Elements Magazine - March 2013 Vol.2 Iss.1

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ELEMENTS

Preparing For The Unexpected Plan ahead to safeguard your pharmacy from a natural disaster

PHARMACY EXPOSED A look at chain pharmacies

INVENTORY MANAGEMENT Smart ways to save time and money

ADHERENCE PROGRAMS

Benefiting you and your patients

VOL. 2 ISS. 1 | MAR 2013 | PBAHEALTH.COM

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ELEMENTS

The Magazine of PBA Health

Contents

7 | Improve your pharmacy’s bottom line by evaluating how you manage your inventory. Certain adjustments can increase your cash flow and help you save on your cost of goods.

23 | Learn how an adherence program can change the way your independent pharmacy does business.

departments 5 News: The 2013 PBA Health Conference is coming up! See

what’s planned for this year’s event.

7 Bricks & Mortar: Inventory Management

Improve your inventory management with these best practices.

18 More For Your Money: Pricing, Promotion & Profitability

Discover how your pharmacy can use better pricing and promotion strategies to increase your profitability.

23 COMMUNITY: Your Pharmacy Needs an Adherence Program

Starting an adherence program not only keeps your patients healthy, it’s good for your pharmacy, too.

27 Outlook: Pharmacy Exposed

An interview with author and pharmacist Dennis Miller reveals why the chain model doesn’t work.

30 Notes: Get More Patients to “Like” Your Pharmacy

Why your pharmacy needs a Facebook page.

feature 10 Preparing For The Unexpected

What your pharmacy needs to know about planning for a natural disaster.

ON THE WEB //

Explore exclusive online content to improve your business at www.pbahealth.com.

3 Business Skills Every Pharmacy Owner Needs Running a pharmacy requires a variety of skills, but these three business skills are especially important for community pharmacy owners today. Find the article on the Marketing page of pbahealth.com.

What to Look For in a Reconciliation Service Are you looking for a third party claims reconciliation service? Know what features will—and won’t—benefit your business. Find the article on the EnsurePay page of pbahealth.com.

5 Ways to Market Your Pharmacy It’s hard for busy pharmacy owners to find time for marketing. Try these five easy techniques to promote your business. Find the article on the Marketing page of pbahealth.com.

ELEMENTS is published quarterly by PBA Health. Copyright© 2013 PBA Health. All rights reserved.

Neither this publication nor any part of it may be reproduced without written permission by PBA Health.

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NEWS

synthesize TRANSFORMING PHARMACY FOR THE FUTURE

2013 PBA Health Community Pharmacy Business Conference Sheraton-Overland Park Hotel at the Convention Center • Overland Park, Kansas • July 12 – 14, 2013 The 26th annual PBA Health community pharmacy business conference and seminar will take place on July 12-14, 2013 at the Sheraton Overland Park Hotel at the Convention Center in Overland Park, Kansas. The weekend starts with a golf tournament, an opening night banquet on Friday, and is followed by a lively vendor exhibit.

Returning for a third year (and back by popular demand) is finance expert Steve LeFever. Mr. LeFever will lead two related CE sessions at the PBA Health Conference. He’ll discuss how to modify a traditional break-even analysis and apply it to pharmacy service offerings to fit the increasing focus on services in today’s pharmacies. Mr. LeFever will also explain the key issues for valuing a business and how to coordinate with the right valuation professional for a pharmacy.

Also presenting on Saturday is Albert R. Barber, Pharm.D., CGP, FASCP. Mr. Barber will discuss medication use in older adults and how independent pharmacies can

specialize in this area for a unique business opportunity. A PBA Health presentation will also be held on Saturday for interested participants.

On Sunday, Bruce Kneeland, a national account manager for Epicor Software Solutions, Inc., will discuss his experiences from a cross-country road trip, where he traveled to 30 community pharmacies. He’ll showcase the innovative pharmacy products and services he discovered on the trip.

Scot Maitland, founder of Pharmacy Marketing Quarterly magazine and Tacit Almonds, a social media and communications consulting service for independent pharmacies, will explain simple ways pharmacists can define their brand and better market their businesses.

Not only will attendants learn about the latest topics in community pharmacy during the day at the PBA Health Conference, they can also relax and enjoy our exciting events in the evening and explore what the Kansas City area has to offer.

This year, attendants will be able to cheer on major league soccer team Sporting KC, winners of last year’s Lamar Hunt U.S. Open Cup, in the newly-built Sporting Arena.

Or, attendants can spend an evening high rolling at the Hollywood Casino at the Kansas Speedway.

Additionally, seats are available for a dinner theatre production of “The Buddy Holly Story” at the New Theatre Restaurant.

Please visit www.pbahealth.com/ conference to register for the 2013 PBA Health Conference and to learn more about these events, speakers and presentations.

Get daily news updates on issues that matter to your community pharmacy by following us on Facebook at www.facebook.com/pbahealth and on Twitter at www.twitter.com/pba_health.

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BRICKS & MORTAR

Your Physical Pharmacy

Inventory Management Improve your pharmacy’s bottom line with a fresh look at inventory decision-making

By Don Raby, CPA, CGMA Chief Financial Officer, PBA Health

A key decision in retail pharmacy is how much inventory to keep on hand. Inventory is usually a pharmacy’s largest asset. Once inventory levels are established, they become an important input to the financial aspect of any business, as they are key to driving cash flow and profitability. Too much inventory translates to too little cash and, oftentimes, to less profitability. Whereas, too little inventory can mean lost sales as patients go to another pharmacy to fill their prescriptions. As a pharmacy owner, you have many facets to consider when managing your inventory, and certain best practices can drastically improve your bottom line.

Understanding inventory Inventory decisions involve a delicate balance between three classes of costs: ordering costs, holding costs (also known as carrying costs) and shortage costs. Ordering costs are the costs associated with placing an order, receiving and verifying the order and putting away the stock. These costs will largely be composed of personnel time. Holding costs are the costs associated with holding an item in inventory. These costs will be the opportunity

costs of having your cash sit on a shelf instead of in your bank, where it could be paying down debt, paying bills or paying suppliers faster to receive better discounts. Shortage costs are the costs of temporary or lost sales due to not having the inventory on hand when the prescription needs to be filled. This cost is the hardest to quantify, but often the easiest to see.

