As Pharmacies Face Financial Distress, RxOwnership Uses Data to Increase Profits
Chris Cella, RPh, vice president of RxOwnership at McKesson, talks about how independent pharmacies can help improve their bottom line.
Independent pharmacies across the United States have been dealing with significant financial issues over the past several years: Economic instability, reduced prescription reimbursements, and higher back-end fees have all resulted in shrinking profit margins, creating a challenging environment for some independent pharmacies.
Although independent pharmacy represents a $94 billion marketplace, profit margins continue to shrink. The 2023 NCPA Digest found that gross profit margins for independent pharmacies fell to 21% in 2022, the lowest point in the organization’s 10-year lookback window.2 And since 2019, over 7000 pharmacies around the country have closed, around half of which were independent pharmacies.3 This makes it clear that finding ways to become profitable is of critical importance to the survival of independent pharmacies.
As margins get slimmer and profitability becomes harder to achieve, independent pharmacists must explore alternative routes to profitability. | Image credit: Tyler Olson - stock.adobe.com
Chris Cella, RPh, vice president of RxOwnership at McKesson, noticed changes in the independent pharmacy industry starting 3 to 5 years ago, when margins started getting slimmer and profitability was getting harder to achieve. At RxOwnership, Cella and his team help pharmacy owners dig into their overall financial health by conducting an analysis to help improve their foundation and get their financials in order.
“We look at it as though it's the foundation of your home,” Cella said. “No matter how beautiful your home is, and no matter what you want to put into your home, if you have a weak foundation, it's going to collapse at some point. So, we identified the foundation as the financial operations; revenue, gross profit, inventory turns, payroll, operating expenses, and started to look at that and then started to come back with actionable solutions to help improve on each one of them.”
To gain a better understanding of where an independent pharmacy currently is financially, the RxOwnership team collects 3 years’ worth of balance sheets, profits and losses, and tax returns and pulls out key information to match against national benchmarks. These data are presented to the pharmacy owner to show them where they sit compared to the competition. Then, the team goes further by showing the owner what competitors in the local market area are doing, as well. This is all put into a usable format so that the team can identify areas of opportunity.
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“On average, we're seeing the stores that follow our suggestions are showing an increase in profitability,” Cella said. “We're trying to aggregate all this data to get hard numbers. But the stores that are actually following our recommendations or continuing on doing what they were doing correctly, are showing improvement in revenue, as well as purchases.”
This year, the company launched a new program called XMS. XMS was created as a way for the RxOwnership team to put all of the data they collected within McKesson to use for their customers looking to start or open a pharmacy. The tool features a dashboard that can show basic demographic data, such as age, ethnicity, household income, Medicare, and Medicaid, as well as the number of prescribers in the market area, the number of prescriptions those prescribers are writing, reimbursement data, and the competition in the market area. Cella said this gives independent pharmacy owners a leg up on competition and sets newly opened pharmacies up for success.
“We want to put you on your best foot,” Cella said. “[We] go through that whole process and then after that we still do the same old stuff. We do the business plan review, the three year projected financial template, store design, fixturing, third party contracting, we handle the wholesaler side very easily. But we bring so many tools after we run that demographic analysis on XMS. It's just really powerful stuff.”
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