Becoming A Long-Term Care Pharmacy - Join Health Mart

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Becoming a Long-Term CarePharmacyOpportunities and Important Considerations

Becoming a Long-Term Care Pharmacy:Opportunities and Important ConsiderationsThe challenges for independent retail pharmacies are well known: reimbursement continues todecrease, margins continue to decline and the large national chains continue to flex their muscles.Owners of independent pharmacies — who are entrepreneurial by nature — are reinventing the businessof pharmacy, providing new types of services like medication therapy management and medicationsynchronization. In addition, retail pharmacies are exploring new growth opportunities and lookingto diversify their revenues, with particular interest in high-margin, growing markets. Because of theopportunities presented, one area of significant interest is long-term care (LTC) pharmacy.

Long-Term CareLong-term care consists of a continuum of medicaland/or social services outside of hospitals, designedto help those with chronic care needs or disabilities.Services may be short- or long-term, and may beprovided in individuals’ homes or in residentialsettings, including skilled nursing and assistedliving facilities (Figure 1). About 11 million peopleage 18 and over receive some type of long-term careservices each year.1increase dramatically. Consider the following:40% of individuals who reach age 65 will needto enter a nursing home during their lifetimes.In 2005, there were 37 million Americans age65 or older, but in 2050 this group is expected tobe 81 million. In 2012, there were about 9 millionAmericans age 65 or older who needed long-termcare services. It is projected that by 2020, this willbe 12 million. 2While the resident profile and length of stay varyfor every facility, most long-term care residentshave multiple comorbidities and are on numerousmedications. The “typical” skilled nursing facility(SNF) resident is female and over the age of 85.With America’s aging population and with theincrease of chronic conditions such as diabetes andheart disease, the number of Americans expectedto require long-term care services is projected toIn 2012, there were about 58,500 regulated longterm care service providers in the U.S., about twothirds of which provided care in residential settings;37.8% (22,113) were residential care communities,such as assisted living facilities; and 26.8% (15,678)were nursing homes. 3 Together, nursing homesand assisted living facilities have about 2.8 millionbeds. (On average, a nursing home or assisted livingfacility has 80 to 100 beds.)Figure 1. Reimbursement Process for Medications in LTCHospitalClosed SystemSubacute CareSkilled NursingAssisted LivingHome Healthcare Skilled Home Care Physicians RehabilitationsSpecial CareClosedSystem Dementia Alzheimer’sHospiceIndependent LivingHome SupportActive Adult LivingSenior’s Home Home Health Aids Homemaker Home MaintenanceData on file. MatureHealth Communications.The Alliance for Quality Nursing Home Care. Trends in Post-Acute and Long-Term Care. September 2009.1

LTC PharmacyNearly all long-term residential facilities offer sometype of pharmacy or pharmacist services, includingmost nursing homes (97.4%) and residential carecommunities (92.6%), though most turn to anexternal, unaffiliated pharmacy for medication andconsultant services.Whether a pharmacy is open- or closed-door, thereare certain services it must provide when partneringwith skilled nursing facilities. Pharmacy servicesin SNFs are mandated by the federal government— these services must be provided by a registeredpharmacy. The regulations in place for pharmacyservices were passed in the 1987 Omnibus BudgetReconciliation Act, which provided guidance on howmedications must be monitored and administered.This includes having the ability to provide routineand emergency drugs and biologicals, and usinga licensed pharmacist to provide consulting anddispensing services.4The core groups of services that must be providedby long-term care pharmacies include: 2Prescription processingDispensing and deliveryMedication administration and managementReturn, reuse and disposal of medications“Spurred by an aging Baby Boomerpopulation, this market [long-termcare and long-term care pharmacy]continues to be one of the fastestgrowing segments of healthcare.”7– MHA Independent Long-Term Care Study,In addition, to service LTC facilities, pharmaciesmust maintain an “urgent kit” and be able to respondto emergency orders 24/7.There are currently a few major corporations servingthis market, but there are over 1,100 independentLTC pharmacies.5 Managed Health Care Associates,Inc. (MHA) defines independent LTC pharmacyas a closed-door pharmacy (more on closed-doorpharmacy below) that serves residents in nursinghomes and skilled nursing facilities, assisted livingfacilities, mental health or developmentally disabledfacilities, hospice settings, or correctional facilities.6With expected continued growth in the number offacilities, beds and residents, the prospects for growthof LTC pharmacies remain significant.

