By Chris Linville, managing editor of America’s Pharmacist®.
Originally Published February 2024 in America’s Pharmacist – The Voice of the Community Pharmacist
The financial pressures facing independent pharmacists is an all too familiar story.
With that in mind, finding ways to save on expenses and discover untapped revenue can at least help cushion the blow. And it’s not as difficult as you might think.
When multi-store pharmacy owner Jeff Harrell buys a new pharmacy, he makes a number of cost-saving tweaks in the first few days that add significant dollars to the pharmacy’s bottom line. Whether it is saving money on your phone bill, reducing your credit card fees, looking at the cost of vials and labels you use – there are dollars hidden in plain sight. In a continuing education webinar, “Finding Money in Plain Sight – How to Save on Often Overlooked Pharmacy Expenses,” Jeff shares how he finds them. The entire webinar is available online at bit.ly/47unDqd.
Jeff owns more than 30 stores in Washington state, Oregon and Idaho. He says he recently acquired a pharmacy in Oregon and started going through its expenses.
“This is a store with good volume, but it was just kind of dying on the vine,” Jeff says. “A lovely couple just had their heads down working and working and not looking at expenses. Over the years they had signed up for numerous different services they may or may not have been using.”
Jeff, 2023-24 NCPA president elect, acknowledges he’s done the same thing, where he might go to a trade show and be dazzled by a product or service.
“It looks cool, so I sign up and then don’t use it,” he says. “Say it’s $99 a month. I challenge people to see if those things you are signing up for are beneficial to you. Are they providing any value? If they aren’t, get rid of them. It’s $99 or whatever in fees over and over. We switched Medicare Part B processors. Well, I forgot to terminate the old processors, so I was still getting charged $29 a month on the old processor as a minimum, so those are just little things.”
Jeff realizes that pharmacists are so busy that they don’t always look at their credit card statements with a fine-toothed comb.
“Look for those residual services charges that you may have forgotten about, even things like [an entertainment streaming service],” he says. “Any little thing you’re not using, just get it cleaned up, because those are monthly dollars that compound. Sometimes you get a magazine free for six months and if you forget to opt out the next thing you know it’s $9.99 a month. It adds up.”
HAVING A ROAD MAP
Jeff says he uses a financial “road map” when he takes on a new store. The cost of goods is something he looks at right away when analyzing the financials.
“I always look at the phone bill and see how many lines there are,” he says. “I don’t know how many times I’ve purchased a store and they have 12 lines. They just kept rolling those old lines over and over and nobody has ever terminated them, and they are only using three or four.”
Jeff says he switched to an IP phone system (voice over internet – the phone system runs on the internet instead of trunk lines).
“Usually, the savings are between $300-$400 a month,” he says. “You can get rid of a lot of excess regular lines.”
For those still on old-school phone lines, Jeff says there are easy ways to see how efficient (or inefficient) they are.
“If you’re not yet comfortable going to an IP system, then just go through your phone lines and see how many are being used and not being used, especially if you have acquired a store,” he says. “I literally found two separate internet connections at a store I acquired. I bought it from a gentleman who had consolidated three stores into one over a period of time. He was always under contract for his internet, so he just rolled it into his other store. His bill was $700 (because he had three internet lines) and the bill should have been in the $200 range.”
Jeff explains that when going to IP, “You don’t need all those lines because everything is done over the internet, so one phone number gives you multiple lines, there’s never any busy signal, there’s never anyone not answering the phone. It’s a huge savings versus a traditional system, plus the technology and the integration with your pharmacy host systems is getting very cool, with lots of things that customers want today.”
GETTING BETTER INTERNET RATES
While going to an IP system can reduce overall rates, there are additional savings that can be found with internet services in general. For example, Jeff says if you signed up for a promotional deal and after three years it goes from $79.99 to $200, it’s time to act.
“Call them back and say ‘Hey, what do you have to offer me now? What’s your special?’” he says. “Always stay on top of that. I like this analogy: How often does [a vendor] call and say, ‘Hey, I’d like to lower your bill?’ Never. But if you say you’re going to leave, they are ready to negotiate. It takes a little work and it’s not the most fun thing to get on the phone, but again, it’s a monthly bill, and if you save $150, that’s $1,800 a year.”
