Module Objectives.docx

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2 The role of business in pharmacypractice Changes in the demography of the USA14Age distribution of

the population14The aging of the population14Changing racial composition of the population

15Deciding on a role for pharmacy16The practices of pharmacy and business16Quality of care vs.generation of profits17Business and ethical standards17The role of competition17Utilization of

resources18Remaining competitive and adapting tochange18Deciding on roles for

pharmacists18Evolution of the profession18The role of pharmacists as healthcareprofessionals20The

role of the pharmacist within thecommunity20The pharmacist as a clinical purist21Identifying the

challenges for communitypharmacies21A business world orientation21Challenges in community

settings22Challenges in hospital settings23How to integrate different managerial

functions23Planning24Organizing24Staffing26Directing26Controlling26Recognizing the functional areas

of business27Accounting function27Financial function28Human resource management

function29Operations management function29Marketing function29Summary30Questions for

discussion30Self-test review30References31 Learning objectives The objectives of this chapter are to

assist you to be able to explain: the misconceptions about the role of business in pharmacy practice

why a business perspective is important challenges for community and hospital pharmacies how to

integrate different managerial functions the functional areas of business. Sample chapter for Essentials

of Pharmacy Management

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14 Essentials of Pharmacy Management Key terms Accounting functionControllingDirectingFinance

functionHuman resourcesHuman resource management functionInputoutput systemMarketing

functionMaterial resourcesMonetary resourcesOperations management

functionOrganizingPlanningRemaining competitiveStaffingUtilization of resources Changes in the

demography of theUSA Many factors have helped to bring about an evolutionin the practice ofpharmacy. Among the more impor-tant ones from a business perspective are the changesin the

demography of the USA, healthcare usage andproviders, and attitudes toward the traditional role ofthe

pharmacist and pharmacy.One of the most important factors affecting mod-ern healthcare is the

changing demography of theUSA. Most notably, there has been a massive dis-tortion of the age

distribution of the population, ageneral aging of the population, and a changing racialcomposition. Age

distribution of the population The effects of the baby boom period followingWorld War II coupled

with the birth dearth in theearly 1970s, when fertility rates declined dramatically,caused a

pronounced shift in age distributions. The ef-fect has often been called a pig in a python, similarto

what happens to the shape of a large snake afterit swallows a whole pig. As the pig moves throughthe

snakes body, it distorts the shape of the snakein much the same manner as the baby boom grouphas

altered the demography of the USA as it movesthrough its life cycle.The change in the distribution of the

populationcan be seen in Table 2.1. The 25- to 44-year-old agegroup is declining as a percentage of the

total popula-tion starting from 1990, while 45 and older is increas-ing as baby boomers move through

this category.For pharmacy managers, it is difficult not to targetthe baby boom group as it heads toward

senior status.No doubt, it will be a major concern for businessesand insurance companies in their

formulation of poli-cies for payment of their prescription drug costs. Asdescribed later in this chapter,

the costs of healthcarehave grown significantly in recent decades, and asmore of the baby boomers


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begin to reach age 65,drug costs and usage could skyrocket. Pharmacies canexpect a restructuring of

their payment systems asgovernment and the private sector try to cope.Additional implications of the

distortion of thedemography are the fact that healthcare services willbe refocused on the 45- to 65-

year-old age group. Thetypes of services and products they need will take ongreater importance with

the sheer increase in numbersof people. Competition among pharmacies for theirbusiness will become

more intense, not only becauseof the immediate dollar potential but because loyaltiesdeveloped nowmay extend into a time when the babyboomers become seniors. The aging of the population The aging,

or graying, of America is also quiteevident. Within the population group aged 65 or moreyears, those

80 and older are making up a largerpercentage. This is shown in Table 2.2. From 1980through the year

2009, the percentage who are 85 orolder increased from 8.8 to 14.2 percent.People are living longer,

and this aging process isexpected to continue further. As shown in Table 2.3,life expectancies for both

females and males haverisen by 8.6 years from 1970 to 2010, and are ex-pected to increase even more

by the year 2020.As would be expected, the healthcare implicationsof this are quite significant. Seniors

have more anddifferent needs for health services than do other mem-bers of the population. They visit

physician officesmore frequently, require more hospital stays, use moreprescription and non-

prescription drugs, and have agreater number of multiple medical problems.In addition, seniors require

different services.Many have hearing or sight impairments, diminishedcognitive skills, are physically

limited, etc. A com-munity pharmacy targeting an elderly market, for ex-ample, may need wider aisles,

larger signs, improved Sample chapter for Essentials of Pharmacy Management

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The role of business in pharmacy practice 15 Table 2.1 Age distribution of the US population Age

groupUnit1980%2000%2005%2009%1,000226,546100282,172100295,753100307,0071009 years and

under1,00033,04814.639,67914.140,11613.641,90913.71024

years1,00060,72926.860,02221.363,03821.363,05120.52544

years1,00062,71627.784,99530.183,25728.283,09627.14564

years1,00044,50319.662,40222.172,63824.679,37925.965 years andolder1,00025,55011.335,07412.436,70412.439,57112.9Median ageYears30.035.436.236.8From US

Census Bureau. Statistical Abstract of the United States: 2011. Resident Population by Sex and Age: 1980

to 2009. Table 2.2 Population age 65 years and older Age groupUnit1980%2000%2005%2009%6574

years1,00015,58161.018,37552.418,66650.920,79252.57584

years1,0007,72930.312,42935.413,17635.913,14833.285 years and

over1,0002,2408.84,27112.24,86213.25,63114.2TOTAL25,55035,07436,70439,571From US Census

Bureau. Statistical Abstract of the United States: 2011. Resident Population by Sex and Age: 1980 to

2009. Table 2.3 Life spans

YearTotalMaleFemale197070.867.174.7198073.770.077.4199075.471.878.8200076.874.179.3200577.4

74.979.9201078.375.780.82020 (projection)79.577.181.9From US Census Bureau.Statistical Abstract of

the United States: 2011.Resident Population Projections by Race, Hispanic-Origin Status, andAge: 2010

and 2015. lighting, and a staff that understands how to copewith the mannerisms of seniors. Similarly,

the typesof prescription drugs and non-prescription productsare different from those needed to care for

a youngergroup of patients. And pharmacies in the future willlikely target more of their efforts and

resources on theover-65 market. Changing racial composition of thepopulation A third major change

that is taking place withinthe American population is the shift in racialcomposition. Non-White

populations are expected togrow rapidly, and much of the growth within theWhite category is


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Hispanic. This can be seen inTable 2.4.The implications of the changing racial compo-sition of the

marketplace are quite pronounced. Forsome groups, there are differences in culture, lan-guage, and

product and service needs. Historically,however, it has not been economically feasible forpharmacies to

target their efforts partly or completelyon a particular ethnic group. In the next severaldecades,

however, some ethnic groups will be suf-ficiently large and geographically concentrated thatit will

become financially attractive to do so. Thismeans, for example, ensuring that pharmacy staff canspeak alanguage other than English, the pharmacycarries non-prescription merchandise that is desiredby the

particular ethnic group, and signage in thepharmacy is in a second language.Aside from the possible

growth of specialty phar-macies, nearly all community and hospital pharma-cies need to become more

attuned to unique cultures,languages, etc. Having staff that can speak Span-ish or some dialects of

