How to Buy a Pharmacy Business Series: Dispensing Logs
Before buying pharmacy assets or signing a lease, review the data from script management systems and dispensing logs. Ideally, a three or four-year history of that information can tell you many things about acquisition costs, new scripts to total fills and margins on brands vs. generics, among other data.
In this video, Ollin Sykes, CPA, and Kathy Blanchard discuss the value of reviewing this information before you consider buying a pharmacy. It provides you with insights on profitability, but also important negotiating power on the final purchase price.
Another important source of data is the pharmacy’s perpetual inventory system. View our video on what you can learn from inventory before buying a pharmacy.
If you prefer to read this content, the video transcript is below.
Why is it important to look at audit logs or dispensing logs when considering buying a pharmacy?
Ollin Sykes: When you are considering purchasing a pharmacy, the data and statistics that you can receive from the script management systems that are in the pharmacy that is under consideration, are vitally important. We always want to get a three or four-year history of that information. If they have used the same script management system during that period of time, we can collect data on script trends and trends of generic versus brands. If properly managed in the pharmacy, we can get a really good idea of what the margins have been in either cash, brands or third parties, for example.
There is just a boatload of information that is available again, depending on which script management system is being used in the pharmacy. Another thing that we sometimes will take a look at is what is the percent of new scripts to total fills. What we have noticed over time is that if you are in the 40%, 42% or 38% range of new scripts to total fills, that particular pharmacy is probably dying a slow death. At the same time, if the new fills are 55%, 56% or 58% of new scripts that are being filled, that obviously is a very fast growing pharmacy. A typical historical pharmacy might have 45% to 48% new fills and the reciprocal of that, on refills. That would be a standard that we might be taking a look at in a typical situation. So anything above or below that we begin to take a very keen look at to make sure that we understand that particular data.
Kathy, can you think of anything else that we would look at on those various reports?
Kathy Blanchard: We also like to look at the acquisition cost. That helps us to determine whether what we are seeing on the financial reports is “true-ing up” with what we are seeing in the audit logs and dispensing summaries. We like to compare those gross profit margins between those two systems, so that we get an idea of whether the system and the financial information is being managed properly for that store. As Ollin mentioned, the brands and generics are really important, but breaking it down between brands and generics to see if that store is historically losing money on its brand fills.
Granted, those are a much lower percentage of your gross profit. We get into a lot of situations where we see numbers trending towards 4% and lower on the brand fills. So that can give you an indicator whether they are doing a lot of 90-day fills and losing money on those 90-day fills, where they would be a little more profitable, if they were doing, say, maybe a 30-day fill.
Ollin Sykes: In summary, there is just a boatload of information available on these scripts and dispensing logs. If you do not have access to those and you are considering purchasing a pharmacy, or if there are issues with those, that piece of very valuable financial information can really help in doing a full analysis of the pharmacy.