How Your Healthcare Revenue Cycle Is Affected When You Add a Specialty Pharmacy

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Adding a pharmacy to a health clinic has increased in popularity recently, but it’s important to consider the impact it will have on your revenue cycle before making the decision.
Adding a pharmacy to a health clinic has increased in popularity recently, but it’s important to consider the impact it will have on your revenue cycle before making the decision.

Working with so many healthcare organizations on facets of revenue cycle management like billing and practice management over the years, we know industry trends can have huge impacts on our clients. From regulatory changes to new technology advancements, changes in the industry affect how our clients do business.

Acquiring or launching a specialty pharmacy practice is one trend we’ve been keeping our eyes on recently. It has grown in popularity due to soaring drug prices. Has your practice thought about how acquiring or building a pharmacy practice might impact your revenue cycle in the short and long term?

Benefits of Acquiring or Launching a Specialty Pharmacy

The trend of pharmacy growth didn’t come about in a vacuum — like most healthcare trends, it grew to fill a gap.

In 2014, the United States spent $124.1 billion on specialty drugs, up from $98.1 billion in 2013. Despite an average growth for pharmaceuticals of 20 percent a year, hospitals fill their own prescriptions less than 20 percent of the time, and clinics and outpatient services are often comparable. This highlights a sizeable gap where practices who might need specialty drugs for patients or procedures are putting a significant portion of their revenue at the mercy of a third party that is not bound by payer contracts or rates.1

Healthcare organizations expect to see varying degrees of three things upon first building or buying a specialty pharmacy practice:

  • Improved care coordination
  • Revenue boost
  • Lower internal pharmaceutical spend

Bringing a pharmacy in-house, by most measures, helps healthcare practices increase control over more aspects of their costs. At the same time, they have the opportunity to improve care coordination for patients — records are held in the same electronic health record (EHR) system, and everything is more streamlined from the patient’s end.2

The same high drug costs that initially bedeviled the clinic can now become the avenue through which that same clinic quickly recoups its investment, even if it charges for its own drugs at a low margin. The practice’s overall pharmaceutical spend should go down as well, and providing drug cost support to employees becomes less of a revenue cycle burden.

Potential Legislative Action in the Future Could Signal Slowdown

All of the benefits are real, of course, but they are mostly predicated on astronomical and potentially unsustainable drug prices. All practices need to keep an eye on the legislative landscape surrounding drug pricing.

Recent high-profile cases of price gouging in the pharmaceutical industry have put drug costs squarely in the crosshairs for legislators at every level of government. If your organization’s acquisition or development plan for a specialty pharmaceutical practice hinges on being able to charge high prices once the practice is in place, we caution you to fully investigate your market, including potential future legislation.3

Buy It or Build It? Pros and Cons of Each Approach for Your Revenue Cycle Management

Of course, medical practices are interested in adding specialty pharmacy service lines to combat those drug costs in the first place and have no plans to enter the drug price wars. Controlling all aspects of care from service to prescription means providers can also reduce waste. If your practice wants to look at incorporating a specialty pharmacy practice, there are a few major planning items your leadership and revenue cycle team should evaluate.

The first step is to decide whether you’ll acquire an existing practice or build one from scratch. If you decide to build a practice from scratch, here are a few key items to consider from a revenue cycle standpoint:

  • Costs will be less predictable. Acquiring a pharmacy involves one major transaction and brings in an asset that usually has a track record of costs and expenses, which should help you model revenue impact. Building a pharmacy can be less predictable regarding upfront costs and modeling revenue.
  • You won’t have to integrate or rebuild existing systems. A major advantage of building a practice is that you can immediately incorporate your existing revenue cycle management, billing, and electronic health systems. No need to implement and educate staff on new systems.
  • All hires are yours. Sometimes, the most fraught part of an acquisition is figuring out a transition plan for the existing leadership and staff structure. Especially if you place a high value on your organizational culture of revenue cycle responsibility for every role, building from scratch can ensure that your pharmacy practice staff fits in right away.4

If you decide to go the acquisition route, you’ll need to consider different revenue cycle-affecting elements. Ensure that you:

  • Take a look under the hood. If you decide to go the acquisition route, be prepared to review and assess all aspects of the pharmacy like you would any potential physician practice acquisition. This includes finances, contracts, staff, leadership, and existing billing and revenue cycle practices.
  • Plan for integration. Existing entities come with existing systems, staff, contracts, and more. If everything checks out with your acquisition, make sure you create a detailed plan for merging, replacing, or integrating all relevant systems. This includes EHRs, billing systems, and working with your revenue cycle management partner to prepare for the transition.
  • Communicate internally. Adding a specialty pharmacy means practical changes for your clinicians and staff. Make sure you inform and educate everyone about how the specialty pharmacy will work with their practice and what kinds of services they can expect to be able to use. Preparing your specialty pharmacy to work with your existing departments can also smooth the way by creating guidelines for how to handle internal situations.

Ultimately, acquiring or building a specialty pharmacy practice can be a swift revenue boost with relatively low initial cash outlay and overhead, and a host of benefits. If your organization has a clear plan, has researched the market, and is seeing a consistent and stable revenue cycle, you may be equipped to strike while the pharmaceutical iron is hot and add a specialty pharmacy.

Physician Revenue Navigators is a leading healthcare revenue cycle management partner. Contact us to learn more about how we can help your organization prepare for launching or acquiring a specialty pharmacy practice. We also assist healthcare entities of all types with workflow review, practice management, medical billing and practice bookkeeping, A/R, accounts payable, staffing, and more.

Show 4 footnotes

  1. Melanie Evans, “Hospitals Launch Specialty Pharmacies to Curb Drug Costs,” Modern Healthcare, Dec. 12, 2015, http://www.modernhealthcare.com/article/20151212/MAGAZINE/312129963/hospitals-launch-specialty-pharmacies-to-curb-drug-costs; Alaric Dearment, “Hospital Organization to Launch New Specialty Pharmacy Program,” Drug Store News, Sept. 10, 2013, http://www.drugstorenews.com/article/hospital-organization-launch-new-specialty-pharmacy-program.
  2. “The Growth of Specialty Pharmacy,” UnitedHealth Center for Reform and Modernization, April 2014, http://www.unitedhealthgroup.com/~/media/uhg/pdf/2014/unh-the-growth-of-specialty-pharmacy.ashx
  3. Jim Bonnette, “When a Pill Costs $1,000, How Should Providers Cope?” Advisory Board Company, Sept. 15, 2015, https://www.advisory.com/research/health-care-advisory-board/blogs/at-the-helm/2015/09/sw-drug-spending.
  4. Evans, “Hospitals Launch Specialty Pharmacies to Curb Drug Costs,” see reference 1.

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