New assault on independent drugstores

HACKENSACK, N.J. — In Palisades Park, N.J., Michael and Louis Giannantonio are trying to keep their 57-year-old family-owned drugstore healthy with a recipe their father taught them: friendliness and service.

In Cresskill, N.J., Sree and Satish Vattimilli are hoping home deliveries and consultations and greeting customers by name will immunize their store from the competition.

In Haworth, N.J., Bill and Denise Hayes are counting on a dose of high-tech innovation mixed with an old-fashioned mom-and-pop style of doing business to keep their pharmacy alive.

Independent drugstores fill hundreds of prescriptions a day for ailments such as diabetes, migraines and ear infections. But store owners say they won't be able to continue doing that unless they find a remedy for the intense pressure they are feeling from a system that squeezes their profits and gives new competitors an unfair advantage.

They're not so much worried about the proliferation of chain drugstores or the big-box discounters as they are the pharmacy benefit manager companies that were born about 30 years ago to process prescription claims for insurers and have grown into giant corporations that control what drugstores can charge. Sometimes, they even compete with pharmacies through their own mail-order operations.

"We lose patients every day to mail order, specialty pharmacy, restricted networks and other methods that the PBMs use to drive prescriptions to their own businesses," said Matt Kopacki, owner of Rock Ridge Pharmacy in Glen Rock, N.J. "The system is stacked against the local pharmacy, and in some cases, even against the national chain drugstores."

"One of the elements of unfairness of these prescription benefit programs is that the same companies who design the programs own the mail-order pharmacies to which patients are directed," said Daniel Hussar, a professor at the Philadelphia College of Pharmacy and author of "The Pharmacist Activist" newsletter.

Some patients, particularly those using expensive medicines for chronic conditions, are told their only option is to have the drugs delivered by mail. Others are urged to switch to mail order to be eligible for a lower co-payment.

The recent merger of two of the largest pharmacy benefit managers — Express Scripts in St. Louis and Medco in Franklin Lakes, N.J. — and the 2006 merger of the drugstore chain CVS with the pharmacy and benefits manager Caremark have focused attention on the role of these companies. Lawmakers in a number of states, including New Jersey, have proposed legislation to limit or regulate PBMs.

Laurie Clark, a lobbyist for the New Jersey Pharmacists Association and the Garden State Pharmacy Owners, said those groups support a bill introduced by Linda Stender, which among other things would prohibit pharmacy benefit managers from requiring someone to fill their prescription at a specific retail pharmacy or at a mail-order pharmacy.

"It's one thing if a patient wants to go to mail order," Clark said, but many patients are told their prescriptions can be filled only by mail order. "They lose access to their local pharmacist," Clark added. "Having that access is something we feel is very important to health care."

The National Community Pharmacists Association, a Virginia-based lobbying group, last week kicked off an attack on the benefit management companies with a website ( and a video intended to mobilize sentiment against them.

Brian Henry, a spokesman for the Express Scripts, noted that PBMs save their clients — the employers and insurers — money on their prescription drug plans.

"We believe we have a very good relationship with pharmacies, with independents and chains, and every other type of pharmacy," Henry said. "We think we offer very fair reimbursement."

The Pharmaceutical Care Management Association, an industry advocacy group representing PBMs, last year released a study that estimated PBMs will save insurance plan sponsors and consumers almost $2 trillion over the next 10 years, a cost savings of about 35 percent compared with drug expenditures made outside a PBM.

Some say the system is stacked against them.

Drugstores that want to be part of an insurance plan's network must accept the reimbursement decided by the pharmacy benefit manager and submit to audits. Pharmacists say they sometimes are reimbursed less than they paid for a drug. In one case, a pharmacist said he paid $178.67 to fill a prescription for an antidepressant and was given a reimbursement of $173.20. Normally, the profit margin on a prescription is less than 5 percent; on a generic drug prescription that can amount to just $1 or less.

"The margins are so skinny that it's not a business for the faint of heart," said Bill Hayes, who with his wife, Denise, has owned the Haworth Apothecary for 19 years. "If things were on a level playing field, we'd be in a different position."

Since 1990, the number of independent drugstores in the United States has declined 28 percent, to 23,064 from 31,879. The number of chain drugstores has increased 11.6 percent in the period, to 20,804 from 18,638.

Loyal customers have helped some independent pharmacies learn to live with competition from the chains.

Sree Vattimilli discovered a month after she and her husband, Satish, purchased Cresskill Pharmacy at the end of 2008 that a CVS drugstore with a drive-through pharmacy was set to open half a block away, in early 2009.

"I cried for one week when I found out," she said. But since then the Vattimillis have built up a devoted base of customers who say they will only shop there.

John Anthony Arfmann of neighboring Tenafly, N.J., said he would remain loyal to Cresskill Pharmacy even if he could save money by using mail order or another pharmacy, because Satish Vattimilli has delivered medicine when he was home with a sick child and stays on top of all of the renewals his family needs.

He said he pays the same as he would elsewhere but would pay a higher co-pay to stay with Cresskill Pharmacy "because it's worth it for the service."

Carol Ann Hector of Glen Rock, N.J., said she has remained loyal to Rock Ridge Pharmacy there despite frequent calls from her pharmacy benefits company urging her to switch to mail order for her diabetes supplies. She said that when she recently left for a vacation in Cape May and forgot to pick up her insulin at Rock Ridge, the owner, Matt Kopacki, sent it by overnight delivery to arrive the next day.

"Matt always goes out of his way," she said.

Where do independents fit in changing retail picture?

Adam Fein, president of Pembroke Consulting, which serves pharmaceutical manufacturers, and author of the blog, said the problem for independent drugstores is that "everything else is growing much faster." Despite customers who say they like the service of the independents, Americans in general have shown they like chain stores, and other types of mom-and-pop stores, like office supply stores and bookstores, have largely disappeared from Main Streets, too.

"The world has changed, and in general those changes have led to lower prices for consumers," he said.

Fein said he believes there will always be some strong local pharmacies, just as there still are some local hardware stores and bookshops in the age of chains, but "the era of the landscape being dominated by family-owned mom-and-pop pharmacists is gone, and it's never coming back."

"Trying to legislate or stop that progress is really just a protectionist impulse that people have that can ultimately raise prices for consumers," he said.

Despite that, Louis Giannantonio, general manager of Anthony's Pharmacy in Palisades Park, and a drugstore with the same name in Ridgefield, said he is confident that the business started by his father will be around when a third generation is ready to take over.

"You have to keep going after new business," he said. "You have to reinvent the front end."

The stores have added a new line of half-price greeting cards and expanded their surgical-supplies department. He said one of the perks of his job — seeing people he grew up with come in the store, and their children and their parents — and helping them, keeps him in the business.

"It becomes a vocation after a while," he said. "It's not only your living, but it becomes your life."

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