Latest / Pharmacy Podcast Network / PBM Appeals, Maximizing Your PMS, Financing Growth, Invoice Audits, SBA Updates | The Bottom Line Rewind

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PBM Appeals, Maximizing Your PMS, Financing Growth, Invoice Audits, SBA Updates | The Bottom Line Rewind · Pharmacy Podcast Network

• 0:05
  Speaker 1: You are listening to the global network of podcasters dedicated
• 0:09
  Speaker 1: to the pharmacy profession.
• 0:10
  Speaker 2: Welcome to the Pharmacy Podcast Network.
• 0:28
  Speaker 3: Welcome back to the Bottom Line Rewind, the show that
• 0:33
  Speaker 3: shares all the best moments from this past month on
• 0:35
  Speaker 3: the Bottom Line Pharmacy Podcast. This month, we've got four
• 0:38
  Speaker 3: interviews lined up on PBM appeals, PMS systems, financing, and
• 0:44
  Speaker 3: invoice audits. Plus, we're bringing you an exclusive interview that
• 0:48
  Speaker 3: talks about recent SBA changes and how it impacts pharmacy acquisitions.
• 0:53
  Speaker 3: If you want to check out the full conversation, you
• 0:55
  Speaker 3: can find the links to each of these interviews in
• 0:57
  Speaker 3: the description of this episode.
• 0:58
  Speaker 1: Check them out.
• 0:59
  Speaker 3: First up a clip from a new playbook for PBM
• 1:02
  Speaker 3: appeals featuring Chris Ray, VP of business development at pharmacy marketplace.
• 1:07
  Speaker 3: We talk about PBM appeals and managing underwater claims. Why
• 1:11
  Speaker 3: are independents turning more towards like PBM appeals and all
• 1:15
  Speaker 3: these things? I mean, for, we know the obvious reasons
• 1:17
  Speaker 3: in terms of, you know, PBMs are squeezing out a
• 1:19
  Speaker 3: lot of these independent pharmacies, but, um, It seems like
• 1:22
  Speaker 3: they're almost kind of taking matters into their own hands
• 1:25
  Speaker 3: and trying to control their own destiny, which is great.
• 1:27
  Speaker 4: Yeah, no, you know, they work so hard with different
• 1:32
  Speaker 4: lobbying organizations like NCPA or their state associations to get
• 1:36
  Speaker 4: laws passed. And we all know that PCMA and the
• 1:39
  Speaker 4: PBM lobbyists are so strong. So when we get legislation passed.
• 1:43
  Speaker 4: You know, we really need pharmacies to participate in those
• 1:46
  Speaker 4: laws so that you can continue the momentum that's being
• 1:50
  Speaker 4: built on these efforts, right? So ultimately, what we're trying
• 1:55
  Speaker 4: to do is teach pharmacies how to check the boxes
• 1:57
  Speaker 4: when they see underwater claims and file these appeals appropriately
• 2:03
  Speaker 4: with those state laws, ultimately getting money back into their
• 2:07
  Speaker 4: stores and their bottom line.
• 2:08
  Speaker 3: So you mentioned teach pharmacies, I guess, the best practice
• 2:15
  Speaker 3: way to do this. What are some of those common
• 2:17
  Speaker 3: pain points that you see pharmacies face when it comes
• 2:21
  Speaker 3: to trying to appeal PBM decisions?
• 2:25
  Speaker 5: Yeah.
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  Speaker 4: So a lot of them don't want to commit the
• 2:29
  Speaker 4: time and energy to it because they don't think that
• 2:31
  Speaker 4: they are going to be very successful in the back end.
• 2:33
  Speaker 4: So just understanding and learning the state law there in
• 2:36
  Speaker 4: your state to see if you have any, I guess, recourse, right,
• 2:40
  Speaker 4: is the first thing. And then understanding what is the,
• 2:43
  Speaker 4: I guess, the benchmark for what is underwater. Is it
• 2:48
  Speaker 4: your purchase price? Is it some type of A weighted
• 2:52
  Speaker 4: benchmark like a NADAC formula. So those are the first
• 2:56
  Speaker 4: two things like, hey, how do I know what's appealable
• 3:00
  Speaker 4: and what is the process of going through the state regs?
• 3:05
  Speaker 4: So do I have to file with the actual PBM agency?
• 3:08
  Speaker 4: before I escalate it to the state, or can I
• 3:10
  Speaker 4: go straight to that state enforcement agency? So those are
• 3:13
  Speaker 4: all things that have to be researched. And I've spent
• 3:18
  Speaker 4: about a year doing so. So it's been a lot
• 3:20
  Speaker 4: of getting into the weeds. And at first it was
• 3:23
  Speaker 4: very monotonous, but then I got super excited to see
• 3:25
  Speaker 4: that there's actually a lot of opportunity for the drugstores
• 3:30
  Speaker 4: to stabilize their businesses.
• 3:32
  Speaker 3: Chris, almost like the Encyclopedia Brown for, like, PBM appeals
• 3:37
  Speaker 3: and PBMs.
• 3:38
  Speaker 1: That's funny.
• 3:40
  Speaker 5: Yeah.
• 3:41
  Speaker 6: So if you got some claims underwater, you know, is
• 3:50
  Speaker 6: it best to go straight to the PBM and say, hey, PBM, like, look,
• 3:55
  Speaker 6: I'm helping these patients out. You know, here's the data
• 3:58
  Speaker 6: showing compliance and all this, but you're paying me underwater.
