Owning an In-Network Pharmacy and a second Out-of-Network Pharmacy that Performs Compounding May Lead to a Battle with PBMs.
Here are some suggestions on how to Avoid being Terminated from the PBM Network.
The number of compounding pharmacies is on the rise because of the profitability of compound prescription reimbursement received from cash paying customers. Often, a pharmacy owner will own two pharmacies, one in-network and a second out-of-network pharmacy to do the compounding. The out-of-network pharmacy can avoid the reduced PBM reimbursement for compounding because the cash paying customer will pay more than the Pharmacy Benefits Manager (PBM).
PBMs have addressed this issue by amending their agreements to require that pharmacies fill compound prescriptions with the in-network pharmacy when such pharmacy is “affiliated” with an out-of-network compounding pharmacy. The term “affiliated” is rarely defined by the PBM. Nevertheless, PBMs threaten the in-network pharmacy with termination from the network if it refuses to fill compound prescriptions at the in-network store. Obviously the in-network reimbursement rate for the compound often barely compensates the pharmacy for the cost of ingredients. Owning two pharmacies can be legitimate and following basic ground rules may increase the chances of successfully maintaining two stores.
If you are an in-network pharmacy owner that also happens to have an ownership interest in an out-of-network compounding pharmacy, proper planning may ensure that your in-network pharmacy is not subject to termination from a PBM’s network. The key to successfully defending against a PBM’s threat of termination is to demonstrate that the two pharmacies are separate and distinct entities, each of which is self-sufficient. There are several steps you can take to establish that the two pharmacies are not affiliated including:
- Attention to corporate formation, such that there is no legal relationship between the pharmacies (avoid parent/subsidiary relationship);
- Do not perform any compounding at the in-network pharmacy;
- Maintain separate business locations. If you cannot maintain separate locations, establish separate entrances to the pharmacies and separate work areas (e.g., walls separating the two pharmacies, separate counter-space, etc.).
- Maintain separate infrastructure, including separate telephone numbers, facsimile numbers, web sites, and e-mail addresses;
- Hire separate employees and maintain separate payroll;
- Keep separate corporate books, records, meeting minutes;
- Maintain separate inventories and equipment;
- Establish separate tax identification numbers;
- File separate tax returns; and
- Obtain separate DEA licenses.
This is not intended to be an exhaustive list. If your in-network pharmacy is being threatened with termination from a PBM’s network, Contact Us. We can help.