This article is sponsored by SRX. In this Voices interview, Skilled Nursing News sits down with SRX Founding Principal and CEO Scott Taylor to get his take on today’s top challenges for skilled nursing providers and considerations for how those providers manage pharmacy costs — including rebate opportunities, choosing a pharmacy partner, and more.
Tell us a little bit about how long SRX has been involved with the pharmacy space and skilled nursing, and what made the company want to get into this market.
Scott Taylor: The original idea for the business and the start of the development was back in early 2015, and we invested in and formulated the business for a couple of years prior to coming to market toward the end of 2017.
The idea for the business came from a collection of people with deep experience in skilled nursing and long-term care, institutional pharmacy, as well as some more traditional pharmacy benefit and prescription drug management experience in other payer environments. What we all realized was, prescription drug cost is one of the largest expenses for the industry. Full stop. The irony is that there are many line items on a skilled nursing operation’s P&L statement that are actively managed and well understood. Not only can the contracts be negotiated, with equal clarity on both sides of the table about what it means, but then the management of that activity is done in a disciplined and organized way over time. Prescription drugs and pharmacy did not fit that bill. So, one of the largest cost items was also a pseudo-unmanaged item. And I don’t say that in a pejorative way, just a factual one. This is an extremely complicated business with thousands of line items and a variety of pricing formats that is deeply complex and very, very difficult for operators to manage.
That was the problem statement that SRX was created to solve.
What’s your background and the background of the other founders of the company?
I started my career at McKinsey and Company in a variety of management consulting areas, and then had a traditional career in financial services before leaving the corporate environment and becoming an entrepreneur and investor, largely in healthcare-related businesses — with many of them having a nexus in the skilled nursing environment. I have some experience in the past relating to pharmacy benefit management in another payer environment as do some of the other partners in the business. Specifically, we have a former chief operating officer of a 40-plus nursing home group and investor in LTC pharmacy. We also have a former director of procurement from one of the largest operators in the skilled nursing environment. It was these types of people who could come together with unique insight about the difficulty of negotiating contracts, acquiring drugs, knowing what you’re doing and feeling like you have proactive control over those activities. And ultimately, both your clinical outcomes and your costs can be proactively managed.
What are some of the challenges that you see as most pressing for skilled nursing operators, the ones that you work with and as well as the industry at large?
I think the largest set of challenges today for the industry surround the changing payment models, whether it’s PDPM — that’s the most substantial change — or the number of managed care environments and alternate payer environments that are becoming relevant to a greater percentage of the beds within a facility. Ultimately, this is creating opportunity and pressure on operators to be focused on outcome-driven care and differentiating themselves clinically, such that they become more attractive to those alternate payers and more successful within a PDPM-based reimbursement environment.
Simultaneously, being able to manage their spend and their net cost. Clearly, drug spend in this environment is a significant component, particularly as you get more clinically complex patients.
What would you suggest are the things that skilled nursing operators should look for when they’re trying to choose a pharmacy vendor?
I think there a number of things that are really critical. Let’s take as a baseline that you need a pharmacy partner who is focused on service. That’s obviously critical. But then on top of that, I would say finding a partner in driving outcomes and helping to manage costs. You want to feel that your pharmacy partner has shared accountability in the outcomes and in those services being transparent. And that could have a number of different manifestations in terms of adhering to your contracts, as well as being able to actively and effectively communicate on an hourly and daily basis given the volume and complexity of the products and services being delivered from your pharmacy to your facility.
Specifically when looking at cost controls, what are some of the areas where operators should be focusing in order to get those cost controls in place and where they can find savings?
I would say there are three main areas that you really need to be focused on. One is understanding how you are managing and controlling the spend. Second, is really understanding your bills. Sometimes there are 1,000 line items, and they’re endlessly complicated. There’s a lot of information that’s very difficult for a layperson or even a clinician who’s not really in the pharmacy business, to understand. But you need to really understand your bills and what’s on there.
Then third, in order to drive the business forward you need to have insight and analysis into what is coming into your building — what you are spending on and what the outcomes are related to those things, and having a deeper level of understanding of what comprises your spend.
One of the things that I’ve heard people struggle with around pharmacy is that in certain cases, facilities have to buy a certain minimum amount of drugs, even if they don’t have to use all of them — or they routinely end up with excess drugs in the cart each week. In those cases, the facility is going to struggle with both the amount of waste within their spend, as well as need to manage the process of drug returns with their LTCP.
