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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 of
pharmacy. 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

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 65year-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 now
may 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 nonprescription 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 and
older1,00025,55011.335,07412.436,70412.439,57112.9Median 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

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 a
language 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 HispanicOrigin 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-tieth
century. 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 inconsis- tent 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

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 business
standpoint, 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
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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 would
notconsider 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 organizations 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

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 The
margins,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

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 pharmacist
was 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 drugsSelfmedicationTechnologyBiotech 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 the
twentieth 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

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 of
this. 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 pharmacists role was to ensurethat proper medications were
produced.Over the years, the role of the pharmacist inthe manufacture of prescription drugs has diminished 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 increasingly 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, and
satisfactory 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, sideeffects).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

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 being 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 pointof-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 of
pharmacists.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 sideeffects 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. A
business 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

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 major
challenges 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. In
addition, 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

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-strate
that 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, and
integrating 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 pharmacy 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 andnonprescription 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

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
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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 pharmacys
current 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-

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 logical 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
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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.

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 in
this 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 to
monitor 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 periodically 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

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 must
beperformed 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 are
madethrough 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
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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

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 the
same. 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 ensuring 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 essential
ifthe 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

pharmacys primary and most direct link to theoutside. It is through the marketing efforts that patients, 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 selectedtarget
markets, 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 busi- ness 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 patient
care 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
phar- macist 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 man- agement 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 phar- macys activities, consistency will suffer, andthere will be no direction to the pharmacys efforts. While the functions of business can be cate- gorized 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, or- ganizing,

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 crosspurposes?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 organizations.4 One benefit of having a business perspective,remaining competitive, has little application ina
hospital 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)

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