Client Overview
Our Pharmacy Client is a $36 million revenue-generating pharmacy that specializes in prescription services, inventory management, and insurance claim processing. Their primary objectives are to improve revenue recognition accuracy, streamline procurement and inventory processes, and ensure GAAP compliance under ASC 606.
Challenge
The pharmacy faced key operational and financial challenges, including:
Revenue Recognition Complexity: Ensuring accurate recognition of prescription sales and insurance reimbursements based on ASC 606 standards.
Inventory Management Inefficiencies: Tracking real-time inventory levels and managing expired goods to avoid stock discrepancies.
Procurement and Payment Accuracy: Implementing robust systems to manage the 3-way matching process (purchase order, goods receipt, and invoice) efficiently.
Approach
Revenue Recognition Compliance (ASC 606)
To align with ASC 606, the pharmacy adopted a five-step revenue recognition model for its operations:
Contract Identification: Recognized when a prescription was submitted and accepted by the customer.
Performance Obligations: Separated into two parts:
Prescription fulfillment (delivering medication).
Insurance claim submission for reimbursements.
Transaction Price Allocation: Determined based on the expected reimbursement rate from insurance companies and copayments.
Revenue Recognition:
Customer payments were recognized upon delivery of the prescription.
Insurance reimbursements were recognized once claims were processed and accepted.
By integrating QS/1 and Net-Rx systems, the pharmacy ensured accurate billing and recognized revenue promptly, minimizing errors related to delayed or rejected claims.
Procurement and Inventory Management
The pharmacy implemented a robust inventory management strategy, leveraging Surecost for procurement and QuickBooks for financial tracking:
Goods Receipt and 3-Way Matching:
Automated matching of purchase orders, goods received, and supplier invoices.
Ensured accurate payment processing and prevented discrepancies in accounts payable.
Expired Inventory Management:
Identified and flagged expired goods through Surecost.
Utilized reverse distribution to handle disposal, with adjustments made in QuickBooks to reflect updated inventory and COGS (Cost of Goods Sold).
System Integration and Financial Reporting
The pharmacy’s integration of QS/1, Surecost, and QuickBooks ensured seamless data flow across operations:
QS/1 managed prescription updates and sent inventory usage data to QuickBooks for real-time COGS adjustments.
Financial reports reflected accurate ending inventory levels and provided insight into monthly performance.
This integration reduced manual data handling, improved reporting accuracy, and strengthened financial controls.
Results
Improved Revenue Recognition: Accelerated financial close timelines and achieved compliance with ASC 606, ensuring accurate recognition of $36M in annual revenue.
Efficient Inventory Control: Reduced stock discrepancies and enhanced tracking of expired goods, leading to cost savings in inventory write-offs.
Streamlined Procurement Process: The 3-way matching system decreased errors in accounts payable, ensuring timely and accurate payments to suppliers.
Enhanced Financial Reporting: Achieved real-time visibility into inventory and COGS, facilitating more strategic decision-making.
Conclusion
Through the integration of advanced systems and adherence to GAAP and ASC 606, the pharmacy strengthened its financial operations, achieving both regulatory compliance and operational efficiency. This case study demonstrates the importance of process optimization and system integration for high-revenue pharmacies aiming to maintain financial accuracy and scalability.
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