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PHARMACY DISPENSING COSTS ARE $ 1.12 MORE FOR THIRD-PARTY PRESCRIPTIONS THAN FOR PRIVATE-PAY CUSTOMERS, NACDS/PURDUE STUDY FINDS; PHARMACY MARGINS SQUEEZED

Executive Summary

Dispensing prescriptions to customers on third-party plans costs pharmacies $ 1.12 more per prescription than the cost of filling prescriptions for private-pay customers, according to an ongoing Purdue University survey sponsored by the National Association of Chain Drug Stores. "It costs chain pharmacies on average an additional $ 1.12 to dispense a prescription to a customer on a third-party plan as compared to dispensing a prescription to a customer who pays cash," Joseph Thomas, PhD, associate director of Purdue University's Pharmaceutical Economics Research Center, told NACDS' annual pharmaceutical conference in Washington on Aug. 30. NACDS, in conjunction with the Pharmaceutical Economics Research Center, is conducting a study on the impact that third-party plans have on the retail pharmacy industry, and on the chain drug store industry in particular. Thomas presented the preliminary results from a survey of 337 chain drug stores. The final study results will be based on 600 to 750 stores and will be presented to NACDS' board at its December meeting. The study found that the cost of dispensing a prescription for a customer who has a third-party plan is $ 6.72, while the cost for filling a prescription for a private-pay customer is $ 5.60. The survey looked at various factors, including personnel costs and central administrative costs, during the stores' last fiscal year to determine the cost-of-dispensing differential between third-party programs and private-pay customers. Study investigators were able to separate out personnel related costs that only dealt with filling third-party prescriptions or completing reimbursement forms, Thomas noted. "There is a significant difference between the personnel costs associated with filling a prescription under a third-party plan in comparison with filling a prescription for a private-pay customer," Thomas said. "The difference is 33 cents per prescription." Third-party plans were also associated with higher central administrative costs, a difference of 24 cents per prescription. "Computer expenses associated with third-party programs account for an additional seven cents per prescription ]and[ third-party receivable carrying cost is also very significant, an additional 24 cents per prescription," Thomas stated. Third-party bad debt, on average, adds another 24 cents to dispensing costs, he explained. Director of the Pharmaceutical Economics Research Center Stephen Schondelmeyer, PhD, pointed out that this cost-of-dispensing differential is important to note since third-party plans account for a growing share of overall prescriptions. In 1988, 39% of retail prescriptions were paid directly by third-party plans, Schondelmeyer said. With the advent of the Medicare catastrophic coverage outpatient drug benefit, combined with other forces, 60 to 75% of retail prescriptions will be paid by third-party programs by 1995, he added. Schondelmeyer asked the audience: "Are you getting paid $ 1.12 more for those third party prescriptions? We need to fight to get you that payment." He suggested that "in assigning payment to pharmacists in our cost-of-dispensing formulas, we must separate and distinguish between the cost of dispensing third-party prescriptions and the cost-of-dispensing private-pay prescriptions." Schondelmeyer stressed that those who pay retail pharmacies need to "take that difference into account in setting our fees." Schondelmeyer also noted that under Medicare, pharmacists' gross margins will decline. "What we expect to happen under Medicare, because of the way those provisions are written, the pharmacist's fee will literally be indexed so that the pharmacist's fee goes up at the general inflation rate of the U.S. economy," he said. The pharmacist's fee will experience a 4% increase per year, while "manufacturers' price increases will go up to about 8.2% a year," Schondelmeyer predicted. The pharmacy professor queried: "If you have your product costs going up faster than your fee, what happens to your percent gross margin? Your percent gross margin . . . according to law under Medicare will be declining." The gross margin that "I expect pharmacists to get in 1991 will be about 27% per prescription," Schondelmeyer said, and "by the year 2000 ]it[ could be as low as 21%." Schondelmeyer expressed concern about the pressure that private third parties and state Medicaid programs are feeling from the Health Care Financing Administration to change reimbursement from average wholesale price (AWP) to something closer to estimated acquisition cost. "It's less than what AWP was, that means we have less reimbursement already." However, he added, "there's another alternative that we do get some reimbursement in our industry from, something called a fee." Schondelmeyer stated that it's in pharmacies' best interest "to take this fee and continue to lobby through effective information and political lobbying to try and raise that fee . . . to be as much as possible."

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