Becoming a Long-Term Care Pharmacy

Becoming a Long-Term Care

Pharmacy 

Opportunities and Important Considerations

The challenges for independent retail pharmacies are well known: reimbursement continues to

decrease, margins continue to decline and the large national chains continue to flex their muscles.

Owners of independent pharmacies — who are entrepreneurial by nature — are reinventing the business

of pharmacy, providing new types of services like medication therapy management and medication

synchronization. In addition, retail pharmacies are exploring new growth opportunities and looking

to diversify their revenues, with particular interest in high-margin, growing markets. Because of the

opportunities presented, one area of significant interest is long-term care (LTC) pharmacy.

Becoming a Long-Term Care Pharmacy:

Opportunities and Important Considerations

Long-Term Care

Long-term care consists of a continuum of medical

and/or social services outside of hospitals, designed

to help those with chronic care needs or disabilities.

Services may be short- or long-term, and may be

provided in individuals’ homes or in residential

settings, including skilled nursing and assisted

living facilities (Figure 1). About 11 million people

age 18 and over receive some type of long-term care

services each year.

While the resident profile and length of stay vary

for every facility, most long-term care residents

have multiple comorbidities and are on numerous

medications. The “typical” skilled nursing facility

(SNF) resident is female and over the age of 85.

With America’s aging population and with the

increase of chronic conditions such as diabetes and

heart disease, the number of Americans expected

to require long-term care services is projected to

increase dramatically. Consider the following:

40% of individuals who reach age 65 will need

to enter a nursing home during their lifetimes.

In 2005, there were 37 million Americans age

65 or older, but in 2050 this group is expected to

be 81 million. In 2012, there were about 9 million

Americans age 65 or older who needed long-term

care services. It is projected that by 2020, this will

be 12 million.

In 2012, there were about 58,500 regulated long-

term care service providers in the U.S., about two-

thirds of which provided care in residential settings;

37.8% (22,113) were residential care communities,

such as assisted living facilities; and 26.8% (15,678)

were nursing homes.

Together, nursing homes

and assisted living facilities have about 2.8 million

beds. (On average, a nursing home or assisted living

facility has 80 to 100 beds.)

Figure 1. Reimbursement Process for Medications in LTC

Closed System

Home Healthcare

• Skilled Home Care

• Physicians

• Rehabilitations

Closed System

Special Care

• Dementia

• Alzheimer’s

Home Support

• Home Health Aids

• Homemaker

• Home Maintenance

Hospice

Hospital

Subacute Care

Skilled Nursing

Assisted Living

Independent Living

Active Adult Living

Senior’s Home

Data on le. MatureHealth Communications.

The Alliance for Quality Nursing Home Care. Trends in Post-Acute and Long-Term Care. September 2009.

LTC Pharmacy

Nearly all long-term residential facilities offer some

type of pharmacy or pharmacist services, including

most nursing homes (97.4%) and residential care

communities (92.6%), though most turn to an

external, unaffiliated pharmacy for medication and

consultant services.

Whether a pharmacy is open- or closed-door, there

are certain services it must provide when partnering

with skilled nursing facilities. Pharmacy services

in SNFs are mandated by the federal government

— these services must be provided by a registered

pharmacy. The regulations in place for pharmacy

services were passed in the 1987 Omnibus Budget

Reconciliation Act, which provided guidance on how

medications must be monitored and administered.

This includes having the ability to provide routine

and emergency drugs and biologicals, and using

a licensed pharmacist to provide consulting and

dispensing services.

The core groups of services that must be provided

by long-term care pharmacies include:

• Prescription processing

• Dispensing and delivery

• Medication administration and management

• Return, reuse and disposal of medications

In addition, to service LTC facilities, pharmacies

must maintain an “urgent kit” and be able to respond

to emergency orders 24/7.

There are currently a few major corporations serving

this market, but there are over 1,100 independent

LTC pharmacies.

