Generic Pricing in Veterinary Practice

by Sam D Meisler DVM

There is an economic disincentive for veterinary practice owners to bring a generic drug into a practice to replace a brand one.  If you are selling a brand name pill that costs you $1 for $2 (ie two times markup) then your gross profit per pill is $1.  A company now offers you the same pill in generic form for $0.75.   You mark up the generic pill by two and sell it for $1.50.  Your profit, however, sinks to $0.75.  Your efforts to lower the costs of medical care for your clients has cost you 25% of your profits for this medication.  Why would you do such a thing?  You could be just a very altruistic individual.  Perhaps you, your staff and your veterinarians are already financially well compensated through appropriate service pricing.  There is a way, however, to give your clients a discounted price for the generic medication without giving up any of the profits.


In the example above, what if you could still make $1 per pill?  If you sold the generic for $1.75, you would still make a $1 per pill and your client would save $0.25.  With this solution, everybody wins.  Better yet, there is a formula you can use to calculate the exact markup to use for this winning solution. In this example, you can easily see that the markup is $1.75 divided by $0.75 or a 2.33 times markup.  The client price is the cost ($0.75) times 2.33 which equals $1.75.  The formula to use is:

Generic Drug Markup =  (Cost of Brand Per Unit/Cost of Generic Per Unit)*(Brand Drug Mark Up -1)   + 1

In the example above, the markup equals ($1/$0.75)(2-1) + 1 = 2.33.

From now on, welcome generics into your practice with open arms.  You will feel better offering your clients more value for less money without any sacrifice.  And for pet owners reading this blog, help your veterinarian see the value of generics this way.

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