Independent pharmacies already threatened by chains now face insurance company mail-order prescription mandate - American Independent Business Alliance AMIBA

October 24 , 2004

Prescribing customer satisfaction
Independent pharmacies threatened more by mail-in prescriptions than chain stores

BY TONY ADAMS

Staff Writer

When a 10,800-square-foot CVS/pharmacy store opened next door to The Medicine Shoppe on Warm Springs Road earlier this year, it looked like a case of Goliath girding to slay a much smaller David.

Not so fast, says Neill Byrd, who has doled out medication at The Medicine Shoppe he has owned for 28 years.

"They opened in February and my gross sales went up at least 15 percent, if not more," the pharmacist said. "It's increased traffic. My customers are not going to leave me to go over there. It shows that David and Goliath are alive and well, and I can deal with them."

Those sentiments were echoed by a number of Columbus-area independent pharmacists who have watched with keen interest, if not trepidation, as the chains moved into the market in recent years.

"They actually help us because they refer patients to me every day," said Judson Mullican, a pharmacist and owner of J & J Professional Pharmacy, which has stores on Hamilton Road and 13th Street.

Solid service is one of the keys to survival, said Judson, who has filled prescriptions since 1973. His stores also stock more expensive chemotherapy and pain medications than the larger pharmacies, he said, with some medicine on his shelves going for $3,000 or $4,000 a bottle.

"They don't want to increase their inventory," he said. "They want to sell you a few things in the back and a whole lot of junk up front, including -- which I think is wrong -- cigarettes and alcohol. That just looks a little hypocritical to me."

Chains gain numbers

The stand-alone stores offered by the likes of CVS and Walgreens seemingly are popping up on every corner. Add in the mix of supermarket and mass merchant pharmacies and it is evident that the deep-pocketed retailers are putting pressure on the homegrown independents.

Simple numbers bear that out. R.L. Polk's city directory from 1994 lists 23 neighborhood pharmacies compared to 12 chain stores. At the time, the corporate presence included Big B Discount Drugs and Eckerd Drugs. The now-defunct Big B was eventually bought out by CVS Corp.

Today, the national chains have caught up and are preparing to overtake the local pharmacies in a number of locations. A glance at the phone directory shows there are 24 independents, including five owned by Columbus Regional Healthcare System. The chains -- including Wal-Mart, Kmart, Target and several supermarkets -- have at least 24 locations.

That doesn't include a free-standing store under construction by CVS near the corner of Manchester Expressway and River Road. It will replace a store tucked inside a shopping center farther north on River Road. Another CVS should open in February at the corner of Summerville and Pierce roads in Phenix City, said Mike DeAngelis, spokesman for the Rhode Island-based company that dominates the local market with nine locations.

Despite its obvious advantage in size, visibility and retail merchandise offerings, DeAngelis insists CVS respects its smaller competitors.

"They're absolutely viable competitors," he said, pointing out the prescription pie is getting larger as the "Baby Boomer" generation ages and requires more medications to keep their athletic aspirations intact. The number of people using third-party insurance prescription coverage also has surged in recent years, he said, which means more customers for everybody. More than 90 percent of CVS customers use prescription cards issued through their insurers, he said.

"The key business difference is the advent of managed care and insurance," he said. "Because of our back-shop operations at corporate we don't get buried in paperwork the way many independents do."

Pressure for profits

Profit pressures also can put a strain on independents, DeAngelis said. CVS, for instance, derives nearly 70 percent of its revenue from filling prescriptions. The rest comes from "front-end" sales of everything from milk, bread and over-the-counter remedies to greeting cards and photo processing. Profit margins for the chain are higher for non-prescription goods than the 2 percent to 3 percent it makes in its pharmacies at the back of the stores.

"The reimbursement rates on the pharmacy side, because of the advent of managed care, are so slim that it's difficult for many independents to stay in business," he said. "They can't make it up in other ways like we can."

Still, independents appear to be holding their own. The National Community Pharmacists Association, a trade group based in Arlington, Va., said nearly 24,000 independent pharmacies generated $70 billion in prescription sales in 2003. They wrote 1.4 billion prescriptions, 44 percent of the retail market.

The average pharmacy generated $3.24 million in sales in 2003, up 14 percent from the year before, the association said. That equated to an average of 181 prescriptions per pharmacy a day or more than 56,000 for the year.

"The thing about the system we're in now -- where everybody has a drug card -- is the price of prescription drugs," said Deleisa Johnson, the NCPA's vice president of communications. "It really doesn't matter which pharmacy you go to because you're paying an insurance co-pay and that co-pay's going to be the same whether you go to a chain or whether you go to an independent."

Johnson said it boils down to pharmacists' knowledge, marketing and people skills to keep customers loyal to the business. Mullican at J & J Professional Pharmacy subscribes to that belief, even going as far as to help people save money by suggesting higher doses of medicine that can be cut in half.

