Pharmacy Business 101: Creating a Purchasing Strategy
Updated August 7, 2025 | Published: September 22, 2023
2025 Purchasing Strategy Update: Staying Ahead on Brand COGs
As we move through the third quarter of 2025, you should refocus on brand cost of goods (COGs) specifically, invoice discounts on brand medications. Most wholesale agreements include quarterly review periods tied to Generic Compliance Rate (GCR) performance, meaning your purchasing habits now can directly impact your discounts for the rest of the quarter. Since we’re about a third of the way through 2025, this is the ideal time to assess your compliance progress. If you’re falling short, there’s still time to adjust your purchasing strategy to maintain or even improve your brand invoice discounts. We recommend reviewing your wholesale agreement, consulting with IPC or your McKesson rep, and making proactive adjustments to maximize savings. If you need help optimizing your purchasing strategy, contact us today for expert guidance.
Many pharmacy owners we work with tell us that their number one challenge or focus is to reduce their costs, and specifically their Cost of Goods. It is IPC’s mission to help members enhance profitability which led us to writing this blog series to help owners create a purchasing strategy that can directly and positively impact your bottom line.
This sounds hard. Is it worth going through these steps?
We have countless stories of positive outcomes from owners and pharmacy managers taking the time to go through this 4-step process. It is not always clear which step will provide the greatest impact. Here are a few examples:
One multi-store group earned an additional $2,000 per store per month after a 30-minute agreement review followed by a strategy development session that took several 15-minute calls with each manager over a few weeks to implement.
We uncovered one scenario where using the wrong tools was costing a store over $30,000 per quarter.
One member realized improved working relationships for their team as a result of goal and strategy alignment.
Still others have pointed to peace of mind from understanding and confidence in their strategy and execution plan as a benefit.
It is critical to work through all four steps to find out exactly how it will benefit you, your staff, and your bottom line. Stay tuned as we dive in a little deeper and who knows, maybe you will be able to sleep better at night knowing you have the right people and the right system in place to manage your costs.
Have you reviewed your primary wholesale agreement recently?
This step is fundamental to the rest of the process. We will be diving pretty deep into this part to ensure the remaining three steps build upon a strong foundation.
Have you looked at the last price paid for Eliquis when placing an order and noticed a price change that was unexpected? Do you wonder why rebates differ from one month to the next when looking at your bank deposits or rebate statements? These are two triggers that should cause owners to explore and understand the supply agreement.
The devil is in the details. We will show you how to navigate this on your own and in some cases it is important to partner with someone who can support you to effectively and profitably navigate your specific agreement.
Let’s start at the beginning…
The terms Supply Agreement, Wholesale Contract, and Primary Vendor Agreement are often used interchangeably. Your agreement could be direct with your wholesaler or could be through a Group Purchasing Organization, also known as a buying group. For the purposes of this education, we will use the term “agreement” to refer to the agreement or contract that determines your pricing.
Ask yourself a couple questions:
- Can you recite the main components of the supply agreement?
- If so, can you recite the specifics and triggers?
- Have you reviewed the supply agreement since you signed it or since the start date?
You might be asking why this is important…
The components of your supply agreement determine your final costs and likely contain moving pieces that can raise and lower costs. One purchase can impact your cost structure. If your structure changes, you might incur increases that cost thousands of dollars.
Example: if we do some rough math for an average $4MM store:
A half a percent cost increase seems small because it only raises your cost by $.50 when you order a $100 medication, making it easy for that price change to go unnoticed. But consider that this costs an average store $15,000 a year, right off the bottom line. What if you could change this in the other direction and in your favor by $1? How quickly would that add up to having a significant impact on your overall profitability? As you look at your purchase history and see commonly used brands have increased in price, it should be a trigger that you may need to review the terms of your agreement.
Let’s get into the details.
It’s the first of the month, what happened while you were sleeping last night?
We have laid out each of the three main points and a brief description. At the end we will share the solution so you can navigate this complexity.
Brand cost changes are easy to miss and chasing a lower price for one drug might cause a price increase on another.
“Am I playing WAC-A-Mole with my Brands?” Have you ever played Whac-A-Mole with family and friends on holidays and game night? Your day can be like this game, chasing a price increase or low reimbursement over here and miss or cause one over there. It is common that the agreement guidelines determine brand invoice discounts, typically expressed as a WAC (wholesale acquisition cost) minus discount. If your discount is WAC -5%, then you pay 5% less than WAC. This wholesale acquisition cost minus percentage determines the price paid at point of sale. The agreement identifies what the greatest and least WAC minus discount can be. The agreement should also clearly state what impacts the WAC minus discount, including but not limited to:
- Purchase volume
- Generic to Brands (GCR) (percentage of total Rx purchases that are generics – welcome to math class GCR=Gx$/Rx$, easy, isn’t it?)
