November 7, 2019
Inside: Average sales, number of prescriptions dispensed, and gross profits are down—but savvy pharmacies find new ways to succeed.
It’s time to reflect on the state of independent pharmacy. The latest data from NCPA Digest puts into stark terms where the market is headed, and what pharmacies will have to do to survive in the long term.
There’s no way to sugarcoat it: the world of independent pharmacy is getting smaller. The number of independent pharmacies in the United States went from 21,909 in 2017 to 21,767 in 2018. And that’s part of a larger trend—since 2014, the U.S. has lost 711 independent pharmacies. On the bright side, the NCPA notes that brand new independent pharmacies are opening up every year, but more pharmacies are closing, leading to that net loss.
In general, the report’s other statistics don’t look much rosier.
The average number of prescriptions dispensed? Down from 59,137 in 2017 to 58,823 in 2018. The rise of preferred or narrow networks and mandatory mail order is one reason for the decline.
Average sales were also down, with pharmacies losing an average of $55,564 in sales in 2018.
On the other end of the spectrum, payroll expenses rose slightly over 2018 to 13.2 percent of sales. Higher payroll costs mean thinner margins for the already tightening industry.
One bright spot—gross profit remained steady from 2017 at 21.8 percent. However, that number has been trending downward in recent years. Ten years ago, independent pharmacies enjoyed a gross profit of 23.8 percent.
But even though these numbers appear discouraging, independent pharmacists across the country continue to demonstrate unwavering resilience. The best pharmacies have proven they can adapt in an ever-changing market to take on new economic and industry challenges. And they continue to be healthcare destinations, especially in rural, underserved areas.
Independent pharmacy doesn’t have to be doomed to a thing of the past. But it will have to continue to adapt and evolve in order to thrive in 2020 and beyond.
If a pharmacy is still limiting business to dispensing medications from behind the counter, it might not have much of a future.
By expanding services to include more proactive patient care, pharmacies make themselves into a high-demand healthcare destination. They become more appealing to patients, which translates into more profit and greater stability.
Branching out to enhanced services that demonstrate value to providers and third parties also provides an opportunity for pharmacies to cross the healthcare divide and shift the payment model. The NCPA encourages pharmacies to get involved with CPESN networks, which negotiate contracts directly with payers for enhanced services that improve their members’ health.
“When complete, the payment model will evolve from one that is overly complex, cumbersome, covert, and restricts compensation for value into a model that is transparent, simple to understand, fair, and compensates for value,” said NCPA president Douglas Hoey. “Independent pharmacies are at the forefront of this evolution, adapting and thriving under the new model by improving the health of their patients and the communities that they serve.”
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Working with long-term care facilities like nursing homes, assisted living facilities, hospices, and other medical centers can give pharmacies an important role in caring for the 47 million seniors in the United States.
Pharmacies can provide much-needed services like compliance packaging, medication management reviews, consulting, and more. Contracts for long-term care services often span multiple years, meaning pharmacists can count on them financially year after year. According to the NCPA, 43 percent of independent pharmacies provided some sort of long-term care in 2018.
When patients adhere to their medications, managing chronic illness becomes more effective and more affordable.
Putting in place a medication adherence program isn’t just good for patients—it’s good for the pharmacy, too. More adherence means fewer prescriptions are left behind the counter, leading to more revenue. It also makes it easier to retain patients, since they tend to value convenience.
Nearly 79 percent of pharmacies already offer medication synchronization programs, which means patients can come in and pick up all their prescriptions for the month on the same day.
Pharmacies aren’t just limited to dispensing medications. By taking a proactive role in preventive care, they can become an indispensable healthcare resource in their community.
Point-of-care testing is a lucrative opportunity for independent pharmacies, and it helps build a relationship between patients and pharmacists.
The NCPA found that influenza, rapid strep, cholesterol screening, and hemoglobin A1c tests were the top point-of-care services provided by independent pharmacies in 2018. Check with your state board of pharmacy to find out which point-of-care testing and prescribing is legal in your state.