Managed Health Care Associates,

Inc. (MHA) defines independent LTC pharmacy

as a closed-door pharmacy (more on closed-door

pharmacy below) that serves residents in nursing

homes and skilled nursing facilities, assisted living

facilities, mental health or developmentally disabled

facilities, hospice settings, or correctional facilities.

With expected continued growth in the number of

facilities, beds and residents, the prospects for growth

of LTC pharmacies remain significant.

“Spurred by an aging Baby Boomer

population, this market [long-term

care and long-term care pharmacy]

continues to be one of the fastest-

growing segments of healthcare.”

– MHA Independent Long-Term Care Study,

2011 2012 2013 2014 2015

Total Prescriptions 9 10 11 11 12

Brand 4 3 3 3 3

Generic 5 7 8 8 9

Profile of an Independent LTC Pharmacy

Here are some important facts about independent

LTC pharmacies from MHA’s 2014 and 2015 studies:

- The average independent LTC pharmacy owned

or operated one pharmacy in one state and had

revenue of less than $5 million.

- The average independent LTC pharmacy dispenses

12,369 prescriptions per month.

- On average, residents receive 12 prescriptions per

month (3 branded and 9 generic). The number

of prescriptions per resident and the percentage

that are generic have grown. However, 71% of total

drug spend is on branded products and only 29%

is on generics.

- With 12,369 prescriptions per month and 12

prescriptions per resident, this means the average

LTC pharmacy is serving about 1,030 residents

per month.

- The average independent LTC pharmacy is serving

10 to 13 facilities, with 80 to 100 residents per facility.

- On average, residents used three to five OTC items

per month.

- Eighty-two percent experience 8 or more inventory

turns per year, 60% have more than 12 turns per

year and 38% have more than 15 turns per year.

The average cost of goods sold (COGS) is between

61% and 70%, meaning that gross margins are

in the 30–40% range, with variation based on

geography and the types of facilities served.

- The average independent LTC pharmacy employed

between 9 and 40 FTEs, and for 65% of survey

respondents, payroll comprised from 10% to 20%

of sales.

- Delivery costs average 2–3% of gross sales and bad

debt write-offs average 1–2% of sales.

In summary, the long-term care market is substantial

and is projected to continue growing for years to

come. Because LTC facilities must provide drugs

to patients, a relationship with a long-term care

pharmacy is essential. For pharmacies to work

with skilled nursing facilities, specific services are

required. Yet with the average facility housing 100

residents, with each resident taking approximately

12 prescriptions per day, and with gross margins of

30% or even more, LTC pharmacy can represent a

significant, attractive and growing opportunity.

Figure 2. Prescriptions Dispensed into LTC Settings per Resident per Month: 2011–2015

Source: MHA Independent Long-Term Care Member Study, 2014, citing PDS.

The Growing Importance of LTC Pharmacy

“LTC pharmacies will need to

develop more extensive medication-

management programs to meet the

needs of facilities.”

— Mark Prifogle, CEO,

GrandView Pharmacy, Brownsburg, IN

As part of the Affordable Care Act (ACA), in 2012,

the Centers for Medicare and Medicaid Services

(CMS) introduced the Hospital Readmission

Reduction Program. The goal of this program is to

improve quality and decrease healthcare expenses

by reducing unnecessary and often expensive

hospital readmissions. The idea is to create financial

incentives — in the form of penalties — for hospitals

with above-average rates of avoidable readmissions.

As was written in a recent Kaiser Health News story,

“The federal government’s penalties . . . are intended

to jolt hospitals to pay attention to what happens

to their patients after they leave.”

In October 2014,

2,610 hospitals received penalties for excessive

readmissions. As a result, hospitals are increasingly

focused on strategies to reduce avoidable hospital

readmissions.

This is relevant for long-term care facilities because

approximately 40% of hospitalizations of Medicare

beneficiaries end in discharge to a skilled nursing

or rehabilitation facility, and roughly 20% of those

discharges result in a hospital readmission.