• 4:02
  Speaker 6: You know, is that the approach or is it a straight, yeah,
• 4:05
  Speaker 6: walk me through that. You know, what can we do?
• 4:08
  Speaker 4: Scotty, each state has some type of statutory regulation about
• 4:14
  Speaker 4: this process, right? So what you have to do is
• 4:16
  Speaker 4: get into that or, you know, talk to us about
• 4:20
  Speaker 4: what is your state process. In most instances, it is, hey,
• 4:24
  Speaker 4: the pharmacy benefit manager has to give you an internal
• 4:27
  Speaker 4: portal to get be able to send information in and say, hey,
• 4:32
  Speaker 4: you guys didn't pay me my cost or you did
• 4:35
  Speaker 4: not meet the requirement to hit that NADAC formula that's
• 4:39
  Speaker 4: in our state. Giving them the opportunity to rectify that
• 4:43
  Speaker 4: and pay you the higher amount, those portals, they require
• 4:47
  Speaker 4: like obviously purchase proof and information that takes time and energy.
• 4:53
  Speaker 4: From there, the state regulations usually say, that the PBM
• 4:58
  Speaker 4: has to respond within a certain window of time. If
• 5:01
  Speaker 4: they don't, they're not compliant to the law, or if
• 5:03
  Speaker 4: they reject it unlawfully, that gives the pharmacy the right
• 5:07
  Speaker 4: to escalate it to an enforcement agency like the Department
• 5:11
  Speaker 4: of Insurance or the Attorney General's Office. Usually, it's outlined
• 5:16
  Speaker 4: in the state regulation who is the enforcement body over
• 5:19
  Speaker 4: that statute.
• 5:20
  Speaker 3: Next up, a clip from Beyond Dispensing, Maximizing Pharmacy Management
• 5:25
  Speaker 3: Systems featuring Jonathan Duhan, VP of PMS Sales at Red
• 5:29
  Speaker 3: Sail Technologies. We talk about changing how your PMS system
• 5:33
  Speaker 3: operates within your pharmacy and how it impacts your pharmacy.
• 5:37
  Speaker 2: As we look at kind of like today, independent pharmacy
• 5:40
  Speaker 2: or retail pharmacy in the landscape today, You know, PMS
• 5:44
  Speaker 2: is a very big part of that, as you all know.
• 5:46
  Speaker 2: I really think about today how we envision it as
• 5:50
  Speaker 2: really your PMS is really your nucleus, right? It is
• 5:53
  Speaker 2: going to be the core of your business. You know,
• 5:55
  Speaker 2: it's the area and the technology that your team touches
• 5:58
  Speaker 2: from the moment they walk into pharmacy to the time
• 6:00
  Speaker 2: they're kind of shutting out the lights and closing up
• 6:02
  Speaker 2: with the alarm. So really what we want to kind
• 6:06
  Speaker 2: of make sure that everyone understands, whether you're using one
• 6:09
  Speaker 2: of our products or not, is that we really have
• 6:12
  Speaker 2: developed over the course of a couple of years, we've expanded,
• 6:16
  Speaker 2: shall I say. our connected solutions. And that's really the
• 6:19
  Speaker 2: overarching areas that kind of surround that nucleus and can
• 6:22
  Speaker 2: make you operationally efficient really in a number of ways.
• 6:25
  Speaker 2: You know, we can kind of talk through some of
• 6:26
  Speaker 2: those in depth, but those are the areas that you
• 6:28
  Speaker 2: can really accelerate the business with some of these areas
• 6:33
  Speaker 2: and programs.
• 6:34
  Speaker 1: Yeah.
• 6:35
  Speaker 3: I think one of the things you mentioned there that
• 6:37
  Speaker 3: is so important is how your PMS is literally the
• 6:42
  Speaker 3: nucleus of your pharmacy. And so you need to be
• 6:45
  Speaker 3: treating it as if it's that, and not just some
• 6:48
  Speaker 3: monolithic system that you kind of get hooked up. I mean,
• 6:51
  Speaker 3: there's so many other, it's just, it's so important to
• 6:54
  Speaker 3: how your pharmacy operates. Um, I guess let's kind of
• 6:58
  Speaker 3: talk about some of those other connected solutions that you're
• 7:02
  Speaker 3: seeing pharmacy owners use to grow. I don't know if
• 7:04
  Speaker 3: you have any use cases or anything, but I know
• 7:06
  Speaker 3: that you guys have a whole suite of solutions that
• 7:11
  Speaker 3: a lot of pharmacy owners are tapping into. I don't
• 7:13
  Speaker 3: know if you don't mind kind of expanding on that
• 7:15
  Speaker 3: piece a little bit more.
• 7:16
  Speaker 1: Yeah, absolutely.
• 7:18
  Speaker 2: So there's a couple things that kind of jump off
• 7:20
  Speaker 2: the page to me. I mean, I can probably talk
• 7:22
  Speaker 2: for a while on this, but, you know, it really–
• 7:25
  Speaker 2: It depends on what you're doing in your business today. Now,
• 7:28
  Speaker 2: there's probably some fundamental solutions, connected solutions that we offer
• 7:32
  Speaker 2: that are going to help increase productivity, efficiency, potentially the
• 7:36
  Speaker 2: bottom line, revenue. One of those that comes to mind
• 7:40
  Speaker 2: is really our merchant processing, which is Red Cell Pay. Today,
• 7:45
  Speaker 2: you could reach out to our team. You could have
• 7:47
  Speaker 2: an analysis of your current merchant statement and have a
• 7:51
  Speaker 2: comparison of what we could offer to potentially beat those rates.
