NATIONAL COMMUNITY PHARMACISTS ASSOCIATION

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If a pharmacy is to make a profit, the reimbursement rateor the price charged must cover the product cost, the costof dispensing, plus a surplus for profit. Thus, for pharmacyowners and managers to make sound business decisionson whether to accept a contract or not, they need to knowwhat it costs them to dispense a prescription. It is suggestedthat pharmacy owners estimate their own cost ofdispensing and then carefully evaluate each third-partycontract before signing. Additionally, all usual and customarycharges should include the cost of dispensing, andpharmacy benefit managers should reimburse to cover costof dispensing.262009 NCPA Digest, sponsored by Cardinal Health
Third-Party PrescriptionsThe most significant external pressure on the business ofindependent community pharmacy is third-party prescriptioncoverage and the plans that administer drug coverage,pharmacy benefit managers (PBMs). For communitypharmacies, public and private third-party payers dictateprescription drug reimbursement payments and introduceadditional operational and financial challenges to thepharmacy. For most community pharmacies, achieving afunctional and fair working relationship with third- partypayers is essential to attain long-term profitability and overallbusiness survival. Table 8 provides the percent of thirdpartyactivity as well as the average gross margin related tothird-party plans.Figure 3 • Third-Party PrescriptionActivity—Five-Year TrendAccording to Figure 3, third-party activity increased to 88percent of the total prescription volume for the averageDigest pharmacy. Medicare Part D pays for approximately29.6 percent of the prescriptions filled in independent community pharmacies. The percent covered by Medicaiddecreased slightly to 14.5 percent. However, with nearly halfof the prescriptions filled by independents being paid forby a government program, the reimbursement strategies ofgovernment programs significantly affect the financial viabilityof independent community pharmacy. Prescriptions paid for by other third parties decreased to43.7 percent, which is partially due to the shift of people togovernment programs like Medicaid and Medicare. It mayalso be due in part to independent community pharmacyowners rejecting contracts that do not reimburse pharmacistsadequately for their time and service.Results for pharmacies that reported low (less than 80percent), average (80–90 percent) and high (more than 90percent) third-party prescription volume as a percentage oftotal prescriptions filled are contrasted in Tables 9, 10, and11 on the pages that follow.Pharmacies with high third-party activity had highermedian sales at $3,597,873 compared to $3,073,295 forcompanies with less than 80 percent of total prescriptionsfilled under third-party contract arrangements. Theseadditional sales were at lower gross profit margins (22.8percent compared to 25.2 percent for pharmacies with lessthan 80 percent third-party). Pharmacies with less than 80percent third-party prescription sales had higher mediannet operating income percentages and more income dollars(before tax).TABLE 8 • Third-Party Prescription Activity2006 2007 2008MedicaidPercentage of total prescriptions 15% 13.6% 14.5%Average gross margin 19.6% 20.3% 20.3%Medicare Part DPercentage of total prescriptions 24% 25.7% 29.6%Average gross margin 16% 18.7% 18.5%Other third-party programsPercentage of total prescriptions 52% 48.1% 43.7%Average gross margin 18.5% 19.1% 19.3%Third-Party Prescriptions27
Page 1 and 2: National Community Pharmacists Asso
Page 3 and 4: [October 2009]Dear Valued NCPA Memb
Page 5 and 6: Figures1. Average annual sales (in
Page 7 and 8: Figure 1 • Average Annual Sales (
Page 10 and 11: Operating Results To determine how
Page 12 and 13: Operating Expense ManagementWe eval
Page 14 and 15: Financial PositionManaging Assets a
Page 16 and 17: Table 2 • 2008 Common-Sized (Aver
Page 20 and 21: ProfitabilityExpense ManagementThe
Page 28 and 29: TABLE 9 • 2008 Common-Sized (Aver
Page 30 and 31: AssetsTABLE 11 • 2008 Common-Size
Page 32 and 33: TABLE 13 • 2008 Median Financial
Page 34 and 35: Geographic SummaryConditions of the
Page 36 and 37: TABLE 16 • 2008 Median Financial
Page 38 and 39: Rural/Metro Pharmacy LocationPharma
Page 40 and 41: AssetsTABLE 20 • 2008 Common Size
Page 42: Common-Sized Balance SheetThe balan

NATIONAL COMMUNITY PHARMACISTS ASSOCIATION

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