The 6 P’s Process to Impact Pharmacy Profitability

In the rapidly changing landscape of healthcare, independent pharmacies face numerous challenges in maintaining profitability while providing high-quality care. To thrive in today’s competitive market, it’s essential for pharmacy owners and managers to adopt a systematic approach that focuses on key drivers of profitability. The "6 P's Process" offers a comprehensive strategy for improving pharmacy operations, maximizing revenue, and sustaining long-term success.

1. Patients

a. Prescription Volume Per Patient

The foundation of any successful independent pharmacy is profitable patient volume. However, attracting and retaining a diverse customer base is essential to increase prescription volume per patient.

• Attracting a Diverse Customer Base: To grow your patient base, your pharmacy needs to be accessible, both physically and emotionally. Local marketing, digital presence, and community engagement are critical for reaching potential customers. Offering specialized services, such as immunizations, medication therapy management (MTM), or home delivery, can make your pharmacy stand out from the competition.  It also ensures convenience for multiple target segments so you balance your commercial and medicare claims.
• Understanding VIP vs. Detrimental Customers: Identifying your "VIP" customers—those who regularly fill prescriptions and bring in consistent profitable revenue—will help you focus on retaining them. Conversely, understanding which patients or insurance plans are costing your pharmacy by bad adherence or poor contracting terms.

 Clawbacks can significantly impact profitability. To reduce these losses, it's essential to engage with patients in a way that optimizes adherence and minimizes unnecessary cost burdens.

• Motivational Interviewing: This communication technique helps pharmacists engage patients in meaningful conversations about their health, encouraging them to follow prescribed treatment plans. Motivational interviewing can improve medication adherence and reduce the need for costly interventions.
• Sync for Success: Medication synchronization is a powerful tool for reducing missed refills and ensuring patients pick up all their prescriptions at once. This not only improves patient adherence but also boosts revenue by consolidating prescription volume.

2. Plans/Payers

a. Insurance Plan Diversification

The reimbursement environment is constantly evolving, and relying on a single payer or limited insurance network can leave your pharmacy vulnerable. Diversifying the types of plans your pharmacy accepts is key to increasing revenue and minimizing risk.

• Open Enrollment Solutions: Help patients navigate open enrollment periods by offering personalized advice on selecting the right insurance plans. This can position your pharmacy as a trusted healthcare partner, especially during the critical period when many patients reassess their insurance coverage.
• Medicaid & Workers' Compensation Volume: Expanding into Medicaid and Workers' Compensation can offer a steady stream of patients and prescriptions. These markets often provide higher reimbursement rates for certain drugs and services, though they require a nuanced understanding of billing and patient needs.
• Commercial & Cash Volume: Don't overlook the potential for cash-paying customers, particularly in areas where commercial insurance plans are more limited. Offering competitive pricing and transparent billing can attract patients who are uninsured or underinsured.

3. Product

a. Generic Optimization

Generics are the cornerstone of cost-effective dispensing. By optimizing your generic offerings, you can improve margins and lower costs for your patients.

b. Inventory Optimization

Managing inventory efficiently is critical for reducing waste and ensuring that high-demand medications are always in stock. Regularly review inventory turnover rates and adjust ordering patterns to align with patient needs.

c. Therapeutic Interchange

Therapeutic interchange—substituting a prescribed drug with a clinically appropriate alternative—can be an effective strategy to control costs while ensuring patient safety. However, it should always be done with patient consent and after a thorough discussion with the prescribing physician.

d. Limiting 90-Day Fills

While 90-day fills may offer patient convenience, they can tie up cash flow and increase inventory costs. Limiting 90-day fills to certain medications or patient types can help maintain liquidity and reduce the risk of stockouts.

e. Limiting Brand Dispensing

Brand-name drugs often come with higher acquisition costs, resulting in lower margins for the pharmacy. Encourage patients to consider generics or alternative therapies where appropriate, and limit brand dispensing where possible.

f. Limiting Specialty Dispensing

Specialty drugs can offer significant profits, but they also come with higher risks and complex reimbursement challenges. Limiting your focus on specialty dispensing or working closely with suppliers to negotiate better terms can reduce these risks and maximize profitability.

4. Purchasing

a. Understanding COGs Program per Your Wholesale Agreement

Your cost of goods sold (COGs) is a critical factor in determining profitability. A deep understanding of your wholesale agreements, including rebate structures, is essential to ensure that your pharmacy is purchasing efficiently.

• Finding the Sweet Spot for COGs: It’s important to strike a balance between meeting wholesale requirements and avoiding falling off the rebate "cliff." Be aware of volume thresholds that could impact your pricing structure.
• Maximizing Outside Purchasing Allowed: Some pharmacies can purchase outside of traditional wholesale channels to reduce costs. Investigate the feasibility of direct manufacturer purchasing, group purchasing organizations (GPOs), or alternate suppliers to maximize margins.

5. Payroll

a. Maximizing Workflow Efficiency

Efficient workflow is key to maximizing employee productivity without overextending resources. Streamline processes such as prescription filling, inventory management, and patient interactions to minimize downtime and unnecessary labor costs.

b. Leveraging Employee Productivity

Employee performance is a significant factor in profitability. Use time-tracking and productivity metrics to identify areas for improvement. Provide continuous training and encourage staff to contribute ideas for workflow optimization.

c. Incentivizing Growth with Bonuses, Not Flat Raises

Instead of simply increasing hourly wages or salaries across the board, incentivize performance through bonuses tied to key performance indicators (KPIs). This can encourage employees to meet productivity goals and contribute to the pharmacy’s overall success.

d. Understanding Benchmarks and FTE Hours

Know your financial benchmarks, such as revenue per full-time equivalent (FTE) employee, to assess labor efficiency. Comparing your metrics to industry standards will help you identify areas where you can adjust staffing levels or improve efficiency.

6. Partners

a. Finding the Right Technology Vendors to Work Smarter

Pharmacy technology plays a crucial role in improving operational efficiency, reducing errors, and enhancing patient care. Invest in technology that streamlines workflows, improves medication tracking, and facilitates patient engagement.

b. Picking the Wholesale and Buying Group Partners That Give You a Chance

Your choice of wholesale partners and buying groups can significantly impact your cost structure and ability to compete.

• Competitive Costs: Choose partners that provide competitive pricing, particularly for high-volume, high-margin medications.
• Strong Program Resources for Diversification and Promotion: A good wholesale or buying group partner should offer resources that help you diversify your product offerings and run promotions to attract new customers.
• Honesty & Authenticity: In a field where margins are tight, trust is invaluable. Partner with vendors who are transparent, reliable, and committed to your long-term success.
• Make It Easy to Work With: The right wholesale or technology partner should simplify processes, provide clear terms, and support your pharmacy’s growth goals.

Conclusion

Improving profitability in an independent pharmacy requires a comprehensive, well-rounded approach. The 6 P’s Process—Patients, Plans/Payers, Product, Purchasing, Payroll, and Partners—provides a structured framework that can help pharmacy owners and managers focus on the key areas that drive financial success. By optimizing each of these elements, you can position your pharmacy to thrive in a competitive marketplace while continuing to provide essential care to your community.