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Executive Summary

THIRD PARTY PRESCRIPTION BAD DEBTS CONTRIBUTED ABOUT 24 PER Rx to the increased cost of filling third party prescriptions versus private pay prescriptions, according to the final results of a recent National Association of Chain Drug Stores (NACDS) study announced at a press conference Dec. 7 in New York City. The average per-prescription cost of dispensing for private pay prescriptions in the NACDS survey was $5.14 and for the third party prescriptions was $6.39, Stephen Schondelmeyer reported. Schondelmeyer is director of Purdue University's Pharmaceutical Economics Research Center, which conducted the study. Third party bad debts accounted for 19% of the added cost of third party prescriptions in the NACDS study. Receivable carrying costs contributed a similar 18% of the added cost. The study surveyed a cross section of 695 pharmacies. NACDS reported extensively on preliminary figures from a sample of 337 stores at its pharmaceutical marketing conference in late summer ("The Pink Sheet" Sept. 4, p. 12). At that point the cost differential per prescription between third party and private pay scripts was slightly lower at $1.12. "It literally, in a cost accounting sense," Schondelmeyer said, "costs a chain pharmacy $1.25 [24%] more to dispense and collect the money from a third party than it does to dispense and collect their money from a private pay patient." Schondelmeyer noted that although dispensing third party prescriptions "requires more time and effort than dispensing of a private pay prescription,...most third parties expect or even demand that a pharmacy give a discount to the third party greater than what the private pay customer pays for a given prescription." Consequently, pharmacists are "being asked to do more work and take less pay," he said, adding that the trend towards third party prescription coverage is rising rapidly, currently at roughly 39% and expected to reach 60%-70% by 1995. The other major factors contributing to the higher cost of third party prescriptions, in addition to bad debts and carrying costs, were personnel costs, which account for 29% of the cost of dispensing differential; administrative costs, particularly when the claims processing system is centralized, take a 26% share; and miscellaneous items, including computer expenses, amounted to 6% of costs. Schondelmeyer suggested that "third party plans must begin to distinguish, in their cost of dispensing calculations and formulas, the costs that are separable or contributed by a third party directly and make sure that pharmacies are reimbursed adequately and appropriately for those prescriptions." Commenting on the impact of third party cost containment strategies on retail pharmacy, NACDS President Ron Ziegler maintained: "The American drug being stretched too thinly in terms of absorbing a disproportionate share of the burden." In a question and answer session, Ziegler added that drug stores "cannot continue to absorb this squeeze because we can't do business without being able to fund this business...all of the efficiencies, all of the operational activities that are occurring have brought us to the point where the squeeze has to stop." Smaller independent pharmacies are going out of business, and retail pharmacy is getting closer to a time when it "no longer can viably do business," he maintained.

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