A Penny To Fill Your Prescriptions?

       Pharmacy prescription reimbursement rates have been declining for quite some time.  And that decline has contributed to much of the struggles community pharmacies now face. 

       Isn’t it telling that I’d use a variant of the old English idiom “a penny for your thoughts” to describe the current rate of reimbursement a retail pharmacy typically receives to fill a prescription?  Those payments have been cut so severely over the years that community pharmacy has nearly been transformed into a loss-leader business. 

      Governments are now more strapped for cash.  Insurance companies are growing.  And pharmacies are unable or unwilling to play hardball with contract negotiations. This is not a recipe for success for community pharmacy.

       Think about what happens when a large retail pharmacy chain gets a new third party contract to fill prescriptions.  There is a rate agreed to be paid to the pharmacy as a dispensing fee for delivering the goods and associated services for each prescription. 

       But what happens if the contractual reimbursement rates for pharmacies become so low they don’t even cover the expenses associated with filling the prescription?  How does a company in the business of providing that service survive? 

       The answers to those questions do not paint a bright picture for the future health of community pharmacy.  The reality we now face is a direct result of an unwillingness to move away from a commodity centered business model towards a value-added service model. 

        Pharmacists have a lot to offer the healthcare world.  We can manage patient care in a manner that improves outcomes and saves money.  But if we can’t be compensated for those services or if our working environments don’t support the availability of those services, then community pharmacy has been reduced to a volume driven drug-delivery process. 

         Pharmacies typically justify their staffing needs based on script counts and profit margins.  But as prescription margins continue to decline, I worry conditions in the average pharmacy will become dangerous for patients and miserable for pharmacy staff members due to staff reductions. 

         Couple that with a self-created pricing war within the community pharmacy industry led by the creation of $4 lists and transfer coupons and you’ve got a business model struggling to maintain profitability.  Will pharmacies be forced to close their doors because they can’t make ends meet?  That is a reality many pharmacies may soon face. 

         My hope is that the large chains and major operators of retail pharmacies in the United States will say enough is enough and fight for better contracts with the health insurance industry.  They have the size to impact the forces dictating prescription reimbursement rates. 

       But as we’ve all learned from the Walgreens and Express Scripts dispute that ended a couple of days ago, the insurance companies will usually find a way to win and protect their own best interests.  And that leaves community pharmacies in a precarious situation where they might not be too far removed from an actual $0.01 dispensing fees.  The rates pharmacies now negotiate with insurance companies aren’t much better than a penny now. 

        The question though is how do we effectively fight this problem?  What will give pharmacies the leverage they need to stand up to the pharmacy benefit managers (PBMs) of the world? 

        Will it take legislation?  How about stern contract negotiations?  Maybe a combination of the two or something else entirely is necessary?  I’m not so sure I’m confident enough in a solution to suggestion one.  I’m not even positive there is just one solution. 

       What I am confident about is the trouble low reimbursement rates create for community pharmacies.  And I’m all ears for anyone who thinks they might know a viable solution.  As the old idiom says- a penny for your thoughts?

The Redheaded Pharmacist

1 Comment to “A Penny To Fill Your Prescriptions?”

  1. Pharmacy Benefit Managers / Express Scripts (ESRX) | Glenn Chan's Random Notes on Investing — August 2, 2013 @ 12:32 am

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