- Wholesaler source generic percentages (raise your hand if you know what this means?) This is the OneStop ratio for IPC members (IPC members benefit from a robust Generic catalog alternative to OneStop called Pharmacy Select. These are the RTL2 price codes)
- Dispensing ratios (percentage of dispensed medications that are purchased from the primary wholesaler – (GPR (Generic Purchasing Ratio) for IPC members – See tools and strategy next time for a deeper dive into managing this ratio)
- Percentage of purchases that are specialty (yes, even if you are not a “specialty pharmacy”)
- Percentage of purchases that are in the GLP1 category (call us NOW if GLP1 is a new term)
- And there may be more…
The percentages and measurements are used to determine:
- Your invoice discounts
- Additional rebates that can be earned
- Other incentives
It is easy to look at it once and use that point in time as the norm, but it is critical to know what pays and changes monthly, quarterly, and yearly.
- It is common for Brand costs to be measured quarterly and generics monthly.
- Set a reminder to call IPC at critical points to prepare for the next measurement period.
“Not all brand items are treated equally: Brand Differential Pricing.”
Some brand items including specialty, insulin, and GLP1 may not qualify for the standard WAC minus pricing. These discounts are typically locked at a specific WAC minus discount referred to as differentially priced or net billed. It is important to identify what items are in this category, and how this category impacts the rest of your costs. Ask your wholesaler and GPO representatives what brand items you don’t receive your full brand invoice discount. These brands have a big impact on your GCR compliance since they are expensive so where you buy them is important.
Generic pricing and rebates fluctuate.
Just like brands, it is important to know what impacts your invoice discounts and when. If your program is driven by rebates, then you need to know what the minimum, maximum, and average rebate is expected so you can build this into your purchasing strategy.
- Does your Rebate % or $ fluctuate on your purchase volume?
- Do you know your Rebate % and what impacts it?
- How is your Rebate % displayed in your ordering system?
- Are you purchasing outside your primary wholesaler and question whether or not you are making the right decision?
Generics are influenced by the same ratios we mentioned above for brands. The key is to know which ones.
Confused? Let us help you.
We are here to support your analysis. IPC experts work every day with our members to identify their WAC- discount and understand the factors and ratios that impact it. Engage with us so you have the clarity and control to manage your drug costs.
This is step one and rest assured that we will share the details of the next steps with you over the next few weeks. To navigate this complexity, it is important that you have scheduled time in your week to step out of the whirlwind and focus on the big picture. Carve out the time to work on this and you will take that necessary big step towards clarity and improved profitability.
If I cover a loss here, do I create a loss there?
Now that you are familiar with the components of your supply agreement, you can use that to Break Down Brand and Generic Costs Per Item. By understanding and reviewing your individual line-item costs, you can confirm the rebates you are receiving and create more clarity in your purchasing strategy.
It is common that when reviewing cost data owners identify a line-item loss and address that one by itself. Unless you break down the details of what affects the final cost, you cannot be certain you are paying the best price and therefore understand your final cost. The goal is to be confident that you know what your final cost is, so you know you have the right purchasing strategy in place.
If you haven’t yet read Part 1, it is important to start there.
Click here to go to Part 1.
First, since you understand the value of compliance with your wholesaler agreement, as you build your purchasing strategy, that sits at the top of the strategy.
For example, managing your GPR compliance. McKesson refers to items purchased from other vendors as leakage. Leakage impacts GPR compliance which can drop rebate % and dollars as a result. Don’t be afraid to purchase from a secondary source at a more affordable price, just be aware of the actual spend and ratios so you optimize your purchases while remaining compliant. Call us to help you break down your final costs first, then you will know what to look for and where. We will tackle this in more detail in the Toolkit discussion in Part 3.
Steps to take to break down brand and generic costs per item:
- Select one commonly dispensed brand and one generic.
- Look at the invoice price for each.
- Determine the rebates (from analysis above) – including monthly, quarterly, and annual.
- Apply the rebate to the invoice price.
- Calculate the profit based on the reimbursement.
To assist you we have broken this down into five steps:
Select one commonly dispensed brand.
Some of the brand drugs that pharmacies have found useful to start their analysis with are Eliquis, Ventolin, Farxiga, Lantus Solostar, Ozempic, Advair, Trulicity, or Flovent.
As you get more comfortable with this review and analysis, increase the number of drugs you analyze to two or three. This way you can confirm the same drug invoice discount, identify trends, and begin to review other drugs to broaden the scope of your analysis.
