pharmacy-gp partnering
Pharmacy-GP Partnering - Pharmacy Asset Value Appreciation Through General Practice (GP) Partnering
One full-time equivalent (FTE) GP co-located with or nearby a pharmacy can provide prescription revenue of $230k* pa to that pharmacy which translates to a Gross Profit $$ of $73K pa. That is before add-on sales associated with the increase in foot traffic from new customers (the GP's patients). An average sized GP practice may consist of 4.32 FTE GPs. That could drive around $995K of prescription revenue to the pharmacy if co-located or $315K pa in Gross Profit $$.
The change in prescription volume from such a partnering could achieve in the order of 503 items per week or 91 per day for Monday through to Saturday (based on a normal hours GP operation). Such a change in volume could be accommodated without much need for staffing increases in an average pharmacy but if we allow for staff increase cost of 1 FTE at average $38.9K ($35K plus super, plus add-on costs at 11%) then from this hypothetical model the keep from the Gross Profit Dollars should be in the order of $276K which contributes directly to Net Profit since all other expenses should not rise. At a capitalisation rate of 20% this could improve the value of the pharmacy by $1.4M.
Let's say as an example, this pharmacy was a large pharmacy of 450 m2, and was suffering through competition and was also facing continued high occupancy costs. It had seen its once viable business model vastly eroded due to a change in the economic environment or the trading landscape. Return for effort and dollars are no longer worth it. The alternative of closing or trading out until the lease expires will only worsen the equity position to negative.
In other words, it is now broke so it needs to be fixed!
If that same pharmacy converted 50% of their floor space into a GP practice and the practice was enhanced to grow to the 4.32 FTE GP number then the pharmacy could anticipate a further boost to the bottom line by the sub-lease occupancy cost that the practice could be expected to pay. A 4.32 FTE GP practice at capacity could pay up to $440 per m2 plus their share of outgoings to the pharmacy. If the original position of the pharmacy was deteriorating based on its very large retail proportion of occupancy then it would be likely that a 50% reduction in floor space and a likely reduction in retail staff and stock costs would not significantly reduce Net Profit from those changes alone. If the vacated floor space is converted into the GP practice model quoted then the turnaround for the pharmacy could be further enhanced by the rent received from the practice. Some pharmacies may prefer to keep the occupancy costs of the practice low in order to assist the practice to grow and benefit from the prescription revenue primarily.
That is just one example but there are many more. It may be that a pharmacy already is supporting or has supported a GP practice but things haven't worked out. Or, the Doctors left for supposed greener pastures. Proximity to the right general practice vastly impacts the value of a pharmacy.
This model is not without cost. It has to be funded adequately and set up correctly by those who know how to make the right GP practice a success and also the business case needs to be assessed by experts.
Brangan Medical has the vision, creativity and knowledge to make this model come to fruition and with the assistance of Pitcher Partners Accountants, you can have your unique business case evaluated.
*All amounts are estimates based on benchmark figures of both industries and can vary according to individual circumstances.