How can they work around that and find ways to prevent that from having too much of an effect on their bottom line?
It’s critically important. SRX has built its capabilities and technology in order to assist operators in lowering and more effectively managing costs.
So, number one: there’s the pricing issue. Are you actually getting what you pay for? The second thing is that there are a lot of states where drugs are return-eligible in certain circumstances. Having a system in place, and the analytics behind it to assist your facilities in identifying those returns and getting them out of the drug carts and into the bins for returns and getting credits on your bills is huge. The flip side of that is understanding your waste, making sure that your pharmacy contracts are commercial in nature and you’re not being forced to waste medicine. Beyond that, understand what your waste is, and then modify those rules that I talked about earlier — whether you get lower days’ supply, whether you’re ordering 3 ml insulin versus 10 ml insulin, or getting smaller inhalers — doing these things can help reduce your waste over time and lower your net costs because waste is still a cost that’s going to be allocated to your patients.
Lastly, these bills are very complex. Make sure you have an understanding of whether there are things on that bill that don’t belong or need adjusting. Are there payer source issues, items you shouldn’t be billed for, or that should be billed to the Part D plan or the long-term care plan, etc.?
Being able to identify and understand those issues, having them formatted in a way that allows operators to share with the pharmacy and get credits is going to be a huge component of driving lower net costs on that line item for operators.
What’s going on with rebates in the industry right now and how can operators make sure that they are maximizing the opportunity with respect to rebates?
Great question. Right now, the last publicly available data says that across the entire prescription drug industry in the United States, well over $100 billion of manufacturer rebates are being paid to a variety of payer sources. SRX wants to make sure that facilities are maximizing their rebates in an effort to achieve the lowest net cost on the drugs. To do this, we’ve built technology that assists in identifying all the possible eligible rebates. We work with clients ahead of time to make sure that they have all the information they need in order to know how to achieve the lowest net cost. Our technology then takes all of that information submitted to manufacturers (we have some fantastic relationships in the industry) and gets our customers timely payments because we all know that everyone is looking for greater cash flow to the extent that we can be marginally helpful in getting rebate payments on a timely basis.
We talked about what makes a successful pharmacy partner for operators, and what I would say to operators is that you should hold your pharmacy accountable. Expect that they share with you all the data you need in order to submit for maximum rebate dollars. They should be open and transparent in doing so. And that will assist in you as an operator in maximizing your rebates.
What do you see the biggest opportunities for SNFs in the year ahead as we start looking toward 2020? What are the areas where they can grow and become more financially healthy?
I would say there are two buckets. One is the opportunity with changing payer environments. And how the constantly changing industry provides the opportunity to define and deploy a model to clinically differentiate yourself. That may be clinical complexity, or it may be specialization, but making your business unique and special to the residents in your building is a huge opportunity — particularly within the PDPM. I also think we’d all be remiss in not focusing on lowering costs within the facility without having a negative effect on your ability to do the clinical differentiation and provide superior service to your residents and patients. Doing that is going to require a lot of automation and turning data into analysis and information. And clearly SRX is focused on that area within the prescription drug and OTC environment, but other companies are definitely needed in other aspects of the business in doing similar things in automating and analyzing data, and providing value that will reduce operator investment in the human capital currently doing those tasks, but also by making operators smarter such that they can make better decisions and lower net costs without having to sacrifice service and clinical efficacy.
If you could describe the current market in just a single word. How would you do that?
What I mean is that the skilled nursing industry sits at a point where, because it is dynamically changing, there is a massive need and opportunity to meet the demands of the changing environment. There is the opportunity for given operators to capture a massive opportunity that’s available.
The patients aren’t going away. The clinical needs are only getting more complex. If an operator in this changing payment environment and health care environment can develop a model to drive the best outcomes at the lowest net costs and differentiate themselves, I think those operators, and this industry, are primed for some very exciting things.
Editor’s note: This interview has been edited for length and clarity.
SRX is a powerful technology solution that enables skilled nursing and long-term care (LTC) facilities to realize the lowest net cost on pharmacy spend. This is accomplished by integrating data with diverse pharmacy spend practice areas in order to help facilities identify cost savings, maximize rebates and better manage their pharmacy relationships.
Learn more at www.srx-tech.com
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