By PCCA

Whether you are new to pharmaceutical compounding or already have some experience and are thinking about starting your own practice, you’re probably wondering what return on investment you can expect. This article will give you some insight into how compounding can strengthen your pharmacy financially while it expands the therapeutic options you offer patients.

Why Start Compounding?

Many independent pharmacies start compounding to diversify income and make up for falling reimbursements, direct and indirect remuneration (DIR) fees, and other challenges. These not only reduce retail profits, but also make it difficult to maintain cashflow because of the timelines for reimbursements and fees. It’s also hard to compete with pharmacy chains that can use big buying power and economies of scale to offer cheaper products than a typical independent pharmacy can.

Fortunately, Bryan Prescott, PharmD, MBA, says that offering customized medication positions you as a valuable clinical resource in your community and can improve your pharmacy’s bottom line. He works with independent compounding pharmacies extensively as the leader of PCCA’s Compounding Pharmacy Management Services, helping owners to run their practices so that they’re financially resilient and can continue to serve patients in the long term.

Is Compounding Right for You?

In working with successful compounding pharmacy owners over the years, Bryan has noticed that the best candidates for either opening a compounding-only pharmacy or a hybrid pharmacy (compounding and retail) have some familiarity with compounding, ideally direct experience. This helps them to understand the clinical possibilities that compounding offers as well as the operations involved in making high-quality custom medications.

The best candidates also have a good conception of how to talk about their products and services in ways that differentiate them from chain pharmacies. They can promote how compounding and services such as patient consultations and patient follow-up programs set them apart from competitors, which helps them to market what they offer to prescribers and patients.

“A lot of this is not third party driven — a lot of this is going to be a cash-based proposition,” Bryan says about marketing compounding and other services. “So you’ve got to be able to talk about your offerings in a way that price is not as big of a factor, but value is.”

There are many other characteristics that can help the owner of an independent compounding pharmacy, such as resilience in the face of rejection, but having some prior experience and knowing how to differentiate your pharmacy are the two biggest ones, he says.

The Profitability of Compounding

Every month, Bryan and each of his clients review the details of the pharmacy’s inventory, overhead, pricing and much more so that they can bring all those data points together and understand how the pharmacy can thrive. Between the data in the annual NCPA Digest — which aggregates information from independent retail pharmacies around the U.S. — and the data that Bryan can aggregate from his own clients who compound, he can see the significant difference that offering custom medications can make for a pharmacy’s bottom line.

He notes that retail pharmacies can typically expect around 3% net profit. Unfortunately, with decreasing reimbursements and increasing DIR fees, those profits are starting to shrink.

Based on the data he has collected, though, Bryan has seen many high-performing, compounding-only pharmacies operate with 20% net profits. This doesn’t mean a retail pharmacy that adds compounding to its practice will go from 3% to 20% net profit, but he does routinely see the addition of compounding increase net profit significantly. “We measure this with a lot of the pharmacies that send us data,” Bryan says, “and what we find is net profits in the range of 8-12% very routinely for our hybrid type of pharmacies.”

Bryan also has data on the timeline for the typical compounding pharmacy to see these results. “The reality … whether they’re starting as a startup or adding this to their existing [pharmacy] … is it does take a lot of long hours and hard work,” he says, “but the payoff we generally see for these folks usually happens within the first one to two years, especially if you’re adding compounding to an existing retail experience.”

Regardless of whether a pharmacy only compounds or offers both retail and compounding, providing custom medications to the people in their community can help the pharmacy to remain financially strong while serving patients with unique needs.