Last week’s Tip discussed financial reporting and analysis for traditional pharmaceutical goods (drugs). This week’s Tip takes a closer look at the types of financial analyses necessary to evaluate value-added services at an independent community pharmacy. Value-added services have direct costs affiliated with their development and implementation. Additionally, proper accounting would suggest that any existing pharmacy resources shared with or allocated toward the service (eg, human capital/labor, floor space, equipment, monthly utilities, advertising costs, and other) be ascribed the proper costs in performing basic accounting. Additionally, revenues generated expressly by performance of that service should be accounted for as should additional revenues it generates for other services, including traditional goods and services (eg, selling more glucometers as a result of a new diabetes service).
Doucette et al performed a 3-year financial analysis of services being performed at an independent community pharmacy, including vaccinations, cholesterol screenings, medication therapy management (MTM), adherence management, employee health fairs, and compounding services.1 Three years (2008–10) of pharmacy records were examined to determine the total revenue and costs of each service. Costs included products, materials, labor, marketing, overhead, equipment, reference materials, and fax/phone usage. Costs were allocated to each service using accepted principles. Depending on the service, the total revenue was calculated by multiplying the frequency of the service by the revenue per patient or by adding the total revenue received. They observed that 7 of 11 showed a net profit each year, including some immunization services, MTM, health fairs, and prescription compounding. The services realizing a net loss included pneumococcal immunization, cholesterol screenings, and two adherence management services. They concluded that most of the services demonstrated a positive net gain and that further cost management could improve the viability of those that did not. However, external factors such as changing reimbursement and competition could affect the future of any service.
Pharmacy owners/managers will find that some services are more profitable than others. The analysis should include the service’s impact on other aspects of the business and to some extent even the goodwill or unique niche that offering the service provides. Still, some services might have to be reshaped or eliminated to make room for other services that are more profitable and/or more greatly needed by patients. Proper accounting and financial control will greatly assist these decisions.
Additional information about Financial Reports and Applications in Independent Community Pharmacy can be found in Pharmacy Management: Essentials for All Practice Settings, 5e. If you or your institution subscribes to AccessPharmacy, use or create your MyAccess Profile to sign-in to Pharmacy Management: Essentials for All Practice Settings, 5e. If your institution does not provide access, ask your medical librarian about subscribing.
1Doucette WR, McDonough RP, Mormnn MM, et al. Three-year financial analysis of pharmacy services at an independent community pharmacy. J Am Pharm Assoc. 2012;52:181-187.