There’s quite the discussion going on in the comments section of a post over on KevinMD.  A gross simplification of the issue is that a few pharmacists and pharmacy techs took offense to my suggestion that it’s unreasonable to charge $45 for a prescription if it’s possible to make a profit charging $5 for it.

What the pharmacists commenting on that post have said contradicts what my insurance company has told me, as well as what my pharmacist has told me when I’ve asked questions.  Summarizing the information provided by a few different commentors, then:

It turns out that things aren’t nearly as straightforward as they could be.  Insurance negotiates a contract with physicians, but at the pharmacy there isn’t quite as much negotiation power.  Pharmacies are in the position (even more than doctors) of having to take whatever amount insurers offer, or not accepting insurance at all (in which case patients will go elsewhere).

One point that multiple people have made is that it costs a pharmacy $7-12 to fill a bottle, plus the cost of the drug, regardless of which medication is prescribed.  In addition to paying for the medications that it sells, pharmacies must purchase prescription bottles and labels, pay labor costs to employees, and cover the costs of doing business such as facilities rental/mortgage, electricity, computers, refrigerators, etc.  Those stores that have $4 rxlists are losing $3-8 on every one of those $4 prescription they fill.  The stores make a profit on other items to cover the losses of their pharmacies (which are there simply as a convenience to get customers in the door).  That’s not something that standalone pharmacies are able to do.

As to pricing, usually companies buy goods at wholesale and sell them at retail.  One of the pharmacists who commented on the linked post says that the pharmacy world is different, and that what they call “average wholesale cost” is really suggested retail price, and that what the pharmacy pays for drugs is called ACQ (acquisition cost).  AWP is usually 33% above ACQ.

If I follow this, then AWC will never be less than the $7-12 it costs a pharmacy to fill a bottle (from here on in, I’ll use $10 as an average).  If pharmacies could charge AWC, then they’d be satisfied that they were getting a fair deal.

The problem arises because of insurance.  Insurers know that there’s a 33% markup between ACQ and AWP, and decided that’s too much.  Insurers knock 25-30% off AWP, leaving 3-8% markup, then tack on a dispensing fee.  The dispensing fee, however, doesn’t come close to covering the true costs of dispensing a drug, which means that the 3-8% markup is not profit, but goes to cover dispensing costs.

Insurers, according to the pharmacists, usually pay around $1.50 as a dispensing fee.  It might be as low as fifty cents or as much as two dollars, but it doesn’t approach the $10 that it costs a pharmacy to fill a prescription.

There’s a twist to that dispensing fee, too.  Some insurers will only pay a dispensing fee every thirty days.  People aren’t supposed to let their meds run completely out before getting refills, so I can see where that’s a huge problem.  If my insurer does this, the pharmacy only gets a ninety-nine cent dispensing fee every-other-month, because I don’t wait until I’m out to get my refills.

Another  pharmacist indicated that AWC only covers the drugs, and the 33% above ACQ doesn’t cover dispensing costs, in which case $10 needs to be added in order for the pharmacy to be making a reasonable profit.  If AWC=ACQ+33%, then what is the 33% for if it’s not supposed to cover labor, materials, and profit?  I think that’s where I’m still a little bit confused.

What it boils down to is that the insurer tells the pharmacy how much it will pay, and also tells the pharmacy how much to charge the patient (as a copay); neither of those numbers has anything to do with the “cash price.”  The quoted “cash price” means nothing if you have prescription coverage on your insurance plan.


3 thoughts on “Pharmacy

  1. There are days I think that we should go back to straight cash for medical services. Every one prices according to the real costs and except for the simplest of credit plans, there is no ornate administration on the payment side.

    Not saying we could or even should go back to this, but sometimes it looks good after reading gobbledygook such as found in this post!

  2. WS, I admire your courage for writing what you believe, then learning as further realities arrive via clarification.
    BTW, one model for going “back to the future” of health care is QLiance in Seattle and Health Access Rhode Island in RI. Things are so bad that people are questing for simplicity. Peace.

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