SNF

executives recognize that working with hospitals

to reduce readmission rates is critical to future

relations with hospitals, which are an important

referral source. Hospitals want SNFs to implement

high-quality programs and services that keep

residents in the facility. Particularly important to

preventing readmission are the first 48 hours after

a resident is transferred to a facility.

LTC pharmacies are being approached by facilities

to play a greater role in the transition of care, as

issues involved that cause readmission are often

medication-related. To support SNFs in reducing

readmissions, LTC pharmacies are:

- Ensuring medications are appropriate, available

and delivered in a timely fashion, particularly

at admission.

- Monitoring residents, which may include

medication reconciliation and counseling to

improve adherence and minimize complications.

- Providing extensive medication management and

reviews at arrival and discharge.

- Dispensing medication at the time of discharge for

use in the community for up to 30 days. Some SNFs

are requesting that their LTC pharmacies continue

to dispense and closely monitor residents for up

to 30 days post discharge.

- Occasionally providing infusion therapies and

supplies to minimize the need to send residents

back to a hospital when infusion care is required.

Because of the growing importance of LTC

pharmacies in the care process, facilities are

choosing their pharmacy partners carefully, based

on the pharmacy’s commitment to quality and

service capabilities.

Options for Retail Pharmacies to Enter the LTC Market

Closed-Door LTC Pharmacy

The most common way in which retail pharmacies

can pursue the LTC opportunity is to simply start

servicing nearby LTC locations. This can be done as

an open-door pharmacy, which is essentially serving

LTC facilities and residents out of an existing retail

pharmacy. It involves purchasing from the same

sources, off of the same contracts, and using the same

license, facilities and computer systems. It does not

require managing separate inventories. It is the fastest

and easiest option, and requires the least investment.

However, some owners will choose to pursue

the LTC opportunity by establishing a separate

closed-door pharmacy location. Closed-door LTC

pharmacies are able to benefit from purchasing

and reimbursement advantages that are not

available to open-door pharmacies.

Some retail pharmacies may also consider diversifying

their revenues by exploring other opportunities

related to long-term care, such as the home infusion or

specialty pharmacy markets. Each of these represents

potential areas of growth; however, each is different

from the LTC pharmacy opportunity, with different

licensing and manufacturer criteria, reimbursement,

contracts, operational and credentialing requirements,

and service offerings. For the purposes of this guide, we

will focus our attention on becoming an LTC pharmacy.

A closed-door pharmacy is a pharmacy that is

not open to the general public, and that provides

medications to patients residing in various settings,

most commonly long-term care settings including

skilled nursing and assisted living facilities.

Importantly, closed-door pharmacies must have

separate licenses from an existing retail pharmacy

and must keep separate inventory. The closed-

door pharmacy must have a separate address and

physical entrance from a retail pharmacy, with no

connecting doors, windows or passageways.

Basically, a closed-door LTC pharmacy operated

by a retail pharmacy may be under the same roof,

but is essentially two pharmacies operated as

completely separate entities. Often, closed-door

pharmacies for LTC are created by adding onto a

retail store; in other instances, a closed-door LTC

pharmacy is a stand-alone business, without any

connection to a retail pharmacy.

Among the specific advantages of setting up a

closed-door pharmacy for LTC are:

• Participating in a high-growth, higher-margin

market with significant growth potential.

• Getting access to a broad portfolio of brand and

generic pharmaceuticals and accessing non-

pharmaceutical contracts, specific for closed-

door pharmacies.

• Enjoying financial advantages of enhanced

reimbursement from Medicare Part D contracts,

which would only be available to closed-door

LTC pharmacies, and access to pricing discounts

as well as rebates.

• Being able to participate in special programs

just for closed-door LTC pharmacies. An

example is McKesson’s OneStop Generics

Alternate Site Pharmacy program, which offers

special products, packaging sizes, pricing and

promotions specifically designed for closed-

door LTC pharmacies.

What Is a Combo Pharmacy?

The term “combo” is used in various

ways and means different things to

different people. In general, when people

refer to a “combo pharmacy,” they usually

mean an existing retail pharmacy that

uses its retail license, receives retail

rates, is treated as a retail operation, but

serves some LTC patients. This is very

different from the separate licensing,

pricing and contracts of a closed-door

pharmacy for LTC.

