Pharmacist Factory – A Guest Post by Joey Mattingly, PharmD, MBA

June 2, 2014 • Guest Posts, Pharmacy Careers • Views: 23012

The currently saturated job market for pharmacists, brought about in part by the proliferation of pharmacy schools, is a subject that has been discussed and defended; argued and lamented.  But what this issue desperately needs is a cool, calm and comprehensive analysis by someone whose background and training especially qualifies him for the task.

[adsenseyu2]

I am very grateful to welcome pharmacist, educator, blogger and advocate for our profession, Joey Mattingly, to share the following guest post on the business side of opening new pharmacy schools, and the impact on pharmacists.  Please feel free to ask Joey any questions below and be sure to visit his amazing blog at Leading Over The Counter!

Author: Joey Mattingly, PharmD, MBA

Pharmacist Factory: The business case for new pharmacy schools and how it impacts pharmacy jobs. 

The pharmacist job market has become a hot topic in many pharmacy circles.  Just over one decade ago, reports from the Department of Health & Human Services described a massive shortage in the number of pharmacists in the United States.[i]  With little change in the supply and major increases in demand, pharmacist salaries went through the roof.  Students were accepting $50,000 sign-on bonuses along with six-figure salaries once they passed their licensure examinations.  In 2000, total BS and PharmD graduates were at approximately 7,000 nationwide and by 2004 that number grew to 8,158 (+16.5%).  However, the following 9 years saw an unbelievable expansion in class sizes as well as a large number of new pharmacy schools, taking the total number of pharmacy graduates to 13,207 (+62% since 2004 and +88% since 2000) by the 2012-2013 school year.[ii]  This growth of pharmacy education combined with a slowed growth after the market collapse in 2008 turned a shortage into a surplus almost overnight.

 

Now that the shortage has stabilized, can we expect growth of the number of pharmacy degrees awarded each year to stabilize as well?  To understand the motivation to build a college of pharmacy, let us examine the incentives to accepting and educating a new batch of students each year.

 

The Pharmacy School Industry 

Pharmacy schools, whether public or private, function similar to any business in that “Revenues” must be equal or greater to “Costs” to continue operations.  Operating at a financial loss is only sustainable if a business has a major donor or cash reserve.  So what does the P&L (aka: Income Statement) look like on an annual basis for a college of pharmacy?  Fortunately for us, rather than guess at numbers we can use research compiled by the American Association of Colleges of Pharmacy and use actual numbers reported in a survey of 93 colleges of pharmacies.[iii] 

The median reported revenue for 93 colleges for 2012-2013 was $19,903,459 and median reported operational cost was $13,727,068, leaving the 50th percentile of schools with an income (before tax) of $6,176,391.  When you compare the means, this difference is even greater (Mean revenue = $27,159,772; Mean costs = 18,822,753; Mean income = $8,337,019).   Think about this another way, the 50th percentile college of pharmacy delivers a 31% EBITDA (Earnings before income tax, depreciation and amortization)!  I’m not talking gross margin, I’m talking post operations earnings.  To put it in perspective, let us look at Walgreen’s, one of the largest retail pharmacy chain operations.  In 2013, Walgreen’s reported $72B in revenue with an EBITDA of $3.895B (5.4%).[iv]    So let us pretend that all colleges of pharmacy were a part of one large chain company and multiple the mean revenue and costs by the number of schools that took the survey and extrapolate out to the total number of schools accredited (n=129 as of January 2014) .  Total school revenue for 2012-2013 = $3.5B; Total school costs = $2.43B; Total school EBITDA = $1.07 BILLION (31%).  A billion bucks in earnings for the pharmacy school industry, not bad for making thirteen thousand new pharmacists each year right? 

So what is the incentive for reducing class size or even closing a school in a state with an oversupply of pharmacist?  None.  Why would a business willingly reduce revenue that is bringing in a 31% return???  If operations become less profitable, they have a lot of room before earnings drop to the “not worth it” range.  I would argue that we have not seen the end of the growth and would be surprised if we didn’t reach the 15-20k pharmacists/year range in the next 5-10 years.  Financially, it just makes sense for “business” if you are in the industry of educating student pharmacists.  So what does this mean for pharmacists?

