The business of pharmacy january 2013 long version

The Business of Pharmacy

UBC – Phar400 | Pharmacy ManagementretailSOS.ca | Gerry Spitzner

January 11, 2013

retailSOS.ca | Gerry Spitzner 2

Objective; High level view of the Pharmacy business

Thoughtstarters Definition of value Pharmacy business in Canada and BC Retail Pharmacy types, and main differences Pharmaceutical Logistics and Supply Chain 4 key controllable moving parts of retail Pharmacy Customer Experience Future Developments, Issues and Opportunities

Roadmap


What is the real purpose of a

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


Healthcare is a business and always will be...but Pharmacy is an art; and always will be.◦ Health consumers spending fewer discretionary dollars.

I.e. Government, 3rd party, patients/customers.◦ Prescription drug costs escalating.◦ Count on facing predictable uncertainty at an accelerated

pace.◦ Crazy competition.◦ Increasingly demanding customers.◦ Fickleness trumps loyalty.

Important Insight #1


In today’s world, business is built on relationships.◦ People do business with people they know, like and

trust. ◦ Put relationships first – then reap the long term high

quality business growth that follows.◦ Consider the life time value of a customer rather

than just as a single one-time transaction. Think customers for life.

◦ Listen to customers; understand why, how and what they want to buy, rather than how you want to sell to them.

Important Insight #2


Why should I do business with you?

Why should the business come to you... rather than someone else?


What problem does my professional service solve?

What am I solution for? Why does it matter?

◦ Your project is not about selling something; rather it is to fulfill an intention.

◦ Fulfilling a customers intention is a motivator to buying.

◦ Value is in the applied benefit of the benefit.◦ Never about what you can get; always about what

you can give.

What is the why of a business?




Definition of ValueA function of the bundle of perceived benefits offered at a given price.

Confidence is the #1 factor ◦ in determining what, from who and where

customers buy...quality is #2, service is #3selection is #4 and price is #5


Important insight


How can you?...Help them save moneySave them timeMake them feel safeMake them feel special


Motivators create desire and value


Pharmacy PracticeHigh Level Overview of Pharmacy practice in Canada and BC





Total prescription market Canada; $27.2 billion in 2011 Generic drugs accounted for 25 % ($5.4-billion). Generics were dispensed to fill more than 60% of all

prescriptions. Average cost of a brand-name prescription in Canada is now

$73.76. Average cost of a generic prescription is $25.04. Estimated for every 1 % increase in generic drug utilization

in Canada; savings = an additional $260 M. In the US generic drugs are dispensed to fill 80 % of all

prescriptions. Source; IMS Brogan and IMS Health ,a firm that tracks the pharmaceutical industry

Pharmacy By The Numbers


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


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

drug pharmacy, hospital pharmacy, corrections facility pharmacy, addiction

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

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

Other Pharmacy nuclear pharmacy, military pharmacy

3 main Types of Pharmacy Practice


Community Pharmacy Products/Services

Departments and Products Professional Services

Alternative medicines (NHP’s)

Vitamins/OTC’s Orthotics and mobility aids Wound Care HBA Cosmetics Electronics Food and Groceries Post Office Greeting cards Books and Magazines

Consultations Private Consultations Medication Management Blister Packaging Medication Reviews Patient Education seminars Disease state screening Chronic Disease Mgmt Immunization Refill services Delivery services LTC and Group homes


4 Main types of Retail Pharmacy

Corporate Pharmacy Franchise Pharmacy Banner Pharmacy Independent Pharmacy

Community Pharmacy - Types


Wholly owned by a large company Manager is an employee of a chain

Pharmacy Pharmacy is a department managed by a

Pharmacist Managers are paid a salary and

compensated with performance incentives Grocery stores fall into this category Rexall, Wal-Mart and London Drugs

