Elements Magazine - September 2019 Vol.8 Iss.3

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ELEMENTS ELEMENTS WHEN ROBOTS TAKE OVER How one pharmacy uses robots to increase volume and improve patient care

SECOND TO NONE How to find a premier secondary supplier

Grow with the Flow Simple strategies guaranteed to boost cash flow (+ advanced formulas)

VOL. 8 ISS. 3 | SEPTEMBER 2019 | PBAHEALTH.COM/ELEMENTS

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CONTENTS ON THE COVER

20 FEATURE | Grow with the Flow Simple strategies guaranteed to boost cash flow (+advanced formulas)

DEPARTMENTS

07 NEWS | Self Care New consensus recommendations promote pharmacists’ well-being and resilience

08 TRENDS | Surviving Shortages Learn how to protect patients and profits during drug shortages

10 RETAIL | Picture Perfect Your pharmacy’s appearance matters more than you think

FEATURE | Grow with the Flow

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13 SOLUTIONS | Is It Time to Downsize?

A Harvard expert’s guide to downsizing the right way

24 SPOTLIGHT | When Robots Take Over How one pharmacy uses robots to increase volume and improve patient care

27 MONEY | Going Long

Long-term care opens the door to long-term profits

32 OUTLOOK | Second to None How to find a premier secondary supplier

ELEMENTS | The business magazine for independent pharmacy | SEPTEMBER 2019

OUTLOOK | Second to None

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ELEMENTS

The business magazine for independent pharmacy

ON THE WEB Find more strategies, tips, and expert advice to improve your business at pbahealth.com/elements

VOLUME 8, ISSUE 3 SEEPTEMBER 2019

Is Owning a Pharmacy Profitable?

PUBLISHER & EDITORIAL DIRECTOR

Owning an independent community pharmacy

Matthew Shamet

requires a large investment—financially,

EDITOR

physically, and emotionally. But is owning

Greyson Honaker

a pharmacy profitable? Read more at pbahealth.com/is-owning-a-pharmacy-profitable.

ART DIRECTOR Anna Brooks CONTRIBUTING WRITER

25 Irresistible Pharmacy Promotion Ideas to Get More Patients

Erin E. Rand

If you don’t promote your independent pharmacy, it won’t grow. Use these easy

INTERESTED IN ADVERTISING?

pharmacy promotion ideas sure to attract

elements@pbahealth.com

new patients to your pharmacy. Read more at pbahealth.com/pharmacy-promotion-ideas.

Here Are the Pharmacy Inventory Control Methods Every Pharmacy Needs to Know Inventory is your pharmacy’s biggest investment.

A healthy business requires minimizing inventory on hand and maximizing inventory turnover.

Discover the best pharmacy inventory control methods to make the most of your inventory.

Read more at pbahealth.com/ pharmacy-inventory-control-methods.

Follow Elements magazine on Facebook and Twitter for pharmacy business tips and advice, news announcements, industry informaElements magazine is published quarterly by PBA Health.

Copyright© 2019 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

SELF CARE

New consensus recommendations promote pharmacists’ well-being and resilience As good as pharmacists are at taking care of others, it turns out

recommendations address more notorious issues like DIR fees and

they aren’t very good at taking care of themselves. In July, nearly

shrinking reimbursements, which were included because “it is not

100 pharmacy stakeholders from across the country convened for

good for our patients, the safe provision of patient care, and the

just that reason.

viability of the profession—no matter what practice setting one is

“Nearly a half-century of research has described the issues and concerns associated with job stress, moral distress, work overload,

in,” according to Tice.

At the individual level, many recommendations urge

burnout, and level of control within the pharmacy profession …

pharmacists to take personal responsibility for their well-being,

The well-being and resilience of the pharmacist workforce must be

like this one: “Pharmacists should assume their professional

effectively and efficiently addressed by all pharmacy stakeholders.”

responsibility to proactively identify personal stressors, learn self-

That statement introduces the convention’s report, which provides 50 recommendations aimed at reducing the mental

care techniques, and consistently apply strategies that address well-being and help prevent burnout.”

and physical burdens belaboring pharmacists. The conference— Enhancing Well-Being and Resilience Among the Pharmacist

CREATING CHANGE THAT LASTS

Workforce: A National Consensus Conference—was organized

These issues require a cohesive front from all stakeholders, Tice

by the American Association of Colleges of Pharmacy (AACP),

said, if there’s going to be real change in the industry. “No one

the Accreditation Council for Pharmacist Education (ACPE), the

organization can tackle issues of this magnitude alone.”

American Pharmacists Association (APhA), the National Association

Although these recommendations do not come with official,

of Boards of Pharmacy (NABP), and the National Alliance of State

enforceable authority at the national or state level, the hope

Pharmacy Associations (NASPA).

is everyone involved in the industry will take responsibility for

The consensus recommendations come on the heels of similar initiatives introduced in state congresses across the country in

implementing them in their particular areas of influence.

“The report from the conference should be viewed as a call

recent years, with legislators advocating bills to limit pharmacists’

to action, with each individual and organization engaged in the

work hours and enforce routine breaks throughout the day. A

profession finding the recommendations that they can individually

current Illinois bill, for example, would limit prescription fills to 10

or collaboratively make a difference,” Tice said. “All stakeholders

per hour, cap the workday at 8 hours, and mandate break periods,

should be able to find areas in the recommendations that they can

among other requirements.

address and collaborate with others to facilitate changes that make

The 50 recommendations include similar proposals regarding working conditions but are considerably broader. “These recommendations provide immediate, viable, and sustainable solutions to create improvements at the societal level, the organizational level, and the individual level,” said APhA President Bradley P. Tice, PharmD, MBA, FAPhA. They address topics such as payment models; relationships between pharmacists and employers; well-being education and training; communications; and data, information, and research on pharmacist well-being, among others.

A large number of recommendations aim to reduce pharmacists’ tasks that don’t directly affect patient care, including a proposal to limit pharmacists’ administrative duties to tasks that are absolutely necessary. Another suggests increasing technicians’ training and skillset so pharmacists can delegate more tasks. Other

a difference for the profession, healthcare, and the patients we serve.”

“The well-being and resilience of the pharmacist workforce must be effectively and efficiently addressed by all pharmacy stakeholders.”

ELEMENTS | The business magazine for independent pharmacy | SEPTEMBER 2019

7

TRENDS

SURVIVING SHORTAGES Learn how to protect patients and profits during drug shortages It might be time to add drug shortages to the list of eternal

consistently monitor the ASHP and FDA websites that list current

certainties—alongside death and taxes. According to the American

shortages. And reach out to all your connections, such as your

Society of Health-System Pharmacists (ASHP), drug shortages have

group purchasing organization, social media, and professional

only grown since 2004, averaging 160 per year and peaking at 267

networks, Fox said.

in 2011.

“It’s safe to say that shortages aren’t going away,” said Erin Fox,

Once you recognize a shortage, the first step is to make a list of all the patients who will be affected. Then take inventory of what

PharmD, BCPS, FASHP, senior director of drug information and

you have on hand and estimate how long your supply will last.

support services at the University of Utah Health. Most recently,

Figure out which patients will be able to safely use therapeutic

pharmacies have been hampered by a prolific recall of several

alternatives and verify that the patient’s insurance will cover it. With

cardiovascular drugs containing contaminated valsartan, which

that information, you’ll know how to best manage the medication

hasn’t subsided since the initial announcement in July 2018.

for the greatest benefit of your patients.

Additionally, the CDC-preferred shingles vaccine, Shingrix, has

Rationing the medication may require convincing patients to

suffered from a shortage since May of last year, and providers will

switch their automatic refills to take place more frequently, say

continue to experience order limits and shipping delays through

from a 90-day refill to 30-day. In these cases, explain the issue and

2019 at least.

inform them that the switch will enable other patients to access

Shortages pose obvious problems for patients who rely on consistent medication to manage their health. But they also pose

necessary medication.

Other actions to take during this process include searching

serious issues for your business. For starters, “certainly you’re not

for the medication from alternate suppliers, contacting the

going to have the business if you don’t have the product,” Fox said.

manufacturers and wholesalers, and putting together official

And if you’re fortunate enough to find a substitute, it comes at a

patient communications.

high price. Total costs for substitutions reached more than $200

For all these approaches, the ASHP recommends creating

million in 2013, according to an ASHP report. That doesn’t include costs for drugs purchased off contract, therapeutic alternatives, and additional labor required to “manage the multiple pharmacy automation systems and electronic medical record changes that must be adjusted in the face of a drug shortage.”

