The Prescription For Pharmacy POS
Successfully integrating POS (point of sale) in the highly regulated pharmacy market takes knowledge, guts, and the right tools for the job. But for those who are willing, opportunity awaits in a market only 12% penetrated.
Do one thing, and do it well. That's the philosophy Brad Jones, president of Retail Management Solutions (RMS), (Olympia, WA) took when he began his career as a pharmacy POS (point of sale) VAR in 1998. A year earlier, working for healthcare industry giant NDCHealth (National Data Corporation Health), (Atlanta), he recognized the company's ignorance of this axiom as a major flaw in its effort to develop POS software for the pharmacy market. POS software development and marketing was a peripheral effort on NDC's part. As a result, the $750 million company was only selling about $2 million per year in POS software. Jones had been hired to change that. But it soon became clear that POS software was not high on the company's priority list. "I can do this better on my own," Jones told himself. He offered to purchase the POS division from NDC, to no avail. No sooner had he packed up his office to leave his post when NDC sold off its entire systems division, (including the ill-fated pharmacy POS software initiative) to TechRx (Coraopolis, PA).
Jones' departure from NDC marked the birth of his career as a VAR, handling POS training and implementation for TechRx and Auto-Star Compusystems (Medicine Hat, Alberta), among others. Eventually, Auto-Star asked RMS to become its exclusive pharmacy POS VAR in the United States, making the VAR its largest U.S. partner.
What Are The Market's Demands?
According to Jones, of the major pharmacy POS integrators, only RMS and CAM Commerce don't sell prescription dispensing software as well. The other major players, including QS/1, TechRx, McKesson, Freedom Data, and Rx30, develop and sell both prescription dispensing and pharmacy POS software. "This approach reminds me of what I saw at NDC," explains Jones. "POS is such a small portion of their business, they don't focus on it enough, and it shows in their product." To produce a software program tailored to the needs of the small apothecary, Jones worked closely with Auto-Star on the development of Star-Lite, the software originally developed exclusively for tier II and III pharmacies. Jones considers tier II pharmacies those chains of 10 to 50 stores with revenues around $5 million per site. He counts the some 25,000 independent pharmacies in the US (with sales of $2 million or less) as tier III. The Star-Lite program includes inventory management, accounts receivable, reporting, and CRM (customer relationship management) functions that are imperative to the drugstore business.
"What most of our competitors don't realize is that in pharmacy, prescription and OTC [over-the-counter] sales are best handled as though they're two separate businesses," explains Jones. Where OTC item sales require no more consideration than that given a typical C-store (convenience store) POS system, prescription sales are a whole different animal. Nearly 80% of the time, third parties like an HMO (health maintenance organization), insurance company, Medicare, or Medicaid cover the cost of prescriptions. Because of this, pharmacies must keep logs detailing filled prescriptions, when they were picked up, and by who. "Insurance companies can audit pharmacies and demand to see their logs," explains Jones. When a pharmacy can't produce the log or appropriate signatures, it faces stiff penalties. "A pharmacist that spoke at a recent conference I attended discussed a $25,000 penalty he received because his logs didn't match up." Typically, pick-up logs have been handled by simply requiring customers to sign and date a pad of paper when they pick up their prescriptions. This method leaves plenty of room for error and isn't easily compared with the computerized log of filled prescriptions kept by the pharmacy's prescription dispensing software. Jones had a better idea. His company purchased signature capture pads, for years used by retailers to conduct credit card transactions, and implemented them at his customers' prescription POS stations. The signatures are filed in a database and coded to correspond with the record kept by the prescription dispensing system. When audited, all the pharmacist has to do is key in the prescription number and the complete transaction is detailed on screen.
In terms of hardware selection, Jones tries to be creative and stretch technology beyond its original application. He also keeps end users in mind. "It's no surprise that the elderly get more prescriptions filled than any other part of the population," says Jones. He advises that this be taken into consideration when VARs make hardware choices for pharmacy POS systems. Check printers and large character displays are two pieces of equipment he wouldn't be without when pitching to a pharmacy.
