Six Areas of Opportunity for Cost Savings in Institutional Pharmacy Programs

Institutional pharmacy sits at an unusual crossroads in 2026. Vendors are consolidating even as demand grows, with two of the three largest long-term care pharmacies declaring Chapter 11 bankruptcy in 2025. Federal reimbursement changes taking effect this year are compressing the margin that these pharmacies have historically relied on to remain viable.

A December 2025 survey conducted by the American Society of Consultant Pharmacists and the Senior Care Pharmacy Coalition, covering pharmacies serving roughly 800,000 long-term care patients nationally, found that 84% of respondent pharmacies planned to reduce services or stop serving certain facilities or regions, 78% expected layoffs, and the effects were projected to reach more than 80% of nursing home residents by 2026. The reality of the situation is that the supplier market is under financial strain, even while it continues to operate under contracts that have not kept pace with a real decline in medication acquisition costs.

These conditions describe a market that is unusually favorable to buyers who act deliberately. Real drug costs for many products continue to fall, and incumbent pharmacies under real financial pressure have less room to hold the line on below-market terms. The sections that follow describe the six specific areas where that opportunity can be converted into savings.

Six Areas of Opportunity

1. Anchor contract pricing to acquisition cost, not list

Most institutional pharmacy contracts price generic medications as a discount off Wholesale Acquisition Cost (WAC) or Average Wholesale Price (AWP). WAC is the manufacturer's list price to wholesalers before any purchasing discount, and AWP is typically calculated as WAC plus a fixed markup for brand products or a discount off the reference brand's WAC for generics. Neither benchmark is anchored to a real, surveyed transaction price. The Centers for Medicare & Medicaid Services publishes an alternative: the National Average Drug Acquisition Cost (NADAC), which is based on actual prices being charged in the market.  A contract that reprices annually against a moving list benchmark, rather than against a real acquisition-cost benchmark like NADAC, drifts out of alignment with the market as real costs move (in either direction). Organizations that have not validated their generic effective rate against an acquisition-cost benchmark within the past 12 to 24 months should consider doing so.

Most post-acute pharmacy contracts express generic pricing as an aggregate guarantee, usually a generic effective rate quoted as an average discount off AWP across all generic fills in a period. However, aggregate pricing can conceal individual products with non-competitive pricing which can drive the majority of spending. Fixed pricing of a short list of high-volume medication can eliminate related risk and permit clean compliance auditing. 

2. Renegotiate dispensing and related fees 

A dispensing fee is a negotiated contract term, not a fixed cost. Regulatory requirements make the true cost of dispensing to a long-term care resident higher than dispensing to a retail consumer, but fees should align with what the local market will support. Dispensing fees, and related costs associated with delivery schedule and days’ supply/fill terms, should be reviewed at least every few years to be sure rates remain aligned with market conditions. Other fees frequently incorporated into agreements include STAT and after-hours delivery, emergency kit stocking, compounding, IV or enteral preparation, consulting, and more. Each are priced independently, and each is negotiable, potentially offering even greater savings than even the dispensing fees themselves. 

3. Capture rebates 

Where brand-name utilization is meaningful, manufacturer rebate programs return a share of that spend. This happens only where a facility is enrolled with an intermediary and utilization is reported accurately. That intermediary contract should provide for rebate value to flow back to the community rather than being retained upstream. 

In post-acute care, who captures rebate value is complicated by the split between payors. Drugs furnished during a Part A skilled stay are the facility's cost and are bundled into its prospective payment, while drugs for a long-stay resident generally bill to that resident's Part D plan. Rebates, pass-through obligations, and disclosure duties differ in each instance, and so a rebate agreement should address both payor instances. 

4. Audit billing against contracted rates

A systematic, year-long comparison of invoiced charges against the underlying contract often surfaces billing errors that do not match contractual agreements. Recovery of extraneous fees can be pursued independent of any other cost-saving efforts. 

Because most institutional pharmacy contracts price against a moving benchmark rather than a fixed number, confirming invoicing matches an agreement requires reconciling every fill against a reference price that changes on its own schedule (which requires a structured, line-by-line audit of usage with access to historical pricing).

5. Optimize the formulary through clinically governed therapeutic interchange

The practice of substituting a clinically equivalent, lower-net-cost medication within the same therapeutic class (Therapeutic interchange) is an established, evidence-based practice in skilled nursing and long-term care pharmacy. It is distinct from ad hoc substitution, as medications included in a facility's interchange program are first reviewed and approved by a clinical team, and no switch occurs without the prescriber's documented, advance authorization. Facilities that build and maintain a preferred formulary have reported savings in the tens of thousands of dollars per month on pharmacy spend, because a relatively small number of prescribers can drive a disproportionate share of non-formulary utilization. 

6. Reduce utilization waste through packaging, cycle-fill, and automation

Even a well-priced contract can carry avoidable waste in how medications are packaged, dispensed, and administered. Long-term care pharmacies have widely invested in unit-dose and multi-dose packaging, automated dispensing technology, and electronic medication administration records (eMAR) to reduce both dispensing errors and the volume of medication that is billed, returned, or ultimately discarded.