And patients who can’t get their prescription medication from you may find it at a competitor and not look back. Depending on how you handle the situation, frustration alone may send them away for good.

To make matters worse, most pharmacies don’t find out about a shortage until the day the shipment fails to show up, Fox said. Drug manufacturers aren’t obligated to publish shortages to the public or their clients.

RESPONDING TO A SHORTAGE Despite these frustrating realities, there are several things you can do to minimize the consequences and keep your patients and profits happy.

Because manufacturers won’t warn you of a shortage, you need to always be alert and aware. Take special note of shorted product

What Causes a Shortage?

• Unique market for drug products • Manufacturing and quality problems • Production delays and lack of capacity • Manufacturer business decisions • Shortages of API or raw materials • Restricted distribution and allocation of drug products • Inventory practices

orders, which is the prime sign of a shortage. Use dedicated staff to Source: ASHP Guidelines on Managing Drug Product Shortages, 2018

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“It’s safe to say shortages aren’t going away.” formal processes with dedicated teams for specific items. Fox said having this infrastructure in place beforehand is the most important factor in successful management of a shortage. When the shortage occurs, the whole team will know who’s responsible for what and will follow a consistent process, which will increase efficiency and effectiveness.

GETTING THE NEW SHIPMENT No one can predict when the drugs will become available, but the ASHP website lists estimated release dates for individual NDCs for back orders. Even though you can’t control when you’ll receive the new supply, be proactive. “Stay in communication with your wholesaler,” Fox said. “Even providing them with some data about, ‘I have 20 patients that need a refill of this prescription, I have a back order placed, can you tell me when it will release.’” She suggests accepting partial orders if that means getting some drugs sooner.

Don’t let desperate times cause desperate measures. It may be tempting to reach for gray market secondary suppliers to fill the gap, but think twice before you do. Like the valsartan

Make It Official: Shortage Preparation Strategies

contamination, drugs from these suppliers may be substandard or counterfeit.

And they may come with a heavy financial burden. “One of the

Before a shortage occurs, the ASHP suggests your pharmacy should institute committees and processes

frustrating things about using a gray market secondary supplier,

specifically dedicated to addressing shortages. Here’s

it’s usually at a very high cost,” Fox said. “It’s almost never worth it

how you can prepare.

to use one of those distributors. Usually they can’t help you with all of your patients. It’s usually a small supply. Is it worth the expense

Drug product shortage team: Responsible for

and trouble?”

data gathering and monitoring; purchasing alternatives; changing storage, preparation, and dispensing

PRESERVING PATIENT RELATIONSHIPS

procedures; deciding to conserve or ration; implementing

During shortages, patients will understandably be frustrated. But

technology changes; and communications.

with the right approach, you can minimize the damage and keep them loyal. Fox suggests being straight with patients. Show them

Resource allocation committee: Composed of

it’s a national crisis, not just an inventory mistake. Be transparent

various stakeholders responsible for deciding how to

about the specific actions you’ve taken and that you’re taking to

distribute available drugs among patients.

solve the problem. Assure them that you’ll notify them as soon as their medication is available. Although it’s counterintuitive,

Process for approving alternative therapies:

consider reaching out to other pharmacies for your patients to see

Procedures to efficiently and effectively identify, approve,

if they still have the medication in stock. Patients will likely try that

and communicate alternative medication options.

anyway, and this demonstrates that you truly care and goes a long way toward building loyalty.

Process for addressing ethical considerations: Consistent system for deciding how to ethically handle limited drug availability.

RETAIL

PICTURE PERFECT

Your pharmacy’s appearance matters more than you think Everyone knows not to judge a book by its cover. But when it comes to businesses, hardly anyone abides by that rule.

“Most people form an impression within the first seven

Beyond the store name, use additional signs to make your pharmacy stand out. Put one or two signs in the windows promoting things like free blood pressure screenings or flu shots

seconds,” said Tom Boyer, director of national accounts and

to catch the attention of people outside. Or place chalkboard

member of the owners group at Hamacher Resource Group (HRG).

or sandwich board signs with crisp and colorful lettering on the

“Think about when you go into a new restaurant, department store,

sidewalk so they are visible from the street. “It draws attention, and

or doctor’s office—that first couple of seconds matters.”

it’s a little something different to spark interest as they’re driving

The look and feel of the building, inside and out, forms customers’ judgments in those first seconds and beyond—as

by,” Volheim said.

Seasonal decorations can also drive foot traffic. “I’ve seen

much in a pharmacy as anywhere else. “In the pharmacy world,

some pharmacies put small evergreen trees lit up with holiday

appearance might not feel like a big thing, but the exterior and

lights outside,” Tom said. “Some stores will go really crazy with

interior do make important impressions.”

decorations around Halloween. If the store has a large gift area,

Those impressions could be the difference between a patient loving or leaving your pharmacy. An attractive store earns business

they can do fun displays in the store and in the windows to bring people in.”

and spurs patients to spread the word, which is the goal of every retailer, Boyer said.

STEPPING INSIDE Once you’ve established an attractive exterior, you have to deliver

CURB APPEAL When it comes to the outside of your pharmacy, said Colleen

on your promises with the inside of your pharmacy.

Start with your entry. “If you’re planning to host a party at your

Volheim, HRG’s category research and analysis manager, it

house, what do you do? You make sure that the house is clean, and

should be “as welcoming as you can make it.” Creating a warm

that the entryway is very inviting,” Tom said. The same principles

and appealing exterior can come as a particular challenge to

apply to your pharmacy. Within that first couple of steps, the entry

pharmacies with rented space in shopping complexes where every

should remain open and uncluttered. Instead of hitting patients

retail outlet blends into the next. There are still ways to make your

with a floor display as soon as they walk in, give them a little bit of

pharmacy stand out, though.

space to breathe and absorb everything.

Clear, readable signage is a must. Keep it simple. “I’ve seen

Aesthetic features can go a long way in creating a relaxing

stores go overboard with backlighting behind the words, and it’s

shopping experience. The light fixtures and paint color should be

hard to read,” Boyer said.

bright, but not too bright. These small details are an opportunity

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for the pharmacy’s personality and branding to shine through.

As you think about the store layout, keep patients at the front of your mind. Make sure to create a space that’s comfortable for them to shop in. “Do you have older customers using walkers or

A checklist reminding you to replace rugs once a year and update your outdoor decorations seasonally can prevent your pharmacy appearance from getting stale.

Involve your staff so that everyone feels ownership over the

wheelchairs? There needs to be room for them to get around your

appearance. Boyer recalled, “In a large store I worked with, the

store easily,” Volheim said. This might mean expanding the space

pharmacist assigned ‘category captains’ who each had a certain

between the aisles so they are easier to maneuver.

part of the store that was their responsibility. It was like an internal

Interior signage should also make the shopping experience more pleasant. From the entrance, patients should have a line of sight that includes the entire operation: the checkout counters, the

contest, who could make sure their area was always stocked, refreshed, and clean.”

By keeping up with the little things, you let your consistent

departments, and the pharmacy. Hang signs from the ceiling to

customers know that you care, which makes it easier for them to

help people find where they need to go.

trust you with taking care of their health.

Shelf talkers—the signage found among your products— are a great way to keep your pharmacy’s personality apparent

Hamacher Resource Group focuses on improving results across the

throughout the store. The colors, design, and layout of the signs

retail supply chain by addressing dynamic needs such as assortment

should remain consistent “rather than talkers from multiple

planning and placement, retail execution strategy, fixture coordination,

sources, where you’re losing your branding and it’s confusing to

item database management, brand marketing, Rx track and trace, and

the shopper,” Boyer said. They are also a great way to keep your

analytics.

store feeling fresh without a lot of effort. By changing them out frequently, patients feel like they’re seeing something new every time they walk in the store.

And because your pharmacy is a healthcare destination, cleanliness and tidiness are particularly important. A tidy and well-lit store can provide a comfortable visit for sick and weary patients. “Thoughtfulness and little details like that can go a long

Make Your Shelves Do the Talking

way,” said Megan Moyer, senior marketing communications specialist for HRG. “When shoppers aren’t feeling well or can’t

“Shelf talkers” are signs placed on the shelves that help

get around easily, you want to make their visit as stress-free as

particular products break through the white noise. They

possible.”

catch patients’ attention and encourage impulse buys.

