23 Pharmacy Business Math

Pharmacy non-prescription medications are typically priced by adding a markup percentage to their cost. This method of marking up prices on medications and other items is just one of many ways a pharmacy can make a profit from their consumers. The markup will inevitably vary based upon that particular pharmacy’s pricing strategy.

Let’s say a medication or other item costs the pharmacy $1.00. If they then mark it up for retail by 50% the markup amount is $0.50 and the cost to the consumer, excluding any applicable taxes, is $1.50. Similarly, if a peice of candy costs the pharmacy $0.05 and the markup percentage is 400% then the markup amount is $0.20 with a cost to the consumer, excluding any applicable taxes of course, of $0.25. The formula for calculating the price of an item after markup is:

Price of an Item After Markup
$$\text{(Cost} \times \text{Markup decimal fraction)}$$ $$\text{+ Cost}$$

$$(\$1.00 \times 0.50) + \$1.00 = \$1.50$$

$$(\$0.05 \times 4.00) + \$0.05 = \$0.25$$

Markup Percentage on an Item
$$\frac{\text{Selling Price – Cost}}{\text{Cost}} \times 100$$

$$\frac{\$1.50 – \$1.00}{\$1.00} \times 100 = 50\%$$

Gross Profit on an Item in General is
$$\text{Selling Price – Cost}$$

$$\$0.25 – \$0.05 = \$0.20$$

Gross Profit Percentage on an Item in General is
$$\frac{\text{Selling Price – Cost}}{\text{Cost}} \times 100$$

$$\frac{\$0.25 – \$0.05}{\$0.05} \times 100 = 400\%$$

Net Profit on an Item
$$\text{Selling Price -}\text{ (Cost + Overhead)}$$

$$\$0.25 – (\$0.05 + \$0.01) = \$0.24$$

The usual & customary price (or U&C) is what a pharmacy charges a customer for a prescription that isn’t discounted or paid for by a third party. The U&C is a formula that is usually determined by the corporation running the pharmacy and applied at the time of filling a prescription. Typically, this formula makes use of adding a “professional fee” to the pharmacy’s acquisition cost. This fee is based upon an “average wholesale price(or AWP). Let’s use the following AWP lookup table to determine an example U&C:

AWP Professional Fee
<= $10.00 $5.50
> $10.00 and <= $55.00 $6.00
> $55.00 $7.00

If the AWP for 300 capsules of acetaminophen 500 mg is $2.00, what is the U&C price of the prescription? Well, according to the AWP lookup table anything less than $10.00 will have a professional fee of $5.50 aded to it. In this case, this brings the total retail price up to ($2.00 + $5.50) = $7.50. You can read more about average wholesale price courtesy of Drugs.com here.

NEXT: 24 Reconstituting Dry Powders
PREVIOUS: 22 Pediatric & Adult Dosage Calculations
Certification Exam Review