How to Work With a Drug Wholesaler.

These suppliers can be a money-saving resource

Just as the nursing home industry landscape has changed tremendously over the past 15 to 20 years, so too has the way nursing homes procure their medications and medical supplies. Up until the early 1980s, most nursing homes were locally and independently operated, with simple systems for procuring supplies from local retailers. Today, as nursing homes become larger entities servicing a diverse base of patients--who have an equally diverse range of medication needs--purchasing medications and medical supplies has become more complex.

The changing regulatory landscape adds still another level of complexity. Restrictions on Medicaid and Medicare reimbursement, increases in the amount of paperwork under Schedule 4, the restructuring of the payment process, and dealing with staffing shortages and lower profit margins all leave nursing home managers feeling strapped, in trying to offer the highest quality of care.

The nature of the pharmaceutical supply chain has also become more complex and competitive. Pharmacy providers who supply the nursing home industry face many challenges. The United States is suffering from a severe shortage of licensed pharmacists, and the high salaries offered by many of the country's leading chain drugstores are diverting the talent pool away from the Pharmacy operations that serve the long-term care industry. Meanwhile, drug manufacturers are pumping a dizzying array of new, high-cost pharmaceuticals into the supply chain, adding more strain to the already tight budgets of nursing homes and their pharmacy providers.

Managing the Supply Chain

Today, many nursing homes are using large corporate pharmacy providers, sometimes located a great distance away, making it even more important for facilities to manage the supply chain well. The primary component of this supply chain is the relationship the pharmacy providers have with drug wholesalers. Traditionally, pharmacy providers use only one or two wholesalers for the bulk of their medications and maintain minimal on-site inventory.

To understand, maximize and manage their dealings with pharmacy providers and their overall supply chains, nursing home managers should understand the tools wholesalers offer and the basic differences among them. The vendor marketplace breaks down into three main groups:

Large wholesalers are generally national companies with a wide-reaching sales presence. They can be considered one-stop shops, carrying a full line of products, thanks to large allocations from major manufacturers. Large wholesalers usually service all pharmacy markets, including retail, hospital and alternate-site pharmacies. They have a strong corporate infrastructure for procurement, information technology and contract management, which helps them to offer a variety of value-added services to pharmacy providers and their nursing home clients. In addition, their services are often bolstered by ties with specialty suppliers, packagers, distributors of medical and surgical supplies, and technology companies.

On the down side, smaller nursing home providers might get "lost" within the bureaucracy associated with many large wholesalers and might feel they don't have the large economies of scale needed to maintain competitive deals.

Small wholesalers are typically regional or local companies, many of which do not carry a full line of products, services or systems. Compared to large wholesalers, they usually don't service all market segments, have less robust infrastructures and have fewer ties with specialty suppliers and other service providers; thus, they are limited in the value-added services they can provide.

Despite these possible drawbacks, smaller LTC and pharmacy providers often feel they have more leverage with smaller wholesalers, and smaller wholesalers are typically known for their high level of personalized service.

"Boutique" or specialty distributors, like small wholesalers, are usually regionally focused. Instead of carrying a full line of products and supplying to a variety of market segments, these "boutiques" traditionally focus on specialized, hard-to-find pro ducts. Most of these rely heavily on wholesalers for their products, and pricing for these products can be inconsistent. Additionally, their lack of systems and value-added services can put the onus of managing the procurement process squarely on the nursing home.

Evaluating Your Pharmacy Provider's Wholesaler

When evaluating pharmacy providers, ask the following questions:

Does your provider's wholesaler have a dedicated focus on nursing homes? Long-term care facilities might not be on the radar screens of large wholesalers--which tend to focus primarily on retail or hospital pharmacy sectors, and service nursing homes and other alternate-site pharmacies on a maintenance-only basis. Your provider should be doing business with a wholesaler that actively markets products, programs and services developed exclusively for nursing home pharmacy providers, and does so with a sales force dedicated to the long-term care industry.

Those wholesalers that are clearly trying to force-fit retail programs into the nursing home sector might not be able to meet a nursing home's needs. Nevertheless, wholesalers' experience in the hospital or acute care sector shouldn't be completely discounted. Often, expertise with the vast array of offerings used in acute care settings translates well to the nursing home industry.

