Top 10 Pharmacy Accounting Questions to Ask Your CPA

The FTC’s report is based on data and documents requested from the six largest PBMs in response to a 2022 order, with the commission seeking insight on “extraordinarily opaque” PBM business practices and the impacts of those practices. Two years later, some respondents have not fully complied with the document request, according to the FTC. Learn more about the ins and outs of pharmacy ownership from the experts at First Financial Bank. Outsourcing accounting for pharmacies it will allow you to import the payroll entries with a click of a button, saving you time and money. Sign up to receive PBA Health’s e-newsletter to get the latest Elements web articles in your inbox every other week, along with industry news, supply chain insights, and exclusive offers. Pharmacy Information Request ListA listing of the documentation independent pharmacies should compile when meeting with their CPA for the first time.

2 Product Recall

The report notes that PBMs have expanded over the decades from functioning as administrative service providers, to negotiating with drug manufacturers on behalf of clients, to setting reimbursement terms and conditions for pharmacies and even developing formularies. The report suggests PBMs have unwarranted influence over other segments of healthcare, including insurers and providers. Company A should not recognize its advertising and promotional costs as an intangible asset, even though the expenditure incurred may provide future economic benefits.

Prepare for a Dynamic Accounting Career

Company A would recognize the $8,000 received as well as the $2,757 allocated to the material right. By purchasing the second 1,000 units, Company B has fully exercised its option to purchase products at the discounted price since Company A does not expect Company B to purchase any additional units under the contract. Accordingly, the full value allocated to the material right should be recognized. Although Company A has sold the product for 2 years and has a history of returns experience, because of the extended nature of the return policy, it should assess whether the returns experience is sufficient to develop its returns estimate. Under the royalty exception, the milestone is recognized at the later of (1) when the subsequent sales or usage occurs or (2) full or partial satisfaction of the performance obligation to which some or all of the sales-based royalty has been allocated.

1 Scope considerations when accounting for collaboration agreements

“Even accounting for low output in recent years, fossil fuels continue to make up almost half of Venezuela’s official exports. So when sales fall, from meagre production or low prices, the economy suffers,” said Hunter. Vertical integration by pharmacy benefit managers (PBMs), including with providers, is one reason to be concerned about the excessive reach of PBMs in the healthcare industry, according to an interim staff report issued this month by the Federal Trade Commission (FTC). A probable loss is deemed to have occurred whenever the determination is made by Company A that a recall is necessary.

It’s a simple, straightforward method, and it can be sufficient in certain industries with less complex accounting requirements. However, this method is normally not a good fit for health care facilities because payments can take months to be finalized – and sometimes, they may not ever be finalized. The method of accrual accounting is an anticipatory model that enables a business to record revenue and expenses before they are received or paid out. In a care delivery situation, this model will build credits and debits into the system once a facility produces the means of generating a transaction, such as a bill for a hospital visit or prescription.

2 Receipts for out-licensing of IP

Consideration payable under this arrangement is at market rates and all payments received by Company A are non-refundable. If you’re an independent pharmacy owner with revenues of more than $10 million, compliance within IRS Code Section 263A may be required. Section 263A requires resellers, or pharmacies, including controlled groups, with average gross receipts for the prior three years of more than $10 million to capitalize costs into inventory. If one or more of the goods or services significantly modifies or customizes, or are significantly modified or customized by, one or more of the other goods or services promised in the contract, this is an indicator that the good or service is not distinct. For Company A, a critical evaluation would need to be performed to determine if the specified upgrade may significantly modify the medical device and reflects (together with the original device) the combined product that the customer is actually purchasing. On the other hand, if the medical device is fully functional upon delivery and that functionality is not expected to be significantly modified by future upgrades, this would indicate that the medical device is distinct from the promised upgrades.

• The assessment of whether a substantive termination penalty is incurred upon cancellation could require significant judgment for arrangements that include a license of IP.
• The most likely amount may be an appropriate estimate of the amount of variable consideration if the contract has only two possible outcomes (for example, an entity either achieves a performance bonus or does not).
• Company B obtains control of the product before selling it to a retailer at a price determined by Company B.
• If Company A sells its products to another customer at a lower price, the GPO will receive the lower price on all future purchases.
• If the disposables are not sold, Company A does not have a right of return to Company B.
• Company A provided a license to Company B to its oncology drug and is performing R&D services.

We believe companies can make a policy election between two acceptable methods – a “spreading” approach or a “point-of-sale” approach (sometimes referred to as a “specific identification” approach). The same guidance would generally apply in cases when the customer is a government health system. Even though the product is sold to Distributor X and the rebates are paid to Customer B, the classification of the payment is treated as a reduction of revenue. Company A and Company B are parties to a distribution services agreement (DSA) under which Company A is due price appreciation credits to the extent it increases WAC on the product. That is, Company B will owe Company A for the difference between the old price and the new price for any product that Company B has on hand when the new pricing goes effective.

Payroll Management

The reason for the bill-and-hold arrangement must be substantive (for example, the customer requested the arrangement). Whichever method is applied would need to be applied on a consistent basis for similar arrangements. Company A would also record the corresponding impact of the various “gross-to-net” revenue deductions that will correspondingly increase as a result of the increase in WAC. Company A would not be able to recognize the full $20,000 as revenue at December 31, 20X9. The customer has the significant risks and rewards of ownership of the asset…

• You can create a recurring profile in a few clicks and FreshBooks will automatically send the invoices for you, freeing up your team’s time for more important tasks.
• Once you have cleaned up the accounts to date and have a solid foundation to start with, the next step is to implement daily and monthly processes so you do not fall behind again.
• The George Washington University’s online Healthcare MBA blends business and healthcare concepts in a rigorous and experiential program.
• Assuming the collectibility hurdle is met, the transaction price will be recognized as Company A satisfies its performance obligation of delivering the drugs.
• However, he pointed out that austerity programmes tend to follow debt restructurings.

Therefore, as each unit is shipped during the year, Company A would recognize a rebate accrual of $2.45 and revenue of $97.55 under this approach. Biotech would likely conclude that the contract term is ten years because Pharma cannot cancel the contract without incurring a substantive termination penalty. The substantive termination penalty in this arrangement is Pharma’s obligation to transfer an asset to Biotech through the return of its exclusive rights to the licensed IP without a refund of amounts paid. Also, since the additional annual payments are due over a ten year period, Biotech would likely conclude that the arrangement contains a significant financing component. Therefore, Biotech would record $25 million plus the present value of the 10 $1 million payments due at the end of each year through the stated term upon transferring control of the license. The ongoing shift of the health care system away from fee-for-service compensation toward value-based reimbursement means that holding providers accountable for cost and quality is more important than ever.