Feature: Pharmacy Operations

Yes — I shamelessly “borrowed” the title of this article from the TV show, “Bar Rescue.” When I was asked to write an article about revitalizing pharmacies that are not growing and/or are experiencing a decline in business, the show immediately came to mind. As they say, imitation is the sincerest form of flattery. But it does illustrate a great business principle. Observe what others are doing well and learn from it. Then try to do it better.

So with this in mind, what can you learn about how you should manage your pharmacy from observing where others are having success? My answer is that you should learn how to manage it as if you are going to sell your business tomorrow. The implication is that you want to sell your business for the best price you can get. You get the best price if you have created the most value. You should be working every day to create the most value that you possibly can.

Terry’s Advice

Sage Advice on Hiring

When you make a bad hire and/or have an employee who cannot or will not perform his or her duties, it just causes the rest of the team (especially the owner) nothing but grief. This usually translates to less-than-optimal morale and reduced performance. Speaking of family, if you employ cousin Jack and Jack is a loser, you should do something about it. But you might have family pressure to keep Jack around. Fine — but you have to accept the consequences of that decision.

A Checklist for Reviewing Your Pharmacy’s Appearance

  • A Checklist for Reviewing Your Pharmacy’s Appearance
  • Is the store clean and well lit? As time goes by, clutter creep is inevitable. And make no mistake — clutter is not a good thing. Throw stuff out!
  • Are you using good and appropriate signage (inside and out)?
  • A fresh coat of paint, new flooring and/or new lighting can go a long way in improving a store’s looks. How long has it been?
  • Is the merchandise on the shelves dusted and organized?
  • How the pharmacy department looks is especially important from a customer’s point of view. The pharmacy is the professional/clinical heart of the business.

In my mind, these are the specifics of a pharmacy operation that need to be actively managed:

  • Human resources
  • Marketing
  • Financial management
  • Regulatory affairs and technology
  • Dispensing and workflow
  • Inventory management
  • Clinical practice

I will highlight, in three of these areas, what I believe makes the most difference in turning a business around.

Take an Objective Look

Independent pharmacy owners are in a tough spot. A pharmacy has many moving parts. The pharmacy staff has very little say in pricing for over 90% of prescriptions filled. Monitoring cost of goods (purchasing) has become both critical and incredibly complex. New business models and regulatory challenges, as well as dozens of competitors, continue to assault the business. The poor pharmacy owner has trouble seeing the forest and the trees.

This is why I think it makes a lot of sense to bring in someone from the outside to take a detailed, objective look at your business. You will have to do some homework to identify the right person for you. This involves a degree of googling, as well as asking for recommendations from other owners. An objective, experienced outsider is going to discover and report to you things about your business that you need to know but you have neither the time nor the skill(s) to uncover yourself.

When I perform this review function, the first thing I do is sit down with the owner(s) — who are often related to each other — and ask them what it is they are trying to accomplish. I want to know what their vision for the pharmacy is. This may sound very “corporate,” but it makes sense to know what you are trying to do with the second-most significant part of your life (family is number one). You might not be surprised to find out that most owners have not asked themselves this question for a long time — if ever. “I want to make a profit of $500,000” is not a vision. It is a healthy goal, but it is not what the heart of your pharmacy is about. I suggest that you take a look at the vision statements of a few publicly traded companies in addition to talking to pharmacy owner colleagues. I am a strong advocate of belonging to at least one pharmacy professional association, if not two or three. These are excellent sources of information and ideas to help you hone your vision. But, and this is important, we are talking about your vision, not one you borrow from another pharmacy or business.

This is also the right moment to take into consideration that most independents are family-owned small businesses. That is a nuance that requires someone with a measure of diplomacy in respectfully presenting some of the issues that are troubling a professional pharmacy business. Notice that I placed human resources as the first thing to be managed. Cater’s first principle of business is “Hiring is the most important thing you do.”

