Lecture Math for the pharmacy technician Concepts and calculations Chapter 11 – Lynn M. Egler, Kathryn A. Booth

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.

Concepts and Calculations

Egler • Booth

Learning Objectives

When you have successfully completed Chapter 11, you

will have mastered skills to be able to:

Learning Objectives (con’t)

 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

 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

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

 The pharmacy’s overhead is all costs

associated with the pharmacy’s business

operations These costs include:

Overhead (con’t)

 The total cost of the overhead is used to

calculate the pharmacy’s profit

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

Review and Practice

Profits

Annual sales $1,548,370.00

Annual overhead costs – $899,000.00

Annual profit $649,370.00

Gross Profit

 Gross Profit is the difference of the

purchase price the pharmacy paid for

products, for example medication,

and markup price, which is the selling

price

 To calculate the gross profit you

subtract the pharmacy’s purchase

price from the selling price

Review and Practice

Azithromycin 250 mg 6 tablets (Z-pak)

Selling price $13.99

Purchase price –$4.57

Gross profit $9.42

Net Profit

 Net Profit is the difference of the

selling price, and the purchase price

plus a dispensing fee, which is used

to offset the overhead costs used to

fill prescriptions

Net Profit (con’t)

 The dispensing fee per prescription is

determined by each pharmacy on the

basis of the company’s profit needs

It can be a set fee or a percentage

 To determine the net profit, you

subtract the purchase price and the

dispensing fee from the selling price

Net Profit (con’t)

Azithromycin 250 mg 6 tablets (Z-pak)

Selling price $13.99

Purchase price –$4.57

Dispensing fee –$4.00

Net profit $5.42

 A discount is a reduced price from

the normal selling price

 Drug manufacturers may offer the

pharmacy a discount for purchasing

large quantities of certain

medications

 The pharmacy may also offer

Discount (con’t)

 To determine a discounted price, you

multiply the selling price by the

discount percentage, which will give

you discount amount, then you

subtract the discount amount from

the selling price

Review and Practice

The selling price for 1 bottle of 1000 tablets of

medication is $50.00 For orders of 5 bottles

or more the manufacturer offers a 10 percent

discount What is the discounted price for 1

bottle?

Solution:

1 Multiply the selling price by the discount percentage.

2 Subtract the discount amount from the selling price.

$50.00

 A detailed list of all items for sale and

their cost is called an inventory

 The pharmacy must maintain an

accurate inventory list

 It is extremely important to maintain

adequate amounts of medications and

supplies such as pill bottles, labels,

and prescription leaflets

Inventory (con’t)

 Keeping the inventory at optimal

levels helps to ensure prescriptions

are filled and that medications move

off the shelf quickly

 To maintain a balanced profitable

inventory, the value of inventory on

hand should not exceed the cost of

items sold during a specified time

 Turnover is the number of times an

item is sold from inventory When a

pharmacy opens, there is an initial

cost to stock it, and then there is a

cost to maintain the stock based on

the pharmacy’s sales

Turnover (con’t)

To determine the turnover rate you

simply divide the annual inventory

purchases by the average inventory

value

Annual inventory purchases

= turnover rate Average inventory value

Turnover (con’t)

If the pharmacy’s average current stock on hand is

worth $200,000.00, that is the average inventory

value

Determine the turnover rate

Annual inventory purchases

= turnover rate Average inventory value

1,000,000.00

5200,000.00

Turnover rate = 5



 Depreciation is a decrease in the

value of an asset based on the age of

the asset in relation to its estimated

life

 The depreciation value is calculated by

using the value of the item when it is no longer usable or when it is considered

Depreciation (con’t)

A car that is 20 years old and is no

longer drivable, but it has some value

based on parts that could still possibly

be used elsewhere, or sold for scrap

EXAMPLE

Depreciation (con’t)

 There are two types of assets:

current assets and long-term assets

 Any asset that will be converted into

cash or consumed within one year is

considered a current asset

 Items that are not able to be converted

into cash or consumed within a year, such as equipment and store buildings,

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 =

Review and Practice

The pharmacy purchases a refrigerator to store

medication for $700.00 The estimated life of the

refrigerator is 8 years and the disposal value is

$100.00 Determine the annual depreciation value

Annual depreciation value = $700.00 8 $100.00 $6008.00

 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

Reimbursement

 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

 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

Average Wholesale Price

 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

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

$ 30

75 cents 

AWP per capsules = 75 cents

2 Determine the AWP for 30 capsules.

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

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.

1 Add the total costs of the prescriptions.

$125.00 +$82.50

$207.50

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.

2 Subtract the total cost of the prescriptions from the

monthly fee received by the pharmacy.

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

Calculating Correct Costs

The total cost of a single prescription is

$3.95

The patient gives you $5.00, you

need to give 5 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

and Correct Change (con’t)

Example:

Determine the total correct cost of the prescription(s)

and the correct change to be given.

1 Add the total costs of the prescription(s).

$125.00

+ $82.50

$207.50

2 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

Calculating Correct Costs

Determine the total correct cost of the prescription(s)

and the correct change to be given.

1 Calculate the cents due to the patient.

2 Calculate the dollars due to the patient.

3 Add the dollar and cents amounts.

Patient gives $210.00

THE END

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