Long-term care (LTC) pharmacy overview: Balancing quality care with financial sustainability
Long-term care (LTC) pharmacies play a crucial role in providing pharmaceutical services to residents of long-term care facilities such as nursing homes, assisted living communities, and skilled nursing facilities. These pharmacies specialize in meeting the unique medication needs of individuals living in these settings, where residents often have complex health conditions and require ongoing medical management.
There are over 26,500 nursing homes serving about 1.4 million residents in the United States (Zippia, 2023). As of 2023, there are 1,282 pharmacies classified as long-term care (LTC) pharmacies providing services to long-term care facilities (IBISWorld, 2023), which is a small number compared to over 61,700 retail pharmacy locations (US Pharmacist, 2022) in the United States. Long-term care services are financed by a variety of public and private sources. Government program payers, such as state Medicaid and Medicare Part D plans, are the primary payers of LTC pharmacy services. Other payers include contracts directly with nursing home facilities for patients covered under Medicare Part A and private insurers. The two largest payers, Medicaid and Medicare, account for over 60% of all LTC services spending. Note that Medicare Part A spend is generally related to care for the first 100 days following a hospitalization; Medicare Part D is coverage for prescription services for beneficiaries that opt into medication coverage from a Prescription Drug Plan. Medicare Part A does not pay for long-term custodial care after the 100 days. After that, people would need to apply for Medicaid, self-pay, or have private long-term care to cover longer-term needs. Total public spending in 2020 was 72.3% (Colello, June 15, 2022). See figure 1 below.
Figure 1: Long-term services and supports spending, by payer (2020)
Long-term care facilities contract with closed-door long-term care pharmacy providers to provide services to the facility’s residents. Few LTC pharmacies are owned by or located in the LTC facility they serve. Most relationships between the facilities and pharmacies are as contracted business relationships. LTC pharmacies contract with multiple LTC facilities to provide pharmaceutical dispensing services. LTC pharmacies typically service a wide service area—often ranging to more than 100 miles from the dispensing facility. LTC pharmacies often provide specialized services tailored to the needs of long-term care facilities and their residents. These services may include unit-dose packaging, medication administration records (MARs), and medication synchronization.
The Centers for Medicare and Medicaid Services (CMS) publishes specific rules, including minimum performance and service criteria (CMS, 2011, pp. 42-43) [see Fig 2], that apply to Medicare and Medicaid for medications dispensed in long-term care facilities. CMS and states publish additional rules that require managed care organizations (MCO) to provide beneficiaries with adequate access and timeliness to LTC pharmacy services.
Figure 2: CMS performance and service criteria
- Comprehensive inventory and inventory capacity
- Maintain comprehensive inventory of formulary drugs
- Pharmacy operations and prescription orders
- Equipped with pharmacy software capable of conducting drug utilization reviews
- Special packaging
- Dispense in unit-of-use packaging
- Capacity to provide IV medications, when required
- Compounding/alternative forms of drug composition for residents unable to ingest meds
- Pharmacist on-call service 24/7
- Daily secure delivery service
- Emergency boxes - facility supply of medications
- Emergency log book of use of emergency medications
- Management reports to LTC facilities
Source: CMS. (2011, September 20). Memo: Medicare Prescription Drug Benefit Manual - Chapter 5. from Cynthia G. Tudor.
Although a resident of a LTC facility has authority by most states and CMS to choose any pharmacy they want to receive pharmacy services, most residents obtain services from the LTC pharmacy contracted with the LTC facility. The contracted LTC pharmacy will ensure prompt, daily delivery of medications in secure medication carts with medications in separate compartments for each resident. These carts are equipped with the necessary tools and supplies to facilitate medication administration, medication storage, provide security of medications (especially controlled substances), and documentation of medication received, taken, refill requests, and discontinuations. The purpose of these carts is to streamline the medication management process, improve accuracy, and enhance patient safety. LTC pharmacies also provide LTC facilities with medication emergency starter kits to meet the immediate therapeutic needs of patients pursuant to a prescriber’s order.
