1

SimuCare – A Financial Modeling to Support Critical Business Decisions: What Mix of

Clinical Services Should a Particular Community Pharmacy Provide to Optimize its

Net Revenue?

David A. Gettman, R.Ph., M.B.A., Ph.D.NCPA Foundation Grant PresentationNational Community Pharmacists Association 102nd Annual Convention, San Antonio, TXOctober 15, 2000

2

LEARNING OBJECTIVES

Understand the evolving nature of pharmacy practice. Describe three submodels that should be used to help

understand the dynamics of offering clinical services. Explain why Microsoft ExcelR was chosen to be the

programming platform to connect all three submodels together into the SimuCARER computer program.

List some of the important findings from using SimuCARER and their implications for both student learning and the future practice of pharmacy.

3

THE EVOLVING NATURE OF PHARMACY PRACTICE

Until 1990, ‘traditional’ pharmacy services included proper filling, labeling, and delivering of prescriptions along with simple counseling.

And, until 1990, Communi-PharmR by Arthur Nelson, Jr., was used to simulate the financial management of these traditional services over time.

4

THE EVOLVING NATURE OF PHARMACY PRACTICE

The Omnibus Reconciliation Act of 1990 signaled a change in the practice of pharmacy from a product-focus to a patient-focus.

Pharmacists must now incorporate prospective drug utilization review (DUR) into their practices.

That is, pharmacists must now (by law) consider potential medication-related problems before dispensing any new prescription and subsequent refills.

5

THE EVOLVING NATURE OF PHARMACY PRACTICE

With the advent of OBRA 90’, pharmacists have also started to offer reimbursable clinical (cognitive) services to help patients obviate the potential medication-related problems they find after conducting prospective DUR.

These clinical (cognitive) services should not be confused as being part of the OBRA 90’ mandate.

6

THE EVOLVING NATURE OF PHARMACY PRACTICE

However, many experts agree that these clinical (cognitive) services may some day supplant the more traditional practices of pharmacists.

Third-party payors are ‘ratcheting down’ reimbursement for the dispensing related duties and the use of pharmacy technicians for this facet of pharmacy practice is expanding.

7

NCPA Funded Research Project entitled "A Community Pharmacy Operations Simulation That Incorporates Innovative Pharmacist Care Services"

8

Lessons from Business Administration

• Operationally, you must provide consistently high quality products and services at the lowest cost possible.

• To do this, your business operations must be effective, efficient, and ethical.

• Plans must be formulated as to how products and services are to be provided and how.

• There is little room for error.

9

SimuCARER

The manager of a community pharmacy that offers only traditional dispensing services has no way of predicting the financial gain (or loss) from offering one or more clinical (cognitive) services.

SimuCARER is a new user-friendly computer program that helps demonstrate to the pharmacy entrepreneur changes in net profit when her or his traditional pharmacy business starts to offer one or more of these services (e.g., diabetes training)

The purpose SimuCARER is to develop a financial model for pharmacy entrepreneurs to use to determine the financial impact (e.g., on net revenue) of offering these new clinical (cognitive) services.

10

FIRST, you need to understand how many patients seen presently for dispensing services in a traditional pharmacy may utilize the pharmacist services if/when such services are offered (a population submodel).

This could be done by surveying your customers or by examination of your patient medication profiles.

However, to put together a more general model that is applicable to most pharmacies another method was chosen.

THREE SUBMODELS WORK

TOGETHER TO MAKE SimuCARER

11

That is, by exploring epidemiological data concerning diabetes, asthma,, etc., to determine the health conditions that probably afflict the patients presently seen in the traditional pharmacy.

The explicit assumption is made here that if the patient suffers from a health condition they will want to take advantage of the innovative service(s) offered to them.

12

NCPA-Pharmacia Digest Summary of Disease State Specialty

Services Offered for Year 2000(“PROGRESS REPORT”)

% Pharmacies Charging

% Pharmacies Separate Fee Disease State Specialty Service Offering Service for Service

Blood Pressure Monitoring 57% 18% Diabetes Training 41% 25% Asthma Training 27% 26% Immunizations 17% 79% Anticoagulation Monitoring 3% 46%AIDS Specialty Services 3% 11%

13

The Population Submodel

14

SECOND, you need to understand the pattern-of-care submodel that incorporates assumptions about the level of the activities of pharmacists (and pharmacy technicians) in these traditional pharmacies that will offer the new pharmacist care services.

That is, by surveying innovative pharmacists, we will need to make a “best guess” of how many pharmacists and technicians will be needed by each pharmacy of a particular size offering one or more new pharmacist care services.  

THREE SUBMODELS WORK TOGETHER TO MAKE SimuCARER

15

This was done by informally surveying a convenience sample of innovative pharmacists listed among Auburn

University’s Department of Pharmacy Care Systems innovative pharmacy practitioners

[http://pharmacy.auburn.edu /pcs /innovat.htm]

16

17

18

19

20

BOTTOM LINE: WORKFLOW/SCHEDULES WILL NEED TO BE REVISED. GRADUAL IMPLEMENTATION

AND USE OF PART-TIME/‘ROAMING CLINICAL SERVICE(S) PROVIDERS’ MAY BE PRUDENT

21

The Pattern-of-Care Submodel

22

THIRD, you need to understand the resource submodel for the resources (materials and manpower) involved in delivering these services to patients.

