Contracting between Contract Pharmacies (Retail and Independents) is somewhat of an art form. Both parties need to understand each others position and contribution, and allow sound business principles to drive the agreement.
Being overly aggressive on either side usually results in an impasse, and therefore, all parties lose including patients.
Having an idea of what the market is paying on agreements, for example, Walmart, Walgreens, CVS, Kroger, but also Specialty Pharmacies and Rural Independents is critical.
This article will not give you this “market intelligence”, although I am happy to speak with you about what I am seeing.
But what I have done for you here, is given you a few examples of how Dispense Fees might be determined in an agreement.
I’ve also thrown in a few contracting options you ought to consider at the bottom.
This list is far from inclusive, but these are the most common scenarios I have seen in the market. Reach out if you have any questions or comments!
| DISPENSE FEES | ||
|---|---|---|
| Type | Advantages | Disadvantages |
| All Scripts Model 20$ for every Rx, Both Brand and Generic | Good to Great Rates on Generics for Retail Pharmacy Easy to Financially Track and Set Fee Easy to Administer | Highest Compliance Risk for HRSA Audits Loses money on Nearly every Generic Rx for Covered Entity Inventory Issues for Retail Pharamcy Difficult to accurately track DIR fees |
| Flat Fee plus % of Reimbursement 10$ Dispense Fee plus 15% of Collections | Low Compliance Risk for HRSA Audit Less Inventory Headache for Retail Pharmacies Can Include Brands and Generics Easy to Administer Good Returns for All Parties | Retail Pharmacy subject to typical Generic Reimbursement Rates which are not great |
| Brand-Only Flat Fee 25$ Dispense Fee for every Brand Prescription | Low Compliance Risk for HRSA Audit Mostly Profitable, but Retail Pharmacy could lose on some, Covered could lose on others Easy to Administer Good Returns for All Parties | Not as Flexible as % based Reimbursement Retail Pharmacy forgoes Revenue Opportunity |
| Cost-of-goods Delta Difference in Retail Wholesale Cost – 340B Cost = Spread; Pharmacy is “Bonused” 15$ extra for every prescription per Rx Covered Entity receives Remander of Spread. | Low Compliance Risk from HRSA Audit Stays completely OUT of the Payer Reimbursement game at the Retail Pharmacy Pay only for what is Profitable in most cases Easy to Administer, but many loopholes Decent Returns for All Parties | Not as profitable for the Covered Entity Forgoes opportunities Subject to Loopholes for skimming by Administrators and Retail Pharmacies by Deflating the Retail Wholesale Cost |
| Payer Rate 10$ per Dispense plus 15 to 30% of Collections | Low HRSA Compliance Risks, depending on agreement Good Returns for Retail Pharmacy Good Returns for Covered Entity in Most Cases Allows Precise Payment Agreements between Parties at Reimbursement Tiers or NDC-level Flexibility to capture the Most 340B Rx | Harder to Administer Subject to Dispute Best run by the Retail Pharmacy |
| Profitability Filters Setting to ensure all parties make money. | Keeps all parties making money Lowest risk for disputes/irritation | Not suitable for All Scripts Models that include Generics (can kill the Retail Pharmacy) |
| Referral Capture Services Add volume to 340B program (ps..I’ve written about this, here.) | Low HRSA Audit Risk if done properly. Can increase profitablity by as much as 25% Winners on all sides Financially (Covered Entity and Pharmacy) if contracted Properly | Challenging in All Scripts Models Covered Entities not comfortable alone with Compliance Requirements |
| DIR Fees DIR and GER Fees are a Real Pain and Should be addressed in Contracting | Typically, these can be “built in” to the agreement. Saves on headache from Retail Pharmacies Allows Covered Entity some insight into WHY the Retial Pharmacy may be asking for what they are on Reimbursement | Terribly disruptive to the exchange of money between the parties In some cases, hard to account for without the right tools and resources. Cause problems between the Parties |
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