Ohio Medicaid Drug List
Drug store leaders look to promise beyond industry pitfalls of today - 2003 Annual ReportJames Frederick Fighting for every dollar.
That could sum up the state of chain drug retailing after three years of economic retreat, a halting recovery, faltering consumer confidence and seemingly endless waves of wrenching job losses for millions of Americans. And even with the apparent rapid success of U.S. forces in the war in Iraq, a real pickup in factory orders, new jobs and consumer demand is unlikely until other long-term economic issues are also dealt with.
It isn't pretty, but it's the reality that pharmacy retailers from all channels--chain and independent drug stores, discount mass merchandisers and supermarkets--are grappling with as they work to cut operating costs to the bone and position themselves for the eventual upturn. Even the most upbeat and confident retail executives express caution.
"The sluggish economy requires that we take the necessary actions to tightly control our costs of operation and capital spending," noted Duane Reade chairman, president and chief executive officer Tony Cuti earlier this year, echoing the industry's consensus.
There remains no shortage of other potholes on the road to a healthier drug store industry in 2003. Besides the continuing assault on prescription dispensing margins at the hands of public and private managed-care plans, chain and independent drug store operators also are faced with intensifying competition for both their pharmacy and front-end business.
That competition certainly is coming from Wal-Mart Stores, which has become one of the nation's biggest-selling prescription retailers with pharmacy counters in nearly 3,000 of its stores. But it's also coming from other mass merchants and from supermarkets. And, perhaps most alarmingly, it's coming increasingly from mail order pharmacies.
According to IMS Health, mail order and mass merchandise pharmacies are the fastest-growing outlets for prescription sales. Total retail sales of prescription drugs rose 11.3 percent in 2002 to $182.7 billion, IMS reported. And while traditional chain drug stores still accounted for the largest share of that total, with $73.4 billion in sales and 40.1 percent of the total market last year, their 8.4 percent growth rate was eclipsed by mail order pharmacy, whose sales rose 21.7 percent to $33.5 billion. Also outpacing chain drug pharmacy sales gains were mass merchandisers, whose share rose 14.3 percent to $17.4 billion, and supermarkets, with a prescription sales gain of 9.9 percent to 21.8 percent. Independents managed a gain of 8.2 percent to $36.8 billion, or 20.2 percent of the retail prescription business.
For traditional drug store chains and independents, "We think the most significant near-term issues are softer sales due to market share loss to other channels and a generally weaker economy, as well as increased competition," noted Lisa Cartwright, a retail analyst with Salomon Smith Barney.
Besides mail order and other legitimate channels, that competition is now coming from outside the United States. Rapid startup storefront pharmacies that offer cut-rate imported medicines from Canada and other countries have become an increasing headache for U.S. retailers, and are drawing increasing scrutiny from the Food and Drug Administration.
In addition, drug retailers in all trade channels are faced with the prospect of a deepening fiscal crisis in the states, nearly all of which are struggling with rising costs for Medicaid and 'declining tax revenues. Cuts in reimbursements for Medicaid prescriptions are likely to remain a favorite tool of cash-strapped states this year and are likely to spark more revolts among chain and in a ependent drug stores as they did last year in Delaware and Massachusetts.
"States are in their worst fiscal crisis since World War II ... and over the last several years they have seen their Medicaid costs rise substantially," said Chris Jennings, who served as senior health policy advisor in the Clinton White House and now is president of Jennings Policy Strategies.
Also looming is the prospect for Medicare reform and a drug benefit for seniors. Public and private-sector third party payers now account for nearly 9-of-every-10 prescriptions filled by chain pharmacies, leading to unparalleled influence over drug utilization rates, drug formularies, generic substitution rates and the profit margins pharmacy retailers can still squeeze out of the prescription dispensing business. And with nearly all Medicare reform proposals that have surfaced in Congress or the White House envisioning a big role for prescription benefit managers in the administering of any drug benefit for seniors, the power PBMs have over community pharmacy is only likely to increase.
Chain and independent pharmacy will remain on the front lines of the battle to shape Medicare reform legislation. "Ultimately, I think we're going to have some form of Medicare prescription coverage, and we are committed to finding ways to do that," said Craig Fuller, president and chief executive officer of the National Association of Chain Drug Stores. But he said real reform of Medicare could be "extraordinarily difficult" this year, with a drug benefit package for seniors competing with the costs of war in Iraq, budgetary crises in the states, continuing economic turmoil and a massive tax cut proposal all competing for the attention of lawmakers.
