A new tool with which community pharmacists can compete more efficiently
Historically, the practice of pharmacy has undergone numerous legal changes and transitions . The basic thrust of each change was to exert certain controls over the practice of pharmacy and to protect all parties concerned in the prescribing cycle, e .g., the physician, the pharmacist, and ultimately, the recipient or consumer. These laws have created the necessary elements, such as the state and the federal Food and Drug Administration , to guarantee with a relatively high level of assurance that the consumer will receive a high quality drug product when obtaining prescribed medication. However, most state laws and, by lack of action, federal laws, create barriers to specific brand selection at the point of dispensing. The pharmacist must dispense the drug product written . In generiC prescribing, he is free to select any manufacturer 's chemical equivalent. However, with patent protected drugs and drugs prescribed by brand name, the pharmacist is generally required to dispense the product of the manufacturer indicated by the brand name . Presently, there is extensive discussion concerning the merits of this barrier. Certain segments of the profession indicate that the pharmacist does not have the necessary tools to evaluate the brand to be dispensed,l and another portion of the profession feels strongly that the pharmacist is thoroughly educated in brand selection and should be allowed to make this decision. 2 A third party-consumer groupsproposes that this barrier adds to the cost of prescribed medication for the recipient by " forcing" the pharmacist to dispense a specific brand, regardless of the cost, and they suggest that this barrier be removed.3 The purpose of this article is not to discuss the merits of the argument, but to examine the results of one case of consumer persuasion in changing a state law. Also, the various pharmacy purchasing implications are explored and projected. In 1970, after a considerable amount of lobbying by consumer groups and other individuals, the Commonwealth of Massachusetts passed into law the Massachusetts Drug Formulary Act. 4 The original law was similar to the law in most states and indicated that the pharmacist must dispense the exact drug product prescribed by the physician when issuing a prescription . The only exception was in the dispensing of a prescription written generically, and in that case, the pharmacist was not obligated to a specific manufacturer. Under the new act in Massachusetts, a Drug Formulary Commission was created
Vol. NS 16, No.2, February 1976
By Albert H. Taubman The and Raymond A . Gosselin Massachusetts Drug Formulary Act
to develop a list (Formulary) of commonly prescribed brand name drugs, each followed by its generiC name, no longer protected by patent and which the Commonwealth considered to be therapeutically equivalent. Also, the Act requires that the physician, when prescribing a drug in the Formulary by brand name, must indicate the generic name. This must be followed for both oral and written prescriptions. If the physician prescribes by a generic name, he is not obligated to indicate a brand name . However, if a Formulary prescription is written by brand name and does not include the generic name, the pharmacist must contact the physician and request the generiC name of the product or it is not a valid prescription. In each instance, the pharmacist has the option of dispensing a chemically equivalent product. The only time that the pharmacist cannot substitute is when the practitioner indicates "no substitute," " brand only," " manufacturer, " or another similar designation. For example, if the physician prescribes phenoxy methyl penicillin potassium 250 mg USP, he is not obligated to indicate a brand such as Pen-Vee K. On the other hand , if the physician writes Pen-Vee K 250 mg, he also must write phenoxymethyl penicillin potassium 250 mg. In either case, the pharmacist has the right to dispense a chemical equivalent for the drug product prescribed. He could dispense Pen-Vee K, Betapen VK, Ledercillin VK or another acceptable substitute . The only time that the pharmacist cannot substitute is when the physician indicates on the prescription a " brand only " type statement. The major problems with the Formulary (See Appendix A, page 71, for the entire Act) are incompleteness of the first edition , and the lack of communication by the Commonwealth with the physician and · the pharmacist concerning the implications. The first edition contained a limited selection of substitutable brands and drug products. Many non patent protected drugs such as the tetracyclines which are high volume products were not included . Also, specific brands of chemically equivalent drugs were omitted . For example, V-Cillin K 250 mg was not among the brands of phenoxymethyl penicillin potassium included in the first edition. Under the guidelines of the. law, the pharmacist could not substitute omitted brand name products . If a prescription was written for Sumycin or any other tetracycline, the pharmacist could not substitute another brand of tetracy-