What are the size and product mix of the wholesaler's inventory? The pharmacy provider's wholesaler should have a large, active inventory (20,000+ SKUs) and a broad base of acute, alternate-site and retail customers. Ask to see a listing of the wholesaler's primary customer base. If leading healthcare providers are primary customers, chances are good that the wholesaler will have the products to fill your needs, as well.

Does the wholesaler offer consistent service? Consistent, knowledgeable representation means better service and support. Your wholesaler's representative should know you and your pharmacy provider by name, not just by account number. In addition, ask about the Location of the wholesaler's warehouse(s). Nursing home chains with locations in a variety of regions should make sure the wholesaler can back up its local presence with regional and national support. A consistent supply level helps nursing homes and their pharmacy providers manage their costs, as well.

Do you understand the wholesaler's contract management systems? A robust contract management system is imperative. Does the wholesaler's ordering system drive users to purchase contract-specific products at contract pricing? Are there tools available to further drive compliance? The bottom line is that the wholesaler's system must show a contract product, even if the local distribution center is not currently stocking it. Check with the wholesaler's references and others in the pharmacy community to see how well the wholesaler maintains its contract files with group purchasing organizations (GPOs), as well as its contracts negotiated directly with manufacturers.

What kind of inventory management and reporting systems does the wholesaler offer? Strong order entry, inventory management and reporting systems are crucial to maintaining your profit levels. Ideally, the wholesaler will provide an extensive array of both corporate-level reporting for data sharing and compliance and reporting on an individual location basis. At the minimum, the wholesaler should offer computerized (or online) order entry and order checking, usage reports, pharmaceutical contract compliance analysis and access to essential product information, such as generic and therapeutic cross-referencing. Interfacing with numerous pharmacy management and automated dispensing systems are additional features to look for.

What sort of relationships does the wholesaler have with GPOs? The wholesaler should have good relationships with and receive good referrals from GPOs. Be wary of wholesalers who actively compete against their customer base and GPOs. Clearly, smooth GPO dealings between you, your pharmacy provider and the wholesaler are key to maintaining your profitability in the opportunity they offer to maximize your contract savings.

What sort of support does the wholesaler offer for drug formularies? Your pharmacy provider's wholesaler should provide strong transactional information to help you understand the cost differences among various options.

How does the wholesaler help to reduce or eliminate problems associated with medication errors? Nursing home residents use an average of eight medications per day. Industry estimates pinpoint the cost of medication-related problems in nursing homes to be about $4 billion annually. Your pharmacy provider's wholesaler can help reduce your professional liability via solutions such as inventory management systems with automated order checks; unit-of-use medications that are prepared in their final dosage and usage forms; coordination of payer authorization; and drug utilization review (DUR) and drug use evaluation (DUE) services.

What drug packaging options does the wholesaler offer? Prepackaged medications can help to streamline the drug dispensing process and reduce errors. Since the bulk of prescription medications taken by nursing home residents are "maintenance meds," providing punch cards, calendar cards and other unit-of-use packaging means less work for pharmacists and other healthcare workers--and fewer opportunities for dispensing mistakes.

Does the wholesaler offer a private label program for over-the-counter, healthcare and beauty care items? In addition to supplying prescription medications, the wholesaler should be able to supply your residents with low-cost, reimbursable items such as high-quality shampoo, toothpaste and incontinence products.

An Ongoing Relationship

Finding a pharmacy provider that is serviced by the right wholesaler is the first step toward reducing administrative and physical operating costs, while maximizing the care you provide to your residents. To maximize the provider/wholesaler relationship, ongoing communications are key.

Conduct quarterly business reviews with your pharmacy provider and wholesaler to analyze the management tools and reports made available to you. You should be reviewing achievements against measurable goals and objectives, such as inventory turns or contract compliance.

Take advantage of the inventory management, contract compliance, and other tools and systems available from the provider and wholesaler, and make sure that the appropriate staff in your facility are trained in their use.

Finally, make sure your provider and its wholesaler are telling you about their new tools, systems, programs and services as (or before) they become available. As with any business relationship, your relationship with your provider and its wholesaler will only be made stronger by consistent communication and feedback.

Alan Clock is vice-president, Alternate Sites & Marketing, AmeriSource Health Corporation, Valley Forge, Pa. For further information, call [phone].