• Licensing considerations and regulatory

requirements.

- Obtaining separate licenses. Simply serving

long-term care facilities does not necessarily

require that a retail pharmacy get different

types of licenses, but opening and operating

a closed-door LTC pharmacy does require

entirely separate licenses. This includes all

licenses and permits from the DEA, as well

as separate NPI (National Provider Identifier)

and NCPDP (National Council for Prescription

Drug Programs) numbers.

- Meeting state and federal requirements.

Closed-door LTC pharmacies must meet all

state board of pharmacy requirements.

(A link to all state boards of pharmacy is

provided here. Each state’s website has

information about the board of pharmacy

requirements for that state.) They must

also meet CMS requirements if servicing

Medicare patients in a long-term care

setting. CMS’ requirements include that all

branded drugs be dispensed in quantities

of 14 days or less, having 24-hour on-call

capabilities, providing delivery services,

and being able to provide consultations, such

as monthly chart reviews.

• Financial and reimbursement

considerations. Margins for closed-door LTC

pharmacies may range from 7% to 35% based

on the geography, population served, number

of beds served and product mix. Important

financial considerations include:

- Sources of payment. Closed-door LTC

pharmacies receive payments from facilities

for Medicare Part A and Medicare Advantage

Plan residents; from prescription drug plans

(PDPs) for Medicare Part D prescriptions;

from Medicaid for selected medications used

in the facility; from commercial and private

insurance; and from residents’ out-of-pocket

or private pay.

- How an LTC pharmacy makes money.

LTC pharmacies make money through

medication costs, dispensing fees and

profits based on the facility charge, minus

the acquisition cost and rebates. Medication

costs and dispensing fees are similar for

closed-door LTC pharmacies and open-door

pharmacies, but the profits based on facility

charges are different because the costs of a

closed-door pharmacy may be very different

from an open-door retail pharmacy. Rebates

are determined through contracts that a

closed-door pharmacy may have with a

GPO, a pharmacy network, a wholesaler or

a manufacturer.

Considerations in Establishing a Closed-Door LTC Pharmacy

While the margins from a closed-door LTC pharmacy can be attractive (especially in comparison to a

retail pharmacy) and the opportunity can be significant, establishing a closed-door LTC pharmacy takes

investment and careful consideration. Among the many important considerations in establishing a

closed-door LTC pharmacy are:

- Pricing for closed-door LTC pharmacies.

Pricing is different for LTC compared to

retail, and while pricing varies from state

to state, reimbursement is often higher in

LTC. Fee-for-service is used for Medicare

Part A and Medicare Advantage Plans, and

Part D reimbursement; pricing is set through

contracts with the facility, PDP or purchasing

organization. Compared to retail pharmacy,

90-day supply is unusual in long-term care,

though not unheard of. Also, special pricing

for selected medications, such as $4 generics,

is a price promotion that is not done in LTC

pharmacy. Currently, branded medications are

reimbursed based on Average Wholesale Price

(AWP) minus 10% to 20%, plus a dispensing

fee. Generics may be reimbursed based on AWP

minus a percentage plus a dispensing fee, or

using the Maximum Allowable Cost (MAC),

set by each state, plus a dispensing fee.

- Purchasing for closed-door LTC pharmacies.

One of the most significant advantages of

becoming a closed-door LTC pharmacy is

a purchasing advantage. Through various

contracts that are not available to retail

pharmacies, closed-door LTC pharmacies can

access a broad portfolio of brand and generic

pharmaceuticals and participate in various

discounts and rebates. However, accessing

these purchasing and contracting benefits may

require participating in a group purchasing

organization that serves the closed-door LTC

market. Whether to participate in a GPO and

which one are important considerations.