Defined By Regulations
As one might imagine, the sale of prescription drugs is heavily regulated, and a VAR must consider these regulations thoroughly before delving into the market. "There are many considerations, the biggest being HIPAA [Health Insurance Portability and Accountability Act]," says Jones. HIPAA places stringent government requirements on hospitals, health insurance companies, and pharmacies, among others, to ensure patient privacy. In the past, customers often charged their prescriptions to a house account, managed by the store or an independent lender or bank. Billing information that was accessible by individuals outside the dispensing process included detailed information such as the name of the drug and dosage guidelines. When the legislation takes effect in 2003, this will be in violation of HIPAA. "If you haven't done your homework and you come in and set up a payment system that distributes this kind of information, you're putting the pharmacy in a position to pay serious penalties - to the tune of $50,000 a pop," warns Jones.
Reporting Helps Sell POS To Pharmacies
Tracking and controlling the inventory of drugs in a pharmacy is handled primarily by its prescription dispensing software. But, once a prescription is filled and shelved for pickup, the POS system is accountable for its whereabouts. "Where we can provide significant assistance is ensuring that filled prescriptions are paid for," Jones says. If a customer comes in to pick up five prescriptions at once, and the clerk at the POS rings up four of the bottles but sends the customer home with all five, the pharmacy might stand to lose a couple hundred dollars, depending on the prescription. Auto-Star's Star-Plus and Star-Lite software generate reports that compare the filled and shelved prescriptions to the sold ones. "We can show our customers where their loss is happening, and their losses can be huge."
Through a partnership with Hamacher Resource Group, (Milwaukee, WI), RMS also provides its clients consultative reporting on the pharmacy market. The VAR works with Hamacher to maintain the Pharmacy Information Network, an Internet-based tool from which nationwide pharmacy sales data, both OTC and prescription, is continually gathered. The information assists the pharmacy in making stocking, location, and pricing decisions, which gives RMS the power to act as a merchandising consultant. Data gathered from the Star-Plus system is used to create a benchmark analysis report, which Jones recommends to his pharmacies twice per year. The benchmark analysis compares a customer's sales data to that of other pharmacies in its market segment. The Star-Plus POS software sends the sales data electronically to Hamacher, where the company compares it to the 750 top selling items in pharmacies nationwide. The pharmacy receives a report that details its sales performance and lists which top selling items it should be carrying. These value-added services generate both a monthly recurring revenue from Hamacher and sales per-report. They also help endear RMS to its customers.
A Long-Distance Sales Pitch
So, you're thinking you've got what it takes to play in the pharmacy POS market. As a matter of fact, your technicians are packing the van with demo equipment and making a list of local pharmacies to cold call. Not so fast. "We seldom make an on-site visit at any time during the sales cycle," explains Jones. RMS handles its sales presentations via Web and teleconferencing as often as possible. "This is the way they buy pharmacy dispensing software, so they're accustomed to it." Jones explains that his company does several two-hour live demonstrations over the Internet per prospect. Typically, it takes about six months to close a deal. "Because POS is new to the pharmacy market, you have to convince potential customers they need it in the first place," Jones says. "That's why the demonstration is so important." Falling prices on hardware and increasingly easy-to-use software have also helped his cause.
A New Vertical Philosophy?
Do one thing and do it well. Does Jones still subscribe to this philosophy? Yes, and no. Beginning this year, RMS has begun pursuing the tier II and III grocery markets in the United States. Together with Auto-Star, his company developed a new grocery version of the Star-Plus POS system for pharmacies. "The demands placed on the POS system in a pharmacy are so stringent and thorough, we found that the souped-up Star-Plus product already had the bases covered to handle most of what grocery needed," Jones explains. WIC (Women, Infants, and Children) and food stamp payment options were the only features added to Star-Plus to meet the needs of the grocery market. The company has begun selling the system to grocers in the Pacific Northwest.
Though he has strayed from his roots in pharmacy, his company's approach to each market is still focused. RMS dedicates a completely separate staff to each, and takes a regional approach to grocery (as opposed to the national approach it takes to pharmacy). In a way, Jones is contradicting his early self, trying to prove that you can, in fact, do more than one thing well. If the opportunity to sell POS into his native market is as rich as he makes it out to be, perhaps you should try his new philosophy, too.