cline , or if the prescription was issued for V-Cillin K, the pharmacist was obligated to dispense that brand . The latter example is more pronounced because the pharmacist could substitute generiC phenoxymethyl penicillin potassium when dispensing PenVee K, Betapen VK or several other wellestablished brands. When the Formulary Commission realized the obvious implications of the excluded high volume products, an update was issued . The updated listing has eliminated some of the problems , but the Formulary is still a long way from being as comprehensive and viable as was originally envisioned . The most significant problems with the . Act seem to be that most physicians and pharmacists do not realize it exists, do not understand it, or simply do not follow the guidelines . With the exception of the dissemination of the actual Formulary, the Commission did little to explain or encourage its use. Perhaps ·the main reason for the lack of promotion and use is that there is not a penalty clause in the Ac, when the physician does not indicate the generiC name . In any event, a survey conducted in the fall of 1972 indicated a compliance rate greater than 10 percent. s Whatever the reasons for the lack of compliance on the part of the physician , the pharmacist has a real opportunity to reduce his inventory and perhaps reduce the cost of goods sold by effectively employing the guidelines of the Act. The pharmacist still can obtain authorization to substitute, and in some cases, can automatically substitute drug products covered by the Formulary. If the pharmacist closely examines the effective use of the bid system, a tremendous saving potential should be realized . The bid system is a mechanism by which the purchaser (pharmacy) allows several sellers (manufacturers, wholesalers) to provide prices on specifically described merchandise . Since the Act allows the interchange of equivalent products, it is not necessary to inventory certain products at their previous levels. If the pharmacy carried five brands of a product in the Formulary, it would be reasonable that only one brand would be carried at a significant inventory level; this brand should be selected on a combination of chemical equivalency and price. To obtain the best combination, the pharmacist
Presented before the Academy of General Practice of Pharmacy (now Academy of Pharma cy Practice) at the APhA Annual Meeting, Boston, Massachusetts, July 23, 1973 .
71
The Massachusetts Drug Formulary Act
Table I
Average Amounts of Tetracycline Hel 250 mg
Capsules (USP) Dispensed in 1972 Brand Archromycin V Robitet Sumycin Tetracyn Generics
Average Units Per Pharmacy Total* Units (42,000 (Add 000) Pharmacies) 259 ,866 28 ,955 223 ,220 39 ,915 461,827 1,01 3,783
24,137
*Data supplied by R. A. Gosselin & Co., Am bler, Pennsylvania.
should select several distributors of the drug and request bids on the product. The point to remember is that the drug will be equivalent, but the volume desired for a specific time period will be considerably greater than desired under the old system, because the pharmacy will basically be stocking one manufacturer instead of average levels of numerous manufacturers. An example of the average number of units dispensed in an average pharmacy for 1972 for tetracycline 250 mg capsules is illustrated in Table I (see above). The table was compiled by extracting the total market for this Formulary drug by generic and brand name dispensed by pharmaCies
in the U.S. This total was then divided by the number of pharmacies in the country. The average market for tetracycline 250 mg capsules was 24,137 units and consists of five brands. Assuming an average turnover rate of four times per year, the average total inventory level would be 6,034 units. Presently, it would consist of five brands of tetracycline with lower average stock levels. However, the effective utilization of substitution means one brand at 6,034 units. This places the pharmacy in a much more competitive position when selecting a provider of the drug, since it is now demanding a much larger volume with certain positive guarantees for the provider. In exchange for a decreased bid price, the provider is guaranteed a certain volume for a specific time period, broadens its market base and can produce larger volumes at reduced manufacturing costs. In addition to a reduced unit price, the pharmacy reduces the number of items stocked and has more capital for a flexible purchasing program. The specific application of the bid system is quite simple. Once the total levels of the various substitutable drug products have been determined, the pharmacist should send out requests for bids. The request form (Figure 1, at right) should include a specific time period, number and size of units desired, exact description of the product including chemicals, dose form and other necessary information, delivery
Albert H. Taubman
Albert H. Taubman, PhD, is associate professor of pharmacy administration at Northeastern University. Prior to his move to Northeastern, Taubman was on the Massachusetts College of Pharmacy faculty. In addition to his faculty post, Taubman serves as pharmacy advisor to the Harvard Community Health Plan, and is a field director for Market Measures, Inc. Taubman has degrees from University of Rhode Island (BS, MS) and University of Pittsburgh (PhD). His areas of interest include third party prescription delivery and reimbursement systems, computer applications in community and hospital pharmacy, and pharmacy management. He is a member of APhA and Rho Chi.