Corporate Pharmacy


“SDM | Associate” concept Own the business but not the physical assets No capital investment or capital risk Guaranteed minimum annual income and Benefits “Share” in profitability Support services in all areas of Operations Many “masters” Associate agreement is a renewable 3 year deal Retained equity requirements Franchise agreement restricts or outlaws certain

activity All inventory comes from own warehouse

Franchise Pharmacy


“Medicine Shoppe” concept Own the business and the physical assets Franchise fees Trademark rules Required program participation Full Pharmacy ownership Capital investment required Ongoing Sales and Biz Dev support Custom marketing strategy Training and Professional Development Preferred Supplier agreements

Franchise Pharmacy


What is a banner Pharmacy?◦ Key features include:

Looks like a chain Independently owned and operated Working together Sales/promotions, contracts Buying group Menu of services Fees or membership dues Own profit and loss centre Owners often have more than one store Sometimes shareholder in wholesale Pharmasave, Peoples Drug Mart, IDA, Remedy’sRx Guardian, Pharmachoice, Medicine Centre

Banner Pharmacy


Main differences from franchise and banner◦ Key features include:

No name affiliation Independently owned and operated Often belong to a wholesalers IND program Entrepreneur Self-management Creative freedom Not having to answer to others (especially

regarding the pharmacy focus) Financial independence and high risk

Independent Pharmacy


Logistics and Supply Chain

A complex process from manufacturer to patient



Wholesalers◦ In BC; 3 national & 1 regional that distribute Rx and front

shop◦ McKesson, ABC, K&F, and uniPHARM◦ Primary suppliers to Banners and IND’s◦ Secondary suppliers to Chain

DSD; ( Direct Store Delivery )◦ Select Generic/Brand suppliers, some Front Shop categories

Self Distributors; Chain◦ SDM, London Drugs, Save-On, Safeway ◦ Note: they also draw from local wholesalers, especially narcotics

Logistics Channels


How wholesaler upcharges work in BC...◦ For Rx; MALP (AAC) cost plus 8%, 5% for high cost drugs◦ MALP for Generics is 35% of the equivalent Brand◦ Prompt payment (cash discount) of 2%◦ Loyalty allowances range between 3% to 5.5%◦ Net net upcharges range between ½% and 3%◦ Depends on volume and loyalty◦ Urban; 11 deliveries per week for Rx and 1 or 2 for Front

Shop◦ OTC and Front Shop net upcharges vary greatly and usually

rebates are provided for achieving agreed to volumes

Pricing in the Supply Chain


Moving Parts of Retail

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


Pharmacy interacts with a lot of people; here are a few...

Doctors Patients and Customers

Staff Nurses Doctor’s Receptionists PharmaCare & PharmaNet College of Pharmacy Municipal Landlord Banker Accountant Bookkeeper Lawyer Contractors Head Office Neighbouring tenants

Canada Revenue Agency Provincial Government Loss Prevention services Employee Relations & HR Payroll services WorkSafe BC Technology providers Retail Insurance providers 3rd Party providers Wholesaler Manufacturer Suppliers Other Suppliers Delivery Services Competitors


Three broad areas to every Pharmacy business;

Finance◦ Monitoring, analysis, cash flow, P&L

Marketing◦ Ideal audience and services communication

Operations◦ Delivering the promise and customer experience

Key Areas of Business


Asset Productivity

Patient/Customer Experience Profitability

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

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

Utilities Advertising Marketing


Inventory◦ It is all about flow - keep goods flowing

Merchandising◦ Any practice which contributes to the sale of products

Staff◦ The quality of an employee's work experience has a

direct impact on the quality of the customer's experience.

Pricing◦ Setting competitive pricing is an art form

4 Key Moving Parts of Retail


InventoryIt is all about flow - keep goods flowing.


Choosing An Effective Inventory Management Strategy◦ aware of the state of stocked inventory at any time ◦ system to easily monitor the coming and going of product

Spatial Needs◦ specific items; type of storage location where product is

kept Maximize Profit

◦ items in inventory may sit for long periods of time due to lack of demand. This is not only a wasted expense; it also takes up valuable room in the stock room that could be filled with faster selling items which would draw more profit.