LOOKING AT LABELS
How often do pharmacy owners look at what they are paying for the prescription labels and vials? The answer is probably not often.
“If you are doing 400 scripts a day and you can get 5 cents off those vials and labels, you’re now saving yourself $20 or even $50 a day, depending on your volume.”
“I’m big into shopping my vials, shopping my labels,” Jeff says. “Once a year, or maybe once every two years, we’ll go and look at what a single label costs and what a single vial costs. Typically, in the beginning you can get that down between 5 to 8 cents a unit, which is huge. If you are doing 400 scripts a day and you can get 5 cents off those vials and labels, you’re now saving yourself $20 or even $50 a day, depending on your volume.”
Jeff also says his pharmacies have started using a blank generic label. Along with the single generic label, his stores print all of their graphics and all other items in black and white and it comes out of the thermal printers. He also says the pharmacies are using thermal labels as opposed to laser labels.
“If you are using thermal, get rid of the tape. It costs $12-$13 a roll, and if you are doing 400 scripts, that means you or your tech is reaching for that tape 400 times a day,” he says. “Think about that time savings, think about if they get the tape on wrong; they have to rip it off, and redo it. Thermal labels should stand up to 30 or 90 days of leaving the pharmacy and coming back. You have to stop worrying about your label being pretty because the consumer doesn’t care like we think they do. It’s just a vessel that you give them pills, and that’s how they look at it. Once you get past that and accept it, there’s some huge dollar savings there.”
CREDIT CARD PROCESSING FEES
Jeff says he encourages owners to look at credit card processing, especially if they are adding new locations.
“You always need to go back to your credit card processor just from a volume standpoint and negotiate a better rate,” he says.
When asking others what their rates are, Jeff says he often hears numbers such as 2.9 percent (or 2.8, 3.0, 2.5). He says you really have to dig into what the fees are because those percentages are just an average. Jeff says that credit cards often have a different rate associated with it, especially if the pharmacy is located in a tourist area where gift cards are frequent and typically have higher fees.
“I’m always negotiating our credit card fees down, along with the transaction fee associated with that or your statement fee associated with that. Call your credit card processor and make sure that you are getting the best rate for the volume that you have. I even tell them I’ve got someone else offering me a better rate – they don’t want to lose your business.”
DEBIT AND CREDIT CARDS
Jeff says that when you go to a grocery store and are asked whether your card is debit or credit, if you say debit, then swipe it and don’t put your pin in, the store is actually running that through on the credit card side.
“A debit card transaction is a flat fee, let’s just say 35 cents,” Jeff says. “On a credit card transaction, we’re going to say 3 percent. So, if it’s a $100 transaction, and it goes through on the credit card side, you’re paying $3. If it goes through on the debit side, you’re paying 35 cents.”
Jeff says that most point-of-sale systems should allow you to set a threshold.
“If they present a debit card, and it doesn’t hit the threshold markers, we’ll run it through credit,” he says. “It still comes out of their bank account, it doesn’t ask for a pin, it just takes a day or two to come out instead of the next day on a true debit. Think about it, $3 versus 35 cents and how many transactions are you doing? So, if you aren’t doing debit versus credit, I would recommend diving into that and really looking at it.”
IDEAL CREDIT CARD RATES
Jeff is often asked what does the best rate for volume of prescriptions for credit card processing fees look like? In other words, a ballpark percentage owners should be expecting for at least 100 transactions per day.
“The average is variable,” he says. “Again, it’s going off the cards that are being used and the transactions. I would probably say if you’re between 2.5 and 2.9, then you have some wiggle room with your vendor to be able to pull that down. There’s an interchange fee, there’s a per transaction fee, and there’s a statement fee. So just saying 2.5 or 3 percent is not necessarily the right verbiage because that is an average. If you take your bill at the end of the month and average your fees into what your transactions were, that’s going to give you a percentage, and that’s going to tell you kind of where you land.”
Jeff says on transaction fees he was able to knock it down considerably. His statement fees were about $35 per month and now they’re less than half of that.
“The conversation that you’re wanting to have isn’t necessarily, ‘What’s my percentage,’ but what is every transaction fee with the company that you are using, and what’s my statement fee?” he says. “Those are compounded month after month after month, so if you can trim $20 there, or a nickel off every transaction, again those are dollars and dollars that add up that we just forget about.”
