Will This Be On the Test? Yes, Must Know Terms

There are many acronyms and terms to know in drug purchasing. Athena takes us back to school with these must know terms in the industry. 

What does that acronym mean that my wholesaler keeps mentioning?

• GCR (Generic Compliance Ratio)- This is the generic purchasing amount divided by the total RX purchasing amount of your pharmacy.  It is a good indicator for the wholesaler to benchmark the profitability of your store and what type of concessions they can give you to entice you to work with them.  Most wholesalers use this methodology to establish your brand cost of goods and what type of rebate tiers you qualify for.  The higher this percentage the more profitable your store is and, in congruence, the more profitable your store is to your wholesale partner.
• GPR (Generic Purchasing Ratio)- This is the generic items you purchase from your wholesaler versus the generic items you dispense at your pharmacy.  They can read the discrepancy through switch data where they reconcile the units against each other. This is also a benchmark some wholesalers will use to justify what concessions they can make on rebates and brand cost of goods.  The primary wholesaler that uses this methodology is McKesson.
• BPR (Brand Purchasing Ratio)- Similar to GPR, brand purchasing ratio is the discrepancy of brand items you purchase from them versus your dispensing data.  Deal structures specify what percentage of GPR and BPR the wholesalers want you to meet to gain different concessions.
• PVA or SA (Prime Vendor Agreement & Supply Agreement)- This is a contract you agree to with a primary wholesaler for a given period to receive the deal structure you get.  These agreements can range from 1-3 years and typically require you to meet certain compliance parameters and purchase primarily from them to get the deal structure that is offered.  Sometimes up-front money or dating on products are given, but PVA is put in place as collateral so the wholesaler becomes whole by the end of the term.  Buying groups also sign PVAs with wholesalers guaranteeing the relationship for their membership during a period.
• GLP1- This is a group of diabetic injectables that have high costs associated with them and can create dips in your GCR % even if you are ordering the same generic volumes
• DSO (Days Sales Outstanding)- This is the amount of time the wholesaler is giving you to pay for the items you purchase.  They may have you on anywhere from DSO 7-30 days depending on your credit, capital, and cost.  Typically, the lower your DSO the more concessions they will give you in terms of cost. They want their money as soon as possible.
• Leakage- This is a common phrase your wholesale partner will use to speak about the items you are sourcing outside from secondary vendors.  Leakage hurts the ratios that they grade you on so they will try and persuade you to bring these items back.  Based on your deal structure and your ordering pattern sometimes bringing these items back will help you and sometimes bringing these items back don’t make since economically.
• OTC/DME (Over-the-Counter/Durable Medical Equipment)- These items are not part of your compliance ratios and are often priced at a standard cost plus.  It is important to ask what items fall into this category so you know what to expect
• EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization)- This is a common business accounting term and one of the sole benchmarks that wholesaler look at when deciding whether to restructure your deal.  Wholesalers set certain EBITDA parameters they are willing to live with and indicate to their account managers what direction to take the deal based on this percentage.  Currently EBITDA  for independent pharmacy falls between 1-3.5% which doesn’t leave much room for error and that's why the wholesalers install guardrails like ratio and volume tiers to protect their profitability. 

Quiz Your Store: How did you do? Did you already know these terms and where your store stands? Remember that Pharmacy Marketplace is here to help you make the most of your data and shop smarter. Our platform incorporates many key metrics defined here. See how it works. 

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