• 7:55
  Speaker 2: To me, that's an area where it makes the most sense, right? Today,
• 7:58
  Speaker 2: you're probably playing kind of the cat and mouse game
• 8:00
  Speaker 2: with your merchant. Maybe there's some fees there that are
• 8:03
  Speaker 2: attached to it where you go, it's just got to
• 8:05
  Speaker 2: be more transparent than this. That's probably an area where
• 8:08
  Speaker 2: I go, everyone should be looking at or evaluating their
• 8:12
  Speaker 2: additional merchant statements. Then we go into kind of some
• 8:16
  Speaker 2: operational and efficiency gains. If you're a pharmacy focused on
• 8:20
  Speaker 2: Let's say you're in an urban area and there's a
• 8:22
  Speaker 2: lot of deliveries. Whether that's going to be deliveries with
• 8:25
  Speaker 2: your team, as you know, Austin, or potentially looking at
• 8:30
  Speaker 2: working with some services where you could have deliveries brought
• 8:33
  Speaker 2: to that patient for access. That to me is like
• 8:35
  Speaker 2: an area where I go, there's always a solution there.
• 8:38
  Speaker 2: We've got some features and some areas of focus with
• 8:41
  Speaker 2: our product, Arc Smile. That makes sense. And then there's
• 8:44
  Speaker 2: going to be other areas where you kind of pull
• 8:45
  Speaker 2: back and you look internally. You know, what am I
• 8:47
  Speaker 2: doing in the business today where I can help with
• 8:51
  Speaker 2: buy downs of certain medications? Or I'm really trying to
• 8:54
  Speaker 2: increase maybe the edits. I say edits, pre and post
• 8:58
  Speaker 2: edits that are already baked into my PMS. What can
• 9:01
  Speaker 2: I do to accelerate some of that? So we have
• 9:03
  Speaker 2: some features called Edit Plus. There's just a lot of areas.
• 9:06
  Speaker 2: What I will say is this, is that I think
• 9:08
  Speaker 2: about it like my iPhone today. I'll say it on
• 9:10
  Speaker 2: the cusp of probably the next iPhone announcement, I think,
• 9:13
  Speaker 2: coming this week. But my iPhone is great, but I've
• 9:17
  Speaker 2: got to have additional apps that support it. And that's
• 9:19
  Speaker 2: really how we look at it as a PMS perspective.
• 9:22
  Speaker 3: Next up, a clip from Financing Your Pharmacy's Growth featuring
• 9:25
  Speaker 3: Greco de Valencia, Senior Loan Officer at Live Oak Bank.
• 9:29
  Speaker 3: They're talking about the new SBA updates and how that
• 9:32
  Speaker 3: impacts your pharmacy acquisitions. in 2027 and beyond here's that
• 9:37
  Speaker 3: clip i know one thing uh also is there i
• 9:39
  Speaker 3: know there's some sba updates as well um yeah kind
• 9:42
  Speaker 3: of talk a little bit while we got some time
• 9:44
  Speaker 3: here um talk a little bit about the sba updates
• 9:47
  Speaker 3: that are coming i think october 1st so this episode
• 9:50
  Speaker 3: will release after october 1st um but um talk a
• 9:56
  Speaker 3: little bit for the people listening out there sba updates
• 10:00
  Speaker 3: what do they need to pay attention to, what's relevant
• 10:02
  Speaker 3: for the pharmacy owners, all that.
• 10:04
  Speaker 2: Yeah.
• 10:04
  Speaker 7: And as we record this one, as you mentioned, they
• 10:07
  Speaker 7: take effect October 1. So we're recording this in early September.
• 10:11
  Speaker 7: And there's going to be some information that's put out
• 10:16
  Speaker 7: by the SBA to clarify a few of the pieces.
• 10:19
  Speaker 7: But people need to be aware that if you're going
• 10:21
  Speaker 7: out for SBA lending, there is going to be a
• 10:22
  Speaker 7: new SOP, standard operating procedure, that all banks have to
• 10:26
  Speaker 7: comply with. If they're doing an SBA loan, that's taking
• 10:29
  Speaker 7: effect in October 1.
• 10:31
  Speaker 1: And the main areas where it's impacting is a lot
• 10:34
  Speaker 1: of change of ownerships.
• 10:36
  Speaker 7: And so people need to be aware, I would say,
• 10:40
  Speaker 7: of a few key points. One is the SBA is
• 10:43
  Speaker 7: breaking down change of ownerships a little more refined into
• 10:47
  Speaker 7: certain types of categories. So it's no longer just, is
• 10:51
  Speaker 7: it a partial change of ownership or a full change
• 10:53
  Speaker 7: of ownership? They're really breaking it down into, you know,
• 10:57
  Speaker 7: change of ownership, expansion, buyout, and then ESOP.
• 11:04
  Speaker 1: And so that's important for people to.
• 11:06
  Speaker 7: Understand because The other things that they're doing is they're
• 11:10
  Speaker 7: adjusting the debt service coverage requirements and also taking away
• 11:14
  Speaker 7: the ability for projections to become part of how to.
• 11:20
  Speaker 1: Secure that debt service coverage.
• 11:22
  Speaker 7: Here at the bank, we've always been underwriting to a
• 11:25
  Speaker 7: little higher debt service coverage, but some banks don't. Some
• 11:28
  Speaker 7: banks underwrite to the minimum, and SBA is raising that
• 11:32
  Speaker 7: minimum from 1.15% to 1.25%. Um, another big thing that
• 11:38
  Speaker 7: they're doing, as I just mentioned, is they're taking away
• 11:40
  Speaker 7: the ability for projections.