Considerations and Limits

The opportunity described in this paper should be pursued with several important qualifications in mind. 

• Incumbent long-term care pharmacies are under genuine financial strain. Negotiation strategy should account for the stability of the counterparty. 

• Drug shortages and manufacturer allocation are real constraints on any fixed-price schedule. A best practice is the creation of a documented exception process, to accommodate these realities.

• Global therapeutic interchange authority and other pharmacy-practice terms are governed by state law and vary by jurisdiction.  Any formulary initiative should be confirmed against the applicable state framework before implementation.

Conclusion

Pharmacy is frequently one of the largest, and least frequently revisited categories of spend in Aging Services. Market conditions favor organizations willing to look closely at opportunities for cost reduction. Those best positioned to capture value are the ones that treat pharmacy spend with discipline and benchmark against real acquisition cost, audit against the actual contract, and review other opportunities on a regular basis.

Expense Consulting has completed more than 1,700 cost-reduction engagements for not-for-profit aging services and healthcare providers nationally. We have delivered more than $150 million in verified client savings at an average of 18% per engagement. Our experts routinely address institutional pharmacy costs, working alongside our client organizations to achieve optimal value and service.

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References 

[1] Skilled Nursing News, “Long-Term Care Pharmacy Giant Omnicare Files For Bankruptcy, Explores Restructuring Options,” September 2025. skillednursingnews.com/2025/09/long-term-care-pharmacy-giant-omnicare-files-for-bankruptcy-explores-restructuring-options/

[2] IBISWorld, “Institutional Pharmacies in the US — Market Research Report,” industry analysis last updated December 2025. ibisworld.com/united-states/industry/institutional-pharmacies/5707/

[3] Law360 Bankruptcy Authority, “Nursing Home Pharmacy Co. Hits Ch. 11 With $51M Sale Plan,” August 2025; Kroll Restructuring Administration docket, In re Partners Pharmacy Services, LLC, U.S. Bankruptcy Court for the Southern District of Texas, Case No. 25-34698 (filed August 13, 2025); Pillsbury Winthrop Shaw Pittman LLP, case summary, “Pillsbury Secures Win for Partners Pharmacy Services in Texas Bankruptcy Court.” restructuring.ra.kroll.com/PartnersPharmacy/

[4] Senior Care Pharmacy Coalition, “The Impact of Drug Price Negotiations on Seniors in Long-Term Care: It's Time for a Sustainable Payment Model for Long-Term Care Pharmacies,” analysis prepared with ATI Advisory and CliftonLarsonAllen LLP, July 2024. seniorcarepharmacies.org/wp-content/uploads/The-Impact-of-Drug-Price-Negotiations-on-Seniors-in-Long-Term-Care.pdf 

[5] Centers for Medicare & Medicaid Services, “Medicare Drug Price Negotiation Program: Negotiated Prices for Initial Price Applicability Year 2026,” fact sheet; Medicare Rights Center, “Negotiated Prices Take Effect for Ten Drugs in 2026,” October 9, 2025. medicarerights.org/medicare-watch/2025/10/09/negotiated-prices-take-effect-for-ten-drugs-in-2026

[6] Senior Care Pharmacy Coalition, “Long-Term Care Pharmacy Crisis Could Affect 80% of Nursing Home Residents,” citing American Society of Consultant Pharmacists / Senior Care Pharmacy Coalition survey, December 30, 2025. seniorcarepharmacies.org/long-term-care-pharmacy-crisis-could-affect-80-of-nursing-home-residents/

[7] Mintz (Theresa C. Carnegie, Bridgette A. Keller, Hassan Shaikh, Abdie Santiago), “Congress Passes Landmark PBM Reform in 2026 Spending Bill,” February 6, 2026, summarizing the Consolidated Appropriations Act, 2026. mintz.com/insights-center/viewpoints/2146/2026-02-06-congress-passes-landmark-pbm-reform-2026-spending-bill

[8] Milliman (Alan Van Amber), “Long-term Care (LTC) Pharmacy Overview: Balancing Quality Care With Financial Sustainability,” white paper, October 5, 2023. milliman.com/en/insight/long-term-care-pharmacy-quality-care-financial-sustainability

[9] SRX, “How Therapeutic Interchange Is Helping SNFs Save on High Drug Costs,” September 28, 2022. srx-tech.com/articles/therapeutic-interchange-saving-snf-drug-costs/

[10] Centers for Medicare & Medicaid Services, National Average Drug Acquisition Cost (NADAC) database, medicaid.gov/medicaid/nadac; 46brooklyn Research, “46brooklyn Drug Pricing (NADAC) Dashboard,” built on CMS NADAC and Elsevier Gold Standard Drug Database data. 46brooklyn.com/nadac

[11] SmithRx, “AWP vs. WAC: Breaking Down Drug Pricing Transparency”; Journal of Managed Care & Specialty Pharmacy, “A Primer on Prescription Drug Pricing Benchmarks in the United States,” 2025. jmcp.org/doi/full/10.18553/jmcp.2025.31.12.1326