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In-house Dispensing for Your Practice


Opting for an in-house pharmacy or office dispensing can enable your practice to maintain higher profit margins, but before you jump onboard examine all the costs first.

For Sierra Pacific Orthopaedic & Spine Medical Group, the decision to introduce in-house dispensing last year was a no-brainer. The 19-physician specialty group in Fresno, Calif., already offered X-rays, MRIs, and physical therapy services to its patients. Prescription medication dispensing was the final piece of the one-stop shop puzzle - and this service was particularly important to many of the practice's elderly patients who must arrange for transportation to and from their appointments. The potential income it could generate for the practice, of course, was also an incentive.

But the biggest benefit so far has been something of a surprise for Sierra Pacific's growing team of providers. "The more we get into it the more we see how it helps from a clinical standpoint," says director of operations Jeremy Ealand. "As surgeons, compliance is always an issue. Before scheduled surgery we instruct our patients to get vitamin supplements, to use Hibiclens soap (antimicrobial skin cleanser) to reduce the risk of infection, and to get dressings for proper at-home wound care and we send them to the pharmacy with a list of what they need, but we don't always know that they do it," says Ealand, noting insurance doesn't generally cover such expenses, which can run $60 or more. "This way we have it all onsite so we know whether they walk out with it or not."

Sierra Pacific Orthopaedic is among the thousands of practices that have started offering point-of-care dispensing since changes to Medicare Part D in 2003 allowed physicians to not only collect copays on prescription drugs, but to bill insurance companies for reimbursement. If you're thinking of following suit, there are several models to consider.

Getting started

Larger practices and medical groups often opt for an in-house pharmacy, which is regulated on a state-by-state basis. Such business models enable practices to manage their own inventory and thus maintain higher margins, but they also require significant volume to be profitable since overhead can be high. Costs include the square footage required to operate the pharmacy and the employment of a licensed pharmacist and/or pharmacy technician, which can cost six figures depending on your market. "The key is to hire a retail pharmacist, because hospital pharmacists market to a completely different base," says practice management consultant Owen Dahl, in The Woodlands, Texas.

Practices that operate their own pharmacy, of course, also assume the administrative burden of doing real-time claims adjudication (verifying a patient's coverage before dispensing a drug), prescription record keeping required by the state, and contracting with pharmacy benefit managers (PBMs) at each of the insurance companies with which they participate.

As a result, many small- to mid-sized practices stick with the more cost effective physician-office dispensing, which generally does not require a licensed pharmacist. Most also use third party vendors like QuiqMeds, Dr. Dispense, PrimaryRx, MedX Sales, or Physician Partner to process the paperwork and stock their offices with prepackaged quantities of the drugs they prescribe most.

QuiqMeds, for example, in Blue Bell, Pa., installs a computerized Inventory Control Cabinet that looks much like a vending machine. Doctors can select a drug, strength, and dosing directions with a computer touch screen and security code. The prescription medications are then delivered to patients by office staff at check out. According to the company, the average family practice can realize "conservatively" an additional $25,000 a year of supplemental income.

Others, like Dr. Dispense, which Sierra Pacific Orthopaedic & Spine Medical Group uses, provide a software program that integrates with your existing electronic health record and allows you to verify patient eligibility, electronically bill private insurers and Medicare, and dispense to patients in real-time. Practices can get started for under $1,500, including the cost of contracting, setup, and initial training. Tom Waldorf, vice president of sales for the company, says the typical small practice can generate an extra $4,000 to $5,000 per month (or $60,000 a year) after the cost of medication. MedX Sales, meanwhile, claims practices using its program profit approximately $8 to $10 per drug dispensed.

If you're looking to go larger scale, but not prepared to go solo, Physicians' Pharmaceutical Corp. (PPC) offers a more flexible program that allows doctors to fill the actual prescriptions they write from bulk inventory rather than being restricted to prepackaged quantities. It also enables practices to manage their cost themselves, and potentially retain a greater share of the profit. Practices that partner with PPC must hire a certified prescription technician to fill the prescriptions and process payment, but the company handles the paperwork to establish the secure physician-dispensing unit and the insurance contracts that enable reimbursement. Profit potential depends on the type of practice and prescription volume. Company officials, however, say some of its clients are just breaking even while others are making "hundreds of thousands of dollars." The company charges a one-time set up fee of $3,000 to $5,000, plus a per prescription fee. Though counting and labeling pills can be more time consuming for your staff, PPC notes practices waste more time phoning and faxing in prescriptions to the retail pharmacies, and fielding pharmacy call backs - which are not reimbursed.

What it takes

Success at dispensing, however, does not hinge on the business model you select, but rather the ability to market your product, says Mark Kolbush, administrator and chief executive officer for Lowcountry Medical Group in Beaufort, S.C., who uses PPC. "The most important thing is to instill in your staff, from providers to nurses to clinical assistants, that they need to talk about this with all of their patients on a daily basis," he says. "If they're not doing that, it's not going to work." Patients, of course, have the right to fill their prescriptions anywhere they want, so it's up to your staff to educate them on the opportunity to have it filled onsite.

Lowcountry Medical Group, a 14-physician multispecialty practice that began dispensing in early 2009, got off to a slow start, admits Kolbush, but is now squarely in the black with its newest service offering. "Initially, we were dispensing about 300 scripts a month and now we're up to 900 so we've tripled our volume and profit," says Kolbush, noting he started to achieve profitability at about 400 scripts per month. "The thing that makes our system work efficiently is the e-prescribing module on our billing system. By the time our patient gets their next appointment and takes care of their bill it's [the medication] ready."

You must also cater to repeat customers. "If it's not convenient to refill a prescription, you could lose your repeat business to Walgreens," says Dahl, noting one of his clients sends authorized refills to patients by mail. "It might cost you $6 or $7 to Fed Ex their refill to their home, but it's still a lot cheaper than trying to get new business. The patient information is already in your system and all you have to do is hit a button."


Now for the downside. Hey, if in-house dispensing was risk-free every practice would be doing it, right? According to Dahl, some practices find it hard to compete when their insurance payers require patients to use a specific pharmaceutical company to fill prescriptions. At the same time, some brand name drugs remain cost prohibitive to dispense, which may limit your customer base depending on your specialty. If you're processing your own claims, be aware, too, that many insurers perform Drug Utilization Reviews that can flag your system to call in for authorization checks, which can overwhelm an untrained staff. And some payers require practices that dispense to carry additional insurance for liability.

A final challenge for group practices is obtaining the consent of all physicians on board, which is easier said than done. "If you have five doctors in your group and three buy into the concept but two do not, that's going to be a problem," says Dahl. "For whatever reason, some doctors are just uncomfortable telling patients that they can walk out in the hallway and fill their prescription there."

Before starting an in-house dispensing service, consult legal counsel and have them review your plan to ensure compliance with the state board of medicine policies and insurance plan rules. "Dispensaries are a good idea, but there are a whole bunch of strings attached," says Dahl. "The risk is setting it up right and getting the proper inventory (formulary) in stock for your patients."

Shelly K. Schwartz, a freelance writer in Maplewood, N.J., has covered personal finance, technology, and healthcare for more than 12 years. Her work has appeared on CNNMoney.com, Bankrate.com, and Health Family magazine. She can be reached via editor@physicianspractice.com.

This article originally appeared in the February 2011 issue of Physicians Practice.


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