 

Effects of Supply Growth

    • Stress – The most obvious side effect from this massive growth in the pharmacy school industry is the excess supply of pharmacists compared to the jobs available that demand a pharmacist. The job market situation has created a lot of stress for new and current pharmacists. Not only do new pharmacists have trouble finding positions, but some pharmacists nearing the retirement age are being forced out by some companies.
    • Competition – The increased supply has caused more fierce competition for positions, which forces pharmacists to go above and beyond. This could really be viewed as a good thing for our profession as companies no longer have to settle for the “license and a pulse” standard that was common during the peak of the shortage.
    • Specialization and Advanced Training – The Board of Pharmacy Specialties (BPS) has seen quite a growth in the number of pharmacists applying to become certified within a particular area of practice. The entry level pharmacist position was once satisfied with a BSPharm which then became the PharmD and has now evolved into everyone considered a BCP___ somethings. In addition to board specialties, pharmacy residency programs have witnessed a growth in interest as students fear without residency training they may be doomed. Again, these advancements may actually benefit the profession of pharmacy and our abilities to provide patient care.
  • Lower costs?The next step in the cycle of surplus is a reduction in the costs for pharmacists (i.e.: pharmacist salary) to businesses and health systems. Currently, the Bureau of Labor Statistics has pharmacists with a mean income of around $116k. If this begins to drop and more and more pharmacists are willing to work for $70-90k, will we see businesses open more positions? This natural tendency toward equilibrium could settle the market and leave fewer grads unemployed, but they may not make the six-figure salaries they had anticipated.
  • New Opportunities – With the demand of “filling ‘scripts” being saturated, the excess pharmacists will have to think outside the box to create their own demand. Eventually, opportunities with “Provider Status” and “Medication Therapy Management” business ventures may become new avenues for pharmacists to sustain a living. I do believe that there is still a demand for drug experts, just not necessarily a demand for a white coat to verify 300Rx/day for a pharmacy.

 

[i] The Pharmacist Workforce: A study of the supply and demand for pharmacists. Department of Health and Human Services; 2000.

[ii] First professional degrees conferred, 1998-2013. AACP; 2014. Available at: http://www.aacp.org/resources/research/institutionalresearch/Pages/TrendData.aspx.

[iii] Summary of Institutional Finances 2012-2013 Fiscal Year. AACP; 2014. Available at: http://www.aacp.org/resources/research/institutionalresearch/Pages/SummaryofInstitutionalFinances.aspx.

[iv] Annual Report 2013. Walgreen’s; 2014. Available at: http://investor.walgreens.com/sec.cfm?DocType=Annual&Year=.

 

Tags: , ,

Author: Jason Poquette

16 Responses to Pharmacist Factory – A Guest Post by Joey Mattingly, PharmD, MBA

  1. WellIllBe says:

    “If this begins to drop and more and more pharmacists are willing to work for $70-90k, will we see businesses open more positions? This natural tendency toward equilibrium could settle the market and leave fewer grads unemployed, but they may not make the six-figure salaries they had anticipated. ”

    Um no, corporate america will not pay an extra 70,000 to lighten the work load of a pharmacist that can be replaced in a snap of the fingers due to the surplus. Corporate America will pocket the difference and increase their earnings. All of us “extra” pharmacists should open our own independent stores and give the chains for their money with good customer service, actual medication therapy management, and the likes. While doing that we should petition the college boards and our state governments to put limits on graduating pharmacists with six figure loans for jobs that don’t exist. And stores with local pharmacies shouldnt be allowed to have meds filled and shipped from a central location to their store. It should be required to be filled in their store. Central fill was originally designed to help patients whos rx were needed after hours from a lcoation that was closed. Instead Walgreens uses it in florida to ship directly to the stores to save on labor costs in their stores… And we need to roll back rph to tech ratios. Some states now allow 6 techs/rph. Again originally allowed due to the shortage. THeir is no shortage and a pharmacist can not oversee 6 techs safely.

    • Gotthepower says:

      Heaven forbid a company should actually implement a program like central fill that actually reduces pharmacist workload in the store. Let’s see, no phones to answer, all my data work done off site, sounds like a pretty good system to me. Sign me up!

