The Business of Pharmacy
UBC – Phar400 | Pharmacy ManagementretailSOS.ca | Gerry Spitzner
January 11, 2013
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Objective; High level view of the Pharmacy business
Thoughtstarters Definition of value 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 Customer Experience Future Developments, Issues and Opportunities
Roadmap
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What is the real purpose of a
business?The key to business survival...Creating, engaging and keeping customers.
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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. Government, 3rd party, patients/customers.◦ Prescription drug costs escalating.◦ Count on facing predictable uncertainty at an accelerated
pace.◦ Crazy competition.◦ Increasingly demanding customers.◦ Fickleness trumps loyalty.
Important Insight #1
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In today’s world, business is built on relationships.◦ People do business with people they know, like and
trust. ◦ Put relationships first – then reap the long term high
quality business growth that follows.◦ Consider the life time value of a customer rather
than just as a single one-time transaction. Think customers for life.
◦ Listen to customers; understand why, how and what they want to buy, rather than how you want to sell to them.
Important Insight #2
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Why should I do business with you?
Why should the business come to you... rather than someone else?
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What problem does my professional service solve?
What am I solution for? Why does it matter?
◦ Your project is not about selling something; rather it is to fulfill an intention.
◦ Fulfilling a customers intention is a motivator to buying.
◦ Value is in the applied benefit of the benefit.◦ Never about what you can get; always about what
you can give.
What is the why of a business?
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Definition of ValueA function of the bundle of perceived benefits offered at a given price.
Confidence is the #1 factor ◦ in determining what, from who and where
customers buy...quality is #2, service is #3selection is #4 and price is #5
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Important insight
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How can you?...Help them save moneySave them timeMake them feel safeMake them feel special
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Motivators create desire and value
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Pharmacy PracticeHigh Level Overview of Pharmacy practice in Canada and BC
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Total prescription market Canada; $27.2 billion in 2011 Generic drugs accounted for 25 % ($5.4-billion). Generics were dispensed to fill more than 60% of all
prescriptions. Average cost of a brand-name prescription in Canada is now
$73.76. Average cost of a generic prescription is $25.04. Estimated for every 1 % increase in generic drug utilization
in Canada; savings = an additional $260 M. In the US generic drugs are dispensed to fill 80 % of all
prescriptions. Source; IMS Brogan and IMS Health ,a firm that tracks the pharmaceutical industry
Pharmacy By The Numbers
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Community PharmacyWhat are the main types of Community Pharmacy and the details of how they work?
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Health Authority Associated Pharmacy ambulatory care pharmacy, cancer drug pharmacy, HIV
drug pharmacy, hospital pharmacy, corrections facility pharmacy, addiction
Community Pharmacy “full mix” retail pharmacy, Health Centre, simply a
dispensary, consulting pharmacy, compounding pharmacy, veterinary pharmacy, central fill pharmacy, mail order pharmacy
Other Pharmacy nuclear pharmacy, military pharmacy
3 main Types of Pharmacy Practice
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Community Pharmacy Products/Services
Departments and Products Professional Services
Alternative medicines (NHP’s)
Vitamins/OTC’s Orthotics and mobility aids Wound Care HBA Cosmetics Electronics Food and Groceries Post Office Greeting cards Books and Magazines
Consultations Private Consultations Medication Management Blister Packaging Medication Reviews Patient Education seminars Disease state screening Chronic Disease Mgmt Immunization Refill services Delivery services LTC and Group homes
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4 Main types of Retail Pharmacy
Corporate Pharmacy Franchise Pharmacy Banner Pharmacy Independent Pharmacy
Community Pharmacy - Types
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Wholly owned by a large company Manager is an employee of a chain
Pharmacy Pharmacy is a department managed by a
Pharmacist Managers are paid a salary and
compensated with performance incentives Grocery stores fall into this category Rexall, Wal-Mart and London Drugs
Corporate Pharmacy
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“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 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
Franchise Pharmacy
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“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
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What is a banner Pharmacy?◦ Key features include:
Looks like a chain Independently owned and operated Working together Sales/promotions, contracts Buying group Menu of services Fees or membership dues Own profit and loss centre Owners often have more than one store Sometimes shareholder in wholesale Pharmasave, Peoples Drug Mart, IDA, Remedy’sRx Guardian, Pharmachoice, Medicine Centre
Banner Pharmacy
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Main differences from franchise and banner◦ Key features include:
No 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 focus) Financial independence and high risk
Independent Pharmacy
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Logistics and Supply Chain
A complex process from manufacturer to patient
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Wholesalers◦ In BC; 3 national & 1 regional that distribute Rx and front
shop◦ McKesson, ABC, K&F, 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: they also draw from local wholesalers, especially narcotics
Logistics Channels
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How wholesaler upcharges work in BC...◦ For Rx; MALP (AAC) cost plus 8%, 5% for high cost drugs◦ MALP for Generics is 35% of the equivalent Brand◦ Prompt payment (cash discount) of 2%◦ Loyalty allowances range between 3% to 5.5%◦ Net net upcharges range between ½% and 3%◦ Depends on volume and loyalty◦ Urban; 11 deliveries per week for Rx and 1 or 2 for Front
Shop◦ OTC and Front Shop net upcharges vary greatly and usually
rebates are provided for achieving agreed to volumes
Pricing in the Supply Chain
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Moving Parts of Retail
There are a lot of moving parts to all retail businesses and they are crucial to customer experience .
