Pharmacy aches and pains

By Tim Christie

May 18, 2008 (McClatchy-Tribune Regional News delivered by Newstex) --
David Jorgensen is a member of an increasingly rare, if not endangered, breed: the pharmacist who owns his own store.

Jorgensen owns Everett's Villa Pharmacy on Coburg Road in Eugene, a neighborhood store that he says competes by providing quicker and more personal service to its customers than the chain stores.

Two of his brethren closed their doors earlier this year: Jo Dell's Drugs on River Road, which had been in business under various owners since 1950, closed Nov. 1. McCoy's Pharmacy and Gift Shop, the last independent pharmacy in Cottage Grove, closed last month.

A variety of market and regulatory forces are buffeting the independent pharmacist, notably stiff competition from corporate chains and low reimbursements from private and government insurance plans. But pharmacists say where they're really taking a beating is on Medicare Part D, the drug benefit for seniors on Medicare that began in 2006.

Medicare Part D is "the straw that broke the camel's back," said Jim Thompson, executive director of the Oregon State Pharmacy Association.

Pharmacists say not only are the reimbursements low, but they blame pharmacy benefit managers -- the companies that administer Medicare Part D plans -- for taking one, two or three months to pay back pharmacists for prescriptions they've filled and paid for, usually within a week of filling the prescription.

"Everyone has gotten hit, even the chains, but they have a much larger capacity to absorb those kinds of things," Thompson said.

The delay has forced many smaller operators to borrow money, even take out second mortgages on their homes, to stay afloat while waiting to get paid, he said. Prescriptions typically account for more than 90 percent of a community pharmacy's revenue.

A study released last fall by the University of Texas Center for Pharmacoeconomic Studies found that in 2006, 50 percent of community pharmacies were reimbursed more than 30 days after submitting Medicare Part D claims to pharmacy benefit managers, including 17 percent that waited more than 60 days. The study, primarily funded by the Community Pharmacy Foundation, surveyed 145 independent pharmacies and 17 regional pharmacy chains and reviewed nearly 3 million Part D claims.

"It's definitely slow to reimburse, and that creates cash flow problems," said Joel Henson, vice president of pharmacy operations for Tiffany's, which operates drug stores in Eugene, Veneta, Florence and Bandon. "We are unable to offset that with other revenues like the big chains can."

Jorgensen said it typically takes six weeks for him to get reimbursed on Medicare Part D claims.

"I've had to use my own extra reserves to keep going," he said. "Where Wal-Mart (NYSE:WMT) makes up for poor reimbursement by selling other products, I make up for poor reimbursement by working more hours."

An industry group representing non-chain pharmacies is lobbying Congress for legislation that would compel pharmacy benefit managers to pay pharmacies within 14 days and to do so electronically, rather than through the mail.

Pharmacy benefit managers get paid upfront by the government, and they want to hold onto that money as long as possible before reimbursing pharmacies so they can make money off the interest, said Charlie Sewell, lobbyist for the National Community Pharmacists Association.

"It's a great deal for PBMs," he said. "It's a bad deal for pharmacies trying to take care of customers and stay in business."

Charles Cote, lobbyist for the Pharmaceutical Care Management Association, representing pharmacy benefit managers, dismissed the pharmacists' complaint of late payments as a nonissue.

"The plans are paying on time," he said. "The plans are paying promptly within 30 days."

The 30-day payment cycle is consistent with other parts of Medicare, as well as the private sector, he said.

Asked about the University of Texas study, Cote said he had heard of it but hadn't "delved into it." Instead, he pointed to a study conducted by Grant Thornton, a business consulting firm, that found 75 percent of stores were paid within 26 days.

A congressional mandate to pay drug stores within 14 days would increase costs for consumers and insurers, Cote said. A study conducted by PricewaterhouseCoopers estimated that if pharmacy benefit managers had to reimburse pharmacies within 14 days, it would increase costs by $3.3 billion to $7.8 billion over the next decade by increasing administrative costs, reducing the amount of capital available to the drug plans and making it more difficult to ferret out fraud.

"You're cutting a payment time in half, and PBMs aren't banks," he said.

"They take time to batch and process claims and then ensure there aren't instances of fraud."

Sewell said the Congressional Budget Office estimated the extra cost to be $40 million a year at most.

And unless Congress forces quicker payments, more small stores will go out of business, he said.

Nationally, about 1,000 independent pharmacies, or more than 5 percent, have closed since Medicare Part D began in 2006, Sewell said.

Thompson of the Oregon pharmacy trade group said the state is down to about 112 independent pharmacies with the closure of 10 to 20 independents in each of the past three years.

Retired Eugene pharmacist Chuck Deer said he recalls there were 32 other pharmacist-owned pharmacies in Eugene and Springfield when he bought a River Road drug store in 1958.

Today, there's just a handful of independent retail pharmacies in the metro area, including Everett's Villa Pharmacy; Hiron's, which operates two stores in Eugene; and Tiffany's Drug Stores, which has four stores.

Everett's is a throwback. Yellowing comic panels are taped to the prescription counter. You won't find magazines, diapers or flip-flops; about the only non-pharmaceutical or nonmedical merchandise Jorgensen sells is greeting cards and teddy bears. Prescriptions account for more than 90 percent of his business, he said. Customers like his store because he's able to quickly fill their prescriptions, and he jokes that he's able to remember the names of about 60 percent of his customers.

Jorgensen started working at Everett's in 1992 and bought the store in 1997. He worked at chain stores, too, but decided he didn't care for what he felt was their impersonal nature.

He's is 62 now, and he'd like to find a younger pharmacist to buy his shop in the next couple of years. Then he could keep working there part time. But he said he's not sure he'll be able to find a buyer.

"There's not a lot of people who want to put up with extra hassle of ownership," he said.

Asked whether he was concerned about the Walgreen's set to open this fall half a block south of his store, Jorgensen is nonchalant: "It's just an additional competitor," he said, noting there are six drug stores within a mile and a half, five of them part of national chains.

Jorgensen, who already works 60 to 70 hours a week, said he'll compete "by working extra hours."

"I hope I don't wake up in deep water one morning," he said.



Newstex ID: KRTB-0061-25419045