The Ins and Outs of Onsite Pharmacies (Part 1)

Terri Evans
Vice President, Employer Advisory Services
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If you are like most risk management professionals, the thought of opening your own pharmacy brings up a slew of questions and concerns. What are the laws, rules and regulations surrounding running a pharmacy? What kind of insurance products would be needed, and what level of self-insurance could we afford? Do I have the staff/time to research, license, build, stock, hire, etc. everything necessary to run a pharmacy? Will the pharmacy save enough money to make it a worthwhile endeavor for my entity? Even if you are not directly involved in your health benefits and/or workers’ compensation programs, any consideration of this type of new program will likely come across your desk for evaluation.

At first blush, running a pharmacy for your employees and dependents seems like a crazy idea. But, 15 years ago, running a doctor’s office for your employees and dependents was daunting as well, and now over 33% of employers with 5,000 or more employees have an on-or-near-site clinic.  16% of those with 500-4,999 have one. ¹  Pharmacies are the next step.  And, just like an on-or-near-site health center, there are management companies that are contracted to own and operate the pharmacy for you.

It is not uncommon for prescription medications to make up over 40% of health plans’ expenditures.  In addition, skyrocketing prescription costs are a huge expense in workers’ compensation claims.  We consistently hear that the US pays more for healthcare in general, and prescriptions in particular, than any other country in the world.

Many specialty medications have rebates on purchase or coupon assistance for patients – as we hear on prescription commercials!  Self-funded health plans are used to seeing rebates come back to them when specialty drugs are purchased. But how much of that rebate is retained by the Pharmacy Benefit Manager (PBM)? How much by the wholesaler or pharmacy?  How much by the group administering the health plan or workers’ comp program? What we pay for prescription medication is the end result of many layers of business entities, all needing to make a profit. These businesses include the manufacturer, the wholesaler, the PBM, and the pharmacy itself. One way to lower the cost is to remove some of the layers.

There are organizations who are wholesalers or direct purchasers of prescription medications, some of which have direct contracts with pharmaceutical companies to obtain preferred pricing for specialty medications. It is this type of organization that can manage and administer a pharmacy for you.

Savings to the plan come from the direct purchasing arrangement of the pharmacy management company. These medications are purchased from manufacturers or wholesalers and distributed to member pharmacies. Prescription costs are billed to member entities with a small dispensing fee, and home delivered medication costs include the cost of delivery. The pharmacy automatically applies any eligible coupons to the medication, allowing savings to the plan and the employee.  Any eligible rebates are shared with the plan, with the pharmacy keeping a much lower percentage of the rebates than PBMs and health plan administrators. The administrative costs of operating the pharmacy by the management company are covered by the dispensing fees and percentage of rebates.


    *The views and opinions expressed in the Public Risk Management Association (PRIMA) blogs are those of each respective author. The views and opinions do not necessarily reflect the official policy or position of PRIMA.*

    By: Terri Evans
    Vice President, Employer Advisory Services

    Terri spent most of her career with the City of Kingsport, starting in 1984 and joining the Risk Management department in 1986.  While with the city, Terri performed all risk functions within the department including benefits, self-funded health insurance, on-site wellness center installation/management, self-funded workers’ compensation, pooled liability with a large self-insured retention, and safety programs and training. Terri was promoted to risk manager in January, 2001. On June 1, 2020, Terri joined Employer Advisory Services (EAS) as vice president.

    Terri proudly served as the 2016-17 President of Public Risk Management Association – PRIMA - and served as the national conference planning chairperson for PRIMA-Houston 2015. Terri served as co-Chair of PRIMA Institute in 2018 and 2019.  She has also been involved in the leadership of the Tennessee Chapter of PRIMA, serving as Vice-President, President, Director and conference planning committee member since 2006. Terri received the TN-PRIMA Risk Manager of the Year award in 2012 and the Abbie Hudgens Distinguished Service Award in 2016.

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