Raymond A. Gosselin
Raymond A. Gosselin, MBA, is president of the Massachusetts College of Pharmacy. He holds a BS and MS from MCP and an MBA from Boston University. In 1952, Gosselin formed a marketing and statistical research company which developed the National Prescription Audit, National Hospital Audit and Audatrex Physician Research Panel. These audits of prescription drug utilization have become standard references for the pharmaceutical industry and several federal agencies . In 1967, Gosselin was elected a trustee of MCP and subsequently served as secretary and vice president. In 1972 he was appointed first full-time president and chief executive officer. His memberships include APhA, AACP, ACA, ASHP and the American Statistical Association .
72
REQUEST FOR QUOTATION
January 1 - December 31 , 197_ THIS IS NOT AN ORDER
TO : IN REPLY REFER TO _ _ _ _ _ __ (Must appear on envelope of quotation) PLEASE FURNISH ALL INFORMATION REQUESTED AND MAIL BY_ _ _ __ QUANTITY
DESCRIPTION
UNIT DISCOUNT NET PRICE PRICE
1. DELIVER : ON REQUEST 2. TERMS AND CASH DISCOUNT_ __
Figure 1-Form A sequence, unit price, discounts, net price and other items. When a provider has been selected, the pharmacy now is guaranteed a price for the time period indicated, and has a quality product of the drug desired . The two most important advantages are the lower cost per unit that the competitive bid provides and the reduced inventory levels. Both of these advantages translate in dollars for the pharmacists, savings for the consumer and better inventory control. Conclusions Although the bid system has been effectively employed by hospital pharmaCies and chain pharmacy operations, the independent community pharmacy has not utilized it because of limited purchasing base. The advent of the Massachusetts substitution law changes the independent's ability to avail himself of the savings that a bid system provides. Proper utilization of this system should provide decreased unit cost for the bid products, reduce inventory and save the practitioner money on his cost of goods sold. All the positive benefits indicated are predicated on the guidelines of the Massachusetts law. It is important to note that the
References 1. " The Medications Physicians Prescribe: Who Shall Determine the Source," Pharmaceutical Manufacturers Association, Washington , D.C. (1972) 2. " APhA White Paper on Drug Substitution," American Pharmaceutical Association , Washington , D.C. (1972) 3. Massachusetts Drug Formulary 1971, Commonwealth of Massachusetts, Boston, Mass., 31-37 (1971) 4 . Ibid., 28-30 5. Cohen , Steven A. , " Consumers Losing Millions- Most Doctors Ignore Generic Drug Laws," Boston Evening Globe, Boston , Mass., 3 (Oct. 5, 1972)
Journal of the American Pharmaceutical Association
Taubman and Gosselin
Act is limited by the following restrictive guidelines1. The Formulary only covers a limited number of drug products . 2. The physicians have the option of not allowing the pharmacist to substitute. 3. There is no enforcement regulation . However, the components of the Act, if properly understood and utilized, can provide the community practitioner with a new tool to compete more efficiently in the market place. Appendix A
Chapter 717. An act establishing a drug formulary commission in the department of Public Health and requIring physicians, when prescribing drugs by brand name, to include the generic or chemical names of such drugs. Be it enacted, etc ., as follows : SECTION 1. Chapter 17 of the General Laws is hereby amended by adding under the caption DRUG FORMULARY COMMISSION the following section :_ _ Section 13. There shall be in the department a Drug Formulary Commission, hereinafter called the Commission, to consist of five members to be appointed by the Governor from lists of eligible names to be compiled and prepared by the Commissioner of Pub-
lilly Digest Survey Reports Higher Sales in 1974 The Lilly Digest Survey of Community Pharmacy Operations for 1974 shows that for the 25th consecutive year, the average Lilly Digest pharmacy reported higher sales in 1974. The 1,802 pharmacies reporting had average sales of $272,340-5 . 1 percent over the 1973 figure. This was slightly lower than the average annual growth rate of 5.4 percent recorded over the past decade . The sales increase was due to a 6.3 percent growth in prescription revenue and a 4 percent rise in other sales . During 1974 prescription sales as a percentage of total sales climbed to 47 .9 percent (up from 47 .3 percent in 1973). Of particular significance in 1974 was the higher cost of goods sold. Because this item had a percentage increase of 0.3 percent over the 1973 level, the gross margin
Vol. NS 16, No.2 , February 1976
lic Health, the Commissioner of Public Welfare and the Consumers ' Council. Members of the Commission shall be individuals possessing recognized competence in the rendering of professional services under, or the administration of, state health programs, and a majority of the members shall be practicing members of the professions authorized to render professional health services under state-financed health programs; provided, however, that not more than one member of said Commission shall be registered pharmacist. Each member of the Commission shall serve at the pleasure of the Governor.