Some medical conditions can’t be tackled with a one-size-fits-all approach, which means some patients require complex or limited distribution specialty medications. That’s an opportunity for independent pharmacists.
Only 39 percent of independent pharmacies reported that they dispensed specialty medications, giving those that do a distinct competitive advantage. The top specialty medications offered by independent pharmacies are used to treat:
To stand out from the crowd, pharmacies can work to establish a niche. By offering services that the competitor pharmacy down the block doesn’t have, independent pharmacies can differentiate themselves in their local market.
Offering niche services further integrates independent pharmacies as part of a community’s healthcare system. According to NCPA, these are some of the enhanced services independent pharmacies can offer their patients:
As independent pharmacy moves toward the future, so should your technology. A phone call reminder to pick up a prescription might not work the way it used to.
A mobile app is now practically a requirement of doing business—75 percent of independent pharmacies said they offer one—while 40 percent use mobile commerce/capture technologies in the pharmacy.
Social media is also increasingly used as a communication tool. Ninety percent of pharmacies now use Facebook to interact with their patients.
Stocking your pharmacy is far and away the largest cost of running your business. You can expect inventory to eat up about 68 percent of your total expenses. The Digest found that the average cost of goods for an independent pharmacy is a whopping $230,690 every month.
Unfortunately, independent pharmacies lack the leverage to negotiate effectively with wholesalers to get the kind of deal they deserve. That’s why most of them are turning to buying groups, which aggregate pharmacies’ business into a group to take to the negotiation table with wholesalers. That increased volume gives them leverage closer to that of the chain pharmacies, allowing them to achieve better contract terms and pricing.
Members of ProfitGuard®, PBA Health’s unique group purchasing service, on average save 4% – 6% on their cost of goods — that’s a savings of $166,096 per year based on the average cost of goods for a pharmacy. Valuing the true uniqueness of independents, ProfitGuard gives members an entirely customized approach best suited to each pharmacy’s individualized needs. Whether you want a contract negotiated specially for you or you want to join a group that has already negotiated a lucrative deal, the choice is yours. ProfitGuard assists you in getting exactly what you want for your business. (It also guarantees a better contract than you have now.)
ProfitGuard also provides an unprecedented proprietary tool to help pharmacies maximize wholesaler rebates and savings on their inventory every day. Using an innovative modeling tool, it automatically analyzes every purchase and every contract incentive to ensure every drug you buy from your primary or secondary wholesaler results in maximal rebates and savings – giving you the lowest net cost of inventory for your pharmacy. For the average pharmacy, receiving your full rebates and savings could result in an extra $17,509 per month in pure profit.
ProfitGuard is also one of the only GPOs who isn’t tied to a single wholesaler. That means your pharmacy gets bids from multiple wholesalers who compete to win your business, getting you a deal that can’t be matched by a GPO committed to one wholesaler.
Beyond being a healthcare hub, pharmacies should remember their role as a pillar of the business community.
The average independent pharmacy has 9.3 full-time employees according to the 2019 Digest, which helps put money back into the local economy.
Pharmacy owners and employees can go even further to support their community. Fifty percent of owners said they provided $4,000 or more to local organizations, while 58 percent of pharmacies have an owner or employee who is a member of the local chamber of commerce.
These contributions matter. If community members view the pharmacy as a business that gives back, they’ll be more likely to give their business to the pharmacy.
Members can access the full Digest through the NCPA website.
PBA Health is dedicated to helping independent pharmacies reach their full potential on the buy side of their business. The company is a member-owned organization that serves independent pharmacies with group purchasing services, expert contract negotiations, proprietary purchasing tools, distribution services, and more.
PBA Health, an HDA member, operates its own VAWD-certified warehouse with more than 6,000 SKUs, including brands, generics, narcotics CII-CV, cold-storage products, and over-the-counter (OTC) products.
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