Pharmacy Economics: Freedom and Ability to Manage

Pharmacy Economics: Freedom and Ability to Manage

Pharmacy Economics Freedom and Ability to Manage The demands of APhA's day-today operations and the burgeoning impact of new health care issues, gov...

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Pharmacy Economics Freedom and Ability to


The demands of APhA's day-today operations and the burgeoning impact of new health care issues, government regulation and economic concerns all have made time a precious commodity. These problems impact both directly and heavily on the profession of pharmacy and most of them must be addressed immediately and directly in Washington. Today, I intend to begin mapping out for the profession directions which I believe pharmacists can and must pursue to assure pharmacy's future viability in the health care system. We can appreciate that the health care system is everchanging. We need to study how pharmacy will adjust to such changes in both professional and economic terms. First we should establish the contemporary context in which this search must proceed. Only weeks ago, there was inaugurated in Washington a new president of the United States who rode to power on what political analysts now evaluate as a clear mandate to change the _direction of OUr federal government in its relationships both with local government and with individual taxpayers. Those experts who made

William S. Apple, PhD, president of the American Pharmaceutical Association, presented this address at the centennial celebration of the University of North Carolina School of Pharmacy on February 18, 1981. American Pharmacy Vol. NS21, No.3, March 1981/149

close election predictions failed miserably to gauge the mood of the electorate. While it is true that motivation and interest in specific issues differ among various groups in our society, the overall message delivered by the voters last November is that the country is ready for a major shift in government policy and in government impact on individuals and institutions.

New Administration Cautious Having received both the message and the mandate from the voters, what can President Reagan and his advisers be expected to do? Well, there is no master switch hidden in a concrete bunker in Washington which the president can throw to turn the country's fortunes around . To use an unoriginal phrase, change is likely to be "evolutionary, rather than revolutionary." Despite the usual throw the rascals out" campaign rhetoric, the new administration gives every appearance of proceeding cautiously so that it does not "throw the baby out with the bath water." Nonetheless, one does not need a crystal ball to observe certain unequivocal facts. Most pharmacists have been praying for an antitrust exemption which would permit them collectively to negotiate the fees private third-party programs would pay pharm.acists for their services. Many pharmacists have been led to believe that such an exemption is likely to be a benefit of a conserII

vative administration and Congress, but such a change hasn't even reached the rumor stage outside of pharmacy. It is a hard fact of economic life that as long as pharmacists are willing to provide their services at the prices third-party buyers are offering, those prices will not significantly change . While pharma.,. cists can legally engage collectively in political activities aimed at getting the government to help redress their losses from participating in government programs, concerted action regarding fees is not available to them w h en addressing private programs. Pharmacy leaders can publicly express all the indignation they want about the number of pharmacists who have been forced out of practice and the gross injustice of it all, but as long as there is an adequate supply of pharmaceutical services available to meet the needs of their constituents, there is little economic or political incentive for either private or government programs to react voluntarily in a favorable manner.

Hard Times Ahead As I have previously pointed out, the current period of economic hard times isn't going to terminate overnight. Although pharmacy has taken some pretty good shots over the past several years, there is no reason for us to expect that any of them will immunize the profession from the many strains of economic malady which 29

are now reaching epidemic proportions. This is also true with regard to the economics of the entire health care system. While there will be a good deal of tugging and hauling, it appears that even the most influential health care providers-physicians and hospitalswill not be untouched by future developments designed to stabilize and even to reduce the costs of health care in the United States. Nothing in our current health care system- including even the venerable Medicare and Medicaid programs-will be held to be sacrosanct. And for that prophecy, you need only review the transcript of the Senate confirmation hearing of HHS Secretary Schweiker. In the rank order of Reagan Administration priorities, while Medicare has had its share of problems and is therefore destined for its share of solutions, the real target likely will be the Medicaid program. I can recall no government initiative that has come under greater fire from all sectors than the Medicaid program. I doubt that anyone can be found who would not have one complaint or another about Medicaid even though those complaints may attack the program from different directions. • The federal government is unhappy with Medicaid because there is no practical federal control over the programs as they are operated by the individual states. Thus, the federal bureaucrats have responsibility for regulating the program, but little means of exercising practical enforcement authority. • The states are unhappy with Medicaid because the program has brought many of them to the brink of bankruptcy and, at the same time, state administration of the program is attacked by federal authorities, providers and even the program beneficiaries. • Providers are unhappy with the program for its generosity in the paperwork department and its stinginess in the reimbursement area. 30

