Under the Hood: Tune-Up the Economic Engine in Your Pharmacy

Transcription

1 Under the Hood: Tune-Up the Economic Engine in Your Pharmacy Presented by: Steve LeFever, Chairman and Founder, Business Resource Services Bill Letendre, RPh, Vice President, Pharmacy Management Services, PCCA 9:15 a.m. - 10:45 a.m., Tuesday, October 16, 2007 Anaheim, California Evaluation # P This program is approved by NCPA for 0.15 CEUs (1.5 contact hours) of continuing education credit. NCPA is approved by the Accreditation Council for Pharmacy Education as a provider of continuing pharmacy education.

2 Educational Objectives Program: Under the Hood: Tune-up the Economic Engine in Your Pharmacy Presenter: Steve LeFever, Chairman and Founder, Business Resource Services Bill Letendre, Vice President, Pharmacy Management Services, PCCA Objectives: 1. Identify the key indicators in a prescription profitability performance report. 2. Compare key indicators in the community pharmacy with industry benchmarks. 3. List methods to improve profitability in the prescription department. 4. Describe data mining techniques for pharmacy management systems. 5. Discuss benefits of data mining and analysis in management decision making. 6. Understand the critical need to consistently monitor financial position. 7. Create a practical process, using ratios, to assess financial performance: identifying strengths, weaknesses and areas of opportunity. 8. Identify the causes behind unsatisfactory performance and pinpoint specific profit and cash flow impact opportunities. 9. Appreciate the dynamic relationships that exist between the balance sheet and income statement. 10. Use financial analysis as a tool to improve profits, increase cash flow. 11. Create goals and action plans to implement positive changes within the organization.

3 William Letendre, M.S., R.Ph., M.B.A., FIACP Mr. Letendre serves as Vice President Pharmacy Management Services for Professional Compounding Centers of America, Ltd, Houston, Texas. He received his Bachelor of Science in Pharmacy degree from the Massachusetts College of Pharmacy, Master of Science in Pharmacy degree from the University of Texas at Austin, and Master of Business Administration degree from the University of Phoenix. Mr. Letendre holds appointment as Adjunct Professor at the Massachusetts College of Pharmacy, the University of the Pacific, Mercer University, Western University and the University of Houston. He has been honored as a Fellow in the American College of Apothecaries, the American Pharmacists Association, and the International Academy of Compounding Pharmacists. Mr. Letendre is the recipient of the 2000 American Pharmacists Association Distinguished Achievement Award in Specialized Pharmaceutical Services, the 2004 Texas Pharmacy Association Pharmacist of the Year and the 2005 National Community Pharmacists Association Outstanding Faculty Liaison Award. Mr. Letendre is the past president of the American College of Apothecaries, the New Hampshire Pharmacists Association and the Texas Pharmacy Association. He has held various offices in the APhA-Academy of Pharmacy Practice and Management and serves on the NCPA Management Steering Committee. He currently serves as the faculty liaison for the NCPA Student Chapter at the University of Houston College of Pharmacy. Prior to relocating to Texas, he owned and operated six community pharmacies, two home infusion pharmacies, and a home care supply company located in the state of New Hampshire.

4 Under the Hood Bill Letendre, M.S., R.Ph., M.B.A. Vice President PCCA Houston, TX Objectives Identify the key indicators in the community pharmacy Compare key indicators in the community pharmacy with industry benchmarks List methods to improve profitability in the prescription department Describe data mining techniques for pharmacy management systems Discuss benefits of data mining and analysis in management decision making Assumptions Can Be Very Costly 1

5 Key Indicators Key Indicators Rx revenues Compounded Rx revenues Non-Rx revenues DME revenues Rx volume Compounded Rx volume Profit fee: Brand Rx, Generic Rx, Compounded Rx Key Indicators Segments of business in most community pharmacies Cash Compounded Rxs Tricare Hospice Medicare: each PDP measured 3 rd Party Plans: each plan measured Discount Card Workers Compensation 2

6 Key Indicators Revenue per segment Volume per segment % of Rx volume for each segment % of Profit for each segment GPM for segment Y-T-D totals Previous year comparative data Key Indicator Report Generic Usage % Compounds Carved Out Key Indicators Segments Yearly Comparisons Trend Analysis Compare each month against 12-month Rolling Average 3

7 Benchmarks Improving Profitability Methods Measure prescription profitability performance monthly Focus efforts to improve the following key indicators: Update pricing strategy at least annually Generic utilization Compounded Rxs Grow 3 rd party Rxs that meet your goals Eliminate 3 rd party Rxs that do not meet your goals Grow Cash segment of business 4

8 Methods Re-enrollment of Medicare patients to PDPs that meet your goals Improve inventory control POS reports Improve purchasing habits Review vendor terms annually Improve productivity Monthly review of workflow needs Data Mining Data Mining Accurate data is a must Routine download of drug AWP & AAC Required to calculate true gross margin Correct generic drug AAC Required to calculate true gross margin System must measure generic v. brand in each segment of Rx business Required to measure effectiveness of conversion rate Rebates should be posted as Rx Income Required to calculate accurate Rx gross margin 5

