Pharmacy services still in demand despite recession

The 2009 NCPA Digest was released today at the 111^th National Community Pharmacists Association (NCPA) Annual Convention. The Digest has been published annually for over 75 years and provides the most comprehensive portrait of the financial state of independent community pharmacies from the previous calendar year.

Despite the onset of an economic recession during 2008, pharmacy services were still in demand due to their value in the health care delivery system. The average community pharmacy saw its total sales increase by 7.6% to $3.9 million.

However, community pharmacies had to operate in the face of daunting challenges: additional pharmacy benefit manager (PBM) consolidation; a greater percentage of patients covered under government reimbursement programs; and reduced gross margins on non-prescription items due to the recession. Further PBM consolidation with little accountability or transparency further reinforced pharmacies’ lack of opportunity to negotiate fair contracts and provided PBMs with an inordinate amount of leverage. Given these conditions, profit as a percentage of total sales for the third year in a row is still below the 10-year average for independent community pharmacy.

“The Digest shows that while other businesses witnessed a precipitous drop off in revenue during these poor economic times, the determination and patient care skills of independent community pharmacies actually increased demand for their services,” said Bruce T. Roberts, RPh, NCPA executive vice president and CEO. “Challenges abound, from declining reimbursement, particularly in the public sector, to an uneven playing field from mail order. But community pharmacies are adapting by running more efficient business operations characterized by sterling customer service. As a result, profit levels appear to be in the process of stabilizing after the large drop that occurred with the implementation of Medicare Part D.”

“Community pharmacies have shown a remarkable resiliency, but so much of our future lies outside of our hands,” added Roberts. “We need federal and state governments to require transparency from pharmacy benefit managers, set reasonable reimbursement levels in public programs, and resist burdensome and problematic regulations.”

Over 90% of all prescriptions are paid for by third parties, with government being the largest payer. Patients covered under Medicare Part D, which is run by PBMs, and Medicaid prescription drug programs grew from a total of 39% to 44% of all prescriptions filled in the last year. For Part D the increase was from 13.6% to 14.5%, and for Medicaid it jumped from 25.7% to 29.5%. As a result the federal government is increasingly tied to community pharmacy reimbursements, while those of private, third-party payers continue to decrease.

“The government is the largest business partner of community pharmacies,” said Roberts. “That’s why NCPA continues to work with Congress and through the courts to prevent devastating cuts to Medicaid generic pharmacy reimbursements from being implemented. Washington’s impact on community pharmacy grows by the year.”

Despite the challenges independent community pharmacies face, there are some positive developments. They represent an $88.2 billion marketplace, a rise of 5% over the previous year. The overall numbers of community pharmacies were relatively steady at 22,728. In fact, between December 2007 and December 2008, 1,225 new community pharmacies opened their doors, following the dream of being one’s own boss.

In terms of the composition of the average community pharmacy’s revenue, prescription drug sales represented 93.3% of annual sales, which is a rise of 0.5%. The remaining 6.7% in sales comes from over-the-counter medicines, snacks, gift cards, seasonal merchandise and other front-end store items that are more vulnerable to economic swings. Community pharmacies have also played a valuable role in promoting generic utilization. Independent pharmacies’ generic utilization rate of 65% is a key cost-savings option.

Independent community pharmacies continue to use a variety of offerings to differentiate themselves from chain and mail-order competitors. Nutrition services (offered by 89% of respondents), home delivery (81%), patient charge accounts (81%), durable medical goods (73%), compounding (67%), and hospice care (62%) are common examples. Outside of compounding and durable medical equipment, these services are often provided free of charge.

“The competition is stiff and far from level, but there is still a marketplace for the type of personalized care community pharmacies offer,” said Holly Whitcomb Henry, RPh, NCPA president and Seattle, Washington pharmacy owner. “If a young entrepreneur wants to get into ownership, or owners want to differentiate their practice, community pharmacies are in tune with the niche services in demand in their community. These services will attract patients and keep them coming back for more.”

The ability of community pharmacies to modify their business operations through greater efficiencies has been critical. Technological advancement has played a prominent role. For example, 67% use point-of-sale systems, 42% use integrated voice response systems, and 31% use automated dispensing counters. Each of these measures allows more time for patient care.

“Community pharmacies recognize that being on the cutting edge of the latest developments in the industry is a necessity,” said Henry. “Each year these numbers rise, and our commitment to utilizing electronic medical records in the future will make us even more efficient and also benefit the quality of coordinated care we are able to give patients.”