• Beneficiaries are unhappy wi th the program alleging poor administration and inadequate services based, in part, on the unwillingness of many providers to participate in the program. • And, finally, taxpayers are unhappy with the program as an inefficient and inordinately expensive drain on the state's treasury. Where do pharmacists stand with regard to Medicaid? Throughou t the program's history there has been substantial pharmacy schizophrenia on the subjecLFor the most part, pharmacists have complained about the program but have wanted their representative associations to seek improvements in it. Pharmacists have wanted to fulfill what they see as their moral and professional obligation to provide pharmaceutical service to indigent patients, but they have rebelled against unnecessarily burdensome administrative requirements and subsidizing the program by absorbing losses from what they claim are inadequate fees.

Medicaid Mood Changing In recent months, however, I perceive that the mood of the profession with regard to Medicaid has changed. Except for those pharmacists whose very existence is dependent on Medicaid-or for those pharmacists who have no Medicaid patients at all-the message I am hearing from pharmacists is that they would be pleased to have the entire Medicaid program scrapped immediately. Depending upon the individual pharmacist's practice mix, the same sentiment is widely expressed with regard to third-party programs generally. As it happens, the Reagan Administration and the Congress may well scrap Medicaid, but if that occurs, it will be for reasons which may differ substantially from those advocated by pharmacists and other health care providers. The Reagan Administration is moving ahead to deregulate the economy and return it to func-

tioning uninhibited by government dictates and regulations. Speaking in a different context, Dr. John Goodman, director of the Center for Health Research at the University of Dallas, recently observed: "Most of the problems we encounter in the market for health care arise not because the free market has failed but because it has not yet been tried. " This approach to the economics of health care and cost containment will return the health care system to the principle which is the keystone of the nation's economic policy-vigorous, unfettered competition in the marketplace. And, in so doing, it will further that most warmly held and vocally expressed goal of pharmacy practitioners-the preservation and encouragement of the "free enterprise system." Pharmacists should not miss the point that the principles involved in shifting the health care system to this competitive model have already been incorporated in a serious legislative proposal authorized by Congressmen Richard Gephardt of Missouri and David Stockman of Michigan. (Mr. Stockman is the former congressman from Michigan who is now Reagan' s director of the Office of Management and Budget.) The Gephardt-Stockman Bill has already been reintroduced in the 97th Congress.

Increased Competition What does potential "deregulation" and increased competition in the health care industry forecast for pharmacists? My analysis is that it promises different things for different people. Competition has many effects and can serve as an influence in many different directions. I have previously noted that the pharmaceutical service money tree is withered and dying. Current and future competitive economic pressures are putting pharmacists in a position where they will be fortunate to hold on to what they American Pharmacy Vol. NS21 , No. 3, March 1981 /1~

now have on the income side of their ledgers. Increased pharmacy price competition, resulting frofu initiatives to increase competition in health care services will add even stronger constraints on pharmacy's income side of the picture whether from third-party payment programs or the general public. Assuming that a pharmacy 'I~,n currently at a financial break~even point, if income is reduced and expenses increased, or even if income continues to increase but does not keep pace with increasing costs, it is obvious that reduction on the expense side of the ledger must be instituted to remain solvent and able to provide service to the public. Therein lies one set of answers for current pharmacy economic problems. Every existing and contemplated pressure aimed at controlling the cost of health care dictates that, if they are to survive, pharmacisfs ' must find means to reduce their costs of operation and increase their efficiency. 1 hold that the performance of pharmacists as practice managers over the next 10 years will control the economic destiny of the profession for generations to come .. 1 will state unequivocally that the professionally competent pharmacist who is an incompetent manager will have ~no viable economic future in the profession. Pharmacists who have been content with a 3.0% net profit on sales but who might have achieved a 3.5% net profit must be made to understand that they have, in fact, suffered a loss at the same time ' they have been "in the black." And, with pharmacy net profit margins being continually reduced, the line between profit and loss is too close· to be determined at year-end on an after-the-fact examination of the prior year's financial experience. Pharmacists must, and I am convinced can, acquire the necessary financial and administrative skills to manage their practices daily on a sound economic basis rather than the "whatever is left for me" approach .

