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Walgreens Pharmacy Employment

Ask anyone in the business of community pharmacy to name his or her biggest operating challenge, and you'll get an earful. But quit the profession? Not likely. Most pharmacists and pharmacy executives wouldn't consider it.

Pharmacy has never been a job for the faint of heart, and the operating and work load hurdles that face pharmacy leaders and front-line retail practitioners today seem higher than ever. But most of them swear that for all its headaches and hard work, the pharmacy profession and the massive industry it drives remain, like the Peace Corps, the toughest job they'll ever love.

Given the near-term outlook for pharmacy, they'll need all the fortitude they can muster.

To the casual observer, the drug store industry looks on its surface to be one of enormous potential for almost limitless prosperity. The reasons aren't hard to fathom.

* An aging population that will soon drive 65 million baby boomers into the ranks of late middle age and senior citizenship, driving prescription sales to explosive growth levels.

* A drive by Congress and the White House to add prescription drug coverage to Medicare, potentially opening the floodgates on prescription utilization by lower-income seniors.

* New advances in medication therapy that can extend patients' lives or improve their quality of life dramatically--along with new technology to make the dispensing process more efficient and nearly error free.

* Steady progress in the long campaign to gain recognition and expand the role of pharmacists in disease management, patient education and collaborative practice models.

* Polls that show consistently high levels of public confidence in pharmacists.

* Supply chain breakthroughs that speed just-in-time delivery of pharmaceuticals and reduce inventory costs.

* Progress on the electronic prescribing and communications front, as companies like SureScripts link thousands of pharmacies with prescribing physicians and physicians begin to accept the new electronic links.

The prescription sales numbers also tell a good story. According to IMS Health, prescription sales rose another 11.3 percent last year, to $182.7 billion, with drug chain sales rising 8.4 percent to a commanding $73.4 billion.

The circling of sharks

All well and good, but under the surface, problems lurk like sharks. The industry is beset by cost-cutting and regulatory pressures, ongoing third party reimbursement and administrative hurdles, government policy makers with a preference for PBMs and a tin ear for pharmacy's position, razor-thin operating margins, intractable staffing shortages--you name it.

Also worrying many retailers is the rapid onset of mail-order pharmacy, whose sales jumped 21.7 percent in 2002 as PBMs and health plan sponsors shifted more of their patients away from their local pharmacists.

Said John Beckner, director of pharmacy and health services for Ukrop's Super Markets: "My biggest headache is that our script count as an industry is being impeded by an erosion to mail-order pharmacy ... and the continuing pressure on margins. That's why we need to better leverage our pharmacists and their expertise."

The patient privacy requirements ushered in this past April by the Health Insurance Portability and Accountability Act also remain a source of some concern for pharmacists, though by and large the industry has complied successfully with HIPAA's overall dimensions. "We all still have issues with HIPAA," said Gary Smith, manager of central pharmacy for Wegmans Food Markets, in an interview this spring. "It really can have a significant impact on the way we serve our customers."

Pharmacists also continue to shoulder the burdens of third party administration. "Today, pharmacists spend much of their time checking formularies, filling out insurance forms and waiting on hold for some untrained, unlicensed functionary from an HMO," said Mark Griffin, president and chief executive of Lewis Drug and former chairman of NACDS.

Another stubborn problem, of course, is the shortage of enough pharmacists to staff the nation's drug stores--particularly as prescription counts continue to go up. According to the latest data from the NACDS Foundation Chain Pharmacy Employment Survey, the chain drug industry began the year with 5,499 vacant chain pharmacy positions.

"With retail pharmacies expected to fill 4 billion prescriptions by 2006--up from 3 billion in 2001--it is clear much work needs to be done," the foundation noted in a report. "In addition to dispensing more medication than ever before, pharmacists are counseling an ever-growing number of patients--particularly older patients--on proper medication use. As the U.S. population ages and prescription use continues to surge, the need for pharmacists services will only increase."

Pharmacy under seige

Underlying all the short-term challenges is a fundamental long-term concern: that the traditional pharmacy business model may no longer work.

