An analysis of chain pharmacies' costs of dispensing a third party prescription

Kenneth William Schafermeyer, Purdue University

Abstract

This study determined the average chain pharmacy's costs of dispensing (COD) private pay and third party prescriptions and examined the factors that contributed to these costs. The new cost allocation methodology developed for this study was compared with alternative methodologies used in previous studies. A detailed survey was mailed in May, 1989 to a nationwide, systematic random sample of chain pharmacies. A net usable response rate was 41.9 percent (695 out of 1,659). Telephone inquiries were made to clarify and verify data. The third party COD was $6.39 and the private pay COD was \$5.14. A one-tailed, paired t-test indicated that the $1.25 difference was statistically significant. The overall COD was \$5.46. Expenses were divided into eight major expense categories and differences between the third party and private pay COD for each category were tested using one-tailed, paired t-tests. Five major expense categories were significantly greater for third party prescriptions. Analysis of variance detected significant differences in the COD among chain pharmacies grouped by geographic region and length of operation. There were no significant COD differences among pharmacies from different types of communities or belonging to chains of different sizes. A regression model using a logarithmic transformation of the number of prescriptions dispensed annually as an independent variable explained over 60 percent of the variance in the COD figures. The outcome of one-tailed, paired t-tests indicated that the new cost allocation methodology used in this study resulted in expense allocations that were significantly different from alternative methodologies used in previous studies. This study showed that certain prescription department expenses (e.g., personnel costs, rent, computer, and telephone) could be measured directly rather than estimated by arbitrary an formula. Recommendations were made for the improvement of the accuracy and validity of measurements of pharmacies' costs of dispensing. The study demonstrated that the additional cost of dispensing third party prescriptions could be documented in a COD survey and that these additional costs were significant.

Degree

Ph.D.

Advisors

Schondelmeyer, Purdue University.

Subject Area

Pharmaceuticals|Accounting

COinS