Analysis of Costs to Dispense Prescriptions in Independently Owned, Closed-Door Long-Term Care Pharmacies

BACKGROUND: The need for accurate calculation of long-term care (LTC) pharmacies’ costs to dispense (CTD) has become more important as payers have moved toward reimbursement models based on pharmacies’ actual acquisition cost for drug products and the Centers for Medicare Medicaid Services (CMS) has implemented requirements that LTC pharmacies must dispense prescriptions for certain branded drugs in 14-day-or-less quantities. OBJECTIVES: To (a) calculate the average cost that the typical independently owned, closed-door LTC pharmacy currently incurs to dispense and deliver a prescription to the resident of a client LTC facility and (b) estimate how CMS-mandated changes to a 14-day-or-less dispensing cycle would affect the typical LTC pharmacy’s average CTD. METHODS: The data requirements and measurement model were developed by academic researchers in consultation with an industry advisory committee of independent LTC pharmacy owners. A survey instrument was constructed to collect financial and operating data required to calculate the CTD. Surveys were distributed via 3 dissemination channels to approximately 1,000 independently owned, closed-door LTC pharmacies. The National Community Pharmacists Association mailed surveys to their LTC members; 3 major national wholesalers distributed surveys to their LTC customers through their newsletters; and 3 LTC group purchasing organizations distributed the surveys to their members through emails, newsletters, mailings, and/or regional meetings. Each pharmacy’s CTD was calculated by dividing total LTC dispensing-related costs by the total number of prescriptions dispensed. Dispensing-related costs included costs incurred to physically dispense and deliver prescriptions (e.g., dispensing pharmacists’ and technicians’ salaries and costs of medication containers) and costs incurred to support the dispensing function (e.g., salaries of delivery and medical records personnel). A model based on dispensing-related fixed, variable, and semivariable costs was developed to examine the impact of shorter dispensing cycles on LTC pharmacies’ CTD. A prescription volume increase of 19% was assumed based on converting only solid oral branded drugs to short-cycle dispensing. RESULTS: A diverse sample of 64 closed-door LTC pharmacies returned usable surveys. Sales from dispensing to LTC facilities accounted for more than 98% of total sales. Respondents indicated that they currently dispensed 23% of total doses in 14-day-or-less cycles and 76% in 28-31 day cycles. Most pharmacies used automated medication packaging technology, heat and cold package sealers, bar code systems, sterile compounding hoods, LTC printers or labelers, and electronic prescribing. The median CTD was $13.54 with an interquartile range (25th to 75th percentiles) of $10.51 to $17.66. More than half of dispensing-related costs were from personnel expense, of which pharmacists and managers accounted for more than 40%. The results of the fixed and variable cost modeling suggested that converting solid oral brand-name drugs from 30-day to 14-day dispensing cycles would lower the median per prescription CTD to between $11.63 and $12.54, depending on the assumptions made about the effects of semivariable costs. However, this decrease in per prescription dispensing cost is dwarfed by an increase in total dispensing cost incurred by pharmacies that results from doubling the monthly volume of short-cycle prescriptions that must be dispensed. The result is that the typical LTC pharmacy in our sample incurred a CTD of $13.54 if the medication is dispensed in a 30-day cycle or $23.26 if the medication is dispensed in two 14-day cycles (at a cost of $11.63 for each cycle dispensed). CONCLUSIONS: Our results indicated a median CTD of $13.54 for the typical independently owned, closed-door LTC pharmacy. Moving to a shorter cycle would reduce pharmacies’ average per-prescription CTD but would increase the number of prescriptions dispensed per month. Our results indicated that transitioning solid oral branded products to 14-day cycles would reduce the median CTD to a minimum of $11.63 but would increase total dispensing costs because each sold oral branded prescription would require twice the number of monthly dispensing events.