Here are a few types you can use in your pharmacy.

STAY FRESH Just like your home, your pharmacy’s appearance needs an

Compare and Save: Show price differences between

occasional refresh. “If there aren’t significant changes over the

national brands and private label equivalents.

years, customers might lose interest in shopping your front of store,” Boyer said. “Updates can reengage your long-time shoppers

New Items: Highlight new-to-the-market products that

because there’s something new and interesting about the store.”

patients might not have seen before.

A good rule of thumb is to do some sort of remodel or update every seven years. It could be as much as a full remodel or as little

Promotional Items: Feature products that are on

as replacing aging carpet or ceiling tiles.

sale or have everyday special pricing.

An inexpensive paint job can go a long way. “You may keep the fixtures the same, but update the wall color,” Boyer suggested.

Pharmacist Recommendations: Call out items

“When you put it all back together, it looks clean and fresh.”

hand-picked by the pharmacist—they may even feature

Because you see the pharmacy every day through your eyes, it

a photo of the pharmacist.

can be easy to stop noticing the little things—stains on the ceiling tiles or chipping paint on the walls. But these things are obvious to patients. Instead of entering through the back door like you usually do, “walk in like you’re a customer and look around from that vantage point with a fresh pair of eyes, or ask someone to do it for you,” Volheim suggested.

Make a plan to take a look at your pharmacy every so often.

ELEMENTS | The business magazine for independent pharmacy | SEPTEMBER 2019

11

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SOLUTIONS

IS IT TIME TO DOWNSIZE? A Harvard expert’s guide to downsizing the right way As the United States finishes up its tenth consecutive year of

Before making such a business-altering choice, you should slow

economic growth, independent pharmacy is in its fourth year of

down and consider it very carefully. Sucher cites the French tire

downturn. Salaries, prescription margins, and the number of

manufacturer Michelin as an example of how to wisely handle the

existing independent pharmacies have declined each of the last

downsizing decision. “They treat this aspect of their management

four years. In this climate, more and more community pharmacies

process very seriously,” she said. “They ask really tough questions

are forced to take make difficult decisions to keep their business

about the factories they choose to close. Questions like the ones a

alive.

smart government official or journalist might ask.”

There’s no doubt that making the decision to lay off part of their

They have a committee investigate the possibilities, which then

tight-knit pharmacy crew is the last thing an owner wants to do. But

submits a recommendation to the executive board. This process

sometimes, it is unavoidable. “These are just things that are part of

ensures that layoffs are the only option—that there isn’t some

managing a normal, competitive business where you have to make

other way to maintain the business that hasn’t been explored.

changes as your market changes,” said Sandra J. Sucher, professor

Michelin incorporated this process into its regular planning

of management practice, Joseph L. Rice III Faculty Fellow at Harvard

strategy after an intense decision about closing a factory in Hun-

Business School. In her 20 years of experience, Sucher has done

gary when demand for its tires had waned. With an official process

extensive research on layoffs and restructuring in companies as big

in place, it would always be prepared for the next downturn at one

as the Fortune 100.

of its factories. “They decided this was a process they were going

Although nothing will make downsizing easier to do, it will be

to try to get good at as a corporation, because they knew it was an

easier on your employees and on your business if you go in with a

ongoing activity, and they wanted to be able to do it in a way that

clear-eyed and empathetic plan. Even though it might seem cynical

would be consistent with their values.”

to plan for the worst, if you go into a downsizing under-prepared,

While your pharmacy might not have the resources for an

your profits, your reputation, and the quality of your customer

exploratory committee, you can still use the same preparation,

service will suffer.

caution, and thoughtfulness that Michelin uses when debating downsizing.

WHEN TO DOWNSIZE “The kinds of downsizing events that make sense are strategic

WHEN NOT TO DOWNSIZE

ones,” Sucher said, “when there is a mismatch between the

There’s one certainty you don’t need a committee for: Never use

resources that a business needs to have and the staff they

layoffs as a quick way to save money. “For short-term profitability

currently employ.”

problems, downsizing is a bad solution,” Sucher said. The economic ELEMENTS | The business magazine for independent pharmacy | SEPTEMBER 2019

13

the industry beyond your control, or there are changes in demand

Questions to Ask Before You Downsize

that have put the pharmacy in a financial squeeze—it’s important

Even in the face of financial troubles, downsizing isn’t

more trustworthy.”

always the answer. Ask yourself these tough questions before you choose to continue with layoffs.

• Have we given the situation enough resources to succeed?

• What has made us uncompetitive?

• Have we worked through other possible solutions?

• Why is closing the only solution we can think of?

that the employees who are leaving and the ones who are staying understand the conditions that are causing a layoff. “If you do those kinds of things, people will have a foundation to trust you,” Sucher said. “Because you’ve told them the truth, you’ve become Managers might balk at giving employees advance notice that a layoff will be happening. Many assume that if employees know they’ll be losing their jobs, they’ll try to sabotage the business.

“I’ve studied companies that have told people as much as 18 months in advance that they would be moving their jobs, and because people trusted the company was going to help them try to get re-employed, they could live with the ambiguity of that,” Sucher said. In fact, job performance actually improved, because people wanted to prove to their employer that it would be a mistake to let them go.

This sort of open communication is especially important for the employees that will be staying on after the downsizing takes place.

Transparency inspires trust and reassures remaining employees that there is still a place in the business for them even after some

consequences of downsizing are often longer-lasting than whatever short-term issue a business is having, even if the financial outlook for the larger economy appears dim.

“Ask yourself, ‘If I knew that the situation was going to be way better in 18 months, would I do what I’m going to do right now?’”

Sucher said. Recessions last, as a rule of thumb, around 18 months.

“Most of the time, you’d see that this is not a good business decision, because by the time you’re done implementing all these changes, the world will have changed.”

If you dismiss staff as part of a last-ditch, cost-cutting frenzy, you may find that you’ve let go of someone who is crucial to the operation of your pharmacy and the team members that you have left are less productive. You could find your business hurting far longer than it would have if you’d left your team intact.

OPEN COMMUNICATION What sets a company apart during a downsizing event is having a plan in place and being transparent about what that plan means, Sucher said. Downsizing usually feels like a “senior management” type decision, where the staff doesn’t need to be included in the executive conversation. But not communicating to the employees is “a remarkably inefficient and demoralizing way to run an organization,” Sucher said. “One of the first mistakes is that companies underestimate the value of clear communication in offering people a rationale for why they are doing what they are doing. If you want to be trusted, you need to have some sort of pathway of communication, and when the time is right, you can let people know and give them advance notice.”

Even if the decision seems complicated—that there are forces in

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of their friends and co-workers have left.

REASSURE YOUR WORKFORCE Getting rid of staff will undoubtedly shake your remaining employees. How you decide to move on can be crucial to your pharmacy’s future productivity. “The real problem is with the so-called ‘survivors’ who are so demoralized and concerned that if you didn’t treat their colleague—who until yesterday seemed to be a valued member of the work force—with any kind of respect, what will happen if you need to do that to them?” Sucher said.

Team members should be given a chance, in small groups or one on one, to talk about the layoffs with their supervisor. They should feel comfortable asking questions and voicing concerns.

“There is communication and acknowledgement that this has been an emotional event, and that people need a way to process it with some help from the company,” Sucher explained.

After the initial announcement, clearly establish how the pharmacy will continue operating. This can sometimes be difficult, because businesses often don’t know who has been doing the most important work until that person has been laid off.

The most important thing: remember your employees are human even as you make calculated decisions about your pharmacy’s business. “You really need to create a caring culture where people all the way through the hierarchy are treated as human beings,” said Sucher. She cites Michelin, which relies on the mission, “Respect for people, respect for the facts.”

By keeping decisions grounded in facts, she said, businesses will be able to have the difficult conversations about why they are downsizing—what the root cause of the problem is, and what the

alternatives are.

