UBC Phar400 Business of Retail Pharmacy-13Sept2013


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Presented to 4th year Pharmacy students at UBC Pharmaceutical Sciences in the Phar400 Pharmacy Business Management course.

In this first presentation of the semester we take a high level look at the business of Pharmacy in Canada and British Columbia.

Learning objectives:

>Pharmacy business in Canada and BC
>Retail Pharmacy types and main differences
>Pharmaceutical Logistics and Supply Chain
>4 key controllable moving parts of retail Pharmacy
>Future Developments, Trends, Issues & Opportunities

As part of the curriculum students are required to work in teams to create a new sustainable professional clinical service supported by a business plan. At the end of the semester the teams present in a "pitch" to classmates and a panel of judges. Winners are determined by their peers.

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  • Happy to answer your questions at the end of each section. Or stay afterwards as long as you like…Use your handouts to write down any a-ha moments you have; if you want an electronic copy of this presentation along with my speaker notes... I’ll give you my email address at the end. Most of today’s health care debate in the political arena is simply a cost shifting or service elimination contest as the various parties along the value stream try to defend their own interests at the expense of others.Which makes Retail Community Pharmacy one of the toughest sectors out there… The profession of pharmacy owner is unique yet complex. Simply put, it is a healthcare professional running an intricate small business that needs to sustain its profitability in order to continue to exist and provide patients with the care they need and expect. The uniqueness of the pharmacy business model comes from the fact that the pharmacy owner is running a business that is highly regulated and guarded by moral obligations; ethics and standards of practice.Needless to say; it is very distinctive in the retail sector… and it’s a constant balancing act between professional and business ethics.
  • Having seen and helped other students with their clinical service project; one thing is clear. Many of you will be launching your project from a retail community Pharmacy setting.My goal for you today is to provide 30K ft view of retail Pharmacy to help you with your clinical service project. We’re going to cover this stuff...One of the main goals of presenting the business plan for your clinical service project is presenting a business case also known as a business model. Your idea might be great but it needs to be viable; that means there must be both a need and a market; and it has to make money. Or in the case of govt; how it could save money.A need doesn’t necessarily mean there is a market. Explain need and market...use example of electric cars.In order for there to be a market. There has to be value for the payer of your clinical service idea and a desire to use it and pay for it.
  • In the pre-reads for this presentation I hope you noticed a common theme; that economics and management play a big role in the Pharmacy business.There is a quote that appears in the 2013 State of the Industry report form a Pharmacy owner. “When revenue is cut, something else has to be cut, and that often ends up being staffing or operating hours. Our prescription volume is increasing because there are more seniors, and traffic in our stores has grown, but pharmacy owners are still struggling.”Recently, a friend of mine proclaimed that if you reduce operating costs by 10%, you will increase your bottom line by 40%. Mathematically, that may be true; however, operationally it may be very questionable. Let’s put that entire situation under a microscope.The biggest costs to a pharmacy are: Payroll and rentA pharmacy’s rent cannot be reduced (even if you own the building, you still have taxes and upkeep) and reducing payroll presents you with a choice of one of two undesirable outcomes:If you reduce everybody’s wages, your best people may go elsewhere.If you cut hours, well aren’t you already operating lean and mean? The outcome will be that you may totally destroy the good service for which you are noted.Neither choice is a good one, is it?The moral of the story is, any idea needs to pass two critical tests:It must be economically feasible. And it must be operationally sound. The idea to cut costs lacks the feasibility of making it operationally sound, doesn’t it? Finding a way to increase revenue makes more sense; and the opportunity of increased traffic, increasing script volume and more seniors is right at the door step. 
  • In the case of reducing costs, recently one of the largest and most impressive studies ever done in the business world concluded that the following are necessarily true;They found that exceptional companies, when faced with difficult decisions, follow three rules:Better before cheaper; Revenue before cost and there are no other rules.In other words, increasing business income must precede any idea of reducing costs unless there is some very obvious fact in your profit and loss statement that fat can be eliminated.(which I presume would have been found long ago and eliminated long ago)As for controlling costs, yes. But not at the expense of achieving goals. One of the biggest mistakes that far too many pharmacy owners make is allowing budgets to dictate goals whereas goals should drive budgets. When the latter approach is practiced, great things happen. Pharmacy owners not only make considerably more money, they also enjoy the practice of their craft significantly more.In collaboration with teams of researchers, Raynor and Ahmed then put a carefully chosen representative sample of twenty-seven com­panies under the microscope to uncover what made the stand-out performers different. That study can be reviewed in its entirety in the 2013 © book by Raynor and Hammond: “The Three Rules— How Exceptional Companies Think.”I have been advocating this concept for the past 20 years that I have been specializing in helping pharmacy owners to massively increase the money they take home. In fact, as far as I am concerned, the main job, as the owner of the pharmacy is to build that business bigger and make it more profitable. Nothing is more important. Nothing else will substitute.
  • What is the real purpose of a business? Every time I ask this question; the immediate answer I get back is “To make a profit”.But I think this is wrong; profit is merely an outcome; it’s a result. I believe the real purpose of a business is to create, engage and keep a customer.If any biz successfully creates and keeps a customer in a cost effective way, it will make a profit.If for any reason, a biz fails to attract or sustain a certain number of customers, it will experience losses. Too many losses will lead to the downfall of the enterprize.In the new business reality; a retail Pharmacy that continuously relies on only current customers for its economic success is not going to grow. The way to grow and succeed is to keep attracting new people into the store, and the best way to do that is to meet the needs of ideal customers by engaging them and creating a professional business relationship with them. And then make sure to keep the customers you’ve already got.Of course, the sustainability of the business is profit; and in every business profit; is in the repeat business; not just the first or one time transaction; again; that is just an outcome; creating new, engaging and keeping customers is the key to repeat business and long term business survival.
