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Time to talk business

Senate Against a backdrop of a double whammy of funding cuts, C+D Senators were divided on the best route to financial salvation for the sector

 

It's far from a secret that, with the economy in recession, businesses are struggling. It seems as though every week there is a fresh set of grim economic data in the news, with pessimism about the country's short-term economic prospects almost universal.

In the past community pharmacy has coped well with economic downturns such as this; during last month's C+D Senate, one Senator reflected that pharmacy had historically been seen by banks as a "safe haven" for investment, in comparison to other high street retailers. But, he said, this attitude was changing.

The future of pharmacy as a business proposition provoked some impassioned debate at the meeting of the sector's think tank, with one Senator saying the market needed fewer pharmacies to survive, while others said the whole sector needed to take the blame for current problems and that wholesale changes in mindset and business models were needed.


The Senators
  Kevin Cottrell   General manager, SG Court Group
  Tony Evans   Head of pharmacy division, Christie+Co
  Raj Jain   Pharmacist, WR Evans (Chemist) Ltd t/a Manor Pharmacy
  Sallie-Louise Jones   Senior product manager, Actavis
  Andrew McCoig   Secretary, Croydon and Sutton, Merton & Wandsworth LPCs
  Umesh Modi   Partner, Silver Levene
  Andy Murdock   External relations and policy director (UK), Celesio
  Jay Patel   Regional manager, Day Lewis
  James Wood   Secretary, Sheffield LPC and pharmacist, Wicker Pharmacy, Sheffield
 
Topic one – Is pharmacy still a viable business?

Half of C+D readers who took part in a pre-Senate survey said they believed pharmacy was "just about viable" as a business, and with hard work it was "possible to make modest profits", while a fifth said it was "not at all viable" (see Senators V readers).

The Senate debate began similarly negatively, with the interim funding agreement announced last month dominating early exchanges. Day Lewis regional manager Jay Patel said the cuts went "beyond the worst-case scenario" the group had planned for. "We'd not expected it to be as severe," Mr Patel said.

Sheffield LPC secretary James Wood said he was becoming "weary" of the fluctuations in category M clawbacks. "We've been here every year before, and I think we're just becoming weary of it now, not being able to plan, and the swinging cash flow is very, very unhelpful," he told fellow Senators. But Mr Wood said it was not just the unpredictability of funding causing problems, but its overall paucity. "It feels [as though] the funding was set at a level way below what it costs to provide the service in a really high quality way," he said.

"[My pharmacy] hovers around the break-even point and we like to think we do things in a quality way."

 

But secretary for Croydon and Sutton, Merton & Wandsworth LPCs Andrew McCoig said the whole sector must take the blame for the failure of the contract to deliver sustainable funding. "We shook hands on the [contract] deal in 2005; we allowed no inflationary rise on the purchase profit," he said. "We've slid into this mess altogether, and we are shocked at the latest imposition, but let's all agree around this table that we're not surprised. We're shocked but we're not surprised."

Despite the backdrop of funding cuts, though, Senators remained cautiously optimistic about business prospects for community pharmacy.

Umesh Modi, a partner at Silver Levene, said there was evidence of the sector's viability in that, at present, there were not large numbers of pharmacies closing. "Perhaps the margins are not there, which historically pharmacy has been used to, but that doesn't necessarily make this not a viable business," Mr Modi said.

And general manager at SG Court Group Kevin Cottrell said pharmacy remained an attractive proposition for potential investors. "We look at the return on investment, and currently the return on investment is better than if we put it in the bank," he explained.

When asked on a scale of one to 10 how he would rate the viability of community pharmacy, Mr McCoig even went so far as to give the sector the full 10. "I have got pharmacy businesses on my patch that could be better, shall we say. If that business were, say, a restaurant or a wine bar, and its manager looked [at them] in a similar fashion, they would go bust instantly," he explained.


Topic two – Business models for the future

Despite their optimism about the viability of pharmacy as a business, the Senators were unanimous that change was needed to secure a successful future.

Almost three in 10 respondents to the pre-Senate survey said retail income made up 16 per cent or more of their pharmacy's turnover, and more than a third said retail income had increased over the past 12 months – but Senators were adamant that reliance on retail was not the way forward.

Mr Modi said: "I think a lot of my clients are reshaping their pharmacies, giving more space to the dispensary and far less to the OTC in front of the shop," he explained. "And that's the way I think it's going to go."

Other Senators pointed out that this move needed to be accompanied by other change, towards the delivery of more clinical services and in both premises and pharmacists' mentality – while recognising both that many pharmacists were already making progress, and the difficulties of doing so.

"We can't just eliminate retail and just have a few tubes of toothpaste," Mr McCoig argued. "We've got to start shrinking the shop and improving the professional areas where you can deliver face-to-face services. That's all got to be designed into the premises, and it's got to be evolutionary."

The public increasingly expected more from their pharmacists – and pharmacies – said Tony Evans, head of the pharmacy division at brokers Christie+Co. "If you look at the convenience market ... [it] has had to adapt and to corporatise itself so it is offering something that the public actually wants," he said. "People need to invest in premises and provide a more professional identity for their businesses."