While respect for facts is important, respect for people is

“It always strikes me as unfair that we ask employees to dedicate their commitment and loyalty to a company,” Sucher said,

essential. “It’s one of those things that every company says. Some

“but then the company doesn’t have a reciprocal obligation to their

companies absolutely stick to it, and people are proud to work for

employees.” Businesses that take into account the human cost of

them,” Sucher explained. “For others, it just makes employees

downsizing along with the financial benefits set themselves up for

cynical, because they see the company doing things that clearly

success in the future.

don’t show respect for the people working there.”

UNEXPECTED COSTS Although layoffs will decrease the size of your payroll, downsizing comes with real costs that become apparent over time. Even if productivity isn’t affected, quality will be. “People get so worried about whether they’re doing enough work that they don’t

Answer Your Employees’ Concerns

pay attention to safety and quality,” Sucher said.

When businesses downsize, there can be a three-year

After a layoff, your remaining team members will be

profitability lag between them and similar companies that don’t

shaken. Be prepared to answer these questions and

downsize, Sucher said. That’s because the surviving employees

rebuild their trust.

disengage as they worry if they’re going to be the next to go.

There’s a reputation risk, too. When companies are in a position to hire again, they might find it difficult to attract the best people because they’re known to have a casual attitude toward their employees.

One way to circumvent this is to provide support to employees when you have to let them go. “Companies that downsize well have a commitment to taking care of people and help them get reemployed,” said Sucher. When Nokia was downsizing, they provided five different options to help people get new jobs,

• What is the compelling reason you had to lay off my friends?

• What is your vision for the future that’s going to lead us to be better than where we are right now?

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ELEMENTS | The business magazine for independent pharmacy | SEPTEMBER 2019

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FEATURE

GROW WITH THE FLOW

Simple strategies guaranteed to boost cash flow (+ advanced formulas)

ELEMENTS | The business magazine for independent pharmacy | JUNE 2019

17

In 2004, Amazon founder Jeff Bezos wrote a letter to shareholders

bank over time,” Cairns said. The better your cash flow, the more

explaining his business’s most important financial measure. What

money you’ll have on hand to invest in your business, pay your bills,

he didn’t say will surprise you. He did not mention profit. Nor did

and prepare for unexpected expenses. In short, cash flow keeps

he cite earnings. Not even capital, EBITDA, or sales.

your business sustainable.

“Our ultimate financial measure, and the one we most want to

Cash and profit won’t typically be an either/or question at your

drive over the long-term, is free cash flow,” he said. Above every

pharmacy. Ultimately, all profit eventually translates to cash. But

other measure, cash is the engine that drove the small online

sometimes you need to prioritize one over the other. The main

bookstore to a $1 trillion global company.

difference between cash and profit is timing. Although all revenue

Amazon is the most apparent example of what business experts

becomes cash, it takes time to get there, and that difference

and investors have known for a long time. “Cash flow is vital to

introduces a tension that affects your business decisions in

the success of a business,” said Brent Rollins, RPh, PhD, Associate

substantial ways.

Professor of Pharmacy Practice at the Philadelphia College of

If you need to speed up cash flow to make your payments on

Osteopathic Medicine Georgia Campus School of Pharmacy. “More

time, you may have to sacrifice profit. You may need to mark down

often than not, when you look at the health of a business, the cash

items to sell them faster, or you might delay inventory payments

flow statement is just as important if not more important than

and miss out on prompt pay discounts, for example. The sweet spot

anything else.”

every pharmacy business owner needs to learn is how to maximize

Many business owners equate profitability with success, a

profits while maintaining a positive cash flow.

common conception which fails to acknowledge that a company can be profitable and still fail. “This is where many companies get

THE BOTTOM LINE

tripped up,” said Brian Cairns, founder of ProStrategix Consulting,

At the end of the day, improving your cash flow is about converting

a consulting firm that provides guidance and expertise to small

sales to cash in the bank in a timely manner—so you have cash

businesses. “You can book profit while still having a negative cash

when you need it. Many elements affect how long it takes to see

balance.” If profits are tied up, say in reimbursements or inventory,

money in your bank account after a patient pays for a prescription

then the company may not have enough cash to pay the bills when

and how long it takes for money to leave the bank when you need

they’re due. You can’t pay salaries with IOUs or profit statements.

to make a payment.

“Cash is like air and profit is like food,” Rollins said. “You can

On the cash-received side, these factors include “rebates,

survive for a while without the food but if you don’t have air you

reimbursement, merchant processing time, bank processing time,

can’t breathe. That’s why they say cash is king.”

or anything which causes cash to be held in accounts receivable,”

Cash flow is the journey from a sale at the register to cash

Cairns said. On the cash-spent side, there is payroll inventory

in your bank (getting paid) to cash out of your bank (making

replenishment, supplier terms, petty cash, expenses, interest

payments). “You can think of it as how much money you have in the

payments, loan payments, rent/lease terms, or anything that

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affects accounts payable. “This is challenging since most of it is

Monitor your receivables on a weekly or monthly basis, paying

outside the pharmacy’s control,” he said. “It’s best to focus in on

attention to the number of days it takes before a receivable gets

what you can control.”

converted to cash. It should take less than 20 days on average for

To do that, you have to understand your financial statements.

“Those matter as much as anything, probably second after

credit sales and insurance claims.

If you notice past-due receivables, contact the patient to verify

understanding how to take care of patients and do your job,”

his or her insurance information, then contact the insurance

Rollins said. “Knowing and understanding the things that impact

company to ensure the prescription was billed correctly.

your financial health through financial statements—what’s an asset, what’s a liability, what’s a balance sheet.”

Fully mastering the financials requires further knowledge of

You should also consistently reevaluate your payment terms from third parties and try to negotiate terms that accommodate your needs. “When you have to owe something to someone, try to

some basic formulas for calculating cash flow day-to-day and

negotiate the payment terms,” Cairns said. “You have to evaluate

month-to-month for your pharmacy—such as how long it takes on

your terms and make sure it’s the best deal for you, based on

average for your sales to convert to cash and when precisely each

your cashflow.”

month you’ll need the cash available. That knowledge enables you

Pharmacy Services Administration Organizations (PSAOs) may

to leverage decisions and ensure you’re receiving enough cash by

be able to help with both reconciliations and negotiations. Many of

the time you owe it. (Check out the sidebars in this article for the

them offer reconciliation services that can speed up payments, and

metrics you should know.)

most provide increased leverage negotiating with third parties on

Once you understand your financials, you’ll know how much

payments terms.

cash you need to free up and when. Even small changes across the board can start churning out cash to sustain your pharmacy

FORGO PROMPT PAY TO SUPPLIERS

through tough times or through rapid growth.

As you know, wholesalers offer varying allowances on payment times but generally give up to 90 days. The longer you wait to pay,

ESTABLISH A LINE OF CREDIT

the more cash you’ll have on hand. If you have a high need for cash

A line of credit provides short-term, low-cost funds to meet the

flow, waiting the full 90 days will help you keep cash longer.

day-to-day expenses of your business when your cash flow isn’t sufficient. “It’s a fail-safe measure from which you can draw up to a pre-set amount at a fixed rate,” Cairns said. “You use it as you need, and pay it off over time. This is generally much better than

Two Ratios to Know

factoring invoices or other less desirable sources of cash.”

Make sure to establish a line of credit with your bank before

Dr. Rollins makes sure his students master these two

you actually need it. One of the biggest mistakes pharmacies make,

ratios in his classes. “In essence it’s a measure of how

Cairns said, is not seeking a line of credit when business is good.

well you can pay your debts,” Rollins said. These can

“Banks are most likely to lend when you are in great shape,” he

serve as a quick temperature gauge of your short-term

explained. “If you wait until you have a problem, then you will be

cash flow, or at least your ability to turn your assets into

left with few good options.”

cash.

Rollins cautioned against seeking a line of credit to pay for depreciating assets, but he otherwise recommended the idea.

Current Ratio:

“As long as the credit helps you survive a period of time while

Current Ratio = Current Assets ÷ Current Liabilities

you’re getting started or into something that will add value to your

This metric reflects how many dollars of current assets

business and help you grow, then you’re doing a positive thing.”

the pharmacy has to pay for each dollar of current liabilities. This number should be more than two.

