Future health series: pharmacy can adjust the sails

It’s no longer plain sailing in Australian community pharmacy. Bruce Annabel helps navigate in this, the fourth instalment of our Future Health series.

Most have heard the saying, ‘You cannot direct the wind, but you can adjust the sails.’ The nautical analogy is helpful. Pharmacy has sailed along propelled by the winds of regulation; the exclusive distribution of PBS pharmaceuticals and scheduled medicines have generated patient visits and profit. In return, consumers have received a reliable, accessible medicine distribution network. But in an era of tectonic change, is that sufficient to maintain pharmacy’s financial returns and relevance in the health spectrum?

The winds of change are blowing hard on the traditional business model, requiring owners, peak bodies, industry and the profession to assess where community pharmacy now stands. Initiatives are needed to harness these forces, beginning with the forthcoming Seventh Community Pharmacy Agreement (7CPA).

Winds of change

1. Market and technology

The key to community pharmacy success has been location, maximising script throughput, and operating efficiently as a business. However, fundamental change in the competitive and technological landscape has resulted in flat script volumes and falling patient visits pressuring profitability and viability. One of the biggest concerns is falling patient visits, down 3.8% during the last five years including 1.9% last year,¹ reflecting the reduced market relevance of the traditional business model.

Therefore, historical success factors have become ‘hygiene’, and it’s getting worse because few are responding appropriately to the changes.

2. Blown off course

Unfortunately, price discounting is the result, financed by cutting wages and pressuring suppliers for deals that no longer exist. Something has to change – net profit is down 22% compared with five years ago, while return on investment has fallen to 14% compared with 25% just 10 years ago.¹

Pharmacists clinging to the script-processing role means ‘pharmacist professional service’ is inconsistently delivered to patients, who are left to interact with pleasant assistants. That is referred to as ‘service’, which is now a ‘hygiene’ factor too. But even though it has been blown off course, the old model is chugging along, made possible by dispensing profitability sufficient to hold the bottom line together … for the time being.

3. Commoditisation

Because of price discounting and wage cuts, pharmacists are working even harder processing scripts with less time for advice and professional services. The result is that patients and the community have been trained to value pharmacies based on price instead of health benefits i.e. an industry focused on ‘selling to customers’ instead of ‘helping patients’.

The majority of new medicines being listed on the PBS are highly specialised, usually high cost, and mostly delivered to patients in hospital or specialist practices.

Pharmacy has been left primarily dispensing cheap off -patent pharmaceuticals with an average cost of $25.¹ Many of these medicines have become commoditised by competing for market share through price discounting in a flat market.

4. Federal government

PBS script volume fell by 2 million between 2013/14 and 2017/18 and net outlays have been flat in nominal terms for 10 years. That policy will continue, evidenced by the April 2019 budget forecasting expenditure of $9.7 billion in 2022/23 compared with the 2018/19 estimate of $9.6 billion. So the government expects costly new medicines to be paid for by the industry, manufacturers, distributors and perhaps even pharmacy. Perhaps that was the motivation behind the proposed extended 60-day script supply for 143 drugs. The proposal could resurface!

5. Cyclonic winds

Winds of change may turn cyclonic as the Fourth Industrial Revolution gathers pace. It has been written: ‘During the next three years, the Fourth Industrial Revolution will really take hold as technologies in the physical, digital and biological spheres begin to come together under the impetus of ‘the internet of things’, artificial intelligence, robotics and additive manufacturing.’² Immunotherapy, gene and cell therapy, along with technological convergence, will fundamentally reshape the industry.

Adjusting the sails

There is much support for pharmacist-only ownership, although it should be capitalised on by utilising their skills and trust with patients.

Innovation in the quality of the patient offer is the key to a non-price competitive value equation aimed at holding existing patients, attracting new ones and giving them great reasons to return.

Some pharmacies have done this by offering patients innovative services. This includes minor ailments, mental health, medication management and condition management in addition to script supply and advice. These innovative pharmacies outperform the industry standard in most measures, including earning professional services income over $100,000 pa, some $300,000 pa, compared with the average of a touch above $30,000.¹

Virtually every pharmacy is capable of operating that model but they lack the incentive and/or implementation assistance. The innovators model should be adopted as the industry framework. The key elements are:

• Dispensary profitability
• Professional services
• Practice model change.

These sail-resetting strategies can be introduced through a combination of 7CPA and broad industry campaigns. PSA’s Pharmacists in 20233 report speaks to this: pharmacists practising to their full potential, being supported to develop as practitioners and with a quality framework for service delivery. The Guild’s Towards 20254 document is on a similar path.