Chinese, carrying a range ofnon-prescription merchandise used predominantly byan ethnic group, and

understanding a groups atti-tudes toward the administration of drug products is Sample chapter for

Essentials of Pharmacy Management

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16 Essentials of Pharmacy Management Table 2.4 Population of USA by race

Race2000200620082009Percentage change2000

2009Total282,171,957298,593,212304,374,846307,006,5509.1One race population

total278,239,086293,768,055299,216,154301,683,0448.7White228,602,436239,046,846242,685,07024

4,298,3937.1Black or African American35,807,82438,260,79739,204,59639,641,06011.0American Indian

and

AlaskaNative2,675,9002,978,5643,095,2463,151,28418.3Asian10,687,31212,941,84913,665,38614,013,

95432.3Native Hawaiian and otherPacific Islander465,614539,999565,856578,35325.0From US Census

Bureau. Statistical Abstract of the United States: 2011. Resident Population by Sex, Race, and Hispanic-

Origin Status: 2010 and2015. likely to become increasingly important from bothbusiness and healthcare

perspectives. Deciding on a role for pharmacy Perhaps ironically, concerns about the interface be-tween

pharmacy practice and business were not anespecially significant issue during much of the twen-tiethcentury. The drugstore was a business. It wasengaged in many activities in addition to

dispensingprescriptions. The pharmacist and his or her employ-ees did everything from dispensing

prescriptions toselling household wares to making ice-cream sodas.To be sure, there were some who

considered allnon-clinical activities to be unprofessional. Yet, whileclinical functions have always been

an integral partof the business, most recognized the fact that thedrugstore ownerpharmacist served in

many variedroles (Table 2.5).During the latter part of the twentieth century,greater concerns about the

role of business in thepractice of pharmacy became evident. It was the likelyresult of a profession that

had become more special-ized owing to the complexity of the products andservices it

provided.Whatever the cause, however, there are many mis-conceptions about what role, if any,

business shouldplay in the profession. Among the most importantmisconceptions are the following:

The practice of pharmacy is ethically inconsistent with good business. In business, quality of care is

secondary to gen- erating profit. Business is not a profession guided by the same types of ethical

standards of practice that applyto pharmacy. A good pharmacist is one who is a clinical purist. The

practices of pharmacy and business One of the more common misconceptions is that thepractice of

pharmacy is ethically inconsistent withgood business. This most likely developed from theobservation of

very poor business practices used bysome firms. To some pharmacists, the practice ofbusiness is

symbolized by high-pressure salespeople,innocuous advertisements, and sale of products ofpoor


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quality.Questionable business practices do occur, but theyare not considered acceptable by most

business peo-ple. Similarly, most pharmacists frown on the qual-ity of care provided by a few of their

less capablecolleagues, and on pharmacies that have been citedfor filing fraudulent prescription claims.

No doubtabuses do occur, but that should not be an indict-ment of the professions of pharmacy or

businessthemselves.As described later in this chapter, good businessand good pharmacy practice have

the same objectives:to serve the patients needs with the resources avail-able. From a businessstandpoint, the reason for this issimple: if the patient is not satisfied, he or she will notreturn. And very

few businesses, including pharma-cies in all practice settings, can survive without repeatsales. Sample

chapter for Essentials of Pharmacy Management

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The role of business in pharmacy practice 17 Table 2.5 The pharmacy as an inputoutput system

InputsProcessingOutputPharmacists skillsVerify eligibilityPrescriptionDrug productCheck drug

appropriatenessDeliveryContainerCheck for possible drug interactionsCounselingLabelPrepare

labelAnswer questionsComputer hardwareFill prescriptionSell companion productsComputer

softwareRecord prescriptionInvoice payerPharmacists skillsPatient consultsAdvice on medication

usePharmacists skillsMedication therapy managementRegimen for patient behaviorNon-prescription

merchandise Quality of care vs. generation of profits Another misconception is that in business, the

qual-ity of patient care is secondary to the generation ofprofits. Understandably, the basis for this

perspectivecomes from efforts by managers in community andhospital settings to control their

costs.The basic fallacy of this misconception relates tothe previous issueif the quality of care is poor,

pa-tients will not return and future profits will be lost.From a more mercenary standpoint, the legal

implica-tions of providing substandard quality of care wouldsignificantly place profitability at risk.In fact,

the generation of profits is closely linkedto the quality of care. The real issue, however, isone of what

level of quality is necessary or desirable.Care at any cost is no longer affordable. Becausethe human,

financial, and material resources of everyorganization are limited, decisions must be made asto how

they are allocated. If availability of resourceswere not an issue, good business practice wouldnotconsider anything less than the best quality of care.The realities, however, are that tradeoffs mustbe

made. Unless profits can be generated to obtainresources, most for-profit and not-for-profit organi-

zations would cease to exist. They would not havethe funds to hire pharmacists, purchase inventory

andsupplies, and so forth, to provide any level of servicewhatsoever. Business and ethical standards

Because there have been many abuses of good busi-ness practices by some firms, the entire realm of

busi-ness has been criticized as not having professionalstandards of conduct. In fact, numerous

standardshave been established legally and by specialized tradeand professional organizations.Many

laws focus on the manufacture and adul-teration of products, pricing strategies used by orga-nizations,

and methods by which companies promotetheir products and services.For example, there are

regulations pertaining towhat information must be placed on package labels,and what constitutes

misleading advertising. Thereare also laws regulating how organizations price theirproducts and

services, and how they treat their em-ployees.In addition to legally mandated practices, manybusiness

organizations have their own standards ofpractice. For instance, accounting standards of prac-tice are

established by the American Institute of Cer-tified Public Accountants. In advertising, the

NationalAdvertising Council has banned the use of subliminalmessages on television.The bottom line is a

simple one for survival. Ifany business does not adhere to ethical standards itcannot survive. It may be

able to get away with beingunethical with a customer once, but it will not getthem back again. And all


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pharmacies, irrespective ofpractice setting, need repeat customers to survive. The role of competition

Adam Smith, in his 1776 book The Wealth of Na-tions,1 provided the cornerstone for what has beenthe

economic system of the USA. In a simple sense,Smith recommended a laissez faire public policywith

respect to business. Essentially it equated to sur-vival of the fittest. He argued that the resources

ofthe country were limited, and that the best allocation Sample chapter for Essentials of Pharmacy

Management

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18 Essentials of Pharmacy Management of those resources would be achieved when organiza-tions

fought among themselves. If this were to occur,he reasoned, only those organizations which

operatedefficiently would be able to survive.This laissez faire doctrine has had far-reachingimplications.

