Determining Cost to Dispense in a Cost-Plus World
According to an article published in January 2020, the nationwide mean cost of dispensing (COD) a prescription was $12.40. Add current inflationary pressure and a tight labor market, and it’s not hard to imagine that number is now higher. Payroll costs accounted for nearly 60% of that cost. As a refresher, cost to dispense reflects the costs associated with dispensing a prescription and does not factor in profit. Costs included in COD calculations include 1) Payroll costs (for prescription department, including compensation, benefits, and payroll taxes), 2) prescription department costs (such as packaging supplies, automation, software, and licenses, to name a few), 3) facility costs as they pertain to the pharmacy specifically (such as rent portion, utilities, mortgage interest, etc), and 4) other costs (like marketing and advertising, other insurance, telephone and internet, and much more). If a deep dive into your cost to dispense is of interest, we can help.
The cost-plus model has notable differences in these cost of dispensing figures. First and foremost, when you remove the pharmacy benefit manager (PBM) from the prescription processing flow, you eliminate significant time requirements and therefore costs. Some data suggests this could account for 30% of the time of prescription processing. How many hours of an average pharmacy staff member’s day are consumed by navigating rejections, prior authorizations, formulary issues, phone calls to providers about the same, and other insurance-related processing issues? While it may be hard to determine the specific numbers pertaining to these items, it is no doubt that they consume valuable staff member hours that could either be cut or otherwise spent on patient care.
Just think about processing a claim that requires nothing more than the prescription entry. When you hit that “process” button, you don’t have to hold your breath and wait…the claim always goes through. While there is some work up-front to create the pricing structure of a cost-plus model, the follow-up execution is super simple because it’s devoid of insurance processing complications.
A National Cost of Dispensing Study commissioned in 2015 by the Coalition for Community Pharmacy Action estimated that delays in payment from PBM’s added approximately $0.004 per day to the COD. If you’re waiting 30 days for payment, add $0.12 to the COD for each prescription. This amount doesn’t exist in a cost-plus model as payment is immediate.
Additionally, switch fees go away when there is no processing. That accounts for a significant amount each year. When concerns about audits disappear, there are also certain activities that may no longer require such due diligence, like days supply calculations, rx documentation, audit prevention services, legal fees, and more. Furthermore, when we’re practicing with a goal of what’s best for the patient instead of what the PBM requires, we exert a large amount of freedom over our practice and the way we spend money in that process.
While it doesn’t specifically pertain to a cost to dispense calculation, of critical importance in the cost-plus model is the lower overhead due to stocking almost strictly generic medications.
Knocking dollars off of every prescription dispensed makes a huge difference to the bottom line over time. Additionally, the freedom gained is priceless. Let’s talk more today to get you started.
