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Medical Economics Website

November 19,2001

Dispense the drugs you prescribe?

By Deborah Borfitz

Computerized systems are making it increasingly profitable to do this in your office. Here's what you need to be successful at it.

Richard D. Loew of Stuart, FL, writes multiple prescriptions for many of the 40-plus patients he sees every day in his walk-in clinic. That isn't unusual for an internist and emergency physician with a large Medicare practice. What is unusual is that he makes between $35,000 and $60,000 per year from selling medications to many of these patients.

Using computer software and drugs supplied by Physicians Total Care, based in Tulsa, OK, Loew earns a profit of $4 to $6 per prescription. His in-office dispensary offers 70 percent of the drugs he prescribes, and accepts many of the same insurance cards that the pharmacy chains take.

Not all physicians who do in-office dispensing earn as much from it as Loew does. Azar A. Korbey, an FP in Salem, NH, has long been a client of Allscripts Healthcare Solutions, which handles the lion's share of the in-office dispensing business. In a practice that's 80 percent managed care, Korbey and his partner split about $20,000 in net profits annually on gross drug sales of $8,000 to $10,000 per month.

Whether you have a lot of managed care or not, modern systems eliminate inventory management problems that once made drug dispensing an economic loser. "Because of computerization, in-office dispensing can make a lot of sense today," says Gray Tuttle Jr., a practice management consultant in Lansing, MI.

For some physicians, the motivation for in-office dispensing goes beyond the lure of profits. Maryland Primary Care Physicians, for instance, was having a "terrible time" keeping track of its prescription writing and refill requests, says FP Victor M. Plavner, one of the Arnold, MD, group's five physicians. The sloppy handwriting and shortcut notations of prescribing physicians were also raising patient safety concerns.

Both issues were resolved by Allscripts' computerized medication management system. The bonus was the drug-dispensing feature, which has covered the group's investment plus a small profit.

Even if improving patient care is your main goal, however, bear in mind that the ethics of dispensing to patients is a matter of debate in the medical community. Both the AMA and the American College of Physicians-American Society of Internal Medicine say it's okay to dispense, but only if patients aren't exploited. (The AMA also discourages doctors from selling nonprescription drugs that are available elsewhere.) That means you should be sure your prescribing patterns won't be altered by financial self-interest.

The regulatory environment can also present challenges. Massachusetts, Montana, Texas, and Utah prohibit physicians from dispensing drugs in their offices, according to Cliff Berman, senior vice president and general counsel for Allscripts. Most other states regulate in-office dispensaries just as they do pharmacies.

Is in-office dispensing for you? That depends not only on ethical and regulatory issues, but also on how your office is set up, the nature of your practice, and your marketing approach. It may be harder to master the financial side of the business than the technology itself. But turnkey dispensing systems offer a number of features that help automate such financial chores as inventory tracking and reordering.

How the dispensing systems work

Allscripts' dispensing system, used by 12,000 physicians, is part of a medication management system that includes a handheld computer with touch-screen commands, a desktop computer, and a printer. The handheld device communicates by radio waves with the front-desk PC, on which patient information is stored. The doctor selects the patient, then the diagnosis from a list of ICD-9-CM codes that correspond to the practice's most frequently seen diseases.Next, a list of the most common medications the practice uses to treat that condition pops up on the screen. The system also provides information on dosages, therapeutic equivalents, drug interactions, drug allergies, and conflicts with the insurer's formulary.

For an insured patient, the doctor clicks the "card" button for an automatic connection to the pharmacy benefit manager used by the patient's health plan, explains George M. Iannini, a Connecticut internist employed by the Danbury Health Systems. Final payment approval takes 20 seconds, he says. Office staffers can then either dispense the medication, print out the prescription to be filled elsewhere, or send the script online or by fax to a local pharmacy.For a script filled in-house, the computer prints out standard drug information for patients and labels for the bottle, medical chart, encounter form, and audit log (which tracks what's dispensed to whom and when).

There's little room for error. A bar code at the bottom of each prepackaged drug alerts the person dispensing the drug if the wrong one was picked; it also prevents labels from being printed if the product will expire during the course of therapy. The lot number is automatically recorded so that the drug can be tracked in case it's recalled.

Iannini and two of his physician assistants at Primary Care of Southbury (CT) started using the Allscripts system in the fall of 1999 and now dispense between 350 and 400 prescription drugs per month. "You can be fairly facile with the system in a few weeks," he says. "It doesn't require a lot of computer literacy."

Physicians Total Care doesn't offer the capability of going online with pharmacies. Unlike Allscripts, its main competitor, PTC is purely a dispensing system, although it does provide prescribing software that works on handheld devices. Physicians are provided with a cost review and contraindications for different types of medications, but otherwise they write scripts as usual.