If an organization, whether public orprivate, could not become efficient from a cost-benefitstandpoint,

and appeal to a sufficiently large group ofpeople, it had no right to exist.While a free-for-all fight among

organizationsdoes not exist, the fact remains that they must com-pete for the nations precious human,

financial, andmaterial resources. Thus, individual community phar-macies, hospitals, skilled nursing

facilities, and therest, must fight for their survival. Inefficient organi-zation wastes resources which

could be put to betteruse by other pharmacies, hospitals, or other organi-zations.How does an

organization become efficient? Howcan it fight for its share of the available resources?This is the role of

business and professional manage-ment. Utilization of resources A business focus helps to utilize the

pharmacys mon-etary, human, and material resources in an effectiveway. In the high-cost and highly

competitive environ-ment that exists, there is little room for waste anderror. For example, an average

independent pharmacyin 2010 generated 26.8 percent gross profit (i.e. netsales minus costs of goods

sold). With operating andother expenses reaching 23.9 percent, it leaves profitbefore taxes on the level

of 2.9 percent of net sales.2 Ifcosts rise by 3.0 percent, all profits would be lost. Asshown in Table 2.6,

this margin was relatively stableover time.Financial figures for hospital inpatient pharmaciesare not

readily available. However, hospital profitsover the years have also remained on modest level.An

average hospital in 2010 generated a profit be-fore taxes of 5.2 percent of net sales.2 Themargins,although somewhat higher than in the case of com-munity pharmacies, are still thin. As

described laterin this chapter, the functional aspects of business helppharmacies to improve revenues,

control costs, andmonitor operating performances. Through the use ofbusiness tools, specific activities

that are not operatingprofitably can be examined to determine if they can becorrected before the

pharmacys survival is placed injeopardy. Remaining competitive and adapting tochange A business

perspective centers on the ability of thepharmacy to compete. Every pharmacy faces com-petition for

patients and resources. In communitysettings, pharmacies must fight for their share ofthe market. In

hospitals, directors of pharmacy mustcompete with other organizational units for shares ofthe

budget.Through carefully developed marketing efforts,the pharmacy can show its customers (e.g.

patients,hospital administrators, hospital boards of trustees)the benefits of its services. Since customers

have somany choices for how and where they spend theirfunds, pharmacies must take the initiative in

demon-strating their values.Equally important, a business focus helps thepharmacy keep abreast of

changes occurring in theenvironment, such as those shown in Table 2.7. Socialand cultural shifts,

changes in law, technological ad-vances, shifts in economic conditions, and other vari-ables can be

monitored and assessed through a busi-ness framework. Pharmacy practice does not operatein a

vacuum. As the world changes, the professionmust adapt if it is to remain useful. Deciding on roles for

pharmacists As the role of the pharmacy has changed over the pastdecade, so too has that of the


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pharmacist. During thelast part of the twentieth century and early part ofthe twenty-first century, there

have been evolutionsin the profession, in the pharmacists position withinthe healthcare delivery

system, and in the pharmacistsrole within the community. Each of these has affectedthe way

pharmacists view their positions and the ac-tivities they engage in on a day-to-day basis. Evolution of

the profession The pharmacy profession has made several transitionssince the seventeenth century. At

times, the pharma-cist has been a primary source of medical informationand products. The pharmacistwas looked upon as a Sample chapter for Essentials of Pharmacy Management

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The role of business in pharmacy practice 19 Table 2.6 Trends in pharmacy profitability Percentage of

net sales20062007200820092010Gross profit25.824.926.025.226.8Operating

expenses23.222.623.922.723.7Other expenses0.20.10.30.20.2Profit before taxes2.32.21.72.22.9Data

from RMAs Annual Statement Studies, 20102011.2 Table 2.7 Environmental forces affecting the

practice of pharmacy Environmental forceComponentsCompetitionChainIndependentMail

orderPhysician dispensingAlternative therapy (e.g. surgery)Demographics of possible patientsAge,

gender, income, employmentGeographic locationEconomic

conditionsEmploymentInflationSavingsHealthcare coverageExtent of coveragePrivate payHealth

maintenance organizationCapitationDiscounted fee for servicePolitical/legal environmentFederal and

state licensing requirementsFood and Drug Administration regulationsDrug Enforcement Administration

regulationsHealthcare Financing Administration payment schedulesState payment schedulesSocial

attitudes towards healthcareSelf-diagnosisTrust in providersTrust in healthcare servicesPreferences for

delivery systemSocial attitudes towards medicationsBrand-name vs. generic drugsSelf-

medicationTechnologyBiotech drugsComputer systems for deliveryMethods of claims verification and

processingMethods for monitoring patient care healthcare specialist who often was more

accessiblethan the physician. And the pharmacists expertisein compounding medications was critical to

goodhealthcare.From being a key adviser in healthcare matters,the pharmacist at times has assumed

more of a roleof a provider of products than a provider of profes-sional services. During much of thetwentieth century, Sample chapter for Essentials of Pharmacy Management

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20 Essentials of Pharmacy Management for example, payments to the pharmacist were basedon the

provision of productprescription drugstopatients. Pharmacists were not compensated for

theirexpertise. They were considered to be persons whowould count and pour, lick and stick.During

the early part of the 1990s, however, atransformation began to take place. This was the re-sult of the

high costs of healthcare, the growing com-plexity of products, potentials for drug interaction,incidents

of prescription errors, and other factors. Theprofession was looked to as a means of controllingthe costs

of care. These included point-of-sale activi-ties to make generic substitutions when such actionswould

prove to be therapeutically appropriate andcost-effective, identification of possible drug interac-tions,

intervention when it was proper not to dis-pense a prescription suspected to be erroneous,

andmonitoring patient drug therapy, and consulting withpatients about their drug therapies.As a result,

the pharmacists knowledge of clinicaldrug therapy became a more critical component of thehealthcare

delivery system. Many of those involved inhealthcare services, such as insurance companies

andemployers, recognized that pharmacists were in a keyposition to affect patient outcomes. Their

knowledgeof drug therapy plus their position at the point ofservice refocused the profession on the


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clinical aspectsof practice.To help make this possible, technicians were al-lowed to assist in the

prescription-filling function. Theconcept was to free the pharmacist of routine andrepetitive activities,

and provide more time and op-portunity to engage in the more professional activitiesin which he or she

was trained.These efforts served to return to the professiona major role in healthcare delivery. By

separatingthe provision of products from the provision of pro-fessional expertise, the profession was

elevated. Themovement toward medication therapy management(MTM) has been advanced because ofthis. The role of pharmacists as healthcareprofessionals In the early years of pharmacy practice, the

phar-macist was responsible for much of the manufactureand dispensing of medicines. Many products

werecompounded, and the pharmacistsrole was to ensurethat proper medications were

produced.Over the years, the role of the pharmacist inthe manufacture of prescription drugs has dimin-

ished significantly. There are relatively few instanceswhere compounding is necessary. Repackaging

med-ications into smaller units that coincide with appro-priate days of therapy has grown but not at an

ex-ceptionally rapid rate, even though the population isaging.There are some areas in which the

pharmacistsrole in the preparation of medications is still highlysignificant. Examples are the preparation

of intra-venous (IV) solutions for home healthcare and thecreation of unit doses in skilled nursing

facilities andhospital settings.While the role of the pharmacist in the manufac-ture of medications may

