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Drugged Out
Local pharmacies seek new strategies to fend off triple threat
of reduced reimbursement, chain competition and the Internet
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Business New Haven
3/6/2000
By: Fiona Phelan
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Faced with an aging population and an escalating need for ever-more prescription medicines, one might assume that the existence of the corner pharmacy as an American icon is assured far into the 21st century.
No way.
In fact, pharmacies - both independent community drugstores and national chain-owned stores - are facing a struggle against several formidable forces: state and federal government, and the Internet.
According to the General Accounting Office, spending on prescription drugs has increased from $50.6 million annually in 1993 to $90.8 billion in 1998. Further, according to several drugstore estimates, spending is expected to more than double to $200 billion in just the next five years.
And if Congress adopts any of a variety of proposals to provide prescription-drug coverage for Medicare patients, the number of prescriptions written annually could increase astronomically.
Currently, one-third of Medicare beneficiaries have no insurance coverage for prescription drugs. A prescription drug benefit for those patients would lead to an increase in the amount of money spent on medicines. That would be a plus for pharmacists as well as the patients who would be assured of receiving the medicines they need.
But there is a downside for pharmacies. Connecticut is looking to slash the amount of money it pays pharmacists to dispense prescriptions for the more than 100,000 men and women on Medicaid, in the Connecticut Pharmaceutical Assistance Contract to the Elderly (ConnPACE) and on state-administered general assistance.
Under the state's plan to save $13.7 million annually, the pharmacist fee would be sliced by almost half - from $4.10 to $2.22 per prescription. In the past six years, state spending on prescription drugs has almost doubled, to $260 million.
In addition, the state wants to reduce by one percent the price it reimburses pharmacies for the drugs. The state's theory is that by slashing the reimbursement and fees, those items would be more in line with the level at which HMOs are reimbursing pharmacies - and that's more fair to taxpayers.
“The reimbursement pharmacies receive couldn't get any lower,” comments Todd Dankmeyer, senior vice president of communications for the National Community Pharmacists Association. “Independent pharmacies have already been hurt because of managed-care policies and other patient incentives such as mail-order prescriptions and pharmacy provider networks.”
According to Dankmeyer, the average net profit on a prescription is about $1. On a prescription covered under a patient's insurance plan, that profit sinks to about 50 cents.
“Managed care - or managed cost, as we like to think of it - has created an environment that's driven by quantity, not quality,” Dankmeyer explains. “The more prescriptions you fill, the more money you make. That philosophy makes it very difficult for the pharmacist to attend to any patient counseling or provide other vital patient services.”
Of course, if it's not the government trying to save money, then it will be patients themselves as they turn to the Internet and online pharmacies in hopes of buying their prescription and non-prescription drugs and other health and beauty aids for less.
The Internet - like mail-order prescription organizations, the ability to phone in your prescription refill to your local pharmacy and drive-through prescription drop-off and pickup - is just one more customer-focused added convenience.
“The bricks and mortar of our business is never going to go away,” asserts Rees Pinney, senior vice president of sales and marketing at Farmington-based Arrow Corp. Arrow operates 55 Arrow Pharmacy & Nutrition Centers in Connecticut as well as 66 stores in 14 other Eastern states. Arrow launched its Web site - familyMeds.com - in August and ranked among the country's top five online drugstores just months after commencing operations. Arrow pharmacies currently dispense some ten million prescriptions annually, says Pinney.
“Customers will always need the comfort of going and talking to their pharmacist about the correct dosage, drug interaction and possible side effects,” says Pinney.
“The Internet and e-pharmacies will allow us to close the loop on the continuum of care,” he adds. “It's one more service that allows our customers to shop for their prescription and health and beauty needs at their own convenience. When people are strapped for time, as they tell us in surveys, we need to respond to that if we're going to stay in business.”
Pinney also notes that online pharmacies allows patients a greater degree of privacy than picking up medication from a store. Patients are able to order prescriptions in private without anyone, including the pharmacy store staff, knowing about their maladies.
“The Internet and online pharmacies are just a better mousetrap,” Pinney concludes.
So bricks-and-mortar stores are forced to respond.
Responding to the call for ever greater convenience, pharmacy chains like Rite-Aid have added convenience services such as one-hour photo processing, postal services, fax and copy centers, along with daily food needs such as bread and milk to many of the company's stores. Where possible, the company is building stand-alone stores rather than in strip malls, according to Sarah Datz, Rite-Aid's manager of public relations. This way the store can provide adequate parking for customers and the added service of a drive-through prescription drop-off and refill service.
In addition, notes Datz, Rite-Aid has expanded its pharmacy area to include separate and private space for patient counseling. In these areas, the pharmacist can speak one-on-one with a patient about medication and dosage and other pertinent health issues.
All this is in addition to being able to phone in a prescription refill for pick-up at your local pharmacy and an online site for prescription refills, health and beauty products and health and wellness information. Rite-Aid's Web site even allows consumers to order a prescription refill over the Internet and pick it up at their local Rite-Aid, says Datz.
Independent pharmacists are poised to take convenience one step further with the help of the Internet. Through CornerDrugstore.com, an independent drugstore can offer customers its own Web site where they can offer next-day delivery - or even same-day service - on prescription drugs and refills. Same-day delivery is something that Internet shopping cannot offer, and very often shipping through World Wide Web sites is standard (four to five days) and not “next day.”
So far, 3,700 independent pharmacies across the country have enrolled with CornerDrugstore.com and are awaiting the rollout of the consumer access component of the site in May.
It's those kinds of services and conveniences that will allow the small, independent pharmacy to compete with the national chains and discount-store pharmacies in the future, according to the National Community Pharmacists Association.
Despite a recent decline in the number of independent pharmacies, the Virginia-based organization estimates that independent pharmacy sales have experienced double-digit growth, soaring more than 20 percent over the past two years. Likewise, prescription volume increased during that time, reaching an average 46,000 prescriptions per pharmacy last year.
According to NCPA's Dankmeyer, Connecticut lost 166 independent pharmacies, but gained 80 chain-owned pharmacies in the past five years. Today, there are 214 independents in Connecticut, compared with 368 pharmacies owned by a national corporation. Nationwide there are 25,000 independently owned pharmacies compared, with 52,000 owned by chains such as CVS, Walgreen's, Rite-Aid, Arrow and others.
In order to compete with the national chain pharmacies, independent stores will need to have access to the same tools. That's why, says Dankmeyer, the NCPA has created CornerDrugstore.com as a comprehensive and affordable Internet solution for small pharmacies. For just $60 a month, an independent pharmacy can have the advantage of an individual Web site that will allow customers to order prescriptions and health and beauty aids online.
“Because many independent pharmacies already offer free local delivery, Internet customers will get free delivery the same day or the next,” says Dankmeyer. “That's much quicker service than a chain can provide. For someone who is sick and can't get out to get his or her medication, that's going to be a definite plus.”
The Internet, notes CVS spokesperson Mike DeAngelis, will play a small but very important part of the pharmacy business in the future. Customers will still want and need to go to the pharmacy to pick up “acute care” prescriptions - medications needed immediately for a short-term illness such as ear infections or sinusitis. Patients may increasingly, however, turn to the Internet to supply maintenance medications - those taken on a continuing basis for chronic illness, says DeAngelis.
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