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

Week 4 Build or Buy a pharmacy- I think I am going to stand in traffic.

Entering the Pharmacy Business- Do I Build or Buy?
This is week 4 of a 5 week series on Should I Build or Buy a Pharmacy?

Week Four- “I think I am going to stand in traffic” – The disadvantages of starting brand new.
Last week I raised many advantages of a shiny new pharmacy. All things that would bring out the ideas, pride, and dreams that you have had for ages standing behind the counter, following all the company rules that prohibited you from practicing pharmacy the way you were taught. The way you really know your patients would benefit!
Well in this world of good and evil, ying and yang, or for every action there is an equal and opposite reaction, you knew there had to be a down side.
There are disadvantages, and they are significant enough to have some experts say you should always buy an existing business. However if you have read the other 3 parts of this article, you know I am not one subscribe to that singular philosophy. So let’s look at what the disadvantages are.
There are 3 major disadvantages:
You must have some marketing expertise. Building your own good will. Be that personality to win over the new customer so they will tell all their neighbors, excellent rapport with local physicians or a flair for marketing. You will have to get customers in the door, Keep them, and make them want to tell their friends. That is number one.
The second disadvantage is get to break even. We said last week that this is easier. Well that is true, we did. However there are two ways to consider a break even point or two different break even benchmarks. First is ROI and if you are borrowing money, how fast can you get a return on investment so you can pay off your note. That will be quicker in a new start up as the initial capital you must borrow is quite a bit less. But let’s look at the more practical break even point. The one that is really important. When am I bringing in enough money each month to be paying my bills, or better yet- Taking a salary! That is the important question. In our discussion of disadvantages of a new start up. This is the tough one. Unless you have budgeted your money so you are prepared to live for 6 -10 months without a pay check, or you were able to borrow enough capital to carry you through, then you probably haven’t budgeted well enough to overcome the second disadvantage. Will it take this long, hopefully not, and if not, you are ahead of the curve. And smiling.
The third relates to the second but has more to do with psychology, tenacity and determination. There will be times when you will be thinking if anybody is ever going to walk in your pharmacy, did I do the right thing, how long is it going to take?
All these will cross your mind prompting you on certain days to say “I think I am going to stand in traffic” But one thing I stress with our clients who ask us to assist them with their business plans, the first question you must ask yourself before you pick up the first pencil is “ WHAT IS MY WHY’. This is the one area of soul searching that you must spend the most time. Each of us have a different “Why” for some it is money, but for some it is professional achievement or most it is the FAMILY. Once you have the “why” answered, the rest falls into place. And when times get tough, and they always will, you always come back to the “why” for the strength and fortitude to get you through. If your why is strong enough, you will be victorious.

Dean A. Pedalino R.Ph. C.Ph. FASCP

Week Five- “Decisions, Decisions”- How do I know what is right for me?