The Commission shall prepare a Formulary of generic or chemical , and brand names of drugs and pharmaceuticals considered by the Commission as therapeutically equivalent. The sources for such document shall include a list of drugs most frequently prescribed by licensed physicians in the Commonwealth, the formularies of various hospitals in the Commonwealth and any additional formularies available from any agency or department of the United States and of other states, but shall not include drugs which are the subject matter of patent rights issued by the United States Patent Office. The Commission shall provide for distribution of copies of such Formulary and revisions thereto amongst physicians licensed to practice within the Common-
wealth and to other appropriate individuals and shall supply a copy to any person on request upon payment of the cost of printing. Such Formulary shall be revised from time to time, but in no event less frequently then once a year, so as to include new pertinent information on drugs approved for inclusion or drugs to be deleted and to reflect current information as to the therapeutic efficacy of drugs and pharmaceuticals. Any person or party in interest apprieved by a finding or report of the Commission shall be entitled to a judicial review thereof as provided in Section Fourteen of Chapter Thirty A . For the purposes of this section, the term " brand name " shall mean the name that the manufacturer of such drug places on the container thereof at the time of packaging , and the term " generic name" shall mean the chemical or established name of such drug or pharmaceutical. SECTION 2. Chapter 112 of the General Laws is hereby amended by inserting after Section 12C the following section: _ __ _ Section 120. Every physician who prescribes by brand name a drug listed in the Formulary prepared by the Drug Formulary Commission under Section Thirteen of Chapter Seventeen shall, in each such prescription, oral or written, also include the generic name or the chemical name of such drug, if any. Approved August 21, 1970. •
fell to 35 .8 percent of sales , the lowest point since 1971. The increase in the costof-goods-sold figure was the major contributing factor to the fall in profit percentage. Faced with the rising cost of goods, managers were able to hold down their overall operating expenses slightly, to 32 . 1 percent of sales as compared with 1973's figure of 32.2 percent. Although employee wages rose $831 during the year, there was a percentage-wise decline from 11 .8 percent the previous year to 11.5 percent of sales in 1974. A 2.4 percent rise in dollar profits was recorded in 1974. When expressed as a percentage of sales, the net profit actually slipped from 3.8 to 3.7 percent. Because of a slight increase in the average proprietor 's salary, the total income percentage (net profit plus proprietor's salary) remained unchanged from 1973 but reached an all-time dollar high of $32,314 . Inventory investm~nt went up in dollars but continued at 17 percent of sales, and the turnover rate was unchanged at 3.9
times . There was a 7.4 percent dollar increase in prescription department inventory investment from 1973 to 1974. For the first time since 1961, a decrease was noted in prescription sales per dollar invested in inventory; the 1974 figure was $8 .19, down from $8.27 in 1973. According to the Digest report, less prescription inventory productivity can be attributed to the fact that there was only an 0.3 percent rise in the total number of prescriptions dispensed from 1973 to 1974, in contrast to the 7.4 percent increase in prescription inventory dollars. The 0.3 percent growth in total prescriptions dispensed was substantially lower than the 5 percent recorded the previous year. The average prescription charge moved up to 5.9 percent, from $4.54 in 1973 to $4.81 in 1974. A significant change occurred in 1974 concerning new prescriptions as a percentage of the total number dispensed. This was 46.3 percent in 1974, up from 45 .5 percent in 1973, and is the highest figure reported since 1966.
