Strategy

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Friday, October 31, 2003

CATSKILL, N.Y. - Clark Respiratory and Medical Supply opened its own compounding respiratory pharmacy in late August, and if the company’s in-house poll of patients is accurate, the new business appears headed for success.

“We found out that about a third of them would be willing to bring their needs over to us, and we have quite a few hundred existing customers to tap,” said company President Jim Clark.

The company also plans to market the new offering to physicians, Clark said.

Clark is entering the pharmacy business at an interesting time. CMS Administrator Tom Scully stated recently that he’s determined to reduce reimbursement for drugs. Scully and other Washington decision makers feel the current average wholesale price methodology inflates reimbursement, and they desire a payment plan that more accurately reflects the acquisition cost of the drugs.

Scully’s plan to reduce drug reimbursement concerns Clark. At the same time, he said, there are efficiencies to be found in the pharmacy business that, depending on the size of the reimbursement cut, would still make the new pharmacy a worthwhile venture.

Given the OIG scrutiny of pharmacy management agreements, industry watchers expect more HMEs to opt for opening their own pharmacies. In fact, states appear ready to encourage that they do so. Noting the changing nature of the pharmacy business - the surge in specialty pharmacies - many states intend to drop their requirement that pharmacists be on duty a minimum number of hours (often full time) each week. Eliminate that requirement, and setting up a specialty pharmacy becomes less expensive and feasible for more providers, said Mickey Letson, president of Letco Medical, which helps HMEs set up respiratory pharmacies.

To open a respiratory pharmacy with a full time pharmacist, a company needs to bill 200 patient shipments a month to be profitable. One hundred patients will do if the pharmacist is part time, Letson said.

For Clark, opening a respiratory pharmacy made sense. His respiratory business now generates 84% of his revenue (50% of that from Medicare), compared to about 45% three years ago, when he began to exit less-profitable product lines.

As a one-stop-shop “we made money, but not at the pace we could have,” Clark said. “My respiratory people wanted technology, but I never had the cash to give it to them.”

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