Publication Date 01/11/2009         Volume. 1 No. 6   
Information to Pharmacists

Editorial

From the desk of the editor

Welcome to the November edition of i2P – Information to Pharmacists.
The month just finished has been an exceptionally busy one for pharmacy with an interesting PAC being concluded.
The “Great Debate” from PAC stirred considerable interest, also the talk given by John Menadue.
The latter has been reported and commented on in the article “Pharmacy’s Professional Future” and it is recommended that this article be bookmarked.
Better still, add your comment at the foot of the article.
All our columnists are back on deck and we are delighted to report that our New Zealand columnist, John Dunlop, has been accorded high honours by the New Zealand Pharmaceutical Society.
See the article in the Recent News section or look for the editor’s logo in the column section.
Our congratulations go out to John for this honour that resulted from his work in the pharmacy professional services area..

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Power in Numbers rises up the charts in Pharmacy.

Chris Wright

articles by this author...

Chris has spent many years in the pharmaceutical industry and is semi-retired.
He has an interest in supply chain procedures, and work flows within community pharmacies, and he provides consultancies around those activities.

There is power in numbers.

It is said that Chemist Warehouse is growing at 25/30% per annum, the traditional franchises are growing at about half that rate and the poor old unbranded Pharmacy is trailing behind at about 10%. This really means that Chemist Warehouse is flying along with a wet sail doing nicely and all others are wondering where to find growth or are spending far too much time with their accountants’ trying to work out how to survive the future.
This is no surprise of course; the Chemist Warehouse business model is brilliant, they are compelling marketeers and proof that the power in numbers prevails.

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What a strange coincidence that the acclaimed third album of the alternative hip-hop group Jurassic 5 “Power in Numbers” was in part composed by Lucas MacFadden, who is professionally known as; “Cut Chemist”. I will embark on a reconnoitre to see if Chemist Warehouse is pounding out Power in Numbers tracks in delirious celebration of their imperious, unassailable market position.

Unlike the failed attempt by Nelson Bunker Hunt to corner the silver market in the 70’s, Chemist Warehouse have not only taken control of a huge portion of the market, they have managed to redefine the public’s perception of what a Pharmacy is, which is surely not a good thing.

It must be utterly anathematic for old timers to stick up signs on tired front windows pleading for the opportunity to match prescription prices in an effort to keep the till ticking over. But the cold reality is the power and profile of Chemist Warehouse is causing the demise of the traditional habitat of the old fashioned pharmacy. The proprietors of many of these pharmacies have in part themselves to blame for they have for long steadfastly refused to change the way they do business and move with the times. Conversely, I know one group who has made a science of buying tired old wrecks for a handful of beads and turning them into proverbial little gold mines…before selling on for the equivalent of a nice first division lotto win. Good business if you know how to do it.

The PGA must also accept some responsibility for the impending demise of many of these Pharmacies (who have had an unfortunate sobriquet relating to toilet activity bestowed upon them by some) for ignoring the shift away from community pharmacy to a strong “commercial reality focus”.

The refusal by many to change will no doubt make it easier for the big players to enter new lucrative areas. Yes, even the big players are looking for the elusive edge. Mail order pharmacy is becoming a busy but crowded area and will probably stagnate unless a value-added aspect can be attached. Besides, without an attractive edge, it may be questionable that a mail order business such as pharmacy can be sustained in numbers successfully in a country with a population of 22 million and the size of the US, minus a couple of farms.

Automation will play a part in the future but the solutions currently available are not capable of creating new profit opportunities.

Fee for service is likely to hit a brick wall of opposition by those demanding patients who have long been conditioned to believe they have the right to bail up a busy Pharmacist to discuss anything from the little Princesses’ ballet class to Pantene. Besides, the argument for fee for service suffers considerable dilution when professional service areas are often only 10% of a pharmacy footprint.

Really, in high retail focus pharmacies to achieve sustainable fee for service is about as believable as Jenny Craig sponsoring Krispy Kreme.

In part, some new opportunities may be hindered by the location rules, which are regarded by many as neatly fitting into the category of “Dog’s breakfast”.

Could we not learn something from the, “Essential Small Pharmacy Scheme”, used in Scotland to service remote areas?

http://www.oft.gov.uk/shared_oft/reports/comp_policy/oft609annexef.pdf

Yes, Scotland is the size of a couple of Melbourne suburbs, yet it has invested in establishing a way to deliver care to everybody. Could there be an opportunity for a player to establish (say) 100 Pharmacies offering professional services (only) in a small footprint to needy rural/remote and many indigenous areas?

There must be a better solution to indigenous care than the very discriminatory provisions of s100 and the less than ideal depot system, which is also discriminatory.

Will small footprint professional service only Pharmacies become a sustainable business model in an environment that is now defining a pharmacy as a “retail” orientated business rather than the longstanding half pregnant “retail/care” moniker?

Probably.

The key to new opportunities is likely to be linked to how care in the home is addressed in the future. The changing needs of our ageing population will no doubt create a huge growth area and open the door for new products and services. The big players with strong marketing images are well placed to extend their reach. The question is what direction?

Some industry commentators argue that the PBS somehow subsidises high rent shopping centre retail orientated pharmacies. If this is a valid position, it might also be valid that PBS payments should be structured to reward pharmacies whose concentration is on professional care rather than retail dominance.

Heresy, you say? Sure, but why reward professional mediocrity?

As PBS contract providers’, pharmacy proprietors should be rewarded for displaying and implementing a culture of professional care, not commercial acumen.

Irrespective of the size of a pharmacy, PBS payment rates could be set on a scale proportionate to the size of the professional services area of a pharmacy. For example, a pharmacy with a professional service area that takes up 50% of the total pharmacy footprint would receive a higher rate for PBS contract work than a pharmacy with a 30% professional service area.

What madness…Chris, wash your mouth out with soap and by the way, you’re grounded!

However, the upside is that intervention rates would increase and pharmacy would claim back its identity, which would lead to a pain free introduction of fee for service.

Can you imagine the furore if Colesworth was forced to accept the lowest scale rate because the relative size of the professional service area in a supermarket will be the size of a billiard table?

This poses an interesting conundrum for Kevin from Queensland and his merry band of apparently less than happy employees.

“Kev, are you prepared to introduce measures to protect community pharmacy? Namely, are you prepared to restructure remuneration for pharmacies to introduce a sliding remuneration rate proportionate to the size of the professional service area in relation to the pharmacy footprint and for the professional service area to be no less than 30% of the footprint?

Will it happen? Nope, it’s got Buckley’s chance…but what a way to repel the boarders!

The gloves are off and the gentle spring breeze is cranking up to a full of wind of change in the kitchen…er, pharmacy, that is.

Chris Wright.
November 2009.

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