Inventory


Software Systems◦ Complete inventory checks and keep track of every item that

comes in and out to identify errors, thefts, losses, and any other discrepancies.

◦ Use auto-replenishment features in the technology to re-order

Labeling and Identification◦ Make sure that all items are properly labeled. ◦ Incorrect or incomplete labeling can lead to several problems;

including wrong identification by your software, misplacement when restocking the inventory, loss of the item, or inability to find it for shipment or shelving later, incorrect pricing to customer

Inventory


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


Closely related to inventory Plan-O-Grams Service Levels What is a facing? Keep merchandise fresh and clean Search for outdates Signs and promotional shelf talkers Pricing labels Promotional merchandising Cross merchandising for profit

Merchandising


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


Hire for attitude and train for skill One of the key drivers of the employee

experience is how the staff feels about their colleagues.

That's why teamwork at the store level is such a vital component of a store's success.

The key to effective teamwork is leadership. There are four actions that will create a

more effective team.

Staff


1. Stop drama in its place. ◦ Nothing tears apart a team more quickly - or more quietly - than drama.

2. Regularly communicate your assessment of your team's teamwork.

◦ Share what you see are the strengths and areas of improvement needed in teamwork.

3. Don't enable poor performance and unacceptable behavior.

◦ Teams begin to splinter when the majority feels that one or more individuals aren't contributing to the team.

4. Recognize and celebrate effective teamwork, behaviors, and results.

Create an Effective Team


PricingIn the Front Shop and the Pharmacy


What’s the difference between mark up and margin?◦ Markup is % of profit on cost◦ Margin is % of profit on selling price

Frequently used terms◦ Gross profit percent; GP%◦ Gross profit dollars; GP$◦ Gross margin percent; GM%◦ Gross margin dollars; GM$

Setting Pricing in the Front Shop


Pharmacare sets a maximum price for brand & generic◦ Maximum price applied during PharmaNet adjudication

MALP (AAC includes upcharge) plus fee; $10.00 The professional fee is the entire gross profit Reimbursement for clinical services

◦ Med Reviews, Immunization, Rx renewals, adapting Rx’s, therapeutic substitution, Plan B capitation fees, rural incentive program

Pricing in the Pharmacy


Customer ExperienceWhat makes a positive customer experience in healthcare?


How did you make the customer feel?◦ Service has more impact on customer loyalty than

any other function of a Pharmacy business. Customer loyalty is not a tactic but a way of

doing business.◦ Never let your business processes dictate your

customer experience. Ask; don’t tell. Listen; don’t talk.

◦ How can you hear your customer when you are busy telling them something?

Customer Experience


Serve customers, don’t just provide customer service◦ Customer service is what the organization wants

to supply to the customer; it is governed by policies and rules intended to serve the business.

◦ Serving customers, on the other hand, is driven by what the customer wants. The control position is in the customer’s hands; the organization is in the responsive position.

Customer service is an attitude not a department

Customer Experience


Why maintaining trust is a marathon; not a sprint.◦ In today's world, whether you are talking about

marathon times, or ingredients on a label, or a product's health benefits, or whether something is organic or not, or what an item's environmental profile happens to be, you have to get it right.

◦ The big stuff, and the little stuff. In part, because if you get it wrong people are going to find out. But most of all, because getting it right is what people expect. Get it wrong, and you risk eroding people's trust.

Important Insight


Future Developments, Issues

and OpportunitiesFor Retail Community Pharmacy – Chains, Banners and Independents



Supermarkets, mass merchandisers, mail order and Pharmacy chains are likely to keep competition keen for the independent Pharmacist.

The Government's plans for pharmacy include an enhanced role for Pharmacists.

The aging population and ongoing shortage of physicians will strengthen the demand for Pharmacy services. ◦ Community Pharmacy will be the centre of health care and

Pharmacists will focus more and more on disease management.

