Business Plan

Business Plan for Sample General Hospital Retail Pharmacy Ramon D. Sebastian HCA 311 Health Care Financing Marquita Blackwell August 3, 2009

Business Plan Business Plan for Sample General Hospital Retail Pharmacy This paper creates a business plan for a Retail Pharmacy in a hospital at Metropolis Health System (Baker & Baker, 2006).

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Executive Summary The Company, The Vision, The Founders Sample General Hospital is a member of the Metropolis Health Systems group of health care service providers. Under the direction of its CEO, Ronald McDonald led the hospital since it was built in 1975. It has since expanded to offer a separate ambulatory surgery center and outpatient clinic. Market Opportunity The opportunity was realized when patients complaints came in that prescription orders were being filled incorrectly due to Rite-Aid pharmacys misunderstanding of the written prescriptions they were handed. Sample General Hospital already had an electronic system for maintaining its medication records and for physicians to prescribe medication. The need to electronically communicate this information to the medication supplier was needed. The original concept of developing an internal pharmacy was discussed and decided upon soon after. Use of Proceeds The original proposal seeks $130,000, $80,000 for renovations and $50,000 for equipment. Initial inventory of $303,400 for pharmaceuticals will be based on the pharmaceutical companies 60-day accounts payable cycle so there will be no need for an initial inventory investment. Gross Offering Planned Uses Capital Expenditures Building Renovations 80,000 $179,789

Business Plan Software Purchase Furniture and Fixtures Total Proceeds for Capital Expenditures Working Capital Salaries and wages Other Expenses Total Proceeds for Working Capital Total Uses Financial Snapshot (Projected) Year 1 Rx Sales Cost of Goods Sold Gross Margin GM% 2,587,613 2,047,950 539,663 20.9% Year 2 2,692,152 2,088,909 603,243 22.4% Year 3 2,828,375 2,151,576 676,799 23.9% 48,000 1,789 49,789 $179,789 10,000 40,000 130,000

EXPENSES Salaries and Wages Benefits Materials and Supplies Contract Services and Fees Depreciation and Amortization Interest Provision for Bad Debts 192,000 38,400 12,000 14,400 15,333 0 25,876 197,760 39,552 14,400 17,280 15,333 0 26.922 203,693 40,739 17,280 20,736 15,333 0 28,284

Business Plan Misc. Expenses Total Expenses 3,600 301,609 4,320 315,567 Cash Flow Sources Net Income Depreciation Borrowing Total Sources Uses Capital Purchasing Working Capital Total Uses Cash at Beginning of Period Net Cash Activities Cash at Ending of Period 73,597 73,597 130,000 49,789 179,789 73,597 303,010 376,607 376,607 360,884 737,490 238,053 15,333 0 253,386 287,676 15,333 0 303,010 345,550 15,333 0 360,884 5,184 331,248

The Enterprise The Company Sample Pharmacy will supply prescription medication in its new facility at the Sample General Hospital. All inpatient medication will be dispensed through the pharmacy while the counter prescription orders will be filled through its retail store front located inside the main campus of Sample General Hospital.

Business Plan At the onset, the proposed pharmacy will only have one revenue stream from sales of prescription medication. The service of a licensed pharmacist will be required for each

medication dispensed by the pharmacy with support from pharmacy technicians. The pharmacist will also act as the department manager overseeing all aspects of the pharmacy operations. General, non-pharmaceutical services include general office services, accounting, and scheduling. Surrounding medical office buildings and outpatient surgery centers will also be able to have their prescriptions filled directly from the physicians offices. Physicians will have the option to use the new electronic medication and prescribing device or phone in their patients prescriptions allowing the pharmacy to have their medication ready by the time they reach the pharmacy. Prescription delivery within a 5 mile radius of Sample General Hospital will also be available to those that request it. The Founders Ronald McDonald, the Chief Financial Officer (CFO) of Sample General Hospital came up with the idea to open the pharmacy when he looked into different options to increase revenue at the hospital. With the help of his accounting manager, David Shoemaker, they developed the financial documentation necessary to create the proposal to present to the board of trustees. The Vision Sample Pharmacy expects to recoup the original capital expenditure of $179,789 within the first year of operation. Projections reveal that by the end of the third year of operation, Sample Pharmacy will have over $700,000 cash available for expansion. The first expansion will be to offer over-the-counter drugs, cosmetics, fragrances, hair and skin care products, magazines and books, vitamins, greeting cards, batteries, disposable diapers, oral hygiene products, contact lens