You can break down inventory into two broad classes: base stock and safety stock. Base stock is the portion of inventory that is replenished after it’s sold to customers. Think of base stock as the foundation of your pharmacy from which prescriptions are filled day in and day out. Safety stock is the portion of inventory that is held to protect against uncertainty. It’s that extra bottle that you keep “just in case.” The rule of thumb in base stock and safety stock is simple: Keep an adequate supply of base stock and as little safety stock as possible.

Types of inventory systems The success of any business depends on the owner’s ability to maintain adequate records of items sold, items received and items in inventory. Records provided

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BRICKS & MORTAR

by an inventory control system should call attention to the need for reorder when necessary or to eliminate “dead wood” inventory when needed.

Inventories are typically controlled and supervised by three methods: perpetual inventory control, physical inventory, and “looking it over”. The perpetual method is the most frequently used method in our computerized world. In this system, complete data records are kept on each item of merchandise and additions or subtractions are made with each transaction through the pharmacy operating system. There is an inventory balance plus a receipt of product, minus the actual sale of product to reflect the quantity on hand. This is done largely automatically.

Physical inventories, on the other hand, are laborious endeavors that are typically done annually. They are the “check” that you need to verify the accuracy of the perpetual inventory on a regular basis.

The “looking it over” method is the old school method still employed by some pharmacy owners. It is the preferred method for those who like to think they know their patients but, while they may know their patients, they aren’t employing inventory best practices. With this method errors are bound to occur, as are overstock situations. This method also makes it difficult to pinpoint accurate inventory levels, which typically means the pharmacy is seriously overstocked as most operators err on the side of safety stock.

Changes for the better Even a pharmacy that does an average job of managing its inventory can see drastic changes with just a few improvements to inventory management. Take a look at these ways you can evaluate your operations and make adjustments to improve your return on sales.

Place fewer orders Many pharmacy owners today still place several small orders throughout the day. They scan their shelves at the end of the day and place a final order before locking up in the evening. However, when you place larger orders fewer times throughout the week, you spend less time preparing orders and putting orders away, which can ultimately save you money. If you place three large orders throughout the week, for example, and only the occasional “must have” base stock order, you can organize a more effective work schedule. With consistent orders, you can plan ahead and place more staff on the days where you will need to put away larger orders and you can cut back staff hours on other days.

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Reduce overall inventory Get rid of excess safety stock, outdated products and items that are on the shelves but rarely or never move.

You should return for credit anything that hasn’t moved in the last 30 days. Then, increase your safety stock on faster moving products to ensure adequate stock for light order days. This decrease in inventory can increase cash flow and decrease cost of goods sold because you’ll be filling the same number of scripts with less inventory. This increased cash flow also means that you can pay your drug supplier faster and earn even more savings on your cost of goods.

Invest in a better inventory system When you invest in a computer system that has perpetual inventory management capabilities, you’ll offset the expense of the new equipment with the savings you’ll see in other areas of your business. For example, your payroll expenses will likely decrease because you’ll improve your ordering patterns and reduce the hours worked by your staff.

Stop “just in time” ordering You might think that just in time ordering is the most efficient form of ordering because it can bring cost savings and reduce inventory levels. However, this thinking doesn’t take into consideration several critical elements.

Just in time ordering only works when you have reliable delivery, reliable supply, and stable, predictable demand.

Meaning, your suppliers will need to have the stock you need at the time you need it with the ability to deliver it to your door. You’ll also need to know who is walking in your door and what they are going to need. Then, your supplier has to have it in stock and delivered to you in advance of that person walking through the door. That’s a tough combination in retail pharmacy on any given day. If you use just in time ordering, you probably try to combat these problems by keeping a good amount of safety stock on hand, but that defeats the theory of the system. Go with a better inventory solution.

Want more ways to improve your inventory management?

Take a look at Negotiator, PBA Health’s online purchasing service that offers substantial discounts on both brands and generics. It’s a convenient and money-saving way to meet inventory needs as they arise. Find out more by calling 800-333-8097 or email negotiator@pbahealth.com.

Preparing For The Unexpected What your pharmacy needs to know about planning for a natural disaster

By Kirsten Hudson

Steven Charles, R.Ph., is no stranger to severe weather.

When the Oklahoma native noticed large black clouds looming over his home in Oswego, Kansas on May 22, 2011, he knew a bad storm was coming. What he didn’t know was that the storm would form the single deadliest tornado to hit the U.S. since modern recordkeeping began—and that it was headed 40 miles east to Joplin, Missouri, where his compounding pharmacy was located.

“I was talking with some friends and warning people in Joplin that a storm was coming over there, but I had no idea what was actually coming,” he said.

He received a call reporting that the burglar alarm had been activated at his compounding pharmacy, Ozark Compounding Pharmacy. It was a Sunday, and the pharmacy was closed. Charles figured the stormy weather had just triggered the alarm. Then, he found out the storm had turned into an EF-5 tornado with 200 mph winds that had torn through the city.

He jumped into his car and headed to Joplin to check on friends and on his pharmacy. Getting to the city wasn’t easy. He had to navigate through police road-

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blocks and find an alternate route. “The back roads looked like the traffic jams in Dallas from people trying to get in,” he said. “It was dark by the time I got there.”

He made it as far as Freeman Hospital, a hospital near his pharmacy. Then, his store dropped from his mind. The hospital was in chaos. “It looked like the hospital scene in Gone with the Wind,” he said. “There were people laid out on the ground. The lobby was full of people. There were people that had gauze, bandages, broken arms, and were hooked up to oxygen machines.

It was like a war zone. The nurses didn’t even have pens.

They were borrowing pens from patients.”

It wasn’t until the next day that he made it to what remained of his 2,000-square-foot pharmacy, which he had owned since 2002. The portion of the medical strip that held his pharmacy was still standing—slightly. The dentists’ and doctors’ offices nearby had been completely destroyed.

