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Pharmacy : Centralised Dispensing/Hub and Spoke

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9 October 2019

The actual reduction in dispensing income is not set out in the contract as the funding over the five years of the contract does not appear to take into account price inflation of medication or any increase in items dispensed, which may come after the potential reduction items highlighted above.

The reduction in dispensing income has led to the larger corporates to find efficiencies in dispensing and this is through centralising dispensing. Centralising the majority of the dispensing will save costs in relation to staff and premises (such as rent and rates), as fewer branches will be required.  Also, if patients are charged for delivery, the cost of delivering the medicine will also be removed. 

Effectively the remaining branches of the larger groups will become collection points, deliver urgent medicines, deliver service element of the contract and provide private services.

So, what does this mean for the independent contractors and smaller groups and what can they do?

We would recommend that a strategic review is performed on each pharmacy that you own to cover the following areas:

1)  Review of contract requirements – Review the five-year contract and assess how are you going to meet the requirements of the contract? 

2)    Source of prescriptions and long-term trend - What is the source of my prescription items and will the items increase or decrease over time? 

3)  Demographic - What is the local demographic and what are the health requirements?

4)    Barriers - What are the barriers to me delivering the services to meet the local health needs, whether through NHS or private services and how can these be removed? 

5) Efficient utilisation of space - Is the dispensary set out in the most efficient manner?

6) Alternative use of Space - Are you making the most of your retail space? Could the space be better used for consultancy rooms or could any area of the building be let out.

7) Non – profitable branches - If you own more than one branch are there any branches that are not profitable. If they are not profitable, why is this and can the position be realistically improved 

8) Utilisation of branches - Where branches are not profitable, could this be served by another branch that you own?

 

Following the strategic review, summarised below are points that you may wish to action or strengthen: 

 

1)  Model of dispensing

With funding decreasing, pharmacies need to look at being more efficient at dispensing and reducing their cost base.  This could be adopting similar models to larger corporates (i.e. hub and spoke) but on a smaller scale for smaller groups. For single operators it will be interesting to see what happens with legislation to enable smaller operators to adopt this scheme.

2)  Technology  

Where possible, operators should utilise technology to drive efficiency as well making it convenient for patients to interact with the pharmacy.  By doing this it should at least help protect you from losing patients to larger operators because they do not have convenience.

3)  Customer service

Many independent contractors deliver a customer service that can not be matched by larger operators.  Customer service will be a key differential and should not be compromised due to income decreasing.

4)  Training

Investment in staff is essential in freeing up the pharmacist time so that the delivery of the new service elements can be performed. Staff should also be trained to identify patients that can benefit from the services.

5)  Other revenue streams  

Pharmacies will need to adopt and perform the new services in contract as quickly as possible.  Pharmacies should also consider offering private services to patients depending on the local demographic and health needs.

Working with other local health professionals should become normal practice and will lead to additional services being performed. 

6)  Delivery service/closure of branches

As large corporates start to charge for delivery, independents should consider increasing advertising of their free delivery service in order to gain additional patients in the short term.  Eventually you would expect the whole market to charge for delivery once it becomes normal practice.

If a large corporate is closing a branch you should consider targeting patients in that area even if you can only offer a delivery service as you may be able to gain a share of the market and significantly grow items without significant capital investment.

 

If you would like to discuss the point raised in this focus, please contact Richard Medes a director in our pharmacy team.