Docs who dispense drugs skim off lucrative customers, leaving low-margin meds for pharmacies

One commenter on Dr. Keith Smith’s post about Medicare reimbursementsoutlined the educational investment required to be a doctor as well as the cost of running a practice. Healthcare Realist – a pharmacist in Maryland – explains in this comment the how reimbursement works for independent pharmacies.

The Deficit Reduction Act of 2005 (DRA) reduced the maximum amount of federal money that states would receive for generic drugs dispensed under the Medicaid program by lowering reimbursement amount to 250% of the lowest average manufacturer price (AMP) value of a generic. Studies by the General Accounting Office show that this reimbursement figure is between 17-36% lower than the true acquisition price of medications.

This means that without even considering overhead, salaries, or any other costs, the reimbursement from government for Medicaid prescriptions is less than the cost of the medication representing a guaranteed loss for the pharmacy for every one of those Medicaid prescriptions.

Worse still is the fact that while doctors are free to choose which patients to accept in their practices and can thus avoid accepting new patients which erode their profitability, in most if not all states, pharmacies are not permitted to discriminate based on insurance reimbursement – we must serve our patients regardless of how much money we lose on their prescriptions.


Even worse still is that in some states, such as the state of Maryland in which I practice pharmacy, the $1 co-pay required to be collected from the Medicaid patients for most of their medications is legally waived if the patient states he or she lacks the funds. The pharmacist is not permitted by law to deny the medication to the patient and must dispense.

Medicare is only somewhat better. While pharmacies lose money on nearly every Medicaid prescription, they only lose money on some Medicare prescriptions. Without mentioning specifics, my pharmacy has seen prescription growth or nearly 10% over the past year but the margins and net profit have fallen by 3% due to lower reimbursement rates and an influx of more patients from Medicaid. And unlike doctors, I am not permitted to turn them away – by law.

And the cherry on top of the sundae which is our woe, some physicians have found it lucrative to dispense select medications from their office which skirts many laws and openly violates others – this excludes the normal practice of dispensing samples or starter doses which by law in many states is limited to 72 hours of therapy.

Physicians who dispense are legally required to follow all the laws and regulations which govern the practice of pharmacy including procuring a dispensing permit and I know of exactly zero physicians who follow those regulations. Appeals to the board of medicine for pharmacy oversight over physician dispensing only are met with ridicule and derision – as if a doctor of pharmacy would know anything about the safe dispensing of medication! If the laws which govern dispensing of medication were indeed erected in the interest of public safety, what then could be the origin of physician opposition towards maintaining public safety? So not only are physicians breaking laws, threatening patient safety, they are doing so to make a quick buck while pushing off costly, low-margin prescriptions to pharmacies while keeping the high-margin, low-cost prescriptions for themselves.


So while the doctor has means for making up the costs of poor government reimbursement by charging other expenses to the patient – I am forbidden from doing the same meaning I am LEGALLY required to lose money while the doctor does just fine. And while I have comparable loans, the cost of running the business is comparable, my salary is 60% that of a family physician, and a mere 38% of the anesthesiologist making it several orders of magnitude more difficult to manage the finances.

Obviously, my initial argument applies to myself as well – the sheer existence of pharmacies, even in locations with high-density indigent, Medicaid paying patients, indicates that we are not losing money on everything – or else we would be out of business. We are fortunate that we have over 50% of Americans with private health insurance plans which offer higher reimbursement rates which make up for the deficit incurred by Medicare and Medicaid patients. We are profitable thanks to other revenue streams as a result of dispensing medications to patients with non-government assistance insurance.

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