Profile of an Independent LTC PharmacyHere are some important facts about independentLTC pharmacies from MHA’s 2014 and 2015 studies:8- T he average independent LTC pharmacy ownedor operated one pharmacy in one state and hadrevenue of less than 5 million.- T he average independent LTC pharmacy dispenses12,369 prescriptions per month.- On average, residents receive 12 prescriptions permonth (3 branded and 9 generic). The numberof prescriptions per resident and the percentagethat are generic have grown. However, 71% of totaldrug spend is on branded products and only 29%is on generics.- With 12,369 prescriptions per month and 12prescriptions per resident, this means the averageLTC pharmacy is serving about 1,030 residentsper month.- The average independent LTC pharmacy is serving10 to 13 facilities, with 80 to 100 residents per facility.- On average, residents used three to five OTC itemsper month.- Eighty-two percent experience 8 or more inventoryturns per year, 60% have more than 12 turns peryear and 38% have more than 15 turns per year.The average cost of goods sold (COGS) is between61% and 70%, meaning that gross margins arein the 30–40% range, with variation based ongeography and the types of facilities served.- The average independent LTC pharmacy employedbetween 9 and 40 FTEs, and for 65% of surveyrespondents, payroll comprised from 10% to 20%of sales.- Delivery costs average 2–3% of gross sales and baddebt write-offs average 1–2% of sales.In summary, the long-term care market is substantialand is projected to continue growing for years tocome. Because LTC facilities must provide drugsto patients, a relationship with a long-term carepharmacy is essential. For pharmacies to workwith skilled nursing facilities, specific services arerequired. Yet with the average facility housing 100residents, with each resident taking approximately12 prescriptions per day, and with gross margins of30% or even more, LTC pharmacy can represent asignificant, attractive and growing opportunity.Figure 2. Prescriptions Dispensed into LTC Settings per Resident per Month: 2011–201520112012201320142015Total : MHA Independent Long-Term Care Member Study, 2014, citing PDS.3

The Growing Importance of LTC PharmacyAs part of the Affordable Care Act (ACA), in 2012,the Centers for Medicare and Medicaid Services(CMS) introduced the Hospital ReadmissionReduction Program. The goal of this program is toimprove quality and decrease healthcare expensesby reducing unnecessary and often expensivehospital readmissions. The idea is to create financialincentives — in the form of penalties — for hospitalswith above-average rates of avoidable readmissions.As was written in a recent Kaiser Health News story,“The federal government’s penalties . . . are intendedto jolt hospitals to pay attention to what happensto their patients after they leave.”9 In October 2014,2,610 hospitals received penalties for excessivereadmissions. As a result, hospitals are increasinglyfocused on strategies to reduce avoidable hospitalreadmissions.“LTC pharmacies will need todevelop more extensive medicationmanagement programs to meet theneeds of facilities.”— Mark Prifogle, CEO,GrandView Pharmacy, Brownsburg, INThis is relevant for long-term care facilities becauseapproximately 40% of hospitalizations of Medicarebeneficiaries end in discharge to a skilled nursingor rehabilitation facility, and roughly 20% of thosedischarges result in a hospital readmission.10 SNFexecutives recognize that working with hospitalsto reduce readmission rates is critical to future4relations with hospitals, which are an importantreferral source. Hospitals want SNFs to implementhigh-quality programs and services that keepresidents in the facility. Particularly important topreventing readmission are the first 48 hours aftera resident is transferred to a facility.LTC pharmacies are being approached by facilitiesto play a greater role in the transition of care, asissues involved that cause readmission are oftenmedication-related. To support SNFs in reducingreadmissions, LTC pharmacies are:- Ensuring medications are appropriate, availableand delivered in a timely fashion, particularlyat admission.- Monitoring residents, which may includemedication reconciliation and counseling toimprove adherence and minimize complications.- Providing extensive medication management andreviews at arrival and discharge.- Dispensing medication at the time of discharge foruse in the community for up to 30 days. Some SNFsare requesting that their LTC pharmacies continueto dispense and closely monitor residents for upto 30 days post discharge.- Occasionally providing infusion therapies andsupplies to minimize the need to send residentsback to a hospital when infusion care is required.Because of the growing importance of LTCpharmacies in the care process, facilities arechoosing their pharmacy partners carefully, basedon the pharmacy’s commitment to quality andservice capabilities.