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Pharmacy interacts with a lot of people; here are a few...
Doctors Patients and Customers
Staff Nurses Doctor’s Receptionists PharmaCare & PharmaNet College of Pharmacy Municipal Landlord Banker Accountant Bookkeeper Lawyer Contractors Head Office Neighbouring tenants
Canada Revenue Agency Provincial Government Loss Prevention services Employee Relations & HR Payroll services WorkSafe BC Technology providers Retail Insurance providers 3rd Party providers Wholesaler Manufacturer Suppliers Other Suppliers Delivery Services Competitors
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Three broad areas to every Pharmacy business;
Finance◦ Monitoring, analysis, cash flow, P&L
Marketing◦ Ideal audience and services communication
Operations◦ Delivering the promise and customer experience
Key Areas of Business
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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
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Inventory◦ It is all about flow - keep goods 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 is an art form
4 Key Moving Parts of Retail
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InventoryIt is all about flow - keep goods flowing.
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Choosing An Effective Inventory Management Strategy◦ aware of the state of stocked inventory at any time ◦ system to easily monitor the coming and going of product
Spatial Needs◦ specific items; type of storage location where product is
kept Maximize 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 that could be filled with faster selling items which would draw more profit.
Inventory
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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
Labeling and Identification◦ Make sure that all items are properly labeled. ◦ 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 customer
Inventory
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MerchandisingMerchandising is any practice which contributes to the sale of products to a retail consumer
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Closely related to inventory Plan-O-Grams Service Levels What is a facing? Keep merchandise fresh and clean Search for outdates Signs and promotional shelf talkers Pricing labels Promotional merchandising Cross merchandising for profit
Merchandising
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StaffThe quality of an employee's work experience has a direct impact on the quality of the customer's experience.
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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. There are four actions that will create a
more effective team.
Staff
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1. Stop drama in its place. ◦ Nothing tears apart a team more quickly - or more quietly - than drama.
2. Regularly communicate your assessment of your team's teamwork.
◦ Share what you see are the strengths and areas of improvement needed in teamwork.
3. Don't enable poor performance and unacceptable behavior.
◦ Teams begin to splinter when the majority feels that one or more individuals aren't contributing to the team.
4. Recognize and celebrate effective teamwork, behaviors, and results.
Create an Effective Team
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PricingIn the Front Shop and the Pharmacy
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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$
Setting Pricing in the Front Shop
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Pharmacare sets a maximum price for brand & generic◦ Maximum price applied during PharmaNet adjudication
MALP (AAC includes upcharge) plus fee; $10.00 The professional fee is the entire gross profit Reimbursement for clinical services
◦ Med Reviews, Immunization, Rx renewals, adapting Rx’s, therapeutic substitution, Plan B capitation fees, rural incentive program
Pricing in the Pharmacy
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Customer ExperienceWhat makes a positive customer experience in healthcare?
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How did you make the customer feel?◦ Service has more impact on customer loyalty than
any other function of a Pharmacy business. Customer loyalty is not a tactic but a way of
doing business.◦ Never let your business processes dictate your
customer experience. Ask; don’t tell. Listen; don’t talk.
◦ How can you hear your customer when you are busy telling them something?
Customer Experience
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Serve customers, don’t just provide customer service◦ Customer service is what the organization wants
to supply to the customer; it is governed by policies and rules intended to serve the business.
◦ Serving customers, on the other hand, is driven by what the customer wants. The control position is in the customer’s hands; the organization is in the responsive position.
Customer service is an attitude not a department
Customer Experience
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Why maintaining trust is a marathon; not a sprint.◦ In today's world, whether you are talking about
marathon times, or ingredients on a label, or a product's health benefits, or whether something is organic or not, or what an item's environmental profile happens to be, you have to get it right.
