Pharmacies

Bolstering the Bottom Line

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Three front-end opportunities for pharmacies to consider.

Independent community pharmacies are feeling the impact of a tougher competitive environment, which is cutting into their revenue streams at the same time that prescription revenues, accounting in many Patient Care Sidebarcases for 90-95 percent of a pharmacy's business,1 are dropping. Since 2010, average gross profits of pharmacy operations have dropped from 24 percent to 22.9 percent.2 And reimbursement rates from insurance companies are declining, significantly affecting margins, forcing community pharmacies to look to other ways to drive revenue. These can include anything from holding in-store classes to focusing on medications or products for specific health conditions. For many pharmacies, it also means a renewed focus on the front of their stores. Additionally, community pharmacies are finding ways to collect solid sales data in order to optimize an
effective - and profitable - mix of products that meet patient needs.

Private Label Brands
Private label brands (PLBs) offer an important opportunity for revenue growth. In 2014, private label brands accounted for $115.3 billion in sales, up 2.5 percent over 2013, more than twice the increase earned by name brands.3 Even though customers largely seek out PLBs to save money, 75 percent of Americans believe that private label brands are a good alternative to name brands.4 Meanwhile, pharmacies benefit from the margin on these products, which is higher than that of name brands by about 10 percent.5

When marketed properly, PLBs bring additional value to patients and tend to build patient loyalty, thereby increasing overall sales. Marketing recommendations for PLBs include:

  1. Stock PLBs next to the name brands with which they compete.
  2. Discuss PLBs in various media channels (including social), emphasizing lower cost, high quality and safety standards equivalent to name brands.
  3. Educate staff on PLBs and when to share information about them with patients.
  4. Capitalize on the personal relationship with customers and the trust they place in the pharmacy. Expand that trust to the PLBs on the shelves with a "Pharmacist Recommends" section or end-cap. A pharmacist recommendation to a patient results in a product purchase 80 percent of the time.6

75% of Americans believe that private label brands are a good alternative to name brands.7The exclusivity offered by PLBs also allows a pharmacy to remain on a level playing field with competitors, many of whom offer their own PLBs.

Durable Medical Equipment
The community pharmacy is uniquely suited to carry durable medical equipment (DME) products that provide therapeutic benefits to patients with specific medical conditions. These products are especially necessary for patients with severe disabilities and the aging population.

The market for DME products is substantial, expected to hit $39 billion by 2017.8 It's reported that as many as 30-54 percent of patients over the age of 65 suffer from a severe disability, with as many as 75-90 percent of elderly, disabled patients requiring some form of DME.9 For those elderly patients not living in long-term care facilities, approximately 1.5 million require wheelchairs or braces of some sort.10 Even given these numbers, recent studies show that only a small percentage of Medicare enrollees who are eligible for DME benefits actually use them, with many using their own funds to make needed purchases.11 Pharmacies have an opportunity to educate patients who seem unaware of what their benefits cover and can help them save money, thereby creating customer good will and loyalty.

Thanks to their personal relationships with patients, community pharmacies can positively affect their patients' lives by consulting with them on appropriate DME, as well as ways to make the purchase of such equipment affordable. Like PLBs, the availability of DME products can help turn one-time purchasers into long-term patients who see the pharmacy as a wellness destination that allows them to take care of all their pharmaceutical and equipment needs in one place. The ability to market specifically to the needs of a particular community is powerful and differentiates independent pharmacies from chain stores.

When marketing DME products, there are certain regulations and guidelines to consider, including requirements under the Health Insurance Portability and Accountability Act of 1996 (HIPAA). It's important that pharmacies understand these regulations when selling DME products.12 According to the Medicare Learning Network, part of the Department of Health and Human Services, "to furnish Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS), suppliers must meet DMEPOS Quality Standards established by the Centers for Medicare & Medicaid Services (CMS) and be accredited by a CMS-approved independent national Accreditation Organization (AO)."13 The durable medical equipment market is expected to hit $39 billion by 2017.14There may also be individual state requirements that regulate the sales of such products. Marketing recommendations for DME include:

  1. Set aside a specific area of the pharmacy for DME and arrange it so products are easy to see and easy to examine. For mobility products like walkers, canes and wheelchairs, patients will most likely want to try them out, so make sure room is available.
  2. Train staff on the proper ways to approach patients showing interest in DME. Some will be sensitive about their need for such equipment, so ensure that staff are trained to approach these situations with tact and sensitivity.
  3. Use technology to market DME products. The Internet and social media sites can be invaluable in letting the community know that DME products are available.
  4. Consider placing chairs in the DME section to allow seniors a chance to sit down as they are looking at potential purchases. They will appreciate the thoughtfulness. Make sure chairs are easy to get in and out of.