Week 3 Building your own Pharmacy - I Have A Dream

Week Three- "I have a Dream"- The advantages of Building your own Pharmacy!
Chances are if you one day dreamed of opening your own pharmacy, you have probably have had thousands of ideas of how it would look. How it would be different. Ideas of how you would help your patients and clients manage their pharmaceutical regimens better, brought feelings of pride. Your Pharmacy would be different and stand out above the rest!
The best way to be fresh, innovative, creative , and set the stage to stand out from the rest, is to start fresh. To mold a pharmacy to be the model or your dream and one you would be proud of.
Anice new facility promotes a fresh business, a clean professional environment and a new and inquisitive market. Many will come in just to see what is new.
Those are the best and most emotional driven reasons for starting a pharmacy from scratch. Here are some of the more practical.
Capital Outlay. The amount of actual cash needed to start a pharmacy will usually be far less than purchasing an existing pharmacy. There are many positives for this approach. If you buy an existing pharmacy, you are often paying for "good will" which may or may not be a realized value. In addition, well established stores are often older, cluttered, have mounds of old paperwork all over in counters, drawers and back rooms. Often the equipment, fixtures and computers are old and may need replacement or repair in the near future. In a new pharmacy, you know you will not have these expenses for a considerable amount of time. In addition, they will be in good working order.
Another very good point for starting a pharmacy from scratch, is as any pharmacist knows, the impending visits from your board of pharmacy inspectors, DEA agents, Medicaid, Medicare and third party insurances. A new pharmacy will have no past history to dig through, and best of all, the filing systems put into place will be your own. How important is it for your inspection, your pharmacy and your sanity to be able to put your hands on everything, quickly, easily and to demonstrate your organized pharmacy to any of these "visitors". This will save you countless time, money and anxiety.
Operations- design the pharmacy the way you want it to flow. The largest companies in the world spend countless dollars doing studies on efficiency, work flow and how to save a step here and a step there. It adds up. Designing a pharmacy might not need that level of sophistication however setting up a pharmacy to work efficiently and the way YOU want to work, will pay dividends over and over for years as opposed to having to work in a flow that is there only because it was there and you would have to re-design the pharmacy to change it. Long Term Dividends!
This ties into to another point; you don’t inherit someone else’s problems. Whether it is a bad lease, or bad landlord, poor parking, structural impedances, or local traffic flow that may have recently changed, all these (and I am sure you can think of many more) come with "the territory" when you purchase someone’s business. When you design your own, you have many choices to chose from and can avoid some of these or if you can’t avoid, may be able to negotiate satisfactory alternatives.
In the end, it all comes down to money. This is one of the biggest advantages of starting a pharmacy from scratch.
1. It costs less money to get in the game
2. You get a return on investment much sooner
These are two very important factors and while they come with a trade off, they do make this a very attractive option for many new pharmacy owners. The cost to start your own pharmacy will require approximately 40% of what it will cost to purchase an existing pharmacy. This makes the entry into the game substantially less. It also provides you with a more attractive "Return on Investment". While the trade off is the time it takes to "ramp up" sales in a new store to attain sales that will support the owner, if the owner can budget for this period and has the motivation to market, the pharmacy can more easily pay off debt and more easily attain profitability. Next week we will address the disadvantages of starting from scratch. That will round off our four weeks of positives and negatives of both purchasing or building. We will then finish off with how do you decide what is the right solution for you.
Week Four- "I think I am going to stand in traffic" – The disadvantages of starting brand new.

Dean A. Pedalino R.Ph., C.Ph., FASCP

Build or Buy a Pharmacy - week 2

I didn’t see that pothole”- the disadvantages of buying an existing pharmacy. Like we have said in the previous article, the conventional wisdom is that purchasing an existing pharmacy is the best way to go. If you can buy a good pharmacy, (and that is a big IF) that is a “preferred” method for entering into the pharmacy business. It however it does not come without potential potholes and requires skilled due diligence. Remember you may be buying a business and paying for future revenue, however you are also purchasing the business’ headaches. There are two ways to buy a business, asset only purchase or purchasing the company. (buying all the stock) There are many complicated reasons why to consider an asset vs. a company purchase and it is beyond the scope of this article to accurately cover this topic. In addition, we highly recommend seeking a qualified attorney’s opinion in order to secure the best situation for your particular circumstances. There are some things to consider as part of your due diligence process when looking to purchase a pharmacy.

1. What liability am I accepting in regards to possible lawsuits, misfills or errors which may have happed in the past and that the owner honestly may not know about yet?

2. Any pending audits, and are you ready for an audit that may have been for a period prior to your acquiring the business.

3. Negotiating the lease, is it for a long enough time frame for you to build and establish your business? Does it have enough flexibility that if you begin doing well, can you expand, move, or “trade up” for space if immediate adjacent space is not available.

4. Can parking access sustain sufficient growth?

5. Have you checked with local zoning boards or the Chamber of Commerce regarding any city or county projects? Are there any pending zoning, traffic or road way projects that may affect traffic, in, out or by your pharmacy?

I think we have all seen the case of a business opening on a busy road only to have an overpass erected a year or two down the road and many businesses along that former busy road are left with no way for people to get off that road conveniently to patronize the businesses. They end up closing down. or moving. That is if they can get out of their lease.

6. Many well established stores, have outdated looks, outdated fixtures, computers, printers and equipment that may need to be replaced in the near future, well before the note is even paid off thus requiring additional capital.

7. Is the revenue increasing or declining and why. This is a very important factor especially when considering the value of “good will. you will be purchasing.

These are just a few of the things to consider when evaluating the negatives of purchasing an existing pharmacy and part of the lengthy due diligence process that should precede the purchase of any existing pharmacy. For more information on the due diligence process visit http://www.hccpharmacysolutions.com/ .

