“State of the Union” For Pharmacies

2025 has been another challenging year for pharmacies, but there have also been some glimmers of hope:

After a few very difficult years where most pharmacies experienced shrinking profitability and negative cash flows, especially during the DIR changeover period, financials have stabilized for many. 

Margin levels for vaccines this fall appear to be higher than in past years leading to greater profitability opportunities for pharmacies with active immunization programs.

Slow but forward progress is being made at PBM reform.  More is needed but there are signs of momentum. 

Opportunities for non-PBM associated reimbursements, while still relatively small, continue to expand and may become a viable revenue source in the future for pharmacies who are prepared to implement these programs.

This being said, cash flow and profitability levels continue to be major problems for many pharmacies, even after efforts to control operating costs.  Sustaining gross margin dollars (Revenues - Cost of Goods Sold [COGS]) at a level sufficient to fund operations and service debt obligations remains a serious challenge.  So, while some pharmacies are seeing higher incoming revenues, profitability and net dollars continue to be threatened.

Declining reimbursements are only part of this story.  Rising COGS and labor costs are also contributing to this profit margin squeeze.  According to NCPA, the average independent pharmacy is now operating with a gross margin of about 18%.  This is a far cry from the 22-23% which was the target for a healthy pharmacy a few years ago.  The gap between income and cost has now substantially narrowed, contributing to even more pharmacy closures in 2025.   Many pharmacies are struggling to figure out “what is left to cut”.   This is especially challenging for pharmacies that have already undergone substantial cuts over the past few years in order to remain in business.

Many pharmacies today operate under a “Black Friday” mentality, looking to take advantage of vaccine revenue spikes during flu season in order to keep the pharmacy solvent.  If implemented effectively this can be a short-term solution, but it is NOT a long-term business strategy.

 

Foundations for Success

While the likelihood of a magical rescue is unlikely for independent pharmacies, there are pharmacies out there that are operating profitably and continuing to thrive in the face of these challenges. 

The key to thriving as we move into 2026 is to follow the blueprint used by the most successful pharmacies - having a firm grasp of your pharmacy’s operating and business fundamentals and maximizing opportunities when they present themselves.   While not slick, fast or sexy, this approach is a proven winner.

 

What are your key operating and business fundamentals?

  1. Financial and Performance Management

Reviewing your data regularly will help you to adapt sooner rather than later; just looking over the numbers at tax time or tracking your bank account balance isn’t telling you the whole story.  Having your pulse on the RIGHT metrics and understanding the components that impact them will help you to make decisions based on data and not “feel”.  Regularly examining your key performance indicators (KPIs) can help you to identify trends and anticipate opportunities instead of reacting when problems arise. 

Do you know which KPI’s are the most important for your pharmacy?   Do you know which KPI’s top performing pharmacies focus on?

 

  1. Inventory management

Poor inventory management is a drain on pharmacy cash flow and often leads to lower profitability.  Too much money tied up in inventories represents a missed opportunity to utilize funds in other areas of your business. 

While inventory value can make the asset value on your balance sheet look good, inventory should be considered a COST not an INVESTMENT.  Maintaining inventory at a level sufficient to service patient needs while maximizing turns is a more effective strategy.   Inventory turns for most community pharmacies should be between 20 and 30 turns annually.   The top pharmacies maintain drug inventory turns closer to 30 turns annually.

Leveraging MedSync as a means to control inventory and increase inventory turns is crucial.  MedSync is an excellent tool to help limit on-hand inventory of high-cost generics and brand name medications, thereby reducing the time between ordering the medication and dispensing it for reimbursement.  This, in turn, improves cash flow.

Effective use of secondary or tertiary wholesalers with a process (manual or technology-assisted) to compare prices can have a large impact on COGS.  Trusting that your primary wholesaler is always the cheapest acquisition cost is no longer an effective strategy.  When was the last time that you reviewed and shopped around your primary wholesaler agreement?

 

  1. MedSync

If you aren’t using MedSync as the approach to managing the majority of your medication refills, you are missing out on a crucial tool to maximize efficiency and profitability.