During pharmacy's affluent days, nor-managing management sufficed"for most pharmacy practices. But those days are oven Pharmacists musJ understand not only therapeutics, patient counseling, pharmacy laws and regulations, ap d similar subjects, but they also must know how to remain on a , sound/~~ahcial footing an,!1; 'least as "important, they m~st know when and if the foundations of a financially sound practice are starting to' crumble.

Management Skills I cringe every time 1 !t~a;iF a' pharmacist complain aOo.lil' the inadequacy of third-party fees and then admit that he or she does not know what fee would be required to at least break even on each prescription dispensed. And the sad fact is that such a lack of knowledge and management ability is to be found among too many of today's pharmacy practitioners. Management needs and deficiencies apply not only to o"Yners and managers 6f pharmacy practices but also to employed staff pharmae~sts. ,Their personal economi<; welfare in the pJ;ofession is dependent upon the financial success of the practices which employ them. The pharmacist who views an employer's financial problems as "his problem not mine" is likely to join those pharmacists who are suffering 'among the ranks 'o f the unemployed. Pharmacy's economic doldrums, to put it bluntly, are not just the problem of those who have invested capital in the profession, they are also the problem of those wli.6 have invested only themselves in pharmacy upon their graduation and licensing. This is not the time either for smugness or a "business as usual" attitude. Pharmacists must recognize that the answer to economic problems lies in upgrading their competence as practice managers and utilizing available management techniques and tools to create a financial outcome for their practices based on something other than blind luck-be it good or bad.

Pharmacists can move in this di-

recti~r by becoming dedicated cost

controllers themselves. ,W here can phaJimacists begin to acquire the necessary skills and tools? One excellent starting point would be to study, "UCAS," the Uniform Cost Accounting System developed by APh~ for use by all pharplacy pra~'!.i:~oners and whicryt: :! o dateto bevcandid-has not received the utilization or interest it should. Any pharmacist utilizing UCAS will have immediately available clear and usable data that will provide~on an ongoing basis-the cur~~n, ! cost picture of a"pharmacy . praGfitfe. A pharmacist need not be an accountant to adoptUCAS. It has been reviewed and evaluated by a sufficient number of pharmacists to convince me that any practitioner is able to integrate UCAS into any typical community pharmacy practice and to begin reaping the benefits of the management information the system provides. UCAS will not require you to take steps you wish to avoid, and it will not make decisions for you. But it will help avoid making pharmacy management a game of "pin the tail on the donkey."

Management Education Another obvious means by which to help pharmacists increase management skills is to devote a substantial portion of the profession's continuing education efforts to these subjects. At APhA, we have established the Pharmacy Management Institute with a view toward providing pharmacists with management skill training so that they can competently address the full range of difficult economic issues which plague them. The January issue of American Pharmacy includes an excellent article entitled "Business Investments: To Buy or Not?" In just a few pages, an expert industrial engineer sets out the analysis by which pharmacists can decide whether a capital investment, such as a delivery vehicle, is a sensible move or whether other alternatives make more sense. Without such an . analysis, the vast majority of the

