Vertically Integrating Pharmacy Services

Vertically Integrate to a Pharmacy Model
The Thought Process
Consolidation! Merger! Down Size!
We have heard these phrases so much over the years, they almost have lost their meaning, or at least they have lost the visceral feeling we have to hearing them. I know certainly they have in the pharmacy arena where most of us lament the loss of the neighborhood drug store, where we knew everyone and could count on them when we had questions. Oh don’t get me wrong, you could still ask your pharmacist questions, if you are indignant enough to insist when the cashier performs the mandatory "You don’t have any questions for the pharmacist – Right? Just sign here!" I am sure there are similar occurrences in all businesses.
To be quite honest, if you look past the "warm and fuzzy feeling" that local community businesses used to give, you have got to admit we are getting more and often better products and services for our money. A combination of creative entrepreneurs and technology has allowed many companies to deliver better quality, faster service, for less money- and if they can do it in a friendly compassionate way, we read about them in our industry journals.
How do we get there? One of the things many companies have learned to do is vertically integrate the services that are already being delivered to their patients into one model for efficiencies, economies of scale, to control the service, and to reduce costs. One such service is pharmacy. And because of this, many companies have exhibited a desire to integrate a pharmacy model into the equation. This seems easier said than done as pharmacy is a unique business with a very specialized expertise. The cost of staffing pharmacies has kept many smaller businesses out of the market. However many companies that have a critical mass of patients in a geographical area have been able to successfully integrate pharmacy services.
Areas that have successfully integrated pharmacy services have been, home health care companies, DME, respiratory, and diabetes companies. Some of the most successful companies who have integrated pharmacy services are Nursing home chains (LTC), and Assisted living facility chains (ALF’s). Those with a significant critical mass have already successfully purchased or started their own pharmacies. I know because our company, which provides companies with start up pharmacy services, has reviewed and assisted client’s companies in preparation of models that fit their existing businesses and help them integrate pharmacy services into their business.
Why would companies want to start their own pharmacy? Is pharmacy such a huge revenue generator that it changes the financial picture of a company? Let’s review some of the rationales that other companies have used to consider this business model.
As discussed here earlier, the addition of pharmacy revenue can add to profits and in addition, allow a company to better control and improve services. Also, in the past, various Long Term Care companies saw their competitors who purchased pharmacies subsequently capture revenue and profits that they themselves were missing. Not only that, but if those same companies without pharmacies used one of the pharmacies their competitors bought, they found themselves contributing to their competitors’ bottom lines. Their own profits were now diverted towards helping their competitors compete against them! OUCH!
Are you integrated? Does pharmacy integration make sense for you? What strategies are out there for your business? A good Pharmacy Consultant should be able to help you in exploring this type of integration to see if it might be more viable than you thought.
Dean A. Pedalino R.Ph., C.Ph. FASCP
HCC Pharmacy Business Solutions

Buy or Build a Pharmacy -Conclusion

Week Five- "Decisions, Decisions"- How do I know what is right for me?
We have come to the point where we have reviewed many of the positive aspects of buying an existing pharmacy. We have looked at many of the considerations that should be kept in mind that may cause problems or have a negative impact in the growth of your business when buying an existing pharmacy.
We have also looked at many of the positive things that inspire many to open a new pharmacy. Lastly, we looked at the drawbacks of starting up from scratch. Revenue, how quick will it come in?
Now what is the right decision for me?
As mentioned earlier in this series, conventional wisdom is if you are just looking for a pharmacy business and need to immediately replace lost income or off set existing costs then the immediate revenue provided by an existing business is an important consideration. Therefore the existing business must be a good ongoing business with sufficient stability to provide you with that income security.
As clients come to us from all spectrums of the pharmacy business and with all different types of business situations, we need to have a type of "litmus test" In which to discern which is the best way for our client’s situation? It usually comes down to this:
WHERE ARE YOUR PATIENTS COMING FROM?
If you are new to an area, are starting new, without contacts, or stable relationships, then the conventional wisdom probably applies to you.
However if you are well established, have solid relationships with referral sources or a very important consideration, have an existing customer base, then by all means build. We get many inquiries, from people who may have an established client base. For example, Long term care operators who have clients in their facilities and merely want to provide more consistent care, or an additional source of revenue. Physician groups or practices, DME companies and many other healthcare providers who have an established client base and want to expand their service offerings. In all these cases, it is certainly much more efficient and cost effective to build!
So just as one size fits all model doesn’t always apply and rarely provides you with the personal service and uniqueness often needed to set one out from the crowd, a simplistic one size fits all may work for the person looking to open a corner drugstore, but it does not work for the many disciplines and specialties available to the profession of pharmacy, or to the healthcare entities looking to expand their services to their clients. For new and more unique forms of pharmacy practices and creative business models to survive in these times, you want a company or consultant that has a wide enough service offering and sufficient experience to be able to provide you with the options that work for your business model and goals. In trying times the American people are creative and innovative! Keep those ideas coming and be sure to get proper assistance and guidance to get your business up and going and when we see your name in the headlines it is for only terrific grow, innovative thinking and excellent patient care.
Dean A. Pedalino R.Ph., C.PH., FASCP HCC Pharmacy Business Solutions