Terms to know for Effective Distribution Management
This article is designed to clarify some of the complex terminology involved in pharmacy distribution, helping you navigate the details of contract prices and wholesale acquisition costs.
Watch the 3 minute intro to learn more:
Pharmacy Contract Price, Wholesale Acquisition Cost, and Acquisition Cost
The foundation of wholesaler optimization lies in understanding pricing structures:
- Pharmacy Contract Price: This is the price negotiated by your Group Purchasing Organization (GPO), wholesaler partner, or health system leadership. It’s crucial to know if an item is on contract and the type of contract, which can typically be confirmed in the wholesaler ordering platform.
- Wholesale Acquisition Cost (WAC): If an item does not have a contract, the price defaults to the WAC. This cost generally applies to non-contracted high-cost branded items.
- Acquisition Cost: Simply, this is what you pay for the product. It varies slightly among wholesalers but is essentially the price after negotiations and discounts.
If you suspect a discrepancy or an item not being correctly listed as contracted, it’s important to work with your GPO and wholesaler’s customer service.
Cost of Goods Discount (COG)
Understanding and calculating your Cost of Goods Discount is important to ensure you’re paying the correct acquisition cost. The COG is a percentage adjustment (increase or decrease) applied to your contract cost or WAC cost. The adjustment is influenced by many variables such as total spend, compliance with wholesaler programs, and the type of item purchased.
The percentage change formula below is used to calculate the cost of good discount.
%change = 100% x ((final cost – initial cost) / final cost)
For example, a -10% COG discount is given to an item if th acquisition cost (final cost) is $90 and a contract cost (initial cost) is $100.
-10% = 100% x (($90 – $100) / $100)
Watch Part Two to learn to more about credits and rebills, generic source programs and demand shift:
Credits and Rebills
Occasionally, contract pricing may need adjustments after initial billing, necessitating a credit and rebill process. This occurs when a previously purchased item’s contract is corrected, requiring the wholesaler to credit back your purchases at the incorrect price and rebill at the corrected price. Initiate this process by contacting your wholesaler representative when discrepancies are noticed.
Generic Source Programs
Generic Source Programs are designed to promote the use of generic medications through specific compliance requirements and incentives. Each wholesaler has its own identifier for these programs (e.g., 1 STP for McKesson, PRxO for Amerisource, and HPGSRC for Cardinal), helping you identify which products are included.
Demand Shift
A demand shift involves adjusting your stock preferences, perhaps due to changes in demand, cost, or supply issues. Communicate demand shifts in advance, because the wholesaler requires around four weeks to secure stock of the desired item.
Conclusion
It is important to cover the fundamental aspects of wholesaler channel management to be able to optimize for your organization’s needs. Understanding different costs, discounts, credits/rebills, generic source programs, and demand shifts are crucial for optimizing your pharmaceutical distribution strategy.
We invite you to learn more and continue to build upon these concepts. Also, remember how important it is to foster a relationship with your wholesaler representative. The wholesaler representative is a major resource for addressing concerns and ensuring your operations are as efficient as possible.
Feel free to reach out for more information and insights into managing your distribution needs effectively. We’re here to help you excel in your wholesaler operations.
Connect with the HealthTrust Pharmacy team or reach out to Bradley Merrill, PharmD, Director of Pharmacy Member Integration, directly at Bradley.Merrill@HealthTrustpg.com.
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