Home Diagnostic Kits
Home diagnostic kits are one promising area that can increase profitability, as sales of these tests are on the increase. For example, more than $4 billion was spent on blood glucose monitoring kits in 2014, with test strips accounting for 90 percent of that total.15 The rise of self-administered tests demonstrates increased interest on the part of consumers in managing their own health, which bodes well for a More than $4 billion was spent in 2014 on blood glucose monitoring kits, with test strips accounting for 90% of that revenue.16healthcare system that has become increasingly outcomes-based. These tests - which have proven to be highly accurate and easy to perform - allow patients to avoid unnecessary doctor visits and to seek treatment earlier, leading to more successful outcomes. Independent community pharmacists are in an excellent position to provide important pretest counseling and education, as well as post-test consultations and referrals to appropriate healthcare providers. Home diagnostic kits are available for a variety of needs, including pregnancy/fertility, diabetes, cholesterol, strep, STDs, drug use, nicotine use and more.

Marketing recommendations for increasing sales of home diagnostic test kits include:

  1. Group test kits with other related products, rather than in a single "home test" category. For example, home pregnancy test kits might be stocked with basal thermometers, ovulation predictors/testers and fertility monitors.
  2. Place test products close to the pharmacy, as customers will invariably have questions both before and after testing.
  3. Hold demonstration events to provide increased value to patients in the community.
  4. Be cognizant of events in the community, and promote home test kits accordingly. For example, if heart disease is a problem in the community, market cardiovascular health testing kits to customers.

Finally, for pharmacies that have developed a specific area of expertise, there is an opportunity to link products based on need. For example, a pharmacy with a large population of diabetic patients might position compression socks, sharps containers and glucose supplements near the blood glucose monitors, which in turn might be near blood pressure cuffs, as high blood pressure often accompanies diabetes.

Analyzing the Data
So how can pharmacists know what products are most popular or have the most impact in their stores? Pharmacists should consider installing point of sale (POS) cash registers in their stores, allowing them to collect, track and analyze sales data on a regular basis. Reports can be generated to track retail dollars/units, gross margin (in dollars or percentage), or profit/cost dollars. Armed with this information, pharmacists can optimize promotional programs such as temporary price reductions (TPRs). Using a dashboard program in conjunction with a POS device allows reported data to be compiled and presented in a way that reveals performance against competitors, as well as under and over performing areas. Once properly collected and analyzed, the data received can be invaluable, and can potentially add tens of thousands of dollars to a pharmacy's bottom line over the course of a year.

Although there are definite challenges that today's pharmacies must face, creative thinking, embracing new product lines and adopting business analysis techniques can all help stem the tide of lost revenue. By becoming more active and strategic in stocking and product placement, new revenue can be generated while also attracting new patients and improving loyalty with existing patients.

Most importantly, however, pharmacists must be conscious of stepping out from behind the prescription counter to form strong, personal relationships with their patients. This focus on patients then becomes the lens through which everything else - including selection of stock, placement of goods, store arrangement and more - is seen, leading to a better ability to meet patient needs and promote better wellness outcomes. In short, a patient-centric intent translates into a patient-centric pharmacy, which means more patients, stronger customer loyalty and a healthier bottom line.

1National Community Pharmacists Association. NCPA Digest. October 2015. Accessed 19 November 2015. Available online at http://www.ncpanet.org/solutions/ncpa-digest-sponsored-by-cardinal-health
2Ibid.
3 The State of Private Label around the World. Rep. The Nielsen Company, 2014. Web. 5 Nov. 2015. http://www.nielsen.com/content/dam/nielsenglobal/kr/docs/global-report/2014/Nielsen%20Global%20Private%20Label%20Report%20November%202014.pdf
4Ibid.
5 "The Advantages of Using Private Label Products." The Advantages of Using Private Label Products. Noon International, n.d. Web. 02 Dec. 2015. http://laboratory-manager.advanceweb.com/Features/Articles/Booming-Projections-for-the-Point-of-Care-Market.aspx.
6Pharmacist and Patient Conversations at Independent Pharmacy. Hamacher Research Group. Feb 2015.
7Ibid 5.
8"Long Term Care and Home Healthcare." Pharmacy. Medicap Pharmacy, 2015. Web. 05 Nov. 2015. http://www.medicap.com/specialties/long-term-care.
9Pray, W. Steven, PhD, DPh. "Durable Medical Equipment: A Challenging Practice." USPharmacist.com. Jobson Publications, 19 June 2008. Web. 20 Nov. 2015.
10Ibid.
11Ibid.
12Nguyen, P. D. (n.d.). Legal Guidelines for Sales and Marketing by HME Suppliers. Retrieved October 16, 2015, from http://www.nrrts.org/business-articles/legal-guidelines-for-sales-and-marketing-by-hme-suppliers
13United States, Department of Health and Human Services, Centers for Medicare & Medicaid Services. (n.d.). The Basics of DMEPOS Accreditation. Retrieved October 27, 2015, from https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/downloads/DMEPOS_Basics_FactSheet_ICN905710.pdf
14Ibid 7.
15Hocovar, Robin. "Booming Projections for the Point-of-Care Market." Booming Projections for the Point-of-Care Market. Advance Healthcare Network, 9 June 2015. Web. 05 Nov. 2015. http://laboratory-manager.advanceweb.com/Features/Articles/Booming-Projections-for-the-Point-of-Care-Market.aspx.
16Ibid.
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