Why Large Pharmacies Must Develop

Traditionally, when pharmacists reach a mature point in their business and practice development, they have looked to increase their success by adding a new pharmacy to their collection.
And sometimes more than two pharmacies, expanding to the legal limit of five or six (or even more using creative investment practices).

While the gross profit capacity of pre-5CPA pharmacies may have had sufficient buffer to carry additional outlets to their own maturity, the commoditisation of the PBS has reduced margins to a level that requires very careful management, with expenses having to be frequently audited, new IT systems investigated to control overhead growth, and new clinical services being trialed and added to the central “core” of pharmacy business.

Growth through adding additional outlets will need to be curtailed, unless a particular group is already reasonably mature and capital rich, able to sustain such growth.

The other factor that will retard additional outlets will be the cost of training staff at all levels to support clinical services.
Services are labour intensive, so it follows that a large pharmacy will have a large staff.
Each staff member must have the potential to generate their own salary so that they can be supported.
Unless capital investment is committed as a permanent expense for the new services, growth and profit will not occur. Investment primarily comes from the pharmacy owners, but each contractor must invest separately in their own package of services.

The cost of developing or purchasing IT systems to back services will also be an inevitable feature, so care has to be exercised in the choice of both software and hardware before embracing any new or expanded clinical service – and it needs to have the portability of being able to operate within the “cloud”.

In that space there will at least be a capacity to set up a system of multiple access both internally or externally, creating potential to licence other users in the form of a franchise.

So new pharmacist owners may have to consider a site that has a potential for accommodating a multi-story building, that can still remain within an always tight budget in the formative years.

In an earlier edition, i2P discussed the revamp of an old pharmacy idea – one where a two-story building could be employed, with the upper story converted to a residence.
These were quite common pre-World War 2, and came into being for similar reasons as for today.
A young pharmacist may well consider the twin problems of setting up a business simultaneously and establishing a first home residence within the same financial package.
If it is done as a package with the business on the ground floor and the home residence on the first upper level, you are immediately in a comfortable position to offer extended hours service and after hours service without too much disruption to a home-life with a family.

To get under way you need to find a developer with a good track record, who is able to purchase the premises, develop them to your specifications and then either sell back to you, or lease back under a long-term lease.
This is not so difficult to do, just a little different to the traditional method.
At the appropriate time you are able to invest in a new home away from the business and simultaneously expand the existing business into what was the residential area.

The future pharmacy will be characterised by having a rich and diverse range of services with some services being performed in collaboration with practitioners other than pharmacists.
In the US, pharmacy clinics have reached the stage where even GP’s are buying into them where they can be established as independent entities.

The growth in services within pharmacy may start with some pharmacies utilising employed (by the pharmacy) practitioners.
These will gradually give way to organised contractors willing to enter into shared risk agreements where gross income is split (practitioner to pharmacy 70:30).
The contractor will probably service more than one pharmacy and will bear risk by investing in proprietary systems at their own cost.
Variations of the above suggestion will emerge.

As the pharmacy expands, nearly all of the ground floor will be occupied by people providing services and goods for sale.
The first floor will become a dispensary area expanded to include compounding, some pathology testing, a DAA packing service and anything else that is a logical extension of those activities.
A pneumatic tube system will be a feature of this area, capable of delivering finished dispensed items or reports to specific service points on the ground floor.
At this point obviously any space utilised previously as a living area would have gravitated to a new home in a new space.

The second floor will now be devoted to administration offices and storage.
An unloading dock built towards the rear of the ground floor of the pharmacy where a lift will take all reserve stock to the upper storage area for unpacking and checking.
The lift will access all floors for all staff involved in back office procedures and for the future, patient access for bulk services performed in the second floor area.
Where practicable, materials handling systems will be designed to minimise storage and maximise direct to display shelf service.
A retail display shelving system capable of being modular and of uniform length will be required in a range of different shelf widths.
Shelf labelling will be electronic and maintained by the administrative staff, as will information display systems set up as connected touch screen glass, capable of giving a full provenance regarding the products or services on offer.

As the pharmacy expands an extra third floor may need to be added.
Because of the need to deliver knowledge services to an ageing population, the need to contain costs of services may involve delivering a part or all of a service in bulk.
Therefore the need to develop small conference/seminar facilities will emerge and they may have to take over the second floor.
If exercise physiology develops collaboratively, this service will be required to keep an ageing population as mobile as possible, without the need for drug treatment, for as long as possible.
So, small groups in a properly designed gymnasium may become a feature, also on the second floor.

Because the lift may need to be accessed by patients to the second floor area, care needs to be exercised in the initial planning of the lift and its location so that all (patients, staff and goods) can be efficiently programmed.

Building design has to be carefully prepared so that the building foundations can support future construction development.

And before any of this progression to a large pharmacy occurs, the appointment of a suitable design consultant should be the first step because everything has to be coordinated for work flow, marketing presentation, brand development and physical construction oversight.

Also, the full use of company structure must be employed so that shareholders can be inducted or recruited, eliminating their need to build their own pharmacy as an investment.
The emotional mindset of owning your own pharmacy has to be progressed to a shared concept i.e. an investment in a pharmacy share portfolio as being more practical and affordable.
With the company comes a succession plan for a senior pharmacist in that their share portfolio, built up over a professional lifetime, can be sold (fully or partially) and convert to the retirement “nest egg”.
Senior pharmacists can be absorbed from active management to board directors or advisers and can also aspire to become internal mentors for pharmacy staff.
None of this is achievable with sole ownership of an inevitably small pharmacy, the scale of which often does not even allow for regular rest breaks and vacations.

While dispensing and retailing will forever remain a vital part of pharmacy it must remain in “balance”.
This balance must be determined by proportion – the proportion of government funded activities compared to a private equivalent; the proportion of service income to dispensing income; the proportion of compound dispensing compared to ready-prepared; the proportion of commercial goods and services compared to professional goods and services; the allocation of resources to research and investigation, and so on.
The above is only a partial list, but unless a “balance” is budgeted for and maintained, inevitably some segment will be disrupted and controlled by some other market element.
They are also part of the the key performance indicator profile.

Disruption is now a continuing fact of life. It will be more easily handled in a single location.
Like the supply chain itself, the longer you stretch your own organisation in the form of a chain, there will exist a breaking point.
Both Napoleon and more recently, Woolworths, found their own respective breaking point.

Both had to restructure and lose a leadership advantage, even retreat.
There is a lesson in that for pharmacy, because no pharmacy leader tried to cushion the impact of the PBS product life cycle reaching an end point and disintegrating around us.
I think this reality is still filtering slowly through the consciousness of pharmacy peak organisations as we begin the process of restructure and redesign of the pharmacy profession, with retreat already under way.

Using the army as an analogy, retreat must be towards a physical area that can be defended.
In the case of pharmacy, I believe that has to be the concept of a “large pharmacy” which doubles as a “training pharmacy”.

There also has to be a restructure within pharmacy peak organisations to properly service and represent the new large pharmacies.
This will be a more slow and adaptive process, but unless change occurs here, and with planning for future need established and strategised, all these types of organisations will become redundant and other organisations will form up to meet perceived needs.
We have a peak organisation in the form of the Australian Liaison Pharmacy Forum (APLF) which is a unique “think tank”.
It should be used to formulate future policy needs and direction and help in the transformation to the new paradigm pharmacy.
The pace is a little constrained and slow at the moment – but do allow it to rev up to a faster rate commensurate with need!

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