• 11:42
  Speaker 1: To help get you there.
• 11:43
  Speaker 7: Doesn't always happen in our world, but sometimes, you know,
• 11:46
  Speaker 7: there is a, there is a place for quote unquote,
• 11:49
  Speaker 7: turnaround projects where someone who's having a, you know, a
• 11:54
  Speaker 7: good history of operations, buying a struggling business, going to
• 11:57
  Speaker 7: turn it around using projections that can no longer be,
• 12:01
  Speaker 7: be the case.
• 12:02
  Speaker 1: But I think one big.
• 12:03
  Speaker 7: Thing that is out there for people to really know
• 12:06
  Speaker 7: is now if you're doing, if you're purchasing a business
• 12:10
  Speaker 7: with a $ 3 million price tag, Irregardless of what you
• 12:14
  Speaker 7: put in or the loan amount, if the business purchase
• 12:18
  Speaker 7: price is $ 3 million, now a quality of earnings report
• 12:23
  Speaker 7: is going to be required, and it's going to have
• 12:26
  Speaker 7: to be ordered by the bank.
• 12:27
  Speaker 1: So I know, Scotty, you and I, we talk.
• 12:30
  Speaker 7: A lot about this type of stuff, but quality of
• 12:33
  Speaker 7: earnings is really going to be dictated a lot by
• 12:36
  Speaker 7: the quality of information that the pharmacy that's looking to
• 12:41
  Speaker 7: be acquired gets.
• 12:43
  Speaker 1: On their accounting you know i mean it really.
• 12:45
  Speaker 7: Does kind of emphasize now garbage in garbage out perhaps
• 12:49
  Speaker 7: because that quality of earnings now rises quite a bit
• 12:52
  Speaker 7: as gospel for what the cash flow of the.
• 12:54
  Speaker 1: Business is so that's a big thing for people.
• 12:55
  Speaker 6: So if it's over a three million dollar transaction now
• 12:59
  Speaker 6: sba there's going to be a q of e.
• 13:00
  Speaker 7: Required required yeah so three million dollar purchase price Yep.
• 13:05
  Speaker 1: And, and above quality of earnings is required.
• 13:08
  Speaker 7: And it's important to know it has to be ordered
• 13:12
  Speaker 7: by the bank. So what a lot of people think is, Hey, okay,
• 13:15
  Speaker 7: no problem. I'll get my own and I'll bring it
• 13:17
  Speaker 7: to the bank and say, here it is. No, it
• 13:19
  Speaker 7: has to be ordered by the bank. So that's an
• 13:20
  Speaker 7: important thing for people to know.
• 13:23
  Speaker 4: So the big takeaway there, which we've always preached, is sellers,
• 13:28
  Speaker 4: if you want to sell, you need to get your
• 13:31
  Speaker 4: stuff together.
• 13:32
  Speaker 6: Well, that, but that's a big red tape thing because
• 13:35
  Speaker 6: quality of earnings can drag.
• 13:37
  Speaker 1: On and on and on.
• 13:39
  Speaker 6: It's like an audit. I mean, it essentially is an audit.
• 13:43
  Speaker 1: And all that plays into... It's expensive too.
• 13:46
  Speaker 3: Yeah, all that kind of plays into what we were
• 13:48
  Speaker 3: just talking about, Greco, which is like if you're an
• 13:50
  Speaker 3: owner looking to expand... So knowing these updates is really important.
• 13:55
  Speaker 3: But then also, if you're looking to sell. So, Scotty,
• 13:58
  Speaker 3: we talked to a lot of compounders that are looking
• 14:01
  Speaker 3: to sell that are in that $ 3 million and up
• 14:05
  Speaker 3: kind of price range. So that quality of earnings is
• 14:07
  Speaker 3: going to be really important.
• 14:08
  Speaker 1: Well, yeah, I mean, that gets to the point.
• 14:11
  Speaker 6: If you know a QOV is like a.
• 14:16
  Speaker 6: It's like a, it's like an exam.
• 14:18
  Speaker 5: I mean, they're going in there.
• 14:20
  Speaker 6: And so you want to, you want to have all.
• 14:22
  Speaker 1: Your books and records.
• 14:23
  Speaker 6: You want to have everything buttoned up really, really good.
• 14:26
  Speaker 6: You don't want to be somebody that hasn't done your
• 14:27
  Speaker 6: tax return in two years.
• 14:28
  Speaker 8: And I don't have to sell stuff.
• 14:30
  Speaker 3: Yeah.
• 14:31
  Speaker 2: You better get it together.
• 14:32
  Speaker 8: Yeah.
• 14:32
  Speaker 7: And I swear to all the listeners out there, that
• 14:35
  Speaker 7: was not a planted, like I didn't plant that just
• 14:37
  Speaker 7: to reinforce the message that you have to have clean.
• 14:41
  Speaker 3: Oh no, I didn't, I didn't even know that was,
• 14:44
  Speaker 3: I didn't know.
• 14:46
  Speaker 1: This was not, I don't act that well. It's true.
• 14:50
  Speaker 1: I mean, it's true.
• 14:51
  Speaker 7: We re I mean, so I think that the way
• 14:54
  Speaker 7: I look at it is this, is that, you know,
• 14:56
  Speaker 7: if you're a buyer, this is only going to reinforce
• 15:01
  Speaker 7: the strength of the financial.
