When a company is considering the establishment of a mail order pharmacy, costs are a major consideration, according to John Boyd, president of the Boyd Co. An expensive location can cost millions more than an inxpensive one — each year. A new analysis of comparative operating costs conducted by the company ranks Sioux Falls, S.D., as the least costly location of 21 cities under consideration to operate a hypothetical mail order pharmacy center. San Diego ranked first. Only major geographically variable factors were considered : labor, utilities, land acquisition and construction, taxes, and corporate travel.

In addition to these costs, insurers should also look at “the regulatory climate for a given state,” says Boyd. “South Dakota recently expanded the ratio of technicians to pharmacists. Most states have two technicians for every registered pharmacist. Some states allow more technicians — South Dakota has a 4:1 ratio.

“Insurers are prioritizing the comparative costs of doing business. They are focusing on the potential labor cost savings in a smaller market location,” says Boyd. “The trend is to consider smaller market, less costly, more favorably regulated locations.”

The highs and lows of operating a mail order pharmacy
  San Diego, Calif. (highest cost city) Phoenix, Ariz. Willingboro, N.J. Sioux Falls, S.D. (lowest cost city)
Weighted average annual earnings $48,066 $43,573 $46,315 $38,777
Annual base payroll $5,767,920 $5,228,760 $5,557,800 $4,653,240
Fringe benefits $2,134,130 $1,934,641 $2,056,386 $1,721,600
Total annual labor $7,902,050 $7,163,641 $7,614,186 $6,374,939
Electricity $252,540 $138,732 $245,016 $138,231
Natural gas $4,615 $4,965 $5,743 $4,690
Amortization $2,617,576 $1,854,776 $1,515,171 $1,261,083
Property and sales tax $618,291 $714,029 $532,005 $453,973
Heating and air conditioning $28,073 $49,201 $82,097 $96,479
Shipping $23,597,190 $24,095,205 $23,406,705 $23,562,765
Corporate travel $207,730 $196,117 $207,748 $146,565
Total annual geographically variable operating costs $35,228,065 $34,216,426 $33,608,671 $32,038,725
Source: A 2008 Comparative Cost Analysis for the Mail Order Pharmacy Industry, The Boyd Co., 2008.