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Addressing The Pros And Cons Of In-Office Dispensing

With insurance reimbursements decreasing, physicians are looking for ways to increase revenue in a time- and resource-efficient way. In-office dispensing may be a potential solution. Accordingly, this author reviews the ethical and logistical debate surrounding this aspect of medical practice.

The American Medical Association (AMA) has hotly debated the ethics of allowing medical practices to sell supplies and products to patients. Doctors have argued that patients see this as a highly beneficial service. 

Additionally, with insurance reimbursement declining, selling supplies and products offers a practice the opportunity to capture a new source of revenue that does not take away from the time doctors have for treating patients. Ethics gurus argue that the practice of selling supplies to patients takes advantage of the trusted relationship between doctor and patient for the “unsavory” purpose of making a profit.  

This argument, however, is irrelevant to the issue. Under fee-for-service reimbursement, unethical doctors have long had an opportunity to take advantage of these trusted relationships by inflating charges or providing unnecessary services. Under capitation, the same unethical doctors have had an economic incentive to do just the opposite and withhold necessary services.  Does it logically follow that because of the nefarious actions of these “outliers,” fee-for-service and capitation systems are unethical? 

An economic “ethical dilemma” can present itself whether a doctor is recommending care or selling supplies. What is relevant to any argument is that an unethical doctor will do whatever benefits him or her the most, and an ethical physician will do that which most benefits the patient. Whether or not the doctor is making a profit is irrelevant to the discussion. In examining the ethics of this policy, I do not see how dispensing a medical product that will benefit the patient differs from recommending that product and then having it dispensed by someone else for the same price.

Emphasizing The Combination Of Patient Convenience And Instructions From PhysiciansTo Maximize Patient Adherence

Take the example of a woman I know who took her two sick children to the pediatrician. That doctor prescribed an over-the-counter medication for both children. Upon checking out at the front desk, the mother asked a staff member if the doctor happened to stock this medication on location, a practice which would make it available for purchase before leaving the office. The staff informed her that selling medications to patients was against their office policy. This then left the mother to carry two sick, crying children back to the car, drive to the pharmacy, find a parking spot, take the kids out of the car and into the pharmacy, search for the medication in question and then wait in a checkout line to purchase it. 

What if, instead, the pediatrician had offered this mother the option of purchasing this same medication at the front desk and at the same price the pharmacy would have charged? I think that this mother would have been extremely grateful and would never have questioned the doctor’s ethics in this matter.

What ethical dilemma is involved when doctors recommend other over-the-counter items such as insoles, ankle braces, vitamins, skin creams or any other products? Patients would still have the choice of purchasing these items at whichever location they prefer, whether it is at the doctor’s office or somewhere else. 

These doctors are not selling “secret potions” to patients that are exclusive to the physician’s office.My opinion is that patients will see the option of purchasing products at their doctors’ offices as a sign of superior service. Making a profit, whether it is from clinical care or selling beneficial products, is irrelevant to the discussion of “ethics.” Other businesses would see this as excellent service and would refer to this practice as being “customer-focused.” They would argue that doctors offering these products deserve to earn higher profits.

Other players in this equation are the suppliers who have also expanded their boundaries into areas competitive with medical practices. Many patients skip the doctor’s office altogether and choose to self-treat. This option usually involves the purchase of over-the-counter medications or products that a patient experiments with first prior to receiving the benefit of a physician’s examination and diagnosis.  

For example, we see an advertisement on television in which a person walks into a pharmacy, steps onto a machine and receives a “custom” orthotic. If we were to recommend any one of these over-the-counter products to a patient, believing that it could be beneficial, doesn’t it make sense that stocking that item “in-house” would provide a valuable service for the patient? 

Not only is it convenient for patients to receive products and medications at their doctors’ offices, but when they do so, the doctors and/or staff also have the opportunity to instruct them in the best way to use each product. This then allows patients to achieve optimal compliance and results. Doctors can also track and follow up on the effectiveness of these recommended treatments, and patients can contact their doctors if they have any problems with the products. 

Another benefit of this practice is that doctors can steer patients away from medications or products that they know to be ineffective or unsafe.

Product Displays In The Office: Is Less More?

If you do decide to dispense supplies in your practice, you may be wondering, “What and how many products should I keep in stock?” It might be common sense to assume that product displays that allow a patient to select among numerous choices would produce more sales and greater profit than ones with only a few. A series of research studies, however, suggests that there is an optimum number of choices beyond which the presence of more actually hampers the buyer’s ability to make a selection.1 

Iyengar and Lepper compared grocery store shoppers who encountered two different displays of jams and jellies.1 One featured a choice of six flavors and the other had 24 flavors. Even though more shoppers were attracted to the extensive display (60 percent versus 40 percent), only three percent of this larger group made a purchase whereas 30 percent of those presented with the limited display did so. The ultimate outcome was that the display with fewer choices produced ten times the sales of the more extensive display! 

You can draw your own conclusions from this study but its results certainly indicate that when showcasing supplies and/or products for sale in your office, “less” might very well be “more.” Not only are you likely to achieve more sales if you use a limited display but the display will require less space both for showcasing and storage. Also, because inventory will be less complex, management of these items will be less time-consuming.

