Thursday, June 26, 2008

A Pharmacist’s View of $4 Prescriptions

Yesterday’s post on Walgreens (WAG) and Wal-Mart (WMT) (Walgreens’ $4.33 Surrender to Wal-Mart) set a new web traffic record for Drug Channels. Guess I struck a nerve!

Today’s post is a guest editorial from Jeff Ellis, R.Ph., about $4 prescriptions. Jeff is the editor of the E-Info Exchange, the e-newsletter of the Illinois Pharmacists Association. He has kindly given me permission to reprint his June 13, 2008, editorial from the IPhA newsletter. Enjoy!


P.S. See How Pharmacists View Wal-Mart's Pricing Strategy for my historical (circa October 2006) perspective on the issue.


In My Opinion

By Jeff Ellis, Editor, E-Info Exchange, IPhA

This week I have focused on the $4 prescription. I honestly thought it would go away as it seemed such an incredibly bad idea, particularly if one expected to at least break even when dispensing a prescription. I did not foresee the tenacity of a certain chain who shall remain nameless and who very possibly owns the world; or the accolades from society that followed. I assume the publicity from the stunt is “priceless”, so it continues. This morning NBC5 in Chicago (I live on the fringes of Chicagoland) announced Dominick’s is getting in line. So that only leaves Walgreens, CVS and Osco holding the line unless I missed the announcement (a very reasonable assumption).

How do you answer this? I have come up with some conclusions.

  1. Close.
  2. Meet the price (which may lead to #1).
  3. Beat the price (which also may lead to #1).
  4. React to it using halfway measures and hope it goes away (which also may lead to #1)
  5. Offer more value for the higher price. Decide what that value is, publish it to our patients, sell all the employees on the idea and adhere to it slavishly.

There are no doubt many other ways to respond and we all would certainly like to hear what they are. The platitudes and clichés I see in articles seem unimpressive. I hear constant talk about $4 a gallon gasoline and how it is affecting patients. One response is to reduce the amount of money they pay for prescriptions, no matter how annoying, how little service or how long the wait is. (Aside: A gallon of gas is more than a prescription at Wal-Mart.)

We are attempting to sell PBMs, as well as the state and federal governments on the idea that to break even on a prescription we must get about $9 over cost. All studies say so. The $4 prescription is not helping our cause. It is also disheartening to me that such large employers of pharmacists seem to think so little of pharmacy.

If pharmacists decide (individually) they do not want to work for an employer that thinks nothing of their profession, I foresee these employer(s) crying to regulators about how the shortage of pharmacists is affecting their ability to deliver $4 prescriptions to their customers (they are, of course, customers-not patients) and how the only solution is to train technicians to staff their pharmacies and we need a change in regulation to allow this.

Consider the ramifications of that. I am not convinced that some of the leaders and educators of this profession do not see this as the future and are training our young pharmacists for this eventuality. But how many consultant pharmacist positions are out there?


  1. AnonymousJune 26, 2008

    Interesting article. I've gone to the same pharmacy for over 20 years. This has made me wonder what I get for my money. The pharmacy is part of a small, regional chain and it has changed hands 3 times. I've weathered the storms with them. What I get now are: partial fills on my chronic meds, regular changes to my generic meds so I never know what is what, and their on-line refills always lose my refills! Thanks for the wake up call. -A

  2. AnonymousJune 26, 2008

    Good article but I am surprised that you have just come to the conclusion that chains do not value pharmacists. I realized that 35 years ago when Revco started their "scorched earth" march through Ohio. They only valued the merchandise sales in each store and considered the pharmacist a high-priced clerk.

    I found a different way to make a living in the pharmacy world and happy that I did not work at chains. My bosses valued my work as a pharmacist and rewarded me accordingly.

    Hopefully the newly graduated, highly trained grads of pharmacy colleges will quickly realize that chain pharmacy is not a good career step (the way it is practiced now) and either force that chains to change or find another career path.

  3. AnonymousJune 26, 2008

    The prospect of pharmacy technicians supplanting pharmacists should not be surprising to anyone who has been watching healthcare for the last couple of decades. We've seen skilled, degreed nurses replaced by LPNs (a hospital floor can be run much more economically with 1 or 2 RNs supervising a bunch of LPNs) and physicians replaced with physican assistants and nurse practitioners (medical offices really only need one MD--NPs and PAs can take care of the "routine" stuff.)

    So why can't a busy big box pharmacy have 4 or 5 technicians dispensing under the supervison of one pharmacist? After all, the mail order industry has been successfully operating with this model for decades. And with webcams and internet communications, why can't you have one pharmacist supervising several locations at once, with technicians dispensing in the physical locations and the licensed pharmacist sitting in a central office somewhere handling the difficult prescriptions?

    I think it's a really bad idea, but, then, I'm a dinosaur.

    Tom Connelly, RPh
    Sun Pharmacy

  4. AnonymousJuly 01, 2008

    Finally someone picked up on the real impact of the $4 generic strategy. It has little to nothing to do with the immediate price at retail or cash pay, or the negative profit impact on these sales. It's tactics like this that the reimbursement setting entities (CMS and the commercial PBMs) will look to in order to justify lower rates of reimbursement (i.e. - AMP based reimbursement).