This was done by informally surveying the same convenience sample of innovative pharmacists and also using the financial data in the NCPA-Pharmacia Digest. 

THREE SUBMODELS WORK

TOGETHER TO MAKE SimuCARER

23

The Heart of the NCPA-Pharmacia Digesthas illustrative financialdata (i. e., from ‘pooled

balanceSheet data)for five different size pharmacies based on totalsales/prescription volume:

1) Under $750,000 (±60 Rx)2) $750,000 - $1,000,000 (±75 Rx)3) $1,000,000 - $1,500,000 (±115

Rx)4) $1,500,000 - $2,000,000 (±140

Rx)5) Over $2,000,000 (±200 Rx)

24

25

26

27

Annual Total Income (Before taxes) Under $750,000 < 60 Rx = $53,804 > 60 Rx = $47,712

$750,000 - $1,000,000 < 75 Rx = $82,175 > 75 Rx = $80,184

$1,000,000 - $1,500,000 < 115 Rx = $116,813 > 115 Rx = $127,200

$1,500,000 - $2,000,000 (±140 Rx) < 140 Rx = $128,383 > 140 Rx = $142,739

Over $2,000,000 (±200 Rx)

< 200 Rx = $190,386 > 200 Rx = $294,959

28

The Resources Submodel

29

The resources submodel utilizes information from the

innovative pharmacy practiutioners and the most recent NCPA-Pharmacia

Digest.

The population submodel utilizes information on the prevalence of

certain disease states.

The pattern-of-care submodel utilizes information from approximately seventy innovative pharmacy practitioners throughout the United States.

SimuCARE consists of a population submodel, a pattern-of-care submodel, and a resources submodel that provide the data to “drive” the computer program.

30

To tie all the data from the three submodels together you need to use a programming platform like Microsoft ExcelR that is found on computers in most pharmacies.

By putting all this info into a spreadsheet you can produce a financial model that connects all the revenues and expenses for pharmacies of different sizes offering different combinations of pharmacist care services.

31

Fixed and variable costs obtained from the survey of innovative pharmacists were also considered for each combination of new cognitive service(s) offered.

Graphical representations of changes in net profit for each of the different categories of pharmacies that change with the various combinations of pharmacist care services offered needed to be generated to present to the entrepreneur both break-even analyses and (via sensitivity analyses) the optimal levels of these cognitive services to offer.

32

Web-based SimuCARE exercises

33

• “What if” we have another pharmacy open “next-door” that does only asthma and diabetes counseling?

• “What if” we start to advertise our counseling services?

• “What if” we want to offer cognitive services that are not already built into the program?

CONSIDERATIONS FOR FUTURE

VERSIONS OF SIMUCARER

34

Fiscal & Human Resources Management for Pharmacists

• Book proposal to Lippincott, Williams & Wilkins• Authors: David A. Gettman, Ph.D./Mary R. Monk-Tutor,

Ph.D., McWhorter School of Pharmacy, Samford University, Alabama

• Focus is on innovative use of problem based learning modules/sessions and SimuCARER related exercises

• National Community Pharmacists Association: Issues involving the provision of data from the NCPA-Pharmacia Digest and NCPA Foundation Funding for original project

35

ONE FINAL CONSIDERATION SimuCARER DOES NOT ADDRESS

• “What if” the pharmacist doing the counseling only wants to do“asthma” counseling? This presents a dilemma. For example, a pharmacy filling 186 prescriptions may only have two asthma patients to counsel/8 hours.

• The counseling pharmacist might consider a “group practice model” where s/he refers her or his other types of patients to other pharmacists in the community in “exchange” for their asthma patients.

36

• To establish this “group practice” has been considered illegal in the past due to possible Antitrust/Stark/Kickback litigation.

• However, if done properly, and by consensus, we can "open the (legal) door" to a real substantive change in how we do conduct pharmacy business in this country.

• In a nutshell, we can form a "hybrid network" of pharmacies and pharmacists that provide both drug product and disease state management services on a capitated or shared risk basis in collaboration with a managed care organization or medical groups.

Advisory Opinion from the Federal Trade Commission

37

HELPFUL REFERENCES

38

Microsoft Excel 2000 Visual Basic for Applications: Fundamentals

by Reed JacobsonPaperback - 450 pages Book & CD-ROM May 1999 Microsoft Press ISBN: 0735605939

39

Data, Statistics, and Decision Models With Excel

by Donald L. Harnett James F. Horrell Hardcover 640 pages Book & Disk February 1998 John Wiley & Sons ISBN: 0471133981

40

Data Analysis with Microsoft Excel: Updated for Office 2000

by Kenneth N. Berk Patrick W. Carey Paperback - 600 pages Book & CD-ROMApril 3, 2000 Duxbury PressISBN: 0534362788

41

Learning Business Statistics With Microsoft Excel 2000

by John L. Neufeld Paperback449 pages January 15, 2001 Prentice Hall ISBN: 0130308781

42

Statistics for Managers Using Microsoft Excel

by David M. LevineDavid StephanTimothy C. KrehbielMark L. BerensonMark L BerensonHardcover - 880 pages 3rd edition July 27, 2001Prentice HallISBN: 0130290904

43

Questions ???David A. Gettman, R.Ph., M.B.A., Ph.D.Assistant Professor of Pharmacy AdministrationDepartment of Pharmacy PracticeCollege of PharmacyUniversity of New Mexico2502 Marble NEAlbuquerque, New Mexico 87131-5691