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About the Authors: Dr. Urmie is an associate professor in the Health Services Research Division at the University of Iowa College of Pharmacy. She received a BS in pharmacy from the University of Wisconsin and worked as a community pharmacist prior to returning to the University of Wisconsin for graduate school, where she received an MS in pharmacy administration and a PhD in social and administrative sciences in pharmacy. Her teaching interests include insurance and reimbursement in pharmacy, health insurance, the US health care system, health policy, and pharmacy management. Her main areas of research are prescription drug insurance and consumer preferences related to health care use.

Dr. Urick is a research assistant professor at the Center for Medication Optimization at the University of North Carolina Eshelman School of Pharmacy. His academic interests lie at the intersection of pharmacy practice, health care, and health policy. His primary research focuses on the role of community pharmacists in the evolving health care system and the use of secondary data to measure health care quality and spending. His current research includes evaluation of pharmacy services interventions, scientific reliability of provider-level quality measures, and factors which influence medication-related health care quality.



After completing this chapter, readers should be able to

  1. Discuss the history of third-party reimbursement for prescription drugs and its impact on pharmacy management.

  2. Understand the basic principles of third-party reimbursement for prescription drugs and define commonly used reimbursement terminology.

  3. Evaluate the financial impact of third-party reimbursement on the pharmacy using an average net profit comparison, a differential analysis, and a pro forma analysis.

  4. Identify the broad range of factors that a pharmacy manager should consider when evaluating a third-party contract.

  5. Discuss issues related to third-party reimbursement for prescription drugs.


Natalie Hawkins, the pharmacy manager at Good Service Pharmacy in Tipton, IA, is concerned because she has been losing Better Health Medicare Part D plan patients to other pharmacies which are part of the Better Health preferred pharmacy network. If patients go to a preferred pharmacy, they can save $15 per prescription per month in copayments so there is a strong incentive for patients to choose preferred pharmacies. She opens her mail and sees that Better Health Medicare Part D has sent a new contract wherein she can now join the preferred network. Under the contract, her pharmacy has an opportunity to join Better Health’s preferred pharmacy network but reimbursement rates will be lower. Alternatively, they can keep the current reimbursement rate and remain a non-preferred pharmacy, but risk continuing to lose Better Health patients. The new contract also has direct and indirect remuneration (DIR) fees that are based on the pharmacy’s performance. For this contract, performance is defined ...

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