73
Historically, the practice of pharmacy has undergone numerous legal changes and transitions . The basic thrust of each change was to exert certain controls over the practice of pharmacy and to protect all parties concerned in the prescribing cycle, e .g., the physician, the pharmacist, and ultimately, the recipient or consumer. These laws have created the necessary elements, such as the state and the federal Food and Drug Administration , to guarantee with a relatively high level of assurance that the consumer will receive a high quality drug product when obtaining prescribed medication. However, most state laws and, by lack of action, federal laws, create barriers to specific brand selection at the point of dispensing. The pharmacist must dispense the drug product written . In generiC prescribing, he is free to select any manufacturer 's chemical equivalent. However, with patent protected drugs and drugs prescribed by brand name, the pharmacist is generally required to dispense the product of the manufacturer indicated by the brand name . Presently, there is extensive discussion concerning the merits of this barrier. Certain segments of the profession indicate that the pharmacist does not have the necessary tools to evaluate the brand to be dispensed,l and another portion of the profession feels strongly that the pharmacist is thoroughly educated in brand selection and should be allowed to make this decision. 2 A third party-consumer groupsproposes that this barrier adds to the cost of prescribed medication for the recipient by " forcing" the pharmacist to dispense a specific brand, regardless of the cost, and they suggest that this barrier be removed.3 The purpose of this article is not to discuss the merits of the argument, but to examine the results of one case of consumer persuasion in changing a state law. Also, the various pharmacy purchasing implications are explored and projected. In 1970, after a considerable amount of lobbying by consumer groups and other individuals, the Commonwealth of Massachusetts passed into law the Massachusetts Drug Formulary Act. 4 The original law was similar to the law in most states and indicated that the pharmacist must dispense the exact drug product prescribed by the physician when issuing a prescription . The only exception was in the dispensing of a prescription written generically, and in that case, the pharmacist was not obligated to a specific manufacturer. Under the new act in Massachusetts, a Drug Formulary Commission was created
Vol. NS 16, No.2, February 1976
By Albert H. Taubman The and Raymond A . Gosselin Massachusetts Drug Formulary Act
to develop a list (Formulary) of commonly prescribed brand name drugs, each followed by its generiC name, no longer protected by patent and which the Commonwealth considered to be therapeutically equivalent. Also, the Act requires that the physician, when prescribing a drug in the Formulary by brand name, must indicate the generic name. This must be followed for both oral and written prescriptions. If the physician prescribes by a generic name, he is not obligated to indicate a brand name . However, if a Formulary prescription is written by brand name and does not include the generic name, the pharmacist must contact the physician and request the generiC name of the product or it is not a valid prescription. In each instance, the pharmacist has the option of dispensing a chemically equivalent product. The only time that the pharmacist cannot substitute is when the practitioner indicates "no substitute," " brand only," " manufacturer, " or another similar designation. For example, if the physician prescribes phenoxy methyl penicillin potassium 250 mg USP, he is not obligated to indicate a brand such as Pen-Vee K. On the other hand , if the physician writes Pen-Vee K 250 mg, he also must write phenoxymethyl penicillin potassium 250 mg. In either case, the pharmacist has the right to dispense a chemical equivalent for the drug product prescribed. He could dispense Pen-Vee K, Betapen VK, Ledercillin VK or another acceptable substitute . The only time that the pharmacist cannot substitute is when the physician indicates on the prescription a " brand only " type statement. The major problems with the Formulary (See Appendix A, page 71, for the entire Act) are incompleteness of the first edition , and the lack of communication by the Commonwealth with the physician and · the pharmacist concerning the implications. The first edition contained a limited selection of substitutable brands and drug products. Many non patent protected drugs such as the tetracyclines which are high volume products were not included . Also, specific brands of chemically equivalent drugs were omitted . For example, V-Cillin K 250 mg was not among the brands of phenoxymethyl penicillin potassium included in the first edition. Under the guidelines of the. law, the pharmacist could not substitute omitted brand name products . If a prescription was written for Sumycin or any other tetracycline, the pharmacist could not substitute another brand of tetracy-
