Retail Pharmacy Owners Are Switching to Long-term Care Pharmacies

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Many retail pharmacy owners are moving from retail pharmacy operations to long-term care pharmacy, affecting the retail pharmacy business model. There are many reasons for this change, but the largest is retail pharmacy reimbursement rates. Pharmacy owners rely on appropriate reimbursements to run their business. Paying employees, rent costs, and stocking appropriate inventory are just some of the many factors that go into running a functioning pharmacy. In this blog, we explore these factors and the effect they are having on retail pharmacy business.

What is a Retail Pharmacy?

Retail pharmacies operate in the typical fashion when someone says the term “pharmacy.” Retail pharmacies are open to the public; anyone can walk in and have a prescription filled. Most retail pharmacies also rely on sales of over-the-counter items and typically have offerings such as flu shots or other immunizations for added patient care and profit.

Key factors affecting the retail pharmacy business model

Competition and declining reimbursements have prompted many privately owned or independent pharmacies to sell their files to large chain competitors. Independent or smaller pharmacies that remain must find new ways to provide patient care and increase income to stay profitable. These pharmacies are often essential to the local population due to services not offered by the larger chains, such as delivery, personalized service (immunization in patient homes), and other services.

Another factor affecting retail pharmacies is the cost of prescription drug ingredients. While costs have increased (medications are costlier to purchase), reimbursements are steadily decreasing. Retail pharmacy owners are getting less medication for higher cost, and less money back from insurance companies. Therefore, may retail owners need to find alternate ways to earn enough to keep their money, and one of these methods is switching to long-term care pharmacy. With this change, greater reimbursements and less operating costs lead to a more financially productive model.

What is a Long-Term Care Pharmacy?

Long-term care (LTC) pharmacies service long-term care facilities. These types of facilities vary but can include skilled nursing homes, assisted living, and behavioral health. Different types of facilities require different types of pharmacy care. In comparison to retail, long-term care pharmacies do not offer items to purchase that are frequently available in retail pharmacies and do not typically provide immunization services.

However, depending on the need of the facility, the pharmacist in a long-term care facility may offer their services to give flu shots or sell flu vaccine to the facility as needed. That relationship will be between the owner and individual facility. Pharmacies that service long-term care homes must realize they are only one aspect of nursing home care. Other focuses include:

  • Payroll/appropriate staffing
  • Family visiting and interventions
  • Housekeeping/ensuring patients have appropriate needs met
  • Physical demands such as moving or bathing patients

For a long-term care pharmacy to be successful, they must incorporate an understanding of what the facility needs. STAT deliveries, after hours calls/questions, etc. must all be considered when setting up a relationship with an LTC facility.

Long-term care pharmacies are closed door, meaning patients cannot just walk up and receive their prescription from this pharmacy. That said, some pharmacies begin by dispensing their long-term care medications out of their retail site. While this is a great way to get started, the reimbursements are still processed at a retail level. Once a set volume is established (300 beds, etc.), a pharmacy can begin looking for a site to open a closed-door pharmacy, limited to only nursing home, behavioral health, etc., and work to better reimbursement.

Reimbursements for closed-door LTC pharmacies vary depending on the type of facility serviced. There are also buying groups that can assist with purchasing power for smaller LTC pharmacies. These companies also help with other aspects of LTC, such as:

  • Monitoring unpaid claims
  • Checking DAW codes
  • Looking for outdated NDCs processed
  • Assisting with verification of check payment received from insurance companies

Challenges in switching from retail pharmacy to long-term care pharmacy

Pharmacy owners face some challenges when switching from retail to long-term care pharmacy. Just some of these include:

  • Financing opening a new pharmacy with separate inventory
  • Having enough patients/facilities to fund this prospect
  • New staff and policies and procedures
  • Completion of licensing and state requirements
  • Potentially new pharmacy software
  • Different regulations vs. traditional retail
  • High delivery costs in long-term care pharmacy
  • Special packaging requires expensive machinery and automation
  • Skilled Nursing Facilities expect 24x7x365 operations

Retail pharmacy regulations are relatively straightforward and similar, no matter the site. Long-term care pharmacy regulations may vary depending on the type of facility services. For example, a pharmacy may service an assisted living facility and have pre-pack guidelines or other offerings set per facility need. However, skilled nursing services patients that require a higher level of care, and therefore, the pharmacist requirements are much more. This facility requires a consultant pharmacist, which a brand new pharmacy may not be able to afford. Therefore, many long-term care pharmacies begin by serving facilities such as behavioral health and assisted living, until the pharmacy has the financial resources to provide required services to skilled nursing facilities.

Long-term care pharmacies have many additional—and in some cases, expensive—equipment, setup, storage, and monitoring requirements to the care facilities they serve. Retail pharmacies considering the switch must research and may need to procure:

  • Remote-controlled dispensing machines;
  • Medical carts, IV poles, pumps and other hardware;
  • Medications (including vaccines and OTCs);
  • IV medications and feeding preps; and
  • Expensive and low-use medications.

The reasons why many retail pharmacy owners make the switch

The reality of traditional retail pharmacy is that lower reimbursements are causing financial concerns for owners. Many pharmacies are moving to different models, such as offering additional clinical services or even considering moving to long-term care. Pharmacy owners can choose to open a long-term care pharmacy without any facilities and grow to get business, but most take existing pharmacy business and move current patients to their long-term care pharmacy. Reimbursements in long-term care pharmacy are higher, stronger, and provide more profit per prescription. Overhead costs are less due to the closed-door model and no need to sell OTC merchandise that may sit on the shelf with no sales. The long-term care pharmacy model may take some research and initial investment, but it can be a much more profitable model than the traditional retail pharmacy model.

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