 

And Mr Patel added: "Pharmacists need to change their mindset to be able to offer more clinical services, and a lot of pharmacists are doing that."

In terms of enablers for this shift in the sector's progress, Senators reiterated calls for a new contractual framework. "Why don't we go somewhere like what the GPs have done and have a national framework built into our contract of quality outcomes, such as with domiciliary visits, where you can prove you've made a change, a cost saving?" asked Raj Jain, a pharmacist at WR Evans (Chemist) Ltd t/a Manor Pharmacy.

And Mr Cottrell thought pharmacy needed to think more long term. "What we should be saying is: look, where are we going to be in five years time? What do we want to be doing in five years time?" he said.

Mr Modi warned that many independents "simply do not have the resources" to embrace services, and said that contractors would have to bring in a second pharmacist. "They are trying to do the staff recruitment, deal with the paperwork, deal with the PCT," he said. "But they will have to change. Therefore I think the way they will go forward is they will have to think about bringing in a second pharmacist, initially maybe for a day or two days [a week]."

Asked how independent pharmacies might pay for the luxury of a second pharmacist,Mr Modi said that pharmacists would just have to "go backwards to go forwards". "I think they will have to reinvent themselves," he said.

Mr Murdock summed up the agreement among Senators that radicalism was required. "What happens to any business when suddenly the model changes?" he asked. "You have to look at the model and you change the model."

 
Senate verdict

What one change is needed to give pharmacy a viable future? "A national standard of pharmacist" Raj Jain "A unified vision for where pharmacy should be" Kevin Cottrell "Re-working of the contract, re-overhaul of the reimbursement requirements" Andy Murdock "Alignment with the GP contract" James Wood


How the debate unfolded live online

@CandDJames "Pharmacy needs to have a consistency of cash flow," says Umesh Modi. #cdsenate

Niall Hunt McCoig says the problem is not knowing what is going to arrive in your bank account, making it impossible to plan.

@Gerry The best form of defence is attack. So community pharmacy needs to innovate, deliver quality enhanced services and utilise PGDs and NMS to move on from our medicines supply role to person-centred services for minor ailments and managed chronic therapy.

@MykelO PSNC has repeatedly based their funding model on supply only without the accompanying necessary pharmaceutical care. Quite different from additional services. #cdsenate

@CandDEmma Day Lewis' Jay Patel says funding announcement was beyond the group's predictions for "worst-case scenario". #cdsenate

Niall Hunt Tony Evans, Christie+Co head of pharmacy division, says there is still a good demand for pharmacies. He says there are many enquiries from locums who have seen income fall away and want to be the contractor.

@EPSPharmacist What role does IT play in the pharmacy future?

@RSDave Market forces should apply to pharmacy. Those that are 100 [hours] and overstretched should close. #cdsenate

@DrugMagister This debacle is largely brought about by the 100-hour contract and resultant explosion of pharmacies. Note that none of the Big Companies have as yet voiced their concerns - this plays nicely into their hands.

@CandDEmma Regional multiples are making most pharmacy acquisitions, says Tony Evans. #cdsenate

Niall Hunt Andrew McCoig, secretary for Croydon and Sutton, Merton and Wandsworth LPCs, passionately warns that poorly-run pharmacies are lucky that the likes of Amazon are not in the dispensing game. Comments posted via ScribbleLive and Twitter


Senators V readers

How viable do you think pharmacy is, as a business proposition?  

Senator verdicts Kevin Cottrell: 7/10 "Currently the return on investment is better than if we put it in the bank."

Raj Jain: 7/10

Umesh Modi: 7/10 "If pharmacy was unviable we'd be seeing lots of closures, but we're not."

Sallie-Louise Jones: 8/10

Andrew McCoig: 10/10 "I have got pharmacy businesses on my patch that could be better, shall we say."

Tony Evans: 8/10  

What you said Very viable – it's safer than other sectors in times of economic uncertainty 29% Just about viable – you can make modest profits by working hard 50% Not at all viable – it's getting harder and harder just to make ends meet 21%


Your shout

C+D readers give their verdict on pharmacy's ability to withstand the tough business environment

In the past 12 months, how have your pharmacy's profit margins changed? They've gone up 11% They've stayed the same 19% They've gone down 70% How important is retail income to your pharmacy? 16 per cent of turnover or more 30% 11-15 per cent of turnover 26% 6-10 per cent of turnover 7% 5 per cent of turnover or less 37% How has your retail income changed over the past 12 months? It has gone up 22% It has stayed the same 26% It has gone down 52% How important is income from enhanced NHS services to your pharmacy? 16 per cent of turnover or more 7% 11-15 per cent of turnover 22% 6-10 per cent of turnover 22% 5 per cent of turnover or less 48% How has your NHS income changed over the past 12 months? It has gone up 19% It has stayed the same 19% It has gone down 63% Source: C+D Senate survey, September 2012


Tips for your CPD entry on business planning

Reflect Do I have an up-to-date business plan for my pharmacy? Plan Consider how an up-to-date business plan could better enable me to make decisions that benefit the business and patients. Act Draw up a business plan. Evaluate Does the business plan better enable me to make decisions that benefit the business and patients?

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