- Additional investments and costs for LTC

pharmacies. Owners of retail pharmacies

are often curious when learning about the

reimbursement, margins and growth rates

for LTC pharmacies. However, in addition

to requiring separate licensing and space,

LTC pharmacies also require expert staffing

(such as consultant pharmacists), specialized

systems to serve LTC, and unique capabilities

such as 24/7 delivery capabilities. Creating

these capabilities typically takes investment,

which can require capital for growth.

Figure 3. Reimbursement Process for Medications in LTC

GPO

Wholesaler

LTC P

Comm/Private

Insurance

Medicare

Private Pay

Medicaid

PDP

Part A and

Medicare

Advantage

Plans

(Short Stay)

Medicare Part D

(After Day 100)

Facility

Medicare

Part D

Medicare

Part A

Out-of-Pocket Co-Pay

and “Spend Down”

Data on le. MatureHealth Communications. Stevenson DG, Huskamp HA, Newhouse JP.

Medicare Part D, Nursing Homes, and Long-Term Care Pharmacies. June 2007. No 07-2.

• Packaging considerations. CMS encourages

compliance packaging, which requires being

able to provide unit dose, multi-dose, and

bingo-card packaging. According to a 2013

study conducted by NCPA’s LTC Division and

the Virginia Commonwealth University (VCU)

School of Pharmacy, 23% of all doses supplied

to LTC facilities were in 14-day or less cycles

and 76% were dispensed in 28- to 31-day cycles.

Complying with these packaging requirements

increases dispensing costs — which NCPA

has found are 25% higher for LTC facilities

than traditional retail pharmacies

— and can

require significant investment. The NCPA/

VCU study found that most LTC pharmacies

use automated medication packaging

technology, heat and cold package sealers, bar

code systems, sterile compounding hoods, LTC

printers or labels, and electronic prescribing.

Note: Beginning January 2013, CMS required

all pharmacies dispensing prescription drugs to

LTC facilities (both open-door and closed-door

pharmacies) under Part D plans and Medicare

Advantage plans to dispense solid oral doses of

brand-name drugs in no greater than 14-day

increments. This may be extended to generics in

the future. In February 2015, CMS revised the

terms of its rule requiring efficient dispensing

of prescription drugs to Part D enrollees in LTC

facilities. The original rule, which was intended

to reduce medication waste, had led some Part

D sponsors or their PBMs to prorate monthly

dispensing fees, which was deemed by CMS as

“Contrary to Congress’ intent.” Among other

things, the new rule from CMS — which goes into

effect for the 2016 plan year — prohibits payment

arrangements, such as prorating, that penalize

more efficient dispensing techniques.

Figure 4. Pricing of LTC Pharmacy Services

Fee-for-Service

• Used for Medicare Part A and Part D

• Branded medications

- Set by contract with facility/PDP

- Average Wholesale Price (AWP) minus 10%

to 20% plus dispensing fee (this is generally

set by state Medicaid)

• Generic medications

- AWP minus % plus dispensing fee or Maximum

Allowable Cost (MAC) plus dispensing fee

Per Diem

• Primarily for Medicare Part A residents

• Fixed daily amount LTC pharmacy

receives from facility for each resident

• Pharmacy is at risk

- Must analyze estimated pharmacy cost —

compare Part A vs. Part B vs. Part D

- Evaluate per diem formulary — what will and

will not be included

- Dene contracting period

Pricing is different for LTC compared to retail:

• No 90-day supply • No xed cost ($4 prescription) pricing

Data on le. MatureHealth Communications. Stevenson DG, Huskamp HA, Newhouse JP.

Medicare Part D, Nursing Homes, and Long-Term Care Pharmacies. June 2007. No 07-2.

• Facility considerations. To serve skilled

nursing facilities, LTC pharmacies have to make

various investments. For example, one common

investment is in medication carts, which can cost

$3,500 to $5,000 each. For a nursing home with

multiple wings, a long-term care pharmacy may

need to purchase four or five carts, at a total cost

of $15,000 to $20,000. This is just one of several

possible considerations to accommodate and

serve a facility.

Also important is the need to have an urgent/

emergency box that includes medications that

may be needed right away, before a pharmacy

delivery, such as antibiotics or pain medications.