Whatever Medicare drug coverage bill does emerge this year, Fuller added, "We are not going to stand band let the whole thing be turned over to PBMs."
Nevertheless, Jennings flatly predicted, "It's no longer a question of whether PBMs will administer [whatever Medicare drug benefit is eventually passed]. They will. The question is who will manage it."
If and when the nation's uninsured seniors do get some federal relief from out of-pocket prescription drug costs through Medicare, the impact on retail pharmacy sales could be dramatic. Doug Long, vice President of trade relations for IMS health, noted that the government estimates that the nation's 10 million or more uninsured, cash-paying seniors are doing without prescriptions the can't afford. "It works out to about per year per patient," he said. 'That equals 65 million unfilled prescriptions per year."
Despite the obvious pitfalls drug store retailers are likely to face this year, those retailers are a generally resilient bunch, and they've been down this road before. The industry also can point to some real positives for drug store retailing that have happened over the past year-and some hopeful signs for 2003.
One is the tremendous job the industry has done with the Health Insurance Portability and Accountability Act compliance. By and large, retail pharmacy leaders report their companies have met the April 15 deadline for full compliance with the new patient privacy protections mandated by HIPAA. What's more, many say that in the process of gearing up for the new regulations, they've overhauled dispensing procedures and technologies in ways that have made them more efficient and smarter.
Also looking a little brighter is the labor picture. Although the pharmacist shortage remains a critical long-term issue for many retailers, some relief was felt in recent months. In the year between July 2001 and July 2002, for instance, pharmacist staff vacancies at drug, discount and supermarket chains declined from a peak of 7,744 to 5,475, according to NACDS.
Lured by word of higher salaries and increasing career-track options, more students are enrolling in pharmacy schools, and a handful of new pharmacy schools have been opened to meet demand. The number of graduating pharmacists is projected to rise from 7,983 in 2002 to 8,015 this year and more than 9,600 by 2006, according to NACDS.
What's more, the race to automate high-volume pharmacies and the dispensing workload has paid dividends in efficiency and higher productivity.
"I think the labor shortage has lessened its chokehold on us a little,' observed Ron Sims, president and chief operating officer of Indianapolis-based Marsh Drugs. "As an industry, we've gotten more efficient as a result of the shortage, because we've had to. We have better staffing utilization than we used to."
Some relief may also come this year from Congress, where Sen. Jack Reed, D-R.I., has introduced the Pharmacy Education Aid Act of 2003. The bill would boost financial assistance to students, faculty and schools of pharmacy "to encourage more students to pursue careers in pharmacy and provide pharmacists to under served areas of the country," according to Reed.
Reed's bill would allow graduates to apply for loan repayment funds, provided they commit to practicing in an area of the country in need of pharmacists for a least two years. It also allows students who agree to teach full-time for two years at a school of pharmacy to apply for loan cancellation assistance.
Also boding well for the industry's future are the increasing utilization of higher-margin generic drugs and long-term factors like the steady aging of the population. With annual prescription counts expected to reach 4 billion by 2005, underlying trends in health care and in the nation's demographics represent a massive opportunity, pharmacy leaders say.
2002 same-store sales at top drug stores
Front end
Company Jan. Feb. Mar. Apr. May June July Aug. Sept.
CVS 3.3% 5.7 11.9% -3.6% 4.6% 3.6% 2.5% 1.3% 0.4%
Eckerd 1.7 1.5 10.7 -2.6 2.3 1.4 0.5 0.1 0.4
Longs -3.3 -0.2 6.2 -3.8 0.8 3.2 -0.4 1.2 0.1
Rite Aid 3.3 4.9 9.3 -1.8 1.5 1.8 1.8 0.4 4.4
Walgreens 3.6 5.1 10.0 -1.4 4.8 3.4 1.8 -0.7 -1.7
Company Oct. Nov. Dec.
CVS 0.0% 0.7% 4.0%
Eckerd -0.5 -0.2 -3.3
Longs 0.4 1.3 0.0
Rite Aid 1.1 0.7 1.5
Walgreens 0.0 -1.7 -1.7
Source: Bear Stearns & Co.
Pharmacy
Company Jan. Feb. Mar. Apr. May June July Aug. Sept.