have diminished somewhatover the centuries, other roles have taken its place.As the complexity of

products has grown, especiallywith the advent of biotech drugs, the pharmacistsknowledge of drugs

and drug therapy has becomemore important in healthcare delivery. The same istrue as more powerful

drugs are converted from pre-scription to over-the-counter status. In some respects,then, the

pharmacist has become more of a special-ist who is valued for technical knowledge of drugtherapy.This

also can temper the tremendous amount ofinformation available over the Internet. As people in-

creasingly seek information about medical care andmedicines, the pharmacist can provide a

professionallevel of expertise needed to adapt the information toindividual situations.As drugs become

more complex in both their formand usage, it is likely that the role of the pharmacistas a healthcare

professional will continue to grow.Both physicians and patients will need the expertisepharmacists can

provide to ensure correct initial drugtherapy, continued compliance, appropriate monitor-ing, andsatisfactory therapeutic outcomes. The role of the pharmacist within thecommunity Historically,

pharmacists have maintained a high de-gree of respect within their communities. In con-sumer polls,

the pharmacist consistently has beenrated among the most, if not the most,

respectedprofessional.There are a variety of reasons for this. First, thepharmacist is one of the most

accessible healthcare Sample chapter for Essentials of Pharmacy Management

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The role of business in pharmacy practice 21 professionals. Pharmacists can be reached either inperson

or by telephone, and appointments have notbeen needed.Second, they tend to be able to converse

withpatients on the patients level. Pharmacists have expe-rience in consulting with patients about

medications,and can focus on the major issues of concern to pa-tients (e.g. drug administration, side-

effects).Third, historically, they have not charged directlyfor their services. Patients believe they can ask

ques-tions of the pharmacist without being charged afeeunlike physicians who are expected to charge

foradvice. This has both positive and negative implica-tions since charging for such services as MTM

hasmet with resistance.Fourth, pharmacists tend to be less intimidatingto patients than physicians.

Patients are more com-fortable in retail stores than in the physicians office,and it is not usually the

pharmacist who provides thepatient with bad news.Finally, pharmacists are viewed as being mem-bers


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of the community to a greater extent than areother healthcare professionals. They are perceived tobe

both healthcare professionals and business peopleand employees. This makes pharmacists closer to be-

ing regular people who live and work within thecommunity.In the future, this role of the pharmacist

withinthe community is likely to change. To the extent thatpharmacists become more involved in point-

of-saleactivities such as MTM, intervention, consultation,monitoring, and so on, their professional

activitieswill take on added emphasis. This will serve to al-ter the regular people perception ofpharmacists.The pharmacist may be the bearer of bad news,and have more authority over the

healthcare that isprovided.In addition, as payments for cognitive services in-crease in usage, the public

perception of pharmacistswill change. To the extent that patients are personallycharged for cognitive

services, economic barriers toaccessibility will arise. Patients will no longer feelfree to seek advice, and

the view that pharmacistsare out to make money is likely to grow. Overall,pharmacists will have to

demonstrate the value oftheir advice, showing that the benefit patients receivefrom counseling is

commensurate with the fee beingcharged. The pharmacist as a clinical purist Perhaps as a culmination

of the other misconceptions,there are some who believe that a good pharmacist isone who focuses only

on the clinical aspects of theprofession. One reason for this perspective relates tothe fact that the

complexities of modern drug therapydo not allow time to be concerned about other mat-ters. Another

reason relates to questionable practicesthat have occurred.As never before, pharmacists must

understand thebusiness and economic environments within whichthey work. Many aspects of clinical

services are af-fected by these environments. In order to successfullypractice pharmacy, the pharmacist

must know howto operate within the constraints that are placed onmodern healthcare by government,

employers, insur-ance companies, and others. This applies to every-thing from understanding new

healthcare regulations,making generic substitutions, to counseling patientson drug therapy compliance,

to intervention, and torecommending companion over-the-counter productsto counter minor side-

effects of prescription drugs. Inan era of cost management, a good pharmacist is onewho can provide

the best quality of care possible withthe resources, and restraints, at hand. Identifying the challenges

forcommunity pharmacies This evolution of the profession creates both chal-lenges and opportunities.

The profession itself is notin danger, but its role in healthcare delivery is contin-ually being redefined. Abusiness world orientation Perhaps the most significant challenge facing pharma-cists in all practice

settings is accepting that they areoperating in a business as well as a healthcare world.The days of care

at any cost are gone and it is nowthe business of healthcare.In its place is the recognition that the

USA cannotafford unrestricted healthcare. As distasteful as thismay be, government and the private

sector have cometo believe that there must be some balance betweenthe costs of care and its

accessibility.In community settings for both independent andchain pharmacies, decisions about what to

offer, how Sample chapter for Essentials of Pharmacy Management

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22 Essentials of Pharmacy Management much to charge, etc., are being made increasingly ona business

basis. Indeed, the managers of many phar-macies are professional business people rather

thanhealthcare professionals. Government and the privatesector are simply unable and unwilling to

supportpharmacies in any practice setting that is operatinginefficiently.In hospital settings,

administrators are profes-sional managers who may or may not have health-care backgrounds. Large

hospital organizations arebusinesses that are guided by the economics as wellas the clinical issues of

healthcare. Within this con-text, the inpatient pharmacy is being viewed as acost-conscious as well as a

profit center. The attentionit receives from administrators and boards of trusteeswill be directly related


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to how well the pharmacy canhelp the hospital increase its revenues or reduce itscosts as well as

improve patient outcomes.Accordingly, the first challenge confronting phar-macists is to become more

business-oriented. Theyneed to understand the world of business and pro-fessional management. For

employers, it will be abso-lutely essential if they are to remain competitive andviable. For employees, it

will be absolutely essential ifthey are to cope well in their future working environ-ments. Challenges in

community settings In community settings, pharmacy owners and man-agers will face five majorchallenges in the earlytwenty-first century. These are revenue retention,preservation of market share,

cost containment, legalconsiderations, and technological change.Retaining revenues in an environment

where theemphasis is on control over healthcare expenses willbe a major challenge. The pressures to

reduce re-imbursement rates for prescription drug productsand dispensing fees mean that pharmacies

have tobuild volume. They can no longer rely on price in-creases and stable sales volume to bring more

rev-enues into the pharmacy. The continued conversionof many prescription drugs to over-the-counter

statusmay also influence the numbers of prescriptions beingdispensed.An offsetting consideration, of

course, is the ag-ing of the USA. Since the elderly tend to use moreprescription drugs, this will help to

support pre-scription volume. Nevertheless, pharmacies will con-tinue to be confronted with the

evolution from lowvolume, high margin, to high volume, low marginoperations.A second major

challenge will be to preserve mar-ket share. Within this area are two major consid-erations. First, as

competition continues to becomemore sophisticated, there will be added pressures onindependent

pharmacies to become better managed.Chain pharmacies often can afford to hire specializedmanagerial

expertise in marketing, finance, human re-source management, etc. Independent pharmacy own-ers

and managers have to develop their own skills inthese areas.A second consideration in market share

