Do the Math and Choose Your Path

In the evolving landscape of pet health care, some veterinary hospitals opt to shutter their in-house pharmacy and instead partner with an online supplier. If your practice is contemplating a change, ask yourself these four questions: “Can I pay the bills without on-site pharmacy income?” “Do I know my pharmacy’s level of profitability?” “Do I schedule automatic client reminders for medication and pet food refills?” “Should I ditch my pharmacy?”

Eliminating a profit center can have far-reaching implications for a veterinary hospital and its clients. Before making any decisions about your pharmacy, do your research and know the facts.

Your Statistics

First, know how your pharmacy performs. Start by looking at historical data and how the revenue and profits have changed. Examine the revenue-to-expense ratio, pharmacy expense as a percentage of total revenue, and pharmacy revenue as a percentage of total revenue. Track the changes over the past few years and compare them to industry benchmarks.

For instance, the American Animal Hospital Association’s most recent Financial and Productivity Pulsepoints reported a pharmacy revenue-to-expense ratio of 2-to-1, an expense average of 13% of total revenue and a revenue average of 19% of total revenue. Another resource, iVet360’s Veterinary Industry Benchmark Report, showed one revenue mix — pharmacy, food and ancillary products — dropping from 25% of total revenue in 2021 to 22% in 2023. Where are you in comparison?

What should you do if your data is higher or lower than industry benchmarks? For example, a low revenue-to-expense ratio signals that your in-house pharmacy isn’t a significant profit center. Should you ditch it? What if the problem is low markups or missed charges? Do you still ditch it? Or do you make changes and then re-evaluate whether it’s worth keeping?

Taking the assessment one more step, look at other areas that might dampen your numbers. Designer drugs (prescription heartworm, flea and tick preventives), pet food and over-the-counter products are ripe for problems.

AAHA’s Pulsepoints data revealed these benchmarks:

Again, how are your numbers trending? Don’t kill your pharmacy or breathe life into it without knowing where it was, where it is and where you want it to go. And remember this: Don’t ignore client wants and needs.

Your Clientele

What do the pet owners you see prefer? A Brakke Consulting report on the consumerization of pet pharmacies and generational shopping preferences highlighted how retail apps are unlikely to go away. Brakke also found that sales through veterinary clinics’ online stores doubled from 2021 to 2023 due to consumer demand.

What if you opt to operate an online pharmacy due to consumer trends or already have one? According to Brakke, “Over half of the pet owners surveyed did not know their veterinarian had [an online store], and less than one-fifth of vet clinic clients use the online store.” If you have an online pharmacy, it might not perform as well as it could because your clients don’t know it exists and, therefore, they shop at Chewy, Amazon or another e-commerce retailer, draining you of potential revenue.

Pet owners want convenience. Before making a strategic decision about your pharmacy, evaluate client wants and needs, assess its convenience, and determine how to enhance it.

Armed with the data and an honest assessment of your clientele, you will be ready to weigh your on-site pharmacy’s pros and cons.

The Pros and Cons

Here’s why you might not want an in-house pharmacy.

• Cost savings: Eliminating an on-site pharmacy can reduce expenses substantially. Maintaining one requires paying for inventory management, staff wages, storage requirements and regulatory compliance. By removing those costs, you can reallocate the money to other areas, such as purchasing advanced medical equipment or hiring additional team members.
• Concentrate on medical care: Without the need to manage a pharmacy, your team can focus more on your practice’s core services and new offerings that enhance the quality of care.
• Reduced risk: Managing a pharmacy requires strict protocols to avoid medication errors. Without an in-house pharmacy, you don’t have to worry about storing and dispensing medications.
• Client flexibility: Online pharmacies often promise competitive pricing and home delivery, offering convenience that an in-house pharmacy might be unable to match. Of course, you have the flip side. The disadvantages of ditching your in-house pharmacy are:
• Inconvenience: Pets sometimes require immediate access to medication. In urgent cases, needing to visit an external pharmacy or wait for an online delivery can delay treatment and stress the client.
• Income loss: An on-site pharmacy can produce significant revenue. Eliminating it could create a financial shortfall, impacting a hospital’s ability to invest in new technology or expand services.
• Damaged relationships: An in-house pharmacy fosters a one-stop shopping experience for pet owners, strengthening their ties to the hospital. Practices that eliminate the service risk weakening client loyalty and satisfaction.

Now that you have weighed the pros and cons, what is the next move?

Your Options

Some practices will want to immediately act on problem areas after assessing the metrics and client expectations. Others see an opportunity to market their in-house pharmacy better or promote a partner service. Moreover, a few might decide to eliminate their on-site pharmacy.

Another choice is to formulate a strategic plan to integrate your pharmacy and an online component, as well as write prescriptions for outside suppliers. The goal should be to provide comprehensive pharmaceutical services that ensure quality care, patient safety and convenience. This plan requires a few critical initiatives. For example:

• Improving your pharmacy’s inventory management.
• Updating your website to include an online platform and marketing it.
• Partnering with reputable outside pharmacies and negotiating a share of the revenue.
• Installing a prescription management system to send scripts to outside pharmacies electronically.
• Integrating technology to streamline operations and update electronic medical records.
• Training your team on using new technology.
• Establishing protocols for auto reminders, client education and follow-ups.
• Tracking client satisfaction and key performance indicators.

What if you decide the best option is to ditch your in-house pharmacy? How will you make up the revenue? Maybe you’ll have to expand medical services — for example, offer specialty care, advanced diagnostics, telemedicine and behavioral consultations. Additionally, operational enhancements might include strategies for improving client acquisition and retention, optimizing prices, improving efficiency, and reducing overhead.

By diversifying services and improving efficiency, a veterinary hospital can compensate for revenue lost from discontinuing an on-site pharmacy and enhance overall client satisfaction and business sustainability.

Your Decision

Choosing to eliminate an in-house pharmacy is a complex and multifaceted decision. While the potential cost savings and increased focus on core services are significant advantages, you can’t overlook the inconvenience to clients and possible financial harm. Veterinary hospitals must carefully weigh the pros and cons and consider their unique circumstances and client needs before making a crucial change. Ultimately, you must keep pet owners informed about the changes, benefits and reasons for your decision.

DID YOU KNOW?

According to the American Veterinary Medical Association, “The first online pet prescription retailer, 1-800-PetMeds, came on the scene in 1996, selling prescription and nonprescription pet medication and supplements. The company, now just PetMeds, has since lost market position with the entry of competitors with significant market power, including Chewy, PetSmart and Walmart.”

YES OR NO?

A Veterinary Hospital Managers Association survey in May 2024 showed that 23% of practices don’t approve prescription requests from most or all outside pharmacies. That number rose from 20% in October 2021. In addition, 27% of practices reported receiving 11 or more outside pharmacy requests daily.