CVS 10.3% 11.6% 12.8% 12.8% 11.8% 12.1% 12.3% 11.4% 12.3%
Eckerd 9.8 9.7 10.0 9.3 9.0 8.7 8.1 7.5 8.2
Longs 7.4 10.1 7.7 7.6 3.3 9.1 4.5 5.7 7.1
Rite Aid 11.3 12.0 13.5 11.8 10.4 11.8 11.0 9.9 11.3
Walgreens 16.0 17.2 15.0 19.5 16.0 14.4 17.5 13.8 18.6
Company Oct. Nov. Dec.
CVS 10.8% 15.2% 7.6%
Eckerd 5.9 10.0 2.6
Longs 3.0 6.0 1.3
Rite Aid 9.4 8.6 9.1
Walgreens 13.8 12.9 16.7
Source: Bear Stearns & Co.
2003 ANNUAL REPORT
Top 30 drug chains in dollar volume
Rank Company, headquarters Total Sales
%
2002 2001 change
1 Walgreens, Deerfield, Ill. $28,681 $24,623 16.5%
2 CVS, Woonsocket, R.I. 24,182 22,241 8.7
3 Rite Aid, Camp Hill, Pa. 15,801 15,188 4.6
4 Eckerd, Largo, Fla. 14,643 13,847 5.8
5 Albertson's, (1) Scottsdale, 11,300 12,000 -5.8
Ariz.
6 Longs Drug Stores, Walnut 4,430 4,300 3.0
Creek, Calif.
7 Medicine Shoppe International, 2,150 2,041 5.4
St. Louis
8 Brooks Pharmacy, Warwick, R.I. 1,700 1,100 54.5
9 Duane Reade, New York 1,274 1,144 11.4
10 Snyder's Drug Stores, 960 900 6.7
Minnetonka, Minn.
11 Kerr Drug, Durham, N.C. 575 570 0.9
12 Discount Drug Mart, 525 475 10.5
Medina, Ohio
13 Happy Harry's, Newark, Del. 391 343 14.0
14 Medicap Pharmacies, West 366 320 14.4
Des Moines, Iowa
15 Community Distributors, 344 338 1.8
Somerset, N.J.
16 Kinney Drugs, Gouverneur, 341 296 15.2
N.Y.
17 USA/Super D, Pine 334 318 5.0
Bluff, Ark.
18 Sav-Mor Franchising, Novi, 330 314 5.1
Mich.
19 Aurora Pharmacy, Milwaukee 260 203 28.1
20 Familymeds, (3) Farmington, 252 328 -23.0
Conn.
21 StatScript, Minnetonka, 224 144 55.0
Minn.
22 Farmacias El Amal, San 216 208 3.8
Juan, P.R.
23 Hi-School Pharmacy, 200 190 5.0
Vancouver, Wash.
24 The Bartell Drug Co., 195 182 7.0
Seattle
25 Navarro Discount Pharmacies, 180 147 22.0
Miami
26 May's Drug Stores, Tulsa, 179 163 9.7
Okla.
27 Thrifty-White Drug Stores, 176 147 19.7
Minneapolis
28 Big A Drug Stores, Southgate, 130 110 18.0
Calif.
29 Medic Drug, Cleveland 120 115 4.3
30 Lewis Drug, Sioux Falls, S.D. 100 95 5.3
Fruth Pharmacy, Point 100 90 11 .1
Pleasant, W. Va.
Total 110,709 $102,430 8.1%
Rank Company, headquarters Pharmacy sales
% of total
2002 sales
1 Walgreens, Deerfield, Ill. $17,209 60.0%
2 CVS, Woonsocket, R.I. 16,347 67.6
3 Rite Aid, Camp Hill, Pa. 9,986 63.2
4 Eckerd, Largo, Fla. 10,031 68.5
5 Albertson's, (1) Scottsdale, 5,300 46.9
Ariz.
6 Longs Drug Stores, Walnut 1,949 44.0
Creek, Calif.
7 Medicine Shoppe International, 2,112 96.0
St. Louis
8 Brooks Pharmacy, Warwick, R.I. 1,148 67.5
9 Duane Reade, New York 533 41.8
10 Snyder's Drug Stores, 480 50.0
Minnetonka, Minn.
11 Kerr Drug, Durham, N.C. 375 65.8
12 Discount Drug Mart, 213 40.6
Medina, Ohio
13 Happy Harry's, Newark, Del. 282 72.1
14 Medicap Pharmacies, West 348 95.1
Des Moines, Iowa
15 Community Distributors, 150 43.6
Somerset, N.J.
16 Kinney Drugs, Gouverneur, 241 70.4
N.Y.
17 USA/Super D, Pine 250 75.0
Bluff, Ark.
18 Sav-Mor Franchising, Novi, 246 74.5
Mich.
