The accuracy of a pharmacy's prescription pricing strategy may be the key to survival. Take a close look. Your prices could be driving you out of business.
Who is to blame for escalating drug prices? It certainly isn't the small retail pharmacies that sometimes virtually give away prescriptions to cash-paying customers either because they don't keep up with the latest drug cost or they fear losing business to more aggressive local competitors.
But pricing experts say that such ignorance and fear help to drive smaller retail pharmacies out of business. A smart pricing strategy, on the other hand can work hand in hand with patient care strength s to keep a retail pharmacy thriving.
"Too many pharmacists base their prescription pricing on what their competition charges, which lease to the perpetuation of inappropriate process, " says Tony Martins, a partner at the Right Prices, a pharmaceutical prince-consulting firm in Lakeside, Ariz.
Mr. Martins gives the example of one inhalation aerosol, 3M Pharmaceuticals) was $9.00 to high. The pharmacist's price had been established by using The Right Price's database. It turned out that the manufacturer had raised the cost of the items about 21%, or $9.00, in a four-month period, and the pharmacist's competitors had failed to update their prices.
The point, Mr. Martin says, is that "pharmacists need a fundamentally sound system for pricing prescriptions that is both consistent and easy to maintain. Copying competitors' prices or relying on retrospective pricing information fails on both counts."
Haphazard Pricing
James F. Fuhs, RPh, who operates Pharmacy Management Consulting Inc., Manitowoc, Wis., believes apathy is often the reason for pharmacist' haphazard pricing. "They think if only 20%. 30%, or 40% of their business is cash prescriptions, they can ignore it," Mr. Fuhs says. "But cash customers are still a very important part of the market for pharmacy. If pharmacists cam properly work it, they can move themselves into a much higher level of profitability."
Mr. Fuhs says that typical reaction he gets from pharmacists is: " 'Well, I can't raise my prices.' And then I say to them, "the only reason you can't raise your prices is that you're unwilling to do it.' "
Unfortunately, Mr. Fuhs adds, "there are still a number of pharmacies that are pricing their prescriptions below their third-party payments."
Mr. Martins says the secret of maintaining profitability on chase prescriptions is to competitively price medications that are price-sensitive and take a higher markup on those that are not. "Pharmacists using the price-sensitivity approach, he says, "typically maintain higher prices approach," he says, "typically maintain higher prices overall-practically on drugs that are not specially price-sensitive and receive fewer pricing complaints than pharmacists who don't. This almost sounds too good to be true, but it's a fact."
By using a numerical rating system (see Table), Mr. Martin's company is able to establish price sensitivity-the higher the score, the greater there price sensitivity. The criteria used are acquisition cost, medication type/disease state, usual quantity dispensed, dispensing frequency and, most importantly, he says customer awareness.
"Through this system, he adds, "pharmacists can eliminate pricing guesswork and quickly determine when their price is appropriate-and their competitor's is not."
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'Prescription pricing is a dynamic process that requires continuous monitoring and change. If all your prices are perfect today, don't cast them in stone, because it's a safe bet they will remain perfect long.' |
Mr. Martins cited Lipitor (atorvastin, Pfizer) as an example of a prescription drug that ranks high in all price-sensitivity criteria. "Thus," he says, "the range of process charged is comparatively tight. A median price of around $90 for [a 30-count bottle] of the 20mg strength will work for most pharmacies, although it's best to err on the low side with the most price-sensitive drugs." But few pharmacies misprice that lipid-lowering agent, Mr. Martins says.
Zyprexa (olanzapine, Eli Lilly), which Mr. Martins ranks as "medium high" in price sensitivity, is another drug that has to be prices carefully, he say. It's among the top 100 drugs and is comparatively expensive, and both factors increase price sensitivity. On the other hand, the drug's long-term effectiveness has not been evaluated, and it is typically dispensed in small quantities, both of which tend to limit sensitivity.
Moreover, some pharmacies rarely dispense antipsychotic, which would also seem to reduce price sensitivity. But, Mr. Martins notes, "The patient may have received a price warning from the prescribing physician. Thus, prices at the high end of the range could chase away customers."
Among the drugs that Mr. Martins says are low in price sensitivity but frequently under priced is Vicodin (hydrocodone bitartate/acetaminophen, Knoll Laboratories). "Many pharmacists continue to price both the brand and the generic versions with near-giveaway prices," he says, "well below the $21 [brand] and almost $14 [generic] medians for a 30-count bottle. Despite the fact that the [Vicodin] family of drugs was ranked No.1 in total prescriptions dispensed in 1999, it's unlikely that you will lose a customer if you prices the generics to make a reasonable profit."
Mr. Martins also says it is important to recognize that prescription pricing is a "dynamic process that requires continuous monitoring and change. If all your prescription prices are perfect today, don't cast them in stone, because it's a safe bet that they will not remain perfect for long."
Mr. Fuhs adds, "Unfortunately, from a profit stand-point, pharmacists are more dedicated to delivering standpoint, pharmacists are more dedicated to delivering healthcare for pharmacy care than they are in providing for a healthy business. Both are necessary. You can have the lowest prices in town, but if you haven't got a roof over your head, you can't continue.
-- Bruce Buckley ---