We all understand that profitability is a measure of the financial health of an enterprise. Revenue minus expenses equals profit, or a rough equivalent of profit. The accountants have made it more complicated, but generally that’s the idea.
The COVID-19 pandemic brought all sorts of challenges to long-term care and its pharmacies, not least of which was damage to profitability. As admissions to LTC facilities dropped, so did the numbers of prescriptions. As pharmacies were forced to acquire PPE and scramble to keep staff, expenses jumped. Lowered revenue combined with higher expenses equals lower profit. Simple concept.
Pharmacy managers now face the task of improving profits. While it hasn’t arrived, the end of the pandemic may be in sight. Now is the time to consider what’s next – be assured your best competitors will be. We have two areas on which we can focus: increasing revenue or decreasing expenses. Ideally, we will do both.
Long-term care pharmacies operate under a rigid set of regulatory requirements. Unlike other businesses, we can’t just decide that we won’t do certain things because they’re unprofitable. But that doesn’t mean we can’t use our imaginations to be more efficient. We can also discover how to apply our best talents to new areas of need.
Re-Sharpen Cost Controls
To begin, examine your processes as if for the first time: follow the process from intake to delivery and ask every question. Are you using your staff in the best way to accomplish the objective of getting the right drug to the right resident at the right time? We’re faced with staffing issues. Is there a way to move orders through the process with fewer people? Is it time to add automation?
Examine your monthly invoices. What are you paying for that you don’t manage? Think about services like trash removal and cleaning. Have you checked the market for these services within the past year? Are you sure you’re getting the best value? What about energy use? If your pharmacy is in a state with energy choice, you may want to compare rates and choose a lower-cost supplier. Most electricity providers will help you identify ways to save on utility expenses.
Training new employees is a notoriously expensive process. What’s your employee turnover rate? By some measures, the cost to train a new pharmacy technician can be equivalent to his/her annual salary. Keeping employees from leaving and keeping them engaged can have an impact on the bottom line that amply justifies the investment.
Profitability is a two-sided proposition. We all know that it’s less expensive to keep the customers we have than to gain new ones, but not all customers are created equal. You probably have at least one or two customers that cost more to service than the amount of revenue they bring in. If so, maybe it’s time to determine which customers you’re willing to let go. Not an easy decision but one that will become increasingly necessary.
Along with that consideration is recognizing the increased effort that may be needed to keep your profitable customers happy. The number of long-term care pharmacies in the U.S. is growing; there are more than 2,700 pharmacies with a primary national provider identifier taxonomy code for LTC pharmacy, and more are coming into the industry each month. They will be knocking on your customers’ doors. What will be needed to prevent having to watch them move to another provider?
What about new business outside of traditional LTC facilities? We’ve talked about opportunities in home care, but there are others. Discover some of these by re-thinking what it means to be a long-term care pharmacy. Sure, the name suggests that we care for people in long-term care, primarily elderly residents of specialized facilities. But what does that involve?
Consider New Ways to Apply Skills
For starters, we’ve become good at managing drug regimens of people who take several medications. That could apply to people who are not old. We help care for people with diminished cognitive abilities and those with limits in activities of daily living. Are there people outside of our care continuum that have these characteristics? How can we serve them?
We are accustomed to practicing within the confines of Medicare and Medicaid regulation, but is there a world outside of public insurance programs? One that comes to mind is employer-sponsored benefits. Employers are finding it necessary to provide robust benefits packages to attract and retain employees. Many companies have included eldercare benefits in their packages. These benefits are not very robust but have the potential to provide opportunities to the long-term care pharmacy community.
The key is to begin asking, “Where can I apply my pharmacy’s skills and services to meet an unmet or emerging need?”
The X Factors for Increasing Profitability
- Focus on expenses. Are you getting the best value for the goods and services you buy?
- Keep your best customers and employees. They are cheaper to keep than to replace.
- Lean on your skills to search for opportunities. Use your best skills and resources to find new lines of business.
Has your pharmacy seen its profitability affected by recent events? What steps are you taking to adjust?