ubc phar400 business of retail pharmacy-13sept2013

The Business of Retail Pharmacy

UBC – Phar400 | Pharmacy ManagementpharmacySOS.ca | Gerry Spitzner

September 13, 2013

pharmacySOS.ca | Gerry Spitzner 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

Roadmap


Is cutting costs really the key to increasing the

bottom line for pharmacies?Remaining calm in times of desperation makes way for opportunity.


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.

Important Insight


What is the real purpose of a

business?The key to business survival...Creating, engaging and keeping customers.


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

Important Insight


Retail Pharmacy Practice

High level overview of the retail Pharmacy business in Canada & BC


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

Pharmacy By The Numbers - Canada


Pharmacy By The Numbers - BC

Corporate/Franchise Banner/Independent

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

Pharmasave:126 Peoples: 45 Medicine Shoppe: 29 Medicine Centre: 17 Remedy's RX: 17 Central: 9 I.D.A.: 7 Total: 250

Other (IND): 399

Grand Total All: 1,143 Source: B.C. College of Pharmacists registry and 2012/13 annual

report


Community PharmacyWhat are the main types of Community Pharmacy and the details of how they work?


Health Authority Associated Pharmacy ambulatory care pharmacy, cancer drug pharmacy, HIV

drug pharmacy, hospital pharmacy, corrections facility pharmacy, mental health, substance use and addiction

Community Pharmacy “full mix” retail pharmacy, Health Centre, simply a

dispensary, consulting pharmacy, compounding pharmacy, veterinary pharmacy, central fill pharmacy, mail order pharmacy, tele-pharmacy

Other Pharmacy nuclear pharmacy (radiopharmacy), military pharmacy

3 main Types of Pharmacy Practice


4 Main formats of Retail Community Pharmacy

Corporate Pharmacy Franchise Pharmacy

Banner Pharmacy Independent Pharmacy

Community Pharmacy - Formats


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

Corporate Pharmacy


“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

Franchise Pharmacy


“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

Franchise Pharmacy


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

Banner Pharmacy


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

Independent Pharmacy


Logistics and Supply Chain

A complex process of medication distribution from manufacturer to patient


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

Logistics Channels


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

Pricing in the Supply Chain


Functional Areas of Retail

There are a lot of moving parts to all retail businesses and they are crucial to customer experience .


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

Key Areas of Business


Asset Productivity

Patient/Customer Experience

Profitability

Inventory management Pricing Merchandising Staff Receiving Loss Prevention Wages and Benefits Staff Schedules Training Supplies Information Technology Computer hardware

Policies & Procedures Computer software Cash flow Sales Revenue Sundry Revenue General Expenses Fixtures Repairs and Maintenance Occupancy costs &

Utilities Advertising Marketing


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

4 Key Moving Parts of Retail


PricingIn the Front Shop and the Pharmacy


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$

Pricing in the Front Shop


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

Pricing in the Pharmacy


InventoryIt is all about flow - keep goods flowing.


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

Inventory


MerchandisingMerchandising is any practice which contributes to the sale of products to a retail consumer


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

Merchandising


StaffThe quality of an employee's work experience has a direct impact on the quality of the customer's experience.


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, monitor performance and provide feedback

Staff


Future Developments, Trends, Issues and

OpportunitiesFor Retail Community Pharmacy – Chains, Banners and Independents

The future is not in the rear view mirror.


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

Future developments


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

Trends


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

Issues Facing the Business of Pharmacy


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

Opportunities


Want an electronic copy of this presentation?

◦Email me; [email protected]

To your business and professional success, thank you for your attention.

Questions?

Thanks

Follow Twitter: @passion4retail Connect LinkedIn: Gerry Spitzner Web: pharmacySOS.ca Blog: gerryspitzner.com Email: [email protected] Online Biz Card: gerryspitzner.tel


Find me

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.


About |pharmacySOS.ca is about implementation; not just

information.