  • One of the challenges you will face in practice and presenting your clinical service project is understanding the convergence of the art of Pharmacy with the business of healthcare.Thehealthcare situation is at a tipping point with pressure on rapidly increasing prescription drug costs. Govt drug reforms; 3rd parties directing their prescription business and reducing coverage, people without any drug coverage are under financial pressure; all this is converging at the same time as we grapple with the challenges of a new global economy and a new definition of value.Pharmacy competition is intense. Customers have choices available to them, provided by a glut of Pharmacies.Customers feel empowered. They have a right to expect certain things from the Healthcare system and the companies they do business with and they’ll fight to get what they’ve been promised.Today, customers will leave a Pharmacy in a heartbeat for a better service offer when value isn’t unique. They either vote with their feet and don’t tell anyone when they go elsewhere or when there is no difference in value people buy on price alone.Per capita usage of prescriptions is climbing among all age groups, ranging from 4.21 Rx/year among those aged 0-39 years and 41.82 Rx/year for 60 years and up. A Pharmacy business that relies solely on filling scripts to attract new customers is a declining business model.However, more Rx’s means more traffic and an opportunity for medication optimization counseling, Pharmaceutical opinion and other specialized professional services.In order for a retail Pharmacy business to grow; providing professional services beyond dispensing is a key initiative to attracting and keeping new customers. And it means that Pharmacists need to think beyond the walls of the dispensary to find incremental revenue opportunities.
  • Retail Pharmacy is a business and fair compensation for clinical services is necessary for sustainability. Compensation for professional services is recognized in the Blueprint for Pharmacy.Are you prepared to show a profit from your clinical service idea? Does that make you uncomfortable? Profiting from people’s healthcare.There are many misconceptions about the role of business vis-a-vis the practice of pharmacy. One of the more common misconceptions is that the practice of pharmacy is ethically inconsistent with good business. Good business and good pharmacy practice, however, have a common objective: to serve the patient’s needs with the resources available. Another misconception is that in business, the quality of patient care is secondary to the generation of profits. In fact, the generation of profits is closely linked to the quality of care. The real issue, however, is one of what level of quality is necessary or desirable.Your clinical service project must show that it is viable and sustainable; which means it can stand on it’s own; in terms of paying for expenses, creating cash flow and profitability to the business balanced with optimal drug therapy through patient centred care. You’ll need to show that your clinical service idea has an outcome, is compensated fairly and the market is willing to pay.The consumer, payer or patient who ultimately pays for your professional service, whether that be government, 3rd party payers or the public, has to see what’s in it for them; what’s the value to them of your clinical service project. What’s the benefit?
  • Government already gets it; to them the benefit is clear and measureable. They save money. Problem is the public doesn’t quite get it yet. And that’s where you need to focus attention in your presentation; how you will make the public aware of the great things your clinical service idea provides? How will it benefit them; directly. How will you cut through the traditional marketing clutter to engage patients to use and repeat buy your professional service? Why does it matter? How will your clinical service project create, engage and keep customers? What does it do for them?Your team will need to get their attention with a clear message and then tell them in very clear and specific terms why they only have one choice, and that choice is you and your professional service. This requires that your presentation team develops and communicates a value proposition to the market you intend to serve and that it has benefit and value. Like the statement in this slide.
  • Let’s shift gears...to a high level view of the Business of retail Pharmacy.The pharmacy business remains "hypercompetitive," with bigger entities squaring off to face the ruthless competition of Walmart/Target and the grocery stores. There's a reason grocery chains and big box retailers such as Target and Wal-Mart want a piece of the $28 billion prescription business. Industry figures show that the average patient spends $73 at the store beyond the price of their medications when they pick them up.Here’s another reason why (next slide)…
  • Customer traffic!!!And almost always it’s to fulfill some intention to purchase; pharmacies are not the kind of place people come to browse. They are at the Pharmacy for a reason; health and wellness.
  • These stats are as of September 2012.The pharmacy count by province is indicative of the size of the total prescription business in each market. Note: Excluding Que; Ontario has as many community Pharmacies as the rest of Canada combined.And it’s an important reason to pay attention to what’s going on in Ontario because it has major influence on the practice of Pharmacy in all of Canada.
  • Spending on drugs continues to rise but at a much slower annual growth rate—3.3%, the lowest in 16 years—reveals the Canadian Institute for Health Information (CIHI).Total drug expenditure is estimated to have reached $33 billion, or $947 per person, in 2012. Total drug expenditure includes OTC medications.According to Drug Expenditure in Canada, 1985 to 2012, drugs continued to account for the second-highest share (15.9%) of health spending, behind hospitals and ahead of physicians. However, prescribed drug spending has grown more slowly than those two categories over the past decade.The slowed growth in prescribed drug spending is due to patent expirations of several blockbuster pharmaceuticals and generic pricing policies. Also, increased use of non-traditional or alternative ways of treatment.In the past few years, many public and 3rd party drug programs have reduced the amount that they are willing to pay for generic drugs, with prices now regulated to be, at most, 25% to 40% of the price of brand name products. At present in BC we are at 25%. And of course with the new regulated Pan-Canadian pricing of the top 6 molecules at 18% of Brand equivalent.
  • Here are some BC Pharmacy Fast Facts…Re: Key healthcare/Pharmacy leaders in BC. NOTE: The Health Minister now is Terry Lake.Daily visits per Pharmacy averages out to approx. 71visits/day/pharmacy; For a Pharmacy that’s open 9am-9pm; 7days a week (96 hours); that averages out to 6 people visits to the Pharmacy/hour for every open hour or one every 10 mins. In my experience, the reality is that most of the Rx business actually comes in a couple of “waves”; at 10AM and 4PM; (no wonder it feels like the Pharmacy is a busy place).