    Also Chains buy generics anywhere from 20-30% less than independents (no middleman in the transaction) - and yes - that is the wholesalers' markup on generics. CMS and commercial PBMs see it - the GAO report was accurate. Tough for the independent to cry fowl, when reimbursement setting entities see these examples of perceived opportunity to reduce cost.

  5. AnonymousJuly 01, 2008

    I am the principal of a for-profit company that provides information services to independent pharmacies.

    When Walmart started the $4/Rx plan we did an analysis of what drugs were involved, what an independent pharmacy might pay for the same, how many prescriptions were dispensed annually - basically: "If we met that price what is the complete financial impact?" Bottom line: on the whole it's a break even situation. An independent pharmacy could - on average - cover the cost of the drug, vial, cap and label but the dispensing time/labor is a give away. The incidence of a "loss leader" should not be a surprise to anyone in retail business.

    As cited in previous Drug Channel articles, the independent needs to "get big, get smart or get out." Failure to execute one of the first two choices will, given today's climate, most likely make "get out" the default non-voluntary option. I'm involved in the "get smart" option.

    AWP. AMP, ASP, Medicare, Medicaid - results of these debates will affect all pharmacies - independent or otherwise. It is a reasonable assumption that no legislation will with malice and forethought establish a rule set which patently puts the independent pharmacy out of business, but....

    Yes, there is a "but" - always has been a "but" - more or less hidden. Changing environments uncover the hidden - or more truthfully admitted: the "ignored" - stuff.

    Every pharmacy needs to control costs. The cost of the medication is, with exceptions, the primary cost factor in filling a prescription. "Price shopping" is the solution! Compare primary / secondary vendors, manufacturer, package size, pick the optimum choice to fulfill the dispensing need. Every managing pharmacist knows this, no surprises. Inability to control costs becomes failure to profit becomes business failure.

    Here's the math: the typical independent pharmacy dispenses some 2,500 unique drug items (at a generic level) per year. Using a primary and secondary supplier, some 15,000-17,000 alternative items are available to meet that demand. Virtually no pharmacy can devote the time/manpower to price shop all these items on a routine basis.

    "We watch our top movers!" Question: Top 100? Top 200?
    Brand drugs represent about 50% of Rx dispensed. The price per dispensing unit of a brand drug varies only fractionally from wholesaler to wholesaler - exactly the opposite of generic drug options. Watching the Top 200, about 10% of items dispensed, given 50% are brands where there is essentially no significant savings available from any source, means a pharmacy is monitoring about 5% of "controllable" drug acquisition cost. Fact: in order to achieve 80% of "price shopping" potential savings the pharmacy needs to regularly and repeatedly price shop 1,000+ items.

    Routine full price shopping of established suppliers can save an independent pharmacy 10% on generics, 5% overall. If the pharmacy dispenses 20,000 tablets per year, why buy bottles of 100 when bottles of 1,000 are available for 20% less? Anyone looked lately? That's still 20 inventory turns. "Buy as last” is a very expensive solution to the price comparison issues.

    Buying the optimum package size and item is only one portion of "profit." Profit has two parts: costs and revenues. The complexities of pharmacy management software coupled with lack of managerial time results in many errors creeping into the pharmacy system and some errors rather drastically affect billings. An NDC pack code change is ignored, the item is no longer available, there are no further price updates available, the pharmacy management system continues to bill the medication at obsolete cost - in cases by years of “outdated.”

    Every independent pharmacy has experienced the "your invoice exceeds maximum allowable cost" notice. When was the last time you got a "your invoice is less than the current minimum price of this item and we have increased your reimbursement amount" notice?

    When 30 tablets cost the pharmacy $45 on invoice, but the pharmacy management system - through erroneous outdated information, submits a billing for $30, the pharmacy does not receive a “your billing is less than the minimum cost allowance, so we are sending you extra monies” notice from the PBM. With 15,000-17,000 items in the Drug Master File, those records get less review than price comparisons.

    Pharmacy management systems do not provide the tools that reveal these situations. And those reports from the reconciliation service reference "your" cost vs. "average" cost? When did anyone actually do anything with that information?

    Our experience indicates the independent pharmacy - due to lack of concise information management - is losing on average $3 to $4 per Rx. Between poor purchasing execution and unrecognized data systems errors, the annual “losses” are going to pressure the bottom line for pharmacies simply buying as last. The pricing and reimbursement changes ‘en route’ will cause only the smart survive.

    Tom Tallardy

  6. AnonymousJuly 18, 2008

    As pharmacists, other readers of Drug Channels might be interested in a recent find I made: I was pretty concerned to find a write-up recently on a health risk to pharmacy workers that doesn’t seem to be getting enough attention: I researched the topic after reading about it in Drug Store News and I then found a study about it. It seems to me that something should really be done about this robotic dispensing system which uses compressed air. Considering the potential harm it may cause, it seems that one of the federal agencies should study this.

  7. AnonymousJuly 24, 2008

    compressed air?? are you dipping into the inventory? worry about something that matters