Look up the invoice price for the brand drug.
For brand invoice, look up WAC and subtract your cost to determine your discount. Divide that by WAC price to determine the WAC minus percentage.
Determine the rebates from the agreement analysis above, and factor in monthly, quarterly, and annual.
Calculate your rebates on the actuals you have for preceding months and in a separate calculation, use the potential opportunity if compliance measures were not met to identify the final cost.
For rebates that can be applied to all purchases, divide the rebate amount by the total purchases to determine your discount percentage that you apply to obtain the final cost on each item.
Apply the rebate to the invoice price to identify the potential or actual net price.
Calculate the profit based on the reimbursement.
Look up the reimbursement and subtract your final cost in step #4 from the reimbursement. This is the profit you made from that prescription.
For Generics repeat steps 3-5 above with drugs such as Guanfacine, Fluticasone, Lidocaine Patch, Tobramycin/Dexamethasone, Metoprolol, Levothyroxine, Albuterol, or Amoxicillin.
Through this analysis you can see the real cost and profit to understand the impact of how managing compliance and ratios results in more profit and ultimately more cash in your store.
We understand this is complicated, and it is important to have a partner as you go through this for the first time. Schedule time with us to walk you through it and get your final cost review process built.
Next week we will go through the tools you need to manage this complexity and stay on course to profitability.
In Part 1 we explained how to analyze your wholesaler agreement. In Part 2 we went through the steps to determine your final costs by using the metrics and ratios you learned about in Part 1.
Now we identify the tools you will use to create a consistent cadence for your review as the next step in the strategy.
The tools you will use are:
Rebate Statements
Let’s start with your Rebate Statements. If you have gotten this far and haven’t found the right tool to review and calculate your rebates, we’ll provide you with the path here.
- IPC rebate statements display monthly One Stop rebates, quarterly/yearly One Stop rebates where applicable, quarterly Pharmacy Select (RTL2) Rebates, and yearly IPC Patronage benefit/rebate. Go to www.ipcrx.com > log in to your member account to view your statements.
- Select My Account > Select Rebates > Select the desired month to load the pdf.
- Back-end Brand and Generic rebates will be displayed on the Health Mart rebate statements or My McKesson statements. Confirm Back-End Currently the path to finding these statements is: Rebates. Why: Confirm your agreement contract rebates are being earned based on individual contract parameters. ideaShare and other additional rebates may be listed here. Access: Log into MyHealthMart > login to your account to view your statements.
- Currently the path to finding these statements for Health Mart franchise stores is: Purchasing Insights > Rebates >Select the month you desire to look at to load the report (if you get an error, you may need to clear your cookies in your browser).
- Compare the percentages over a few months to determine if your costs are consistent.
If you find them inconsistent or are not sure what some of the rebates are paying for, feel free to call us at IPC.
Other resources and tools to use include pharmacy management system, ordering platforms, and peer groups.
Ordering Platform
Within your ordering platform and McKesson Connect, the cost data they display is impacted by the settings within the system. It is important to have the right settings so you can see more accurate data in real time, and one of those settings is your Rebate Percentage. Let’s update those settings next.
Setting Accurate Generic One Stop rebate % (based on statement totals or your target percentage – you choose):
- Log into McKesson Connect to set your rebate percentage.
- Currently the path is Go into an order > Admin drop-down > Account > Generic Percentage Preferences > Input Max Rebate Percentage > Save
- This will update your entire One Stop catalog.
RTL2 (Pharmacy Select) rebates average 10%, are not reflected on McKesson Connect, and can be found quarterly on the first IPC statement of January, April, July, and October.
Compliance Tools
Now we will review the Compliance Tools. Since compliance determines the cost structure it is critical to use the right tools to manage your compliance goals.
- A Purchase Drill Down Report shows the GCR as Gen%Rx in McKesson Connect. When you reviewed your agreement in Part 1, pay attention to whether compliance is the aggregate of multiple accounts, if applicable. If so, you will need to add the accounts together to measure compliance. (LTC and retail, retail and Combo pharmacy, EDI, and manual accounts are common combinations)
- Currently the path to access the Purchase Drill down Report, that records orders and keyed returns.
- Log into McKesson Connect > Business Management Tab > Reports > View Purchase Drill Down > Input McKesson # > Submit.
- This defaults to 13 months, but you can change accordingly.
- Each ordering account will have its own report.
- Currently the path to access the Purchase Drill down Report, that records orders and keyed returns.
- myhealthmart.com provides a dashboard with trend graphs of your purchase volume, GCR, GPR/BPR, and others. They can be found in the purchasing insights link.
