Prescriptions: What's in client's best interest?

Recently there has been a lot of discussion on AABP-L concerning a Website that advertises prescription drugs at very low prices.

The site clearly states that a prescription is needed for these products,and then goes on to offer to contact the customer's veterinarian to obtaina prescription.

This information will obviously put pressure on practitioners to eithermatch the low prices, or to provide a prescription. What should be youranswer if you are so approached?

I would begin with the premise that any long-term solution must be predicatedon a philosophy of "win-win." We cannot dispense products at pricesthat do not cover our costs, and we cannot write prescriptions without beingcompensated for our inherent responsibility and liability.

On the other hand, we cannot expect clients to readily accept payinghigher prices if they do not see appropriate value to accompany those prices.

Set a mark-up

If we accept this premise as the starting point, then our next step shouldbe to determine a routine dispensing price that will adequately compensateus for our product cost, plus storage, labor, shrink and a reasonable return.

In my opinion, the question of "shrink" looms large when individualdoctors are dispensing products off a practice vehicle. I seriously doubtif many practices can really cover all of these factors with less than a35 percent to 50 percent mark-up. Many practitioners have scoffed at mewhen I suggest this figure, but I challenge you to do your homework andprove me wrong.

When evaluating costs, ask yourself this question: "If I stoppeddispensing, what costs would be eliminated?"

Remember, you will need supplies regardless, so you will still have someinventory and other costs. The space used for storage is a factor only ifyou would use it in some productive way if you stopped dispensing.

Relevant factors are:

· Employee time to order products, unpack them, price them, andto maintain the storage area.

· Manager time to oversee the employee.

· Doctor or employee time to keep truck stocked.

· Shrink, which covers loss of products due to breakage, outdating,and billing oversights.

· Cost of money tied up in inventory.

· Value of space used for drug storage, if it has some other productiveuse.

· Costs of accounts receivable and possible bad debt losses.

The best way to measure shrink is to know your inventory of dispenseditems at a certain time, measure it again at a later time (perhaps quarterly),and then factor in the amount purchased.

The formula is:

Beginning Inventory + Purchases-Ending Inventory = Amount Dispensed.

Now multiply this figure by your usual mark-up. This should equal thedollar value of what you billed for dispensed items during the period. Ifyou have different mark-ups for different items, try to determine an average,or else track the different categories individually.

The difference between the amount dispensed times the mark-up and youractual billing number is "shrink." It represents a loss of inventoryunexplained by the billing.

If it exceeds 5 percent, then you need to institute some controls toreduce that value. Many practices truly have no idea what their shrink is.My point in discussing it is simply that you need to know this value beforeyou can determine where to set dispensing prices.

Parameters for discounts

After determining a base price, designed for dispensing individual itemsfrom the practice vehicle, you can then set some parameters for discounts.These would usually involve minimum dollar amounts, current accounts andperhaps case lots.

You may want to put together special orders, with the client taking immediatepossession and paying you before you have to pay your suppliers. Producersmust understand the terms and the practice must enforce them.

One thing to keep in mind is that the more you discount large orders,the higher your mark-up needs to be on individual items.

If, after all of this, you find that you simply cannot compete with othersources, I would write prescriptions. If you refuse, you send your clientthe message that you are not interested in serving their best interests.

Valid fee for valuable service

Before writing the prescription, evaluate your liability. What stepsdo you need to take to protect yourself? Can you track volume of productusage? If you require a separate prescription for every purchase, then thiscan easily be done.

If you are writing prescriptions, then part of your time at every herdvisit needs to be devoted to drug use, and you must bill for this time.

Your clients will accept this as a valid fee for a valuable service.In this way, you fulfill the requirements of a valid veterinary client patientrelationship.

When I was in practice, I used different mark-ups for different situations.

When dispensing off of the truck, I used 50 percent. When clients questionedprices, I reminded them that they were paying for convenience and support.They never got a bill when they called on a Saturday afternoon wanting informationabout dosage or withdrawal time.

My lowest mark-up was for large herd clients who would call in an ordera few days before my scheduled visit.

I usually called suppliers to fill the order, and often had it drop shippeddirectly to the farm.

When I arrived, I would oversee unpacking and labeling. I billed forthis time, and was paid for the product within 10 days. My mark-up in thesesituations was 10 percent, which effectively competed with any catalogueprices.

As you can see, the only cost I had to cover with the mark-up was mytime to place the order and create the bill. The size of the orders meantI was well paid for this.

The basic premise of your dispensing policy needs to be that you serveyour client's best interest, while receiving fair compensation. No fair-mindedproducer will object to this approach.

If you cannot come reasonably close to Web site prices, then you shouldwrite prescriptions while structuring service fees to cover the time requiredto oversee product use. The dairy producer of the future will be, by necessity,a sharp businessman. You need to be one too.