Increase the profitability of your business data today

Fields marked with * are required

COVID-19 Update: We have taken the necessary actions to ensure business continues as normal. FIND OUT MORE

Using data to strategise against the funding cuts

UK pharmacy and in particular English pharmacy, is going through a dramatic transformation, which is painful for many. In this exclusive article for P3Pharmacy, Conall Lavery of Real World Analytics shows that the more information you have, the better the chance of success you will have in managing the NHS funding cuts.

From the published responses to the funding cuts in England NHS we see predictable responses. Two high profile responses from pharmacy businesses are to cut staffing hours in pharmacies and reduce deliveries to patients. Well Pharmacy, Rowlands and Lloyds have all said that they have cut hours and more recently they have restricted the patient eligibility criteria for home deliveries, and therefore reduced the associated cost.

If you are going to reduce pharmacy team resources, then you will have to find out how to do more with less. For instance, how can you provide more services with fewer pharmacy team hours? Data analytics can help here, by providing full transparency across the business and actionable insights.

In 2017, the average NHS reduction in payments was around £42k per annum per average pharmacy (86,000 items per annum). This represents a loss of around one third of EBIDA (earnings before interest, depreciation and amortisation). The cuts have continued into 2018, so this is a crisis by anyone's standards.

"In 2017, the average NHS reduction in payments was around £42k per annum per average pharmacy"

As payments continue to fall it is difficult to plan. If you don’t know what your reconciliation payment is going to be in two to three months' time, then you don’t know how much cash you have for strategic buying or investment. More commercially driven owners and managers put a considerable effort into trying to calculate their final payment.

This is time consuming, and it is often inaccurate because it is typically based on the average item value (AIV) for all of England, not your AIV. However, with a simple visualisation such as the one below (Monthly Cat M reimbursement including concessionary prices), you will be able to see what the net effect of Cat M and concession prices will be at the end of each month.

Pharmacy funding cuts

So what do you actually do to drive efficiencies into your business?

If you have followed the large multiples and reduced pharmacy hours, then you need to get better at what you do now. RWA has come up with a 20 Point Plan that can drive improvements with data. Each of the areas below has an associated action to drive more profit and cashflow into your business. In future articles in P3pharmacy we will cover these.

20 Point Plan to Improve your business with Data

  1. Claiming CD, ERD and other EPSR2 scripts on time
  2. Manage unclaimed scripts - dealing with month-end and outstanding EPS scripts
  3. Get exemptions right
  4. Dead Stock, move every quarter
  5. Do MUR’s consistently each month
  6. Get routine going to get full allocation of NMS interventions
  7. Max out QPS
  8. Other Commissioned Services, CCG and LPC led
  9. Can hours be reduced?
  10. Achieve consistency across branches to maximise performance
  11. Grow ERD’s to 10-20%
  12. Eagle Eye view of your local competitive position and taking action
  13. Grow Nominations to 90%
  14. Follow up on overdue patients
  15. Expensive Item Matching?
  16. Unload unprofitable care homes
  17. Negotiate for better cost prices where price is greater than Tariff reimbursement
  18. Review supply chain shortages, focusing on key margin products and concessionary prices
  19. Check temporary safeguarding payments
  20. Review local use of branded generics

Once you know your payments, you need to have all your key performance indicator data. This is especially true for multi-branch businesses. The illustration below for a sample nine pharmacy group shows the main business challenges which can be turned into opportunities for improvement (it would look similar for a group with 900 branches). The principles are the same, whether they are developed for head office, regional or branch managers, with drilldowns and modules to drive continuous improvements in each area.

NHS funding cuts

Items or patients? Steps against pharmacy cuts

Looking at the Executive Dashboard, the first insight is the interaction between items and patients. Most pharmacy managers do not know why items are lower than expected in a month. There can be many reasons, but the important question is: “Are my items down because my patient numbers are down, or because my items per patient are down?”. It is extremely difficult to see how many patients you had in a month with a PMR, so you are missing this key information.

Using data analytics and by making a reasonable assumption about what constitutes a unique patient, it is relatively straightforward. Our Pharmacy groups customers came up with the following definition for us: unique patients that have been into my pharmacy in the last year, at least once. In the illustration items are up 2.8% but patients by only 1.1%, so the items gain has come mainly from more items per patient. Is this sustainable? Is this something you have any control over?

Focusing on patients with conditions that typically require multiple items will help drive item growth. You need to have a view of your patients and put them into cohorts, but again an analytics solution can help with this and provide a means to track your results.

Who's worth having?

We can also use data to develop a metric of “patient worth by age group". In this sample group with 9 branches you can see that across the group it has 50,880 patients, of which 41,716 have an NHS number (the others are either private or the NHS number is missing). The next insight is around how much each cohort is worth to you.

You know older patients are worth more to you, but it can be reassuring to see younger ones coming through to ensure the long-term viability of your business. It is extremely complex to measure the value of a patient, even with sophisticated technology. The fees and margin need to be collated for each patient. The margin is dependent on the price (Tariff or concessionary) at the time of dispensing, and the cost which is subject to wholesaler and procurement discount (if there is one). The calculation has to be done on the molecule dispensed as generics will skew the results.

Pharmacy cuts

Once you understand the value of the patient, all sorts of interesting strategies present themselves. From the illustration, you can see the mix of patients by BNF category and the worth of each. You might decide to focus on one or two conditions and become known in your area for excellent patient care in those conditions, driving items and loyalty. This will cost you time and money, but you can track patient conversion to establish a return on investment. Incidentally, this will inform your range planning for OTC too.

Pharmacy funding cuts

Growing your business by focusing on patient opportunities is complex and can be time consuming, however it is probably crucial to your long term viability. The only limits to the opportunity to improve are your imagination and creativity.

However, we would recommend getting your house in order before you tackle specific patient initiatives. In our next issue we will look at the first 5 points on the 20 Point Plan to recover lost profitability and cashflow. Most of these can be done in weeks rather than months.

Check out more about big data analytics in Pharmacy.