Paulsen’s soda fountain, which sells root beer floats for $2.75, attracts local business people as well as students from nearby Grant High School. // Photo by Eric Näslund
Like many independent pharmacists, Balo belongs to a wholesale provider group, in his case the Good Neighbor Pharmacy, a brand that gives members access to private-label purchasing, marketing materials and managed care networks. The store’s niche products and services include free home delivery, specialized “bubble packing” that allows seniors to keep track of medications in their homes, and customized drug preparations that range from cancer medications to veterinary antibiotics. Hard-to-find skin care creams, Medicare-approved “durable medical supplies,” and an old-time soda fountain featuring $2.75 root beer floats add to the offerings.
Like most independents, the bulk of Paulsen’s annual pharmacy sales, about 85%, come from prescription drugs — the national average is around 94%. Chain stores, by contrast, rely more on “front end” merchandise such as food and toiletries that can be marked up to compensate for flat rate drug reimbursement or dispensing fees.
Market diversification gives the Rite Aids of the world an edge. Nevertheless, in the David vs. Goliath tale community pharmacists like to spin about themselves, the giant is not so much the chains — or the government — as the pharmacy benefit managers. Most independents have contracts with the three biggest PBMs — Medco Health Solutions, Caremark and Express Scripts —but typically have little control over the terms. “The medicine might cost $200 and the contract pays us $202,” says Ann Murray, who, with her husband, John, owns two Murray’s Drugs, one in Condon and another in Heppner. “Most businesses have to make 20% to cover overhead,” Murray says. “You can’t expect pharmacies to survive by giving it away.”
The biggest problem with PBMs is they push consumers toward their own mail-order pharmacies, says John Murray. When the PBMs sell direct, they are able to negotiate better rates with drug manufacturers, and offer deals such as a three-month supply of medication for the cost of one. In the last few years, Murray estimates he’s lost about 20%-50% of his prescription business to mail order.
Aimed at reducing costs, mail order actually increases waste, Murray and other pharmacists contend, because patients change prescriptions before 90 days or because people take the medicine improperly. PBMs counter with their own studies saying that people are more likely to take medicines when by ordered by mail — and that mail order saves consumers and health plan sponsors money. “Independents always argue that we’re squeezing them out of business,” says Thom Gross, a spokesperson for Express Scripts, adding that independents are actually more profitable than other drug channels, including PBMs.
The National Community Pharmacists Association is engaged in an ongoing battle with the PBMs, an effort that includes lawsuits related to deceptive practices and unfair competition. Pennsylvania and New York are also considering legislation prohibiting PBMs from mandating their customers use mail order.