The Effects of Mergers and Acquisitions on Compounding Pharmacies
The seismic shifts in the health care industry have been hard to ignore and impossible to deny in the last few years—a trend toward outpatient care, the passage of the Affordable Care Act, big changes in Medicare and Medicaid billing, more emphasis on customized patient care, and the continued move toward mergers and acquisitions. 2015 has been called “the year of the merger and acquisition in health care.” Like every corner of the health care industry, mergers and acquisitions for compounding pharmacies have also seen an uptick in the past few years and show no sign of slowing down. A McGladrey poll found that 88 percent of healthcare executives planned to pursue activity related to mergers and/or acquisitions in 2015, and this trend is expected to continue as operators seek to reduce overhead and consolidate operational costs.1
How Does This Trend Affect Compounding Pharmacies?
All the reasons behind the trend toward mergers and acquisitions in other areas of health care also apply to and affect compounding pharmacies. Generally, with the bottom line at stake, health care providers apply simple economies of scale: operating costs and overhead can be reduced and more easily managed when more services are offered within one system. The formation of larger hospital systems and Accountable Care Organizations (ACOs) indicates that administration costs are a foremost concern, especially with the high costs and importance of quality control and compliance in all health care fields.
As point-of-care shifts to outpatient care and the industry sees the growth of ambulatory surgical centers, urgent care centers and other shorter-stay hospital alternatives, the trends have signaled a shift in the relationships between providers and compounding pharmacies. As providers consolidate, so too will compounding pharmacies’ list of available customers shrink. As they have throughout the long history of compounding medications, compounding pharmacies will need to find ways to adapt.
Many compound pharmacies are locally and family owned, with local or intra-state customers. For operators of these pharmacies, mergers or sale to a larger manufacturer might be tempting if compliance costs have become prohibitive or they wish to distribute to become part of a wider national distribution network. It may also be useful for a compound pharmacy to merge or acquire another in order to diversify its offerings of compounded medications. For instance, a pharmacy focused on ophthalmology and retinal compounds might combine with other compounding operations that create custom compounds for patient treatment in dermatology, dentistry, endocrinology and more.2
Strategic partnerships, mergers and acquisitions for compound pharmacies allow the pharmacies to combat obsolescence by mirroring the trends of their customers:
- Regional providers will want compounding partners who can offer regional distribution of compounded medications
- Combining operations can help improve efficiency of supply chains and other aspects of compounding operations
- Partnered or merged compounding pharmacies can reduce costs by aggregating purchasing of bulk compounds
- Debt consolidation is possible between partnered or merged entities, as well as access to more capital and potential investments
- Instantly increase market share and market visibility to current and potential customers3
All of these benefits, both internal for the compounding pharmacy and external for customers, helps compounding pharmacy operators stay ahead of the mergers and acquisitions trend and prepare for a market with increased emphasis on efficiency and wider distribution.
Of course, good service can be the best way to shepherd a compounding pharmacy through changes in the health care industry. Even as ACOs and health care systems acquire smaller providers, there is a sub-movement of localization in health care which provides some opportunities for smaller, locally owned compounding pharmacies with no interest or ability to become something larger—and especially those wishing to avoid the large “outsourcing facility” categorization within Food and Drug Administration regulations. Providing high-quality compounded medications to local health care facilities with the best possible compounding ingredients and practices often leads to customer loyalty. A provider who has spent time vetting and creating a long-lasting relationship with a compounding pharmacy might continue that relationship regardless of whether the provider is acquired or merged with a larger entity down the road.
The health care industry’s trend toward mergers and acquisitions is not going away or slowing down anytime soon. In fact, it shows signs of intensifying in the coming years as all of the root causes continue to dominate bottom-line concerns. Compounding pharmacies should prepare to undergo M&A themselves or see their hospital and provider clients affected. Compounding pharmacy operators with a strong plan for their future can profoundly change the course of their pharmacies by participating in strategic partners or M&A to expand distribution or service lines, but all operators should remember the importance of maintaining relationships with high-quality providers of compounds throughout any change in their own processes. As operators navigate a new health care landscape and keep their eye on efficiency, everyone in the health care industry should also remember that the end goal is always the same—the best patient care, every time.
Pharmaceutica North America is the premier provider of high-quality active pharmaceutical ingredients and compounding kits for accredited compounding pharmacies large and small. To learn more about our unit-dose APIs or custom compounding kits, please contact us.
- “Mergers and acquisitions: What’s trending in health care M&A?” http://mcgladrey.com/content/mcgladrey/en_US/what-we-do/industries/health-care/executive-summaries-health-cares-big-issues-in-2014/mergers-and-acquisitions-whats-trending-in-health-care-ma.html ↩
- “Mergers and acquisitions,” ibid.; “Private Equity Investing in the Compounding Pharmacy Sector,” Feb. 10, 2013, http://www.thehealthcareinvestor.com/2013/02/articles/life-sciences-investing/private-equity-investing-in-the-compounding-pharmacy-sector/ ↩
- “Consolidation of Pharmacy Compounding Services: An Alternative to Outsourcing,” March/April 2011, http://www.clinicaliq.com/content/consolidation.pdf ↩