COLLECT RECEIVABLES As long as your receivables are sitting on the balance sheet, they’re not putting cash in your pocket. “Here’s the ultimate point: You

Quick Ratio (Acid Test):

have to get paid fast,” Rollins said. If you are waiting on a late

Quick Ratio = [(Cash) + (Accounts Receivable)] ÷ Current

check, but something is due right now and you don’t have the cash

Liabilities

to cover it because you were expecting a payment that didn’t come,

This metric reflects how many times the pharmacy

you’ll find yourself in trouble. “Getting paid fast and consistently is

can immediately cover its current liabilities if it had to,

of the ultimate importance.”

without including inventory. This number should be more than one.

ELEMENTS | The business magazine for independent pharmacy | SEPTEMBER 2019

19

However, this strategy can reduce your profit. Because most wholesalers offer financial incentive to pay quickly, you’ll likely be

purchase the right amount of inventory at the right time, making sure you’re only using up as much cash as you absolutely need to.

sacrificing profitable discounts by holding out. This is where it’s crucial to have a good grasp of your financials, so you can decide if

MINIMIZE PAYROLL

the benefits of increased flow outweighs the benefits of increased

Reducing payroll reduces the amount of cash going out of your

profit. “That decision is learning—learning your own cash flow,

business. That doesn’t mean getting skimpy with wages and

what goes in, what goes out, when can you do those things, when

salaries, but it does mean implementing an efficient work schedule

does it work for you as a business owner to save that two percent,”

that employs the right amount of staff at the right time. This goes

Rollins said.

back to Rollins’ emphasis on knowing your patients. Understanding the traffic patterns in your pharmacy enables you to more precisely

CHOOSE POS VENDOR WISELY

schedule the minimum number of employees necessary to handle

Cairns suggests shopping your point-of-sale vendor—they all

the workload as well as set the right hours and days you’re open

convert sales to cash at different speeds. If cash flow is a consistent

for business.

problem for your pharmacy, a quick conversion speed may trump other perks that a slower vendor offers. “It’s often not much, but

CHANGE YOUR TAX METHOD

worth shopping around,” he said.

With some adjustments to your tax reporting, you can free up a significant amount of cash in a single year, thanks to the 2017 Tax

IMPROVE INVENTORY MANAGEMENT

Cuts and Jobs Act, according to Sykes and Co., PA, an accounting

Inventory control is Rollins’ top suggestion for cash flow

firm. In the past, most pharmacies have been required to report

improvement. “It’s such a large expense for a pharmacy,” he said.

under the accrual basis of accounting, which means they report

Cairns agrees. “Inventory is locked-up cash,” he said. “You can’t

revenues and expenses when they’re earned, even if they have not

pay your employees with inventory, so actively managing it is key to

received or paid cash yet. But because of the Tax Cuts and Jobs

long-term cash flow stability.”

Act, pharmacies with revenues under $25 million can now switch

Pharmacies should be using technology and automation to

to accounting on a cash basis, meaning they would only report

manage inventory, such as a perpetual inventory system. Cairns

revenues and expenses when the cash is received and paid. In

recommends weekly or bi-weekly inventory reconciliation to

most cases it wipes out a large part, if not all, of the income for the

remove products that are tying up your cash for too long. “This is

tax year for most pharmacies, Sykes said.

where a good merchandising system is important,” he said. “If an

If pharmacies make the switch, they can also decide to deduct

item is sitting on your shelf for longer than the supplier’s terms, you

the inventory on their books, which could apply to hundreds of

probably shouldn’t carry it. Sometimes, it’s not possible to order

thousands of dollars for a single pharmacy. Under the new law,

just the right amount, but it also underscores why it is so important

Sykes said, pharmacies can treat inventory as non-incidental

to know the impact that inventory is having on your cash flow.”

materials and supplies, which can be expensed if the line item is

The most important thing you can do, Rollins said, is really get to know your patients. Instead of relying on general estimates, learn your patients’ particular buying habits. That will enable you to

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CALCULATING CASH FLOW: THE MOST IMPORTANT FORMULA TO KNOW

days it takes to collect on your accounts receivable. To account for

The Cash Conversion Cycle measures the time it takes to convert

RCP = Average Rx Accounts Receivable ($) ÷ (Annualized Total Rx Sales

sales to cash. The formula to determine your Cash Conversion

($) X % sold on account to third parties) X 365 days

cash sales and co-pays, you break down the portion of cash and copay as a percentage of total sales and back out that portion from total sales by applying that percentage to the calculation.

Cycle measures the number of days between when cash is disbursed to pay a supplier for the purchase of a product to the time

For example, if your average Accounts Receivable is $120,000, Total

cash is collected from the sale of that product. It’s essential to know

Annualized Sales is $2,200,000, and the portion collected as cash

this number so you can ensure you’re receiving enough cash by the

sales and co-pays is 25%, then your RCP is 26.5 days. This means an

time your payments are due.

average dollar sold on account to third parties takes 26.5 days to collect. The percent sold on account to third parties is 1 minus the

The CCC formula takes the three main working elements of a

percentage of sales collected as cash and co-pays.

pharmacy balance sheet: • Accounts receivable • Inventory • Accounts payable

RCP = $120,000 ÷ ($2,200,000 X .25) X 365 days = 26.5

Payables conversion period The Payables Conversion Period (PCP) is the average number of

It combines those three elements with their income statement

days from the time you order a product until the time you pay your

counterparts and then applies some simple math. To derive the

suppliers for the product.

components of the CCC, you’ll need your financial statements.

THE FORMULA

PCP = Average Rx Accounts Payable ($) ÷ Annualized Rx Purchases ($) X 365 days

CCC = Inventory Conversion Period + Accounts Receivable Conversion Period – Accounts Payable Conversion Period

For example, if your Average Rx Accounts Payable is $80,000 and your Total Annualized Rx Purchases are $1,800,000, then your PCP

To find the solution, you’ll need to know how to calculate each

would be 16.2 days. In other words, from the time you order a

component of the equation.

product until the time you pay for the product, the average is

Inventory conversion period The Inventory Conversion Period (ICP) is the average number of days a product sits on your pharmacy shelf.

ICP = Average Rx Inventory ($) ÷ Annualized Rx COGS ($) X 365 days

16.2 days.

PCP = $80,000 ÷ $1,800,000 X 365 days = 16.2

Bringing it all together To tie all of these elements together, apply the three examples calculated above and then apply the CCC formula to them.

For example, if your Average Rx Inventory is $150,000 and your Annualized Rx Cost of Goods Sold (COGS) is $1,700,000, then your

Inventory Conversion Period (ICP) = 32.2 days

ICP is 32.2. This means an average product sits on your pharmacy

Accounts Receivable Conversion Period (RCP) = 26.5 days

shelf for an average of 32.2 days.

Accounts Payable Conversion Period (PCP) = 16.2 days

ICP = $150,000 ÷ $1,700,000 X 365 days = 32.2 Be sure to use an average number for inventory as actual inventory on any given day fluctuates and will distort an accurate measurement. Also, use a reasonable annualization of your cost of goods sold. For the most accurate results, use data from at least the past six months to obtain your averages or annualizations.

Receivables conversion period The Receivables Conversion Period (RCP) is the average number of

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“When you look at the health of a business, the cash flow statement is just as important if not more important than anything else.”

CCC = 32.2 days + 26.5 days – 16.2 days = 42.5 days We increased our cash flow by 1.6 days or approximately $13,150 This means that, on average, it takes 42.5 days for the sample

($250,000/mo X 12 months ÷ 365 days X 1.6 days). The increase

pharmacy to convert a sale to cash.

in our cash balance has an amplified effect over the reduction in inventory due to our profit margin.

This is also known as the “cash-to-cash cycle time,” meaning it is the time it takes to go from cash in the bank back to cash in the bank in

Now let’s continue our example by also reducing our average

a normal buy-sell operating cycle.

accounts receivable balance from $260,000 to $230,000. The CCC

REDUCING YOUR CONVERSION TIME Here we’ll take a look at the significant difference small decisions

would be: CCC = 25.8 + 28.0 – 22.1 = 31.7 days

can make to your cash conversion time.

We increased our cash flow by another 3.6 days or $29,590.

Let’s use a new example pharmacy: Now let’s finish our example pharmacy by increasing our average Hypothetical Store:

accounts payable by $25,000 from $145,000 to $170,000. The CCC

$250,000/mo Rx Sales (suppose 100% sold to third parties)

would be:

$200,000/mo Average COGS $180,000 Average Inventory

CCC = 25.8 + 28.0 – 25.9 = 27.9 days

$145,000 Average AP Balance $260,000 Average AR Balance

We increased our cash flow by another 3.8 days or $31,200.