cline , or if the prescription was issued for V-Cillin K, the pharmacist was obligated to dispense that brand . The latter example is more pronounced because the pharmacist could substitute generiC phenoxymethyl penicillin potassium when dispensing PenVee K, Betapen VK or several other wellestablished brands. When the Formulary Commission realized the obvious implications of the excluded high volume products, an update was issued . The updated listing has eliminated some of the problems , but the Formulary is still a long way from being as comprehensive and viable as was originally envisioned . The most significant problems with the . Act seem to be that most physicians and pharmacists do not realize it exists, do not understand it, or simply do not follow the guidelines . With the exception of the dissemination of the actual Formulary, the Commission did little to explain or encourage its use. Perhaps ·the main reason for the lack of promotion and use is that there is not a penalty clause in the Ac, when the physician does not indicate the generiC name . In any event, a survey conducted in the fall of 1972 indicated a compliance rate greater than 10 percent. s Whatever the reasons for the lack of compliance on the part of the physician , the pharmacist has a real opportunity to reduce his inventory and perhaps reduce the cost of goods sold by effectively employing the guidelines of the Act. The pharmacist still can obtain authorization to substitute, and in some cases, can automatically substitute drug products covered by the Formulary. If the pharmacist closely examines the effective use of the bid system, a tremendous saving potential should be realized . The bid system is a mechanism by which the purchaser (pharmacy) allows several sellers (manufacturers, wholesalers) to provide prices on specifically described merchandise . Since the Act allows the interchange of equivalent products, it is not necessary to inventory certain products at their previous levels. If the pharmacy carried five brands of a product in the Formulary, it would be reasonable that only one brand would be carried at a significant inventory level; this brand should be selected on a combination of chemical equivalency and price. To obtain the best combination, the pharmacist
Presented before the Academy of General Practice of Pharmacy (now Academy of Pharma cy Practice) at the APhA Annual Meeting, Boston, Massachusetts, July 23, 1973 .
71
The Massachusetts Drug Formulary Act
Table I
Average Amounts of Tetracycline Hel 250 mg
Capsules (USP) Dispensed in 1972 Brand Archromycin V Robitet Sumycin Tetracyn Generics
Average Units Per Pharmacy Total* Units (42,000 (Add 000) Pharmacies) 259 ,866 28 ,955 223 ,220 39 ,915 461,827 1,01 3,783
24,137
*Data supplied by R. A. Gosselin & Co., Am bler, Pennsylvania.
should select several distributors of the drug and request bids on the product. The point to remember is that the drug will be equivalent, but the volume desired for a specific time period will be considerably greater than desired under the old system, because the pharmacy will basically be stocking one manufacturer instead of average levels of numerous manufacturers. An example of the average number of units dispensed in an average pharmacy for 1972 for tetracycline 250 mg capsules is illustrated in Table I (see above). The table was compiled by extracting the total market for this Formulary drug by generic and brand name dispensed by pharmaCies
in the U.S. This total was then divided by the number of pharmacies in the country. The average market for tetracycline 250 mg capsules was 24,137 units and consists of five brands. Assuming an average turnover rate of four times per year, the average total inventory level would be 6,034 units. Presently, it would consist of five brands of tetracycline with lower average stock levels. However, the effective utilization of substitution means one brand at 6,034 units. This places the pharmacy in a much more competitive position when selecting a provider of the drug, since it is now demanding a much larger volume with certain positive guarantees for the provider. In exchange for a decreased bid price, the provider is guaranteed a certain volume for a specific time period, broadens its market base and can produce larger volumes at reduced manufacturing costs. In addition to a reduced unit price, the pharmacy reduces the number of items stocked and has more capital for a flexible purchasing program. The specific application of the bid system is quite simple. Once the total levels of the various substitutable drug products have been determined, the pharmacist should send out requests for bids. The request form (Figure 1, at right) should include a specific time period, number and size of units desired, exact description of the product including chemicals, dose form and other necessary information, delivery
Albert H. Taubman
Albert H. Taubman, PhD, is associate professor of pharmacy administration at Northeastern University. Prior to his move to Northeastern, Taubman was on the Massachusetts College of Pharmacy faculty. In addition to his faculty post, Taubman serves as pharmacy advisor to the Harvard Community Health Plan, and is a field director for Market Measures, Inc. Taubman has degrees from University of Rhode Island (BS, MS) and University of Pittsburgh (PhD). His areas of interest include third party prescription delivery and reimbursement systems, computer applications in community and hospital pharmacy, and pharmacy management. He is a member of APhA and Rho Chi.
