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Capitalizing on Retail Pharmacy to Increase Revenue and Drive Outcomes

Health systems concerned about the financial impact of rising drug costs have put various strategies in place to contain spending, from increasing the use of generic drugs to leveraging group purchasing contracts. According to a Premier® survey of health system C-suite leaders, a majority of providers are also considering expanding their specialty and retail pharmacy services.

As providers look to uncover new revenue lines that can serve to mitigate the impact of rising costs and drug shortages, it’s little surprise that outpatient retail pharmacies are on their minds. Retail pharmacies operated by health systems can also enhance population health initiatives and patient care as part of an integrated delivery network. To deliver a return on investment, retail pharmacies are best suited for organizations that employ at least 5,000 individuals and have a consistent census of more than 250 patients.

One of the biggest opportunities to leverage a retail pharmacy is in readmission reduction. The Agency for Healthcare Research and Quality (AHRQ) estimates that costs for 30-day readmissions are about $41.3 billion, or $13,800 per Medicare patient. Therefore, clinicians and staff should take every opportunity – including those at an onsite pharmacy counter – to appropriately counsel patients and caregivers on medication administration before they leave the hospital. Patients who understand their medication plan and administration are less likely to seek excess care in the emergency department or have a readmission, per the AHRQ.

Driving Outcomes and Financial Improvement Before Leaving the Hospital

Independent of readmission risk, patients walking out of the hospital with prescriptions in hand are a captive audience, and an onsite retail pharmacy delivers in multiple ways:

  1. It helps patients remember to fill prescriptions. The saying “out of sight, out of mind” shouldn’t apply to vital prescriptions, and the visual cue of a physical pharmacy can prompt forgetful minds. One study found that nearly 30 percent of patients don’t fill their initial prescriptions within seven days after discharge, and 24 percent do not do so 30 days after leaving the hospital. Having an onsite pharmacy also helps avoid missed doses, when critical prescriptions are sent to a mail-order pharmacy with a longer turnaround time.
  2. It offers lower-cost options. If affordability is an issue for patients, on-site pharmacists can recommend prescription alternatives or create connections with the health system’s financial counselors and community partners to assist with funding.
  3. It circumvents potentially risky prescriptions. An in-house retail pharmacist may notice a patient trying to fill a prescription with concerning side effects such as one that causes excessive drowsiness or increases the risk for falls, and can immediately contact the inpatient care team to work through an alternative – a step that an outside pharmacist may not take. This ensures safer care for the patient as well as compliance with quality criteria such as Healthcare Effectiveness Data and Information Set (HEDIS) measures that monitor medication management.

If a health system is large enough to operate a retail pharmacy, chances are it also offers a health insurance plan for its workforce. Health systems looking to drive revenue need to capitalize on their self-insured employee group by capturing pharmacy volume through preferential own-use pricing, rather than ceding business to the corner drugstore. Employees are patients, too, and can also benefit from the aforementioned counseling and appropriateness criteria that external pharmacies may not be able – or incentivized – to offer.

Finally, if a hospital qualifies for 340B pricing, it behooves them to explore it as a competitive advantage that reduces drug costs. Retail contract pharmacies that are eligible for 340B pricing can track ROI as high as 15 percent.

Where to Invest in a Retail Pharmacy

Start-up costs for a retail pharmacy can start at around $200,000, and many organizations may choose to hold off on this type of investment if there are pressing financial concerns. Industry experts can help build the business case for a retail pharmacy and align it with population health goals to show how capitalizing on this business supports patient access and satisfaction.

Like a specialty service line in the hospital, the retail pharmacy serves as a strategic growth opportunity to maximize revenue while enabling quality outcomes. It’s not enough to open a retail pharmacy and hope customers take notice. Leaders should dedicate resources and infrastructure to grow this line of business and continue pulling additional volume in.

Running a retail pharmacy requires a different set of skills than those honed by an inpatient acute care pharmacist. The most successful outpatient pharmacies bring on a leader or team with experience in the retail pharmacy space who understand the specific operations of a retail setting.

It’s also important to create stickiness by increasing conversion rates over time. At the onset, a retail pharmacy may only capture 40 percent of prescriptions written in the hospital. An organization should aim to grow that by 5 percent every year, especially as drug reimbursement may only go up 2 to 3 percent a year. This requires a strong growth plan –– as well as education among clinicians, staff, patients and employees.

Finally, leaders should focus on purchasing basics to ensure the new drug purchasing dynamics don’t detract from the bottom line. By regularly surveying their purchasing data, leaders can ensure they buy on best contract; monitor for accuracy of the contracted price; and manage contract stipulations to meet demand, including collecting failure-to-supply credits when the supplier has to substitute with alternatives.

The Next Horizon: Scaling for Success

The retail pharmacy landscape has shifted tremendously over the last five years, and success today will rely more on how well a retail pharmacy weathers ongoing market consolidation and continuous price increases. This is best accomplished through scale. Hospital-based pharmacies should regard their operations in the same way that a competitive pharmacy would, aiming for efficient operations.

Opportunities for scale include:

  1. Additional locations: Once an organization has an established retail pharmacy, the health system should consider how to expand to additional locations, perhaps adding one within an outpatient medical office building with high patient volume.
  2. New patient populations: Rather than rely on their own patients and employees as a sole source of pharmacy revenue, health systems can consider a joint venture or partnership with a local employer to bring its pharmacy services to new populations.
  3. Mail-order: Many patients are already utilizing pharmacies for regular refills on items ranging from vitamins to chronic disease management medications, and a mail-order service lets patients easily fill or refill prescriptions from home. For health systems with the bandwidth to expand operations, mail-order pharmacies can convert and create stickiness among customers.

Future financial success will require organizations to maximize all potential sources of new revenue while continuing to reduce costs. Learn more about how to do so in our ebook, Six Keys to Achieving Your Margin Improvement Goals.

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