A unique business structure enables this retail pharmacy buying group to keep its costs low while saving its members money. How does a retail pharmacy buying group that covers 1,700 independent pharmacies across 19 states manage to work with only one full-time employee? It’s simple: a unique business structure. Rather than spending money on overhead, Pace Alliance, Inc. puts the marketing power in the hands of the 19 state pharmacy organizations that own it while staying true to the values that have been with the company since 1985.
Pace Alliance’s original owner was a hospital buying group called Pace located in Sioux Falls, SD. The owners of Pace wanted to expand from the hospital buying group market into group buying for independent community pharmacies. In 1986, Pace Alliance’s current president and CEO Curtis Woods was hired as vice president of contracts to negotiate with drug companies. His position also called for marketing to state pharmacy organizations.
Pace’s mission was to work with state pharmacy organizations and generate revenue for them while saving money for independent pharmacies. To achieve both goals, Pace approached state pharmacy organizations’ board of directors and explained the plan.
“We said we’d save money for the independent pharmacies in the state. Also, when we got rebates or administrative fees from drug companies, much like hospital buying groups do, we’d share that revenue with the state pharmacy organization,” said Woods.
Between 1985 and 1987, Pace grew to 10 state pharmacy organizations, revenue was generated, and the program worked. The independent pharmacies within the 10 states were getting better deals on their pharmaceutical products and saving money on their purchases. The program was working so well, in fact, that the state pharmacy organizations approached Pace and asked to buy out the retail pharmacy buying arm of the company.
“The 10 state pharmacy organizations joined together and bought the program from Pace,” said Woods. “They renamed the organization Pace Alliance and set up the current corporation on September 1, 1987.”
Understanding the attractive structure of the business, the now owners of Pace Alliance set into stone a strict ownership bylaw. From that point on, only state pharmacy organizations could be owners of Pace Alliance.
“There are no other retail pharmacy buying groups owned by state pharmacy organizations,” said Woods. “That bylaw stipulates that only state pharmacy organizations can own stock. No individuals own stocks—no drug companies, no wholesalers, no one else. There are only 50 potential stock owners, and they are all state pharmacy organizations.”
So how does that ownership structure enable Pace Alliance to have only one full-time employee—the president and CEO himself? It all comes back to the state pharmacy organizations. Pace Alliance itself has few employees, but the state pharmacy organizations have staff dedicated to marketing the Pace Alliance program.
“At this office, we have three part-time employees and one full-time employee—me,” Woods said. “As part of our model, we share revenue with the state pharmacy organizations, but they are responsible for marketing the program to their stores. We have very few employees, but many of the states dedicate staff time to marketing the Pace Alliance program.”
Almost from the start, Woods realized that to keep the company’s lean infrastructure, a technology investment was needed. In 1986, the company hired consultant Dean Jordan, who is now the company’s director of operations. Jordan brought Pace onto the IBM’s systems platform (AS/400) for small businesses. This enabled Pace to communicate with the big drug industry systems directly via computer.
At that time, Pace Alliance began asking members for their purchase data from drug wholesalers at the supply chain level and in the early 1990s began tracking all members’ purchases from drug wholesalers. The company then used the data to negotiate for contract pricing from the drug industry.
“We are contract administrators,” said Woods. “We get the data on a computer, usually online from the drug wholesaler or the drug companies, and we manage that data.”
Concise and controlled
One of the biggest challenges for Pace Alliance members is shrinking prescription reimbursement. Pace Alliance is not in a position to negotiate on behalf of the stores reimbursement but can help the stores buy better and decrease the amount of lost money, to a certain point.
When Woods started in the industry more than 20 years ago, there were 45,000 independent pharmacies nationwide. Today, there are roughly 20,000. And even with inflation, an aging population, and the rise of drug utilization, pharmacies struggle to stay afloat.
“Reimbursement is starting to take a toll on the survival of some of the independents,” Woods said. “Nationwide, most independent pharmacies are in a buying group, which helps them compete with chain pharmacies and stay in business.”
And Pace Alliance’s ability to consistently help its member independent pharmacies compete is one of the reasons Woods believes he has the greatest job in the world. All of the company’s profits, after expenses, go back to the state pharmacy organizations. That money is used to lobby for higher reimbursements and protect the rights of the independent pharmacies.
“We’ve consistently grown because we do save our stores money,” Woods said. “Success breeds success, and we’ve developed a reputation for treating our member pharmacies and the drug companies with respect. We’ve kept our game plan concise and controlled. At the end of the day, we want our members to be as pleased to be a part of this organization as we are to work for it.”