The Current PSAO Landscape
Independent pharmacies have a support structure through Pharmacy Services Administrative Organizations (PSAOs) that helps them achieve scale and keeps them competitive. PSAOs leverage their membership (i.e., the pharmacies they contract with) to negotiate contracts with other parties in the pharmaceutical supply and payment chain.
More than 89% of the independent pharmacies in the nation use PSAOs to interact with PBMs on their behalf. PSAOs also provide independent pharmacies with a wide range of business services to all types of pharmacies, which are necessary to run a successful pharmacy.
RESEARCH SHOWS US
The 6 largest PSAOs (Ownership) by National Independent Pharmacy Count, 2024:
6,077
Health Mart Atlas (McKesson)
5,416
Cardinal Health (Cardinal Health)
5,014
Elevate Provider Network (AmerisourceBergen)
3,998
AlignRx (American Associated Pharmacies)
2,031
Pharmacy First (Wholesale Alliance)
1,474
EPIC Pharmacy Network Inc (EPIC Pharmacies)
PSAO Footprint by State in 2024
The number of independent retail pharmacies that contract with PSAOs varies across states. The map below shows a snapshot of the number and percent of independent retail pharmacies that contract with a PSAO in each state in 2024.
What is a PSAO?
The primary service that PSAOs perform for their members is collective negotiation of the contract terms with PBMs. This generally involves a variety of elements including: negotiating reimbursement from the PBM to the pharmacy for prescription drugs; a pharmacy’s participation in a PBM’s pharmacy network; dispensing fees; and reimbursement for other services (e.g., conducting medication therapy management), including value-based payment (VBP) initiatives and quality metrics.
PSAOs often also perform four additional core services for their member pharmacies – described below. Not all PSAOs perform all of these core services for all of their member pharmacies; however, many pharmacies choose to outsource much of their business operations to their contracted PSAO.
Detailed description of core PSAO services
- Network access – First and foremost, this is about getting the pharmacy into the network of the plan(s) supported by the PBM. Generally, plan enrollees must pay higher cost sharing for using out-of-network pharmacies. Thus, network access will drive more plan members to a pharmacy. In some product lines (e.g., Medicare Part D) there may also be a preferred pharmacy network. Preferred pharmacies have lower cost sharing compared to base network pharmacies
- Contract terms – Negotiation of key contract terms, such as reimbursement rates, billing requirements, payment frequency, recoupment process/overpayment clauses, audit clauses, value-based/quality payment adjustments, including direct and indirect remuneration (DIR). DIR is a CMS regulatory term for any payment made by a manufacturer, pharmacy, or other party to the PBM or plan sponsor in Medicare Part D (42 CFR §423.308)
- Reimbursement terms – dispensing fees, pharmacy-provided services, reimbursement related to quality metrics and value-based arrangements
- Credentialing – verification of pharmacy and pharmacy technician licensure, pharmacy liability insurance validation, monitoring the Health and Human Services (HHS) Office of Inspector General’s (OIG) List of Excluded Individuals/Entities (LEIE; aka the Exclusion List), registration with the Drug Enforcement Administration’s (DEA) Diversion Control Division, and validation of compliance with other applicable regulations
- Acquisition of prescription drugs from wholesalers – some PSAOs are owned by wholesalers and most of the others facilitate business relationships with wholesalers to negotiate for, purchase and deliver prescription drugs to the pharmacy.
- Prescription drug billing – claims review and editing tools designed to improve reimbursement accuracy and reduce payer auditing risks. These tools, usually a software as a service (SaaS) may be in-house at the PSAO or facilitated by them through a special business relationship with a vendor. PSAOs may manage all other aspects of billing, including receiving remittances from PBMs and manage matching claims with payments
- Medical services and medication therapy management (MTM) billing – as pharmacists continue to gain “provider status” they are now billing for clinical services (e.g., blood sugar testing, vaccine administration, and blood pressure checks) and MTM, that often are paid outside the normal pharmacy prescription drug billing systems. PSAOs typically facilitate vendor automation of these processes
- Audit support – documentation reviews, consulting, and analytic assistance with payer audit preparation, production of discrepancy reports and filing appeals with payers and government agencies
- Purchasing IT – internal PSAO products or group vendor purchasing of hardware and software solutions for a wide range of pharmacy business needs including desktop and laptop computers, accounting systems, patient information databasing, financial transactions including in-store use of credit cards and centralized electronic funds transfers (EFTs) of all third-party insurance payments, and prescription drug inventory, ordering, and tracking systems
- Internet and digital support services – creation and maintenance of websites, online ordering systems, smartphone applications, and tools to help Medicare patients choose a Part D plan during the annual election period (AEP)
- Telehealth/pharmacy – software that allows for remote video-based direct patient counseling or collaboration with other healthcare providers
- Clinical tools – for example, electronic care plans and patient records so that pharmacies can better participate in care coordination and medication synchronization (Med Sync) tools for patients that have been prescribed multiple treatments for chronic conditions at different times during the month. Med sync allows patients to obtain refills on a single day convenient to them and has been associated with greater treatment adherence
- “Front store” sales support – typically an independent pharmacy is also a retail convenience store, selling a wide range of consumer goods and over-the-counter (OTC) non-prescription drugs and supplements. PSAOs often group purchase these items at a discount or may co-brand in franchising contracts. For example, the Good Neighbor Pharmacy (AmerisourceBergen) franchise has a branded vitamin and supplement program
- Misc. – often PSAOs help source business insurance products, assist with marketing the independent pharmacy, and may also engage in both state and federal government advocacy
- Quality analytics – support for value-based payment arrangements. Typically, will include trend reports over time, comparisons with a peer pharmacy group, payer level statistics to monitor opportunities for bonus payments or risks for downward adjustments, and outlier reporting to help identify patients who need extra assistance. Many are using the EQuIPP™ performance information management tool. Performance measures within EQuIPP™ are calculated using paid prescription drug claims data, medical claims, and member eligibility data hosted from PBMs.
- Financial analytics – dashboards and predictive analytics around revenue, profit, and administrative expenses
Source: Pharmacy Services Administrative Organizations (PSAOs) and their Little-Known Connections to Independent Pharmacies
Partnerships with Independent Pharmacies
Many organizations in the drug supply and payment chain partner with independent pharmacies as resources helping them create value: providing patients with affordable access to their prescription drugs and allowing pharmacists to continue to be trusted advisors to their patients.
PSAOs
PSAOs negotiate and execute contracts with PBMs on behalf of independent pharmacies. Being a part of a PSAO increases an independent pharmacy’s negotiating leverage with PBMs. They also manage other administrative services related to contracting with PBMs.
Wholesalers
Wholesalers help independent pharmacies with both their product/supply needs and their business administration needs. On the product side, wholesalers provide pharmacies one-stop access to products from a variety of manufacturers. On the administrative side, wholesaler-owned PSAOs provide an understanding of pharmacy costs and tools to support other pharmacy business needs. Over 60% of independent pharmacies in the country belong to the “Big 3” wholesaler PSAOs. These three wholesalers’ control 97% of U.S. drug distribution.
GPOs/Buying Group
Independent pharmacies’ GPOs use scale and specialize in negotiating and contracting with third-party entities (drug wholesalers and other suppliers). This combined purchasing power allows small pharmacies to get discounts and rebates from preferred suppliers.