retentionwill be the exclusive and preferred provider networksthat have evolved. Maintaining market

share whencontracts for services are provided to only a selectfew pharmacies (whether chains or

independents) re-quires creative and sophisticated management skills.A third challenge will be cost

control. The prof-itability of any pharmacy will be highly dependent oncontrolling its costs of goods and

operating expenses.As expensive new medications, such as biotech drugs,continue to come into the

market, the pharmacysmanagement will be challenged to keep inventorycosts to acceptable levels. Inaddition, it will be dif-ficult to manage labor and other service-related costswhile increasing the quality

and amount of servicesprovided to patients and physicians.A fourth major challenge concerns potential

legalproblems. While pharmacists have always been heldaccountable for errors in dispensing, their

expandedroles in the delivery of healthcare will increase theirexposure. Patient counseling, MTM and

other formsof patient monitoring, drug therapy, intervention, andmanaging technicians are but a few of

the areas wherelegal issues can arise.Finally, pharmacists will face the challenge ofkeeping up with a

rapidly changing technology. Thecomputerization of the dispensing function, muchmore complex drugs

and their potential interactionsand side-effects, on-line patient insurance verifica-tion, and claims

adjudication are changing the worldin which the pharmacist operates. The technologi-cal advances that

might arise over the next 1020years may significantly alter the way in which drugtherapy is made

available. While this type of changehas always been occurring, it tends to do so at anever-accelerating

pace. Sample chapter for Essentials of Pharmacy Management

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The role of business in pharmacy practice 23 Challenges in hospital settings The challenges facing

pharmacists in hospital settingsare no less significant than those occurring in commu-nity settings. Some

of the major challenges will be toremain effective and efficient in an eroding economicclimate for


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hospitals, coping with hospital manage-ment that is more business-oriented, becoming moreinvolved in

assisting the hospital in strengthening itsmarket position, controlling costs of goods and oper-ating

expenses, and gaining and retaining an accept-able share of the hospitals financial resources.One of the

more difficult challenges facing direc-tors of pharmacy and staff pharmacists will be to re-main focused

and efficient if hospital profits continueto deteriorate. Opportunities to improve and expandthe services

of the pharmacy will be increasingly diffi-cult to justify unless hospital pharmacists can demon-stratethat their services can either generate additionalrevenues or reduce operating costs. Pharmacists

inhospital settings may find it challenging to maintainthe quality and volume of care under these

conditions.Closely related to this will be the challenge towork within a more business-oriented

environment,and directly for business-oriented managers. Whilequality of care will remain an important

considera-tion in daily operations, so too will the economic is-sues. In some instances, management will

be focusingpredominately on how the hospital can survive eco-nomically. Pharmacists will need to show

how highquality of care and use of their professional servicescan contribute to this survival.This need to

contribute to the economic survivalof the hospital may necessitate pharmacists beingmore actively

involved in building the hospitals imageand market share. Outreach programs, such as druginformation

and drug abuse lectures, can enhance thehospitals marketing efforts.As in the case of pharmacists in

community set-tings, there will be a major challenge to control oper-ating costs. As costs of goods and

labor rise, it will bedifficult for the pharmacy to keep its expenses withinbudgetary limitsespecially

when budgets are likelyto remain somewhat stable.Finally, directors of pharmacy will face

significantchallenges to retain appropriate budgets for their op-erations. Hospital administrators will

remain undercontinuous pressures to focus their attention on re-cruiting physicians and maintaining

their affiliation,keeping the hospitals equipment and facilities tech-nologically advanced, and

maintaining a market pres-ence.Accordingly, a majority of hospital budgets willbe allocated to these

endeavors. A director of phar-macy will have to compete for funds with others whomay be in better

positions to have the administratorsattention. Demonstrating the contributions the phar-macy can

make to the hospitals quality of care and itseconomic well-being will be critical. How to integrate

differentmanagerial functions Bringing all business functions together into a unifiedwhole, andintegrating them with the clinical activi-ties of the pharmacy is a complex process. It requiresa focused,

organized effort that can be sustained overthe long term. This is what managing a pharmacy isall

about: bringing together all of the resources avail-able and uniting them in such a way that,

collectively,they achieve the goals of the pharmacy in the mostefficient manner possible.Managing an

organization effectively is more dif-ficult than it may initially seem. With limited re-sources, tradeoffs

must be made in terms of how theywill be used. Furthermore, given the uncertaintiesin the

environment, it is hard to accurately projectwhether the use of the resources will achieve all that

isintended. Finally, as was indicated earlier in the chap-ter, some activities tend to work in opposite

directions(e.g. increasing sales while controlling costs).As an example, again consider a community phar-

macy that is trying to generate more sales, but thistime wants to increase its cash position. To do this,it

may lower prices in the hope of bringing in morepatients to purchase private pay prescriptions andnon-

prescription merchandise. Telling people thatprices have been lowered will take advertising, andthere is

an expense to that. Assuming that the ad-vertising is successfuland there certainly are noguarantees

that it will bethe pharmacys volumeincreases. Accordingly, an additional part-time phar-macist and

another sales clerk are hired to ensure thatpatients do not have to wait too long for service.What has

happened here? Sales have increased,but so have the costs of advertising, and wages andfringe


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benefits. If the pharmacys lease is based on apercentage of sales, its rent also will rise. Since priceshave

been reduced, there is less gross profit on each Sample chapter for Essentials of Pharmacy Management

Page 12

24 Essentials of Pharmacy Management salethe difference between the selling price and thecost of

the merchandise.Will the incremental gross profit cover the ad-ditional expenses? The answer is maybe.But, whathappens if most or all of these patients charge theirpurchases? The pharmacy has had to

spend more dol-lars, but does not receive the inflow of cash until thepatients, the private third-party

payers, or the govern-mental agency pays. Is it possible for the pharmacy tofind itself in a worse cash

position than it had prior todoing this? The answer is yes.A manager cannot always determine in

advancewhat will be the final consequences of decisions per-taining to the activities of the pharmacy.

But a verygood manager will prepare plans, organize the re-sources at his or her disposal, staff the

pharmacy insuch a way as to bring together those persons withthe talents necessary to achieve desired

objectives,direct their activities, and control their actions. Whilemanagement is as much an art as a

science, manypotential mistakes can be avoided if the process ofmanaging is undertaken correctly. Thus,

as shown inTable 2.8, planning, organizing, staffing, directing,and controlling form the core of the

managementprocess.This text considers these management processesin this chapter. The business

functions of accounting,finance, marketing, organizing and staffing, and op-erations management were

used as the format for theremaining sections of this text. Planning The most critical element of the

management processis planning. Without a business plan, the pharmacysoperations will have no

purpose and no direction. Asa result, it will be nearly impossible to achieve anyefficiency in its daily

activities.As described in Chapter 4, developing a businessplan can be a rather time-consuming and

tediousprocess. What makes the planning process so difficultis the fact that it focuses on an unknown

future.Planning for the next 13 years requires assumptionsthat may or may not come true. Despite this

problem,however, plans establish a basic structure for guidingthe pharmacy. Plans can be changed as

conditionswarrant, but part of the objective of a plan is toinfluence conditions and turn them to the

pharmacysadvantage.Planning requires the pharmacist to take an in-trospective look at the pharmacyscurrent strengthsand weaknesses. It also requires an evaluation of theenvironment within which the

pharmacy operates,and the strengths and weaknesses of its competitors.Based on all of these and other

considerations,the manager or owner will have to decide on a setof objectives. Given the state of the

pharmacys inter-nal and external environments, what can and shouldit achieve? This decision should be

made for boththe short and long term, with achievement of theshort-term objectives moving the

pharmacy closer toits longer term goals.The planning process is essential to pharmaciesin all practice

settings. For example, the manager ofan inpatient pharmacy must assess what its resourcesare, and

what the pharmacy is and is not capable ofdoing. How many prescriptions can it dispense perhour? To

what extent are staff pharmacists availableto counsel patients, physicians, and nurses? Does

thepharmacy have adequate equipment to prepare com-plex medications for innovative drug therapies?

