Your pharmacy needs a balance of both cash flow and profits to thrive.
Winter Is Coming
This is even more critical now with the upcoming changes to DIR fees in 2024. These changes will strangulate cash flow for pharmacies for the first several months of 2024. I have been calling this the 2024 DIR Fee Apocalypse. No, I don’t think I am fearmongering. The potential damage to independent pharmacies is enormous. Many pharmacy owners may be unable to make it through the cash crunch created by this apocalypse.
The severity of the consequences is why we have dedicated the entire February Pharmacy Profit Summit to the specific strategies and tactics pharmacy owners can implement in their stores to be prepared for the upcoming super-storm.
The Basics of the 2024 DIR Fee Changes
Currently, DIR fees are applied retroactively long after the claim is transmitted. Sometimes, months later. These clawbacks often come as a surprise and at the worst times. Beginning on January 1, 2024, DIR fees must be applied at the point of sale. This is great news and will bring much-needed transparency.
There is a huge downside, though…
Your revenues will immediately drop significantly. Since DIR fees are a percentage range of revenue, you will be charged the highest point of the range when applied at the point of sale. Now, most pharmacies could probably handle this if that was the only impact. It would be tight adjusting to lower revenues immediately, but we could do it. The kicker here is there is more bad news.
Because DIR fees are retroactive now, you will be paying 2023 fees at the beginning of 2024. This means you have less revenue AND still have DIR fees being paid back. Essentially you are paying double DIR fees for the first several months of 2024. This is what will cause the apocalypse for many pharmacy owners.
Can your cash flow handle paying double DIR fees?
Focusing On Increasing Profits & Cash Flow
The way through this storm is to focus on increasing your pharmacy profit and improving cash flow. These two critical metrics are often conflated as being the same thing. That is not the case at all. Also, the strategies for improving profitability and far different than the tactics for increasing your cash flow.
Here are some resources to help you separate these two and improve them.
While talking about financial metrics is extremely important, it can also be really boring. To help you have a little fun while learning the difference between pharmacy cash flow and profit, I asked ChatGPT to create a poem to explain the differences. If you aren’t aware of ChatGPT, it is an open AI platform that has taken the world by storm. It has grown faster than any other software on the planet. It is crazy fun!
Here’s the poem on the differences between cash flow and profit.
Cash flow and profit, are two sides of the coin
For pharmacy owners, a crucial point to join
Cash flow is the cash that comes and goes
Profit is the money left after all the woes
Cash flow, the lifeblood of the store
It keeps the doors open, forevermore
It pays for inventory, salaries, and rent
And keeps the lights on; it’s what we represent
But profit, the true measure of success
It’s what keeps the pharmacy in the black, no less
It’s the reward for hard work and dedication
It’s the fruit of the labor, a sweet sensation
A steady cash flow, ensures bills are paid
But profit, determines if the business stays
If it’s not enough, the doors must close
And that’s a fate, no one wants to know
So as a pharmacy owner, keep a watchful eye
On cash flow and profit, as both you will rely
For attention, importance, and control
But balance them well, and your business will roll
To success and prosperity, for years to come
Cash flow and profit, are a delicate sum.
It’s a game of numbers, a delicate dance
But with patience and strategy, it won’t be left to chance
I think the AI did a pretty good job with that poem!
If you want the most effective strategies for building your cash in 2023 and beyond, consider attending the Pharmacy Profit Summit on February 17 & 18 in Orlando, Florida. Reach out to DiversifyRx at any time at [email protected].