Raymond A. Gosselin
Raymond A. Gosselin, MBA, is president of the Massachusetts College of Pharmacy. He holds a BS and MS from MCP and an MBA from Boston University. In 1952, Gosselin formed a marketing and statistical research company which developed the National Prescription Audit, National Hospital Audit and Audatrex Physician Research Panel. These audits of prescription drug utilization have become standard references for the pharmaceutical industry and several federal agencies . In 1967, Gosselin was elected a trustee of MCP and subsequently served as secretary and vice president. In 1972 he was appointed first full-time president and chief executive officer. His memberships include APhA, AACP, ACA, ASHP and the American Statistical Association .
72
REQUEST FOR QUOTATION
January 1 - December 31 , 197_ THIS IS NOT AN ORDER
TO : IN REPLY REFER TO _ _ _ _ _ __ (Must appear on envelope of quotation) PLEASE FURNISH ALL INFORMATION REQUESTED AND MAIL BY_ _ _ __ QUANTITY
DESCRIPTION
UNIT DISCOUNT NET PRICE PRICE
1. DELIVER : ON REQUEST 2. TERMS AND CASH DISCOUNT_ __
Figure 1-Form A sequence, unit price, discounts, net price and other items. When a provider has been selected, the pharmacy now is guaranteed a price for the time period indicated, and has a quality product of the drug desired . The two most important advantages are the lower cost per unit that the competitive bid provides and the reduced inventory levels. Both of these advantages translate in dollars for the pharmacists, savings for the consumer and better inventory control. Conclusions Although the bid system has been effectively employed by hospital pharmaCies and chain pharmacy operations, the independent community pharmacy has not utilized it because of limited purchasing base. The advent of the Massachusetts substitution law changes the independent's ability to avail himself of the savings that a bid system provides. Proper utilization of this system should provide decreased unit cost for the bid products, reduce inventory and save the practitioner money on his cost of goods sold. All the positive benefits indicated are predicated on the guidelines of the Massachusetts law. It is important to note that the
References 1. " The Medications Physicians Prescribe: Who Shall Determine the Source," Pharmaceutical Manufacturers Association, Washington , D.C. (1972) 2. " APhA White Paper on Drug Substitution," American Pharmaceutical Association , Washington , D.C. (1972) 3. Massachusetts Drug Formulary 1971, Commonwealth of Massachusetts, Boston, Mass., 31-37 (1971) 4 . Ibid., 28-30 5. Cohen , Steven A. , " Consumers Losing Millions- Most Doctors Ignore Generic Drug Laws," Boston Evening Globe, Boston , Mass., 3 (Oct. 5, 1972)
Journal of the American Pharmaceutical Association
Taubman and Gosselin
Act is limited by the following restrictive guidelines1. The Formulary only covers a limited number of drug products . 2. The physicians have the option of not allowing the pharmacist to substitute. 3. There is no enforcement regulation . However, the components of the Act, if properly understood and utilized, can provide the community practitioner with a new tool to compete more efficiently in the market place. Appendix A
Chapter 717. An act establishing a drug formulary commission in the department of Public Health and requIring physicians, when prescribing drugs by brand name, to include the generic or chemical names of such drugs. Be it enacted, etc ., as follows : SECTION 1. Chapter 17 of the General Laws is hereby amended by adding under the caption DRUG FORMULARY COMMISSION the following section :_ _ Section 13. There shall be in the department a Drug Formulary Commission, hereinafter called the Commission, to consist of five members to be appointed by the Governor from lists of eligible names to be compiled and prepared by the Commissioner of Pub-
lilly Digest Survey Reports Higher Sales in 1974 The Lilly Digest Survey of Community Pharmacy Operations for 1974 shows that for the 25th consecutive year, the average Lilly Digest pharmacy reported higher sales in 1974. The 1,802 pharmacies reporting had average sales of $272,340-5 . 1 percent over the 1973 figure. This was slightly lower than the average annual growth rate of 5.4 percent recorded over the past decade . The sales increase was due to a 6.3 percent growth in prescription revenue and a 4 percent rise in other sales . During 1974 prescription sales as a percentage of total sales climbed to 47 .9 percent (up from 47 .3 percent in 1973). Of particular significance in 1974 was the higher cost of goods sold. Because this item had a percentage increase of 0.3 percent over the 1973 level, the gross margin
Vol. NS 16, No.2 , February 1976
lic Health, the Commissioner of Public Welfare and the Consumers ' Council. Members of the Commission shall be individuals possessing recognized competence in the rendering of professional services under, or the administration of, state health programs, and a majority of the members shall be practicing members of the professions authorized to render professional health services under state-financed health programs; provided, however, that not more than one member of said Commission shall be registered pharmacist. Each member of the Commission shall serve at the pleasure of the Governor.
