to make an effort to court you instead of taking your business for granted. It puts power in your hands rather than the wholesalers’ by doing two crucial things:
1. Increases your total volume
2. Creates competition among wholesalers to incentivize a better deal
Increasing volume
Volume is the main reason national chains get better pricing. The distribution costs for servicing an independent are about the same, yet the revenue is paltry in comparison.
To make it more worth wholesalers’ while, buying groups pool multiple pharmacies’ book of business into one bucket, getting the total volume closer to chain pharmacies. Earning a lot more money using far fewer resources, the wholesalers will be much more interested in winning your business. That means they’ll give you better pricing to earn your exclusive commitment.
Creating competition
The best buying groups gather bids from several different wholesalers.
Competition is essential to motivating lower prices. This is the bedrock free market economics. If one company isn’t giving people fair prices, then another company will. When you negotiate with a single wholesaler, you give that wholesaler considerable power over your contract terms and pricing. When you negotiate with several wholesalers, you gain considerable power by making them compete to earn your business.
On Drug Channels, Adam Fein wrote, “Pharmacy owners have responded to their own profit pressures partly by collaborating with peers via Group Purchasing Organizations (GPOs). These pharmacy buying groups have altered and accelerated wholesaler competition for the business of independent pharmacies … As the GPOs have grown, wholesalers have had to compete more aggressively to win and retain the business of the groups and their members. When a buying group switches its primary wholesaler, the non-selected wholesalers will work hard to retain as much business as possible.”
More articles on purchasing
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Common Purchasing Mistakes That Cost Pharmacies Thousands
How to Maximize Rebates and Profitability on Pharmacy Inventory
Big benefits for small American pharmacies
Joining a buying group allows American pharmacies to get big pharmacy benefits while still remaining a community-oriented operation—the best of both worlds.
A great buying group knows you and knows your needs. With their assistance, you can strategically grow your pharmacy. Things that might have seemed impossible before—like maximizing your wholesaler rebates—are now within reach.
You get to keep your small staff and focus on delivering the best care to your patients while your buying group does behind-the-scenes work to secure the lowest rates for you.
Depending on the buying group, you may get these additional business perks:
- Purchasing optimization tools
- High-quality backup supplier
- Vendor discounts
- Networking opportunities
- Educational resources
- Merchandising support
- Exclusive convention and trade show with top vendors
Ultimately, all the numerous perks American pharmacies receive by being part of a buying group come down to one thing: a better bottom line.
With profit margins for prescription drugs only getting thinner, every penny matters. As long as PBMs determine reimbursements, the only way to increase your margins is to spend less on your inventory. Since you can’t change the sell side of your business, take control of the buy side.
In the end, what benefits you also benefits your patients. Whether it’s passing on some of your savings to make their medications more affordable or reinvesting in your customer service, joining a buying group will help you do your job better.
RELATED: What to Look for in a Group Purchasing Organization
Are You Ready to Improve Your Bottom Line?
Does your buying group offer all the perks above? Don’t settle for what you have.
ProfitGuard®, PBA Health’s group purchasing organization, is a different take on a buying group. Valuing the true uniqueness of independents, ProfitGuard offers an entirely customized approach best suited to each pharmacy’s individualized needs. Whether you want a contract negotiated specially for you or you want to join a group that has already negotiated a lucrative deal, the choice is yours. ProfitGuard assists you in getting exactly what you want for your business. (It also guarantees a better contract than you have now.)
ProfitGuard also provides a proprietary tool to help pharmacies maximize wholesaler rebates and savings on their inventory every day. Using a real-time modeling algorithm, it automatically analyzes and predicts your purchases in light of every contract incentive to ensure you’re getting the lowest net cost of goods for your pharmacy. For the average pharmacy, receiving your full rebates and savings could result in more than $15,000 per month in pure profit depending on your contract structure.
ProfitGuard is also one of the only GPOs who isn’t tied to a single wholesaler. That means your pharmacy gets bids from multiple wholesalers who compete to win your business, getting you a deal that can’t be matched by a GPO committed to one wholesaler.
Lastly, ProfitGuard members also have the perk of access to PBA Health’s NABP-accredited (formerly VAWD) warehouse. As a secondary supplier, it carries a wide selection of brands, generics, OTCs, and more. Schedule IIs can even be ordered straight from the warehouse through a completely electronic, time-saving system.