What is to be included in this box is dictated

by the state board of pharmacy, but the LTC

pharmacy is responsible for providing and

stocking this box.

• Technology considerations. Closed-door LTC

pharmacies utilize technology in multiple ways,

which include dispensing software, automated

delivery systems, e-prescribing and electronic

medical records.

- Dispensing software. All pharmacies — both

retail and LTC — need dispensing software to

track prescriptions and manage billing. Owners

of a retail pharmacy that open a closed-door

LTC pharmacy may be able to use the same

dispensing software, but will likely need a

separate license and/or a separate login, since

these are separate entities and the information

must be kept separately. Also, the dispensing

software may need to be customized for LTC.

In addition, having a software license just for

the closed-door LTC pharmacy is necessary for

the LTC pharmacy to get access to enhanced

reimbursement and LTC reimbursement rates.

In general, the systems used by closed-door LTC

pharmacies must have the ability to maintain

demographic information about residents,

monitor for drug interactions, adjudicate third-

party payers, print drug dispensing materials

and maximize workflow efficiencies.

- Automated delivery systems. While some

packaging can be done manually, automated

systems are often used for bingo-card and

strip packaging. Packaging can become a

differentiator when competing with other

LTC pharmacies.

- E-prescribing. MHA reports that 57% of

survey respondents used an e-prescribing

system in 2014, but the majority of those

responding still receive less than 10% of their

orders through e-prescribing.

- Electronic Medication Administration

Reconciliation (e-MAR). MHA reports

that 56% of independent closed-door LTC

pharmacies used e-MAR in 2014, up from 37%

in 2012.

Many long-term care facilities will

require that their LTC pharmacy use their

e-MAR of choice. Since there are several dozen

e-MAR technologies on the market, pharmacies

must be prepared to handle these requests.

• Staffing considerations. Closed-door LTC

pharmacies must employ staff to physically

dispense prescriptions, which requires

dispensing pharmacists and technicians. Most

facilities will require pharmacy services 24

hours a day, 7 days a week. Staffing and systems

must be in place to provide appropriate services

at night, on weekends and during holidays. In

addition, regular support for the dispensing

function is needed in the form of medical records

personnel and delivery staff. MHA cites research

from IntelliQ Health indicating that 57% of

independent LTC pharmacies employ their own

drivers to handle deliveries and 37% contract with

a local delivery service.

In addition, closed-door LTC pharmacies need

to have consulting pharmacists (employees or

contractors) to provide various consultative

services to skilled nursing facilities. Consultant

pharmacists are important members of a facility’s

healthcare team who provide primary care

services as well as information and education.

- Primary care services include reviewing drug

regimens, medication dosing services, drug

monitoring and chart audits.

- Information/education services include

education for staff and counseling for residents,

along with activities to boost compliance.

Also, with the increased focus of hospitals and

the entire health system on reducing unnecessary

hospital admissions, LTC pharmacies and

consultant pharmacists will be directly involved

in programs to improve results in this area. This

includes efforts upon a resident’s arrival at a long-

term care facility to ensure their prescriptions

are filled and understood, to reduce unnecessary

drugs, and to ensure smooth transitions upon

discharge from a long-term care facility.

Dedicated staff to support a closed-door LTC

pharmacy represent an additional expense, but as

with a retail pharmacy, the right staff can provide

great service that creates differentiation.

• Marketing considerations. Competing

effectively in the LTC market is not as simple

as just getting the necessary licenses and

creating the operational capabilities to serve this

market. Facilities will need to see commitment,

understanding of the market and expertise.

However, established retail pharmacies have

certain advantages. They often have a good

reputation and relationships in a community,

and may better understand a local market.

They may also have prior experience providing

outstanding personalized service in a complex,

regulated environment. These advantages

can be leveraged and used to differentiate an

independent pharmacy owner. Retail pharmacy

may also need to overcome community

perception that they’re “just retail” if they are

going to offer the services and specialization of a

closed-door LTC pharmacy.