Options for Retail Pharmacies to Enter the LTC MarketThe most common way in which retail pharmaciescan pursue the LTC opportunity is to simply startservicing nearby LTC locations. This can be done asan open-door pharmacy, which is essentially servingLTC facilities and residents out of an existing retailpharmacy. It involves purchasing from the samesources, off of the same contracts, and using the samelicense, facilities and computer systems. It does notrequire managing separate inventories. It is the fastestand easiest option, and requires the least investment.However, some owners will choose to pursuethe LTC opportunity by establishing a separateclosed-door pharmacy location. Closed-door LTCpharmacies are able to benefit from purchasingand reimbursement advantages that are notavailable to open-door pharmacies.Some retail pharmacies may also consider diversifyingtheir revenues by exploring other opportunitiesrelated to long-term care, such as the home infusion orspecialty pharmacy markets. Each of these representspotential areas of growth; however, each is differentfrom the LTC pharmacy opportunity, with differentlicensing and manufacturer criteria, reimbursement,contracts, operational and credentialing requirements,and service offerings. For the purposes of this guide, wewill focus our attention on becoming an LTC pharmacy.Closed-Door LTC PharmacyA closed-door pharmacy is a pharmacy that isnot open to the general public, and that providesmedications to patients residing in various settings,most commonly long-term care settings includingskilled nursing and assisted living facilities.Importantly, closed-door pharmacies must haveseparate licenses from an existing retail pharmacyand must keep separate inventory. The closeddoor pharmacy must have a separate address andphysical entrance from a retail pharmacy, with noconnecting doors, windows or passageways.11Basically, a closed-door LTC pharmacy operatedby a retail pharmacy may be under the same roof,but is essentially two pharmacies operated ascompletely separate entities. Often, closed-doorpharmacies for LTC are created by adding onto aretail store; in other instances, a closed-door LTCpharmacy is a stand-alone business, without anyconnection to a retail pharmacy.Among the specific advantages of setting up aclosed-door pharmacy for LTC are: P articipating in a high-growth, higher-marginmarket with significant growth potential. G etting access to a broad portfolio of brand andgeneric pharmaceuticals and accessing nonpharmaceutical contracts, specific for closeddoor pharmacies. E njoying financial advantages of enhancedreimbursement from Medicare Part D contracts,which would only be available to closed-doorLTC pharmacies, and access to pricing discountsas well as rebates. B eing able to participate in special programsjust for closed-door LTC pharmacies. Anexample is McKesson’s OneStop GenericsAlternate Site Pharmacy program, which offersspecial products, packaging sizes, pricing andpromotions specifically designed for closeddoor LTC pharmacies.What Is a Combo Pharmacy?The term “combo” is used in variousways and means different things todifferent people. In general, when peoplerefer to a “combo pharmacy,” they usuallymean an existing retail pharmacy thatuses its retail license, receives retailrates, is treated as a retail operation, butserves some LTC patients. This is verydifferent from the separate licensing,pricing and contracts of a closed-doorpharmacy for LTC.5

Considerations in Establishing a Closed-Door LTC PharmacyWhile the margins from a closed-door LTC pharmacy can be attractive (especially in comparison to aretail pharmacy) and the opportunity can be significant, establishing a closed-door LTC pharmacy takesinvestment and careful consideration. Among the many important considerations in establishing aclosed-door LTC pharmacy are: L icensing considerations and regulatoryrequirements.- Obtaining separate licenses. Simply servinglong-term care facilities does not necessarilyrequire that a retail pharmacy get differenttypes of licenses, but opening and operatinga closed-door LTC pharmacy does requireentirely separate licenses. This includes alllicenses and permits from the DEA, as wellas separate NPI (National Provider Identifier)and NCPDP (National Council for PrescriptionDrug Programs) numbers.- Meeting state and federal requirements.Closed-door LTC pharmacies must meet allstate board of pharmacy requirements.(A link to all state boards of pharmacy isprovided here. Each state’s website hasinformation about the board of pharmacyrequirements for that state.) They mustalso meet CMS requirements if servicingMedicare patients in a long-term caresetting. CMS’ requirements include that allbranded drugs be dispensed in quantitiesof 14 days or less, having 24-hour on-callcapabilities, providing delivery services,and being able to provide consultations, suchas monthly chart reviews.6 Financial and reimbursementconsiderations. Margins for closed-door LTCpharmacies may range from 7% to 35% basedon the geography, population served, numberof beds served and product mix. Importantfinancial considerations include:-S ources of payment. Closed-door LTCpharmacies receive payments from facilitiesfor Medicare Part A and Medicare AdvantagePlan residents; from prescription drug plans(PDPs) for Medicare Part D prescriptions;from Medicaid for selected medications usedin the facility; from commercial and privateinsurance; and from residents’ out-of-pocketor private pay.- How an LTC pharmacy makes money.LTC pharmacies make money throughmedication costs, dispensing fees andprofits based on the facility charge, minusthe acquisition cost and rebates. Medicationcosts and dispensing fees are similar forclosed-door LTC pharmacies and open-doorpharmacies, but the profits based on facilitycharges are different because the costs of aclosed-door pharmacy may be very differentfrom an open-door retail pharmacy. Rebatesare determined through contracts that aclosed-door pharmacy may have with aGPO, a pharmacy network, a wholesaler ora manufacturer.

