The Playbook for a Community Charitable Pharmacy
Accounting and Finance
Although the primary objective of a charitable pharmacy is not to make money, the organization must be managed and operated like a small business. Charitable pharmacies have revenue streams, operating costs, and other financial obligations. As such, the organization must be responsibly managed and include mechanisms to ensure appropriate oversight is provided.
Separation of duties for routine bookkeeping and other accounting functions are imperative. Although a charitable pharmacy may have a small staff size, accounting policies should require that financial tasks be spread across multiple staff members or volunteers. For example, incoming mail may be received and opened by an office manager or administrative designee. Incoming bills and outgoing invoices could be reviewed and signed by the executive director or board treasurer. The bills and invoices will then be posted to the accounting records by an accountant or another staff/volunteer. Any outgoing payments will require the signature of the executive director, board treasurer, or both. Separating financial duties across multiple staff or volunteers eliminates opportunity for fraud or errors, as all as provides a layer of protection to staff or volunteers in the event an error or misdeed is identified. See Appendices\Finance for examples of financial policies adopted by other charitable pharmacies.
Simple routine bookkeeping entries such as posting incoming bills or generating an invoice may be handled by an office manager or other administrative designee. These day-to-day financial tasks can be easily reviewed by an executive director or board treasurer. As the organization grows and professional, paid staff is brought on board, the organization may choose to outsource its payroll and employee benefit functions. Professional employment organizations (PEOs) can provide payroll, employee benefits, and other human resources services. Outsourcing payroll services ensures that compensation processes are performed accurately, and that state and federal payroll tax obligations are addressed. The PEO can also manage paid time off (PTO) or vacation plans, assist with employment functions such as screening applicants, providing human resource guidance, and file required state and federal employment data. Furthermore, if the charitable pharmacy is able to offer health and retirement benefits, the PEO can generally provide large group health insurance rates to small organizations and administer qualified retirement instruments such as a 401k plan.
The organization’s Board of Directors should adopt a set of financial policies to ensure that bookkeeping and accounting functions are appropriately assigned, duties are separated, and responsibilities are understood. See Appendices\Finance for examples of financial policies adopted by other charitable pharmacies.
In addition, the Board may choose to elect a treasurer or create a financial committee to review financial reporting and internal processes. The treasurer or financial committee may choose to review the organization’s financial statements routinely to offer a financial report that can be discussed and approved by the full Board of Directors on a scheduled basis. Financial oversight of the organization should not be taken lightly. In recent years, board members of charitable organizations have been held responsible when little or no oversight has been provided, and a fraudulent event has occurred. All board members should review the organization’s financial policies and understand their personal responsibility and risk exposure. The charitable pharmacy may elect to purchase a directors and officers liability insurance policy that provides protection to individuals supporting the organization in those capacities.
As the charitable pharmacy grows, conducting a financial statement review or a formal audit is desirable. In its infancy, members of the Board of Directors may choose to conduct a review of financial statements at the end of the year. Board members may choose to examine, a number of accounting entries to ensure the source documents (invoices, bills, etc.) have been reviewed and that the items were entered into the accounting system accurately. In addition, board members may also desire to evaluate bank statements, payroll entries, or other financial documents. At the conclusion of the review, the board members may elect to issue a statement indicating that the financial assessment was conducted and offer additional guidance as necessary.
As the organization grows and sources of funding become larger and more complex, the charitable pharmacy may elect to conduct a formal financial audit by a Certified Public Accountant (CPA). Financial audits are often conducted annually and require the CPA to issue a statement addressing the accuracy of the organization’s financial statements. Some funding sources may require a financial audit as a condition of the grant or contribution. In addition, throughout the year, a CPA can provide guidance to ensure complex accounting issues are accurately posted in a manner that is consistent with industry standards. For example, a CPA may issue professional counsel when a large capital expenditure is made, to ensure the asset is recorded on the organization’s depreciation schedule, and that appropriate amount is expensed at year end.
New businesses or charitable organizations lacking credit history will need to develop healthy relationships with service providers and vendors. The organization may find it beneficial to identify three to five vendors that may be called upon to provide a credit reference for the organization. Some funding opportunities may require credit references to determine that the organization is not an operating concern and has the operational capacity to execute the proposed project in a reasonable manner.
Costs to open and sustain a charitable pharmacy can vary widely. See Pharmacy Management Systems, Vendors and Operations Software
Costs include:
| Facility | Is free or donated space available at a good location that can be made to fit state requirements? |
| Utilities | Can some of these be donated with facility? |
| Technology | May be available through pharmacy vendor |
| Equipment | Used or donated available? |
| Legal & License Fees | Vary by state
NPI DEA (if applicable) |
| Insurance | Property, liability, health |
| Staffing | 1 Pharmacist and 1 technician to begin |
| Start-Up inventory |
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| Vendor Memberships, non-profit and profit |
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| Signage and Marketing |
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Referral sources are available at:
Good Shepherd operates a mixed–model, stand-alone community charitable pharmacy in Memphis, Tennessee. His startup plan is offered in the Introduction chapter of Steps for Starting a Stand-Alone, Mixed-Model Community Charitable pharmacy. A sample budget is available, which includes revenues, donations, operating expenses, and debts. Income is divided between revenue from the business and donation from various funders. Expenditures are divided between operational expenses and debt from loans.
Wyoming Medication Donation Program (WMDP) started as a pilot mail order, charitable pharmacy serving one county (population ~100,000). Initial facilities were provided by the Wyoming Department of Health, as well as the pharmacist (salary and benefits). Grant funding provided the remainder of the total budget ~$240,000. The program has transitioned to all Wyoming Department of Health funding and continues with about $250,000 budget. Mailing costs, including packaging and postage, are approximately $24,000 annually. WMDP currently serves the entire state of Wyoming and in 2018 will be located in a new facility. See Wyoming Medication Donation Program
Points to consider when establishing a fee system:
- Aligned program with state Medicaid program copays (if exist)
- Designed to a break-even or subsidy level (340B) for purchased meds
- Adapt to patient’s needs, pharmaceutical pricing, sample/donated drug availability, and donated servicesbudget
- Implement Quantity Restrictions on some items (such as Hydralazine #60, Nifedipine ER #30, Isosorbide mononitrate #60) when dictated by purchase price
- Whenever possible maintain predominately $1 fee (with some $3, $10, etc.) to make program more affordable (especially when aligning with stakeholder disease state initiatives (CHF, HT, etc.)
- Budget for Safety Net Drugs
- Never charge for medications from a “free” vendor (DOH, SIRUM, manufacturer bulk assistance program, etc.)
TIP: Beacon Charitable Pharmacy in Canton OH requests patients to give a donation toward their medication. This donation is not required but allows patients the dignity to “pay” for their medication at their affordable level. These donations are then used for Beacon operating expenses.
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