  • The B.C. College of Pharmacists counted 1,143 community pharmacies in the province in 2012-13, compared with 1,017 in 2008-09, and 1,114 in 2010-11 according to its most recent annual report.The number of pharmacies in B.C. has grown by more than 12 per cent in the past five years. However, growth in pharmacy use is far outpacing the opening of new pharmacies. Average number of prescriptions filled per pharmacy is up; to 55,000 per year compared with 35,000 a few years ago; (so there is demand for more growth). Approx 150/day.That means for a 12hour/day Pharmacy; on average almost 13 Rx’s/open hour.
  • Overall; generally there are 3 main types of Pharmacy practice. Your clinical service project is likely going to be done from one of these types of practice.The main difference between them is that the Health Authority and Other Pharmacy practice are typically “funded” whereas Community Pharmacy is a profit generating small business model.That’s important for your project since financial considerations and outcomes are different for each of them. In the funded model “saving money” is usually the goal. In the community Pharmacy model; making money is the goal.Since most of you will create your clinical service project from practicing in a “retail Pharmacy” setting;I’m going to focus on the 4 types of community Pharmacy... Nuclear pharmacy is a specialty area of pharmacy practice dedicated to the compounding and dispensing of radioactive materials for use in nuclear medicine procedures. Nuclear pharmacy seeks to improve and promote health through the safe and effective use of radioactive drugs for not only diagnosis but also therapy. There is a Nuclear Pharmacy at Surrey Memorial Hospital.
  • Going to cover business set-ups, ownership and support of… (slide)Within community Pharmacy; there are 4 main types of retail formats. I’ve split the 4 main types into two groups; basically Corp-chain/franchise is where profits are either shared or taken by the company; and Banner/IND; all profits accrue to the Pharmacy owner.Pharmacy format is a good indicator for total store size and sales: Independents are typically the smallest store format, with an average dispensary of about 800 square feet and frontshops ranging from 1,500 to 2,000 square feet.Banner pharmacies also boast dispensaries of approximately 800 square feet, with slightly larger frontshops of between 2,000 and 3,000 square feet.Franchises are usually the largest format, with dispensaries of at least 1,000 square feet and frontshops between 5,000 and 10,000 square feet and up.Corporate or Chain stores are generally between banners and franchises, with dispensaries between 800 and 1,000 square feet and frontshops measuring 4,000 to 5,000 square feet.
  • The unique “Associate” concept gives owners the opportunity to own a business without the financial risk.Proven Formula with Admin and Buying support. Recognized iconic Canadian retailer; valuable trademark.Sorta Corporate but independent at the same time.Balances creativity and entrepreneurship with the discipline of running a drug store within the scale and breadth of offerings they have.For the most part it is “stick to the corporate game plan”; however there is room for local initiatives to build the business; especially Professional services.Excellent business training; especially for Pharmacy managers.Pretty much always promote from within unless acquiring a Pharmacy and “folding in” the business. Often the previous owner becomes the Associate.
  • The pure franchise business format gives the person access to things he/she would find difficult to obtain on their own as an independent owner. They are given valuable resources and information through an operating and marketing system, a recognized and established brand image, and on-going training and support.Same is true in the SDM associate concept.The difference is; in this model there is skin on the table; there is an upfront cost to get in.It’s a proven formula; with operations and marketing support.Emerging down the middle between SDM and Medicine Shoppe is Target Pharmacy and their franchise system. A hybrid model of the SDM and Medicine Shoppe concepts.
  • Encourages creativity in the company, entrepreneurship, and risk taking.Truly…In business for yourself; but not by yourself.
  • Successful IND’s practice a delicate balance between discipline, execution, creativity, and entrepreneurship.All the while with a finger on the pulse and life-blood of the business; CASH FLOW.This truly is; in business for yourself and by yourself.
  • Break...when we come back; focus on wholesalers
  • Wholesalers are in the middle of it all and are the Pharmacists key connection to product distribution from the pharmaceutical manufacturersuppliers.Most brand and generic companies use only wholesalers to distribute their products and pay them a fee for distribution. The most notable brand company that only distributes product through a wholesale is Pfizer.There are situations where brand or generic companies will ship direct; either it is for a large quantity or when they launch a new molecule. In such cases they usually “drop ship” through the Pharmacy's wholesaler. A solid business relationship with a wholesaler is a key partner in a viable Pharmacy business.
  • There are 3 main Logistics channels... or ways to get medicationproducts and front shop to the door of the store.Logistics is the process of planning, implementing, and controlling the effective and efficient flow of goods and services from the point of origin to the point of consumption.Chains are primarily self distributors; they setup their own wholesale.uniPHARM is also a self distributor; to it’s banner Medicine Centre; they also supply other banners and IND’s; most notable they are secondary to Pharmasave.And McKesson is also a self distributor to the banners they own; through a company called Drug TradingIn Western Canada they are primarily the banners IDA and Guardian, and the franchise Medicine Shoppe.
  • There are differences to pricing in every province...here’s a high level view of how it works in BC(Generics of course have just dropped to 18% of brand for the top 6 and 25% for the rest on April 1st 2013 and then possibly to 20% by May 2014.)All wholesalers have “generic programs” where they collect and distribute professional allowance dollars. Basically it is an in house formulary; and they manage a program for loyalty. All the banners have a formulary for their top molecules and the wholesalers support them as well with a program to collect and distribute professional allowances. Net net upcharges are very negotiable and depends on the Pharmacy’s commitment to purchase and the volume from their primary wholesaler. Usually for a defined period of time; 3 years.The Chain and Banner groups negotiate hard; they have a ton of business to direct.The 6 molecules are:Atorvastatin Calcium  Ramipril Venlafaxine Hydrochloride  Amlodipine  Omeprazole  Rabeprazole Sodium
  • Like the gears on a bicycle they work together to either help you go faster with less effort or they can slow you down if not managed properly.For your project you’ll need to address these in your business plan.There are 3 distinctive areas of retail that apply to every business sector.
