Thursday, February 12, 2009

The Unknown Pharmacist's View on Margins

Last month in Pharmacy Profits and Wal-Mart, I pointed out that Medicaid remains the most profitable third-party payer for independent pharmacies. The data came from the National Community Pharmacists Association (NCPA), which is the trade association and lobbying group for independent pharmacies.

I posed this question to the self-styled Pharmacy God (PG), an anonymous blogger who works in a retail pharmacy. Be forewarned: his posts range from fascinating behind-the-counter insights to mundane profanity. Nevertheless, he is one of the better pharmacist-bloggers and I like to read his blog Thoughts from the Pharmacy God.

PG gave me a detailed answer to my question about pharmacy margins, so I thought I’d share it with you. Note that his pharmacy fills a much lower share of Medicaid scrips than a typical independent.

Any other viewpoints? Note that the recent stimulus compromise takes out the option to let states extend Medicaid to the unemployed.

Thanks again, PG!

(Yup, it’s been an all-guest-post week. Don’t worry – I’ll be back with new stuff next week.)


“My pharmacy doesn’t fill a lot of pure Medicaid prescriptions (less than 1 percent), so I can't really comment on the profits on them. My state has switched a lot of its chronic Medicaid families over to the managed care companies, but even with those factored in I still bill less than 4% of my scripts to these plans. I remember a few years ago that Medicaid reimbursed well, but things may have changed since then.

On the Medicare Part D side, the reimbursements are all over the place. One PBM will pay 3% higher on Medicare D scripts, the next will be 3% lower. At my pharmacy, I'm lucky to pull a 16% gross profit.

Here's the catch... the base dollar amount that the profit is coming from has dropped. I don't know if it's the Walmart effect or if there is a backroom deal between the government and manufacturers, but the actual dollars profit per rx has dropped.

Three years ago it was normal to see a generic's cost to be $25. Add your 18% profit and you would make $4.50 on the script. Now I'm seeing generic costs on a lot of the fast moving medications below $5. That means that I'm going to make a buck (hopefully) on the script.

This past, Monday I ran a report just to check on my reimbursement amounts. For the purpose of my report, I assumed that my actual cost to dispense each medication would be $8.00. When I looked at the report, I saw that the total reimbursement for 28.4% of the generic medications didn't even break the $8.00 mark. And when I look at brand name reimbursements, it's not uncommon to see reimbursements that are $4-10 over the actual cost of the medications.”


  1. One of the issues we have with Medicaid prescriptions is that beneficiaries do not have pay their copayments at the time of service. Most chains do not bill patients for copyaments later, simply chosing to write the amount off so billing for copayments can put a pharmacy at a competitive disadvantage. Copayments range from 50 cents to three dollars and if left unpaid have a negative impact on profit margins, and the chain's shareholders. A couple of thousand of dollars a year might not sound like a lot, but a couple of thousand of dollars a year from each store starts to add up quick.

  2. Adam

    Get a new source of information . This guy doesn't know what he is talking about.
    I am guessing he works as an employed pharmacist for someone or with a chain. Either way he is not seeing the true net cost of the product or all of the available reports. The average gross dollar captured has risen since 2006 along with the average retail dollar captured. Most pharmacist including store owners have always had knee jerk reactions to one or two instances during the day and think the sky is falling because of it. Retail pharmacy is not a bad business if run correctly as a "business" that should make a profit. The only complainers are the owners who can't make a profit and the ones who work for someone else. This is my last blog here because your keep fostering the negatives instead of the positives. But I guess that is the way "consultants" make a living -- you realy have to make everyone believe they need help in running tgheir lives and business.I have been in business for thirty years and have multiple locations and most the bloggers usually have no idea of what they are talking about.

  3. Nice try pal, but your ego is placed in front of your common sense.

    I too have been in this business for over 2 decades, running a small chain of pharmacies. We were extremely successful throughout the 90's and much of this decade as well. Even Medicare-D was a surprisingly good thing for us, as our volume kicked up over 15%, albeit with a 2% shrink in margin.

    Yet the 4 buck programs were a game changer for this industry, and you can't solely rely on scripts to survive in today's world.

    Cheer up. Working for the big guys at 40 hours per week is like a vacation.....until the next opportunity comes along to carve our niche in the pharmacy industry!