“I was able to unlock one of the doors in the back and get in. The roof was basically off for the most part and rain had come in,” he said. “I was able to get my

Nobody expects a natural disaster. Preparing your business now can make all the difference. Look into creating a disaster preparedness plan, reevaluating your insurance policies and making upgrades to your physical store.

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Flooding from hurricanes or heavy rain can damage your pharmacy. It’s important for pharmacy owners to know what types of damages are covered by their insurance. Owners should reevaluate their insurance policies every year at a minimum, or any time their businesses change.

computer backups and I took some stuff off the walls, believe it or not. Certificates and licenses and things like that. I salvaged as much as I could.”

In the days following the tornado, Charles relied on Oswego Drug Store, the retail pharmacy in Oswego, Kansas that he has owned since 1984, to take care of patients. “I would bring prescriptions to Joplin when I came, and patients would meet me at the destroyed pharmacy where I was trying to work and retrieve as much as I could.”

Hurricane season Brian Haney, Pharm.D., has dealt with his share of hurricane hardship. The owner of Family Pharmacy, a regional chain of community pharmacies in southeast Texas, had to cope with damages at several of the pharmacy’s locations after Hurricane Rita in 2005—and then again after Hurricane Ike in 2008.

Hurricane Rita plowed into the Texas/Louisiana border just a month after Hurricane Katrina in 2005. A category 5 hurricane in itself, Hurricane Rita brought winds as high as 175 mph, causing flooding, power outages and widespread damages to an area still trying to recover

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from Hurricane Katrina. At the time, Family Pharmacy had three locations and suffered roof damage, as well as water and mold damages at one store. “We were not prepared,” Haney said. “It’s hard to be fully prepared.”

After Hurricane Ike hit in 2008, the damages were worse. The pharmacy’s location in Vidor, Texas was under construction at the time and the category 2 hurricane ripped off the newly-assembled roof.

Ten miles to the southeast, the hurricane reduced the pharmacy’s Bridge City, Texas location to a shell.

Even though the store sat several feet above the main road, two feet of standing water filled the building.

Part of the roof was torn away, along with a section of the wall that held the store’s hour meter, main breakers and phone system.

“We pretty much lost everything,” Haney said.

“That was our biggest loss in our hurricane history.”

The pharmacy chain had four locations at the time Hurricane Ike hit. In order to deal with the inoperable store, Bridge City patients were diverted to the chain’s nearby locations. Family Pharmacy’s wholesaler provided trailers outfitted as mobile pharmacies, which the Bridge City store operated out of for seven months while the

store was rebuilt. “We had to board up the walls, patch up the roof and then basically gut the store and start over,” Haney said.

Making a plan Recent natural disasters like the wildfires in Colorado, Superstorm Sandy on the East Coast and the tornado in southern Mississippi demonstrate that the time is now for pharmacies to prepare for natural disasters.

“Plan for the worst and expect the best,” said Mike Warren, risk manager for Pharmacists Mutual insurance company. Warren suggests every pharmacy create a disaster preparedness plan. “Sit down at a table with your team management staff and key employees and talk about the kinds of things you need to have in place to recover from a catastrophe.”

When creating your plan, consider the amount of time you need to recover—and what’s most feasible. “The faster you want to recover, the more expensive it’s going to be,” Warren said. “If I wanted a pharmacy that was leveled by a tornado to start operations within an hour, the only way to do that would be to have another pharmacy sitting there doing nothing, fully stocked and ready to go. That’s the most expensive scenario. You have to balance things out as to what you can realistically do.”

Take time to consider all aspects of an emergency situation when preparing your plan. Think about everything from dealing with the press to what to do if the Internet goes out. You’ll need to consider what options you have for a temporary facility and how you’ll continue payroll if you have to reduce operations following a disaster.

You also need to practice your plan. “If you don’t practice your plan—whatever it is that you put together—it may not work,” Warren said.

Consider how you’ll communicate with people. “When a wide-spread disaster affects a community, it’s very difficult to communicate with people,” Warren said. “Have a plan in place to get in touch with your employees, customers and vendors.”

Brian Haney with Family Pharmacy said that after Hurricane Ike he made sure to contact the local news outlets to let them know that the pharmacy’s locations were operating, what their capabilities were and about their reduced hours. “Now I would say we would also put messages out on Facebook, Twitter and our website.

We also now have the capabilities to send information to our patients through email and text. Check with your software providers to find out the different ways you can contact your patients,” he said. (For more information on how to create a disaster preparedness plan, see page 17.)

Hard lessons You need a preparedness plan, but improvements, changes and adjustments to your physical store right now can

Top: Debris from Ozark Compounding Pharmacy rests between the pharmacy’s parking lot and the ruined shell of St. John’s Regional Medical Center in Joplin, Missouri.

Center: Steven Charles, R.Ph., (center) stands outside his destroyed pharmacy, Ozark Compounding Pharmacy, with Dick Wasson (left) and Kirk Benson (right) of Pharmacists Mutual insurance company.

Bottom: Steven Charles works to salvage items from his compounding pharmacy while debris falls from the ceiling. The pharmacy was almost completely destroyed from the EF-5 tornado that tore through Joplin, Missouri May 22, 2011.

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make all the difference.

After Hurricane Rita in 2005, Family Pharmacy had to scale back its hours. The pharmacies only had small back-up generators that provided enough power to run their computers, but not enough to turn on the air conditioners.

“It’s 98 degrees with 100 percent humidity and we’re in the pharmacy in shorts and T-shirts and sweating so bad. There’s no wind blowing through,” Haney said.

“After that we decided to put in full store generators that run off natural gas. They’re automatic. So, the power goes out, the automatic switch kicks in and the generators come on. It runs the whole store—air conditioner, refrigerator, everything.”

Family Pharmacy was lucky that its locations didn’t suffer worse damages. After Hurricane Katrina, Pharmacists Mutual saw pharmacies in the South lose their entire inventories due to the high temperatures. “You need a back-up generator to not only secure your refrigerated products, but also your stock on the shelf,” said Tracie Hoch, commercial underwriter for Pharmacists Mutual. “During Hurricane Katrina the stock on the shelf was condemned by the DEA because it was exposed to such high temperatures and high humidity for a number of days,” she said. “Those pharmacies were a total loss because a change of temperature is an excluded loss from most insurance policies.”