Withrespect to the competition, what other organiza-tional units will be vying for the hospitals funds

andspace? What are the strengths and weaknesses of theirarguments for additional funding or space?

Based onall of these considerations, what should the pharmacytry to achieve for the next year, and for

the next 3years?The most valuable part of business planning isthe process itself. It forces the manager

to examinea wide range of issues that tend not to be consideredon a day-to-day basis. It also requires

the manager todevelop a set of strategies, using the business func-tions and clinical activities that can be

put in place toachieve established goals. Organizing Once objectives have been established, and the re-


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sources of the pharmacy delineated, they must beorganized in some fashion. Typically, this is done

byidentifying all of the tasks to be performed withinthe pharmacy, and then grouping them in some log-

ical way. The process of organizing the pharmacy isdescribed in Chapter 12.There are, of course, many

ways of organizingthe financial, human, and material resources of thepharmacy. And no single

organizational structure is Sample chapter for Essentials of Pharmacy Management

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The role of business in pharmacy practice 25 Table 2.8 The management process PlanningAssess internal

resourcesEstablish goalsDevelop general policies and proceduresDevelop business

strategiesOrganizingIdentify tasks to be performedArrange tasks in logical orderCombine tasks into

appropriate groupsAssign employees to groupsDesignate employees to manage groupsProvide authority

and responsibilityDefine methods for evaluation, accountabilityStaffingDetermine position to be

filledPrepare job descriptionIdentify sources of potential applicantsSearch for applicantsInterview

applicantsSelect applicant(s)Orient new employee to jobTrain new employeeEvaluate new employees

performanceDirectingSet personnel goalsEstablish work standardsDevelop leadership styleMotivate

personnelTrain and retrain personnelEvaluate personnelDiscipline and dismiss personnel as

necessaryPromote personnelControllingEstablish points for periodic monitoring of pharmacyMeasure

pharmacy performanceExamine strategies and recommend changes as appropriateDevelop annual

performance measurementEvaluate annual performance of pharmacy best for all pharmacies. Much

depends on what is tobe achieved and how it is to be accomplished.The key to successfully organizing,

however, is todivide the tasks to be performed as clearly as possible,assign personnel to manage and

undertake the tasks,and then to hold them accountable for their achievingthe tasks in an efficient

manner. This process is essen-tial in both large chain and hospital inpatient pharma-cies as well as

independent community pharmacies.A common mistake in smaller pharmacies is forthe manager to

assume that, because there are onlya few employees, everybody knows the tasks forwhich he or she is

individually held accountable. Un-less the pharmacy is formally organized, some tasks Sample chapter

for Essentials of Pharmacy Management

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26 Essentials of Pharmacy Management invariably will not be assigned to employees and willnot be

completed. Staffing One of the more difficult management processes isstaffing the pharmacy. As is

described in more detailin Chapter 12, this involves determining the humanresource needs of the

pharmacy, identifying sourcesof possible employees, screening applicants, and se-lecting the one(s)

most qualified.While there are many steps that can be taken tominimize the errors in selecting

personnel, this is aninexact process at best. Many factors affect how wellthe manager matches the

needs of the pharmacy withthe talents of the potential employee. Even the mostexhaustive staffing

process may result in mistakes.For example, while a manager can quantitativelymeasure the speed at

which a pharmacist fills a pre-scription, he or she cannot precisely evaluate thequality of the counseling

process for every type ofmedication and every type of patient. In addition, theevaluation of a job

applicant during an interview doesnot provide adequate information on how well theperson will fit into

the overall work environment. Willhe or she relate well to other employees? Will he orshe be able to

cope with the pressures of the job, orwith difficult patients or physicians?In many respects, staffing is a

highly qualitativeprocess. As such, the manager must have both techni-cal knowledge of the jobs to be

performed and a feelfor the human element of how people will fit intotheir work environments.


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Directing Planning and organizing the pharmacy, and acquiringa good labor force are essential to the

managementprocess. But, no pharmacy will be successful if theresources are not directed properly on a

daily basis.Directing involves keeping personnel and other re-sources focused on the goals of the

pharmacy andensuring that they are used in a manner consistentwith the policies established by the

owner.While planning, organizing, and staffing are man-agement processes undertaken periodically,

directinggoes on continuously. Consequently, most managersspend the bulk of their time involved inthis manage-ment process.As is described in Chapters 13 and 14, directingpersonnel and other

resources (e.g. cash) is especiallydifficult because it must be undertaken from bothshort- and long-term

perspectives. For example, adirector of pharmacy in a hospital inpatient settingcan keep staff

pharmacists focused on what is to beaccomplished for a day or a week through a variety ofpositive (e.g.

compliments) and negative (e.g. threatsof dismissal) actions. But, how can this be accom-plished over

long periods of time? How can moraleand productivity be maintained if pharmacy budgetsare tightly

restricted for successive years?Finding different ways to keep personnel pro-ductive and motivated to

achieve the goals of thepharmacy is a challenge. For this reason, directing isone process that often

separates the highly competentfrom the less skilled managers. Controlling The most often overlooked

management process iscontrolling clinical and business activities. It is com-monly assumed that the

directing process is sufficientto ensure that the pharmacy is operating effectivelyand efficiently.

However, this simply is not the case.Embroiled in day-to-day activities of the pharmacy, itis easy for

even the most skilled manager to lose anoverall perspective of whether the objectives are

beingaccomplished and whether the strategies developedduring the planning process are still

appropriate.Accordingly, the controlling process involves peri-odic assessments of the status of the

pharmacy. Is itachieving its goals? Are the business strategies work-ing properly? Would changes in the

organization,staff, or method of directing provide better operatingresults?There are a variety of ways in

which control can bemaintained over operations, and these are describedin Chapters 4, 7, 16 and 17.