ICP: 27.4

The bottom line is that by making some simple adjustments to

RCP: 31.6

some balance sheet accounts we were able to reduce our CCC from

PCP: 22.1

36.9 days to 27.9 days and thereby squeeze 9.0 days or approximately $74,000 ($250,000/mo X 12 month ÷ 365 days X 9.0

CCC = Inventory Conversion Period + Accounts Receivable

days) of liquidity out of our balance sheet.

Conversion Period – Accounts Payable Conversion Period Source: PBA Health. For more cash flow metrics, visit http://bit.ly/2y2FOoC

CCC = 27.4 + 31.6 – 22.1 = 36.9 days Now suppose we were able to reduce our average inventory by $10,000 from $180,000 to $170,000. The CCC would be: CCC = 25.8 + 31.6 – 22.1 = 35.3 days

“Cash flow is vital to the success of a business” ELEMENTS | The business magazine for independent pharmacy | SEPTEMBER 2019

23

SPOTLIGHT

WHEN ROBOTS TAKE OVER

How one pharmacy uses robots to increase volume and improve patient care When pharmacists Kevin and Brandi McCullough arrived at Evans

has at least one robot. One of the pharmacies has had a robot from

Drug in 2006, the rural pharmacy had three computers and

day one, and he admitted, “It was kind of a learning experience for

dispensed all of its pills the old-fashioned way: with a pair of human

us. It was probably too soon.”

hands. Since purchasing the pharmacy in 2011, the McCulloughs

But for the other pharmacies, which already had a volume of

upgraded to 20 computers and installed two fully automatic robots

around 4,000 prescriptions a month, the robots helped increase

that handle 70 percent of its prescriptions.

volume more quickly than could be expected with organic growth.

Those robots—ScriptPro SP 200 and ScriptPro CRS 150—helped

“Walking into a store that has ScriptPro robotics and a store that

to nearly quadruple their business. “There was a limit to what we

doesn’t, the time savings and efficiencies are pretty apparent,”

could do before,” Kevin said. “Anything above that we were going to

McCullough said.

increase risk of mistakes, time to fill. We can handle more growth now because of the robotics.”

For McCullough, the decision to bring robotics into the

HOW THE ROBOTS WORK The ScriptPro robots are easy to use. Once a technician types in

pharmacy was easy. “It was a quality of life thing,” he said. “I wanted

a prescription, the robot takes over. It grabs a bottle, takes it to a

to be able to come into my job each day and enjoy it, and not have

location inside the robot, counts out the medicine, and then sends

the worry of, ‘What if we’re short on help?’ or ‘What if patients come

it out on a conveyer belt with a label on it.

in all at once?’”

The ScriptPro robots have helped McCullough fend off daily stresses. And, by adding automation, the pharmacy staff has had more opportunities to connect with patients on a human

“The one thing it doesn’t do is put a lid on it,” McCullough said.

“That’s kind of nice, because it allows us to take that last step of verifying that the patient is getting the right medication.”

The robots at Evans Drug each contain 150 or 200 cells for

level. Because some of the more tedious work is now handled by

medications, and they allow pharmacists and techs to focus on

robotics, pharmacists and technicians have more face time with

the prescriptions that have to be manually counted rather than

patients, and the pharmacy has been able to expand into other

spending time hand-counting everything. “For all the medications

areas like long-term care. “It’s allowed us to play a bigger role than

that are in the robot, it’s that much less medication that you’re

just counting prescriptions,” McCullough explained.

grabbing, walking back and forth from the shelves, and counting,” McCullough said.

INCREASING VOLUME AND PROFITS Some pharmacists may flinch at the cost of adding robots to their

PERSONAL TOUCHES

space—the initial price tag can range from $150,000 to $200,000.

One of McCullough’s biggest concerns about adding robots was

But McCullough has never doubted his investment. “Each time

that they would take jobs away from human workers. The fear

we’ve added more automation, we’ve been able to increase

turned out to be unwarranted.

prescription volume, and we’ve been able to grow,” he said.

Without the robots in place, McCullough suspects the pharmacy wouldn’t have been able to take on the volume that comes with new patients, and that they could have even lost some of their existing patients.

McCullough runs a total of four pharmacies, and each of them

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“We have never added a robot to a store and decreased staffing,” he said. “We add robots with the anticipation that it will increase the number of prescriptions coming in.”

Since the robots handle so much of the daily volume, they have changed how technicians are trained and utilized. Instead of starting technicians out at a filling station where they learn

how to count and fill prescriptions, Evans Drug has them train on

FORMULA FOR GROWTH

a computer for several weeks before having any direct patient

Robots have proven so successful for Evans Drug that in the

interactions. McCullough explained, “When they do start having

coming months they will add a third type of robot—one that does

those face-to-face experiences, they’re already trained on the

multi-dose packaging. “Once we get that in the mix, it will open us

computer system and the robotics are taking care of a lot of

up to the next step for growth,” McCullough said.

the things the technician used to do, so the patient experience becomes better.”

Because robotics have led to improved customer experiences,

Despite the large expense of adding automation to the pharmacy, McCullough said, “It brings peace of mind. If I come in on a Saturday and there’s only one or two technicians that can come

McCullough has noticed that his staff is more motivated to help

in, I’m not worrying about our ability to get things done. You enjoy

the pharmacy grow. “It’s not as stressful, so they are happy to say,

coming in each day just a little bit more.”

‘Hey, come on in, we want this extra business,’” he said. “It may be more work, but it doesn’t feel like more work because it’s done efficiently.”

KEEPING ERRORS AT BAY

Streamline Your Workflow

The robots also minimize opportunity for errors. Every prescription has a scan verification and every label shows a picture of the

ScriptPro robotic systems can dispense between 30 and

medication, giving the patient the opportunity to verify. The

60 percent of a pharmacy’s daily volume. Here’s what

technicians and pharmacists also do checks to ensure accuracy.

they can do:

“If we get a warning that says something doesn’t match and we ignore it, that can be a place where issues pop up,” McCullough said. “It’s something as a pharmacist you always stress—that everything is being verified. But the scan verification creates a situation where that’s unlikely to happen.”

If the robots happen to go down—a rare occasion, as the robots have an average uptime of more than 99 percent—ScriptPro has the ability to connect to the robot remotely and fix it online. If they’re unable to fix the problem that way, they usually arrive at McCullough’s pharmacy within a day at the most.

• Fill up to 150 prescriptions every hour • Dispense tablets and capsules of any shape and size • Print and apply labels with images of the medication for extra verification • Deliver bottles via conveyer belt uncapped

During the downtime, the pharmacy will pull out the cell that holds medication from the robot and manually count medications.

“It makes you appreciate the benefits of having the robot, that’s for

Source: SP and CRS Robotic Dispensing Systems. ScriptPro

sure!” McCullough said.

ELEMENTS | The business magazine for independent pharmacy | SEPTEMBER 2019

25

SPOTLIGHT

MONEY

GOING LONG Long-term care opens the door to long-term profits Within your community, there are thousands of patients who may

Full-time, closed-door LTC pharmacies and combination

never walk through the doors of a pharmacy but have a need for

pharmacies also see the added perk of not having to deal with

prescription medications.

DIR fees that eat away at profits. The lack of DIR fees alone has

These patients live in group homes, assisted living facilities,

been enough to attract many traditional community pharmacies

continued care retirement communities, nursing homes, and

into the long-term care business, making the market increasingly

other residential centers, and they often have complex needs for

competitive.

individualized care.

By establishing relationships with these long-term care (LTC)

For Randy McDonough, co-owner and director of clinical services at Towncrest Pharmacy, the key to financial success in

facilities, you can access these patients to broaden you base

the LTC marketplace is knowing the true value of the pharmacy’s

and grow your pharmacy. In these relationships, your pharmacy

services. “When we talk to these group homes, assisted living

meets the facilities’ needs by dispensing medication in specialized

facilities, and nursing homes, we always talk in terms of the

compliance packaging and giving consultations to individual

services we can provide them,” he said. “And we don’t cheapen

residents.

those services. They aren’t something we give away. We make sure

“This is a way to provide communities with services they need,

they understand the total value.”

and provide a human touch,” said Bill Popomaronis, vice president of professional affairs at the National Community Pharmacists Association.