"You think a chain's going to mention that to you?" Mullican said. "No. They never will, because it's too much trouble."

Facing several issues

Independents do face several issues, however.

Dinglewood Pharmacy on Wynnton Road has been open since 1918 and Terry Hurley has filled prescriptions since 1963. He said newcomers to the Columbus area typically will head to the nearest national retail pharmacy rather than the neighborhood store.

"They're of the mindset that a big-box store is discount," Hurley said. "If they're coming from Atlanta or somewhere like that, they're not used to an independent pharmacy. They don't know what it is."

Another threat to local and national pharmacies alike is the trend toward mail order prescription fulfillment that calls for 90-day prescriptions. Many subscription plans are making mail order mandatory unless there is an emergency. Hurley thinks that is unfair.

"I could fill Aflac's prescriptions for 90 days just like the mail order people do at the same price, but they won't let us," he said.

David Lovett, who with his wife, Janet, owns North Columbus Pharmacy on Veterans Parkway also sees mail order as a drain on local pharmacies. He noted Blue Cross Blue Shield of Georgia switched its employees' coverage to mandatory mail order on maintenance medications.

"All of a sudden they have no choice but to go mail order," said Lovett, a pharmacist since 1991. "That's so many prescriptions that make up part of daily volume that are going to get snatched out of the local economy and sent away. We're seeing more and more of that."

Both Hurley and Lovett say they're holding their own against the encroaching chains.

On the other hand, Jimmy Thomas, owner of Thomas Drugs on Buena Vista Road, said he has felt the heat from nearby Wal-Mart, Walgreens and Winn-Dixie stores. All have carved a piece out of his neighborhood market.

"Anytime you lose a customer, or a patient goes somewhere else, you hurt. You feel it," said Thomas, who has been a pharmacist since 1979.

To combat the chains, he expanded his reach by starting citywide delivery. But that didn't solve his problems with getting paid by the insurance companies in a timely manner, or simply affording the drugs on his shelves because of soaring wholesale costs.

'They're dog eat dog'

Thomas does know the competition fairly intimately, having worked for Eckerd and Lee Drugs more than eight years apiece. He said they're really on a different playing field than the independents, vying for big volume and the desire to get a tight grip on the market.

"The chains are fighting and scratching. They're dog eat dog," Thomas said. "They are going for market share, so they have to be everywhere. CVS has to be on all the corners and Walgreens has to be. If you'll notice, Walgreens has got it in for Eckerds. They go wherever Eckerds is, right across the street from them if they can."

Illinois-based Walgreen Co. has five stores in Columbus and Phenix City. There are four Eckerd stores in Columbus; none in Phenix City.

Wal-Mart, the world's largest retailer, isn't worried at all about independent pharmacies, Thomas believes.

"We may get caught in the meat grinder accidentally, but the other chains are their competition," he said. "Wal-Mart has everything broken down. They have an average wait of 30 or 45 minutes. So they even know how many dollars customers will spend while they're waiting on a prescription."

Offers on the table

Whether the neighborhood pharmacies will stand the test of time is another matter. In recent years, several well-known local pharmacies have sold out to the corporations. They include Bladen's Valu-Rite and Edgewood pharmacies in Columbus, which were bought by Eckerd Corp. in 1997; and Booth's Pharmacy in Phenix City, purchased by CVS in 1998. In all three cases, the pharmacies were bought and simply closed.

Several local pharmacists say they have been approached routinely through the years about selling their business to the national retailers. Most resist -- until it's time for retirement.

J & J Pharmacy owner Mullican, a tone of defiance in his voice, said he has had a bunch of offers.

"They want to gobble us up," he said. "The only one that doesn't want to buy us up is someone like Walgreens. They're philosophy is this: We want to put you out of business. We don't want to buy your store because it's not worth anything to us. CVS and Eckerds have a different concept. They would like to buy us and shut us down because they want people to come to their store. But I'm not ready to sell."

Neither is Byrd at The Medicine Shoppe, despite receiving an offer from CVS to purchase his business a few weeks before the retailer opened in February. Byrd, who is 57, said he has about 10 years to go before retirement. Besides, CVS would have had to buy out the two years he has remaining on his affiliation with The Medicine Shoppe, a chain of independents that offers pharmacists collective buying power.

Staring out his store window recently, Byrd could see the CVS sign with its bright red letters offering passing motorists a 99-cent Hershey bar and a deal to buy one bottle of Ajax and get one free. It also blared a lure that is a comfort to many customers in today's manic work society: "Now open 24 hours."

Byrd conceded he's only open Monday through Friday and closes up his shop each Thursday at noon. It's no sweat, he said.

"My customers know me well enough that they can call me at home. It's like I'm on call 24 hours a day," he said. "I don't turn away any business. And I can say I'm very content."

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