A Clinical Look at Pharmacy

As pharmacies move towards establishing vaccination clinics, pharmacy is experiencing major resistance from medical groups.
This was predicted by i2P and in fact we commented that clinical pharmacists would come under scrutiny from a range of sectors that includes doctors, nurses, patients and government agencies, and that scrutiny would be harsher than what they would impose on themselves.
Because of this scrutiny, pharmacy will have to do it better than anyone else.
It’s a challenge, but one worth taking up.
I believe that clinic service structures will attract a higher level of patients that will integrate with all other pharmacy services, including dispensing.
And because of all the changes and upheavals that are affecting pharmacy, a clinical look at pharmacy may assist in its transformation to a new paradigm.

My early experiences in researching professional services indicated that pharmacies attracted two distinct classifications of consumers – customers and patients.
The percentage mix of customers to patients determined the “flavour” and ambience of the pharmacy.

The confusion that has arisen around this phenomenon makes it hard to define what a pharmacy is to others outside the profession, because a customer can become a patient, and vice-versa, within seconds upon entering a pharmacy environment.
Different policies have to apply separately to customers and patients.
That is briefly summarised in the statement that “a customer is always right, but a patient isn’t necessarily right”.

Customers who interact with a strong retail offering (and as a rough rule of thumb, by applying Pareto’s Principle), 80 percent of a pharmacy’s consumer activity, usually find themselves in a “Retail Pharmacy” environment.
Retail pharmacies have a strong brand and price image that competes with all retailers, including the duopoly of Woolworths and Coles. By their competitive nature, they rely on strong organisational management to apply retail strategies on the lowest margin possible.

The other side of that same pharmacy is that 20 percent of the consumers in a retail pharmacy are patients who respond to professional offerings that are physically separated from general retailing within the pharmacy.
Professional activity is concentrated in a dispensary, and a private interview room, mandated under the Pharmacy Act.
And most of this professional activity is as commoditised as possible, to fit the retail business model and its management style.
This can also be expressed as a pharmacy that can produce (in volume), Medschecks in preference to Home Medicines Reviews.

The reverse of the Retail Pharmacy is one defined as the Advanced Community Pharmacy, characterised by having 80 percent of its consumers involved as patients in professional activity, and 20 percent of its consumers as customers, reacting with their retail activities.

The game-changer for all types of pharmacies has been government policy changes for the PBS system that has financially disrupted most pharmacies, some to the level of bankruptcy.
The changes to PBS have been too fast to absorb and too dominant to manipulate a pathway around such a “blockage”.
No business could withstand the sudden drop in gross profit that has been forced on pharmacy, and not experience an adverse reaction to its financial base.
The effect on retail pharmacies has been to the extent that OTC margins have been progressively elevated to take up the slack.
The effect on community pharmacies has been more devastating, with too low a retail base to effectively compete and an inability to plug gaps with higher margin clinical services.
There is also conflict and indecision with how those services will look and who will deliver them.

While some level of all clinical services may be commoditised, most community pharmacists will have difficulty in delivering a full suite of services to a level they wish to aspire.
Again, the Medscheck/HMR analogy. Pharmacy proprietors will have to contract with independent contractors if they wish to be involved at an HMR level, because they are simply unable to leave their pharmacies physically, to any degree, to undertake this type of activity.
High level clinical services will need to form up under shared risk alliance partnership agreements and the pharmacists filling this role will have to have the freedom to service more than one pharmacy (because of taxation reasons and initial low levels of patients being available from one pharmacy alone).
By the same token, a pharmacy can contract with more than one service provider depending on specialties that can be delivered.
An Advanced Community Pharmacy can thus expand around the delivery of primary health care and a clinical services pharmacist attached to each segment of primary health care.
If Advanced Community Pharmacies position themselves as providing the infrastructure to support clinical service pharmacists, then they have the best of all worlds and have the ability to compete against all other health practitioners, including GP’s, Clinical Nurse Practitioners and complementary medicine professionals such as Naturopaths, for the primary health care space.

This structure then gives you a seat at the table through government-directed initiatives, such as the Primary Health Care Network (PHN) due to start on 1 July 2015.

Pharmacy will have to fight GP’s and others for every skerrick of market share that it wants to participate in.
I don’t think community pharmacists have made the competition transition from that of supermarkets to medical practitioners in their thinking, even though medical groups have made no bones about what they consider to exist, as a turf war spearheaded by those pharmacist intruders.
Nor have they yet seen the future clearly enough to transition from Community Pharmacy to an Advanced Community Pharmacy.

Mind you, what we are talking about in professional activity was practiced pre-1970, albeit in a different format. The pharmacy model back then simply gave ground to the retail philosophy that was embraced a franchised market group and the view of competing with supermarkets.
That it was not seen back then that pharmacies could not compete at all levels required to truly offer competition, all that happened was a temporary elevation of retail sales but accompanied by overall market share erosion.
Official support was simply not given to carrying forward all clinical activity because the early pharmacy model relied on high margins on merchandise to cover labour costs involving free clinical services.

That flawed model was not changed quickly enough and is still the predominant model today- caught in a discount price squeeze between supermarkets and warehouse pharmacies, and a PBS squeeze on gross profit.
Remaining in that “square” has no future and community pharmacies have to evolve to full Retail Pharmacy model or an Advanced Community Pharmacy model.
The current middle ground has no future.
It is estimated that a newer version Advanced Community Pharmacy model will not reach a maturity level until around 2023.

Most pharmacies today sit at a vulnerable point somewhere between the Retail Pharmacy and the Advanced Community Pharmacy.
Only one version of a community pharmacy is exempt – the Compounding Pharmacy.
The Compounding Pharmacies have shown strong and consistent profit growth because they are not dependent on PBS or retail sales to survive.
They provide a specialty pharmacy dispensing service and a consulting service for a fee.
They can set up in less prime retail space (lower rentals) and can generally operate out of a larger space that can accommodate a laboratory.
Some even include living accommodation upstairs that becomes a further “plus” if you are a young pharmacist wishing to establish yourself as economically as possible.

I would already classify most Compounding Pharmacies as Advanced Community Pharmacies (except for those weighed down with PBS).

The Compounding Pharmacy pathway would seem to be the logical one to go down if you are a newly graduated pharmacist. But even experienced Community Pharmacy owners should consider a conversion.

And instead of building multiple pharmacies in a chain as ambition builds, consider building large scale single pharmacies (based on department store design) that can allow you to step into compartmentalised activity, including adding PBS and a larger retail segment if the conditions are right.

But never at any stage of your professional career become dependent on one segment of activity, particularly if there is government involvement.
The original version of PBS was never to exceed 25 percent of total dispensing activity.
Well, obviously that did not last.
Governments are exceedingly harsh on small business no matter what flavour or what is promised.
That is a lesson well learned if indeed you learn it well!

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