19 Aurora Pharmacy, Milwaukee 244 93.9
20 Familymeds, (3) Farmington, 227 90.0
Conn.
21 StatScript, Minnetonka, 213 95.0
Minn.
22 Farmacias El Amal, San 115 53.0
Juan, P.R.
23 Hi-School Pharmacy, 132 66.0
Vancouver, Wash.
24 The Bartell Drug Co., 107 54.9
Seattle
25 Navarro Discount Pharmacies, 60 33.3
Miami
26 May's Drug Stores, Tulsa, 123 69.0
Okla.
27 Thrifty-White Drug Stores, 151 85.8
Minneapolis
28 Big A Drug Stores, Southgate, 52 40.0
Calif.
29 Medic Drug, Cleveland 80 67.0
30 Lewis Drug, Sioux Falls, S.D. 51 51.0
Fruth Pharmacy, Point 83 83.0
Pleasant, W. Va.
Total $68,826
Rank Company, headquarters Store Net
count change
2002 VS. 2001
1 Walgreens, Deerfield, Ill. 3,883 363
2 CVS, Woonsocket, R.I. 4,087 -104 (1)
3 Rite Aid, Camp Hill, Pa. 3,404 -93
4 Eckerd, Largo, Fla. 2,686 45
5 Albertson's, (1) Scottsdale, 2,287 (2) -134
Ariz.
6 Longs Drug Stores, Walnut 457 20
Creek, Calif.
7 Medicine Shoppe International, 1,246 -90
St. Louis
8 Brooks Pharmacy, Warwick, R.I. 330 80
9 Duane Reade, New York 228 28
10 Snyder's Drug Stores, 158 -9
Minnetonka, Minn.
11 Kerr Drug, Durham, N.C. 130 -5
12 Discount Drug Mart, 60 7
Medina, Ohio
13 Happy Harry's, Newark, Del. 68 8
14 Medicap Pharmacies, West 178 -8
Des Moines, Iowa
15 Community Distributors, 52 -1
Somerset, N.J.
16 Kinney Drugs, Gouverneur, 63 4
N.Y.
17 USA/Super D, Pine 111 -3
Bluff, Ark.
18 Sav-Mor Franchising, Novi, 86 0
Mich.
19 Aurora Pharmacy, Milwaukee 127 7
20 Familymeds, (3) Farmington, 91 -22
Conn.
21 StatScript, Minnetonka, 27 -11
Minn.
22 Farmacias El Amal, San 57 1
Juan, P.R.
23 Hi-School Pharmacy, 37 1
Vancouver, Wash.
24 The Bartell Drug Co., 51 1
Seattle
25 Navarro Discount Pharmacies, 16 0
Miami
26 May's Drug Stores, Tulsa, 37 -2
Okla.
27 Thrifty-White Drug Stores, 54 4
Minneapolis
28 Big A Drug Stores, Southgate, 21 1
Calif.
29 Medic Drug, Cleveland 27 -1
30 Lewis Drug, Sioux Falls, S.D. 23 1
Fruth Pharmacy, Point 22 0
Pleasant, W. Va.
Total 20,104 +86
(1)Reflects 229 strategic store closings
(2)Albertson's totals represent results from 708 stand-alone drug store,
341 Sav-on stores, 367 Osco stores and 1,113 food and drug combo stores;
2001 results include 80 former Osco stores sold to Brooks in late 2001
(3)Sales figure reflects the termination of about 10 contracts with
franchises which reduced 2002 sales by about $70 million
List reflects pharmacy chains with annual sales of at least $100
million. All figures based on fiscal year 2002
Source: Drug Store News research
Channel breakdown
Store Traditional Independent
characteristics chain drug store drug store
Total sales $118.0B $37.5B
Total pharmacy sales $73.4B $36.7B
Average annual sales per store $5.8M $1.9M
Average annual pharmacy sales $3.6M $1.2M
Percent pharmacy sales 62.4% 98.0%
No. of stores 20,306 19,473
Store Supermarket Mass merchant
characteristics with pharmacy with pharmacy
Total sales $157.1B $230.2B
Total pharmacy sales $21.8B $17.4B
Average annual sales per store $17.8M $36.8M
Average annual pharmacy sales $2.5M $2.8M
Percent pharmacy sales 14.0% 8.0%
No. of stores 8,840 6,255
Source: National Association of Chain Drug Stores for 2002
COPYRIGHT 2003 Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission.
COPYRIGHT 2003 Gale Group
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