MANAGED CARE February 2008. ©MediMedia USA
When a company is considering the establishment of a mail order pharmacy, costs are a major consideration, according to John Boyd, president of the Boyd Co. An expensive location can cost millions more than an inxpensive one — each year. A new analysis of comparative operating costs conducted by the company ranks Sioux Falls, S.D., as the least costly location of 21 cities under consideration to operate a hypothetical mail order pharmacy center. San Diego ranked first. Only major geographically variable factors were considered : labor, utilities, land acquisition and construction, taxes, and corporate travel.
In addition to these costs, insurers should also look at “the regulatory climate for a given state,” says Boyd. “South Dakota recently expanded the ratio of technicians to pharmacists. Most states have two technicians for every registered pharmacist. Some states allow more technicians — South Dakota has a 4:1 ratio.
“Insurers are prioritizing the comparative costs of doing business. They are focusing on the potential labor cost savings in a smaller market location,” says Boyd. “The trend is to consider smaller market, less costly, more favorably regulated locations.”
| The highs and lows of operating a mail order pharmacy | ||||
|---|---|---|---|---|
| San Diego, Calif. (highest cost city) | Phoenix, Ariz. | Willingboro, N.J. | Sioux Falls, S.D. (lowest cost city) | |
| Labor | ||||
| Weighted average annual earnings | $48,066 | $43,573 | $46,315 | $38,777 |
| Annual base payroll | $5,767,920 | $5,228,760 | $5,557,800 | $4,653,240 |
| Fringe benefits | $2,134,130 | $1,934,641 | $2,056,386 | $1,721,600 |
| Total annual labor | $7,902,050 | $7,163,641 | $7,614,186 | $6,374,939 |
| Electricity | $252,540 | $138,732 | $245,016 | $138,231 |
| Natural gas | $4,615 | $4,965 | $5,743 | $4,690 |
| Amortization | $2,617,576 | $1,854,776 | $1,515,171 | $1,261,083 |
| Property and sales tax | $618,291 | $714,029 | $532,005 | $453,973 |
| Heating and air conditioning | $28,073 | $49,201 | $82,097 | $96,479 |
| Shipping | $23,597,190 | $24,095,205 | $23,406,705 | $23,562,765 |
| Corporate travel | $207,730 | $196,117 | $207,748 | $146,565 |
| Total annual geographically variable operating costs | $35,228,065 | $34,216,426 | $33,608,671 | $32,038,725 |
| Source: A 2008 Comparative Cost Analysis for the Mail Order Pharmacy Industry, The Boyd Co., 2008. | ||||