...... J\rne!ican Pharmacy Vol. NS21, No. 3, March 1981/151


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pediatric DOsage

Handbook Prepared by Harry·C. Shirkey, M.D. Drug therapy in infants and children requires accurate, welldocumented information. The new 1980 Pediatric DOsage Hand· book provides the authoritative information you need on more than 330 drugs. Designed to facilitate pharmacist use, t he new edition uses a monograph format that lists drugs alphabetically and , provides specifics on recommended dosages, warnings, contraindica· tions, precautions, adverse reac· tions, trade names, dosage forms, overdoses, and toxicity. A list of pharmacological categories and tables of body surface area and I weights also are included. 336 pp, soft cover, 1980, $18 (512 1 for APhA members) I

Invest inYour Future COntrolled-Release Pharmaceuticals Edited by John Urquhart, M.D. Controlled-release products are playing an increasingly greater role in drug therapy as well as changing the direction of pharmaceutical research. This new publication pulls together the important aspects of controlled-release pharmaceuticals, covering in five chapters the areas of performance and pharmaceutical reqUirements, clinical limitations, dosage form design, and patient compliance. Controlled-release products are changing traditional drug delivery and will have an impact on pharmacy practice. COntrolledRelease Pharmaceuticals helps you understand the hows and whys of this important new concept in drug delivery. 160 pp, soft cover, 1981, $27 ($18 for APhA members)

APhA Drug Names The Second Edition is a compact, yet comprehensive, index of proprietary and nonproprietary drug names. Over 2000 single-entity and combination pharmaceuticals are listed, with their active ingredients, product alternatives, and manufacturers referenced as well. 328 pp, soft cover, 1979, $18 ($12 for APhA members)

More Than Dispensing If you are looking toward your professional future you may be considering entering long-term care pharmacy. Whether you want to know more about what is involved in long-term care pharmacy, or even if you presently have this service, More Than Dispensing is just the tool you need. A practical guide for pharmacists interested in long-term care, this handbook provides step-by-step instructions on how to start such a service and how to work with LTC facilities more effectively. Information on professional responsibilities, planning, legal standards, and equipment and product suppliers is included. 128 pp, soft cover, 1980, $24 ($16 for APhA members)

Drug Absorption and Disposition: statistical Considerations Edited by Kenneth S. Albert, Ph.D. Statistical principles are essential . for design, execution, and evaluation of drug absorption and disposition studies. Based on a 1980 Academy of Pharmaceutical Sciences symposium, Drug Absorption and Disposition provides an overview of the current "statistical state" from both scientific and regulatory points of view. Whether you conduct drug absorption and disposition studies or evaluate new drug products, this new publication is a valuable reference guide. 152 pp, soft cover, 1980, $18 ($12 for APhA members)

Computer SOurces If you're thinking of acquiring a computer for your pharmacy, Computer SOurces can answer all your questions in easy-tounderstand terms BEFORE you make a decision. This publication has information on suppliers and service, with a complete breakdown on available systems, the features they offer, and their acceptance in your area and nationwide. To get the system that's right for you, consider the options and check with COmputer SOurces first. 80 pp, soft cover, 1980, $18 ($12 for APhA members) ORDER DESK American Pharmaceutical Association 2215 Constitution Avenue, N.W. Washington, DC 20037 Name _ _ _ _ _ _ _ _ __ Address _ _ _ _ _ _ _ _ __

Total amount enclosed $ _ _ __ Orders less than $100 and all foreign orders must be prepaid. Enclose mailing label from an APhA publication to obtain member rate.

HandbOok of Nonprescription Drugs The HandbOok of Nonprescription Drugs is the foremost guide on nonprescription drugs in use today. Nearly 2000 nonprescription products are covered, along with information on usage, ingredients, precautions, and evaluations. Divided into 32 chapters, the new edition reviews disease conditions and symptoms and includes anatomical ill ustrations for easier explanation. The Handbook is you r best source for counseling your selfdiagnosing, self-medicating patients. 512 pp, hard cover plus dust jacket, 1979, $30 ($20 for APhA members)

Contemporary Pharmacy practice This quarterly journal is one of the best ways to keep on top of new information on everything from drug product selection to innovations in pharmacy practice and management. CPP articles are practical, relevant, and interesting - a real advantage for you and you r practice. $12/year ($7/year for APhA members)

