British Columbia’s $13.60 Solution

An industry-government initiative comes to terms with the real costs of dispensing

BY SONYA FELIX

Most community pharmacists in Canada are keenly aware that current dispensing fees don’t reflect the true cost of filling scripts and providing expanded pharmacy services to patients. Fees have increased over the years—usually doled out in nickels and dimes by public payers—but not enough to keep up with a typical pharmacy’s rising overhead. Negotiating with payers is a challenge in the absence of credible evidence detailing all the costs related to dispensing. The British Columbia Activity Based Costing Study (ABC) released in early 2007, however, backs up the notion that dispensing fees fall short of actual costs.

1) Unique government-pharmacy partnership
The idea for the study came out of discussions between pharmacy and the B.C. Ministry of Health a couple of years ago, when someone commented that nobody knew the true cost of providing prescriptions and professional pharmacy service. To address this fundamental gap, the Ministry, the B.C. Pharmacy Association (BCPhA) and the Canadian Association of Chain Drug Stores (CACDS) agreed to develop a research study together that all parties would accept and regard as legitimate. The three partners hired management consultants A.T. Kearney to help investigate and determine a pharmacy’s costs to dispense medications and provide pharmaceutical services to B.C. residents.

2) How the study was done
To discover the true cost of dispensing medications and delivering pharmacy services, researchers used activity-based costing, a commonly used accounting methodology that recognizes the causal link between resource consumption and product or service cost as precisely as possible. At the beginning of the B.C. project, an “activity dictionary” was created to clarify meanings and boundaries. A cross-section of community pharmacies, including independent, banner and chain from five regional health authorities across the province, was selected to ensure that sample data reflected all types of pharmacies in all regions. Data was then gathered through pharmacy interviews and data templates completed by participating pharmacies. Information collected included payroll costs for staff involved in the provision of pharmacy services, store space and related costs such as insurance and maintenance, pharmacy equipment and supplies, and inventory and overhead costs related to pharmacy services. As well, pharmacy staff members were interviewed about the services provided and the time devoted to service-related activities. Forty-seven pharmacies provided full data, which was then analyzed and weighted by characteristics in the population.

3) The bottom line
$13.60—that’s what it really costs a pharmacy to dispense a prescription and deliver related pharmacy services, according to the ABC Study. The researchers did much more than just come up with a number, however. The way they arrived at the cost is in itself a significant accomplishment.

For the first time, all the steps that go into dispensing were broken down and given an average dollar value based on the costs of labour and non-labour components: receive script ($0.42), interview ($0.75), process order ($1.80), fill script ($1.40), validate and dispense ($1.37), collect payment ($0.88), restock drugs ($0.21) and manage inventory and records ($1.19). The total average weighted cost per prescription comes to $8.02. The researchers then determined that this figure represents approximately 60 percent of total pharmacy costs per script; the remaining 40 percent includes costs related to pharmacy services such as counselling, prescription-related front shop activities (primarily cashier), and administration (hiring and training staff, report processing and so on). After adding everything up, the ABC Study arrived at the average total cost of $13.60 per prescription for pharmacy services in B.C.

Detailed findings of the ABC Study are available from BCPhA
(www.bcpharmacy.ca/press_room/ABCstudy.htm) and CACDS
(www.cacds.com/bccostingstudy).

4) Implications in B.C. and beyond
Although the results of the ABC Study came out in early 2007, the province’s dispensing fees still don’t match the research findings’ $13.60 total average cost per prescription. There is, however, agreement by both government and pharmacy that the findings are legitimate, says Marnie Mitchell, CEO of BCPhA. Even without an immediate increase in fees, the research gives pharmacy an important tool to use in discussions with payers. For one thing, it may help the pharmacy industry better understand the industry’s cost factors. It has also provided an “activity dictionary” that lists all of the interdependent activities that go into filling a script. Seeing such a list may help payers better understand the costs behind dispensing fees and better recognize the value of pharmacy.

In B.C., having the study as a benchmark can help in other ways, too, Mitchell says. Within the next year, changes are planned for PharmaNet, the provincial computer system for sharing prescription information. Now that the study has established a baseline of activities and costs, it is possible to determine potential financial implications arising from the introduction of PharmaNet changes.

Since the ABC Study focused exclusively on B.C., the conclusions aren’t readily applicable to other provinces or regions, where wages and overhead costs may be quite different. But the study’s framework and methodology could be used to conduct similar dispensing-fee studies elsewhere.