Resident chart reviews performed by clinical pharmacists are an essential aspect of medication management in long-term care settings. Clinical pharmacists, separate from dispensing pharmacists, undergo thorough examinations and analyses of residents' medication records to ensure the safe, effective, and proper use of medications for everyone under care within the facility. In particular, the review focuses on medication accuracy, drug-drug interactions, duplicate therapy, adverse effects, lab results, duration of therapy, and the monitoring of recent changes in medications. This process is crucial for maintaining the health and well-being of the residents and preventing medication-related issues. Pharmacists, healthcare providers, and caregivers collaborate to optimize medication therapy, reduce the risk of adverse events, and improve the quality of life for residents in long-term care facilities.
Medications within an LTC facility are dispensed in unit-dose packaging, blister packs, or other customized packaging to ensure proper administration. Overall, the collaboration between LTC pharmacies and LTC facilities is essential for providing safe and effective medication management for residents, promoting their well-being, and ensuring compliance with regulatory requirements. The added costs of packaging of medications for long-term care residents (e.g., unit-dose packaging) may be factored into reimbursement rates. This form of unit-of-use packaging can enhance medication adherence and safety.
The U.S. Department of Health and Human Services predicts that 70% of individuals who reach age 65 will need LTC services, defined as needing assistance with at least two activities of daily living, such as bathing oneself or eating, at some point in their older adult life (Office of the Assistant Secretary for Planning and Evaluation, US Dept of Health and Human Services, 2019). Research by a LTC pharmacy advocacy group indicates that nearly 75% of today’s Medicare beneficiaries with LTC needs live at home or in other community settings (Senior Care Pharmacy Coalition / ATI Advsory, 2023). A recent trend is LTC pharmacies venturing into providing LTC prescription services to treat patients in their own homes instead of at nursing homes. According to a study by the Senior Care Pharmacy Coalition, the number of patients serviced by LTC pharmacies living at home is expected to grow from 1.5 million in 2020 to 2.5 million in 2030 (Senior Care Pharmacy Coalition / ATI Advsory, 2023). This growth is being driven by the aging population and the increasing preference for home-based care. This is due to several factors, including:
- Growing number of older adults who are living at home
- Preference by many for home-based care rather than in a nursing home or other facility
- Increasing demand for convenient and affordable medication delivery services
- Development of new technologies, such as telepharmacy medication consultations and services through video conferencing or phone calls to patients in their homes
- Investments in programs that include medication reviews, counseling, and refill reminders to help patients stay on track with their medications.
- Cost savings: Home-based care is often more cost-effective than care in a facility
Despite increased demand for home-based LTC services, current government policy limits payment for LTC pharmacy services to individuals living in facility settings, The Medicare Part D prescription drug program mandates that medication plans contracted through LTC pharmacies only be available to patients in nursing homes. Because home- and community-based services are not included in the definition, LTC pharmacists cannot be reimbursed for serving those patients.
LTC pharmacies face several economic concerns that can affect their operations and sustainability. Key economic challenges and considerations for LTC pharmacies include reimbursement pressure from payers, increased competition from other pharmacies, and increased complexity of reimbursement policies. Unlike traditional retail pharmacies, LTC pharmacies are not open to the public and do not sell convenience items to supplement pharmacy services. LTC pharmacies rely solely upon revenue from dispensing prescriptions and providing consultative services. They also have higher operating costs compared to retail pharmacies due to regulatory mandates, dispensing requirements, and complexity of billing, resulting in significantly higher costs of dispensing compared to retail pharmacy. Additionally, LTC pharmacies are a different class of trade when it comes to purchasing. However, PBMs and payers often treat LTC pharmacies like retail pharmacies, and often ask for deeper reimbursement rates each year. The cost to dispense pharmaceuticals from LTC pharmacies to patients in nursing homes is estimated to be 25% higher than costs of dispensing to an ambulatory patient due to these operational and regulatory requirements.
Pharmacies continue to incorporate new technologies and services to become more efficient and profitable. Investments in advanced pharmacy management software helps streamline prescription processing, inventory management, and billing. These systems also facilitate electronic prescribing and ensure compliance with regulatory requirements. Long-term care pharmacies are increasingly investing in automated dispensing machines and robotics to accurately and efficiently fill prescriptions. These systems also reduce the risk of errors and enhance medication management, while simultaneously reducing costs of dispensing. Additionally, long-term care pharmacies are utilizing data analytics tools to monitor performance metrics, identify trends, and make data-driven decisions to improve efficiency and patient care that allows them to sustain reimbursement pressures.