Offering LTC services opens up an incredible opportunity for

Profitable Partnerships

pharmacists to increase the volume of their business. “Once you reach 100 residents, that’s worth about $500,000 in additional

These are some long-term care facilities pharmacies can

business,” Popomaronis said. “That number is based on the

partner with to add a profitable revenue stream.

number of prescriptions that a particular patient might use and other factors, but I believe it to be a conservative number.”

According to some estimates, nearly 12 million people over the age of 65 will need LTC services by 2020. These patients suffer from multiple comorbidities, taking 12 prescriptions per month, 71 percent of which are brands, according to a report by McKesson (Becoming a Long-Term Care Pharmacy). Gross margins average 30 to 40 percent. According to the report, “With the average facility housing 100 residents, with each resident taking approximately 12 prescriptions per day, and with gross margins of 30% or even more, LTC pharmacy can represent a significant, attractive, and growing opportunity.”

The pharmaceutical industry rewards those who participate in long-term care relationships. Because working with the compliance packaging required by LTC facilities can be costly and time consuming, insurers will pay a higher price when pharmacies

• Assisted living • Skilled nursing • Hospice • Subacute care • Independent living • Active adult living • Senior’s home • Adult daycare

dispense those medications.

ELEMENTS | The business magazine for independent pharmacy | SEPTEMBER 2019

27

By providing services beyond dispensing medication in

group homes that we treated more like traditional inventory patient

compliance packaging, Towncrest Pharmacy has found even

populations. We billed them similarly and filled prescriptions like

more profit opportunities in its LTC relationships. For one of its

we would the regular patients that come into our pharmacy,”

group homes—which is home to about 100 patients—it performs

McDonough said.

medication management reviews twice a year. McDonough

Once a pharmacy has established a healthy revenue stream

explained, “The organization pays for it out of their funds because

from LTC contracts, it might consider making additional changes.

they see value in it.”

Operating as a combination or closed-door pharmacy will require

Towncrest has turned its relationships with LTC facilities into

investment, but both have access to special pricing and rebates. A

a true collaboration. Because of the individualized attention it

combination pharmacy might run both its retail and LTC operations

provides, the pharmacy has seen a financial return. “Wrapping in

under one pharmacy license, but some inventory may require

services that optimize individual medications has really helped

segration due to pricing specific to the LTC division of the practice.

us to secure the contracts that we have,” McDonough said. The

Also, the LTC division will use its unique National Provider Identifier

pharmacy takes on the cases of residents with complex medical

(NPI) and National Council for Prescription Drug Programs (NCPDP)

needs and works with physicians to adjust their medications, or it

numbers to adjudicate claims for those plans that do have an LTC

will work to decrease the number of medications residents are on.

contract.

ENTERING THE LTC MARKET

completely separate license and physical address from a retail

For many pharmacies, getting a foot in the door of long-term care

pharmacy. Closed-doors also have to cut through a lot of red tape

pharmacy is as simple as being approached by a local nursing

and meet a long list of state and federal requirements, like having

home or residential facility to handle their prescription needs.

someone on-call at all times and only dispensing branded drugs in

“Then, all of a sudden, you’re in the business,” said Popomaronis.

quantities of 14 days or less.

A closed-door pharmacy, on the other hand, must have a

“Instead of putting medications in bottles, you’re putting them in compliance packaging.”

Pharmacies considering expanding into long-term care can start

MORE THAN A SALES PITCH Since many community pharmacists already deliver prescriptions

out with relatively few adjustments to their current business. They

to the homebound, working with LTC facilities can feel like a natural

can purchase prescriptions off their existing contracts and use the

extension. Group homes, nursing homes, and other residential

same license and space to serve their LTC clients.

centers often have requirements for compliance packaging and

That’s how Towncrest entered the market in 2012. “We had

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for assistance in managing the prescriptions of residents who

have multiple medications and dosing times. If a local pharmacy is present and understanding of these needs, LTC facilities will be eager to make the match.

But like with other prospects, pharmacies still need to make a case for their services, especially if there are other LTC pharmacies in the area. “Find out what their pain points are,” Popomaronis suggested. Whether they aren’t happy about the way their

Reap the Rewards of LTC Pharmacy

prescriptions are currently packaged or there are other services they need that aren’t being provided, a pharmacist can go into a

There are plenty of perks that make pivoting to long-term

facility armed with the knowledge of what’s keeping the facility’s

care profitable for traditional retail pharmacies.

medical director up at night and make a strong pitch for the pharmacy’s services.

Independent pharmacists have an advantage because in most instances LTC facilities would rather work with someone local than national. It’s much easier to call the person up the street when a problem arises than to work through layers of red tape.

McDonough’s experience as a consultant pharmacist at the University of Iowa led Towncrest to one of its first LTC relationships.

A nursing home administrator he’d worked with had remembered

More revenue: The additional volume that comes with serving patients in LTC facilities translates to higher revenues.

Higher reimbursements: Insurers reward pharmacies for the cost and time it takes to put medications in compliance packaging.

the quality of his consulting and reached out to tell him that if the

Lower cost of goods:

pharmacy ever expanded to working with nursing homes, they’d

Combination and closed-door pharmacies can sign an LTC

be interested. “We saw the opportunity of working with them and

addendum as a part of their wholesaler contract for a lower

were able to develop a nice relationship,” he said.

cost of goods.

As for reaching out to new clients, McDonough acknowledged that the market for nursing and group homes can be competitive.

No DIR Fees:

“We always have to be on our best game, because they’re always

Because LTC pharmacies are protected from DIR fees, they

being courted by a competitor.” To stand out from the pack,

can make more money from the prescriptions they dispense.

Towncrest emphasizes the quality of its services. “Facilities know they’re going to get added-value services that are of high quality because they see we’re not going to skimp and we’re not going to cheapen it. We believe that’s what really separates us from

By the Numbers

everyone else.”

Check out these averages for LTC facilities.

ADDRESSING GROWING PAINS When a pharmacy acquires its first LTC contract, it might not see much of a change in workflow. Adding 15 or 20 patients from a local group home won’t put too much of a strain on staff. “Just dipping your toe in the water is relatively easy,” Popomaronis said.

As a pharmacy grows its LTC accounts and patients start to number in the hundreds, it has to separate its retail and LTC operations. For Towncrest, that point came about a year ago. “We began to realize we were probably missing out on the benefits of being a combo or long-term pharmacy, so over the past year we’ve

100 patients per facility 12 prescriptions per patient 5 OTC items per patient per month 71% brand mix 40% profit margins

converted to a combo pharmacy,” McDonough said.

Now, the lower level number of the pharmacy’s operations is solely devoted to its residents from nursing homes, group homes,

Source: Becoming a Long-Term Care Pharmacy.

and assisted living facilities. The traditional retail patients are

McKesson Corporation.

served from a completely separate inventory on the upper level of the pharmacy.

The transition has also meant some changes in staffing.

ELEMENTS | The business magazine for independent pharmacy | SEPTEMBER 2019

29

There’s an entire staff to focus on long-term care that has more

also have to be careful not to neglect the patients of the retail

specialization and expertise.

portion of their pharmacy. Even if they are managing to balance

“We also had to think about how we optimize in terms of utilizing technology,” McDonough said. After acquiring its first nursing home account, Towncrest invested in a robot, which at

the two populations, there will come a point when they will have to make big decisions about the future of the pharmacy.

“I don’t think it’s that much of a stretch to handle between 100

the time was a major expense. But it paid off, and since then the

and 300 patients in a combination pharmacy,” Popomaronis said.

pharmacy has purchased a second robot. “Those investments help

“I think it makes good business sense.” However, when a pharmacy

improve the efficiency of the practice as a whole, and they free up

is serving 1,000 residents from 20 facilities that all have different

the pharmacist to apply those clinical services and work on the

requirements, closing the door to become a full-time LTC pharmacy

optimization of medications.”

could be the best path forward. By not serving retail patients, a

This approach of freeing up the pharmacists has also led to empowering the technicians. Iowa law allows technicians to verify,

pharmacy can increase its reimbursement and decrease the cost of goods sold for higher profit margins.

a practice that Towncrest has wholeheartedly embraced. With “checking technicians” verifying the work of other technicians in the

SET UP FOR SUCCESS

practice, the workflow has been streamlined and pharmacists have

For current traditional community pharmacies who are looking to

more time to work with LTC facilities on individualized resident

dive into long-term care, there are resources available to help with

care.

the transition. NCPA actively encourages pharmacies to engage with LTC facilities and join NCPA’s Long Term Care Division, which is

UNIQUE NEEDS Like with any change, adding LTC business to your pharmacy

there to make the process easy.

