What Is A Pharmacy Services Administrative Organization (PSAO)?

Although many people think that all independent community pharmacies stand alone as individual proprietorships, in fact, that isn’t always the case. Most community pharmacies actually form part of a PSAO or Pharmacy Services Administrative Organization. PSAOs are collective bargaining groups that leverage their members when negotiating contracts with the other key parties in the industry.

Not only that, but PSAOs provide an extensive array of useful business services that are key to running a successful operation to all kinds of pharmacies. In practice, PSAOs stand in between the world of business and independent pharmacies, running a lot of their core back-office functions on their behalf, from IT implementation to billing support.

Facts And Figures About PSAOs

Although PSAOs are not widely known about, they are powerful collectives.

Around 83% of all independent pharmacies are contracted with PSAOs and three-quarters of small chain and independent pharmacies are contracted with a PSAO that is owned by one of the “Big Three” pharmacy wholesalers – McKesson, Cardinal Health, and Amerisource Bergen.

What Do PSAOs Do?

Primarily, PSAOs provide one key service for their membership. This is to collectively negotiate the terms of contracts with PBMs. In general, this involves several different elements such as negotiating reimbursements to the community pharmacy from the PBM for prescription medications, dispensing fees, the pharmacy’s participation within the PBM pharmacy network, and also reimbursement for the other services provided such as carrying out the management of medication therapy, including VBP (value based payment) and quality metrics.

There are four more core services that PSAOs typically perform for member pharmacies too. These include billing support, general business support, information technology support, and pharmacy performance analytics, although not every PSAO will perform all four of those services.

What Is The PSAO Landscape Like At The Moment For Independent Pharmacies?

In 2012, about 80% of all independent pharmacies had a contract with a PSAO according to the GAO (Government Accountability Office). However, since then, the landscape as naturally changed. As of 2019, 3% more independent pharmacies were using PSAOs than in 2012, taking the total percentage to 83% according to pharmacy self-reported data supplied to the NCPDP (National Council for Prescription Drug Programs).

Although the increase is slight, the indication is that more independent pharmacies are choosing to become involved with PSAOs as time goes on.

Although there are no accurate figures that would give a picture of the PSAO landscape at this very moment, it’s clear that most independent pharmacies are choosing to contract with a PSAO due to the key functions that they perform on the pharmacy’s behalf. Simply their primary function of negotiating contracts on their members’ behalf with PBMs is a significant benefit of contracting with PSAOs.

However, amongst the general public, very little is known about PSAOs and the vital part they have to play within the pharmaceutical industry supply chain, and the reason for this is that there is virtually no government oversight of these organizations. This is something that may change in the near future.

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