      • Jateh Major says:

        This could possibly lead to more opportunities for community pharmacist’s to contribute to patient therapy being able to focus more energy on counseling. However, this also promotes the perception of pharmacists being seen as “dispensing machines” with a large part of their responsibility being replaced.

    • Pharmaciststeve says:

      Some states – like KY – have NO LIMITS on techs/RPH ratios.. that is where the chains want it.. and since most of the BOP are stacked with corporate employees.. guess what we are eventually going to end up with ?

  2. Concerned Rph says:

    One could argue if the schools don’t police themselves they’ll lead to their own demise. At some point the profession becomes unattractive to prospective students due to working conditions, chances of finding a job, salary vs. cost of attendance etc. At this point schools will have a drop in the number of enrollments. I’ve also read that subcommittees set up in the house/senate are looking at defaults on student loans. They’re looking at limiting or cutting off federal student loans to schools with high default rates. Whether this comes to fruition is unknown, but you can assume with certainty a surplus in the years ahead within the profession. Students $150-200k in debt will face financial struggles with student loan default a real possibility.

    Technically speaking many pharmacists have already been receiving a decrease in pay due to raises being far less than inflation rates the past 3 years. OT rates have also decreased.

    Unless pharmacists expand scope of practice and gain provider status the profession is looking bleak for the next little bit. If I were a prospective student right now I’d be looking at other career options.

  3. timrph53 says:

    This is an interesting commentary. Missing are statistics about the increase in prescription volume and overall demand on the health system by the aging baby boomers and the affordable care act. Also, the 1970’s produced the largest number of pharmacy graduates of any decade until the 2000’s. Most of us in those classes are at or nearing retirement age and should open up several positions for the newer graduates. Many of those are in management positions. Competition usually fuels change in the form of improvement and diversification. I think we see this happening in states like California where provider status has been granted to pharmacists. Now we just need to see what that will look like. We may have gotten too comfortable with the “pulse and diploma” mentality. Also, not everyone will begin in their “dream job”. Maybe we will push more graduates to the underserved communities of our Nation.

    • m, says:

      You mean push to debt servitude with non-dischargable debt? You, as a pharmacy educator (most would not be employable in academia save the huge increase in schools) do a disservice to the students you supposedly serve. There are no jobs, the jobs that exist are being retrenched through speed-up or obsolescence. Provider status, PR from the pharm schools for 40 years now, will never happen and it is doubtful the bought-off ‘leaders’ in this profession rotating through corporate chain offices even care.

  4. Realistic RPh says:

    Agree with the comments below by Concerned RPh. Adequate compensation for extended years of education is one of the biggest draws to our profession – as well it should be. Paying over $100,000 in school loans and garnering a salary of only $70,000 to $90,000 yearly just doesn’t add up, and bright young minds will be able to do the math and turn towards a more lucrative profession. By implying that the expansion of the market forces pharmacists to “go above and beyond” as a positive seems to be looking through rose colored glasses. For the vast majority of positions, pharmacists use only a small fraction of their formal education for their day in, day out work. Forcing further education either by additional certification (the author does not offer any proof that this improves performance) or post graduate training (delaying time to full salary and pushing new pharmacists further into debt) is unlikely to equate to improved patient outcomes unless there is a concurrently new booming field of advanced jobs for these candidates to move into.

    And it is unlikely that pharmacists’ employers will add positions just because of increased supply leading to lower salary – pharmacist FTE in reality is usually based on workload and not supply. Though the boomers are advancing in age, technology is advancing as well and there is less and less manual workload associated with traditional pharmacy services. Creating more advanced jobs providing “medication management services” and the like sure would be great, but in reality this is the era of “working differently” and fiscal constraints. With the Obamacare tide, at my large academic medical center, we are scrambling to cut costs and on a hiring freeze.

    There’s a lot of fancy math in this article. I’m kind of a big picture , common sense kind of person, and here’s what I’m seeing:
    1) Pharmacy schools turn profit. New schools will keep opening in order to create profit, regardless of what effect it have on the profession and actual need for pharmacists.
    2) There will be a point when there are more pharmacists than available jobs. Then some people will find themselves in major, crippling debt or bankruptcy.
    3) The highly qualified, best candidates will start moving towards other professions than pharmacy due to the projected debt/salary balance.
    4) Current pharmacists – already in the stressful job – will only have worsened stress with the dropping of their salaries and accumulated debt.