Future proofing

1. Dispensary profitability

It is essential that prescription supply remuneration continues to support the reliable and widely accessible PBS supply network. Currently, dispensing gross profit per script is about $13.50,¹ generating good dispensary profitability and return on investment.

If the government introduces the extended script supply initiative and offers compensation through professional services, they must benefit patients and be profitable. If so, that should incentivise pharmacists to expand professional services and relevance to patients.

And the patient co-pay structure must be maintained to avoid further damaging price discounting that would impinge service quality.

2. Professional services

a) Incentivise change

Morphing out of the dispensing chemist model requires incentives through profitable and beneficial professional services modules. In the future, the supply function could be delivered through combining artificial intelligence, robotics and digital technologies – google the Amazon Go Store, their UK dispensing facility and IBM Watson technologies.

Pharmacists’ relevance depends on how they utilise their special knowledge and skills working with patients and GPs solving problems while leveraging the new technology and information.

Introducing broader, profitable professional services now is critical in starting the transformation process away from the dispensary bench.

b) Medication management

The hub of 6CPA professional services is medication management through community Dose Administration Aids (DAA), MedsCheck, Home Medicines Reviews (HMRs), clinical interventions, Residential Medication Management Reviews (RMMRs) and staged supply. My modelling and client feedback shows the first three programs are very worthwhile from patient and profitability perspectives. These should be increased and remunerated based on activity, with MedsChecks and HMRs returning to their original uncapped status. The case has been well made that MBS numbers should fund these. The humble DAA is a brilliant medication management system pharmacists offer patients and carers in need, are profitable, and patients have a reason to return.

Clinical intervention funding has always intrigued me and I find many pharmacists do them in the ordinary course of their work.

Community pharmacy vaccination service has been very successful and an excellent service expansion.

Aged care facility DAAs should be funded in 7CPA because the service has become marginal resulting from price cuts and extraordinary service level requirements. The Aged Care Royal Commission may lead to tighter controls and government confidence that a pharmacy incentive would lead to maintenance of those vital services.

c) Condition management

Being the most readily accessible professional, pharmacists are ideally placed to work in concert with GPs managing patient conditions such as diabetes, mental health, asthma, cardiovascular disease, arthritis, wound care and chronic pain. Innovative pharmacies are already doing these well, with great response from patients and GPs.

d) Minor ailments

Targeted minor ailments programs funded in 7CPA potentially offer reduced downstream healthcare costs, lift pharmacy relevance to patients, expand scope of practice and raise the productivity of pharmacists. Innovators have proven that delivering minor ailments services successfully through ‘pharmacist professional service’ opens up every non-dispensary health-related department, particularly Pharmacy Medicines and Pharmacist-only Medicines, evidence-based practitioner lines, wound care, nutrition and so on. The pharmacist/patient connection is the key.

From a financial perspective, minor ailment services allow retention of margins boosting average non-script sales by 25%1 and higher pharmacist wages.

3. Practice model change

Services implementation necessitate practice change because they can’t be delivered from the dispensary bench. Following is a list of ‘professional service pharmacists’ roles observed in my innovator clients:

• Script checking, interactions and patient history
• Patient counselling with each script
• Medication management
• Collaborate with patient GP
• Minor ailments
• Screening
• Vaccination
• Health conditions e.g. diabetes, chronic pain, asthma, nutrition, sleep, mental health.

A critical enabler of practice change is dispensary technicians taking on the administration and processing activities delegated by the pharmacist, freeing them to perform the above activities. The dispensary technician role should be formalised, including training, remuneration and career path structure.

Many pharmacists I speak with realise that fundamental practice change must happen, though few are following through because it’s easier to stick with what they know. Therefore, implementation assistance and additional incentives are required to encourage change and the taking up of opportunities.

Smooth sailing

Pharmacists should sail out of their dispensaries and embrace professional services that connect them with patients and offer value through health benefits.

Pharmacy can adjust its sails by emulating the practice innovators while adopting industry implementation initiatives, 7CPA incentives and industry wide co-ordination.

References

1. Pitcher Pharmacy Services client series 2018. Published May 2019. At: http://www.pitcherpharmacy.com.au/
2. Gottliebsen R. Digital disorder test for Morrison’s new cabinet. The Australian. 28 May 2019. Available from: theaustralian.com.au/business/economics/digital-upheaval-to-test-morrison/news-story/7279803afcc699602fa123dd70f2aee5
3. Pharmacists in 2023, Pharmaceutical Society of Australia. At: psa.org.au/advocacy/working-for-our-profession/pharmacists-in-2023
4. Community pharmacy 2025, The Pharmacy Guild of Australia. At: guild.org.au/about-us/community-pharmacy-2025