Sponsored by

In-Brief

The National Community Pharmacists Association (NCPA) and Cardinal Health are proud to celebrate the 80th anniversary of the NCPA Digest. Over the past eight decades, information provided in the Digest has helped shape public policy, while arming independent community pharmacy with the information necessary to make sound business decisions. From galvanizing support for the Robinson-Patman Anti-Discrimination bill of the 1930s to adapting to the implementation of Medicare Part D, the Digest has been the trusted source of information for independent community pharmacy.

While the challenges facing independent community pharmacy have been many and varied, the strong relationship between community pharmacists and their patients has remained steadfast. Year after year, community pharmacists rate as being number one or two as the most trusted health care provider. This undeniable bond, combined with information provided in the Digest, will pave the road for a bright and prosperous future.

Looking toward the future, community pharmacy must expand beyond the role of dispensing medications and take on a more proactive role in the total health care of their patients. Offering specialized services tailored to patients and serving key niche markets will allow community pharmacy to diversify its revenue stream and grow as small businesses, while having a positive impact on health care. As an example, pharmacists are uniquely positioned to improve adherence to life-saving medications that will ultimately limit the more costly expenditures of unnecessary physician visits and hospitalizations.

Cardinal Health values its relationship with independent community pharmacy, realizing that community pharmacists play a critical role in helping improve our nation’s health care system. To support this role, NCPA and Cardinal Health continue to provide new services and resources that can help independent community pharmacies thrive into today’s competitive market.

NCPA, with the support of Cardinal Health, is pleased to continue the Digest tradition of providing meaningful information and insight into the independent community pharmacy marketplace. We are confident that you will find the 2012 NCPA Digest, sponsored by Cardinal Health, to be an excellent resource on the industry, providing you value throughout the year.

Sincerely,

B. Douglas Hoey, Pharmacist, MBA Mike KaufmannChief Executive Officer Chief Executive Officer, National Community Pharmacists Association Pharmaceutical Segment Cardinal Health

Copyright © 2012 National Community Pharmacists Association, Alexandria, Virginia, USA. All rights reserved. No right of reproduction without the prior written consent of the National Community Pharmacists Association.

Dear Reader

The Independent Community Pharmacy Marketplace 1

The NCPA Digest, sponsored by Cardinal Health, provides an annual overview of independent community pharmacy, includ-ing a comprehensive review of the finan-cial operations of the nation’s independent community pharmacies for 2011.

In 2011 independent community pharmacy represented a $88.5 billion marketplace, with 92.2 percent of sales for independents derived from prescrip-tion drugs. Although most independents continue to face slim margins from private third-party contracts and govern-ment reimbursement programs, they have strived to reduce their overhead costs through running a more efficient business. They are using labor-saving technologies to control payroll ex-penses. The number of employees per pharmacy location decreased in 2011, and the wages paid to pharmacists and technicians remained relatively the same. In 2011, the number of indepen-dent community pharmacies increased to 23,106 independent community phar-macies employing over 300,000 workers helping to stimulate local economies, paying state and local taxes, and provid-ing high quality services that are greatly valued by patients.

An overview of the average independent community pharmacy is provided in Table 1. In general, the average independent community pharmacy location dispensed 62,969 prescriptions (201 per day) in 2011, which is a slight decrease from last year’s prescription volume of 64,169. Total

Independent Pharmacy, At-a-Glance TABLE 1

2011

Average number of pharmacies in which each independent owner

has ownership

1.76

Average number of prescriptions dispensed per pharmacy location

New prescriptions 28,881 46%

Renewed prescriptions 34,088 54%

Total prescriptions 62,969 100%

Average prescription charge $56.09

Number of hours and days per week per location

Hours open per week 55

Days open per week 6

Inventory

Prescription Inventory $240,000 6.2%

Other Inventory $38,000 1%

Total Inventory $278,000 7.3%

Annual Rate of Inventory Turnover 10.6

Annual Rate of Prescription Inventory Turnover 11.3

Percentage of total prescriptions covered by

Government programs (Medicaid or Medicare Part D) 49%

Other third-party programs 38%

1936: The average prescription charge was 34 cents

Executive Summary

sales slightly decreased this year due to the flat prescription volume, increased use of lower-cost generic medications, and the increased emphasis on 90-day refill prescriptions. These numbers may also reflect the reality that some payers have forced their beneficiaries to use mail-order for refill prescriptions.

Many independents continue to operate multiple pharmacies. Twenty-four percent of independent community pharmacy owners have ownership in two or more pharmacies and the average number of pharmacies in which each independent owner has ownership is 1.76.