The Commission shall prepare a Formulary of generic or chemical , and brand names of drugs and pharmaceuticals considered by the Commission as therapeutically equivalent. The sources for such document shall include a list of drugs most frequently prescribed by licensed physicians in the Commonwealth, the formularies of various hospitals in the Commonwealth and any additional formularies available from any agency or department of the United States and of other states, but shall not include drugs which are the subject matter of patent rights issued by the United States Patent Office. The Commission shall provide for distribution of copies of such Formulary and revisions thereto amongst physicians licensed to practice within the Common-
wealth and to other appropriate individuals and shall supply a copy to any person on request upon payment of the cost of printing. Such Formulary shall be revised from time to time, but in no event less frequently then once a year, so as to include new pertinent information on drugs approved for inclusion or drugs to be deleted and to reflect current information as to the therapeutic efficacy of drugs and pharmaceuticals. Any person or party in interest apprieved by a finding or report of the Commission shall be entitled to a judicial review thereof as provided in Section Fourteen of Chapter Thirty A . For the purposes of this section, the term " brand name " shall mean the name that the manufacturer of such drug places on the container thereof at the time of packaging , and the term " generic name" shall mean the chemical or established name of such drug or pharmaceutical. SECTION 2. Chapter 112 of the General Laws is hereby amended by inserting after Section 12C the following section: _ __ _ Section 120. Every physician who prescribes by brand name a drug listed in the Formulary prepared by the Drug Formulary Commission under Section Thirteen of Chapter Seventeen shall, in each such prescription, oral or written, also include the generic name or the chemical name of such drug, if any. Approved August 21, 1970. •
fell to 35 .8 percent of sales , the lowest point since 1971. The increase in the costof-goods-sold figure was the major contributing factor to the fall in profit percentage. Faced with the rising cost of goods, managers were able to hold down their overall operating expenses slightly, to 32 . 1 percent of sales as compared with 1973's figure of 32.2 percent. Although employee wages rose $831 during the year, there was a percentage-wise decline from 11 .8 percent the previous year to 11.5 percent of sales in 1974. A 2.4 percent rise in dollar profits was recorded in 1974. When expressed as a percentage of sales, the net profit actually slipped from 3.8 to 3.7 percent. Because of a slight increase in the average proprietor 's salary, the total income percentage (net profit plus proprietor's salary) remained unchanged from 1973 but reached an all-time dollar high of $32,314 . Inventory investm~nt went up in dollars but continued at 17 percent of sales, and the turnover rate was unchanged at 3.9
times . There was a 7.4 percent dollar increase in prescription department inventory investment from 1973 to 1974. For the first time since 1961, a decrease was noted in prescription sales per dollar invested in inventory; the 1974 figure was $8 .19, down from $8.27 in 1973. According to the Digest report, less prescription inventory productivity can be attributed to the fact that there was only an 0.3 percent rise in the total number of prescriptions dispensed from 1973 to 1974, in contrast to the 7.4 percent increase in prescription inventory dollars. The 0.3 percent growth in total prescriptions dispensed was substantially lower than the 5 percent recorded the previous year. The average prescription charge moved up to 5.9 percent, from $4.54 in 1973 to $4.81 in 1974. A significant change occurred in 1974 concerning new prescriptions as a percentage of the total number dispensed. This was 46.3 percent in 1974, up from 45 .5 percent in 1973, and is the highest figure reported since 1966.
73