9 Data Mining System should provide management report with the following data: Breakout of each segment of business including detailed report of each Medicare PDP and 3 rd party plan Report accurate generic utilization rate Report accurate COGS and gross margin percentage Compare U&C to adjudicated amount (difference) Medicare PDP Report Every Medicare PDP is measured by brand and generic drug for profit and GPM 3 rd Party Plan Report Every 3 rd Party Plan is measured by generic and brand drug usage, profit fee, and GPM 6

10 Compounded Rx Report Each Rx should be segmented into a therapeutic category Accurately measure profit performance Every formula must have accurate COGS (API, Excipient. Devices) Provide focused marketing information Identify underperforming segments Measure effectiveness of marketing Follow growth trends Measure effectiveness of marketplace pricing strategy GPM goals for segment Profit contribution from segment to Rx department Compound Segment Report 28 segments measured Key Indicators Year-To-Date Data Yearly Comparison Compound Trend Analysis Monthly & Daily Measurement Compare each month against 12-month Rolling Average 7

11 Segment Trend Analysis Monitor each Segment Monthly Budget Report Comparative Report Budget Report Annual Comparison Measure Variance 8

12 Budget Report Measuring Changes Benefits Making management decisions using data mining techniques that provide accurate information Avoiding pitfalls of costly errors Identify top performing segments of the business Craft a marketing plan to grow these segments Ability to correct underperforming segments of the business Rapid response will result in improved profitability Benefits Reward staff based on measurable goals Using metrics that can easily be reported Improve annual budgeting process Valid and accurate data provides confidence Cash flow analysis is more accurate Accurate measurement of A/R, A/P essential Cost to dispense calculation is made easier Annual cost to dispense analysis based on accurate data 9

13 Conclusions GPM is so thin that inaccurate measurements can be very costly Using your pharmacy management system to generate accurate data is essential to success Creating monthly reports that accurately portray what s going on Under the Hood is key Investing the time or hiring others to do so is a smart management decision Knowing what s going on Under the Hood Renewed Confidence 10

14 Learning Assessment Questions Program: Under the Hood: Tune-up the Economic Engine in Your Pharmacy Presenter: Bill Letendre, Vice President, Pharmacy Management Services, PCCA 1. Name three key indicators in a prescription profitability performance report. 2. Name three methods to improve profitability in the prescription department. 3. Name three benefits of data mining and analysis of prescription records. 4. What was the generic utilization rate for independent community pharmacies in 2006? 5. True or False. Is actual acquisition cost necessary to accurately calculate gross profit margin in the prescription department?

15 Learning Assessment Answers Program: Under the Hood: Tune-up the Economic Engine in Your Pharmacy Presenter: Bill Letendre, Vice President, Pharmacy Management Services, PCCA Answers: 1. Rx volume Generic Utilization rate Brand drug & generic drug profit fee Revenue Profit Gross profit margin 2. Increase inventory turnover Increase generic utilization rate Eliminate low profit performing 3 rd party plans 3. Increase profitability Improve marketing effectiveness Improve operation efficiencies 4. 60% 5. True

16 Learning Assessment Questions Program: Under the Hood: Tune-up the Economic Engine in Your Pharmacy Presenter: Steve LeFever, Chairman and Founder, Business Resource Services Questions: 1. The Financial Operating Cycle includes: a. The P&L b. The Balance Sheet c. Company Tax Return d. Bank Loans e. Inventory 2. Which of the following are uses for net profit in a pharmacy business? a. Dividends b. Repay Debt c. Open A New Location d. Lease Equipment e. Buy Assets 3. Is it possible for a pharmacy to have net profits but no cash? YES 4. What are possible causes of a pharmacy having good profits, but low cash? a. Changes in tax laws b. Decreasing levels of accounts receivable c. Increased levels of inventories d. New equipment financed by the company s line of credit (possibly) e. Dividends paid to shareholders f. Business expansion 5. Identify at lease two possible causes of a shrinking gross profit margin. Shrinkage Poor bookkeeping Poor pricing Poor inventory control Not taking discounts Low productivity Poor buying 6. Growth (increased sales) usually results in increased levels of cash. True? False? 1

17 7. The primary cash flow drivers are found on your: a. Balance sheet b. Income statement (P & L) c. Tax return d. Business plan 8. The primary profit drivers are found on the: e. Balance sheet f. Income statement (P & L) g. Tax return h. Business plan 2

18 Learning Assessment Answers Program: Under the Hood: Tune-up the Economic Engine in Your Pharmacy Presenter: Steve LeFever, Chairman and Founder, Business Resource Services Answers: 1. a, b 2. a, b, e 3. Yes 4. c, e 5. Shrinkage Poor bookkeeping Poor pricing Poor inventory control Not taking discounts Low productivity Poor buying 6. False 7. a 8. b 3