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solution, and diet aids. There will be no need to increase the current space that the pharmacy will occupy as the current configuration of the pharmacy already allows enough retail display space and inventory storage space. Future expansion will include additional services similar to those offered by larger drug stores. Services will include sales of refrigerated beverages, snacks, and film processing. Once established, similar pharmacy expansions will also be developed at the other hospitals of the Metropolis Health System. The Product Pharmaceuticals, as the main product, have the advantage of financing itself through the accounts payable cycle. Since pharmaceutical companies allow sixty days for payment, this allows the pharmacy to carry its main inventory at no cost. The pharmacist will be delegated with the responsibility of maintaining an ample supply of prescription medication to satisfy the needs of the pharmacy. All other supplies will also be monitored by the pharmacist with the support of the pharmacy technicians. Together with the rest of the hospitals within the Metropolis Health System, Sample Pharmacy can utilize MHSs purchasing power to obtain the best prices available for the pharmaceuticals. Competitive Advantage Sample General Hospitals medication monitoring information system currently in place allows the physician to prescribe medication directly from an electronic handheld device. This improvement has significantly reduced medication errors to less than .01%. The current information system ordered for the Sample Pharmacy will directly interface with Sample General Hospitals system allowing the physician to automatically send the prescription to the pharmacy

Business Plan when the prescription is written. The prescription order is immediately filled and either

delivered to the patient at the hospital or outpatient surgery center, or, if ordered from one of the medical offices, the prescription will either be waiting for the patient to pick up or delivered directly to the patients home. This automated prescription ordering system will be available to all physicians of the Metropolis Health System. The direct prescription ordering system will serve to entice Sample General Hospitals patients to stay within the organization for their prescription needs. Although several major retail chains like Wal-Mart, Target, Safeway, and Kmart have added pharmacy services to their stores, the convenience of having the physician order the medication directly will serve as a reason to utilize Sample Pharmacy. Automatic follow up refill service can also be arranged by the patient either directly with the physician or the pharmacy. Operations Sample Pharmacy will be open six days a week; eight hours daily from Monday through Friday, and four hours on Saturdays. It will be closed on Sundays. A pharmacist together with a pharmacy technician will be on duty the entire time the pharmacy is open for business to dispense prescriptions. This will require 1.1 FTEs for each of the positions, the pharmacist and pharmacy technician. An additional 0.5 FTE for a delivery employee will also be employed on a part time basis. The pharmacist will have full authority for all the daily managerial duties required by the pharmacy. Under the current structure, the pharmacist will report directly to the director of Sample General Hospital, Dr. Rick Sebastian. Dr. Sebastian will work to ensure that the vision of both Sample General Hospital and the Metropolis Health System are maintained. Facilities

Business Plan Sample Pharmacy will utilize 5,000 square feet of the exterior portion of Sample General Hospital facing Main Street. This location will allow for additional expansion that can serve the public without the need of entering through the main hospital. It will also allow the pharmacy to maintain its own 24-hour entrance once the need to remain open 24 hours per day becomes

necessary. The location will also facilitate additional building area if the need arises in the future and is suited for displaying its own signage to attract the public. Information Systems Hospital Leasing Services has agreed to lease the necessary point of service (POS) system and desktop computers required by the pharmacy that allows for the seamless integration to Sample General Hospitals current information system. The lease amount includes all the required equipment, cabling, and support and continuous training for the entire staff. Installation of the entire system, once all cabling is completed during construction, is expected to be less than 30 days. The Organization Executives of the Company Executives of the Company are as follows: Name Ronald McDonald Dr. Rick Sebastian Arthur King Age 49 58 54 Position Chief Financial Officer Director V.P., Finance Company Sample General Hospital Sample General Hospital Metropolis Health System

Executive Profiles Mr. Ronald McDonald, Chief Financial Officer of Sample General Hospital has been in the finance healthcare field for over 25 years. Upon obtaining his M.B.A. from Harvard Business

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School, he was immediately hired as the Controller for Metropolis Health Care. In 1995, he was promoted to his current position as the CFO of Sample General Hospital.

