From Force to Finesse: The Evolving Tactics of Community Pharmacy Purchasing

In the past, community pharmacies followed a fairly predictable approach to managing their cost of goods. Every few years, they’d meet with their primary wholesaler, express dissatisfaction with the current arrangement, and hint at moving to a different supplier. In response, the wholesaler would adjust the terms just enough to keep the pharmacy content. This "trust but verify" relationship worked because both sides were able to maintain the margins necessary for their business models.

What made this cycle possible were the frequent generic drug launches and a generic spend ratio of around 20%. This left plenty of profitability in the wholesale market, allowing room for concessions. While community pharmacies faced challenges, they had yet to feel the full squeeze from Pharmacy Benefit Managers (PBMs) and Medicare Part D networks. At the time, gross profits for community pharmacies averaged 25%, with operating costs sitting comfortably in the mid-teens.

However, in the last decade, shifts in the drug supply chain’s macroeconomic landscape have created a perfect storm. As a result, pharmacies must now rethink their purchasing habits and supplier relationships. The pressure community pharmacies once applied to wholesalers has lost its effectiveness, primarily due to the shrinking margins associated with today’s deals. The slowdown in generic drug launches played a major role in this shift. Generic drug prices started to decline as more manufacturers began competing in the same therapeutic areas. Meanwhile, the rise of specialty medications and expensive brand-name drugs—such as GLP-1 medications for chronic disease management—caused the generic spend ratio to plummet, making some pharmacies less attractive to their wholesaler partners.

For today’s pharmacy owners, this means a significant shift in strategy when it comes to managing cost of goods. Since the old tactics of pressuring suppliers are no longer effective, the key now lies in leveraging technology and data analytics to streamline purchasing processes. One critical tactic is improving inventory management by implementing a perpetual inventory system and finding the optimal balance between sourcing from your primary wholesaler and exploring secondary market opportunities.

This is where platform partners like Pharmacy Marketplace come into play, simplifying the complexities of drug purchasing. With tools like Athena, pharmacies can analyze personal dispensing data and compare it against their primary wholesaler’s catalog, as well as VAWD-accredited secondary suppliers. This allows pharmacies to make informed purchasing decisions without sacrificing valuable rebates and brand drug concessions. Our proprietary algorithm, developed by pharmacy owners for pharmacy owners, offers a sustainable solution for all drug supply chain partners involved.

Interested in learning more? Schedule a demo today to see how we can help optimize your pharmacy’s purchasing strategy!