  • There are a lot of moving parts to retail Pharmacy and cost effective Asset Productivity is key to a positive customer experience and ultimately profitability.Managing these assets in a cost effective way produces profit; a delicate balance of managing expenses and generating revenue.There are 4 key ones...I’d like to focus on.
  • Under the surface of the 3 broad areas; using the bicycle example; there is the chain that drives the gears; these are 4 of the key links in the chain that drive the business.These are all directly controllable by the business owner and related to Finance, Marketing and Operations in some way or combination.Inventory; One of the two most controllable expenses; the other is wages through the staff schedule. Inventory is a costly asset to carry; especially in the Pharmacy. Re: wholesalers; # of deliveries.Merchandising; closely related to inventory. Each facing is labelled for pricing and inventory management. A facing is each sku by type and “flavour”; each molecule in Pharmacy and their “home” on the shelf. Crucial to inventory replenishment and profitability.Staff; Give me 5 minutes in a store and I can usually tell you how well the staff feels about working there, the quality of the leadership team and the value of the overall customer service and experience. If your customers don't like your employees, then the odds are high that your employees don't like you.Pricing; there is a reason it’s at the bottom of the slide. There is nothing that impacts bottom line profitability and sales more. We’re going to take a closer look.
  • Competitive pricing in the Front Shop is an informed art form. Since the retail shelf price is a prime consideration to customers. Pharmacy owners need to know basic retail math.To price products, one must get familiar with pricing structures, especially the difference between margin and markup.Markup and (gross-profit) margin on a single product, or group of products, are often confused. The reason for this is that when expressed as a percentage, margin is always figured as a percentage of the selling price, while markup is traditionally figured as a percentage of the seller's cost.Mark up is % of profit on cost and margin is % of profit on selling price.In retail Pharmacy sector; wholesalers use markup and retailers use margin to set prices.All these frequently used terms are confusing and interchangeable at times but always come down to markup or margin.Pricing always needs a systematic approach; however it’s always best to look at profit in terms of dollars and cents; GM$ sometimes referred to as GP Dollars.Refer and use the pre-read for further explanation or reference.
  • This can get pretty complicated but generally...pricing in the Pharmacy for prescriptions billed to PharmaCare works like this.AAC is the “old way” of saying MALP; either way it is the allowed medication ingredient cost plus dispensing fee = patient pays. On every Rx receipt.MALP includes the allowed wholesaler upcharge of 8% on most molecules and 5% on high cost drugs.It is important to note that most Pharmacy software has a feature to upcharge the AAC; PCare will adjudicate it back to the MALP they set; however for now 3rd parties usually process it.Other sources of Pharmacare revenue include; clinical services billable to Pcare for; Med Reviews (60.00 or 70.00 for follow up), Immunization (10.00), Rx renewals (10.00), adapting Rx’s (10.00), therapeutic substitution (17.20), Plan B capitation fees (43.75 per serviced bed), rural incentive program.
  • Having an effective inventory management strategy is about the flow of goods.Pharmacy business owners need to be aware of the state of stocked inventory at any time with a system to easily monitor the coming and going of product.
  • Inventory is one of the two most controllable expenses; the other is wages. Please note that wages and staff are two different things.There are 4 key parts to inventory management...Spatial needs are different in the FS and Pharmacy; the College is very specific about the space requirements for the dispensary also within FS in BC there is the 25ft Pharmacy Area to consider. Software Systems; Complete inventory checks and keep track of every item that comes in and out to identify errors, thefts, losses, and any other discrepancies. Use auto-replenishment features in the technology to re-order and most important to save time.Labeling and Identification; Incorrect or incomplete labeling can lead to several problems; including wrong identification by your software, misplacement when restocking the inventory, loss of the item, or inability to find it for shipment or shelving later, incorrect pricing to customerMaximize profit; items in inventory may sit for long periods of time due to lack of demand. This is not only a wasted expense; it also takes up valuable room in the stock room/on shelf that could be filled with faster selling items which would draw more profit. Inventory management means it’s gotta move. It must turnover.
  • Merchandising; closely related to inventory. Each facing is labelled for pricing and inventory management. A facing is each sku by type and “flavour”; each molecule in Pharmacy and their “home” on the shelf. A sku is a stock keeping unit. How each sku is managed is crucial to inventory replenishment and profitability.In the Pharmacy sku’s are sometimes referred to as molecules; however within molecules there can be sku’s; ie bottle size
  • Customers would rather deal with someone positive. Especially in a Pharmacy; since they are likely there because they are sick or taking care of someone who is not well. It’s emotional.This environment makes it very challenging serving patients.
  • Hire people; not skills. Weak companies hire the right experience to do the job. Strong companies hire the right person to join their team.Leadership is an elusive thing. When it’s there, the staff members know it, when it is not, they also know it.Nevertheless, your people will positively respond to good leadership; whereas with poor leadership, they will also respond with rather negatively.Good leadership helps them achieve your aims and goals— your dreams. Poor leadership does not.Leadership is to show the way; then get out of the way. But not to abdicate monitoring and providing feedback to stay on course to achieve the goals set out by the Pharmacy owner.