    There needs to be some professional agency monitoring this unprecedented, unchecked, burgeoning growth who will represent the best interest of current pharmacists and our profession. Otherwise, like a cancer whose growth poisons its host, why will it ever stop?

  5. Past Pharmacist says:

    Was it late in the 1980’s that we saw the opening of the first new Colege of Pharmacy in some 30+ years? Now there are 129!!! And, I remember the 1970’s when the government decided to pay colleges per student seat and the existing colleges rapidly doubled their number of seats. I heard one dean tell a Board of Pharmacy member not to worry, because we are going to fill the extra seats with women and you know they don’t work full time and not at all while they are raising thier families. I also remember that during that time (the Carter years) we had years of extremely high inflation and pharmacist salaries grew very slowly resulting in a significant relative decrease in salary and with it reduced status in the community. Most every working person’s salary grew with or close to inflation, but not pharmacist salaries.

    Seriously, it is the responsibility of the accrediting body to regulate the size of the pharmacy education industry. I mean a growth from about 70 colleges and schools of pharmacy to 129 – and accompanied by huge increases in the number of seats at older established colleges. How many distant sites does the average state funded college now have? before there were none.

    I think I am glad that my career is over yet I am extremely concerned about the situation that GREED has brought about.

  6. Ivan Petrzelka says:

    Interesting analysis, thank you for posting it. I remember the days when anyone with a pulse and a license would get a high-paying, but not very satisfying job of a chain pharmacist. I do not recall pharmacists lamenting about it. Quite to the contrary, I had some applicants for jobs openly state that they would only come to work for our company on certain conditions, followed by a list of sometimes rather ridiculous demands.
    Now that the market forces shifted the pendulum in the other direction, we hear pharmacists cry for “protection” by the government or licensing bodies while the business owners get some reprieve from having to pay sky-high salaries for pharmacists regardless of their performance. There is arguably no need for government interference, the market forces will take care of it. Eventually, the potential entrants into the profession will figure out that incurring 100-200k debt for a degree in a field where jobs are scarce and do not pay well is rather foolish and will select another field of study, leaving schools of pharmacy with declining enrollments. That will, in turn, result in closure of some of the schools.
    Of course this simple analysis will not hold true if the government will get involved and offer debt forgiveness, subsidized tuition, etc. Once the government gets involved, economic laws do not work too well.

    • hkj says:

      When you at CVS call in the police to put down union campaigns by busting skulls and blacklisting protestors, is that a market force? It is, because the market’s outcome is pure monopoly and institutionalized crime.

  7. John Mountzuris says:

    though I agree that the opening of the new colleges has over loaded the market, but I truly believe what has also made it difficult was eliminating the regular Rph degree and everybody coming out with a Pharm D. This is what forces the demand for institutions to request a residency completion where before the advanced PharmD program had more teeth to it with a lot more clinical expectation which allowed pharmacists to pick and choose which avenue they would like to pursue. Retail, Rph, basic hospital Rph, clinical rotation PharmD, medical liaisons, Pharm D. Now everybody is a PharmD At CVS filling 600-700 prescriptions/day I’m sure most of the pharmacists don’t look at kinetics and lab values.
    Just my opinion?

  8. Jason Poquette, R.Ph. says:

    Test comment

  9. non says:

    None of the “benefits” the author mentioned will come true. Pharmacists are daily put in dangerous situations that put them at risk of sanctions by the board. They must fill all scripts and have no time to counsel or make recommendations. They are fired once too many vacation days accumulate or too many refusals for unpaid overtime are made.
    Hospital staffing is being centralized; clinical pharmacy is only half-staff and is not a profit maker. There is no prospect of diagnosing/prescribing. Schools continue to open. Omnicare now uses a robot eye to verify tablets in bottles. The pharmacist only verifies that there will not be interactions….

Leave a Reply

Your email address will not be published. Required fields are marked *