Indicate Books and Quantity __ Pediatric Dosage Handbook $18 ($12) __ Controlled-Release Pharmaceuticals $27 ($18) _APhA Drug Names $18 ($12) __ More Than DispenSing $24 ($16) __ Drug Absorption and DispOSition $18 ($12) __ Computer Sources $1.8 ($12) __ Handbook of Nonprescription Drugs $30 ($20) __ Contemporary Pharmacy Practice $12/yr ($ 7/yr) APhA Member Rates are in 4A Parentheses. Prices effective through August 15, 1981.

nation's pharmacists have no real basis-other than gut feeling-on which to evaluate this kind of expenditures of hard-to-come-by capital. For some pharmacists, moving now into the "computer age" in pharmacy practice will make economic sense . For others, a computer system at this time is economic nonsense. Right now, I sense that pharmacists are generally disillusioned about integrating computers into their practices. Many pharmacists have learned that such systems are extremely expensive and also that they often do not produce the kind of information that the pharmacists thought would be available.

Computer Shopping The current state of the com'pu ter art as applied to pharmacy practice leaves pharmacists, for the most part, in the position of purchasing someone's software package, whether or not that package represents a good fit to the needs of the particular pharmacist. And the lack of flexibility in computer systems is matched by the inability of most pharmacists to identify accurately their management and practice needs and to evaluate the capacity of any particular computer system to satisfy those needs. Consequently, many pharmacists have learned the hard way that they have purchased hardware and software intended to increase both the professional and administrative efficiency of their practices, but which, in fact, are not cost-effective. I do not want to discourage the integration of modern computer technology into pharmacy practice. In fact, I believe that the computer offers a real opportunity for increasing efficiency and productivity. What I am saying, however, is that no pharmacist should be advised to take this major step and make the kind of substantial capital investment required so long as that pharmacist is realistically in the position of "buying a pig in a poke." Before spending their time and 34

money on computer hardware and software, pharmacists owe it to the~s~lves. to . spend s~me. ti~e and ,money learning about 'com"'"' puters and .equipping thet:IJ.selves to evaluate both the s~les. . pitch and slick brochures offereo,by computer systejn~ ~eprese~ tatives. The tpharm~ci~t unwilling~p ~ak~

this: kind .Of self-educational investnle!it wpulc:;i probaply ~.~. . ~est·l:ad~ vised ,to make a much 'smaHer in~'",flt ina pair of dic~+ ~ather than in 'il cO'mp}lter sys~en;. '{he . . ;. nature. of th~ two gamble~ . js about the same. T~ere a~e other : sound~ ,­

proa~heslb reduction ofpJ{a~m~ costs.' For example, it is v~tali tp reduce the incremental costs imposed on pharmacy practi'ce by the need to comply with a seemingly , never-ending and ever-growing body of lo~al, state arid federal ph~rmacy regulations and paperwork. While the country ha~ generally seemed to embrace the goal of deregulation, there are thos~ who buck the trend and continue to seek their objectives through mandatory government regulation backed by threats of civil or criminal law enforcement. Unfortunately, when it comes to pharmacy, the "more regulation" advocates include persons both outside and inside the profession. There are too many ph,armacists whose approach to every problem in the profession is "enact a regulation." Frequently, those who would rely on this remedy for perceived professional ills are well motivated. In other situations, the underlying purpose of the regulations proposed is blatant self-protection from one perceived threat or another. In any case, pharmacists must come to understand that no profession can survive if performance of professional obligations can only be obtained through government regulatory and law enforcement efforts.