Balancing Cost Considerations Against Potential Revenue

Obviously, sources of revenue beyond patient care, especially revenue that is independent of insurance coverage, can be an important consideration for today’s practices. These sources must be profitable because they do have associated costs for purchasing, inventory storage and management. In addition to offering patients the benefits associated with in-office dispensing, this business can and should be profitable for the practice. Obviously, the scale of the business and the cost of goods purchased will determine the degree of profitability.  

For a practice to obtain the best prices, it helps to buy in bulk, look for sales on specific items and purchase from podiatry-specific group purchasing organizations (GPOs). In my experience, utilizing these organizations reduces the complexity of ordering and the discounts that they offer can average 20 percent or more.  

Data from a two-doctor, two location practice with which I am familiar showed a revenue from in-office dispensing that ranged between $6,000 and $8,000 a month. This is a considerable amount given that, today, a two-doctor practice is relatively small in comparison with the size of the many groups that have formed over the past 10 years. 

Medical offices that dispense items typically mark up the wholesale purchase price by 100 percent (two times the purchase price). If our example practice uses this level of markup, the profit on the $6,000 to $8,000 in revenue is $3,000 to $4,000 a month ($36,000 to $48,000 annually). 

If this practice was able to obtain an additional average discount of 20 percent by purchasing in bulk or through a group purchasing organization, the profit range would be even higher: $3,600 to $4,800 a month. Obviously, too, the more doctors in a practice, the greater the potential profit. 

Comparing Increased Patient Volume With In-Office Product Dispensing

Most practices seek to grow by increasing the number of patient visits, the number of services provided or both. Each of these options requires the doctors to find additional time to see more patients in their current office space. They also challenge staff to manage the concurrent growth in clinical volume and billing transactions without increasing staff size. If more staff, space or doctors are necessary to handle this growth in patient volume, the resultant increase in overhead could offset the additional revenue generated by the growing practice.  

Compare this strategy of increasing practice volume with an alternative of offering products for sale in the office. One way to estimate an equivalent outcome would be to compare this annual $36,000 profit earned from our example practice’s in-office dispensing with the number of bunionectomies one would need to perform in order to capture this same amount. Assume that $950 in revenue would be collected from one Medicare bunionectomy. A doctor would need to perform 38 of these procedures each year to generate the equivalent $36,000 in profit. Assume also that the typical bunionectomy requires a doctor to spend at least two hours out of the office to perform the surgery and additional time to provide the necessary postoperative care (requiring multiple office visits). The in-office dispensing option offers a convenient, quality service with the advantage of low risk. It also requires far less of the doctor’s productive time. One could make this same “volume” comparison using any other patient service.

Recognizing And Addressing The Challenges Of Inventory Management

If there is a “con” to in-office dispensing, it is the fact that this is a separate business, which requires time and management, adding complexity to the existing business operations of a practice. Once the doctors have established the scale of the dispensing business they want to offer, they need to identify specific items to offer for sale, purchase those items at competitive prices, store them somewhere in the office, price them appropriately, display the products professionally and track the products for sales to determine reorder dates. In order to determine profitability and account for sales tax, one also needs to account for product sales separately from medical supplies the physician is using for patient care in the office.

Additionally, management reports are necessary in order to make ongoing decisions regarding pricing, reordering in a timely manner and determining which items to purchase more of or drop from the current offerings in the office.  

Obviously, the amount of time necessary to manage this aspect of the practice will depend on the scale of the operation, whether the practice maintains a small display that offers only a few items or a full “store” offering numerous products. For those who want to test this service model, there is relatively little risk in starting small and learning from experience. A small operation can always be scaled up to a larger one, based on experience and patient input.  

Many practices begin this process by offering prepackaged items needed for postoperative care. This would be a service that provides patients with all the necessary items to care for their wounds upon returning home without needing to stop at a pharmacy on their way and search for each item individually.

While having supplies on hand for a patient’s convenience makes sense, a practice does not need to stock a large supply in the office to fill follow-up orders. One can fill product reorders by utilizing a practice website or working with an outside service vendor. This enables a practice with limited storage space to reap the benefits of dispensing medical supplies, durable medical goods and medications without having to purchase, store and dispense large quantities of merchandise. The practice can “stock” its website’s virtual store with large quantities of items that its patients need without the hassle of setting up a “mega” in-office retail store or storage area. Most importantly, this “store,” which benefits both the patients and the doctors, is open for business 24/7.

Deciding If In-Office Dispensing Is Right For Your Practice

Once one evaluates space, staff and patient need, the physician can decide if in-office dispensing is right for the practice and on what scale. Think about what products you recommend on a regular basis and the logistics of product storage and maintenance. Again, it is okay to start small and expand this aspect of your practice if the response is positive from both a patient and revenue perspective. 

Dr. Hultman is the Executive Director of the California Podiatric Medical Association (CPMA). He is a consultant for Medical Business Advisors and the former CEO of Integrated Physician Systems (IPS). Dr. Hultman is the author of Reengineering the Medical Practice (1994) and The Medical Practitioner’s Survival Handbook (2013). 

He discloses that he is Director of Data Analytics for Talar Medical (a podiatric specific GPO), and CPMA provides marketing support for DPMGPO (a non-profit podiatric specific GPO developed by the Los Angeles Podiatric Medical Association).

By Jon A. Hultman, DPM, MBA, CVA

1. Iyengar SS, Lepper MR. When choice is demotivating: can one desire too much of a good thing? J Pers Soc Psych. 2000;79(6):995-1006. 

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