Brands vs. Generics: Manage Your Pharmacy Product Mix
Generic drug sales should make up roughly 85% to 90% of pharmacy scripts, but we find that too many expensive brands and specialty drugs are prescribed. High dollar volume brand sales can seriously impact margins in the long run.
Scotty Sykes, CPA, CFP® offers the business rationale for selling more generics, which also supports proactive communications with providers and patients. It’s not just about improved margins, but generics can also be a benefit for patient out-of-pocket costs where appropriate.
Discuss your ideas with Sykes & Company, P.A. counselors and advisors. Our pharmacy advisory servicesteam can help to assess your business situation and provide guidance — including revenue calculations for brand scripts vs. quality generics. For more ideas, see our Master the Margin webinar on inventory management with InventoryIQ.
If you prefer to read this content, the video transcript is below.
With brand fills, you know, you’re looking at definitely significant lower margin but higher dollar volume, gross dollar volume but lower margins.
So you can actually find where you lose money on brand scripts, and especially if you’re filling specialty type products it’s even going to be even more difficult to see not only profitability, but it’s gonna really hamper cash flow.
I have seen pharmacies that didn’t even know they were filling specialty type products until, you know, you start digging into these numbers and you’re seeing issues behind the bench and so you start asking questions and sure enough, there is a lot of specialty going out the doors that’s really hurting the pharmacy.
In a perfect world, the ideal ratio is probably going to be in that between 85% and 90% for generic fills versus brand. You know, the closer you can get to 90% is going to impact your gross margin dollars, your gross revenue dollars you know because those brands are much more expensive, but hopefully it will increase the overall
margin because those brand margins are so very tight, especially if you’re getting into specialty type drugs, which can even hamper your margin significantly more plus the cash flow burden that comes along with that.
You know, certainly you should be reaching out to the physicians, building that relationship, maybe switching to the generic fill if the physician agrees to increase that margin that you’re going to be seeing from those generics.
But again it has to be a better value or equal or better value for the patient. And also from the patient standpoint as well, you know, it could be some cost
savings for them as well, so that’s always a plus.