- This dashboard reports historical data and projections.
- The projected GCR is just that, projections based on recent order activity.
- It reports orders delivered and returns received. This is the final number that rebates and invoice cost structures are based on. The tool here to help manage GCR is the projected GCR percentage on the graph. It is just that, projections based on recent order activity so use with caution.
- If that seems a bit complicated or you prefer not to login to multiple systems, you also have the option of exporting your orders and returns and managing them on a spreadsheet manually. Some of our members use this method to calculate orders as they place them daily and this method predicts order impacts before placing them.
***Manually tracking your GCR based on your delivered orders and returns is the best way to predict the outcome.
Disclaimer: The reports above should be considered a guide to estimate current percentages. Exceeding the target percentages can help ensure the desired outcome.
Dispensing Ratios
Dispensing Ratios for managing compliance: BPR (Brand Purchase Ratio) and GPR (Generic Purchase Ratio).
Use the report in MyHealthMart to view and manage the items dispensed and leaked.
- Log into MyHealthMart > Purchasing Insights > GPR Opportunity Report or BPR opportunity Report.
These reports will show the quantity of all items, generic or brand respectively, that you purchased and dispensed over a 3- or 6-month period. It will display a calculation showing the percentage of dispensed items that are purchased, total purchased dollars divided by total dispensed dollars. The report updates on the 15th of each month to reflect the period ending on the last day of the previous month.
Several tips to managing BPR and GPR include:
- Key Idea: Tablets and Capsules are measured so switching outside purchases from oral solids to non-oral solids will have an immediate impact.
- Resetting the baseline – each item dispensed and purchased is valued at the McKesson warehouse invoice value based on last purchase price, so review your last price paid to see if you can reset the impact with a purchase.
Carve Outs
Carve Outs: If your agreement excludes certain items, make sure you have a process so that you can ensure that they are accounted for in your ratio calculations.
Key Formularies
Familiarize yourself with the Key Formularies that impact your patient base. This tool can help you predict how much Brand and Generics will be dispensed allowing you to plan for their impact on compliance parameters.
Alternate Sourcing
Alternate sourcing can provide significant cost savings. Understanding all the tools above can help you make the right decision when choosing alternate source options.
It is difficult and stressful to develop a strategy when the tools are inadequate or unavailable which makes understanding the tools above and how to use them incredibly valuable.
Work closely with your buying group representatives on a regular basis to review tools and best practices since they are often changing and improving. Give us a call to get started.
Now that you have identified your team of representatives and advisors, analyzed your agreement, you can confidently calculate your final costs, familiarized yourself with the tools that are available, it is time to put it together and develop a purchase strategy.
Establish goals and the metrics you will measure.
Identify the contract components where you are within reach of achieving them and focus on these first. You may only have one or two that are achievable in the short term.
- For example, you are within a couple percentage points of achieving your next GCR tier. Set your goal to achieve that tier.
- As we mentioned in section two, your metrics and ratios are interconnected so make sure you align those metrics and ratios. As you navigate GCR, continue to maintain compliance with GPR and BPR as required, as well as monitor volume requirements.
Assign responsibility to someone on your team to manage the process and the outcome. Clear objectives and accountability with recurring touch point reviews will assure you the best chance of success.
Develop a written process for your team to follow:
- Timeline of measurement for each metric, considering some are measured monthly and others are quarterly.
- List the tools, login credentials and training resources available to manage the metrics and ratios.
- Identify outside factors that impact your ability to monitor this including vaccine clinics, open enrollment, vacations, etc.
- Set reminders on your calendars and identify who will be responsible for keeping everyone on track.
Provide education of the process to everyone on the team so they can reference it over the first month. Review it again in a month to six weeks, especially if significant changes to your normal activities are needed. Schedule quarterly and yearly meetings to ensure this process continues to be the best strategy for your practice. The preparation up front and continued monitoring will have an impact on your bottom line. One member told us that this also improved the working relationships between everyone responsible for ordering because they are all on the same page working together toward the same goal.
Lastly, committing to optimizing the agreement you have with your primary wholesaler is an important next step. Now that you know your metrics, ratios, and their impact on costs, you understand your business better and are educated to have more insightful conversations with your buying group representative.
IPC is committed to the success of our members. Educated members are empowered to understand how to navigate their profitability and take advantage of the programs, services, and expertise we have to offer.
Once you have established a purchasing strategy you are poised to take advantage of the market as it changes. Establish new high profit revenue streams, add services, and improve patient outcomes to become a profitable and thriving healthcare destination.
Call us today to take your first step on a course to success.
