Operating an independent pharmacy comes with lots of costs, chief among them being inventory and labor. But it’s the smaller, administrative costs that can accumulate and really impact a pharmacy’s bottom line and determine if it is successful or not.
“Every nickel counts,” Jason Montgomery says. “It’s really about defining those other expenses and managing correctly. Sometimes it’s just a matter of awareness and having someone with an outside perspective taking the time to review.” Montgomery is vice president of business coaching at AmerisourceBergen and works with independent community pharmacists across the country to help them optimize their business performance.
While some administrative costs like legal, accounting, and other professional services are often considered, Montgomery says it’s the non-service related expenses where pharmacies can really save, such as snow removal, security, pest control, office equipment, and insurance. For most of these vendors, these expenses can be reviewed on a quarterly or annual basis.
“Even though pharmacy falls under a fixed-cost category, there are still things that fluctuate and need to be reviewed,” he says. “Rent, for instance. If you don’t own your property and are leasing, that can change as market conditions change. This can always be revisited with a landlord. It doesn’t need to be an expected fixed cost year after year.”
Nimesh Jhaveri, president of Health Mart and senior vice president of McKesson Corp., which works with its franchise stores to help them identify best practices that will increase their capacity to meet all requirements, calls it a challenge akin to a moving target, and that changes as the industry changes.
“It is okay to reach out to peers and to your franchise and ask for assistance,” he says. “Leverage your support systems to educate, understand market and industry trends, set goals for key performance indicators, and—most importantly—take action utilizing all resources available to you.”
Scott Jensen, MBA, is director of program development at Arete Pharmacy Network, which offers a portfolio of technology-based solutions designed to centralize and reduce the administrative burden of independent pharmacies. With more than 10 years’ experience developing programs and value-added services that reduce administrative burdens for independent pharmacies, he’s observed many things that ultimately help them compete in an increasingly competitive landscape.
“One of the biggest mistakes is holding on to the mindset that administrative costs are fixed, or that more costs will be incurred with the addition of the services of a third-party vendor,” he says. “If there is no opportunity for savings on staff overhead costs as a result of engaging a third-party vendor, the intent should be to repurpose the previous administrative effort to activities that generate revenue for the pharmacy.”
Jensen says that pharmacies should be thinking about ways in which time can be converted into revenue. He suggests creating an opportunity to retrain staff otherwise dedicated to administrative functions.
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Jhaveri says another big mistake pharmacies make is not knowing where they stand and where the market is set. Pharmacists are often focused on the patient in front of them and giving exceptional care. “Pharmacists shouldn’t get so busy working ‘in’ the business that they don’t spend time working ‘on’ the business,” he says.
“Independent pharmacies also typically invest heavily in staffing and customer service. This investment can be a differentiator and important for patient outcomes if all employees are being maximized. Heavy staffing can also be a cash flow killer in a low margin business if not optimized,” he says. One of the benefits of being a franchisee is that you can call on the franchise company to identify how a pharmacy can prepare to take advantage of the changing healthcare landscape. “A pharmacy owner can’t ignore key indicators and expect optimal results,” he says.
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