  • Right now...In retail Pharmacy there is a lot of change occurring and that’s becoming a cliché; change is always messiest in the middle.However, massive chaotic change also represents opportunity. Looking at change as an opportunity is a matter of outlook and attitude.It’s the difference between Now What? And What Now? It’s first mover advantage.Nevertheless; even given a positive attitude and outlook; change management is by far the biggest challenge for Pharmacists, and in fact for all health care professionals.Change management also applies to the public, though I’d say the public is accepting of additional and non-traditional roles for pharmacists, as well as other health care professionals.Just look at the growing public use of alternative health care professionals. The time is right for pharmacists to step up and be a larger part of patient care solutions.
  • The pharmacy business remains "hypercompetitive," with bigger entities squaring off to face the ruthless competition of Walmart/Target ; mail order Express Scripts and the grocery stores. There will be more enhancements to the role Pharmacists play in keeping people healthy. Government has already recognized that Pharmacists are the most accessible; under utilized; healthcare professionals we have. Govt is invested in using them better.Demographics and doc shortage trends means professional service business opportunities for community Pharmacy.Unpredictable events challenge traditional business management techniques; the application of old thinking is a recipe for disaster. We simply cannot assume the future will be an extension of the past. Therefore; Change management is a soft skill requirement for Pharmacists in the changing business model of Pharmacy from product distribution to patient centred care.
  • One of the trends I see is; because of the pricing reductions; low-volume stores are really going to struggle to stay in business and we’ll see more store closures. That sounds somewhat negative, but it’s a trend I’m observing.Some business analysts were surprized that while pricing cuts were rolling out more Independent Pharmacies were opening. How do you explain that? Truth is stores were opening, but under the initial part of the shift where folks recognized if you want to open an independent pharmacy, you’ve got to be connected to a clinic like a family health team. That’s where the store openings were occurring, and another trend that will continue.I.e. Recently, GWL and SDM team up on pharmacist health programs for eligible GWL plan members. Diabetes management/lifestyle/med therapy and med counselling to promote med adherence for better health outcomes and create awareness of the cost of medication.Rx drug coverage by all payers change quickly and are getting more complex with regard to what is covered and what is not and at what level. The plan providers aren’t very good at communicating and leave it to the Pharmacy staff to explain coverage to their customers. In addition, the Pharmacy staff often spend time co-ordinating benefits between Pharmacare and the 3rd parties. When a Pharmacy business knows and understand them and can explain and communicate them to the patient (especially in the 1st language) it can be an applied benefit of the benefit.Another trend is Pharmacist’s getting toward the end of their work career are less open to practising in a different fashion. It’s a bigger challenge for them. In many cases they simply don’t want to accept it. A concerning trend for some Pharmacies and an opportunity for others.Easy access to health information via the internet and TV shows like Dr. Oz encourages people to take care of their own health. While “Dr. Google” doesn't always provide the best information; the fact that people access the internet regularly, also indicates their interest in managing their health.
  • The impact of drug pricing reforms on community Pharmacy’s business model is making it more difficult for Pharmacists to provide the necessary care to patients. In a recent BCPhA survey (mid-Feb) of more than 300 Pharmacists; nearly 3 in 4 reported an impact on Pharmacy staffing levels. Nearly 4 in 10 said they expect the time allotted to clinical services to decrease. Drug shortages take time to track down medications. Nuff said; steals time away from activity to grow the business. Cash flow is the life blood of all business; when cash flow is negative the tendency is to reduce the expenses to make the required bottom line. Specific pharmacies or pharmacy chains are increasingly entering into contracts with major firms and insurance companies to become the sole providers of pharmacy services, including providing prescription medication. Almost 55% of the $28 Billion Rx market are re-imbursements controlled by external agencies.External agencies or 3rd party payers are making deals to direct their chronic care business in exclusive arrangements with Pharmacies. For example; Express Scripts (Mail-order) made an exclusive arrangement with Can Post and CP rail to exclusively supply “maintenance” drugs to employees of these two organizations via mail order or else pay the full cost of drugs at a different pharmacy. Balancing business issues with optimal patient care is challenging the bottom line. Ie staff, inventory, expenses, sales growth; prescription numbers increasing-all this makes finding time challenging for patient care professional services.A variation of “if a tree falls in the forest…” If a pharmacy provides outstanding professional services and no one knows about them, does any one benefit? Many Pharmacists are reluctant to market their professional services usually because either they see it as an expense with no return or they want to do it but don’t know how or they are doing it; but very badly.The growing importance of the more people hear about you, and what you can do for them, the more likely they are to check out what you have to offer; is marketing. The importance of marketing is also a message that I want to help Pharmacists; with smart ideas to ensure that both patients and the bottom line benefit from the great work Pharmacists do every day.Right now, pharmacy staff are challenged to understand and manage reimbursements and profitability, as well as mitigate audit risk. These issues are having a huge impact on the bottom line.
