Maximizing Returns on Unsaleable Goods
By John Kankis |
Pharmacies continually strive to achieve balance between inventory on hand and patient demand. As a best practice, most independent pharmacies place smaller, more frequent orders of prescription products, thereby minimizing pharmacy inventory without impacting their ability to meet customer demand. But even pharmacies with exceptional inventory management practices can find they are left with unsaleable goods.
Pharmacies can pay a waste management company to dispose of unsaleable products in a way that is compliant with all applicable regulations (DEA, state board of pharmacy, etc.). While this may be the only option for certain hazardous products, there are other ways of properly disposing of many unsaleable pharmaceuticals that don’t result in a total loss.
In fact, independent pharmacies can recapture significant value from manufacturers who do take back expired products and issue credits. Typically, a pharmacy might recover up to 50% of its costs on those returned products. For an independent pharmacy sitting on $100,000 in expired inventory, recovering half of those sunk costs can provide a significant boost to its bottom line. There are several options for recouping money on these unsaleable products:
- Work directly with manufacturers – Pharmacies can work directly with each individual manufacturer to return expired products. Every manufacturer has its own returns policy and some manufacturers do not accept any returns, so it can be a time-consuming process to manage each product separately, complete all necessary paperwork and process the returns.
- Third-party returns processor – Community pharmacies can hire an independent, stand-alone company that manages the reverse distribution channel for unsaleable products. Most of these independent returns processors make their money by taking a percentage of whatever manufacturer credits they collect or a percentage of total returns processed. They also are likely to charge ancillary fees for processing the returns of hazardous items or controlled substances.
- Wholesaler-run program – Drug distributors often offer their own unsaleable returns programs for their pharmacy customers. Wholesaler-run programs typically retain a portion of the manufacturer credits as their fee for managing the return of unsaleable products.
In deciding which unsaleable returns program makes the most sense, independent pharmacies should consider programs that provide adequate regulatory compliance and maximize the recoverable value of expired products.
Choosing an unsaleable returns program
Any good returns processor should comply with all applicable regulations while also following instructions for each manufacturer to generate the greatest possible reimbursement for the pharmacy, but not all programs are the same. Ultimately, pharmacies need to determine the right program that helps them drive profitability, create efficiencies within their pharmacy and give them more time to devote to patient care. Program considerations include:
- Faster payments – Reliable cash flow improves business operations, which means it is important for independent pharmacies to consider when they will get paid. Independent third-party returns processors may charge a slightly lower percentage fee than a wholesaler-run reverse distribution program, but pharmacies working directly with a third-party returns processor typically will not get paid until after the processor gets its cash from the manufacturer. This can take months. By contrast, some wholesalers will issue payment within a few weeks of processing returns of unsaleable merchandise.
- Predictable cash flow – Pharmacies should look for straight-forward fee structures that apply standard percentages to Rx and OTC products, making it easy to estimate reimbursement. Evaluate programs for hidden fees for shipping or storing products and for handling controlled substances. It is also important to know which party assumes responsibility for any credit discrepancies.
- On-site services – Consider whether the program offers on-site returns processing services. Having a representative from the processor or wholesaler process and package returns for shipment on behalf of a pharmacy can save the pharmacy substantial time and labor expenses. However, some pharmacies prefer to process their own returns to maintain better control of the items selected for processing.
- Returns tracking – Unsaleable returns programs should provide adequate reporting to enable the pharmacy to monitor items returned, the disposition of those items and the related manufacturer credits recovered. In addition, pharmacies should expect to receive an inventory report of all items processed at the pharmacy before those items are shipped. Some returns processors will allow shipment of returns without creating a corresponding manifest. That lack of reporting can create a gap in the audit trail for the pharmacy.
- Relationships with manufacturers – Well-established manufacturer relationships can help independent pharmacies maximize their returns. Understanding where these partnerships exist can help independent pharmacies retrieve some dollar value that would otherwise be rejected as ineligible for reimbursement if submitted by another processor. Independent returns processors typically rely on manufacturers’ national returns policies, while wholesaler programs will rely on negotiated returns policies.
- Financial stability – Many third-party returns processors lack financial stability, which heightens the risk of them going out of business and saddles the pharmacy with the task of getting credit for returns that are already in progress and merchandise that has already been returned to the manufacturer. Pharmacies should look to partner with a financially stable institution for confidence about getting paid what is owed.
- Aligned incentives – Some third-party processors incentivize and compensate employees based on the volume of unsaleable returns they process, which does not always equate to more value for the pharmacy. Typically, items should not be processed for return if they can still be dispensed to a pharmacy customer. Consider whether processors will benefit from the volume of unsaleable products that could be returned versus the value of unsaleable products that should be returned. A better partner is one committed to the pharmacy’s long-term success and profitability.
Independent pharmacies have to balance managing the health of their patients while also managing the health of their business. Finding the right partner to handle their unsaleable merchandise can boost a pharmacy’s bottom line without taking time away from patients.
Learn how the AmerisourceBergen Unsaleable Returns program provides pharmacies with a solution for properly disposing of unsaleable pharmaceuticals while optimizing the recoverable value—all without ever sacrificing patient care.