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Pharmaceutical services cost analysis using time-driven activity based costing in a sample of Portuguese community pharmacies

Background

Pharmacists have experienced an expansion of their role in the last decades, developing the scope of
services offered. One challenge that pharmacists face when obtaining payment from patients is establishing a price for the service that is sufficient to support it, and is perceived as a good value by the patient. However, little research has been conducted on the costs of pharmaceutical services (PS) in Portugal.

Purpose

To accurately calculate costs it is important to use a costing methodology that supports itself on real-world data. This study describes the development and application of a Time-driven Activity Based Costing (TDABC) model in a sample of pharmacies in Portugal, with the objective of calculating the cost of the PS provided.

Method

PS supply patterns were studied through a time and motion observation in selected pharmacies. The main inclusion criteria were their urban location in the metropolitan Lisbon area. Three pharmacies were included as participants. The observation study took place during a regular weekday full 8 hours shift. The main outputs of interest were the time spent performing a service and the activities required to carry out each service. Data on pharmacy costs were obtained through pharmacies? accounting records for the month the observation took place. With this data, cost rates for each activity and time equations for each service were developed.

Findings

The main pharmaceutical services observed were the dispensing of medicines, counseling provision without dispensing, OTC provision with counseling and health screening services. We found the overall costs of services across three pharmacies to be very similar, with the average dispensing service cost at €3.66. Excluding depreciation, amortization and taxes (DAT), this value drops to €2.12; for the counselling service, the average was €1.34, or €0.87 excluding DAT; OTC dispensing average cost was €2.16, or €1.30 excluding DAT; Health screening services? average costs were €3.59, or €1.90 without the DAT.

Conclusion

The TDABC model described gives us new insights on management of community pharmacies in
Portugal. As the time equations show which activities demand more time, pharmacy managers may get an idea of which activities lead to higher costs. This study shows the importance of cost analysis for pharmaceutical services provision. Results from this analysis are expected to contribute to the improvement of community pharmacy organizational business models.

Pharmaceutical services cost analysis using time-driven activity based costing in a sample of Portuguese community pharmacies

Background

Pharmacists have experienced an expansion of their role in the last decades, developing the scope of
services offered. One challenge that pharmacists face when obtaining payment from patients is establishing a price for the service that is sufficient to support it, and is perceived as a good value by the patient. However, little research has been conducted on the costs of pharmaceutical services (PS) in Portugal.

Purpose

To accurately calculate costs it is important to use a costing methodology that supports itself on real-world data. This study describes the development and application of a Time-driven Activity Based Costing (TDABC) model in a sample of pharmacies in Portugal, with the objective of calculating the cost of the PS provided.

Method

PS supply patterns were studied through a time and motion observation in selected pharmacies. The main inclusion criteria were their urban location in the metropolitan Lisbon area. Three pharmacies were included as participants. The observation study took place during a regular weekday full 8 hours shift. The main outputs of interest were the time spent performing a service and the activities required to carry out each service. Data on pharmacy costs were obtained through pharmacies? accounting records for the month the observation took place. With this data, cost rates for each activity and time equations for each service were developed.

Findings

The main pharmaceutical services observed were the dispensing of medicines, counseling provision without dispensing, OTC provision with counseling and health screening services. We found the overall costs of services across three pharmacies to be very similar, with the average dispensing service cost at €3.66. Excluding depreciation, amortization and taxes (DAT), this value drops to €2.12; for the counselling service, the average was €1.34, or €0.87 excluding DAT; OTC dispensing average cost was €2.16, or €1.30 excluding DAT; Health screening services? average costs were €3.59, or €1.90 without the DAT.

Conclusion

The TDABC model described gives us new insights on management of community pharmacies in
Portugal. As the time equations show which activities demand more time, pharmacy managers may get an idea of which activities lead to higher costs. This study shows the importance of cost analysis for pharmaceutical services provision. Results from this analysis are expected to contribute to the improvement of community pharmacy organizational business models.