For years pharmacies wouldn’t accept certain credit cards because of the rates. Jeff says it’s time to reevaluate that.
“Most people carry an American Express card because they get such big rewards with lounges and travel
and rebates and things like that,” he says. “Their percentages have come down more competitively with Visa and Mastercard. We all now take American Express in our group because those fees have come down. They used to be out of bounds for sure so that’s why we said no to Amex and no to Discover. They are more competitive now.”
NEGOTIATING COSTS OF GOODS
Reducing the cost of goods is always tricky, as everything is driven by volume and money, Jeff says. “I always use the Walmart example. They got ticked off by the credit card processors years ago so what did they do? They bought their own.”
As far as wholesalers, Jeff says the first thing he would suggest doing is looking at the prime vendor agreement (PVA).
“Know where your tiers are for your generic compliance and things like that,” he says. “Often a lot of stores are buying outside because they get that instant savings right there, but then they end up missing a tier or two in their agreement with their wholesaler and they are missing a percentage off their generics, and the savings they got upfront from another vendor is not as much as they would have gotten had they put those dollars back to their wholesaler and hit the next tier or two.”
Understanding the pricing model within the PVA and knowing where the dollars land is important, Jeff says.
“I’ve had to read the riot act with some of my newly acquired pharmacist partners who have been buying from 20, 30, or 40 different vendors,” he says with a laugh. “They like to shop, it’s like an addiction. We killed all of that and started putting our dollars back into our prime vendor agreement and they are dollars ahead at the end of the day, not to mention having to pay 20 different vendors, having to reconcile credit cards, and taking all of those phone calls. A pharmacy owner – and you may disagree with me – is worth $500 an hour, so if you are taking those phone calls and doing all of that extra buying out of your agreement, you have to factor in your time, and I factor mine in at $500 an hour as an owner-operator.”
PROFITABLE SERVICES
In terms of pharmacy services that can drive revenue, Jeff says medication synchronization and combo med billing are two biggies. He highly encourages all pharmacies to have some sort of med sync program if they don’t have one now. Combo billing entails having an additional NCPDP number associated with long-term care services, which means no DIR fees, higher reimbursement, and higher dispensing fees.
“That’s been really big for us and we are really focusing on ancillary things, like a spacer with an inhaler with a new patient (if physician approved),” Jeff says. “Little things like that that help with compliance, help with delivery, and they pay pretty well on those. The combo med has definitely put money back into that segment of people we were just billing normal retail anyway.”
Jeff says he’s also looked into cash pricing at his pharmacies, saying, “We (pharmacists) are terrible cash pricing people.”
“The AI pricing is definitely something you need to look at if your cash pricing is not where you want it to be.”
In his opinion, “We price with emotion, we price with fear, we price with ‘Oh the chains are cheaper.’ So, our cash pricing is all over the board. There are some companies out there that do AI pricing using market analysis and we have implemented that in several stores and realized that we are way under market or way over market – most of the time we are way under market, and we can adjust our prescription by anywhere from 10 to 40 percent and still be under our competitors. It’s really given us data that’s allowed us to adjust the pricing, so we are competitive, and we are market fair, and it has injected a lot of money back into the businesses, because you already have those cash prescriptions.
“The AI pricing is definitely something you need to look at if your cash pricing is not where you want it to be.”
DELIVERY SERVICES
Like many pharmacy owners, Jeff says he has his own delivery drivers. Unlike many, he started charging for delivery.
“I think our lowest store is in the $5 range and our highest is in the $10 range,” he says. “The way I look at it is how many people will go to Starbucks and pay $8-$9 for a drink? If you order Uber Eats and get it at home, look at the surcharge. It’s not $5, it’s not $3, it’s not $2. It’s a legitimate fee and we deliver and give a better service than anyone around when it comes to medication delivery to homes. It’s worth charging. And for the stores that had been giving it away, when we went from $5 or to $8, there was very little pushback.”
These are just a few ways that pharmacies can save money, enhance revenue and operate more efficiently. Jeff says that by doing a thorough forensic review of all of your pharmacy expenses, your bottom line can dramatically improve.
“I guarantee you if you aren’t doing these things there are thousands of dollars slipping through the cracks,” he says.