The power of the pivot: Texas pharmacy mitigates impact of competitive bidding


Ron Clerico, RPh

Vice President of Marketing, Major Pharmaceuticals

Each year, Cardinal Health asks the more than 8,000 independent pharmacies that it serves to share their best, most innovative practices in retail pharmacy.

Then a team of our own retail pharmacy experts selects the best of those nominations to be part of the annual Cardinal Health Retail Pharmacy Best Practice Guide. This annual guide helps independent pharmacies thrive in a competitive, ever-changing healthcare environment. The 2014 guide illustrates how independents can tap their unique advantages to “lead change” on the business, clinical and retail sides of pharmacy. In this special Essential Insights series, we’ll share those best practices with our readers.

In 2013, Medicare started phasing in a new competitive bidding program to reduce the amount it reimburses suppliers to provide patients access to durable medical equipment (DME), prosthetics, orthotics and other supplies (POS). TLC Pharmacy in Mission, Texas, knew it needed to act quickly to mitigate the impact this new competitive bidding program would have on its business. The pharmacy had built up a strong niche in offering DMEPOS products to Medicare patients – but knew that the new changes in reimbursement would make it nearly impossible to continue to offer this full range of products in the future.

TLC’s pharmacy operations manager, Joe Vargas, led a team that strategized and proactively planned a remarkable pivot in the pharmacy’s business strategy. TLC Pharmacy would shift its focus to items that needed a clinician’s touch and weren’t easily subject to competitive bidding. This new business strategy was so successful that it earned TLC Pharmacy the top spot in the 2014 Cardinal Health Retail Pharmacy Best Practice Competition, in the “Business Advantage” category. Here’s what they learned along the way.

Step #1: Break out of your comfort zone. Reassess your business strategy.

“With the roll out of competitive bidding in our community in July of 2013, we decided to not submit a bid to Medicare. As a small, independent health care provider, we knew if we were awarded a bid, we would not be able to survive with the reduced reimbursement rates,” said Vargas.

However, TLC Pharmacy also understood that by not submitting a bid, they would no longer be able to provide certain products to Medicare beneficiaries. They knew they needed to innovate – to identify other ways to meet the healthcare needs of their community.

So Vargas and team re-evaluated TLC Pharmacy’s durable medical equipment and supply offering, their desire to provide high quality patient care and the long-term sustainability of their business model. After looking hard at their business, they decided to focus on other opportunities to grow and diversify their business while meeting the healthcare needs of their patients.

“We took the time to understand our patients’ needs, our suppliers, and our products and offerings. That’s when we determined the answer for us was to focus on the top needs of our patients and how we can provide the greatest level of service for them, while financially sustaining our business,” said Vargas.

Step #2: Know your patients and their healthcare needs

When Vargas and team conducted an in-depth analysis of TLC Pharmacy’s patient population, they saw that they had a high proportion of Medicaid patients (as well as Medicare patients) who were living with diabetes. They understood that some of the products that their diabetic patients needed – like compression garments, enteral and nutritional products, diabetic shoes and diabetic test strips, as well as incontinence supplies – would require a higher level of patient interaction and counseling from a healthcare professional. And that’s the niche market they wanted to target.

“We understood that some of these products might be impacted by competitive bidding, but we knew they were complementary for the type of service we wanted to offer,” said Vargas. “So we made sure to put our focus there. We are able to continue to meet the needs of our large population of Medicaid patients, as they remain unaffected by competitive bidding, since Medicaid reimburses differently than Medicare.”

For example, one of TLC’s most successful strategies was focusing on fitting therapeutic shoes for diabetic patients, a service and product that demands skill and quality, well-suited to independent pharmacies.

Step #3: Measure impact and keep evolving

Vargas says that the onset of Medicare competitive bidding and the changes TLC Pharmacy has made in its related product and service offering have caused the pharmacy to modify its business in several ways.

For example, they expanded their prescription delivery business to include delivery of medical equipment. They also provide incontinence supplies to adult day care centers, doubling the number of patients they serve with incontinence supplies. They have also made staffing adjustments to ensure patients had convenient access to staff members who had specialized knowledge and expertise related to their new products. For example, TLC now has seven certified diabetic shoe fitters, which has helped the pharmacy go from selling one or two pairs of shoes a day to 20–30 pairs a day.

In doing so, TLC Pharmacy has diversified revenue – despite losing a big share of its DME business – while meeting the broader healthcare needs of its diabetic patients. As Vargas explains, many diabetic patients also pick up their diabetic test strips and supplies when purchasing shoes.

“While many pharmacies and providers around us were closing their doors, we were able to keep the same number of staff, continue providing high quality patient care and actually saw an increase in our business, both in total sales and number of patients served,” said Vargas.

“We anticipate that these products — the products requiring a more personal level of service — are less likely to be a part of competitive bidding in the future. However, we have learned a really valuable lesson – not to get too comfortable. We have made a commitment to understanding our patients’ needs and to be flexible to respond to changes the market presents to us. And we will continue to evolve.”