You don’t have to have 100% of refills filled through MedSync to realize the benefits.   Even managing as little as 30% of your refills via MedSync can have a meaningful impact on operations and inventory costs.   Pharmacies that reach the 50%+ level for refills with their MedSync program can realize significant efficiency gains and other enhancing benefits.

MedSync efficiencies allow for more flexible staffing strategies and time to take advantage of other revenue generating opportunities.

A strong MedSync program can also help increase inventory turns and enable more advanced inventory management strategies.

 

  1. People Management

After inventory, staffing-related expenses represent the next highest cost for a pharmacy.  As such it is important to closely match this important resource to the needs of the pharmacy from both a volume and timing perspective.  Ideally, staff time also includes time to take advantage of additional non-dispensing revenue opportunities.  As staff related costs continue to increase, the importance of maximizing performance and efficiency is magnified.

Ensuring that your staff are appropriately trained and supported to do their work efficiently and accurately is a cornerstone to effective people management.  Implementing or expanding roles and responsibilities to all staff to capture non-dispensing revenue opportunities that will improve profitability and can lead to greater job satisfaction.  A well trained, engaged, and valued staff will limit staff turnover, which is not only frustrating but contributes to more pharmacy operational challenges and reduces profitability.  

 

  1. Capturing Revenue Sources with Improved Profit Signatures
    1. Immunizations

Pharmacies that are not providing immunizations are missing out on the most obvious source of greater profitability.   Every pharmacy should be looking for ways to both expand the number of vaccinations given as well as working to extend the length of the vaccination season beyond the traditional fall flu season.

Immunizations can also be a “gateway” to more advanced clinical service offerings, which can bring in additional revenues that have better profit margins.

    1. LTC at Home

While LTC at Home requires additional investments in operations technology (adherence packaging) and staff resources (delivery services), the additional profitability of dispensing for these LTC at Home patients can be substantial.

A strong, effective medsync program is essential for accurately managing adherence packaging systems.  Proper policies and procedures are crucial to ensuring that the additional revenue and service to patients is not offset by losses from PBM audits or other regulatory agencies.

    1. Clinical Services

Opportunities for billable clinical services may vary widely from pharmacy to pharmacy.  However, all pharmacies should be working toward implementing clinical services into their operations.  At minimum, pharmacies should be participating in free opportunities through services such as Outcomes and should be tracking and maximizing quality-based initiatives via EQUIPP.

The key to profiting from clinical services is making it work within or around existing pharmacy workflows without having to hire additional staff unless fully supported by additional service revenue.  This represents the biggest challenge to offering and benefiting from clinical services: generating a meaningful ROI to the pharmacy.

 

How the Best Do It

The most profitable and successful pharmacy owners know the details of their business and review their key information regularly, often on a monthly basis.  They use this information to identify strengths and weaknesses and make decisions in a proactive manner, before it’s too late. 

They utilize a sound Medsync program to help with inventory management, staff utilization and profit maximization.  Medsync isn’t just something they have, it is their primary method for managing refills.  Because of this, they have a high number of inventory turns and limited inventory-related cash flow problems.

These owners operate their pharmacies in a lean, efficient manner in order to maximize the profitability from their dispensing revenues while also seeking out and growing additional sources of revenues with better profitability levels.  These approaches help the owners maintain a positive cash flow, enabling them to deploy extra resources when needed and take advantage of new opportunities that help them continue to thrive.

Remember the phrase “lean, mean fighting machine”.   That should apply to every independent pharmacy.  Be the best you can be in the way you run your pharmacy so you can optimize your productivity, trim waste and maximize profitability… until that silver bullet finally shows up.

 

The PEAK Solution

PEAK Pharmacy Solutions is ready to help you take the necessary steps so your pharmacy can thrive in 2026.  This is what we do - helping pharmacies upgrade and transform their business to meet today’s challenges and succeed.    We have relevant pharmacy-related knowledge and experience working with community pharmacies, including many top performing pharmacies.   Let PEAK help you take your pharmacy performance to the next level.