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

June 2, 2014 • Guest Posts, Pharmacy Careers • Views: 26747

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.

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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=.

 

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Author: Jason Poquette

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