No one wants to deal with employment issues, but you simply have to do this right. I strongly urge the owner(s) to review the roster of employees and make appropriate decisions about the team going forward. This issue goes directly to customer service — the greatest differentiator an independent has. Repeat: Hiring is the most important thing you do. If you have to fire an employee (or two), make sure you know the appropriate employment law, be direct, and treat people with respect.

Hiring well also has a direct impact on another critical element of your success: customer service. But even once you’ve hired the right people, you still need to consider what kind of ongoing training programs you have for your employees or associates. Happy, well-trained employees are your best customer service asset.

The next order of business is to look over the physical plant. Have you established good standards? Try to take a hard look at your pharmacy from the point of view of the customer. A little housekeeping is almost always in order.

Get a Marketing Plan

Then there’s marketing. Both good hiring and a professional and modern store appearance serve as foundations for your marketing efforts. Professionals (M.D.s, attorneys, Pharm.D.s) are typically pretty weak at marketing. I have seen some improvement in the pharmacy arena, but mostly in improved websites. That is a good thing, since most people turn to the internet first these days to research a business. If you do not have an online presence, you do not exist. I take a look at the business website before I ever meet the owner. But that’s just one piece of a marketing plan, and when I ask to see a copy of a pharmacy’s marketing plan, over 90% of those I have worked with do not have one. How do you plan to grow if you do not tell people that you are in business and why they should do business with you? And do so in a strategic way.

I touched on the importance of a website, but then we also have to discuss social media marketing these days. I know you do not want to hear this, but I strongly urge my clients to have a Facebook page as well as a presence on LinkedIn and Twitter. Yes — these do need to be managed. But Facebook and LinkedIn do not require daily updates. Twitter can be used on the fly. If you insist on picking only one, go with Facebook. Use it to announce special events or special deals or new programs/promotions and new people.

I would be remiss if I did not mention Google Ads. These typically are “pay per click,” and can be a very powerful tool when used properly. Done right, Google Ads will bring your pharmacy up first or near the top when people are searching for a local pharmacy or a specific service or product.

But before you rev up your marketing, I recommend putting together a small advisory board of three to five people who are customers. You should try to include a difficult customer. You can host a nice dinner or event. The goal is to create a place where a discussion can happen. The themes are pretty basic. What are we doing right? Are there employees at our pharmacy whom you really value doing business with? Why? What are we not doing right? What would you like to see us do differently and/or start doing? Make sure to present your advisors a small reward for participating. Perhaps a gift card at the store? Something that shows you value their participation and opinions. Another great source of marketing support is your wholesaler, buying group, or pharmacy association (NCPA has some terrific stuff).

Assessing Financial Health

Finally, let’s talk about assessing the financial health of the business. For this I request many reports, including ones generated by the pharmacy computer, point-of-sale systems, and financial documents, including tax returns, income statements, balance sheets, and cash flow analysis. I learn a lot about the management of the business in how fast these documents can be produced. Or if they can be produced at all ­— that tells me something. If they are not produced, then the discussion centers on building the processes of managing and maintaining sound financial management.

One specific piece of advice here: Managing third-party payer receivables is especially difficult. I highly recommend that you use a reconciliation service. This is especially important in addressing direct and indirect remuneration (DIR) fees. These services can help you better understand where your prescription revenue comes from. Which plans are the majority of sales? Which plans are profitable? Which are not? Which are paying in a timely fashion? A pharmacy services administrative organization (PSAO) can provide a tremendous amount of support in this area as well.

In summary, to jump-start your pharmacy business and practice, take a hard look at your employees, how you manage them, and how they perform. Develop or review your marketing plan and start executing it immediately. Update the physical plant of the pharmacy. And last, but absolutely not least, be sure your pharmacy and financial reporting accurately depict the value of your pharmacy. It pays to be organized. CT

Terry Cater, R.Ph., M.B.A., is VP of sales and marketing at Perceptimed. Prior to this he was an independent pharmacy and healthcare consultant. The author can be reached at tcater@perceptimed.com.