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Surviving in the brave new world


11 Oct 2011

The problems
The day to day pressures of maintaining a strong cash flow at the same time as meeting the costs of delivering front-line pharmacy services are intense. This isn’t helped by a collapse in confidence in the NHS’s ability to pay pharmacy contractors accurately. Blindingly obvious it may be, but there can be no other healthcare payment system in the world that matches for plain daftness the process of sending bundles of unpriced ‘invoices’ (aka prescriptions) to a monopoly supplier with an apparently dysfunctional pricing operation. At the same time, constant changes to Drug Tariff Category M prices for generics make long term financial forecasting especially difficult for contractors.
Branded drugs haven’t fared much better – primary care is still reeling from the massive upheaval to the pharmacy supply chain in March 2007 that was Direct to Pharmacy. The removal of wholesale discount for branded drugs spelt the beginning of a steady decline in pharmacy profit margins that has been particularly marked for pharmacies in the independent sector, disadvantaged by size and scale. Reduced profit margins for pharmacists when dispensing branded drugs are not the only problem caused by DTP schemes, the increase in staff time taken up sourcing drugs for their patients has brought another unwelcome additional cost. Using more profitable alternatives to DTP products, such as parallel imports, has become essential to the financial health of every pharmacy.
The political uncertainties surrounding NHS reform have left pharmacy and many other healthcare providers bewildered as to where they fit in and how locally commissioned services will be organised and paid for. The funding for additional enhanced services, which the government has been promising pharmacy for several years, is even more elusive; how will commissioning bodies work? Then there’s the new medicines service; launch imminent, organisation some way behind! Smoking cessation, perhaps the most demonstrably successful of all the service programmes delivered through pharmacies, is facing a funding crisis which is likely to prove fatal in most regions.
Creeping cost escalation is probably the greatest unrecognised threat to a pharmacy’s financial stability; taken together with margin pressures these too can prove fatal. As well as more predictable costs, there are now many others associated with service delivery and administration; typically, the cost of training staff for the electronic prescription service or New Medicine Service (NMS). Both of these will require substantial investment in both time and money to ensure staff are up to speed. Continuing professional development is yet another pressure – is there really enough time for pharmacy staff to keep up to date with meaningful CPD?

Time for a career change?
No, definitely not! Pharmacy is on the brink of massive reform, and this needs to be embraced. Only the sharpest, fittest and most professional businesses will survive. Here’s how you ensure that you’re one of them:

  • Build relationships – now more than ever your GP, commissioning bodies, and suppliers need to be your partners – don’t see them as competitors or adversaries. Show your GP you want to help reduce his workload, your commissioning body that you want to help them hit their budgets, and build relationships with your suppliers, who are as dependent on you as you are on them. All this, of course, against a background of patient services supplied to the highest possible standard.
  • Turn yourself into a modern retailer – understand your target market and market aggressively, think about your pharmacy brand, its key values, and how the presentation of your shop reflects it. Don’t be afraid of digital media – the dawn of social networking is yours to be used – don’t underestimate its power. Consider developing your website and use it to offer increased convenience to your patients. Selling online is also more accessible than you think. In addition, some pharmacy IT providers have text/SMS facilities to help you communicate with your patients.
  • Choose your partners carefully – the right choice of supplier will hold the key to releasing the burden of sourcing drugs – use them well.
  • Choose your products carefully – why settle for low profit when you can retain a 30 per cent margin? This is the reality of tactical buying; investing time in negotiation and really understanding the supply chain will pay off. Automate replenishment of stock wherever you can – consider a dispensing robot. Integrate with supplier systems; automated switching systems are a great example that really saves staff time.
  • Be prepared to suffer some financial pain in the short term for long term gain – difficult to swallow perhaps, but it may be time to accept that a re-finance is needed, even if it does feel like starting all over again. There’s a very long shopping list – IT systems, premises modernisation, staff training, marketing and many more. Your business model must be robust enough to sustain this level of investment and still give you a decent living.
  • Employ more than one pharmacist – this is the key to developing additional patient services, winning contracts and taking the business away from too much dependence on NHS prescription work. The scope for business development is limitless if you develop the skills to become a broadly based contractor to NHS commissioning bodies, whatever shape they may ultimately have.
  • Be very competitive – be prepared to compete with other service providers who may not be pharmacists. Try to create a unique combination of services based around your pharmacy which should see off the opposition. Just imagine being in a position to win exclusive local contracts for services as varied as smoking cessation, weight reduction, blood pressure monitoring, online doctor services, anticoagulation, or even primary care blood testing services. They will all be available for you to bid for. And that’s just services for the NHS! Developing their private sector equivalents is another largely untapped market.
  • Don’t neglect your OTC products – they are key profit generators especially in view of the recent increase in ‘POM to P switches’. High margins can be made on OTC’s. Pharmacy Only lines, supported by professional advice, are your point of difference over the price led supermarket chains.
  • Become a marketing expert – whilst it may be an impossible task to directly take on the supermarkets, there are niche markets that are yours, you just need to find them. Local demographics are the key. If young families are in the majority then market yourself as the specialist in childrens’ medicines. For a predominantly elderly population you could become the local expert on prescription compliance, nutrition or incontinence, as well as, of course, offering home visits. You will need to work hard to build local perception in your strengths – targeted marketing campaigns are the key. Leafleting, internet campaigns, posters in public places and training staff to promote your strengths when face to face with customers, will all help build perception and improve your image. And don’t forget the importance of good front of shop presentation.
  • Don’t neglect your other, even more influential, ‘front of shop’ – your website. Believe it not, this will become the most important part of your business within five years. It needs to be packed with information and, most important of all, must provide your customers with on-line sales and prescription services. All the major retailers are investing heavily in their internet trading portals – you can’t afford to be left out.

Don’t be daunted – change your business model, use your suppliers’ expertise to ensure smarter procurement, grab commissioning opportunities as soon as they present themselves, don’t rely exclusively on the NHS, and continue to provide a high quality service to your patients. There’s an exciting future for pharmacy – just don’t get left behind!

John Davies is a pharmacist and
pharmaceutical services director at Mawdsleys


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