◦ The big stuff, and the little stuff. In part, because if you get it wrong people are going to find out. But most of all, because getting it right is what people expect. Get it wrong, and you risk eroding people's trust.
Important Insight
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Future Developments, Issues
and OpportunitiesFor Retail Community Pharmacy – Chains, Banners and Independents
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Supermarkets, mass merchandisers, mail order and Pharmacy chains are likely to keep competition keen for the independent Pharmacist.
The Government's plans for pharmacy include an enhanced role for Pharmacists.
The aging population and ongoing shortage of physicians will strengthen the demand for Pharmacy services. ◦ Community Pharmacy will be the centre of health care and
Pharmacists will focus more and more on disease management.
Future developments
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Government Drug Reforms Drug Shortages Costs are escalating faster than increases in revenue 3rd Parties looking for ways to control Rx drug costs Plans more complex; patients don’t understand
them. Reimbursement Rates
◦ In BC – more than 45% of prescriptions are paid by Government; most of the rest is covered by a 3rd party insurer like Blue Cross, GWL, Assure and NIHB; there is very little “cash pay”.
Issues Facing Pharmacy Practice
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Key Industry Stat◦ Per capita usage of prescriptions is climbing
among all age groups, ranging from 4.21 Rx/year among those aged 0-39 years up to 41.82 Rx/year for 60 years and up.
Fee for Service Patient Care◦ Medication Reviews, Home delivery, home
consultation, patient charge accounts, disease management programs (diabetes, asthma), LTC, Group Homes, Workplace health, immunization, medication adherence, Hearing centres, home health care
Opportunities | Pharmacy Practice
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Want a copy an electronic copy of this of this presentation with bonus slides?◦Email me; [email protected]
To your business and professional success, thank you for your attention.
Questions?
Thanks
Gerry Spitzner
Follow Twitter: @passion4retail Connect LinkedIn:Gerry Spitzner Web: retailSOS.ca Blog: gerryspitzner.com Email: [email protected] Online Biz Card: gerryspitzner.tel Online Biz Card: retailSOS.tel
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Find me
retailSOS.ca is a Vancouver-based retail consultancy guiding and supporting Pharmacy owners to create, engage and keep great customers by doing the right thing extraordinarily well.
Gerry Spitzner works as a management consultant with community Pharmacy owners to achieve results by aligning their vision and implementing marketing strategy with operational execution.
Drawing on 35+ years experience in drug store multi-site retail operations, Pharmacy ownership and the Pharmaceutical wholesale supply-chain; Gerry brings the leadership, knowledge and market awareness of ownership and business development to Pharmacy owners to achieve growth objectives.
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About
Extra Slides
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AcronymsA few basic acronyms and frequently used jargon in retail Pharmacy
AR/AP = Accounts Receivable/Payable P&L = Profit and Loss statement POS = point of sale POP = point of purchase WMS = warehouse mgmt system SKU = stock keeping unit MOM = minimum order multiple CPG = consumer package good IND = independent retailer RDA = Retail Display Allowance
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Common Retail Acronyms
UPC = universal product code QR = quick response code PO = purchase order GMROI = Gross Margin Return On Investment CRM = Customer Relationship Management DSD = Direct Store Distribution EDI = Electronic Data Interchange EDLP = Everyday Low Pricing OTB = Open-to-Buy POG = Plan-o-gram
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Common Retail Acronyms
HHC = Home Health Care DME = Durable Medical Equipment OTC = Over The Counter NHP = Natural Health Products HBA = Health & Beauty Aids LTC = Long Term Care AAC = Actual Acquisition Cost MALP = Maximum Allowable List Price U&C = Usual and customary ( refers to fee )
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Acronyms ( specific to Pharmacy )
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PharmacyU◦ http://pharmacyu.ca/
Pharmacy Podcast◦ http://pharmacypodcast.com/
Drug Store News◦ http://www.drugstorenews.com/
Chain Drug Review◦ http://www.chaindrugreview.com/
Canadian Healthcare Network – free registration◦ http://www.canadianhealthcarenetwork.ca/
CACDS – Canadian Assoc of Chain Drug Stores◦ http://www.pharmacyworx.com/pharmacy-students/default.htm
Resources and Links
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Discussion How do you start a movement of change?
It starts with leadership.
Gerry Spitzner
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Are you ready to start a movement? Are you ready to charge for the time it took
for you to get your education and the time it’s going to take you to keep it up?
Are you ready to make the public aware of the great things Pharmacists do?
Are you ready to create, engage and keep great customers?
Thoughtstarter | Derek Shivers TED Talk