Staffers then fill the prescription using Windows-based dispensing software and a bar-code scanner to ensure the correct medication is picked. The system automatically flags refill dates and prints mailing labels, unless the patient plans to pick up the refill at the office.

PTC connects physician offices electronically to pharmacy benefit managers, enabling claims to be filed for more than two-thirds of patients carrying drug cards, says Bill Janis, a regional sales manager for the company. By tapping the same electronic data interchange network that pharmacies use, he notes, medical offices can obtain online verification of patient coverage and have their claims adjudicated immediately. Claims are typically paid in less than 30 days.

Getting started is the big expense

Allscripts charges an installation fee of about $1,500 per practice. Monthly subscription fees range from $100 to $350 per doctor, depending on how much of the required hardware—including a handheld prescribing device, a desktop computer, and a printer—you already own. PTC has a one-time licensing fee of $4,000 per practice site. The company also charges $175 per site in monthly system support and connection fees, and gets 9 cents per insurance card transaction. None of this includes the cost of the equipment, including a handheld bar code scanner (about $150), a laser printer ($300), and a computer. You'll also have to get a software package called LapLink 2000 for Windows, but the cost of the dispensing software is covered under the licensing fee.

When internist Richard Loew started with PTC seven years ago, the initial setup cost him between $10,000 and $15,000, including a one-month supply of drugs. But sales manager Bill Janis says the software license fee was far higher then, as was the price of computer equipment. So with a small amount of drugs, he says, a doctor can now get into dispensing for as little as $3,000.

Whichever dispensing system you use, you must make sure that the cash inflow from dispensing exceeds the cost of purchasing drugs. This isn't a problem for Azar Korbey in New Hampshire. Because drugs are reordered at the beginning of each month and don't have to be paid for until the end of the following month, he can afford to keep $25,000 of inventory on the shelf. "I turn over my inventory every four to six weeks. The drugs are paid for by the time I have to pay Allscripts, so I'm always in a positive cash-flow position," he says.Korbey's stock of 250 prescription drugs, plus a handful of over-the-counter drugs and herbal remedies, is fairly broad. But you don't have to carry such a wide variety to be successful.

Lincoln Park Family Physicians, a two-doctor practice in Chicago, dispenses only 50 of the more common prescription drugs, as well as a few OTC decongestants and cough medicines.Your profit potential, however, will be limited by the amount of inventory you carry. Iannini, for instance, says dispensing brings in only $5,000 to $10,000 a year for each doctor in his group. "There's not a ton of money in this relative to the amount of work and inventory," he says. "We carry about $6,000 to $7,000 worth of drugs, but we probably need $10,000 to $20,000 to do it right."

Your payer mix can also have a major impact on the income potential of in-office dispensing, notes PTC's Janis. For example, he says, workers' comp yields an average margin of $16 per prescription vs $4.50 per script for drugs covered by managed care plans. Straight cash transactions ring up an average profit of $13 per medication. Because Allscripts deals with a lot of health plans, its clients' average margin is closer to $4 per script.

The average margin dictates the number of prescriptions you have to fill each day to break even on the dispensing system. In Korbey's practice, for instance, the break-even point is reached at four prescriptions per day.

Cash-paying patients invariably save money by buying at the office rather than local drug chains, although the doctors pay more than pharmacies for the drugs they dispense, says Korbey. On formulary drugs, he states, patients generally pay at least $1 less than they would at area pharmacies.

Generic drugs can be much cheaper in the office. For example, Korbey sells a month's supply of ranitidine for $20, less than half what it would cost in a drugstore. Margins on generic drugs are usually better than on brand-name medications, because many patients are willing to pay for them in cash. This is especially true if the copayment on the generic drug at the pharmacy is more than the full cost of the same drug purchased in the office.

Lincoln Park Family Physicians sells mostly generics. Paid for in cash, they generate a profit of $7 to $8 per prescription, notes FP Steven H. Rube, compared with margins as low as $2 to $3 per script if claims are filed with health plans. While dispensary earnings go to the health system that owns Lincoln Park, prescription sales affect the doctors' bottom line via productivity bonuses, says Rube.

Physicians who are considering dispensing would be wise to examine whether reimbursement from third-party payers will cover costs, says Philip Beard, a health care consultant in Overland Park, KS. Margins can be pretty slim, he notes. Drugs generally can't be acquired for less than 15 percent below the average wholesale price, and pharmacy benefit managers typically pay 12 to 13 percent below this wholesale price, plus a $2.95 dispensing fee.

