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Chapter 11, Operational calculations. This chapter presents information and calculations related to business operations in the pharmacy. This chapter also discusses inventory and reimbursement considerations and calculating correct costs and correct change.
Math for the Pharmacy Technician: Concepts and Calculations Egler • Booth Chapter 11: Operational Calculations McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved Operational Calculations McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved 11-3 Learning Objectives When you have successfully completed Chapter 11, you will have mastered skills to be able to: Calculate overhead costs Calculate profits Calculate discount amounts McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved 11-4 Learning Objectives (con’t) Calculate average wholesale price (AWP) Calculate inventory turnover rate Calculate depreciation Demonstrate understanding of capitation fee and AWP plus fee McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved 11-5 Introduction As a pharmacy technician you need to be familiar with the aspects of the day-to-day operations of the pharmacy The costs involved in running the pharmacy are many While providing a service to the patient is important, the pharmacy must also make money in order to stay in business McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved General Business Considerations 11-6 All businesses have costs associated with day-to-day operations The pharmacy’s income earned from sales must be higher than the operational costs in order for the pharmacy to be profitable McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved 11-7 General Business Considerations (cont.) Multiple operational calculations are used to run a profitable pharmacy You will learn how to calculate the following: Overhead costs Profits Gross profits Net profits Discounts McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved 11-8 Overhead The pharmacy’s overhead is all costs associated with the pharmacy’s business operations These costs include: Employee salaries Rent Utility bills Insurance premiums Inventory/Supplies Discounts Sale items McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved 11-9 Overhead (con’t) The total cost of the overhead is used to calculate the pharmacy’s profit Example: Annual Overhead Costs Employee salaries Rent Utilities Insurance Inventory/supplies Annual overhead total McGraw-Hill $125,000.00 $24,000.00 $12,000.00 $6,000.00 +$732,000.00 $899,000.00 ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved 11-10 Profits A profit is the difference between overhead expenses and income earned from sales To calculate a profit you subtract the pharmacy’s overhead costs from the income earned from sales McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved 11-28 Depreciation (con’t) Over time, long-term assets lose their value from repeated use and basic age of the item To determine the depreciation value of any given property, use the following formula: total cost-disposal value Annual depreciation = estimated life McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved Review and Practice Depreciation (con’t) 11-29 The pharmacy purchases a refrigerator to store medication for $700.00 The estimated life of the refrigerator is years and the disposal value is $100.00 Determine the annual depreciation value $700.00 − $100.00 $600.00 = Annual depreciation value = 8 Annual depreciation value = $75.00 McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved Reimbursement Considerations 11-30 Pharmacies are often reimbursed for prescriptions by insurance companies The pharmacy signs a contract with the insurance company and the reimbursement amounts are predetermined The reimbursement amount may be based on a set price for specific medications, on the actual cost of a medication, or the average wholesale price of a medication McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved Reimbursement Considerations (con’t) 11-31 The pharmacy must submit a claim to the insurance company for reimbursement Most claims are filed electronically by using an ICD-9 code (International Classification of Diseases) and the amount of reimbursement is paid per prescription according to the agreed upon contract McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved 11-32 Average Wholesale Price (AWP) The average wholesale price (AWP) is the average price that pharmacies pay for medications purchased from a wholesaler, based on national averages The AWP is often used by insurance companies to calculate the amount a pharmacy is reimbursed for a prescription McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved 11-33 Average Wholesale Price (AWP) (con’t) Pharmacies often purchase larger quantities of fast selling drugs from wholesalers to get a discount, bringing the cost of the medication below the AWP, in turn giving the pharmacy a higher net profit McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved 11-34 Review and Practice Average Wholesale Price (AWP) (cont.) The AWP is $75.00 per 100 capsules The insurance company will pay AWP per capsules and a $2.00 dispensing fee What is the AWP for 30 capsules? Determine the AWP per capsule $75.00 = 0.75 cents/capsule 100 AWP per capsules = 75 cents Determine the AWP for 30 capsules .75 cents × 30 = $22.50 AWP for 30 capsules = $22.50 McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved 11-35 Capitation Fee A capitation fee is a set amount of money that is paid monthly to the pharmacy for a patient by an insurance company, regardless of whether the patient receives zero prescriptions or multiple prescriptions during the month The pharmacy must fill all of the patient’s prescriptions, even if the cost exceeds the monthly fee McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved 11-36 Capitation Fee (con’t) The pharmacy agrees to a monthly capitation fee of $300.00 for a patient The patient fills two prescriptions this month One costs $125.00 and the other costs $82.50 Determine if the pharmacy made a profit Add the total costs of the prescriptions $125.00 +$82.50 $207.50 McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved 11-37 Capitation Fee (con’t) The pharmacy agrees to a monthly capitation fee of $300.00 for a patient The patient fills two prescriptions this month One costs $125.00 and the other costs $82.50 Determine if the pharmacy made a profit Subtract the total cost of the prescriptions from the monthly fee received by the pharmacy Fee paid to pharmacy $300.00 Total cost of prescriptions –$207.50 Profit to pharmacy $92.50 McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved 11-38 Calculating Correct Costs and Correct Change In retail pharmacies it is the pharmacy technicians’ responsibility to collect payment for prescriptions Basic math skills are used in manually calculating correct costs and correct change Calculate the cents first, up to the next dollar, and then calculate the dollars to the amount that patient gave you McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved 11-39 Calculating Correct Costs and Correct Change (con’t) The total cost of a single prescription is $3.95 The patient gives you $5.00, you need to give cents (a nickel) to equal the next dollar amount of $4.00 and $1.00 (1 dollar bill) to equal the total amount the patient gave you of $5.00 McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved 11-40 Calculating Correct Costs and Correct Change (con’t) Example: Determine the total correct cost of the prescription(s) and the correct change to be given Add the total costs of the prescription(s) $125.00 +$82.50 $207.50 Subtract the total cost of the prescriptions from the amount given to you from the patient Patient gives $210.00 Total cost of prescriptions –$207.50 McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved 11-41 Calculating Correct Costs and Correct Change (con’t) Determine the total correct cost of the prescription(s) and the correct change to be given Calculate the cents due to the patient Calculate the dollars due to the patient Add the dollar and cents amounts Patient gives $210.00 Total cost of prescriptions –$207.50 Change due to patient: $2.50 McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved 11-42 Operational Calculations As a pharmacy technician you need to be familiar with the aspects of the day-to-day operations of the pharmacy While providing a service to patients is important, the pharmacy must also make money in order to stay in business THE END McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved ... familiar with the aspects of the day-to-day operations of the pharmacy The costs involved in running the pharmacy are many While providing a service to the patient is important, the pharmacy must... ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved 11- 12 Gross Profit Gross Profit is the difference of the purchase price the pharmacy paid for products, for example medication, and. .. it, and then there is a cost to maintain the stock based on the pharmacy s sales McGraw-Hill ©2010 by the McGraw-Hill Companies, Inc All Rights Reserved 11- 23 Turnover (con’t) To determine the