When recently building a new location in Beaumont, Texas, Haney used his experience from past hurricane damages to build the store from the ground up without increasing insurance costs. “We were more aware of structure types and roof types,” he said. “The location we leased before was about 1,400 square feet and our new location is 4,000 square feet, but because the new location was engineered to withstand certain wind ratings, the difference in insurance coverage costs was almost nothing,” he said.

Insurance decisions It’s important for you to understand what is and what isn’t covered by your insurance. Not checking your policy now could mean a significant loss following a disaster or emergency. “You need to know what’s considered structure, what’s non-structure, what’s inventory, what’s considered fixtures,” Haney said. “At our Bridge City store, because the phone system was mounted on the wall that got ripped off, it was covered. Had it not been mounted to that wall, the damages from the two feet of flood water wouldn’t have been covered,” he said. “The only reason the loss was covered was because the wall that was ripped off contained the power, and because we lost power our inventory was also covered.”

“We became well aware about liability insurance and what our limits should be at after that,” Haney said.

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“It’s important for you to understand what is and what isn’t covered by your insurance.

Not checking your policy now could mean a significant loss following a disaster or emergency.”

“Make sure you understand what’s covered in your policy.”

You have to find a balance between under-insuring your business and over-insuring it. “I think overall people don’t want to be paying out extra money for insurance, so if anything they’re selling themselves short,” said Steven Charles, whose compounding pharmacy was destroyed in the Joplin tornado. “You’ve got to insure for replacement value and that kind of thing,” he said.

After his experience, Charles recommends that pharmacy owners document everything, including writing down serial numbers of computer equipment and other important items. “I would even take a video and go through your store because, believe me, five days after that storm you’re not going to be able to remember half of what you really had.”

Pharmacists Mutual suggests that pharmacy owners examine their insurance policies every year at a minimum. “Any time your business changes you should reevaluate your policies,” Hoch said. “If you hire a professional other than a pharmacist, say a nurse or a respiratory therapist to provide additional services, you should review whether or not your current insurance policy covers that,” she said.

“Are you dispensing drugs to a different type of patient? If you begin transporting drugs with a highdollar value in a vehicle, you may not have adequate coverage if that vehicle is involved in an accident and that drug is lost,” she said. “Have you invested in any new equipment, like pill dispensing robotics? Any time you make changes in your business, you should call your insurance professional to make sure you’re still adequately covered.”

Back it up When Charles retrieved his computer backups from his devastated pharmacy, he received the worst possible news. The backups that he had made every day for years weren’t any good. Not due to the storm; they just weren’t functional. Luckily, a technology company was able to re-

What to Know About Insuring Your Pharmacy for a Disaster General insurance decisions can affect your pharmacy in the event of a disaster. If you create a disaster preparedness plan you should be well covered, but here are a few important factors to consider.

Loss of income Do you have loss of income on your current policy? How is your loss of income provided? Is it actual loss of income? Are you limited to a certain dollar amount?

Inventory

Professional liability coverage

Are your inventory levels adequate to replace in a total loss? What kind of deductibles are you going to incur if that total loss were to happen?

Make sure you know what type of professional liability coverage you have. Is it occurrence-based or claims-based? An occurrence policy will pay for an incident that occurs during the policy period, regardless of when the claim is made. On the other hand, claimsmade policies have specific requirements as to what claims will be paid. If coverage expires and additional action is not taken by the insured, claims will no longer be paid by the policy—regardless of when the incident occurred.

Essentials vs. Non-essentials What would you need to get your pharmacy up and running right away? And, what isn’t a necessity?

For example, an infusion pharmacy with patients who have to come into the pharmacy might require a different setup than a retail pharmacy. What structure do you need to provide your services? What protective devices might you need on your damaged property?

Information courtesy of Pharmacists Mutual

Disaster Planning Resources FEMA www.ready.gov Step-by-step plans and preparedness exercises to protect your business during natural disasters and emergencies

The Disaster Recovery Institute www.drii.org Education and training programs for business continuity planning and disaster recovery

construct all of the pharmacy’s information from his four computers, even though they were wet and damaged.

After that, Charles invested in off-site backup for his Oswego store. “It’s a little bit more expensive, but it’s well worth the money,” he said.

Computer-Rx, a pharmacy software solutions company, makes data backup a priority for its pharmacy customers. The software company provides two data backup options. Computer-Rx automatically creates a nightly backup of a pharmacy’s full history and places it on an external hard drive to be taken off site for safekeeping. The other option automatically backs up the pharmacy’s data and places it at off-site data centers in three different cities across the country.

“We understand the importance of data backup and what it can mean for a business following a natural disaster. Our company was devastated by the EF-5 tornado that traveled through the Oklahoma City metro area in 1999,” said Jon Nolen, director of information technology at Computer-Rx. “We know that many of our independent pharmacy customers are the health hubs for rural communities. At Computer-Rx, we place the highest priority on providing a fast response for pharmacies affected by a natural disaster.”

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Pharmacists Mutual www.phmic.com Pharmacy-specific disaster planning guides and information, including HIPPA requirements

Helping patients Despite damages to their property and inventory, what really matters to most pharmacists after a natural disaster is their patients—and how to get them the medications they need.

Brian Haney knew that after hurricanes and other emergency situations state boards of pharmacy allow flexibility with fills. “If a patient came in, it was at our discretion to fill based off of a bottle they had or what they told us,” he said. “There were a lot of pharmacies that weren’t aware of the rule and were turning patients away if they didn’t have a written prescription or if they didn’t have their records on file. We were more understanding about those patients’ needs.”

Nearly two years after the Joplin tornado, Steven Charles still helps Joplin patients with their compounding needs by providing free mailing of prescriptions and a courier service from his Oswego store. Still, he hopes to reopen the pharmacy he lost. He wants to move forward—just like everyone else affected by the disaster.

“I’m planning to get back to Joplin. I want to. Hopefully I can come back this summer,” he said.