• 15:03
  Speaker 1: So it's a good thing.
• 15:04
  Speaker 7: And if it's, and if you're a seller, it's not
• 15:07
  Speaker 7: necessarily a bad thing either. But I think Scotty, what
• 15:11
  Speaker 7: you're mentioning is true is you've got to have your
• 15:14
  Speaker 7: ducks in a row. You've got to understand like, well,
• 15:17
  Speaker 7: what's going to be asked of me? How clean is
• 15:20
  Speaker 7: my information? How quickly can I get it to people?
• 15:23
  Speaker 7: And it's not like if you're a seller and you go.
• 15:25
  Speaker 1: Well, you know what? Okay.
• 15:27
  Speaker 7: Hey, I'm, you know, buyer, let's go to, you know,
• 15:31
  Speaker 7: forget Live Oak Bank, let's go somewhere else. It doesn't
• 15:34
  Speaker 7: matter because now it's part of the SOP. Every bank
• 15:37
  Speaker 7: has to abide to it. And honestly, most banks that
• 15:41
  Speaker 7: do conventional lending are doing QOEs anyway.
• 15:45
  Speaker 1: So for sellers out.
• 15:47
  Speaker 7: There, you know, it's just a matter of, you got
• 15:49
  Speaker 7: to make sure that your information is in line and
• 15:52
  Speaker 7: understand what's going.
• 15:53
  Speaker 1: To be required.
• 15:55
  Speaker 7: And look, to everybody out there, If you're working with
• 15:58
  Speaker 7: an SBA lender that knows this SOP, you know, at
• 16:02
  Speaker 7: Live Oak, we really pride ourselves in knowing this type
• 16:04
  Speaker 7: of stuff. And we can walk people through what's going
• 16:06
  Speaker 7: to be needed.
• 16:08
  Speaker 1: It will make it simpler.
• 16:10
  Speaker 7: But the age old thing is, is if you don't
• 16:12
  Speaker 7: have your, you know, if the house isn't in order,
• 16:15
  Speaker 7: if your documents aren't in order, it could make things.
• 16:18
  Speaker 1: Go a lot longer.
• 16:18
  Speaker 5: Yeah.
• 16:19
  Speaker 1: What are invoice?
• 16:20
  Speaker 3: I have no idea what an invoice audit is. So
• 16:21
  Speaker 3: tell us exactly like what is an invoice audit? What
• 16:24
  Speaker 3: are you seeing and things like that, that we can.
• 16:27
  Speaker 3: share with the listeners here.
• 16:28
  Speaker 8: Yeah, absolutely. And it fits in perfectly with accounting, really, right?
• 16:33
  Speaker 8: When you think of an invoice audit, it's an accounting
• 16:35
  Speaker 8: of purchases against your dispensing history. So at a fundamental level,
• 16:41
  Speaker 8: a PBM, a third-party payer, is looking to match what
• 16:45
  Speaker 8: you build against what you purchased. And so the goal
• 16:49
  Speaker 8: is to reconcile that. And the pharmacy should have, in theory,
• 16:54
  Speaker 8: more purchases or equal to what they said they billed
• 16:59
  Speaker 8: over a period of time. A traditional invoice audit is
• 17:02
  Speaker 8: typically around 12 months. We've seen them shorter. I've seen
• 17:06
  Speaker 8: them as long as five years by some state Medicaid plans.
• 17:09
  Speaker 8: So they can be very intense, very involved. And one
• 17:13
  Speaker 8: of the things that frustrates a lot of owners is
• 17:15
  Speaker 8: it doesn't factor in inventory on the shelf. You guys know, right,
• 17:19
  Speaker 8: a pharmacy sitting on $ 100, 000 or more in inventory, there's
• 17:25
  Speaker 8: no accounting for what you have on the shelf. It's
• 17:28
  Speaker 8: a period of time, what did you bill and what
• 17:30
  Speaker 8: did you buy over that period of time, which can
• 17:33
  Speaker 8: create discrepancies that have to be accounted for or looked
• 17:37
  Speaker 8: at and understood.
• 17:39
  Speaker 5: Which would be your inventory reports.
• 17:42
  Speaker 1: Yeah, absolutely.
• 17:45
  Speaker 6: So they're not considering inventory, but when there's an issue,
• 17:49
  Speaker 6: it's in the inventory.
• 17:51
  Speaker 5: So, well, it should be. Yeah, it should.
• 17:55
  Speaker 3: Absolutely.
• 17:56
  Speaker 8: Well, there's a variety of reasons and facets to where
• 18:00
  Speaker 8: maybe the pharmacy is falling short. Some PBMs, right, I
• 18:05
  Speaker 8: said typical window is about 12 months. So they're looking
• 18:08
  Speaker 8: at a full year. It's not always a calendar year, right?
• 18:10
  Speaker 8: It's at any point in time, a rolling 12-month period.
• 18:13
  Speaker 8: And sometimes the PBM will, whether you factor it in
• 18:16
  Speaker 8: or they'll give you a little bit of grace, they'll
• 18:18
  Speaker 8: give you a 13th month. So beginning before the window,
• 18:21
  Speaker 8: they'll give you an extra month of purchases to try
• 18:24
  Speaker 8: and reconcile against your dispensing history. There are still pitfalls
• 18:28
  Speaker 8: to it. I think one of the big things is
• 18:30
  Speaker 8: slow movers, right? You can have, and every pharmacist has
• 18:33
  Speaker 8: slow moving products, drugs that just sit on your shelf,
• 18:36
  Speaker 8: a patient, you ordered it for someone and they passed
• 18:38
  Speaker 8: away and you couldn't return it. And then you get
• 18:41
  Speaker 8: a new patient on it. Things that might not show
• 18:44
  Speaker 8: up in a purchasing history, but certainly occur in day-to-day
• 18:47
  Speaker 8: pharmacy practice, create issues and ambiguities that have to be
• 18:51
  Speaker 8: explained and justified to a PBM, unfortunately.