- Pricing for closed-door LTC pharmacies.Pricing is different for LTC compared toretail, and while pricing varies from stateto state, reimbursement is often higher inLTC. Fee-for-service is used for MedicarePart A and Medicare Advantage Plans, andPart D reimbursement; pricing is set throughcontracts with the facility, PDP or purchasingorganization. Compared to retail pharmacy,90-day supply is unusual in long-term care,though not unheard of. Also, special pricingfor selected medications, such as 4 generics,is a price promotion that is not done in LTCpharmacy. Currently, branded medications arereimbursed based on Average Wholesale Price(AWP) minus 10% to 20%, plus a dispensingfee. Generics may be reimbursed based on AWPminus a percentage plus a dispensing fee, orusing the Maximum Allowable Cost (MAC),set by each state, plus a dispensing fee.- Purchasing for closed-door LTC pharmacies.One of the most significant advantages ofbecoming a closed-door LTC pharmacy isa purchasing advantage. Through variouscontracts that are not available to retailpharmacies, closed-door LTC pharmacies canaccess a broad portfolio of brand and genericpharmaceuticals and participate in variousdiscounts and rebates. However, accessingthese purchasing and contracting benefits mayrequire participating in a group purchasingorganization that serves the closed-door LTCmarket. Whether to participate in a GPO andwhich one are important considerations.- Additional investments and costs for LTCpharmacies. Owners of retail pharmaciesare often curious when learning about thereimbursement, margins and growth ratesfor LTC pharmacies. However, in additionto requiring separate licensing and space,LTC pharmacies also require expert staffing(such as consultant pharmacists), specializedsystems to serve LTC, and unique capabilitiessuch as 24/7 delivery capabilities. Creatingthese capabilities typically takes investment,which can require capital for growth.Figure 3. Reimbursement Process for Medications in LTCMedicarePart A andMedicareAdvantagePlans(Short Stay)FacilityMedicaidComm/PrivateInsurancePrivate PayMedicare Part D(After Day 100)PDPOut-of-Pocket Co-Payand “Spend Down”MedicarePart DLTCPMedicarePart AGPOWholesalerData on file. MatureHealth Communications. Stevenson DG, Huskamp HA, Newhouse JP.Medicare Part D, Nursing Homes, and Long-Term Care Pharmacies. June 2007. No 07-2.7

Packaging considerations. CMS encouragescompliance packaging, which requires beingable to provide unit dose, multi-dose, andbingo-card packaging. According to a 2013study conducted by NCPA’s LTC Division andthe Virginia Commonwealth University (VCU)School of Pharmacy, 23% of all doses suppliedto LTC facilities were in 14-day or less cyclesand 76% were dispensed in 28- to 31-day cycles.Complying with these packaging requirementsincreases dispensing costs — which NCPAhas found are 25% higher for LTC facilitiesthan traditional retail pharmacies12 — and canrequire significant investment. The NCPA/VCU study found that most LTC pharmaciesuse automated medication packagingtechnology, heat and cold package sealers, barcode systems, sterile compounding hoods, LTCprinters or labels, and electronic prescribing.13Note: Beginning January 2013, CMS requiredall pharmacies dispensing prescription drugs toLTC facilities (both open-door and closed-doorpharmacies) under Part D plans and MedicareAdvantage plans to dispense solid oral doses ofbrand-name drugs in no greater than 14-dayincrements. This may be extended to generics inthe future. In February 2015, CMS revised theterms of its rule requiring efficient dispensingof prescription drugs to Part D enrollees in LTCfacilities. The original rule, which was intendedto reduce medication waste, had led some PartD sponsors or their PBMs to prorate monthlydispensing fee

Options for Retail Pharmacies to Enter the LTC Market Closed-Door LTC Pharmacy The most common way in which retail pharmacies can pursue the LTC opportunity is to simply start servicing nearby LTC locations. This can be done as an open-door pharmacy, which is essentially serving LTC facilities and residents out of an existing retail pharmacy.

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