  • OTC is more than $4.4 B market in all channel sales; represents a lucrative market for retailers. The drug channel alone owns about 55% of the market ($2.4B) with a growth rate of 3% outpacing the 1% increase in grocery and mass merchandise outlets. Drug share could expand even further. Demographic trends, product innovations and growing tendency toward self care bode well for growth in OTC. Seniors in Canada take 4 times more OTC medications than any other age group and it emphasizes the need for effective med management to avoid potential drug interactions and adverse events. Consumers in BC spend more dollars on OTC’s than the average population.I still find that some pharmacists aren’t embracing NHP’s or even enhancing their knowledge about them because of the lack of evidence. However, patients will be taking these products whether pharmacists advise them to or not. There is huge difference between going to a health food store and picking up what ever is on special and sitting down with a Pharmacist to review all of their medication history.On site Nutrition and/or Compounding specialists add value to patients lives providing services that improve medication optimization. For example; either through better diet choices to maximize their medication or compounding for people who can’t tolerate mass-manufactured medication.Specialty niches; being a recognized authority in any professional service offering creates and keeps customers. I.e. disease state management-diabetes, pain management, BHRT for menopause.Medication Adherence; Adherence to therapy is an extremely important behaviour: get a prescription filled, take it as directed, and renew/refill as required. Patients need to understand and eliminate the barriers between themselves and adherence to the treatment regimen they have been prescribed. The Pharmacist/Patient relationship has a tremendous opportunity to help reduce waste while maintaining and possibly improving patient health outcomes.Tele-pharmacy already exists; although it is rather basic compared to new developments in tele-medicine. Livecare and Medeo are two Vancouver companies which use secure video-conferencing to live-link patients with their physicians from the comfort of their homes-or even from work-using their laptops, tablets or smartphones. Close to 100 BC docs are now registered with Medeo, which has seen 20 to 150 new patients per day signing up to use the new service since launching in early June. Medeo has already stated that they intend to include Pharmacy in the near future. Pharmacies that get digital now to prepare for the coming wave of Tele-health will have first mover advantage.Community connections and engagement that support customers; i.e.; hospitals-diabetes care centre and newly diagnosed diabetics, mental health group homes, substance use and addiction, new parents, boomers interested in weight loss and heart health. Med sync is where staff work with patients to harmonize all of their maintenance medications for once a month pick up. Each time the patient comes for their Rx’s, the pharmacist counsels them. Improves med adherence and reduces hospital visits along with improving daily operations by spreading out the business. (inventory management, cash flow, spreads out Pharmacy business, cutting down on the typical Monday morning rush).
  • There are a number of developments which, in the long term will lead to changes in the way community pharmacies operate. There still is a huge gap in primary care. This gap, is causing a big challenge in our country, but a huge opportunity for pharmacy because pharmacy can fill the gap and be that extender of care, working with the primary-care provider to seize opportunities presented by the new healthcare paradigm.Community Pharmacy will be the centre of health care and Pharmacists will focus more and more on disease management and medication optimization leading patients to wellness.Those Pharmacist/owners that aren’t able to grasp the reality of the new market are going to fail. They have to be able to practise the business of Pharmacy in a different fashion. Most people ignore opportunities because they see only danger. Entrepreneurs ignore danger because they see only opportunities.That means creating billings for activities Pharmacists used to do for free. If you’re up for that challenge, you’ll have terrific success.
  • To your business and professional success, thank you.
  • UBC Phar400 Business of Retail Pharmacy-13Sept2013

    1. 1. UBC – Phar400 | Pharmacy Management pharmacySOS.ca | Gerry Spitzner September 13, 2013
    2. 2.  Learning Objective; High level overview of the retail Pharmacy business       Thoughtstarters/important insights Pharmacy business in Canada and BC Retail Pharmacy types and main differences Pharmaceutical Logistics and Supply Chain 4 key controllable moving parts of retail Pharmacy Future Developments, Trends, Issues & Opportunities pharmacySOS.ca | Gerry Spitzner 2
    3. 3. Remaining calm in times of desperation makes way for opportunity. pharmacySOS.ca | Gerry Spitzner 3
    4. 4.  One massive study shows three rules… 1. Better before cheaper. They rarely compete on price. 2. Revenue before cost. They drive profits through price and volume, not thrift. 3. There are no other rules. Everything else is up for grabs, and they are willing to change anything to remain true to the first two rules. pharmacySOS.ca | Gerry Spitzner 4
    5. 5. The key to business survival... Creating, engaging and keeping customers. pharmacySOS.ca | Gerry Spitzner 5
    6. 6.  Healthcare is a business and always will be...but Pharmacy is an art… and always will be. ◦ Health consumers spending fewer discretionary dollars  I.e. Consumers = Government, 3rd party, patients/customers ◦ Prescription drug costs escalating ◦ Crazy competition ◦ Increasingly demanding patients/customers ◦ Fickleness trumps loyalty ◦ Per capita usage of prescriptions is climbing pharmacySOS.ca | Gerry Spitzner 6
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    9. 9. High level overview of the retail Pharmacy business in Canada & BC pharmacySOS.ca | Gerry Spitzner 9