Patient Package Inserts No regulatory issue within recent years has commanded the attention of pharmacists like the

"patient package insert" or "PPI" issue. The Food and Drug Administratio!", obviously believes that it is its re'sponsibility-not that of the attending heal.t h care professionals-to }d~c~de what drug-related information sHould be provided to patienJs. FP~ has launched an effort .to insert itse,lf into the tra

American Pharmacy Vol. NS21, No.3, March 1~

related information necessary to optimize patient care. The Association has always recognized that "count and pour," "lick and stick," phantom pharmacists are not providing patients with the kind of pharmaceutical service of which the profession and APhA can be proud. APhA's leaders have constantly goaded pharmacists and pharmacy educators in the direction of preparing themselves and future practitioners for pharmacy practice which includes, in addition to traditional distributive functions, a p~tient-oriented professional service in which the pharmacist would function as a primary adviser on drugs and drug therapy to both physicians and patients.

Bureaucratic Directives APhA is not opposed to providing more information to patients. What we do oppose is control of the profession of pharmacy through bureaucratic dictates in the pages of the Federal Register. And this basic philosophical opposition reaches the level of outand-out rage, when government says, in effect, "We don't care whether our regulations put you down for the economic count or not. " If thorough research and testing of the PPI concept on a few drugs results in a conclusion that PPIs do represent the optimum method for distribution of information to patients-and I emphasize that such research has not been completed-and if those touting the PPI approach are willing to reimburse pharmacists even for the bare costs of handling this information system, I have no doubt that the profession would respond positively. But under FDA's current "we're going to ram this down your throat" approach, APhA has not hesitated to urge the Reagan Administration to have the pending, supposedly modest, PPI program Withdrawn. It is high time that government regulators recognize that they can put all the regulations on paper they wish, but that


American Pharmacy Vol. NS21, No. 3, March 19811155

in the end, they must have the active cooperation of those in the private sector if those regulations are to have any practical meaning. Government should recognize and return to the principle that need and demand for particular services-including PPIs-will ultimately create a supply of those services. If particular goods or services do not appear voluntarily in the marketplace, one can only question the need and demand side of the equation. Let us also not forget that competition other than price competition-namely service competition-is also a key element in the principles of successful American business. Certainly, pharmacists and others should have the freedom to decide when and if they will choose to compete on the basis of increased or special services, rather than by having all of their service functions reduced to a lowest common denominator established by government regulations. Again, one of the keystones of American economic policy is that competition in the marketplace will lead not only to competitive pricing but to increased efficiency and to the development of new beneficial services as providers seek to enhance their competitive position. Opportunities for pharmacists to improve their competitive and economic position in the health care market by the addition of new nondispensing pharmaceutical services are rapidly developing. I plan to address this subject in the future.

Operations Analysis Fifty years ago, at APhA's urging, the U.S. Department of Commerce did a study on why pharmacies failed. Lack of accounting data and inability to manage financial operations were among the most frequent causes for failure. Pharmacists, now as then, continue to worry about their competition instead of analyzing their own operations. My generation and the generation of pharmacists which preceded mine thought that

resale price maintenance-which eliminated price competition-was their economic salvation. To the extent that it eliminated their incentive to accumulate cost data and develop financial expertise in establishing the value of their professional services, the current generation has been denied an important heritage. The point I am making is that we can't live in the past, we have a lot of catching up to do if we are to make the most of future opportunities. Pharmacists interested in developing their expertise can do . so rather rapidly today because the "know-how" is well documented and readily available. The real salvation for today's pharmacists is not in protective legislation or regulation but in absorbing and applying proven management techniques to their individual practices. Your associations, your schools of pharmacy, your suppliers, and even some of your government agencies can, and are, offering helping hands . But nobody can do it for you. You have already invested in your basic professional education, and you know the importance of keeping that knowledge current. It you make a similar investment in acquiring management expertise, your economic future will be as bright as your professional future. In his recent inaugural address, President Reagan asked the country: "Can we solve the problems confronting us?" He answered his question with an emphatic "Yes," declaring: "We are not, as some would have us believe, doomed to an inevitable decline. I do >flot believe in a fate that will fall on us no matter what we do. I do believe in a fate that will fall on us if we do nothing." As President Reagan appealed to the nation, I appeal to the profession to begin, with all the creative energy at our command, an era of professional and economic renewal for pharmacists and the profession. 0


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