10 Tips to Create a Disaster Preparedness Plan 1.

What would you need to keep your business going after a disaster?

Here are some important steps to consider when creating a plan.

Meet with employees to discuss the types of emergencies that may affect your area. Explain how to respond and find safe spots in your pharmacy for each type of disaster.

3.

4. Consider what you need to

Draw a floor plan of your pharmacy. Mark two escape routes from each room.

2.

Discuss what to do about power outages and personnel injuries.

5.

resume operations on a temporary basis. Minimum-square footage?

Shelves? Countertops? How much inventory?

Make a plan for how you’ll communicate with patients, vendors, wholesalers, pharmacy associations and employees in the event of a disaster.

6. Instruct employees on how

7. Maintain updated contact

8. Find out if your state pharmacy

to turn off the water, gas and electricity at main switches.

information for employees, including employees’ close family members.

You may have to contact an employee through a family member after a disaster.

association offers mobile units for use in a disaster. If so, save key contact information off-site.

9. Make sure business records

10. Keep fuel in your vehicle at

are backed up and stored remotely.

Maintain a separate copy of your insurance policies and other key records.

all times and stock your vehicle with an emergency supply kit.

Information courtesy of Pharmacists Mutual

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MORE FOR YOUR MONEY

Pricing, Promotion & Profitability: How They Work Together You’ve heard the cliché that ‘to make money in business is to buy low and sell high’. There is no clearer truth than that, but within the details of buying, operating and selling is where a person will either succeed or fail. Having the best price with the most efficient operation does not guarantee success. You still have to promote your price. When you’re able to combine pricing and promotion, you’ll gain profitability.

Pricing doesn’t just affect profitability. Pricing drives profitability. Most experts believe price is the ultimate profit driver. It is the most critical component of merchandising with the single greatest affect on profitability.

Take the findings of a McKinsey & Co. study that found that small changes in price can lead to big profits.

According to the study, a 1 percent increase in price can drive up to an 11 percent improvement in operating profitability. By contrast 1 percent changes in fixed costs, variable costs and volume did not deliver the same magnitude of margin enhancement; they improved profitability by 2.3 percent, 3.3 percent and 7.8 percent, respectively.

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Studies such as this illustrate that businesses, like your pharmacy, have a lot of room for profit improvement through better pricing strategies. The difficult part is working with and implementing pricing analyses and strategies. It’s easier to focus on cutting costs and increasing volume than it is to complete the tasks that involve strategic pricing at the line-item level.

Pricing is a complicated issue, compounded even more so in recent years by unprecedented price pressures, like hyper-competition, increased product selection, $4 generics and loyalty pricing. Retail pharmacies are in the midst of an increasingly complex market climate. The number and complexity of line-item pricing decisions is growing rapidly as community pharmacies, like many others, join the movement from mass-market to customer-centered strategies. For the patient, this ushers in a lot of different pharmacy choices and a seemingly unending array of enticements from all directions—front end coupons, $4 generics, rewards for transferring prescriptions, to name a few.

If you want to build long-term relationships with

MORE FOR YOUR MONEY

Review your pharmacy’s prices monthly or quarterly. If you don’t stay on top of your pricing, you could miss out on prime profit opportunities.

your patients, you have to make sure they perceive your products as both accessible and valuable. Pricing alone can’t do that, but it’s an important step, so review your prices regularly—both buy and sell. Monthly reviews are recommended, but if that’s not practical for you, aim for quarterly reviews. Just be sure you’re staying on top of your pricing so you don’t miss out on any prime profit opportunities. Start with these fundamental pricing tactics.

BEGIN WITH BETTER BUY PRICES Don’t just assume you’re getting the best possible buy prices from your primary wholesaler. Compare the prices available to you from other sources and make your purchasing decisions accordingly. Consider using a secondary wholesaler when your primary wholesaler substitutes a certain product or when you can swap out a certain item for significant savings. If you don’t take the time to review your buy prices, you won’t know what opportunities are out there, and your profits will never reach their full potential. Use the resources available to you to ensure you are purchasing your products at the lowest cost of goods available.

THE NEXT STEP: SETTING SELL PRICES It’s not uncommon for pharmacies to downplay the

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importance of sell pricing strategies in their daily operations. It’s easier to set a price and hope for the best than it is to research effective sell price strategies.

Many of you may already be using a “cost-plus” approach, where you calculate what it costs you to carry and sell an item and add on a margin of profit to produce a sell price. This is a legitimate pricing strategy, but it’s not without its snags: Cost-plus pricing ignores pharmacy image and positioning, and if you overlook any fixed or variable costs at all, your actual profit will consistently fall short of your anticipated profit.

There are many variables to consider from one pharmacy to the next, one market to the next, and one product to the next when creating sell pricing strategies.

You have to base your pricing strategies on what’s true for your market, not on hypothetical situations or blanket pricing tactics. Pricing strategies aren’t born from instruction—they’re born from information. The information is out there—you just need to capture it, analyze it and act on it.

Look at your competition You need to know what your competition is charging.

This is difficult at the line-item level, but not impossible.

Go to other pharmacies and look around—take some

MORE FOR YOUR MONEY notes or scan the circulars. Go to their websites and check out the sell prices they’re offering online. Get a feel for what customers are paying elsewhere for the same products you carry on your shelves.

That doesn’t necessarily mean you should focus on beating your competition on price, however. When you’re up against giants like big box stores, price points can be tough to beat. Without that kind of volume, razor-thin margins aren’t going to get your business to the next level.

But maybe your market isn’t so price-conscious after all? You won’t know unless you investigate or have an expert investigate for you. Do you know what price your best market is willing to pay? You should, if you want to optimize your own pricing. Who knows, maybe your competition is charging more than you had expected?

If so, they’re probably charging more because they know the market will pay more. If they’re right, you’re leaving money on the table by charging less, but you’re probably not winning very many new patients for your efforts.

It’s certainly worth looking into.

Know your market This leads to the next level of information you’ll need to formulate an effective sell price strategy: market demographics. How well do you know your market?