Future developments


Government Drug Reforms Drug Shortages Costs are escalating faster than increases in revenue 3rd Parties looking for ways to control Rx drug costs Plans more complex; patients don’t understand

them. Reimbursement Rates

◦ In BC – more than 45% of prescriptions are paid by Government; most of the rest is covered by a 3rd party insurer like Blue Cross, GWL, Assure and NIHB; there is very little “cash pay”.

Issues Facing Pharmacy Practice


Key Industry Stat◦ Per capita usage of prescriptions is climbing

among all age groups, ranging from 4.21 Rx/year among those aged 0-39 years up to 41.82 Rx/year for 60 years and up.

Fee for Service Patient Care◦ Medication Reviews, Home delivery, home

consultation, patient charge accounts, disease management programs (diabetes, asthma), LTC, Group Homes, Workplace health, immunization, medication adherence, Hearing centres, home health care

Opportunities | Pharmacy Practice

retailSOS.ca 57

Want a copy an electronic copy of this of this presentation with bonus slides?◦Email me; [email protected]

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

Questions?

Thanks

Gerry Spitzner

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


Find me

retailSOS.ca is a Vancouver-based retail consultancy guiding and supporting Pharmacy owners to create, engage and keep great customers by doing the right thing extraordinarily well.

Gerry Spitzner works as a management consultant with community Pharmacy owners to achieve results by aligning their vision and implementing marketing strategy with operational execution.

Drawing on 35+ years experience in drug store multi-site retail operations, Pharmacy ownership and the Pharmaceutical wholesale supply-chain; Gerry brings the leadership, knowledge and market awareness of ownership and business development to Pharmacy owners to achieve growth objectives.


About

Extra Slides


AcronymsA few basic acronyms and frequently used jargon in retail Pharmacy

AR/AP = Accounts Receivable/Payable P&L = Profit and Loss statement POS = point of sale POP = point of purchase WMS = warehouse mgmt system SKU = stock keeping unit MOM = minimum order multiple CPG = consumer package good IND = independent retailer RDA = Retail Display Allowance


Common Retail Acronyms

UPC = universal product code QR = quick response code PO = purchase order GMROI = Gross Margin Return On Investment CRM = Customer Relationship Management DSD = Direct Store Distribution EDI = Electronic Data Interchange EDLP = Everyday Low Pricing OTB = Open-to-Buy POG = Plan-o-gram


Common Retail Acronyms

HHC = Home Health Care DME = Durable Medical Equipment OTC = Over The Counter NHP = Natural Health Products HBA = Health & Beauty Aids LTC = Long Term Care AAC = Actual Acquisition Cost MALP = Maximum Allowable List Price U&C = Usual and customary ( refers to fee )


Acronyms ( specific to Pharmacy )


PharmacyU◦ http://pharmacyu.ca/

Pharmacy Podcast◦ http://pharmacypodcast.com/

Drug Store News◦ http://www.drugstorenews.com/

Chain Drug Review◦ http://www.chaindrugreview.com/

Canadian Healthcare Network – free registration◦ http://www.canadianhealthcarenetwork.ca/

CACDS – Canadian Assoc of Chain Drug Stores◦ http://www.pharmacyworx.com/pharmacy-students/default.htm

Resources and Links

http://pharmacyu.ca/

http://pharmacypodcast.com/

http://www.drugstorenews.com/

http://www.chaindrugreview.com/

http://www.canadianhealthcarenetwork.ca/

http://www.pharmacyworx.com/pharmacy-students/default.htm

retailSOS.ca 66

Discussion How do you start a movement of change?

It starts with leadership.

Gerry Spitzner


Are you ready to start a movement? Are you ready to charge for the time it took

for you to get your education and the time it’s going to take you to keep it up?

Are you ready to make the public aware of the great things Pharmacists do?

Are you ready to create, engage and keep great customers?

Thoughtstarter | Derek Shivers TED Talk