"Unless you're in a market or specialty that has relatively high-priced drugs, it may be more hassle than it's worth," says Beard. The only way to compete with "Wal-Mart margins" on basic scripts, he contends, is to dispense in volume.

Doctors calculating the cost-benefit ratio of an in-office dispensary also should be mindful of the potential impact on staffing. It could mean extra duties for the office nurse, who often pulls the drug and handles the labeling, and the receptionist, who collects payments or copays. Hiring a person dedicated to the dispensary makes financial sense only if your practice will be dispensing lots of drugs.

Patients like the convenience of in-office dispensing

One ancillary benefit of in-office dispensing is that it saves patients a trip to the pharmacy. Rube says, "Some well-off patients are willing to pay up to $50 out of pocket to fill their prescription in the office rather than make a $10 copayment and wait for hours at the pharmacy," especially if they're sick and toting kids.

Iannini says he was initially concerned about how patients would respond to his dispensary, largely because everything he'd read suggested that the bill they left the office with—including the portion for drugs—would be perceived to be entirely for doctors' services. "What I found is that patients absolutely love it," he says. The convenience of one-stop shopping "has, without question, helped the practice."

Patients also consider confidentiality a "big plus" of an in-office dispensary, says Korbey. "They don't want everyone in the world to know they're on Prozac or Zoloft or taking something for constipation or herpes."

According to Janis, dispensing drugs in the office is associated with a 30 percent increase in medication compliance. This is partly because patients actually get their prescriptions filled. Also, says Janis, doctors are better than chain pharmacists at giving patients directions on how to take drugs correctly.

The risk of drug theft is small, dispensing doctors say, because they don't stock controlled substances stronger than codeine-enhanced Tylenol and cough medicines, and because everything is kept in a lockable drug cabinet. Rube's cabinet has two-inch-thick doors and giant padlocks and "there's an alarm and infrared beam on everything. Plus, we stock antibiotics and hypertension drugs—not big targets for break-ins." Automated inventory control makes even a single stolen bottle hard to miss.

Dispensing doctors say they're not exposing themselves to any additional malpractice liability. In fact, some expect their malpractice insurance premiums will eventually drop. "A few companies offer a premium cut of 3 to 5 percent if you have an electronic medical record," says Iannini. "I think that's on the horizon for in-office dispensing, too," because it provides electronic documentation of prescriptions.

Regulations and ethical rules for dispensing

Most states regulate in-office dispensing through either a board of pharmacy or a board of medicine. Like pharmacists, physicians in these states must comply with requirements related to drug storage, packaging, labeling, and record keeping. Many states also require some type of licensure.

State oversight of in-office dispensaries "varies tremendously," says Todd Wormington, manager of regulatory support for Overland Park, KS-based AccessMED, which provides pharmaceutical support services. "Some states, like California and Florida, are highly regulated. In Nebraska, you have to be licensed in the same manner as a retail pharmacy. In Missouri, regulations are very loose and there's not a lot of information." In a few states, including Vermont and New Hampshire, there are no regulations specific to in-office dispensing at all.

Especially if you live in a state without detailed dispensing rules, adds Wormington, you should become familiar with federal regulations regarding drug packaging and labeling and consultation with patients.

Doctors also need to be mindful of safe harbor regulations if they accept Medicaid reimbursement, points out Michael Brown, president of Health Care Economics in Indianapolis. They must give patients the option of filling their prescriptions elsewhere, and they need to follow Medicaid price lists that average about 10 percent above cost. At that rate, he says, "in-office dispensing doesn't make any sense for Medicaid-oriented practices unless you practice in a remote area and do it strictly for patient convenience."

Federal legislation governing Medicare also requires that patients be allowed to choose between having their prescriptions filled in the office or at a local pharmacy, says Janis. This is typically handled via a sign in the waiting room, which also includes state-mandated language regarding the availability of generic medications and patient counseling.

There's certainly nothing to stop "unethical" doctors from overprescribing, says Iannini, any more than there's a way to control excessive ordering from an in-office lab or radiology facilities. But most physicians are "creatures of habit" and prescribe accordingly, he maintains.

Korbey's prescribing habits are not influenced by the presence of his in-office dispensary, he says. But if his first-choice medication is out of stock, he will offer his patient a formulary-compliant alternative that's in his dispensary. "Chances are that the copay is the same," he says. "But will I change a drug without telling them? Usually not."

The author is a freelance writer based in Vero Beach, FL.
Deborah Borfitz. Dispense the drugs you prescribe?. Medical Economics 2001;22:44.

Copyright © 2001 and published by Medical Economics Company at Montvale, NJ 07645-1742. All rights reserved.

 

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