Do you know the ages, family sizes, and income levels of your biggest market segments? Do you know how much consumers in your area generally spend on pharmaceuticals, health and beauty products, and DME every year? Can you accurately sum up the overall values of the customers in your market, and then use that information to customize a product mix with optimized pricing? This information can play a major role in how you set your prices for maximum profitability.

Develop your brand When you have an effective pharmacy brand identity along with an optimal product mix and pricing strategy, you’ll get the most out of the money you spend on inventory. A brand identity can prove especially effective if you can’t beat your competition on price. You can still win more customers by creating a better experience and fostering greater loyalty through non-pricebased incentives.

Case in point: Brand-name pharmaceutical manufacturers that regularly face intense competition from generics. Typically, brand manufacturers do not respond to market pressure by going down on price. They tackle it another way; they compete through branding. Spending money to promote brand-name superiority has been bringing in big returns for some drug companies

for years, despite the price competition they face from cheaper generic alternatives. Even though the brand name may cost more, some patients will prefer to use it instead of a generic because they’ve used the brand for a long time. They recognize the name and they know it works. Use this same idea and create a unique brand identity for your pharmacy. That way patients will be so familiar and happy with your pharmacy, they won’t want to switch to any other—even if it means that your prices are slightly higher than mail order or a chain store.

Executing an effective pricing strategy has never been more critical. Community pharmacies must be able to respond swiftly and strategically to changes in cost, competition, product selection, and consumer demand in order to foster long-term profitability and a successful brand image. It’s important to think like your patients and to recognize that your prices emit signals about your products and your business.

In terms of pricing your products for special promotions at your pharmacy, you have some options. Here are a few common promotional pricing tactics.

Discounts: Specially reduced prices can be a powerful sales tool.

You can run a clearance discount to sell short-dated stock, or you can offer bulk discounts to encourage large orders (i.e. buy three, get one free). But be careful not to discount too much, or customers could start to question your regular prices or view your pharmacy as an inexpensive outlet, which can create certain obstacles when you try to revert back to your full-rate prices.

Odd value pricing: The old retail tactic of pricing items at $3.99 instead of $4.00 is still effective. Use it on your OTC items. It can help show you’ve discounted every cent you can.

Likewise, if most of your everyday prices end in $0.99, try using $0.98 on clearance items. It can have the same effect on how customers perceive the discount.

Loss Leaders: This involves temporarily setting a very low sell price on certain products to meet the specific objective of winning new customers.

Elements | pbahealth.com

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COMMUNITY PHARMACY

Your Pharmacy Needs an Adherence Program

By Kelsea Nore

An oft-cited 2009 study produced by The New England Health Institute (NEHI) estimates that in the United States close to $290 billion dollars is lost every year because patients don’t take their prescribed medications or they take them incorrectly. The same study found that “mortality rates among patients who did not adhere to their medications were nearly double the rates of those who took their medications as prescribed.”

A 2012 report from the World Health Organization (WHO) found that “increasing the effectiveness of adherence interventions may have a far greater impact on the health of a population than any improvement in specific medical treatments.”

These findings add to the growing level of importance placed on preventive health measures and increasingly, the pharmacists who are moving to the front line as primary healthcare providers. As the Medicare Star Rating system and private insurance plans continue to develop, a system for monitoring outcomes and generating data is needed.

“With the Star Ratings system, we’re set up to co-exist with the PBMs. We’re providing something that the PBMs and mail order pharmacies simply can’t do. They can’t have a face-to-face relationship with the patient.

Any other method that they can come up with just isn’t

going to work as well as patient-pharmacist interactions,” said Justin May, Pharm.D., director of pharmacy at Red Cross Pharmacy, a regional community chain with locations in northwest and central Missouri.

“The 90-day mail order supply can almost defeat its own purpose because it’s the multiple points of contact that make the most difference.” May continued, “If we’re doing blood pressure checks at the pharmacy for patients who are diagnosed with hypertension and we do that for the first four months and get them on the right track, that’s great.”

Creating, implementing and tracking an adherence program within your independent pharmacy isn’t just a smart method of treating patients and keeping the doors open, it’s also a huge part of the future of the pharmacy profession.

“Adherence programs and the current healthcare environment are the opportunities pharmacists have been waiting for,” said May. “As a profession, we haven’t been aggressive enough. We go to school for years, have advanced degrees and then we’re told to stand behind a counter and fill or check prescriptions. We’re trained to provide healthcare and clinical services to patients.

We’ve been waiting for years to make these changes.

It’s just a matter of starting.”

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COMMUNITY PHARMACY

Justin May, Pharm.D., director of pharmacy at Red Cross Pharmacy, consults with an EliteCare patient who uses strip dosing to better manage her medication.

Good For the Patient The basis for the majority of adherence programs is synchronization. What this typically means is that multiple prescriptions are coordinated and made available for the patient to pick up on the same day. In turn, this creates an occasion for the pharmacist to examine all of a patient’s prescriptions—which could be from several different physicians—for possible interactions or for cost-saving opportunities. Potential refills are also called-in and made beforehand, eliminating exasperating waiting times for everyone involved.

The Appointment-Based Model (ABM) adherence programs also include a monthly visit or consultation with the pharmacist. During this allotted time, patients can ask questions about their medications. Pharmacists can then offer recommendations for OTCs, diet or lifestyle changes or home health equipment. “We start working on things a week in advance,” said May, “That way we can plan any refills you need, immunizations or a flu shot—all that’s pre-planned and communicated with you beforehand. Instead of sitting there waiting for your script to be filled, you’re having an interaction with the pharmacist.”

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Thrifty White Pharmacy is an independent, regional chain of approximately 90 pharmacies based out of Minnesota. Dave Rueter, executive vice president of personnel at Thrifty White, said, “Big problems create big opportunities for pharmacies that provide solutions.

We have put a lot of effort behind improving medication adherence for our patients.” A study done by Virginia Commonwealth University (VCU) of the Thrifty White Pharmacy organization’s Med Sync ABM-based adherence program showed “that a patient is three to eight times more likely to take their medication correctly using the program.”