• 18:56
  Speaker 3: So were these invoice audits, is this, I imagine they're
• 19:01
  Speaker 3: not new, but is this something that's just been on
• 19:04
  Speaker 3: the rise here recently among audits? And if so, why?
• 19:10
  Speaker 8: I definitely think they're on the rise. I think they
• 19:13
  Speaker 8: certainly existed for a long period of time. And I
• 19:17
  Speaker 8: will say they also are the number one reason for
• 19:20
  Speaker 8: the largest audit recoupments. When I see six-figure, seven-figure audits,
• 19:25
  Speaker 8: they're always invoice audits, right? Those lead to huge, potentially
• 19:30
  Speaker 8: huge recoupments for a variety of reasons. I think there
• 19:34
  Speaker 8: are sometimes bad actors. Always when I see audits, why
• 19:40
  Speaker 8: are we seeing audits in certain areas or certain types?
• 19:43
  Speaker 8: I think bad actors, you know, one bad apple can
• 19:45
  Speaker 8: spoil a bunch. And so there's some fraudsters or inappropriate
• 19:49
  Speaker 8: conducts that can occur. And then the PBMs go looking,
• 19:53
  Speaker 8: they find things, and then they continue to look for more.
• 19:56
  Speaker 8: So unfortunately, I think some of the bad actors can
• 19:59
  Speaker 8: make a bad name for the good players in the
• 20:02
  Speaker 8: industry and those that just get caught up in paperwork
• 20:05
  Speaker 8: and other things where They're not a bad actor. There's
• 20:08
  Speaker 8: a big difference between fraud and a few missing invoices.
• 20:11
  Speaker 8: But then they get swept up into these invoice audits
• 20:13
  Speaker 8: that create issues for them.
• 20:14
  Speaker 3: Our last clip comes from SBA Changes for Pharmacy Acquisitions
• 20:19
  Speaker 3: featuring Alan Sykes at Sykes & Company and Greco de Valencia,
• 20:23
  Speaker 3: Senior Loan Officer at.
• 20:25
  Speaker 1: Live Oak Bank.
• 20:27
  Speaker 3: They talk about how the new SBA updates impact pharmacy
• 20:30
  Speaker 3: acquisitions and accrual versus cash accounting.
• 20:34
  Speaker 1: Here's that clip.
• 20:34
  Speaker 7: Beginning October 1, the SBA, which is a pretty big company,
• 20:40
  Speaker 7: lending vehicle product, you know, that banks use for helping
• 20:45
  Speaker 7: pharmacists purchase pharmacies and business owners, of course, buying pharmacies.
• 20:51
  Speaker 7: In October 1, there are some new rules that are
• 20:54
  Speaker 7: taking effect that directly impact changes of ownership. And really,
• 21:01
  Speaker 7: I think it's important for anybody who's looking to purchase
• 21:04
  Speaker 7: a pharmacy or if they're looking to sell a How
• 21:08
  Speaker 7: these new rules are going to impact the goal of
• 21:13
  Speaker 7: reaching that change of ownership.
• 21:17
  Speaker 3: Yeah, absolutely. So what are those new rules that have
• 21:24
  Speaker 3: come up through the SPA?
• 21:25
  Speaker 5: I think Greg can generally talk about the size of
• 21:28
  Speaker 5: the transactions because I think that there's a lot to do. Yeah, absolutely.
• 21:34
  Speaker 7: So let's start really at the top here, which is
• 21:40
  Speaker 7: on the change of ownerships, they've now broken it up
• 21:44
  Speaker 7: pretty much into four buckets, so four types. So, Alan,
• 21:48
  Speaker 7: I know you always ask a great question when someone
• 21:50
  Speaker 7: comes to you and says, hey, I'm ready to buy
• 21:51
  Speaker 7: a pharmacy, and.
• 21:52
  Speaker 1: You go, okay, well— What does it include? What kind
• 21:56
  Speaker 1: of purchase? What are you buying? What are you buying?
• 21:57
  Speaker 1: That's always the question.
• 21:59
  Speaker 3: Well, I don't know.
• 22:00
  Speaker 5: I'm buying a pharmacy.
• 22:01
  Speaker 8: Yeah, right. I don't know.
• 22:02
  Speaker 1: I'm buying a pharmacy.
• 22:03
  Speaker 5: Well, I had that exact same situation yesterday.
• 22:05
  Speaker 3: Yeah.
• 22:06
  Speaker 7: So it's real similar now. It's like, okay, I'm buying
• 22:09
  Speaker 7: a pharmacy. Well, what kind of transaction are you doing?
• 22:13
  Speaker 7: And what the SBA basically said is like, hey, listen,
• 22:16
  Speaker 7: we have to look at this in four kind of buckets.
• 22:18
  Speaker 7: One being, is it a traditional change of ownership where-
• 22:23
  Speaker 7: Person A is buying 100% of the business from person B, okay?