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    12. 12.       Prescription market $27 billion 2011 & almost $28 billion 2012, annual growth rates of 3.8% and 3.3%, respectively. Prescribed drugs; 84.0% of total drug spending 2012. Growth rate of prescribed drug spending slowed in both the public and private sectors. 2012 growth rate in public sector (1.9%); lowest since 1996, growth rate in private sector (4.1%) was the lowest since 1994. The private sector—includes private insurers as well as households & individuals— $15.4 billion on prescription drugs in 2012, the public sector spent $12.3 billion. Source: Canadian Institute for Health Information (CIHI). Drug Expenditure in Canada, 1985 to 2012 pharmacySOS.ca | Gerry Spitzner 12
    13. 13. pharmacySOS.ca | Gerry Spitzner 13
    14. 14.            Shoppers Drug Mart: 150 Safeway: 73 Overwaitea/Save-On: 55 London Drugs: 51 Walmart: 38 Rexall: 36 Loblaw/Drugstore: 54 Costco: 14 Thrifty Foods: 12 Target: 11 Total: 494 Corporate/Franchise  Pharmasave: Peoples: Medicine Shoppe: Medicine Centre: Remedy's RX: Central: I.D.A.: Total: 126 45 29 17 17 9 7 250  Other (IND): 399  Grand Total All: 1,143  Source: B.C. College of Pharmacists registry and 2012/13 annual report        Banner/Independent pharmacySOS.ca | Gerry Spitzner 14
    15. 15. What are the main types of Community Pharmacy and the details of how they work? pharmacySOS.ca | Gerry Spitzner 15
    16. 16.  Health Authority Associated Pharmacy   Community Pharmacy   ambulatory care pharmacy, cancer drug pharmacy, HIV drug pharmacy, hospital pharmacy, corrections facility pharmacy, mental health, substance use and addiction ―full mix‖ retail pharmacy, Health Centre, simply a dispensary, consulting pharmacy, compounding pharmacy, veterinary pharmacy, central fill pharmacy, mail order pharmacy, telepharmacy Other Pharmacy  nuclear pharmacy (radiopharmacy), military pharmacy pharmacySOS.ca | Gerry Spitzner 16
    17. 17.  4 Main formats of Retail Community Pharmacy  Corporate Pharmacy  Franchise Pharmacy  Banner Pharmacy  Independent Pharmacy pharmacySOS.ca | Gerry Spitzner 17
    18. 18.  Wholly owned by a large company  Pharmacy is a department managed by a Pharmacist  Rx Manager is an ―employee‖ of a chain Pharmacy  Managers are paid a salary and compensated with pay-for-performance incentives  Operations/Marketing are determined by head office  All the grocery stores fall into this category  Rexall, Wal-Mart and London Drugs pharmacySOS.ca | Gerry Spitzner 18
    19. 19.  ―SDM | Associate‖ concept           Own the business but not the physical assets No capital investment or capital risk Guaranteed minimum annual income and Benefits ―Share‖ in profitability Support services in all areas of Operations/Marketing Many ―masters‖ Associate agreement is a renewable 3 year deal Retained equity requirements Franchise agreement restricts or outlaws certain activity All inventory comes from own warehouse/wholesale pharmacySOS.ca | Gerry Spitzner 19
    20. 20.  ―Medicine Shoppe‖ concept           Own the business and the physical assets Franchise fees Trademark rules Required program participation Full Pharmacy ownership Capital investment required Ongoing Sales and Biz Dev support Custom marketing strategy Training and Professional Development Preferred Supplier agreements pharmacySOS.ca | Gerry Spitzner 20
    21. 21.  What is a banner Pharmacy?  Looks like a chain  Independently owned and operated but working together  Sales/promotions, contracts  Buying group/Menu of services  Percentage fees or membership dues  Own profit and loss centre  Owners often have more than one store  Sometimes shareholder in a wholesale ie; Medicine Centre  Pharmasave, Peoples Drug Mart, IDA/Guardian, Remedy‘sRx pharmacySOS.ca | Gerry Spitzner 21
    22. 22.  Main differences from franchise and banner ◦ Key features include:  No trademarked name affiliation  Independently owned and operated  Often belong to a wholesalers IND program  Entrepreneur/Self-management  Creative freedom  Not having to answer to others (especially regarding the pharmacy and professional service focus)  Financial independence and high risk/high reward pharmacySOS.ca | Gerry Spitzner 22
    23. 23. A complex process of medication distribution from manufacturer to patient pharmacySOS.ca | Gerry Spitzner 23
    24. 24. pharmacySOS.ca | Gerry Spitzner 24
    25. 25.  Wholesalers ◦ ◦ ◦ ◦  In BC; 2 national & 1 regional distribute Rx & Front Shop McKesson, Kohl & Frisch, and uniPHARM Primary suppliers to Banners and IND‘s Secondary suppliers to Chain DSD; ( Direct Store Delivery ) ◦ Select Generic/Brand suppliers, some Front Shop categories  Self Distributors; Chain ◦ SDM, London Drugs, Save-On, Safeway ◦ Note: chains also draw from local wholesalers, especially narcotics/cold chain pharmacySOS.ca | Gerry Spitzner 25
    26. 26.  How wholesaler upcharges work in BC... ◦ For Rx; MALP (AAC) MFR cost plus 8%, 5% for high cost drugs ◦ MALP for Generics is 25% of the equivalent Brand; 18% Top 6 ◦ Prompt payment (cash discount) of 2% ◦ Loyalty allowances range between 3% to 4.5% ◦ Net net upcharges range between 1½% and 3% ◦ Net net upcharges depend on volume and loyalty ◦ Urban; 11 deliveries per week for Rx and 1 or 2 for Front Shop ◦ Rural; 6 deliveries per week for Rx and 1 for Front Shop ◦ OTC/Front Shop net upcharges vary greatly and usually rebates are provided for achieving agreed to volumes pharmacySOS.ca | Gerry Spitzner 26
    27. 27. There are a lot of moving parts to all retail businesses and they are crucial to customer experience . pharmacySOS.ca | Gerry Spitzner 27
    28. 28.  Three distinct areas to every Pharmacy business;  Finance ◦ Monitoring, analysis, cash flow, P&L  Marketing ◦ Ideal customer audience and services communication  Operations ◦ Delivering the promise and customer experience pharmacySOS.ca | Gerry Spitzner 28
    29. 29.             Inventory management Pricing Merchandising Staff Receiving Loss Prevention Wages and Benefits Staff Schedules Training Supplies Information Technology Computer hardware Patient/Customer Experience            Policies & Procedures Computer software Cash flow Sales Revenue Sundry Revenue General Expenses Fixtures Repairs and Maintenance Occupancy costs & Utilities Advertising Marketing Profitability pharmacySOS.ca | Gerry Spitzner 29
    30. 30.  Inventory ◦ It is all about flow - keep goods (products) flowing  Merchandising ◦ Any practice which contributes to the sale of products  Staff ◦ The quality of an employee's work experience has a direct impact on the quality of the customer's experience  Pricing ◦ Setting competitive pricing in the Front Shop is an art form pharmacySOS.ca | Gerry Spitzner 30
