Why Efficient Inventory Management is Crucial for Your LTC Pharmacy

In long-term care (LTC) pharmacy, pharmacies hold a high volume of medications, which also carry high inventory costs. The efficiency of your back-end operations, particularly inventory management, plays a silent but significant role in your financial health and overall success. Are you fully aware of the hidden costs that inefficient inventory practices might be inflicting on your bottom line? In this article, we'll delve into some key metrics that underscore the critical importance of effective inventory management in your unique setting and review some practices you can consider implementing today to improve your approach to inventory management in the pharmacy:  

Key Inventory Metrics in LTC Pharmacy:  

• Average Inventory Turnover Rate: Most pharmacies aim for the standard benchmark of seeing their inventory turn over 11-12 times annually (roughly every 30 days). Understanding your turnover benchmarks is vital to identifying slow-moving stock and potential capital tie-ups. If your pharmacy is experiencing slower inventory churn and turning inventory around 7-8 times annually, this could suggest potential problems and raise concerns in the ordering process.  

• Days Inventory Outstanding (DIO): A general pharmacy benchmark is around 26 days. However, with the specific dispensing patterns in LTC, your DIO could be considerably higher. A high DIO signals that your capital is locked in inventory for extended periods, potentially hindering other investments.

• Cost of Goods Sold (COGS): Inventory often represents a substantial portion of your COGS, frequently reported as up to 70% of your operating budget. While there's a lot of variance depending on patient volume or bed count, the average annual COGS for pharmacies reaches approximately $2.7 million; even minor inefficiencies in inventory can lead to significant financial drains on the pharmacy, threatening profitability and inhibiting growth.¹

• Impact of Dispensing Cycles: The shift towards shorter dispensing cycles in LTC, while beneficial for patient care, can increase the Cost to Dispense (CTD) per prescription. Studies suggest a considerable rise in CTD when moving from 30-day to 14-day cycles, highlighting the need for optimized inventory to efficiently manage these increased dispensing volumes. Not only do shorter dispensing cycles help you maintain a leaner inventory, shifting to shorter cycles strengthens patient safety and ensures compliance with rulings from the Centers for Medicare & Medicaid Services (CMS) requiring pharmacies serving residents of LTC facilities covered by Medicare Part D to dispense solid oral doses of brand-name drugs in increments of no more than 14 days.

The Hidden Iceberg of Inventory Costs  

Beyond these overarching metrics, inefficient inventory management in LTC pharmacies can lead to a cascade of trickling losses that, over time, can seriously threaten your pharmacy's bottom line and financial stability.  

• Increased Carrying Costs: Holding excess inventory means higher expenses for storage, insurance, loss, expiration, potential obsolescence, and the lost opportunity to invest that capital elsewhere. Regardless of adjudication, denials, and payment delays, holding inventory for extended periods or in excess means tying up cash that could be reallocated more productively elsewhere rather than having it sit on a shelf.   

• Stockouts and Delays: Inaccurate tracking can result in running out of essential medications, directly impacting patient care, increasing staff frustration, and potentially damaging your reputation with LTC facilities. When   

• Wasted Staff Time: Disorganized inventory and unclear processes force technicians to spend more time searching for medications, resolving discrepancies, and addressing a variety of largely preventable issues. While it's challenging to quantify the cost of staff inefficiency without dedicated reporting tools, it significantly impacts your business operations and bottom-line revenue. Additionally, inefficient staff are often more prone to frustration and burnout, leading to costly turnover and creating a significant hiring burden along with administrative costs related to staff churn.

• Compliance Risks: Inaccurate inventory records can lead to regulatory scrutiny and potential penalties, adding further financial and operational burdens. When a surveyor audits a pharmacy, poorly managed inventory is a red flag that could lead to increased scrutiny and a deeper investigation. Additionally, as new legislation is being proposed to combat medication affordability and traceability, getting a tighter grasp on inventory management today is the first step to being prepared as proposed bills transition into law (like the Drug Supply Chain Security Act and Medicare Prescription Payment Plan). 

Ignoring these hidden costs creates an environment that doesn't sustain growth-minded pharmacies looking to expand or precision-oriented pharmacies looking to create an even leaner and more predictable pharmacy operation. In the competitive LTC pharmacy landscape, optimizing every aspect of your operation, starting with inventory management, is crucial for financial stability and growth.  

From Assessment to Ongoing Improvement: A Smarter Path Forward 

Start Fresh with an Inventory Audit Assessment 

Managing inventory in a closed-door LTC pharmacy comes with unique challenges — from tighter margins to unpredictable demand and limited staffing. That’s why taking a step back to re-evaluate your current inventory practices can reveal opportunities to improve efficiency, reduce waste, and free up working capital. 

SoftWriters' team of professional service consultants offers structured inventory assessments tailored to LTC pharmacy operations. Our consultants will work with you hand-in-hand to review your current processes, identify opportunities for improvement, and provide a clear action plan to help you strengthen inventory controls, reduce carrying costs, and improve your pharmacy’s financial health. 

Request A Consulting Assessment to get expert inventory guidance catered to your pharmacy today. 

Improve Inventory Awareness with FrameworkInsight 

Effective inventory management isn’t just about fixing what’s broken — it’s about maintaining discipline, visibility, and process adherence over time. For pharmacies relying on FrameworkLTC for their day-to-day operations, FrameworkInsight provides a centralized view of inventory performance across your operation. 

FrameworkInsight is a business intelligence platform built to help LTC pharmacies track, measure, and improve key inventory metrics in real time. With pre-built dashboards covering areas such as Inventory Ordered & Received, Inventory Valuation, Negative and Missing Inventory, Package Cost, Fast Movers, and more — you gain actionable insights to drive better decisions, reduce risk, and improve inventory performance long-term. 

Whether you're fine-tuning your inventory strategy or building new processes from the ground up, FrameworkInsight supports continuous improvement with the visibility and reporting your team needs. 

Join the FrameworkInsight Waitlist and how it supports disciplined inventory management. 

1. NCPA Digest, 2019
2. Source: Scott, J. B., et al. "The financial impact of alternative long-term care pharmacy dispensing models." Journal of the American Medical Directors Association, 17(1), 71-75. 2016.