• 22:30
  Speaker 7: Your standard change of ownerships. Two, they said, is this
• 22:35
  Speaker 7: an expansion? Does this qualify as an expansion? Three, is
• 22:40
  Speaker 7: it a partial buyout or partial buy-in?
• 22:44
  Speaker 1: And then fourth, is it an ESOP?
• 22:47
  Speaker 7: And really, for what we see most of the time, Alan,
• 22:50
  Speaker 7: is let's focus on that first bucket, which is the
• 22:53
  Speaker 7: 100% change of ownership.
• 22:54
  Speaker 1: That's a majority of what people see in this space.
• 22:57
  Speaker 5: Correct.
• 22:58
  Speaker 1: So then the next question is, all right, well, that's
• 22:59
  Speaker 1: what I'm doing.
• 23:00
  Speaker 7: Okay, is it stock or is it asset? Alan, you
• 23:03
  Speaker 7: always make sure that people ask them, what is it?
• 23:05
  Speaker 7: Are you buying the assets of the company? Are you
• 23:06
  Speaker 7: buying the stock of the company?
• 23:07
  Speaker 1: Correct. And then for how much?
• 23:10
  Speaker 7: Well, let's say now that that purchase price of that
• 23:13
  Speaker 7: business is $ 3.
• 23:14
  Speaker 1: Million and over.
• 23:16
  Speaker 8: Okay.
• 23:17
  Speaker 7: So $ 3 million and up. Not loan amount because that's
• 23:20
  Speaker 7: a really important distinction. We're talking about purchase price. Everything
• 23:24
  Speaker 7: that's included to purchase that business minus real estate.
• 23:28
  Speaker 1: So we're not talking about real estate. We're talking about business.
• 23:30
  Speaker 7: $ 3 million and up.
• 23:33
  Speaker 1: A quality of earnings is now going to be required.
• 23:35
  Speaker 7: And that's a major shift because prior, a requirement of
• 23:38
  Speaker 7: a quality of earnings was never there. Well, now people
• 23:42
  Speaker 7: are going to need to be ready for that. So
• 23:44
  Speaker 7: let's say, Austin, if I'm out there and I'm going
• 23:47
  Speaker 7: to buy your pharmacy and you say, great.
• 23:48
  Speaker 1: It's $ 3. 5 million for my business. Well, what does that include?
• 23:53
  Speaker 1: Let's just say we agree on a stock purchase. It
• 23:55
  Speaker 1: includes lock, stock, and barrel, everything, $ 3. 5 million.
• 24:00
  Speaker 7: Well, you and I can talk all we want about
• 24:03
  Speaker 7: agreeing on things.
• 24:04
  Speaker 1: Whether we memorialize it, whether we don't.
• 24:07
  Speaker 7: But when the time comes to go get financing for
• 24:10
  Speaker 7: that transaction, and I want to use a SVA loan
• 24:14
  Speaker 7: to get that done, I have to be ready as
• 24:17
  Speaker 7: a seller and a buyer to understand that now a
• 24:21
  Speaker 7: quality of earnings is going to be required. And I
• 24:23
  Speaker 7: think it's really important for people to understand, like, what
• 24:26
  Speaker 7: goes into that quality of earnings?
• 24:28
  Speaker 1: What is it? Why is it required?
• 24:30
  Speaker 7: And, Alan, I mean, I know you probably deal with
• 24:32
  Speaker 7: this a lot at times because, you know, it can
• 24:36
  Speaker 7: come up from time to time, but now it's going
• 24:37
  Speaker 7: to become a normal thing for these.
• 24:41
  Speaker 3: Well, and Greco, you talked about, you mentioned the quality
• 24:43
  Speaker 3: of earnings as required. That was actually going to be
• 24:46
  Speaker 3: my next question, is what are some of those pharmacy-specific
• 24:49
  Speaker 3: items in an earnings that would be explored a little
• 24:54
  Speaker 3: bit that owners need to be paying attention to?
• 24:56
  Speaker 5: And also, Greco, added to that, who performs that quality
• 25:00
  Speaker 5: of earnings in that process?
• 25:01
  Speaker 1: That's a great question. So who orders it and who
• 25:04
  Speaker 1: performs it?
• 25:05
  Speaker 7: So it is allowed that the buyer can order it.
• 25:10
  Speaker 7: If it's under an approved vendor that the bank also
• 25:15
  Speaker 7: will work with, the bank is best to order it
• 25:19
  Speaker 7: because the bank has a company that is already doing
• 25:22
  Speaker 7: certified valuations and can do certified quality of earnings as well.
• 25:27
  Speaker 7: What goes into that Austin is first and foremost, they're
• 25:31
  Speaker 7: going to have to have some clean financials. So in
• 25:34
  Speaker 7: this instance, and I know all in your big, you know,
• 25:36
  Speaker 7: big proponent of this, it's always like, Hey, if it's
• 25:38
  Speaker 7: garbage in, it's going to be garbage out. So obviously,
• 25:42
  Speaker 7: we need to have some proper financials prepared, tax returns, year-to-dates, comparables.
• 25:51
  Speaker 7: So part of the quality of earnings is going to
• 25:53
  Speaker 7: also do a little bit of an add-back verification. But
• 25:56
  Speaker 7: with pharmacy, it's very unique because there's also, you know,
• 25:59
  Speaker 7: what if 340B is part of your revenue? You know,
• 26:02
  Speaker 7: there's wholesaler vendors, acquisition costs, and you might buy from
• 26:09
  Speaker 7: multiple wholesalers. That all kind of plays into the gross profit.
