Our latest thoughts and inspirations on buying a pharmacy, starting a pharmacy, and ongoing pharmacy operations

Part 3: Using Strategic Alignments to Grow Pharmacies

Most in the retail pharmacy industry think there are only a couple of ways to grow, add store locations or add a line of business like compounding and DME. These are great ways to grow and should never be ignored when considering growth options but by creating relationships with strategic organizations in and outside the industry you probably can grow revenues and profit organically. Below I have outlined two ways this can be done but our advice is to always think creatively and proactively speak to vendors, partners and industry advocates about how they can help you grow.

1. Wholesalers – I know, I know no one likes thereThe truth is though, that it is in your wholesaler’s best interest to help you grow because they make more money when you make more money. McKesson, for example, has a whole division called HealthMart whose sole purpose is to provide community pharmacies with a more recognizable brand to increase revenue. They also have an application that is pre-built and will allow you to take online refills.

Part 2: Grow Your Pharmacy Through New Offerings

With Medicare and private insurance reimbursement shrinking, what seems like every month, community pharmacy owners should be looking for other sources of revenue and profit. Below we have listed three options. Some of these may seem obvious, as they are common in the industry, but we wanted to outline how your revenue and profit will increase compared to the start-up cost for each. Hopefully this will give business owners some direction as to what the cost benefit is for these programs. This is part 2 of a 3 part series on Positioning Your Pharmacy For Big Growth. To read part 1 please visit our website at www.independentrxconsulting.com

1. Compounding – the startup costs for a compound pharmacy are significant. The reason for this is you must purchase the inventory, have compounding hoods installed in a current location or open a compounding only location and either hire a compounding trained pharmacist or train a current pharmacist to take over this program. The good news is reimbursement for compound prescriptions is substantial and there is a large cash sale component. We have actually seen gross profits at 85-90% for compounding. You can fill 30-40 prescriptions a day and make $30,000 to $40,000 per month in gross profit which I think all of us would take any day.

In January Tim Clark and I were speaking about the pharmacy industry and about some ideas on how to grow Tim’s chain of pharmacies. Through these conversations we identified that we had tried to seek help from others in the industry including consultants and have never been able to find a company that could really provide new and valuable ideas. So instead of complaining we started Independent Rx Consulting and today we launched our website. The company Independent Rx Consulting has set out to not only to support the independent pharmacy community but also help pharmacy owners meet their personal and business goals.

Part 1: What’s Your Pharmacy’s Biggest Challenges?

As a community pharmacy owner today you are facing many challenges not only because you are a small business in a competitive market but also due to factors that are out of your control like Medicare Part D reimbursement. I wanted to provide you some comfort in knowing you are not alone and that some of the challenges are being solved throughout the country. Below are the top 5 we are seeing in the market today:

1. Lowered and delayed Medicare Part D reimbursement - This is a reality for community pharmacy owners today and will be for the foreseeable future. There isn’t much you can do about it so try not to dwell on it. All you can do, as an owner, is counter the shrinking margins by relentlessly controlling expenses and by creating efficiencies within your operation.

There is a lot to consider (and worry about) when you go to sell your pharmacy but there are 3 that bother most owners the most.

1.) I do not know how to value my pharmacy and thus do not know if I am getting a fair offer.

This can be difficult but don’t worry it really comes down to whether you are selling to a chain or another independent. Most will want to know both prior to receiving offers, so you are prepared. Chains typically base the purchase price on a multiple (typically $10 to $25) of the total scripts filled per year. Independents will typically take a multiple (average is 3) of your EBITDA (earnings before interest, taxes, depreciation and amortization).

2.) How do I deliver the news to my employees?