business plan - retail hospital pharmacy
TRANSCRIPT
Business Plan 1
Business Plan for Sample General Hospital Retail Pharmacy
Ramon D. Sebastian
HCA 311 Health Care Financing
Marquita Blackwell
August 3, 2009
Business Plan 2
Business Plan for Sample General Hospital Retail Pharmacy
This paper creates a business plan for a Retail Pharmacy in a hospital at Metropolis Health
System (Baker & Baker, 2006).
Business Plan 3
Executive Summary
The Company, The Vision, The Founders
Sample General Hospital is a member of the Metropolis Health System’s group of health
care service providers. Under the direction of its CEO, Ronald McDonald led the hospital since it
was built in 1975. It has since expanded to offer a separate ambulatory surgery center and
outpatient clinic.
Market Opportunity
The opportunity was realized when patients’ complaints came in that prescription orders
were being filled incorrectly due to Rite-Aid pharmacy’s misunderstanding of the written
prescriptions they were handed. Sample General Hospital already had an electronic system for
maintaining its medication records and for physicians to prescribe medication. The need to
electronically communicate this information to the medication supplier was needed. The original
concept of developing an internal pharmacy was discussed and decided upon soon after.
Use of Proceeds
The original proposal seeks $130,000, $80,000 for renovations and $50,000 for equipment.
Initial inventory of $303,400 for pharmaceuticals will be based on the pharmaceutical
companies’ 60-day accounts payable cycle so there will be no need for an initial inventory
investment.
Gross Offering $179,789
Planned Uses
Capital Expenditures
Building Renovations 80,000
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Software Purchase 10,000
Furniture and Fixtures 40,000
Total Proceeds for Capital Expenditures 130,000
Working Capital
Salaries and wages 48,000
Other Expenses 1,789
Total Proceeds for Working Capital 49,789
Total Uses $179,789
Financial Snapshot (Projected)
Year 1 Year 2 Year 3
Rx Sales 2,587,613 2,692,152 2,828,375
Cost of Goods Sold 2,047,950 2,088,909 2,151,576
Gross Margin 539,663 603,243 676,799
GM% 20.9% 22.4% 23.9%
EXPENSES
Salaries and Wages 192,000 197,760 203,693
Benefits 38,400 39,552 40,739
Materials and Supplies 12,000 14,400 17,280
Contract Services and Fees 14,400 17,280 20,736
Depreciation and Amortization 15,333 15,333 15,333
Interest 0 0 0
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Provision for Bad Debts 25,876 26.922 28,284
Misc. Expenses 3,600 4,320 5,184
Total Expenses 301,609 315,567 331,248
Cash Flow
Sources
Net Income 238,053 287,676 345,550
Depreciation 15,333 15,333 15,333
Borrowing 0 0 0
Total Sources 253,386 303,010 360,884
Uses
Capital Purchasing 130,000
Working Capital 49,789
Total Uses 179,789
Cash at Beginning of Period 73,597 376,607
Net Cash Activities 73,597 303,010 360,884
Cash at Ending of Period 73,597 376,607 737,490
The Enterprise
The Company
Sample Pharmacy will supply prescription medication in its new facility at the Sample
General Hospital. All inpatient medication will be dispensed through the pharmacy while the
counter prescription orders will be filled through its retail store front located inside the main
campus of Sample General Hospital.
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At the onset, the proposed pharmacy will only have one revenue stream from sales of
prescription medication. The service of a licensed pharmacist will be required for each
medication dispensed by the pharmacy with support from pharmacy technicians. The pharmacist
will also act as the department manager overseeing all aspects of the pharmacy operations.
General, non-pharmaceutical services include general office services, accounting, and
scheduling.
Surrounding medical office buildings and outpatient surgery centers will also be able to
have their prescriptions filled directly from the physicians’ offices. Physicians will have the
option to use the new electronic medication and prescribing device or phone in their patients’
prescriptions allowing the pharmacy to have their medication ready by the time they reach the
pharmacy. Prescription delivery within a 5 mile radius of Sample General Hospital will also be
available to those that request it.
The Founders
Ronald McDonald, the Chief Financial Officer (CFO) of Sample General Hospital came up
with the idea to open the pharmacy when he looked into different options to increase revenue at
the hospital. With the help of his accounting manager, David Shoemaker, they developed the
financial documentation necessary to create the proposal to present to the board of trustees.
