Wholesalers Secrets: Your Cost of Goods and Profitability

Source: Mehrdad Hariri, RPh, CPh, Founder of BonaRx

Have you looked at your Wholesaler Contract lately?

Wholesaler contracts are extremely complex. Although many primary vendor agreements are too long and not the easiest to read. Many pharmacy owners only see a few pages of a pricing exhibit before they sign. How do you know you’re getting competitive pricing if you don’t know everything in your contract?

Failure to understand the ins and outs of your contract leaves you vulnerable higher cost of goods and ability to get a lower cost which and the inability to add thousands to your bottom line.Learn secrets that are affecting your money now and utilize these secrets to a more profitable operation.

1. Shop your generic drug contract:

There is no standard pricing database for generics. Generic drug prices are mostly varied by wholesaler and the contract and the rebate based on that price.

If your percent rebate is based on wholesaler’s base price, the base price can greatly vary by the wholesaler. In addition, generic drug price changes several times a day which can make it even more complicated when looking at your cost of goods.

In order to know if you’re getting a good deal on generics, you must be aware of what other wholesalers are charging and/or what other pharmacies are paying. A pricing tool is useful in understanding whether you are getting the best deal from your wholesaler.

2. Substitutions may be costly

All the substitutions when the wholesaler is out of one brand can be costly.

These substituted products are likely not on your source list, which means you’ll lose the rebate and they don’t count toward your generic compliance and they’re usually 10-20% higher than your contract price.

To prevent this issue, turn off automatic substitution. That way you can review the order before you get the raw deal. Likely, you’ll be able to find the drug you’re looking for at a better price from other wholesalers with competitive pricing. Invest a few minutes daily reviewing cost and deals from a couple of generic wholesalers and watch for trends in generic drug pricing.

3. Brand discount can be tricky

Brand discounts are a method wholesalers use to make it more attractive to get your business. But getting those discounts doesn’t translate in saving you money.

Wholesalers has access to data and they need to earn a profit to continue to best serve their clients. Their loss on brands is offset by lower percentage rebates, higher generic prices, increased substitutions, and more.

4. Look out for mistake

Even with a contract price, mistakes happen. You might not be getting discounts that you signed up for, or items could be invoiced for the wrong price.

To prevent this seemingly undetectable loss, you’d have to become a master of your invoice, tracking every item that comes into your store and verifying that you are getting the discounts and prices you were promised.

5. Your actual cost can be complex

These are some those factors that could influence a pharmacy’s cost of inventory:

• Brand discount
• Brand discount based on volume
• Additional performance related incentives
• Current pricing
• Specified contract items
• Payment term
• Total dollar volume
• Percentage of volume
• Generic rebate based on Generic Compliance Ratio
• Generic rebate based on Generic dollar volume

To truly achieve the lowest cost of inventory, you need to fully understand the details of every one of these factors and you could be paying substantially more for your inventory than you should be if you don’t monitor.

6. Avoid costly choices

Habitually making suboptimal purchasing decisions is a pharmacy’s fastest path to business failure. Poor purchasing choices are perpetuated by failing to know exactly where you stand and exactly what effect every purchase has on your overall contract arrangement.