• 26:12
  Speaker 7: So I think pharmacists are going to have to be
• 26:14
  Speaker 7: prepared for not only engaging proper accounting, but also perhaps
• 26:19
  Speaker 7: be required to provide Those are the types of information
• 26:22
  Speaker 7: that really play into what generates the gross profit.
• 26:27
  Speaker 3: Yeah, and Alan, one question for you about this. I
• 26:31
  Speaker 3: imagine that having your books on a– depending on what
• 26:37
  Speaker 3: accounting basis you're using is greatly going to impact the
• 26:40
  Speaker 3: quality of your earnings.
• 26:41
  Speaker 5: That was actually my next question for Greco.
• 26:43
  Speaker 3: Yeah.
• 26:44
  Speaker 5: Because we see a number of pharmacies that keep their books, unfortunately,
• 26:48
  Speaker 5: I might add, on a pure cash basis. Their tax
• 26:52
  Speaker 5: returns are on a cash basis versus, as you know,
• 26:56
  Speaker 5: the way we handle things here. Every one of our
• 26:59
  Speaker 5: clients that we have, we're on an accrual basis monthly,
• 27:02
  Speaker 5: even though we may be cash basis for tax. So
• 27:08
  Speaker 5: how does your outside firm that does the quality of
• 27:12
  Speaker 5: earnings report, review, handle that when they've got pure cash
• 27:16
  Speaker 5: basis statements.
• 27:17
  Speaker 1: Yeah.
• 27:17
  Speaker 7: So this is an important thing too, where the bank
• 27:21
  Speaker 7: is going to work closely with that third party quality
• 27:25
  Speaker 7: of earnings firm, buyer, and then whatever representation, whatever represent
• 27:30
  Speaker 7: the seller has, whether it's an accounting bookkeeping. I don't
• 27:33
  Speaker 7: want to necessarily answer for the third party valuations, but
• 27:36
  Speaker 7: it's my understanding that they are going or rather the
• 27:39
  Speaker 7: quality of earnings is they are going to be able
• 27:41
  Speaker 7: to convert things on a cash to accrual basis, accrual
• 27:44
  Speaker 7: to cash.
• 27:45
  Speaker 1: And they're going to be able to kind of help, for.
• 27:48
  Speaker 7: Lack of a better term, normalize that out so that
• 27:51
  Speaker 7: people can understand what that conversion might be.
• 27:54
  Speaker 1: Another really important thing.
• 27:55
  Speaker 7: That they're going to be able to provide is insight
• 27:58
  Speaker 7: into the cash cycle. So I think that's going to
• 28:00
  Speaker 7: be a big bonus to the buyers is they're going
• 28:03
  Speaker 7: to be able to understand a little bit about, well,
• 28:05
  Speaker 7: along the course of a year, where's the peaks.
• 28:08
  Speaker 1: And the valleys?
• 28:09
  Speaker 7: And for pharmacy, depending on reimbursement times, when WAC is
• 28:13
  Speaker 7: updated or either increased or decreased, when rebates come in.
• 28:18
  Speaker 7: So it's a good insight for that. But the one
• 28:22
  Speaker 7: thing I'll point out is what it's not.
• 28:24
  Speaker 1: It's not an audit. And it's not an IRS gotcha.
• 28:28
  Speaker 7: So I think it's important for sellers to understand that
• 28:30
  Speaker 7: what this really is intended to do is when there's
• 28:34
  Speaker 7: a purchase price that's above a certain limit that's now
• 28:36
  Speaker 7: been established at $ 3 million. It's really just how do
• 28:40
  Speaker 7: we get a confidence report in those financials. It's not
• 28:44
  Speaker 7: a gotcha. It's not an audit. And buyers need to
• 28:48
  Speaker 7: understand that, too. This is not going in and saying, hey,
• 28:52
  Speaker 7: is the owner properly billing?
• 28:54
  Speaker 1: Is it above board in that way? So it's not
• 28:57
  Speaker 1: an audit.
• 28:58
  Speaker 7: What this really is is just a financial insight into
• 29:00
  Speaker 7: the confidence of the cash flow of the business.
• 29:02
  Speaker 5: Yeah, and the buyer needs to understand also it's going
• 29:05
  Speaker 5: to probably increase the closing cost involved as far as
• 29:09
  Speaker 5: That doesn't come without additional cost.
• 29:11
  Speaker 1: That is true, yeah.
• 29:12
  Speaker 7: So it's important that if– beginning October 1 in the
• 29:17
  Speaker 7: new state of what it's going to look like, if
• 29:19
  Speaker 7: you're in conversations with a seller to acquire a business
• 29:22
  Speaker 7: and you're interested in getting financing– And the discussion points
• 29:26
  Speaker 7: are that the purchase price of the business could be
• 29:29
  Speaker 7: above $ 3 million. It's really important to engage a knowledgeable
• 29:33
  Speaker 7: SBA lender in pharmacy early on to understand what are
• 29:37
  Speaker 7: those costs, what does the process look like. so proper
• 29:40
  Speaker 7: expectations can be set. Because what I just don't want
• 29:44
  Speaker 7: people to think of is, oh, well, now this is required.
• 29:47
  Speaker 7: I'm not going to sell my business or I can't
• 29:49
  Speaker 7: buy a business.
• 29:50
  Speaker 1: That's not what it is.
• 29:52
  Speaker 7: Always, always, always talk to someone who knows and they'll
• 29:55
  Speaker 7: be able to walk you through it.
• 30:05
  Speaker 8: Thank you.