    31. 31. In the Front Shop and the Pharmacy pharmacySOS.ca | Gerry Spitzner 31
    32. 32.  What‘s the difference between mark up and margin? ◦ Markup is % of profit on cost ◦ Margin is % of profit on selling price  Frequently used terms ◦ Gross profit percent; GP% ◦ Gross profit dollars; GP$ ◦ Gross margin percent; GM% ◦ Gross margin dollars; GM$ pharmacySOS.ca | Gerry Spitzner 32
    33. 33.  Pharmacare sets a maximum price for brand & generic ◦ Maximum price is applied during PharmaNet adjudication  MALP (AAC includes upcharge) plus fee; $10.00  The dispensing fee is the entire gross profit  Professional fees billable to PharmaCare ◦ Med Reviews, Immunization, Rx renewals, adapting Rx‘s, therapeutic substitution, Plan B capitation fees, rural incentive program pharmacySOS.ca | Gerry Spitzner 33
    34. 34. It is all about flow - keep goods flowing. pharmacySOS.ca | Gerry Spitzner 34
    35. 35.  Spatial Needs ◦ specific items; type of storage location where product is kept  Software Systems ◦ use auto-replenishment features in the technology to re-order  Labeling and Identification ◦ make sure that all items are properly labeled  Maximize Profit ◦ items in inventory may sit for long periods of time pharmacySOS.ca | Gerry Spitzner 35
    36. 36. Merchandising is any practice which contributes to the sale of products to a retail consumer pharmacySOS.ca | Gerry Spitzner 36
    37. 37.           Closely related to inventory Plan-O-Grams Service Levels Facings - - What is a facing? Keep merchandise fresh and clean Search for outdates Signs and promotional shelf talkers Pricing labels; Front Store and Pharmacy Promotional merchandising Cross merchandising for profit pharmacySOS.ca | Gerry Spitzner 37
    38. 38. The quality of an employee's work experience has a direct impact on the quality of the customer's experience. pharmacySOS.ca | Gerry Spitzner 38
    39. 39.      Hire for attitude and train for skill One of the key drivers of the employee experience is how the staff feels about their colleagues That's why teamwork at the store level is such a vital component of a store's success The key to effective teamwork is leadership Set goals, train, build relationships, performance and provide feedback pharmacySOS.ca | Gerry Spitzner monitor 39
    40. 40. For Retail Community Pharmacy – Chains, Banners and Independents The future is not in the rear view mirror. pharmacySOS.ca | Gerry Spitzner 40
    41. 41.  Supermarkets, mass merchandisers, mail order and Pharmacy chains are likely to keep competition keen  Government's plans for pharmacy include an enhanced role for Pharmacists  Aging population and ongoing shortage of physicians will strengthen demand for Pharmacy services   Count on facing predictable uncertainty at an accelerated pace Change management is a soft skill requirement for Pharmacists pharmacySOS.ca | Gerry Spitzner 41
    42. 42.       Low-volume stores are really going to struggle While pricing cuts were rolling out more Independent Pharmacies were opening 3rd Parties looking for ways to reduce Rx drug costs Plans more complex; patients don‘t understand them Many current ‗veteran‘ pharmacists prefer to operate at the status quo Patients have a more active approach to how they optimize their own health pharmacySOS.ca | Gerry Spitzner 42
    43. 43.  Impact of drug pricing reforms worry BC Pharmacists  Drug Shortages  Costs are escalating faster than increases in revenue  Preferred Pharmacy providers  Balancing business needs with patient care needs   Public awareness, attracting new customers and marketing professional services Reimbursement challenges are likely to intensify pharmacySOS.ca | Gerry Spitzner 43
    44. 44.  Growing importance of Pharmacists as OTC advisors  Natural Health Products/Nutrition/Compounding  Pharmaceutical specialty niches and services  Better Care, Zero Waste Go Hand-in-Hand  Tele-pharmacy, Tele-medicine and Tele-health  Community connections and engagement  Medication synchronization pharmacySOS.ca | Gerry Spitzner 44
    45. 45. pharmacySOS.ca | Gerry Spitzner 45
    46. 46.  Want an electronic copy of this presentation? ◦ Email me; gerry@retailSOS.ca   To your business and professional success, thank you for your attention. Questions? pharmacySOS.ca | Gerry Spitzner 46
    47. 47. Follow Twitter:  Connect LinkedIn:  Web:  Blog:  Email:  Online Biz Card:  @passion4retail Gerry Spitzner pharmacySOS.ca gerryspitzner.com gerry@retailsos.ca gerryspitzner.tel pharmacySOS.ca | Gerry Spitzner 47
    48. 48.  Gerry Spitzner is an optimist with a natural "kid-like“ curiosity for improving life and business results. He believes in a bright future and our ability to build it together and is passionate about making the public aware of the great things Pharmacists do. Drawing on 35+ years experience in multi-site retail Pharmacy operations, drug store ownership and the Pharmaceutical wholesale supply-chain; Gerry brings the leadership, knowledge and market awareness of business development to retail Pharmacy owners helping them achieve growth objectives. He teaches and inspires Pharmacists to achieve results by aligning their vision with marketing strategy and operational execution. Fascinated with a lifelong curiosity for why customers buy and a passion for retail Pharmacy; Gerry guides leaders and organizations to create, engage and keep great customers by delivering the promise of an extraordinary customer experience. He has devoted his life to sharing his thinking with other Pharmacy leaders to manage market analysis and build business plans that increase profitability and create competitive advantage with systems to implement. His company is pharmacySOS.ca, a Vancouver-based business management consultancy with a suite of business services focused on supporting Pharmacy owners starting, buying or strategically realigning their practice. With a clear understanding of the business of Pharmacy he uses a solution oriented focus with ideas and alternatives that clients can use to address the changing practice issues they face right now. Gerry understands who they are, what they need, and where to find it; helping them market and strategically realign their professional and clinical services to integrate the business activities of optimal drug therapy outcomes through patient centered care. pharmacySOS.ca | Gerry Spitzner 48