LTC pharmacy balance sheets rely on timeliness of payer payments and level of operational effort necessary to receive payments from payers for the services provided to patients. Changes in reimbursement rates or delays in payments can affect LTC pharmacy financial stability. Changes in insurance policies, formularies, and prior authorization requirements can affect the speed and the resources required to be reimbursed for services and medications. Under certain contracts, reimbursement models tie payments to the quality of care provided, which may require LTC pharmacies to demonstrate adherence to quality measures to receive full reimbursement.
Medicaid is administered by individual states and reimbursement rates can vary significantly from state to state, or even from payer to payer within a state. Changes in state-level policies and Medicaid reimbursement can affect LTC pharmacy revenues. Several states’ fee-for-service (FFS) Medicaid rate models provide premium reimbursement to LTC pharmacies; other states may lump LTC pharmacy reimbursement with retail pharmacy reimbursement. Additionally, some states allow managed care organizations to set their own rates for pharmacy services including LTC pharmacy services, which, again, can vary dramatically from one MCO to another.
LTC pharmacies are contracted with MCOs and with pharmacy benefit management (PBM) companies that serve payers with the long-term care populations. PBMs play a fundamental role in negotiating drug pricing and reimbursement rates with pharmacies, including LTC pharmacies. The terms of these contracts can affect reimbursement rates, and the negotiations between LTC pharmacies and MCOs and PBMs may vary. Current trends suggest continued downward pressure on LTC pharmacy reimbursements that can affect overall margins of the pharmacies, if not managed appropriately. The services provided by the LTC pharmacy to a skilled nursing home or assisted living facility and related reimbursement by payers for each facility type can also affect pharmacy margins.
Navigating these economic concerns while maintaining high-quality care and complying with regulatory requirements is a complex challenge for LTC pharmacies. To address these challenges, strategic financial planning, operational efficiency, effective management of resources, and staying informed about industry changes are essential.
References
Avalere Health LLC. (October 2015). Long-Term Care Pharmacy: the Evolving Marketplace and Emerging Policy Issues. Washington, DC: Avalere Health LLC.
CMS. (2011, September 20). Memo: Medicare Prescription Drug Benefit Manual – Chapter 5. Memo from Cynthia G. Tudor, PH.D. Director, Medicare Drug Benefit and C&D Data Group. Washington, DC: Centers for Medicare & Medicaid Services, Department of Health & Human Services.
Colello, K. J. (June 15, 2022). Who Pays for Long-Term Services and Supports? Washington, DC: Congressional Research Service. Retrieved from https://crsreports.congress.gov/product/pdf/IF/IF10343
IBISWorld. (2023, April 20). Pharmacies & Drug Stores Industry in the US - Market Research Report. Retrieved August 31, 2023, from IBISWorld: https://www.ibisworld.com/united-states/market-research-reports/pharmacies-drug-stores-industry/
Office of the Assistant Secretary for Planning and Evaluation, US Dept of Health and Human Services. (2019, April 3). What Is the Lifetime Risk of Needing and Receiving Long-Term Services and Supports? Retrieved September 5, 2023, from aspe.hhs.gov: https://aspe.hhs.gov/reports/what-lifetime-risk-needing-receiving-long-term-services-supports.
Senior Care Pharmacy Coalition / ATI Advisory. (November 2021). Expanding Long-Term Care. Washington, DC: Senior Care Pharmacy Coalition (SCPC).
Senior Care Pharmacy Coalition / ATI Advsory. (2023, July 25). The Role of Long-Term Care Pharmacy in Supporting Individuals with Long-Term Services and Supports Needs. Retrieved September 5, 2023, from Drugstorenews.com: https://drugstorenews.com/report-underscores-unique-role-ltc-pharmacies-patient-safety-improving-outcomes.
US Pharmacist. (2022, August 31). USPharmacist.com. Retrieved August 31, 2023, from How Convenient Are Pharmacies to Most U.S. Residents: https://www.uspharmacist.com/article/how-convenient-are-pharmacies-to-most-us-residents.
Zippia. (2023, July 3). "25 Insightful Nursing Home Statistics [2023]: How many Nursing Homes Are in the US?". Retrieved August 31, 2023, from Zippia.com: https://www.zippia.com/advice/nursing-home-statistics/.