2012…NCPA DIGEST…Sponsored by Cardinal Health2

Data for the Digest have been collected for 80 years, providing the opportunity to look at long-term trends for independent community pharmacies. Since 2002, gross margins as a percentage of sales have remained relatively flat at 22 to 24 percent. Figure 1 and Table 2 show these trends:

+ Average sales per location for 2011 was $3,831,481, which is less than in 2010.

+ Gross margin decreased slightly from 24 percent in 2010 to 22.9 percent in 2011, but remained in the 22-24 percent range seen over the last 10 years.

Averages of Pharmacy Operations TABLE 2

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Sales 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Cost of goods sold 76.5% 76% 77.9% 76.4% 77.2% 76.8% 76.8% 76.2% 76.0% 77.1%

Gross profit 23.5% 24% 22.1% 23.6% 22.8% 23.2% 23.2% 23.8% 24.0% 22.9%

Payroll expenses 13.1% 13.2% 12.2% 13.4% 13.6% 13.7% 13.5% 14.1% 14.5% 13.4%

Other operating expenses 6.6% 6.8% 6.3% 6.5% 6.4% 6.5% 6.5% 6.4% 6.5% 6.6%

Total expenses 19.7% 20% 18.5% 19.9% 20% 20.2% 20.0% 20.5% 21.0% 20.0%

Net operating income 3.8% 4% 3.6% 3.7% 2.8% 3.0% 3.2% 3.3% 3.0% 2.9%

1945: The average cost of goods sold was 31,020 or 66% of total sales

$0 $1,000 $2,000 $3,000 $4,000

$3,831

$2,855

$3,244

$3,580

$3,745

$3,604

$4,026

$4,022

$3,881

$3,612

Average Annual Sales (in Thousands) Per Pharmacy Location

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

FIGURE 1

1945: Average annual sales per pharmacy location was $47,000

+ Payroll expenses, as a percentage of sales, decreased by 1.1 percentage points in 2011 to 13.4 percent. Payroll expenses decreased by reducing the number of full-time employees and not increasing wages. With a lower gross margin, payroll, and operating expenses had to be carefully monitored.

+ Through attempts by independents to control operating expenses, the aver-age net operating income remained simi-lar to last year at 2.9 percent. Since sales decreased, the net operating income dollars before tax decreased slightly.

+ The average monthly prescription drug inventory was $240,000, and the an-nual turnover rate of prescription inventory was 11.3. (See Table 1.)

Pharmacy Profiles 5

Independent community pharmacies are all privately held small businesses but they vary in practice setting. They include single-store operations and other inde-pendent pharmacist-owned operations such as regional chains, franchise, com-pounding, long-term care (LTC), specialty, and supermarket pharmacies. At the end of 2011, there were 23,106 independent community pharmacies, which is slightly up from 23,064 in 2010. Independent community pharmacy represents a signifi-cant portion of pharmacies in the United States. (See Figure 2.)

It is important to note that this inde-pendent community pharmacy industry represents 38 percent of all retail phar-macies in the U.S. and a $88.5 billion marketplace.

Other notable characteristics about independent community pharmacies:

+ Over 55 percent of independent community pharmacies are located in an area with a population of less than 20,000.

+ In 2011, 13.8 percent of indepen-dent community pharmacies had total sales over $6.5 million, 30 percent with sales between $3.5 and $6.5 million, 19.2 percent with sales between $2.5 and $3.5 million, and 37 percent with sales under $2.5 million.

The Independent Community Pharmacy Marketplace

Pharmacy Staff Positions TABLE 3

2009 2010 2011

Non-owner pharmacists 1.6 1.8 1.6

Technicians 3.9 3.8 3.7

Drivers n/a .75 n/a

Other positions 4.1 3.2 3.8

Total non-owner employees 9.6 9.5 9.1

Working owners—pharmacists and other positions 1.1 1.1 1.2

Total workforce 10.7 FTE Employees

10.6 FTEEmployees

10.3 FTE Employees

1955: There were 67,000 full-time pharmacists

20,23021,020

19,202

20,705 20,804

23,10623,318 23,117 23,06422,728

8,2407,721 8,086 8,163 8,248

8,2748,5058,949 8,392 8,351

Pharmacy Practice Settings FIGURE 2

25,000

20,000

10,000

20112010200920082007

Independents Traditional Chain Mass MerchantSupermarket

Average Hourly Wages FIGURE 4

20112010200920082007

Pharmacist Technician Clerk

0

60

50

40

30

20

10

$52.89

$13.62

$9.93

$49.60$52.43 $53.39

$50.45

$13.24$12.88 $13.47 $13.70

$8.95 $9.05 $9.97 $9.74

0% 20% 40% 60% 80%

Percentage of Generic Prescriptions Dispensed FIGURE 5

76%

72%

69%

65%

61%

2011

2010

2009

2008

2007

+ The majority (60 percent) of indepen-dent community pharmacies are orga-nized as a small corporation, followed by 20 percent that are a C corporation. Fifteen percent are organized as a limited liability corporation (LLC).