Dr. Rick Sebastian, Director of Sample General Hospital, graduated from University of California Los Angeles Medical School. Upon his graduation, he moved to New York for his residency at St. Claires Hospital. He was recruited to Sample General Hospital when it was first opened in 1975. He has been the Director since.

Arthur King, V.P. of Finance for Metropolis Health System graduated from the University of San Francisco with a B.A. in Accounting. He received his CPA within a year from graduation and worked at Oak General Hospital for 5 years as their Controller. He made his move to Metropolis Health System immediately after working at Oak General Hospital.

Officer Compensation All officer compensation for the above officers will be handled by the Metropolis Health System and Sample General Hospital. For each of the officers involvement with Sample Pharmacy, compensation will be paid in the amount of $50,000 annually. Supporting Professionals Accountants/Auditors Deloitte & Touche 123 Main Street Metropolis, CA 91234 Attorneys Smith, Smith, Jones and Jones 345 Oak Street South Metropolis, CA 91235 Key Risks/Time Line

Business Plan Key Risks Other drug stores undercutting prices may pose a risk to Sample Pharmacys ability to charge full-price on the pharmaceuticals. With the aid of Metropolis Health Cares volume

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purchasing power, Sample Pharmacy could adjust prices to stay competitive in the market. With the innovative connectivity between the physician and the pharmacy, it is possible that this risk may not be as threatening to the bottom line of the pharmacy. Time Line Milestone Pharmacy Construction Inventory Delivery IT Installation Pharmacist Hiring Employee Hiring Target Date October 2009 January 2009 January 2009 November 2009 December 2009 Prospective Financials Assumptions Annual Prescription Estimates Proven estimates expect that in Year 1, 225 prescriptions will be dispensed per day (55,350 annually) with a 2.0% increase for Year 2, 230 prescriptions per day (56,457 annually), and in Year 3, with a 3.0% increase, it is expected to be 236 prescriptions per day (58,151 annually). Average Net Revenue per Prescription Expected net revenue per prescription for Year 1 is $46.75, Year 2 is $47.69 and Year 3 is $48.64. Status Not Started Not Started Not Started Not Started Not Started

Business Plan Bad Debt Percentage Bad debt percentage is calculated at 1.0%. Inflation Rates Expected inflation rates for Salaries and Wages is 3.0%, Other than Prescriptions is 2.0% and Benefits as a percentage of Salaries is 20%. Special Equipment, Training and Costs Training for the new POS system will be included in the IT package lease. This is scheduled to commence on February, 2009 after the entire IT installation has occurred. Cost of Supplies, Drugs, and/or Devices Since vendors finance the cost of drugs for 60 days, the costs of drugs are basically financed by the accounts payable (AP) cycle. The initial supply inventory is expected to be approximately $10,000. Labor Requirements and Costs

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The pharmacy will be open for 8 hours daily from Monday through Friday and 4 hours on Saturday. Staffing requirements will require 1.1 FTEs for pharmacy technicians, 1.1 pharmacist FTEs and 0.5 FTE for delivery personnel for a total of 2.7 FTEs. The cost of staffing has been estimated at $16,000 per month for Salaries and Wages, with a burden of $3,200 per month for Benefits. Balance Sheets Sample Pharmacy projects an ending cash balance for Year 1 at $73,597, Year 2 at $376,607, and Year 3 at $737,490. Income Statements

Business Plan Net income before taxes is projected at $238,053 for Year 1, $287,676 for Year 2, and $345,550 for Year 3. Cash Flow Statements

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Based on current projections, Sample Pharmacy should begin to recognize a positive cash flow situation as early as Month 10 of Year 1. An additional revenue stream can later be adopted by allowing the pharmacy to sell overthe-counter medication. Profits for this portion of the business may not be as much as the pharmacy but could help enhance revenue without any effect on the fixed costs of the pharmacy. Minimal additional space would be required to display the additional products available for sale and no additional manpower would be required.

Business Plan References Baker, J. J., & Baker, R. W. (2006). Health Care Finance. Sudbury, MA: Jones and Bartlett Publishers.

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