It was also mentioned above that “IF” you could find a good pharmacy in this process. We were making reference to the fact that current market conditions are such that there are many more buyers looking to purchase pharmacies than there are stores for sale. If you know of any stores for sale in all markets, please contact http://www.pharmacymatchmakers.com/
Dean A. Pedalino R.Ph.,C.Ph., FASCP

Starting a Pharmacy-Should I build or Should I Buy

Should I build or should I buy?
Last week we discussed this question and in our blog we told you we would do a five part article on the plusses and minuses of building or buying a pharmacy.
Here is the first in the series.
Week One – “The industry wisdom”, advantages of buying an existing Pharmacy
Buy-Advantages, let’s take the conventional wisdom first. If you can find a good pharmacy to buy, you are way ahead of the game and the main reason the conventional wisdom says “buy”. Chances are this pharmacy has a good following and has withstood many of the industry fluctuations. Some of the positives we see:
1. Established Revenue Stream. It is easy to predict what salary the store can support. How much money should be coming in and if the store will be able to pay the debt service from the investment.
2. Known Reputation is critical for someone investing in a business, especially if you are not known in the area. A known reputation of the pharmacy in the community will provide you with sufficient time to get to know the clients and to begin building your own rapport with your customers.
3. Management Procedures in place. Next to the fear of losing your investment, this is probably the second most challenging part and the area where most pharmacists have anxiety. We often hear, “I know how to run a good store once it is up and running but how do I get started. Having the management procedures in place is a relief for many pharmacists. In fact many pay more than the real value of the pharmacy just to be able to walk in and begin running the pharmacy and not having to deal with setting up the management and business functions.
4. Knowledgeable Employees could stay in place. This is critical to purchasing a pharmacy. Knowledgeable employees provide two critical functions that cannot be brought with you. (No matter how good former employees are).
a. Their knowledge and relationship with the customers will “buy” you time for your customers to get to know you. Friendly employees, with great rapport with your customers can really help the customers get to know (and like) the new owner.
b. “They know where the bodies are buried” !Obviously (and certainly hopefully) this is an expression. Remember, you bought this business and was very happy that the management systems were in place, right? You and I also know that two weeks after you come in, on the first day you are there without the previous pharmacist, on your heaviest prescription day, you will get a visit from the Board of Pharmacy or the DEA. or both! You will be very thankful that you have someone who knows where everything is filed. Dean A. Pedalino RPh., CPh, FASCP
Next week - I didn’t see that pothole”- the disadvantages of buying an existing pharmacy

Entering the Pharmacy Business-Do I Build or Buy?

Entering the Pharmacy Business- Do I Build or Buy?
So you want to be in the pharmacy business. You have a passion, you know you could provide better service to patients, you have a unique idea, or you see a void in the market. Perhaps it is an opportunity just waiting for someone to take advantage.
No matter what your reason, as you begin assembling your thoughts, or you are doing your homework or beginning your business plan, the question eventually will come down to “ Should I Build or Buy”.
If you ask many of the experts, or read many of the articles, they will invariably tell you that conventional wisdom will dictate that you buy an existing business. Hands Down!
I will tell you with out any hesitation, that is a superficial judgment. Often these experts are business brokers. “If all you have is a hammer, every problem will look like a nail”. That is because they sell pharmacies. Our company provides both services because not every problem is a nail and the more options you have, the best chance of finding the right fit for your goals. We are a resource of pharmacists for pharmacies, and we have found that over many years of working with a wide variety of clients, that each client is different. In the next five weeks, I will highlight some of the pluses and minuses of both Building and Buying a pharmacy. This five week series will be broken down into
Week One – “The industry wisdom”, advantages of buying an existing Pharmacy
Week Two- “I have a Dream”- The advantages of Building your own Pharmacy
Week Three- “I didn’t see that pothole”- the disadvantages of buying an existing pharmacy
Week Four- “I think I am going to stand in traffic” – The disadvantages of starting brand new.
Week Five- “Decisions, Decisions”- How do I know what is right for me?
PS. Yes this is a shameless plug! If you are in the middle of this process and don’t have time to wait for the five weeks, you can call us and we’ll be happy to assist you with the process.
1 800.642.1652 Dean A. Pedalino R.Ph., C.Ph., FASCP