Some are quantitativelybased, such as reviews of financial statements to de-termine if revenues and

expenses are within budgetedlimits. Others are more qualitative, as with evaluat-ing levels of patient

satisfaction and employee perfor-mance.The most important consideration in the controlprocess is tomonitor the pharmacys progress as itmoves through the fiscal year. It makes little sense towait until the

year is over to determine whether thepharmacy achieved or did not achieve its goals. Bythen, it is too

late. Sample chapter for Essentials of Pharmacy Management

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The role of business in pharmacy practice 27 A common example of the control process relatesto

monitoring revenues. In both community and hos-pital settings, it is critical that the manager periodi-

cally determine whether revenues are progressing inthe planned manner. If they are below

expectations,what corrective actions in marketing strategies can betaken to increase them? In hospital

settings, it wouldbe important to determine if reductions in the volumeof prescription activity were due

to a lower census,a change in the mix of patient admissions for whichdrug therapy is appropriate, lower

utilization of drugtherapy which might have improved patient outcomesand reduced hospital stays,

etc.If it is found that revenues cannot be increased,then steps may need to be taken to reduce costs so

thatthe profitability is preserved. Similarly, if revenuesare well above projections, what is the cause?

Canrevenues be increased even more? What changes arenecessary in the budget to ensure that

sufficient re-sources (e.g. staff, inventory) are available to preservethe quality of patient care?When

used properly, the control process is themanagers fail-safe mechanism. It identifies prob-lems and


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opportunities in their early stages so as toprovide time to take appropriate actions. In this way,many

problems can be eliminated or at least allevi-ated, and opportunities can be taken advantage ofwhile

they still exist. Recognizing the functional areas ofbusiness If the inputoutput process illustrated in

Table 2.5were to be examined under a microscope, the ana-lyst would be able to identify a rather wide

rangeof activities. In some respects the various activitiesare like pieces of a jigsaw puzzle. Unless they all

fitinto their proper places, the picture will not makesense. Similarly, if all of the functions that mustbeperformed in a pharmacy are not meshed perfectly,the operations will be inefficient at best.A

pharmacy, however, is much more complexthan even a very large puzzle because some facets ofits

operations do not blend smoothly. In fact, theyoften work in opposite directions.This was described

previously, but this exampleis worth another look. If a community pharmacywanted to increase profits,

it might try to lower someprices on merchandise and advertise in a local news-paper. The objective

would be to bring in more cus-tomers and sell in higher volume but at lower profitmargins. But if the

advertisements are effective andmore people come in, the pharmacy will need moresales personnel,

incur more credit card or chargesales, have more wear and tear on the equipment, etc.Newspaper

advertisements are expensive; additionalpersonnel means more labor expenses; credit cardsales cost

the pharmacy a percentage of the sellingprice; and equipment may have to be repaired soonerthan

normal.The effort to increase sales also results in highercosts of operations. How can the manager

balancethe effects of efforts to increase sales with the coun-tervailing pressures on additional expenses?

In thisexample, it is possible to increase sales but reduceprofits.To manage these sometimes divergent

variables,the manager must understand the various functions ofbusiness and how they interact. While

the functionsof business can be categorized in many ways, thosemost important for the pharmacy can

be groupedas accounting, finance, human resource management,operations management, and

marketing. These areillustrated in Table 2.9. Accounting function One of the more important functions

of businessinvolves monitoring and reporting on the phar-macys financial resources. Every pharmacy is

in-volved in some manner in the purchase and saleof materials, products, and services. In

communitysettings, this is accomplished through the trans-fer of products and services for cash or

promisesto pay (i.e. accounts receivable). In hospitals, pur-chases are made with cash, and the sales aremadethrough hospital billings to patients or their insurancecompanies.As is described in Chapters 6 and

7, the account-ing process is used to keep track of the inflowoutflowprocess in dollar terms. When

designed properly, theaccounting system can keep the manager abreast ofthe current status of the

resources and what is avail-able for use. In particular, it will monitor the phar-macys cash position so

the manager will know howmuch can be purchased. The system also will showhow well the pharmacy is

controlling its expenses,collecting its accounts receivable, and achieving itsprofit goals. Sample chapter

for Essentials of Pharmacy Management

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28 Essentials of Pharmacy Management Table 2.9 The functions of business AccountingDevelop set of

financial booksRecord business transactionsPrepare financial statements for internal usePrepare

financial statements for external use (e.g. bank)Compute federal and state tax

liabilitiesFinanceDetermine financial needsIdentify sources of borrowed fundsIdentify sources of equity

capitalDevelop operating budgetsInvest excess fundsEvaluate financial positionManage current assets

(e.g. cash, accounts receivables)Manage fixed assets (e.g. computer, dispensing equipment)Human

resource managementPrepare job descriptionHire personnelTrain personnelManage personnelEvaluate

personnelDetermine compensation levelsTerminate employment (e.g. retire, dismiss)Operations


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managementDetermine pharmacy layoutDefine jobs to be performedDefine work flowPurchase

inventory and equipmentComplete work flow (e.g. dispense prescriptions)Marketing

managementAssess internal strengths and weaknessesIdentify competitors and their respective

strengths and weaknessesIdentify possible target marketsEvaluate and select target market(s)Product

strategy developmentDistribution strategy developmentPrice strategy developmentPromotion strategy

development Financial function Some people consider accounting and financial func-tions to be thesame. In fact, they are highly interre-lated but separate activities. While accounting focuseson

monitoring the state of the pharmacys resourcesexpressed in dollar terms, finance seeks to get

themaximum benefit from those that are or could beconverted to monetary units.Included in the

financial function are such activ-ities as obtaining needed capital for the pharmacy,managing cash,

managing receivables, and investingin inventory. As described in Chapters 6 and 7, thepharmacy may

need funds to make major purchasesof equipment and fixtures, compensate for inequitieswhen cash

inflow is less than outflow, and supportspecial projects (e.g. begin durable medical equipmentsales or

rental). Sample chapter for Essentials of Pharmacy Management

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The role of business in pharmacy practice 29 In addition, financial activities relate to the useof excess

cash through short-term investments. Thismay be to purchase bank certificates of deposit, investin

inventory, etc. And financial management involvescontrolling the level of accounts receivable, and en-

suring that private patients and insurance companiespay for pharmacy services. Human resource

management function Perhaps the greatest deficiency in accounting and fi-nance functions is that they

do not take into consider-ation the most important asset of the pharmacythepersonnel it employs.

The human resources are notshown in the financial statements. But they are criticalbecause they usually

have the most direct contact be-tween the pharmacy and the patient, and because theyare a very

expensive part of the pharmacys opera-tions. In an average community pharmacy, labor costsconsume

from 15 to 40 cents of every sales dollargenerated.3 In both hospital and community settings,labor

expenses are second in magnitude only to costof goods.Managing this most precious asset is essentialifthe pharmacy is to provide a high quality of care andcontrol its cost of operations. The critical

questionfacing a manager is how to find, develop, motivate,and retain people who will work in the

pharmacysbest interests over the long term.4 Getting a groupof people who have diverse personal

objectives andprofessional skills to focus on achieving goals otherthan their own is no simple task. The

complexity ofthese tasks is described in detail in Chapters 12, 13and 14. Operations management

function The internal operations of the pharmacy center onthe process of converting inputs into

outputs. Itinvolves everything from purchasing inventory andequipment to the actual collection of

accounts re-ceivable. As such, it closely interacts with the ac-counting, finance, and human resource

managementfunctions.Developing an efficient method for purchasingand converting inputs into outputs

that benefit thepatient involves a wide variety of tasks. Not onlymust the proper medications and

supplies be avail-able, but the equipment needed to make the con-version must be right. And these all

need to be spa-tially arranged to allow the conversion to take placeefficiently. The implications of a

poorly designed in-ternal operation are significant: wasted time adds tothe costs of labor, excessive

inventory reduces cashresources that could be invested or used elsewhere,and inefficient conversions

cause delays in servingpatients.Portions of the operations function are treatedin several chapters.

