Microsoft word - druggists seek prescription for profit - 04-05-04 - 3023.doc

Druggists Seek Prescription for Profit
By Yuki Noguchi
Washington Post Staff Writer
Monday, April 5, 2004; Page E01
Ask John R. Eklund, owner of Preston's Pharmacy in Arlington, about Lamisil and
he rolls his eyes. For him, Lamisil sums up why the life of an independent
pharmacist is so much harder these days.
Lamisil, for those who have missed the television commercial, kills fungus that
grows under a person's toenails.
It costs about $700 for a three-month treatment. After seeing the commercials,
customers often want Lamisil, rather than a cheaper alternative, Penlac, which
costs about $100 for a three-month supply. That means Eklund must call the
patient's doctor, who must call the insurance company, which then must approve
the purchase.
It is a time-consuming headache, Eklund said, and often earns him just 2 percent
of the drug's value.
It is a vastly different business than the one Eklund said he entered when he
opened his first pharmacy in Falls Church 27 years ago. That was a tiny
operation that sold only prescription medication, a business that produced
healthy profit margins of 30 to 40 percent.
Now, he says, the average bottle brings in a margin of 2 to 5 percent, depending
on the drug, which after paying employees, the mortgage and other costs, leaves
him with a profit of 1 to 2 percent.
Eklund blames managed-care companies. "Managed care came in and made it
difficult. For me, it's turned a more satisfying profession to a more frustrating
one," Eklund said.
Pharmaceutical benefit management companies, or PBMs for short, rose to
power in the 1990s after insurance companies sought help in managing costs.
For pharmacies to do business with insured patients, PBMs require pharmacies
like Preston's to agree to set reimbursement rates for drugs.
Chain drugstores such as CVS Corp., Rite Aid Corp. and Walgreen Co., also
make a profit of about 2 percent on drugs, said Laura Miller, senior economist for
http://www.washingtonpost.com/ 04-05-04 Page 1 of 3 the National Association of Chain Drug Stores in Alexandria. They expanded their sales of food, shampoo, garden supplies and services like film development. The average chain drugstore generates 70 percent of its sales from prescription drugs, compared with 90 percent for independents, Miller said. PBMs have also encouraged people to use cheaper mail order services to buy prescription drugs. As drug-only pharmacies found they could not make enough money and closed their doors, chain drugstores grew substantially, especially in the 1990s, Miller said. Now 65 percent of pharmacies are operated by chains owning four or more locations. Eklund closed his Falls Church, drug-only pharmacy in 1996. He then focused his energies on Preston's, a larger store he had bought in 1986. He figured he could make more money selling other products there. But then Rite Aid moved in next door and a CVS moved in across the street. Eklund cut prices on his over-the-counter products. He had to take a two-thirds pay cut, but eventually he saved enough money to buy his current place a half-mile down the road on Lee Highway. "I'd rather go bust than have Rite Aid win," said Eklund, knitting his brow. The independents that survived the shakeout had to be more entrepreneurial, said Douglas Hoey, a senior vice president of the National Community Pharmacists Association in Alexandria. More than 80 percent of independent pharmacies offer extra services, including mixing their own drugs and making home deliveries, he said. Customers at Preston in recent days have been a mix of loyal patrons and others referred by physicians for special services. Kurt Lightel drove from for a specialized topical gel for his wife's arthritis. The drug needs to be mixed by a pharmacist that staffs a compound lab. "We checked a couple of other pharmacies, but they either didn't know how to or couldn't make it," said Lightel, whose doctor referred him to Preston's. The week before, Charlotte Nuhn, 88, pushed her walker past the greeting cards and specialty gifts in search of a mechanized seat cushion that would lift her to a standing position. Nuhn said she has come to Preston's for 15 years; Eklund once even made a house call to her Arlington home to untangle the wheels of her walker, bought several years ago at Preston's, from stray strings of carpet. Eklund has also turned to selling gifts and unusual products. The store carries a handmade, sequined birthday card that goes for $7.95, fine Naron chocolates, educational toys, Burt's Bees natural lip balms and lotions and hand-dipped birthday candles. http://www.washingtonpost.com/ 04-05-04 Page 2 of 3 Half the wall space past the gift section is devoted to medical equipment like therapeutic hosiery, knee braces, and back supports, where the profit margins are more substantial, about 30 percent. Eklund said Preston's has become known in Arlington as the place to buy walkers, crutches, foldable wheelchairs, and even the rubber stoppers that go on the bottom of canes. But he laments the evolution that has made prescription drugs one of the least profitable parts of his business. And he keeps a tiny newspaper clipping of drugmaker Pfizer Inc.'s latest corporate financial report to remind him who's making the money in his business. "That's 28 percent net income," he said, angrily tapping the clipping. "It annoys me." http://www.washingtonpost.com/ 04-05-04 Page 3 of 3

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