The Vision
Sample Pharmacy expects to recoup the original capital expenditure of $179,789 within the
first year of operation. Projections reveal that by the end of the third year of operation, Sample
Pharmacy will have over $700,000 cash available for expansion. The first expansion will be to
offer over-the-counter drugs, cosmetics, fragrances, hair and skin care products, magazines and
books, vitamins, greeting cards, batteries, disposable diapers, oral hygiene products, contact lens
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solution, and diet aids. There will be no need to increase the current space that the pharmacy will
occupy as the current configuration of the pharmacy already allows enough retail display space
and inventory storage space.
Future expansion will include additional services similar to those offered by larger drug
stores. Services will include sales of refrigerated beverages, snacks, and film processing. Once
established, similar pharmacy expansions will also be developed at the other hospitals of the
Metropolis Health System.
The Product
Pharmaceuticals, as the main product, have the advantage of financing itself through the
accounts payable cycle. Since pharmaceutical companies allow sixty days for payment, this
allows the pharmacy to carry its main inventory at no cost. The pharmacist will be delegated
with the responsibility of maintaining an ample supply of prescription medication to satisfy the
needs of the pharmacy. All other supplies will also be monitored by the pharmacist with the
support of the pharmacy technicians.
Together with the rest of the hospitals within the Metropolis Health System, Sample
Pharmacy can utilize MHS’s purchasing power to obtain the best prices available for the
pharmaceuticals.
Competitive Advantage
Sample General Hospital’s medication monitoring information system currently in place
allows the physician to prescribe medication directly from an electronic handheld device. This
improvement has significantly reduced medication errors to less than .01%. The current
information system ordered for the Sample Pharmacy will directly interface with Sample General
Hospital’s system allowing the physician to automatically send the prescription to the pharmacy
Business Plan 8
when the prescription is “written.” The prescription order is immediately filled and either
delivered to the patient at the hospital or outpatient surgery center, or, if ordered from one of the
medical offices, the prescription will either be waiting for the patient to pick up or delivered
directly to the patient’s home. This automated prescription ordering system will be available to
all physicians of the Metropolis Health System.
The direct prescription ordering system will serve to entice Sample General Hospital’s
patients to stay within the organization for their prescription needs. Although several major retail
chains like Wal-Mart, Target, Safeway, and Kmart have added pharmacy services to their stores,
the convenience of having the physician order the medication directly will serve as a reason to
utilize Sample Pharmacy. Automatic follow up refill service can also be arranged by the patient
either directly with the physician or the pharmacy.
Operations
Sample Pharmacy will be open six days a week; eight hours daily from Monday through
Friday, and four hours on Saturdays. It will be closed on Sundays. A pharmacist together with a
pharmacy technician will be on duty the entire time the pharmacy is open for business to
dispense prescriptions. This will require 1.1 FTEs for each of the positions, the pharmacist and
pharmacy technician. An additional 0.5 FTE for a delivery employee will also be employed on a
part time basis.
The pharmacist will have full authority for all the daily managerial duties required by the
pharmacy. Under the current structure, the pharmacist will report directly to the director of
Sample General Hospital, Dr. Rick Sebastian. Dr. Sebastian will work to ensure that the vision of
both Sample General Hospital and the Metropolis Health System are maintained.
Facilities
Business Plan 9
Sample Pharmacy will utilize 5,000 square feet of the exterior portion of Sample General
Hospital facing Main Street. This location will allow for additional expansion that can serve the
public without the need of entering through the main hospital. It will also allow the pharmacy to
maintain its own 24-hour entrance once the need to remain open 24 hours per day becomes
necessary. The location will also facilitate additional building area if the need arises in the future
and is suited for displaying its own signage to attract the public.
Information Systems
Hospital Leasing Services has agreed to lease the necessary point of service (POS) system
and desktop computers required by the pharmacy that allows for the seamless integration to
Sample General Hospital’s current information system. The lease amount includes all the
required equipment, cabling, and support and continuous training for the entire staff. Installation
of the entire system, once all cabling is completed during construction, is expected to be less than
30 days.
The Organization
Executives of the Company
Executives of the Company are as follows:
Name Age Position Company
Ronald McDonald 49 Chief Financial Officer Sample General Hospital
Dr. Rick Sebastian 58 Director Sample General Hospital
Arthur King 54 V.P., Finance Metropolis Health System
Executive Profiles
Mr. Ronald McDonald, Chief Financial Officer of Sample General Hospital has been in the
finance healthcare field for over 25 years. Upon obtaining his M.B.A. from Harvard Business
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School, he was immediately hired as the Controller for Metropolis Health Care. In 1995, he was
promoted to his current position as the CFO of Sample General Hospital.
