November 20, 2013

Growing profits in a time of reform

As Pharmaceutical Benefits Scheme (PBS) reforms continue to roll out, many pharmacists are taking a broader approach to boosting profits. Pharmacy owner and Managing Director of Rx Management, John Loveridge, discusses the changes and strategies for mitigating their impact.

In November 2006, the Howard government announced a package of reforms to the Pharmaceutical Benefits Scheme (PBS). Successive governments have supported the changes and savings of up to $5.8 billion for government and $0.8 billion for patients have been predicted for the 10 years from 1 July 2008 to 30 June 2018.

A key component of the package, Expanded and Accelerated Price Disclosure (EAPD), is providing better value for the public by progressively reducing the price of some PBS medicines. Pharmacists have been able to offset the reductions as expiring patents allowed them to substitute new generic medicines for named brands. However, John Loveridge, Managing Director of Rx Management and owner of five pharmacies, notes that the drop in the dispense price of some high-volume molecules scheduled for December and the deflating cost price of many PBS items, the generics in particular, could foreshadow a challenge ahead.

“Our income depends on the margins,” he says. “At the moment they’re increasing but the gross profit dollar is coming down. The reform process still has another year or two to run and over that time I expect margins will contract.”

One mitigating factor could be an amendment to the Therapeutic Goods Administration (TGA) advertising codes, which would ease the current restrictions on advertising pharmacy-only Schedule 3 (S3) medications.

“If this goes ahead it will open up important opportunities for pharmacists,” says Loveridge. “It will also enable us to help the public by making them aware of the more effective medications that are available over the counter. Certainly, our pharmacies will be considering appropriate ways to be more proactive in helping the public to get the best medication available.”

Most pharmacists are also looking to other areas to help grow profits. “Some are attempting to grow prescription numbers by developing a culture of service,” says Loveridge. “Larger pharmacies may also invest in robotic dispensary machines to make their dispensing environment more efficient.”

Many pharmacies are also trialling services that have the potential to generate additional income, such as vaccinations and point of care testing.

Seven years ago, Loveridge decided to start rebranding his own businesses as Priceline Pharmacy. “Where possible, we’ve been progressively changing our older businesses and also opening new Priceline franchises,” he says. “We believe that a brand with a national footprint that is promoted and developed by retail professionals is a good marriage with pharmacies.”

“I don’t think that nominal PBS growth is going to keep pace with cost pressures resulting from both increasing competition and PBS reforms. That means it’s increasingly important to have a retail offer that is relevant to your customers and that will encourage them to choose you over someone else.”

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