+ The average independent community pharmacy is open six days a week and 55 hours per week. (See Table 1.)

+ Independent community pharmacies are attempting to control payroll costs in a myriad of ways. In 2011, independent pharmacy owners on average employed 10.3 full time equivalents (FTE) per loca-tion, similar to 2010. (See Table 3.)

+ Hourly wages for staff pharmacists and technicians continued to decrease in 2011. Staff pharmacist wages decreased to $52.89 and pharmacy technician wages decreased to $13.62. Clerk/ca-shier wages increased by 19 cents per hour to $9.93. (See Figure 4.)

+ The 2012 Digest pharmacy’s cost of dispensing for all pharmacies is $12.19, down from $12.44 last year.

+ During these difficult economic times, independent community phar-macists continue to help patients lower their costs through encouraging the appropriate use of generic drug prod-ucts, which are less expensive than their brand counterparts. As shown in Figure 5, generic dispensing increased again in 2011 to 76 percent of total prescriptions. A majority of prescriptions are for chronic conditions, indicating the importance of medication adherence.

2012…NCPA DIGEST…Sponsored by Cardinal Health4

Patient Care Services

Patient Care Services

5

Independent community pharmacies are an easily accessible health care provider specializing in high quality patient-centered care. One of the hallmarks of independent community pharmacy has long been the services to which patients have access and receive in the pharmacy. As Medicare Part D continues to be a factor, community phar-macists are positioned best to provide medication therapy management services to patients, and the data indicate that 61 percent of independent community pharmacies are reimbursed for MTM services under Medicare Part D. As shown on the following pages, independent community pharmacists continue to offer patient care services and find niches to serve their communities.

+ The most offered service in 2011 was delivery, followed by compounding and durable medical equipment. These services have been in high demand among patients for the past three years. Additionally, these services provide a competitive advantage for indepen-dent community pharmacy.

+ Fifty percent of independent community pharmacists offer a medication adherence program. (See Table 5.) Over a third of the pharmacists provide synchronization of medication refills.

+ The percentage of pharmacies providing compounding services has remained almost constant at nearly 66 percent over the past three years.

+ As independents provide more prescriptions to Medicare benefi-ciaries, they are also offering more services to the elderly. Compared to 2010, more community pharmacists are providing services to assisted living facilities and hospice.

HIGHLIGHTS

Summary of Patient Care Services Offered FIGURE 6

2010

80%60%40%20%0%

76%76%

82%

Delivery

69%71%

65%DurableMedical

Goods

69%68%

64%PatientCharge

Accounts

66%67%

66%

Compounding

48%43%

52%

Assisted Living

34%36%

28%

Long-term Care

33%29%

27%Conduct Patient

Education Programs

2011 2009

100 Daingerfield Road, Alexandria, VA 22314 • 800.544.7447 • www.ncpanet.org

100 Daingerfield RoadAlexandria VA 22314800.544.7447www.ncpanet.org

To receive a FREE 2012 NCPA Digest, sponsored by Cardinal Health—detailed pages of financial information regarding the independent community pharmacy mar-ketplace—simply become a member at www.ncpanet.org or call 1-800-544-7447. Here is a limited sample of what you are currently missing from the Digest:

+ An in-depth analysis of the independent pharmacy marketplace including trends in operating results for the average pharmacy on expense management, staff costs, productivity, cash flow, and more.

+ Independent pharmacy benchmarking data to compare profitabity, cash flow, productivity, and your pharmacy’s financial position with other pharmacies. This in-cludes financial data for the average pharmacy by geographic region, sales volume, population of the community, as well as third-party prescription activity.

+ Trends in third-party prescriptions and an analysis of the continued impact of Medicare Part D on pharmacies.

+ The cost of dispensing for the average pharmacy by geographic region.

+ Data regarding trends in patient care services at pharmacies, medication therapy management, and long-term care service.

+ Profiles of several independent community pharmacists and their respective pharmacies.

To learn more, please visit www.ncpanet.org.

Join NCPA today!