However, Chapter 16 focuses onspecific aspects of internal operations. Marketing function Even the

most efficient pharmacy will be of little con-sequence if it has no patients. The marketing functionis the


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pharmacys primary and most direct link to theoutside. It is through the marketing efforts that pa-

tients, physicians, hospital administrators, and othersare targeted for pharmacy services.Unfortunately,

marketing is the most often mis-understood business function. Usually equated withadvertising or

personal selling, marketing involves afar more diverse set of activities. To ensure that thepharmacy

satisfies the needs of patients, marketingactivities include identifying and assessing possibletarget

markets, developing an appropriate mix ofproducts and services to satisfy the needs of selectedtargetmarkets, ensuring that those products and ser-vices are made available conveniently, pricing prod-ucts

and services, and promoting the pharmacy totarget markets.In many respects, the marketing function is

like aconductor. If the pharmacy is to serve its patients well,it needs direction with respect to what to

do, when todo it, etc. As the pharmacys link to the patient, themarketing function provides the

necessary guidanceto what must be done to achieve the objective ofcustomer satisfaction.Marketing

efforts are not only focused on pa-tients. They also are targeted to physicians and hos-pital

administrators. Marketing plays a crucial role inbuilding physician relations for referrals and improv-ing

patient care through drug therapy. In addition,marketing is useful in targeting hospital administra-tors

to demonstrate the value of the pharmacy in im-proving therapeutic outcomes and thereby reducingthe

length of the hospital stay. The many activitiesassociated with marketing in all practice settings

aredescribed in Chapters 8, 9, 10 and 11. Sample chapter for Essentials of Pharmacy Management

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30 Essentials of Pharmacy Management Summary In the most basic sense, every organization is an

inputoutput system. It takes monetary, human,and material resources, and converts them intoan

output that is useful to a target group ofpeople. In a very simplistic sense, the role of business and

the function of management are toensure that this inputoutput system operatessmoothly. There are

many misconceptions about the role of business vis-`a-vis the practice ofpharmacy. One of the more

common misconceptions is that the practice of pharmacy is ethically inconsistentwith good business.

Good business and goodpharmacy practice, however, have a commonobjective: to serve the patients

needs with theresources available. Another misconception is that in business, the quality of patientcare is secondary to the gener-ation of profits. In fact, the generation of profitsis closely linked to the

quality of care. The realissue, however, is one of what level of quality isnecessary or desirable. Because

there have been many abuses of good business practices by some firms, the entirerealm of business has

been criticized as not hav-ing professional standards of conduct. But manylaws and trade and

professional standards ofpractice regulate business activities. There are some who believe that a good

pharmacist is one who focuses only on the clinicalaspects of the profession. However,

pharmacistsmust understand the business and economic en-vironments within which they work. The

laissez faire doctrine developed by Adam Smith established a public policy that, by allow-ing

organizations to fight for available resources,the best utilization of those resources would beachieved.

The role of business and professional management is to help an organization becomeefficient and fight

for its share of availableresources. A business focus ensures that the pharmacys monetary, human,

and material resources areused most effectively. Through carefully developed marketing efforts, the

pharmacy can show its customers the ben-efits of its services. Without some guidelines that direct

the pharmacys activities, consistency will suffer, andthere will be no direction to the pharmacys ef-

forts. While the functions of business can be categorized in many ways, the most important forthe

pharmacy can be grouped as accounting, fi-nance, human resource management,

operationsmanagement, and marketing. The management process involves planning, organizing,


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staffing, directing, and controlling. Questions for discussion 1 Why can a pharmacy be viewed as

aninputoutput system?2 How did the various misconceptions about therole of business in pharmacy

practice arise?3 What are the benefits to pharmacy practice ofhaving an interrelationship with

business?4 Why is it important for pharmacists to have abusiness perspective?5 How does the doctrine

of laissez faire influencepharmacy practice?6 What are the functions of business, and why iseach

important?7 How do the functions of business interrelate?Why do they sometimes work at cross-purposes?8 What are the elements of the management pro-cess, and why is each important?9 How do

the elements of the management pro-cess interrelate?10 Why is planning so important? Self-test review

True/false statements 1 A pharmacy should not be considered aninputoutput system because of its

clinical func-tions.2 Good business and good pharmacy practicehave the same objective: to serve the

patientsneeds with the resources available. Sample chapter for Essentials of Pharmacy Management

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The role of business in pharmacy practice

31 3 There are many laws regulating business, but noself-regulation by trade or professional organi-

zations.4 One benefit of having a business perspective,remaining competitive, has little application inahospital inpatient pharmacy.

5 Business plans provide the vehicle for establish-ing rules of conduct with respect to

pharmacyoperations, and help keep them focused on thegoals.

6 In both hospital inpatient and community set-tings, labor expenses are second only to costs ofgoods in

magnitude.

7 Developing an efficient method for purchasingand converting inputs into outputs is a financefunction.

8 The most often misunderstood business functionis accounting

.9 The management process that occurs on a dailybasis is planning.

10 The most often overlooked management processis controlling

. Multiple choice questions 1 Which of the following is not a misconceptionabout business?

(A) The practice of pharmacy is ethically con-sistent with business

.(B) Business cares more about profit than thequality of care.

(C) Business is not guided by a set of standardsof practice.

(D) A good pharmacist is a clinical purist.

2 The laissez faire doctrine can best be equatedwith which of the followingurvival of the fittest

generates the bestutilization of the nations resources.(D) None of the above.3 Which of the following is

not a benefit of havinga business perspective in the practice of phar-macy?(A) A business focus ensures

that resources areused effectively.(B) A business perspective helps the pharmacyremain competitive

and capable of adapt-ing to change.(C) A business focus ensures a continuity ofpurpose and

organization.(D) All of the above are benefits of having abusiness perspective.4 Which of the business

functions is the phar-macys primary and most direct link to the out-side?(A) Accounting.(B) Finance.(C)


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Human resource.(D) Marketing.5 Which element of the management process is themost critical?(A)

Planning.(B) Organizing.(C) Staffing.(D) Controlling. References 1. Smith A. The Wealth Of Nations, New

York: ModernLibrary, 1917: 250.2. Risk Management Association. Annual StatementStudies, 20102011,

Philadelphia, PA: RMA, 2011.3. Eli Lilly Drug Co. Lilly Digest, Indianapolis: Eli LillyDrug Co., 1991: 3.4.

Tootelian DH. Wage and benefit programs: Meshingemployers and employees needs. California

Pharma-cist, November, 1989: 2425

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