The VCU Thrifty White ABM study also measured health costs for diabetics and found that “by moving a patient from the 40-59 percent adherence level to 80+ percent adherence level, you can see a per-patient savings of $4,091 (a 31 percent decrease). When you consider that there are 25.8 million diabetics in the United States, the savings potential of a widespread ABM medication adherence program is astronomical.”

Good For the Pharmacy The Red Cross Pharmacy adherence program, called

COMMUNITY PHARMACY EliteCare, was launched in March 2011. “It’s a comprehensive patient care program and an organizational tool for the pharmacy,” said May. “And right now, our program is all in-store and managed very simply on our computers with a calendar and a spreadsheet for 12 stores. It was essentially started at no-cost.

There are no financial reasons not to implement an adherence program.”

Another benefit of adherence programs for pharmacies is the time management capabilities. “We looked at patients who had been on the program for over a year.

The first thing we noticed is that workflow improved. Our average patient in the program has seven scripts, if you have 10 patients, that’s 70 scripts and a pretty significant part of your day.” May continued, “Phone calls are also reduced because patients aren’t calling four to five times a week, and those calls aren’t generating another one to the doctor, but pretty soon, if they’re only calling once a week or once a month, you find yourself saving a lot of time. For time management, EliteCare is great.”

Improved workflow can also mean a more organized staff. Technicians, float pharmacists and other staff members can plan their shifts according to the busier days, or relegate their time on the clock to other tasks that need attention. An adherence program can also help lower the number of deliveries.

Inventory management can improve when an adherence program is put into practice at a pharmacy.

Knowing that you have an expensive medication on the shelf and a patient coming in every month to receive it gives you an ability to make smart purchases from your wholesalers.

Simply put, running an adherence program at your pharmacy is good for business. “I looked at prescription revenue and found that we were up 29 percent on the patients that had been on for a year or more,” said May. “Our total revenue coming in was 29 percent more from a year prior to them enrolling in EliteCare to one full year of being on EliteCare, and that was as a group.”

And, the numbers aren’t just because the pharmacies are refilling more often. “Thirty percent of our people actually decreased in total revenue for us. It was that the other 71 percent increased significantly enough to increase our revenue by 29 percent.” May continued, “My gut feeling is that it’s because of management— brand to generic changes or duplicate therapy that was eliminated.”

Where to Begin Some pharmacists talk themselves out of starting an adherence program because they believe that they’ll

“Adherence programs and the current healthcare environment are the opportunities pharmacists have been waiting for.” be overwhelmed. Truly, the first step is deciding to begin and committing to that choice.

“It’s like personal finances, “ said May. “If you’ve never done anything with your checkbook, of course it’s going to take some time to organize. Once you get on track—typically two or three months—your adherence program is going to give you all the tools you need to have an organized day.”

May also advised that pharmacies start small.

“Choose five or ten long-time patients, family members or your staff—people that you know will have patience while you iron out the kinks.” Choosing physicians who you know are easy to work with is another great avenue of a successful start.

Another component for success is getting your staff on board with the program. From the owner all the way to your part-time techs, if your staff sees and promotes the value of the adherence program, they’re even more likely to help you ‘sell’ it to your patients.

“Everything we do is focused on the patient.

It’s all centered on providing care an we empower our staff to take care of the patient. Having our pharmacists engaged in the process not only makes sense, but also truly provides a ‘win’ for all the parties involved,” said Scott Hartwig, CEO and co-owner of Red Cross Pharmacy.

Rueter added similar thoughts saying, “Our advice to someone looking to implement adherence programs is that it needs to be a priority for the pharmacy. Enrolling a patient in an adherence program is just the start.

Maintaining the program and communicating with the patients is an ongoing process that can get derailed quickly due to staff turnover, illness, vacations, and so forth. At the same time, it will increase your sales due to the increased number of prescriptions that actually get refilled. The effort is rewarding and will improve the health of your patients.”

Elements | pbahealth.com

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OUTLOOK

The Future of Pharmacy

Pharmacy Exposed An interview with author and pharmacist Dennis Miller reveals why the chain model doesn’t work

By Kelsea Nore

Patients are growing increasingly unhappy with chain pharmacies. Retail pharmacists at chain drugstores are leaving their profession rather than be subjected to working conditions that are not only unmanageable, but also unsafe. Complaints about the ‘fast-food’ business model for pharmacy have grown louder.

With the implementation of the Patient Protection and Affordable Care Act setting the stage for preventiondriven changes on a national level, and an increasingly health-conscious public paying more attention to medical services and products, independent pharmacies are in a prime position to set the example for sustainable, practical healthcare in the United States.

pharmacy is likely to be better than at the average chain drugstore. The attitudes toward customers and doctors at the average independent are likely to be better than at the average chain drugstore, too.”

Miller’s frustration with these issues has been echoed throughout the pharmacy world. Pharmacists have taken to the Internet to express their concerns about modern pharmacy practices on major websites and on their own blogs. Many of these aggravated professionals are relaying their experiences in national chain pharmacies.

And, many are looking at independent pharmacies as a business model that promotes the health of patients... and pharmacists.

Want Fries With That?

Former retail pharmacist and author Dennis Miller, R.Ph., is concerned about the pharmacy profession.

“I quit pharmacy after twenty five years because I was so fed up with slinging out prescriptions as fast as my hands and feet could allow,” he said.

A veteran of three major retail chain pharmacies, Miller published his book, Pharmacy Exposed: 1,000 Things That Can Go Deadly Wrong at the Drugstore in August 2012 to warn the public about aspects of chain store pharmacy that he believes are downright unsafe.

“Chains value a pharmacist’s speed in filling prescriptions far more than they value that same pharmacist’s drug knowledge or customer-friendliness,” Miller said.

“The public needs to know that the chains have developed many metrics that measure how fast pharmacists fill prescriptions. These metrics put pressure on pharmacists to sling out prescriptions faster than most pharmacists feel comfortable in doing.” Miller said. “This can mean such things as overlooking potentially significant drug interactions or taking an ‘educated guess’ when faced with a doctor’s poor handwriting rather than getting on the phone.”