“It provides an FAQ and a service bureau desk,” Popomaronis

comes with a unique set of challenges. “You’re going to have to

said. “We have tools like contracts and basic agreements that

invest,” said Popomaronis. Adding a facility with 100 or more

pharmacists can use to bind themselves to a group home or

residents means that you’ll have to hire new staff to handle

assisted living facility. We have seminars on changes that are taking

that volume or re-train current staff to work with new kinds of

place to help pharmacists become experts, so they can use those

prescription packaging.

skillsets to open doors.” The division can also refer pharmacies to

When you work with multiple facilities, balancing all their separate needs can be tricky. They may each have different

consultants as their business grows.

In McDonough’s view, success in the realm of LTC pharmacy

preferences for what kind of packaging is used or require unique

comes down to the quality of service and maintaining open lines of

technology for keeping track of electronic health records. They also

communication with the facilities you contract with. “You have to

may require new demands on a pharmacist’s time. Sometimes,

establish a good working relationship with the medical director,” he

a pharmacist will be expected to deliver an emergency dosing or

said. Pharmacies need to keep up with those personal connections

drop everything to take care of a new patient coming in.

even as their client base grows, because it’s the best way to

Equipment expenses also add up, with some LTC arrangements

ensure that their recommendations will be taken seriously. Tying

requiring pharmacies to purchase and install emergency kits and

in individualized care with the dispensing of medication creates a

carts for use within the facility. “If you end up spending $10,000 to

solid platform for growth.

$15,000 on carts for a nursing facility, a one-year agreement is not enough to recoup that investment,” Popomaronis said. These types of expenses need to be considered when negotiating an initial contract.

Additionally, LTC facilities are highly regulated, and time and money need to be spent ensuring pharmacy services are compliant with all the laws. “There are really two customers. The residents are our customers, but we’ve also got the facilities. Ultimately, we want to make sure that the residents are optimizing their medications, but we’ve also got to protect the facility,” said McDonough. “What we don’t want is for an inspector to come in and then the facility gets written up because of something we should have taken care of.”

While juggling these aspects of LTC relationships, pharmacists

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“The pharmaceutical industry rewards those who participate in long-term care relationships.”

OUTLOOK

SECOND TO NONE How to find a premier secondary supplier

Every independent pharmacy needs a secondary supplier.

want to be concerned about where your product is coming from,”

Whether it’s for supplementing inventory, saving some money, or

Austin said. Substandard products infiltrate the US drug channel

getting through shortages, a good secondary supplier can bolster

far more often than pharmacies realize, especially during short-

your bottom line.

ages and recalls. Make sure their inventory is traceable directly

But with hundreds of secondary pharmaceutical suppliers

to the manufacturer, that they’re compliant with the Drug Supply

vying for your business, how do you know which one is best for

Chain Security Act, and that their warehouse has the most credible

your pharmacy? Do rock-bottom prices come with unseen costs?

accreditations. “I won’t even talk to a wholesaler that isn’t VAWD

Are there other perks more important than price? What’s the most

-accredited,” Randolph said.

important feature to look for?

For Dave Randolph, owner of Dave’s Pharmacy with two

MORE THAN MONEY

locations in Nebraska, price is certainly important, but it’s not his

When Austin worked as a technician in a community pharmacy, she

number one priority. When he looks for a supplier, he seeks

remembers well inputting orders in the middle of a busy day or at

savings through something less tangible but more substantial.

the end of a long day. “It was the last thing I wanted to be doing,”

“Time is money,” he said. “Anything to save time is huge in our

she said. “My skillset was too valuable. And honestly, it was just a

business.”

real hassle juggling multiple suppliers and working through all the

Kimberlee Austin, manager of business development for BuyLine, an independently owned secondary pharmaceutical

different interfaces.”

That’s one reason she’s sought to turn BuyLine into the most

supplier, echoed Randolph’s sentiment. “You can actually put a

convenient and efficient ordering platform, where pharmacies can

price on your time,” she said, “which for a pharmacist is a

get everything they need without the hassles. “A lot of companies,

considerable amount of money.”

they only focus on the business part of it and neglect the part

Every minute spent chasing deals, comparing prices, filling out applications, keeping up with varying billing cycles, and setting up new accounts is valuable dollars that could go toward something to

about making the pharmacist’s life easier and the job more enjoyable,” she said.

She suggests finding a supplier whose interface offers features

grow the company, care for patients, or invest in new opportunities

to simplify and speed up the ordering process. Look for options

with a real return on your time, Austin said.

for repeat purchases, previous orders, and an instant search bar

Between his two stores, Randolph and his staff spend around

with multiple ways to search for a product. Most importantly, seek

10 to 15 hours a week searching for products among multiple

one that offers electronic ordering within your pharmacy software

suppliers. “If I could get the best deal from one place that had

system (EDI). Being able to pull up the price file right there in your

everything, it would be the ideal,” he said.

pharmacy software makes comparing prices quick and streamlines the ordering process.

ONE-STOP RELIABILITY

Without EDI, you have to search through a website, which has

If your goal is to cut down to a couple of reliable suppliers to save

drawbacks. “If the NDC number doesn’t come up on the initial

time and money, you’ll need to choose ones with a broad

search,” Austin said, as an example, “now you’re performing an

offering—brands, generics, OTCs, refrigerated items, and controlled

additional search by drug name, then you’re scrolling through the

substances. You want these select suppliers to become one-stop

results to look for that particular strength and size. So now you’ve

shops, so they should carry options from more than one

searched maybe three or four times, whereas when you’re ordering

manufacturer and should be able to support you whenever your

through the computer software, the comparison is right there. The

primary has shortages or tries to send high-price substitutions.

price file compared to what you have from your primary or other

Importantly, always check on the supplier’s credentials. “You

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secondary suppliers.”

The EDI integration also simplifies the process of checking an order into the system and enables users to take advantage of their pharmacy software’s inventory management features.

Buy Better with BuyLine

DON’T IGNORE THE DETAILS

BuyLine is an online secondary pharmaceutical ordering

Austin mentioned several small details that may not be deciding

service. Independently owned and run, BuyLine was

factors on their own, but together can add up to a big difference.

designed with only the independent pharmacist in

Does the supplier allow you to pay with a credit card? Do they offer

mind—to make ordering as easy and simple as possible

a line of credit upfront? Do they offer multiple shipping options?

while offering the broadest line of products at market-

Randolph emphasized delivery reliability. “Do they deliver when they say they will? Not getting a product the next day can cause unhappy patients and double orders.”

He prefers to avoid secondary suppliers that place unnecessary

competitive prices.

One-stop shop: Access one of the broadest product lines in the secondary industry. Shop brands, generics,

requirements on his ordering, especially when it comes to shipping.

OTC products, refrigerated products, and controlled

“Frustrations include meeting minimum requirements for an order,”

medications (certain qualifications apply).

he said. “Large minimums for next day delivery or not offering next day delivery is a huge negative for me.”

Another detail to ask about is fees and contracts. There are

Credibility: All BuyLine products are sourced solely and exclusively from original manufacturers and

quality secondary suppliers out there that offer competitive pricing

supplied to pharmacies through PBA Health’s VAWD-

without any sort of additional costs or commitments, so you don’t

accredited facilities.

have to sign a contract or pay anything extra, Austin said.

The final detail Austin mentioned is a loyalty program, which

Competitive, upfront pricing: BuyLine offers prices

she said is one of the features that distinguishes BuyLine from

as low as anyone in the market, with the additional

the crowd. “Not a lot of other secondaries are doing this, and it

benefit of loyalty rewards that further reduce total

can truly add up.” Customers earn points for every single generic

costs.

purchase, and the points spend like cash. Pharmacies have cashed in on nearly $200,000 in savings in a little over a year.

Time savings: Streamline ordering and inventory management with BuyLine’s EDI option. When ordering through the website, conveniently access frequent purchases and previous orders to make ordering simple, fast, and hassle-free.

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