A recent article in Pharmacy Times

about

entering the LTC market suggested identifying

“value gaps” where LTC facilities need help

lowering costs, improving quality and delivering

a better patient experience. Pharmacists can

create and leverage connections with physicians,

home health agencies and hospital discharge

planners for introductions to decision-makers

at targeted facilities. The key for pharmacists is

to build trusted relationships, demonstrate an

understanding of a facility’s needs and convey

the pharmacy’s ability to meet those needs.

Jonathan Brunswig owned three retail pharmacies in Kansas that operated as open-

door pharmacies, serving patients in five different nursing homes. But Brunswig saw

an opportunity to grow his LTC business and improve his profitability by creating a

separate, closed-door LTC pharmacy. The advantages Brunswig saw in establishing a

closed-door LTC pharmacy were:

- Lower operational costs because of centralized operations for all LTC business.

- As a closed-door LTC pharmacy, eligibility for discounts and rebates as part of a group

purchasing organization (GPO).

- The ability to offer customized, focused care for LTC facilities and residents, which can

produce higher revenue and profit.

The downside of a closed-door LTC pharmacy is that it is a highly regulated

environment with a complex claims authorization and adjudication process. It is also

a labor-intensive business that involves high-touch services, such as ongoing quality

assurance checks, emergency drug delivery, in-service training programs and consultant

pharmacist services.

Despite those challenges, Brunswig believes that operating a closed-door LTC pharmacy

makes sense for his business. He said the hardest part was transitioning his current

LTC customers to a closed-door environment, which required initially setting it up and

transferring the patient records to a new system. After that, “we just let it run,” he said.

Brunswig sees the key to success as partnering with a good GPO and then marketing

to secure contracts with facilities.

Case Study: LTC Specialists, Scott City, Kansas

Exploring the Opportunity

As with any potential opportunity, it makes sense to first assess the market conditions.

• Some of the key questions to answer include:

- How many facilities are there in your market?

- Are new facilities being opened, and is the market growing?

- How satisfied are these facilities with their current suppliers, and what value gaps exist?

- How would you differentiate your offering from the current players in the market?

- How could you leverage your existing capabilities and relationships in this new area?

- What investment would be required to get started, and what is the potential upside?

- What additional staff would be required?

- How can you acquire your first LTC account to get the ball rolling?

Assign project manager to meet with Personnel, IT, Operations, Quality Control

and Legal Affairs.

Apply for business incorporation in the state in which the pharmacy will be located. Refer

to the rules relevant to the state you are filing in. This will determine the time frame for

completing this portion. Confirm if a new corporate name will be created, or you will be filing

as a foreign corporate entity. This will later affect how pharmacy application will be handled.

Find a facility to lease and enter into lease agreement. Call and set up utility services.

Verify in lease which services are/aren’t included.

Develop IT timeline to factor wiring, layout and security setup for the location. 

Once a physical location has been secured, determine the type of pharmacy application for

the state applying in based on the incorporation status in Step #2. Also, make sure to apply

for the controlled substances license. These can take two to six weeks for approval.

Approval of the pharmacy license will require a physical inspection of the premises. All IT

security must be completed prior to this; however, inventory may not be brought to the

location until the premises has been approved by the board of pharmacy.

When pharmacy application has been approved, apply for NCPDP and DEA numbers. DEA

registration will take three to six weeks for approval.

Contact McKesson to arrange for the transportation and setup of inventory.

The recruiting process should begin approximately five weeks prior to the arrival of

inventory. Post an ad and begin interviews. This would permit any candidate to give his or

her current employer two weeks’ notice.

Becoming an LTC Pharmacy

Once a pharmacy owner decides to create a closed-door LTC pharmacy, there are numerous steps in the

process. Key steps involve licensure, IT systems, staffing, inventory, marketing and more. To help independent

pharmacy owners on this journey, Mark Prifogle, the CEO of GrandView Pharmacy in Brownsburg, Indiana, has

put together multiple tools to help owners get started. Below is an example timeline listing certain important

steps. Additional tools and resources are available upon request; email alternatesite@mckesson.com.