“From my perspective,” Miller said, “real-world conditions mean that the morale at the average independent

Safety Measures “The public needs to know that the biggest concern of many chain pharmacists is that they do not have adequate staffing for the safe filling of prescriptions,” Miller said. Improper staffing makes for a long day without meal or bathroom breaks, and can lead to burnout and a high turnover rate among pharmacists working in chain drugstores.

“Many pharmacists feel like they’re rolling the dice every day when they go to work. Our constant companion is the fear that our next mistake might result in the death or serious injury of a customer,” Miller said.

Miller cited a July 2011 survey by the Oregon Board of Pharmacy that found that only 25 percent of chain store pharmacists agreed that their working conditions promoted safe and effective patient care, compared to the 76 percent of pharmacists working at independent pharmacies.

“Smaller, locally-owned, independent pharmacies often have a totally different culture from that at chains,” Miller said. “With the pharmacist-owner present most of the time, there’s a stability at independents that is very often lacking at the chains; the pharmacist-owner not only has the power to keep good technicians, he or she can also hire an adequate number of them.”

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OUTLOOK Patient Satisfaction Pharmacists aren’t the only ones who seem to prefer independent pharmacies. A 2012 Pharmacy Satisfaction Pulse household study by Boehringer Ingelheim Pharmaceuticals Incorporated shows a substantial disparity between chain and independent pharmacies in customer satisfaction rates. Nearly 13,000 responders contributed to the survey. Of those who utilized chain pharmacies, only 62 percent were ‘very satisfied’ compared to 76 percent of ‘very satisfied’ independent pharmacy customers.

A J.D. Power and Associates’ 2012 U.S. Pharmacy Study found similar results and noted a continuing decline in patient satisfaction with mail order services.

The study cites: “Overall satisfaction with mail order pharmacies averages 792 (on a 1,000-point scale) in 2012, down from 806 points in 2011. This compares with a satisfaction score of 814 for brick-and-mortar pharmacies this year, down from 818 in 2011.”

With a decline in patient satisfaction for both large chain stores and with mail order, independent pharmacies are poised to realign their image in the marketplace.

When asked how independents can best compete against the big box stores, Miller said, “Independent pharmacies should market themselves as a safer and more customer-friendly alternative to the chains.”

Healthcare First Independent pharmacies make the majority of their profits from prescription reimbursement. A study of community pharmacies’ prescriptions sales by UNC’s Cecil G. Sheps Center for Health Services Research found that on average, “Prescription sales constituted over 80 percent of their store’s revenue for 9 out of 10 respondents. For 6 out of 10, prescription sales represented more than 90 percent of their retail business.”

Unlike independent pharmacies, most chain drugstores make their profits through front-end sales.

That’s why many of them stock more shades of home hair color treatments than health supplies, or why the majority of large chains sell cigarettes or alcohol, Miller said.“It’s time for a major overhaul in pharmacy.

Pharmacy needs to move toward a model that serves patient needs rather than corporate interests, and toward a model that places the health and well-being of pharmacy patients ahead of corporate profits.”

Dennis Miller, RPh., is a former chain drugstore pharmacist and author of Pharmacy Exposed. He wrote this book to warn others about the hidden dangers of the chain drugstore culture.

About the Author How long did it take to write Pharmacy Exposed?

Believe it or not, I worked on this book for nearly 30 years. In many ways, Pharmacy Exposed is like a diary.

To help me relieve stress, I would often go home after my shift and write about what I had seen at work that day. So, my book hopefully reflects the frustration that so many pharmacists feel from working in dangerously understaffed chain drugstores.

What are your hobbies and interests?

I am a political junkie and a news junkie. I spend far too much time online reading about politics and current events.

Where did you attend pharmacy school?

Pharmacy Exposed: 1,000 Things That Can Go Deadly Wrong at the Drugstore by Dennis Miller, RPh., can be purchased online through Amazon.com.

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I graduated from West Virginia University School of Pharmacy in 1975. I worked in West Virginia and North Carolina.

NOTES

Get More Patients to “Like” Your Pharmacy (On Facebook, that is.)

Facebook isn’t something to ignore. Some of the site’s 850 million monthly active users are your patients. If you don’t have a Facebook page for your pharmacy, or if you aren’t actively updating your page, you’re missing out on connecting with them. The social networking site can strengthen your relationships with your current patients, and it can also help you gain new patients. A whopping 77 percent of business-to-consumer companies acquired customers from Facebook in 2012, according to Business2Community.com. Use our tips to get the most out of your pharmacy’s Facebook page.

Take 10 minutes a day That’s all the time you need to devote to your Facebook page to maintain it. Use that time to answer people’s comments or questions and post a status update or share a photo.

Show some personality Your page’s wall is the perfect spot to let people “get to know” your pharmacy. Use Facebook to show what makes your business unique.

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Some ideas: Share fun facts about your employees, upload photos from pharmacy events and let patients know about special services you offer, such as compounding or free delivery.

Know about Facebook Places Facebook Places is a “check in” feature that enables users to share their locations using their smartphones. When users “check in” at your pharmacy, they essentially let all of their Facebook friends know that they’re using (and supporting) your business.

An easy way to tap this market is to offer coupons or specials to people who “check in” at your store.

Share relevant information Your fans on Facebook are looking for the same kinds of information you would share with them if they came into your pharmacy. Share health information, such as how to avoid sunburn, nutrition tips, how to read a prescription label, and more.

Use the seasons, your community, the age of your patients and other factors specific to your pharmacy to guide you on what to share.

Make an informal survey Ask your Facebook fans questions that you can use to improve your business. It’s free feedback. Post a question to your Facebook page asking why your fans come to your pharmacy besides to pick up their prescriptions. Or, ask them what they like about hometown pharmacies over chains. Get creative!

Use photos to promote your business People are innately visual. Posting photos on Facebook is a great way to drive engagement. Instead of just posting a status update that says you offer free vitamins for kids, share a picture of the products! You could also give fans a “behind-thescenes” look at your pharmacy.

Post a picture of a pharmacist counting pills or of an in-theprocess compound, for example.

Don’t forget to “like” PBA Health on Facebook for more pharmacy business and marketing tips!