Dr. Rick Sebastian, Director of Sample General Hospital, graduated from University of
California Los Angeles Medical School. Upon his graduation, he moved to New York for his
residency at St. Claire’s Hospital. He was recruited to Sample General Hospital when it was first
opened in 1975. He has been the Director since.
Arthur King, V.P. of Finance for Metropolis Health System graduated from the University
of San Francisco with a B.A. in Accounting. He received his CPA within a year from graduation
and worked at Oak General Hospital for 5 years as their Controller. He made his move to
Metropolis Health System immediately after working at Oak General Hospital.
Officer Compensation
All officer compensation for the above officers will be handled by the Metropolis Health
System and Sample General Hospital. For each of the officers’ involvement with Sample
Pharmacy, compensation will be paid in the amount of $50,000 annually.
Supporting Professionals
Accountants/Auditors Deloitte & Touche
123 Main Street
Metropolis, CA 91234
Attorneys Smith, Smith, Jones and Jones
345 Oak Street
South Metropolis, CA 91235
Key Risks/Time Line
Business Plan 11
Key Risks
Other drug stores undercutting prices may pose a risk to Sample Pharmacy’s ability to
charge full-price on the pharmaceuticals. With the aid of Metropolis Health Care’s volume
purchasing power, Sample Pharmacy could adjust prices to stay competitive in the market. With
the innovative connectivity between the physician and the pharmacy, it is possible that this risk
may not be as threatening to the bottom line of the pharmacy.
Time Line
Milestone Target Date Status
Pharmacy Construction October 2009 Not Started
Inventory Delivery January 2009 Not Started
IT Installation January 2009 Not Started
Pharmacist Hiring November 2009 Not Started
Employee Hiring December 2009 Not Started
Prospective Financials
Assumptions
Annual Prescription Estimates
Proven estimates expect that in Year 1, 225 prescriptions will be dispensed per day
(55,350 annually) with a 2.0% increase for Year 2, 230 prescriptions per day (56,457 annually),
and in Year 3, with a 3.0% increase, it is expected to be 236 prescriptions per day (58,151
annually).
Average Net Revenue per Prescription
Expected net revenue per prescription for Year 1 is $46.75, Year 2 is $47.69 and Year 3 is
$48.64.
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Bad Debt Percentage
Bad debt percentage is calculated at 1.0%.
Inflation Rates
Expected inflation rates for Salaries and Wages is 3.0%, Other than Prescriptions is 2.0%
and Benefits as a percentage of Salaries is 20%.
Special Equipment, Training and Costs
Training for the new POS system will be included in the IT package lease. This is
scheduled to commence on February, 2009 after the entire IT installation has occurred.
Cost of Supplies, Drugs, and/or Devices
Since vendors finance the cost of drugs for 60 days, the costs of drugs are basically
financed by the accounts payable (AP) cycle. The initial supply inventory is expected to be
approximately $10,000.
Labor Requirements and Costs
The pharmacy will be open for 8 hours daily from Monday through Friday and 4 hours on
Saturday. Staffing requirements will require 1.1 FTEs for pharmacy technicians, 1.1 pharmacist
FTEs and 0.5 FTE for delivery personnel for a total of 2.7 FTEs. The cost of staffing has been
estimated at $16,000 per month for Salaries and Wages, with a burden of $3,200 per month for
Benefits.
Balance Sheets
Sample Pharmacy projects an ending cash balance for Year 1 at $73,597, Year 2 at
$376,607, and Year 3 at $737,490.
Income Statements
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Net income before taxes is projected at $238,053 for Year 1, $287,676 for Year 2, and
$345,550 for Year 3.
Cash Flow Statements
Based on current projections, Sample Pharmacy should begin to recognize a positive cash
flow situation as early as Month 10 of Year 1.
An additional revenue stream can later be adopted by allowing the pharmacy to sell over-
the-counter medication. Profits for this portion of the business may not be as much as the
pharmacy but could help enhance revenue without any effect on the fixed costs of the pharmacy.
Minimal additional space would be required to display the additional products available for sale
and no additional manpower would be required.
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References
Baker, J. J., & Baker, R. W. (2006). Health Care Finance. Sudbury, MA: Jones and Bartlett
Publishers.