Conclusion

As independent pharmacy owners are looking to expand their businesses and assess possible opportunities,

long-term care pharmacy may merit investigation. Based on the demographics in the United States and the

increasing prevalence of chronic diseases, the long-term care market is expected to see sustained growth.

Because long-term care facilities need services from and relationships with pharmacies, the opportunity for

LTC pharmacies is likely to be significant.

A retail pharmacy can serve LTC facilities through its existing operations, but many owners are electing

to create closed-door LTC pharmacies for the greater financial benefits. A closed-door pharmacy is a

separate entity, with separate licenses, inventory, staff and, possibly, separate systems (or technology

licenses). Pursuing this opportunity takes due diligence and investigation of the market, planning, possibly

establishing a relationship with a GPO, and significant investment. However, the gross margins and the long-

term growth of this market represent a substantial opportunity to increase and diversify revenue streams.

More Information

A wealth of information is available about the long-term care industry and about LTC pharmacies,

particularly closed-door LTC pharmacies. Good sources of information include:

• The CDC, which has extensive industry information about long-term care services in the U.S.

• NCPA Long-Term Care at www.ncpaltc.org

• Managed Health Care Associates, Inc. at www.mhainc.com

• Long-Term Care Pharmacy 101 and 102: A two-part course developed and provided by McKesson,

which is also available on NCPA’s website

• State boards of pharmacy at www.nabp.net/boards-of-pharmacy

• Email alternatesite@mckesson.com for additional tools and support

• Visit RxOwnership.com for more general information on starting, buying and selling pharmacies

McKesson Alternate Site Pharmacy

McKesson Corporation

One Post Street

San Francisco, CA 94104

McKessonAlternateSiteRx.com

alternatesite@mckesson.com

800.571.2889

“Long-Term Care: Consumers, Services, and Financing.” National Health Policy Forum. November 28,

2008. Cited by McKesson in Long-Term Care Pharmacy 101.

“40 Must-Know Statistics About Long-Term Care,” Morningstar, August 9, 2012.

Long-Term Care Services in the United States: 2013 Overview, National Center for Health Statistics,

National Health Care Statistics Reports, Number 1, December, 2013.

McKesson in Long-Term Care Pharmacy 101.

MHA Independent Long Term Care Member Study, 2015, www.mhainc.com.

Ibid.

MHA Independent Long Term Care Member Study, 2014, www.mhainc.com.

MHA Independent Long Term Care Member Study, 2014 and 2015, www.mhainc.com.

“Medicare Fines 2,610 Hospitals in Third Round of Readmission Penalties,” Kaiser Health News,

October 2, 2014.

“The Revolving Door of Rehospitalization from Skilled Nursing Facilities,” Health Affairs. Available

at http://content.healthaffairs.org/content/29/1/57.full. Cited in McKesson White Paper: Medicare

Initiative to Reduce Hospital Readmissions: Implications for LTC Pharmacy. Accessed March 20, 2015.

LTC Criteria, GeriMed.

“Study Finds Long-Term Care Pharmacies Face Higher Dispensing Costs; Must Meet Specialized

Patient Needs,” NCPA, February 22, 2013.

Analysis of Costs to Dispense Prescriptions in Independently Owned Long Term Care Pharmacies,

NCPA’s LTC Division and Virginia Commonwealth University School of Pharmacy, February, 2013.

NCPA: Medicare Addresses ‘Short-Cycle’ Dispensing Fees at LTC Pharmacies, February 9, 2015.

MHA Independent Long Term Care Member Study, 2015; www.mhainc.com.

Ibid.

“Long-Term Care: Expanding Into the Market,” Pharmacy Times, April 14, 2014.

The information provided here is for reference

only and does not constitute legal advice. We make

no representations with regard to the content’s

comprehensiveness. You are solely responsible for

investigating and complying with all applicable laws

that govern the operation of your business.

ASRx-09534-06-15