The PBS $1 Discount – Strategies for Coping

The next 12 months will be a real time of testing as the discount PBS co-payment of $1 begins to bite.
You must prepare to combat this process immediately to ensure that your pharmacy will survive.
This cynical process adopted by government, has the potential to generate many bankruptcies after the first year of introduction.
And when a “product” owned by government has the power to orchestrate destruction of business capital in such a fashion, it begs the question:
“Who really owns your business?”

If you owned your own business you would be able to decide for yourself when, where and how, to apply a discount to a segment of your business, with the view to providing an ultimate benefit through value generation.
The discount imposed by government that is to take effect in January 2016 will not be cost effective for pharmacies – it will be a straight loss delivering a major blow to the bottom line of all pharmacies.
And it will ultimately reduce value for patients.

On top of the damage already done through price transparency policies it really is time for all pharmacists to consider their position against the future of the PBS, because PBS, as we have previously pointed out, is a product at the end of its life cycle, now characterised by commoditisation, inadequate return on capital plus added imposed discounts.

PBS will remain a finite resource as opposed to new ideas and innovation, which are infinite.
In other words, unless pharmacy leaders can convince government to completely replace the PBS with a 21st century innovation (whatever that new product would look like), pharmacies are faced with a restricted range of strategies that may look like:

* Chase after “profitless prosperity” and increase your market share of prescriptions by cannibalising your competitors, through using the full $1 discount.
This would necessitate investment in expensive automated dispensary equipment that would not necessarily be justified, given the ever diminishing PBS return on investment.
This would increase the lifespan of the business, plus increase cash flow, but it would also increase the rate of bottom line losses.
Collapse would only be avoided if a corresponding additional segment of business can be introduced as a profit centre offset to PBS.

* A variation of the above would be to take the decision to become a retail pharmacy instead of a community pharmacy, which would provide a more level playing field by providing real competition to warehouse-type pharmacies.
This is survival, not innovation.
But eventually all players would be forced to increase margins back to a middle ground and a new pharmacy business cycle would commence.
What a waste of time and resources.

The leadership skills of pharmacy are really showing out in stark relief – it is basically an empty canvas, and what little advances accrued to the “core” of pharmacy will be lost if they cannot demonstrate a renewal strategy for their constituents.

* “Game” the PBS discount and tie it to a patient package.
This will help to buy time and stop the drift of patients to discount pharmacies.
i2P has spoken through this publication repeatedly about knowing your patient and going through a form of patient registration as a method of recognition of a patient.
Build value for your patients as a tool against discounting, and use this process to take time out to reconstruct the internal economics of your entire business model.
Openly discuss the PBS $1.00 discount and tell your patients you will be providing value in excess of that discount if they register with you as a patient.

I2P advises that a pharmacy’s internal economy needs to be adjusted to provide stability and cost reductions for the next 12 months, rather than one of chasing new business growth, which is a more expensive strategy.
You need to enhance what you already have.
A patient registration program must be designed to offer value to a patient (as distinct from a customer) and build a professional relationship that will provide the “glue” for patient retention, even if you don’t fully discount the PBS $1 co-payment.

The internal pharmacy economy be characterised as being agile, rather than fixed.
Be able to quickly abandon concepts that show little value and replace with something that can provide real value.
There must be attitudinal change that reflects the above as part of an overall cultural change.

This applies equally to the retail component of pharmacy as well as the professional side.
The objective is to create a strong cash flow and a strong bottom line – and to create both simultaneously and permanently.

The new internal pharmacy economy must be balanced to not be substantially reliant on government funding.
If you haven’t already noticed, government funding always ends up being disruptive and financially destabilising for pharmacy.
This should be a permanent objective no matter what inducements are placed on the table to enable government to trap pharmacists into any wholly-funded system controlled by government,  because this will end up the same way as PBS prescriptions.

So, getting to a start point:

* Create a list of activities that are already working and producing revenue (or activities that have the potential to work) and carefully budget an investment of internal resources be allocated to each – human resources, money, and one-on-one promotional activity.
That also includes an appropriate preparation of a back story for each item on the list, printed up into an attractive hard-copy format.

* Set up a task force to review all costs and set up a schedule of investigation surrounding each cost – and revisit every three months.

* After a period of six months set up a market review panel, members of which physically visit competitor pharmacies to see what is working.
Forming up working collaborations with other pharmacies on a permanent reciprocal basis should be the objective, with the exchange of knowledge creating a permanent level of “know-how” and confidence.

* After nine months have elapsed take steps to introduce a program of 15 minute consultations built around chronic disorders,
Once introduced plan to introduce extensions such as a minor ailments program.
Do not rely on government funding but do ensure that your pricing is competitive compared to a GP in your area.
Ensure that a patient feedback system is in place.
As part of your advertising budget, print out a limited number of $30 vouchers that equate to a 15 minute consultation.
Give up to three of these vouchers to patients as part of the registration process, which removes any hesitancy and kick-starts the process.
Renew the vouchers on an annual basis but only issue one for patients who register as wanting the $1.00 discount; three vouchers for those who accept the value represented in the vouchers in place of the PBS discount.

Record the value of the vouchers given so that can appear as a total $value figure in your P&L account (also as a percentage of sales).
Illustrate to your patients that the $90.00 in voucher give-away is in excess of the $1 discount on PBS and also that their Safety Net entitlement will be harder to achieve if they press for the $1.00 discount.
Make sure your patients are confronted with a conscious choice as distinct to that equating to a “knee-jerk” reaction.

This is how you build value and quantify that value – there are more value propositions to be uncovered, but that gives you a direction and a momentum to continue to innovate with.

* Overall, ensure that you have a traditional basic retail promotion to generate new customers, but ensure you have a documented strategy to convert these customers to the status of “Registered Patient”.
New ideas and innovation will flow into your marketing program as interest builds around what you are trying to achieve.
If you wait for any of the pharmacy leadership bodies to “do something” you will wait around for the next 20 years or so, possibly going “under water” somewhere along that timeline.
Do it yourself – the “power of one” is still a potent force.
For some extra reading on this subject go to:

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