Owning a pharmacy operation is like running any small business. Many external pressures are acting on the industry that an owner cannot fully control. While it is possible to mitigate the impact of some of these challenges, others are much more difficult to manage. It is imperative, then, to control internal factors as much as possible blunting the impact of the external.
External pressures such as business laws (Federal, state, local), pharmaceutical-specific regulations, and business relationships (PBM’s, wholesalers, prescribers, patients) all have an impact on a pharmacy business. Many of these can only be mitigated or managed, not really controlled. It becomes that much more important to control the internal aspects such as pharmaceutical and general inventory levels, employee labor costs, and other operating expenses as much as possible.
Dealing with factors beyond the control of an owner is likely the most challenging part of operating a business. It seems that each one chips away at profitability with no end in sight. These include specific situations unique to pharmacies and others that can apply to any business. The wise pharmacy owner is prepared for these challenges and is proactively working to develop coping strategies. Here are some things to watch out for in the future as these specific situations impact the overall pharmacy landscape.
Relationships of big Pharma, Insurance Carriers, PBM’s, and Wholesalers
It’s no secret that there are forces joined together having a significant impact on community pharmacies. It is undeniable that there is a tight relationship between pharmaceutical manufacturers, Pharmacy Benefit Managers, and drug wholesalers. Some could say that these forces are arrayed against community pharmacies.
Community pharmacies must purchase their drug inventory from some source. It is usually impossible to buy directly from a manufacturer unless a pharmacy chain is national in scope. That means local pharmacies and even regional chains must deal with wholesaler operators and PBM’s regularly. Insurance carriers develop their formularies based on availability from manufacturers, national prescription patterns, and a desire to reduce their costs as much as possible. In most cases, the relationships between each of these entities give them a joint strength that has a notable impact on community pharmacies.
One way a pharmacy owner can counteract some of the effects is to have reliable relationships of their own. Direct contact with the most frequent prescribers can translate into more predictable prescription patterns. Partnership discussions with patients can lead to an increase in medication adherence and medication synchronization programs. These types of initiatives can all work together to benefit the pharmacy by helping to control inventory costs, one sure way to maintain profitability.
Laws – changes, new, rules & regulations
Laws (Federal, state, and local) impact all businesses in many ways, but there are also many pharmaceutical-specific regulations that come into play. Two of the biggest unknowns are the reintroduction and the possible signing of the Pharmacy and Medically Underserved Areas Enhancement Act and the potential changes in the Patient Protection and Affordable Care Act of 2010. These two Federal initiatives alone could potentially have a massive impact on community pharmacies. This is in addition to multiple state efforts attempting to regulate PBM’s further and to combat the abuse of opioid drugs. A pharmacy owner needs to keep abreast of the legislative landscape to ensure compliance as well as potentially pivot quickly to remain profitable.
These legislative shifts are only representative of the numerous potential changes coming that can impact pharmacies. It is impossible within the scope of this brief article to mention every proposed state and Federal law. It is therefore imperative for every pharmacy owner to maintain an awareness of legislative currents that can have an impact. The only certainty is that there is more legislation on the way that will affect pharmacies.
Protecting Profits from the Tax Man
Every business needs a relationship with a tax professional. It could be as simple as working with a local provider or having a business relationship with a major regional/national firm. In either case, someone beyond the owner needs to consider the tax implications of decisions. This area is much too complicated to trust to chance or self-study. It may even require the specialized assistance of both a tax accountant and a tax lawyer.
Of course, that doesn’t mean that the owner takes no initiative at all and turns everything over to an outsider. There needs to be a basic understanding of pertinent laws and oversight of the tax professional. One general resource could be the IRS itself. There is a Small Business and Self-Employed Tax Center within the IRS website that has both general and specific information (https://www.irs.gov/businesses/small-businesses-self-employed). Additionally, there is a video series on small business taxes available on the IRS website (https://www.irsvideos.gov/Business/virtualworkshop) that could be helpful. No matter how the subject is approached, taxes are a consideration that cannot be ignored.
Revenue Growth Despite Fees
Many different fees can impact any small business. Unfortunately, they can rapidly deplete profit if not held in check. Among the most common fees in the pharmacy world are Direct and Indirect Remuneration (“DIR”) fees. These are monies that a Medicare Part D plan/PBM may collect to offset member costs. However, DIR fees can be disguised as service fees, network access fees, administrative fees, reconciliation fees, and other names. Federal legislation has been introduced to make these fees easier to identify (S. 3308/H.R. 5951, the Improving Transparency and Accuracy in Medicare Part D Spending Act) but no one knows yet if this legislation will even make it out of committee.
A proactive owner can mitigate these kinds of fees and protect the bottom line. Due diligence in negotiating with PBM’s is critical, at least with regard to DIR fees. Full awareness in any negotiation is critical and paying attention to the details can have a notable effect on profitability. Tracking the various costs imposed on pharmacies can seem overwhelming, but it is a necessary factor in maintaining a positive P&L statement.
Running any business is a tricky proposition. It can be much easier if the owner is prepared to put in the time to be a business owner first, putting the focus on operating the business. The pharmacy business just happens to be the market sector the owner operates within. By staying aware of changes to the overall business landscape, in addition to pharmacy-specific operations, the successful owner can ensure that their business remains profitable.
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