Independent pharmacy ownership is fraught with problems. Use your data to craft innovative solutions.
What keeps you up at night? Cash flow? Profitability? Where to stash your extra cash? Ok, probably not the last one, but let’s make that a goal, shall we? You are not alone. Independent pharmacy owners are facing the same problems you are everywhere, every day. You can solve a lot of headaches by leveraging your data. Once you understand which metrics (KPIs) to track, your goal for each metric, you can choose which strategies will be best for your pharmacy to focus on for improvement. For a recap on the Top 7 KPIs for independent pharmacy owners, read this past blog post.
Our goal here is to narrow down precisely which key performance indicators (KPIs) you should track to solve a specific pharmacy business problem. For each KPI, I will list your minimum goal for the KPI and how to calculate it. I will also include some insights and tips.
Pharmacy Ownership Problem #1 Poor Cash Flow
Cash flow is the most common problem that comes up in my conversations with pharmacy owners. It’s tough out there. What makes it more difficult is that, most likely, you have a pharmacy degree and not an accounting degree. While you understand drug metabolization routes, you probably don’t have a solid grasp of turning your profit into cash and managing your cash flow.
We have boiled cash flow down to these 5 KPIs. By managing these KPIs, you can improve your cash flow.
- Days of Cash on Hand
- AR Received Ratio
- Inventory Turns
- Payroll Ratio
- Expense Ratio
Days of cash on hand
Goal: >15 days
To Calculate: Start with your current cash balances in your bank accounts. Divide that number by your average daily expense rate (including COGS).
AR Received Ratio
Goal: 100% though >98% is the minimum
To Calculate: Your total amount billed out to companies divided by the total amount received. For PBM revenue, your PSAO or other AR reconciliation company can help with this information.
To Calculate: Take your annualized COGS number (you can take last month’s number and multiply by 12) and then divide it by your current inventory value.
To Calculate: Start with your total payroll costs, including insurance, taxes, fees, all costs. Divide that number by your total revenue for the same period. Multiply by 100 to get the percentage rate.
To Calculate: Take the total of all your non-COGS expenses (rent, payroll, utilities), then divide it by your total revenue to get your ratio.
TIP: Get 14 strategies to help improve cash flow here.
Pharmacy Owner Problem #2 Low Pharmacy Prescription Profitability
Prescription profits seem to be taking hits from every angle these days. DIR fees, GER contracts, audits, and just plain below-cost reimbursement, it may seem impossible to manage your prescription-based profits. Here are the KPIs you should be tracking to help you manage your prescription profitability.
- Gross Profit Per Script
- # Claims Above $100 Profit
- # of Therapeutic Optimization Requests
- % of Negative Margin Scripts
Gross Profit Per Script
To Calculate: Take your total margin dollars for your prescriptions and divide it by the number of prescriptions that created those margin dollars.
# Claims Above $100 Profit
To Calculate: After running a dispensing report, count the number of claims that resulted in more than $100 in gross profit. Then divide that number by the total number of claims in the same period to get the percentage.
# of Therapeutic Optimization Requests
Goal: >2 a day
To Calculate: Manually track how many requests your team sends to prescribers that ask for improved therapy for your patients.
% Negative Margin Claims
To Calculate: Run a dispensing report that shows the margin per prescription. Count the number of prescriptions with a zero to a negative margin. Then divide that number by the total number of claims to get the percentage.
TIP: To reduce your number of negative margin claims, focus on negotiating better buy contracts, and you may consider leaving your PSAO to eliminate GER.
Pharmacy Owner Problem #3 Increasing Volume
Independent pharmacy owners are battling against the big box competition every day. Whether it’s Amazon Pharmacy, Walmart, Walgreens, CVS, or mandatory mailorder, patients are getting picked off one by one, it seems. You may be looking to increase the number of patients coming to your pharmacy. By optimizing these KPIs, you will confirm you are tracking the right lead and lag measures.
- New Prescribers
- New Patients
- Sync Percentage
- Marketing Expense Ratio
Goal: >1 per week
To Calculate: You can manually track how many new prescribers you add to your PMS, or you can run a report.
Goal: >2% each month
To Calculate: Most PMS systems have a built-in report to show how many new patients you added for any given period.
Goal: >50% of your total volume
To Calculate: Determine the number of prescriptions you fill through synchronization and divide it by your total number of prescriptions.
Marketing Expense Ratio
Goal: 1% to maintain, 2% for moderate growth, 3% for aggressive growth
To Calculate: Total all marketing expenses and divide it by your total revenues to determine your ratio.
TIP: Simple methods for marketing do work, don’t make this one mistake, and here is a fall marketing plan.
Tracking, reporting, and strategizing around KPIs can be daunting. It is helpful if you narrow your focus to only the numbers that matter the most. When you experience a particular issue in your pharmacy, determine the top 4 or 5 metrics that will impact or are affected by that issue. DiversifyRx has put together many lists of KPIs. Don’t try and reinvent the wheel; reach out at email@example.com, and we can help determine which KPIs you should be focusing on to solve your pharmacy owner problem.
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