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How much value is created at CVS/other pharmacies when they acquire a new "sick" (read: chronically ill, complex patient on multiple medications, a "high flyer") customer or if they retain an existing "sick" customer?
OVERVIEW
Hello! Thank you for your question about the value from chronically ill patients at pharmacies like CVS. The short answer is that the average profit gained from a prescription in the United States is $12.12 per prescription. Below you will find a detailed analysis on how pharmacies make money from patients with chronic illnesses.
METHODOLOGY
The methodology for finding the potential value from each patient with a chronic illness came from finding the most common conditions. Then, I took the typical prescriptions of each of these conditions and calculated the reimbursement pharmacies received from pharmacy benefits managers, as well as from non-pharmacy related items. To gain the best estimate of the costs associated with each medication, required gathering information on the typical price associated with a patient diagnosed with a chronic illness.
The totals reached for the potential spending that might occur from a patient with chronic illnesses below represent the cost of retaining a current customer. In the pharmaceutical industry, it may cost up to six or seven times more to gain a new customer than it does to retain an existing patient. Therefore, the cost of marketing and other attempts at informing potential consumers were not included in this investigation.
HYPERTENSION
High blood pressure remains the most common chronic illness in the United States, according to the CDC. The average cost for an insured patient with hypertension is approximately $970 per year. Pharmacies acquire a medication at around 85% of the wholesale price from manufacturers. As of February 2016, pharmacies are required to be reimbursed 175% of the cost it takes to acquire the medication. Therefore, pharmacy benefits managers will pay this amount owed to the pharmacy each year. Lastly, 10% of income from prescriptions come from a non-pharmacy related item. Therefore, the calculation for a patient with high blood pressure for the year will go as follows:
$769.53 (medication revenue) + $67.90 (other income) = $837.43 (total revenue from one high blood pressure prescription)
DEMENTIA
The next most common chronic illness is dementia related disorders. An average estimated cost for yearly medication is $2423.40 for insured patients. The calculation for this illness will follow a similar pattern to the one above:
$2746.52 (medication revenue) + $242.34 (other income) = $2988.86 (total revenue for one dementia patient)
HEART DISEASE
The third most common chronic illness in the United States is heart disease. Those with insurance can expect to pay $3679.20 per year for heart disease medication. The calculation for the average spending for heart disease patients will go like the previous diseases:
$3679.20 (yearly cost for medication) * 85% (pharmacy acquisition rate) = $3127.32 (price pharmacy paid for medication)
$4169.76 (revenue from medication) + $367.92 (revenue from non-pharmaceuticals) = $4905.60 (total revenue from one patient with heart disease)
LIMITATIONS ON DATA
Using the system I developed above required averages for the cost of medications for the patient. It should be noted that generic brands and their varying costs may influence how much income a pharmacy may see from their prescriptions. Also, the mandate issued approximately a year ago for pharmacies to receive 175% profit for their costs to acquire medication is the bare minimum percentage. It was used in the calculations for this research to reflect that pharmacy benefit management companies will want to retain as much as the profit as possible from medication and insurance companies and actual profits from filling prescriptions by pharmacies could potentially be greater.
CONCLUSION
To wrap it up, pharmacies receive 90% of their income from prescriptions and must make back 175% of the money it takes to acquire medication for a patient. The potential annual spending on medications from patients with Hypertension, Dementia, and Heart disease are $837.43, $2,988.86, and $4,905.60 respectively.
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