Maintaining Access to Community Pharmacy in Rural America

By Devin Stone

A new study highlights the tightrope many community pharmacies in rural areas find themselves on as well as the potentially devastating impact further reduction in reimbursement could have on these pharmacies and the populations that they serve. Recently the North Carolina Rural Health Research & Policy Analysis Center, along with the RUPRI Center for Rural Health Policy Analysis released another quality issue brief regarding its survey of sole community pharmacies in rural America. “Sole providers” are pharmacies with no other competing retail pharmacy within the same neighborhood, according to these organizations and many others.

The most important finding: 44.7% of rural sole community pharmacies are making a gross profit per prescription that is less than the average cost for a rural pharmacy to dispense a medication. To quote the authors:

“A 2007 study which looked at 23,152 retail pharmacists’ cost of dispensing medications found that on average it costs a retail pharmacist $10.50 per prescription to cover all operating expenses (excluding the cost of the drug dispensed) with urban pharmacies averaging $10.61 per prescription and rural pharmacies averaging $9.79. For the 262 pharmacies for which the per prescription gross profit could be calculated, 44.7% (n=117) had a gross margin of less than $9.79 per prescription.”

For obvious reasons, this would imply that slightly reducing payments for prescription drugs will negatively impact rural community pharmacies that are sole providers. It is left to the reader to determine the impact that could occur with reduced reimbursement under Medicaid, given the average wholesale price (AWP) rollback that has gone into effect for brand name drugs and the decline in payment for generic drugs through the potential implementation of average manufacturer price (AMP) based Federal Upper Limits.

This issue brief paints a very valuable picture for understanding pharmacy in rural America. These pharmacy owners are staples in their community. Most have been in operation for over 25 years, are single store owners, run very small operations, and their business model relies primarily on dispensing medications. Despite the low gross profit margins on prescription drugs these pharmacy owners try to remain positive, with most pharmacy owners stating that they believe they are in a “good” financial position. This needs to be interpreted with caution, as the authors of the study clearly point out, for some pharmacy owners a “good [financial position] meant having just enough cash to pay their bills most months while for others good meant their stores were making a consistent profit and providing a positive return on their investment.”

The issue brief compliments earlier research that has been performed by these two organizations regarding rural sole providers, many of which can be found here. Their valuable report from September of 2007 provided excellent insight into the economic impact of Medicare Part D on rural sole providers, and their issue brief from July of 2008 chronicled the decline in patient access as many rural sole providers ended up having to close their doors without a new pharmacy taking their place. Patient access to a community pharmacist will continue to be an important issue, as 30% of these sole providers plan on retiring within the next 5 years. Sadly, only a very small minority of these rural sole providers are optimistic about their ability to sell their pharmacy in the future.

Although much is currently being done to play defense with payment cuts to community pharmacies, at the end of the day improving access to a community pharmacist will depend upon creating sufficient incentives for pharmacy entrepreneurship in rural and medically underserved neighborhoods.

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