That model, with its utter dependence on the dispensing of prescriptions as the sole revenue source, has been under steady attack for well over a decade as managed care payers have risen to dominance and assumed control of prescription reimbursements. The ascendancy of prescription benefits managers and the resulting squeeze on pharmacy payments and profit margins has forced thousands of independents and scores of small and regional chains out of business. But it has also left even the best-run and most profitable drug chains scrambling to stay ahead of the margin crunch by squeezing, inefficiencies and costs out of their systems while they pursue ever-higher prescription counts in their stores.

"I don't know what that break point is," pondered a spokesman for Walgreen Co., "but every rate reduction and every tax we pay brings us closer to it."

At Walgreens, prescription sales now represent 6-of-every-10 dollars the chain takes in. At many smaller chains, the figure is even higher; Thrifty White, for instance, reports that 80 percent of its total sales are now rung up at the pharmacy counter.

Front-end sales remain a key contributor for every drug retailer, and categories like convenience foods, cosmetics, herbal supplements and photo have been standouts in recent years. But the steady movement of more of the chain drug store industry's eggs into a single basket--pharmacy--has increased the industry's vulnerability as drug retailers pursue rising prescription counts.

The profit squeeze has forced an industrywide reappraisal of pharmacy's basic role and its future viability. Indeed, with most states facing massive budget shortfalls and cutting health care budgets, the costs of doing business with some Medicaid patients have already overtaken the returns in some markets, pharmacy leaders say.

"We really have no place to go when it comes to the reimbursement rate for Medicaid," said John Fegan, vice president of pharmacy for Ahold USA, during a partially successful battle to overturn a prescription tax and turn back rate cuts in Massachusetts earlier this year. "We re at the point where it is economically unfeasible to continue. There is no room to move."

Left unchallenged, further cuts "could be the death knell for a lot of the small independents," he warned.

Walgreens president and chief operating officer Jeff Rein agreed. The relentless reimbursement cuts and delays in payments by PBMs would "absolutely drive some folks out of business," he told Drug Store News.

"If you're an independent or even a chain, you don't have deep pockets. And if you don't nave other parts of the business you can depend on, you're going to go belly-up," he warned. "You have to be the low-cost provider, that's our mantra."

In her first speech as NACDS chairman at the organization's Annual Meeting April 29, Rite Aid president and chief executive officer Mary Sammons said: "Our industry is at a crossroads. Never before has the role of prescription drugs been so important to so many. And never before have we faced so many challenges, [including] pricing battles, privacy, illegal drug importation and pressures on Medicaid brought on by the worst state budget deficits since World War II ... the list goes on and on.

"Today, pharmacy is under seige ... and it is taken for granted," added Sammons. "Too often, our industry is an afterthought for policymakers when they craft legislation. We should not be shy about reminding lawmakers that we deserve a fair and reasonable return."

Indeed, community pharmacy has always struggled to be heard in federal and state capitals amid the din of larger and more politically connected interest groups like the pharmaceutical industry, managed care operators, hospital chains or the medical community. There is simply no way that the organizations representing retail pharmacies, like NACDS and the National Community Pharmacists Association, can match that kind of lobbying heft. In a time of fundamental health care policy changes, Medicare reform and constant assaults on pharmacy reimbursements by government and private health plans, the struggle to gain a full seat at the legislative negotiating table remains one of the industry s biggest challenges.

A new business model

That has not stopped NACDS or its members from trying. And, to be sure, the pharmacy industry has made considerable progress in educating lawmakers and policy staff about the value of pharmacy care and its potential for overall health care cost savings.

"A lot of people in Congress support our position" in the Medicare drug debate, noted Larry Kocot, senior vice president mad chief counsel of NACDS, "and we've demonstrated out ability to be an effective [lobbying] force.

What's more, say many pharmacy advocates, individual chain and independent operators have made many inroads with their own state and local legislators, gaining a stronger voice in shaping legislation on Medicare reform, drug importation, generic drugs and other issues through grassroots efforts.

Despite the list of ills, retail pharmacy isn't without the talent or leverage to find its way to a brighter future. One weapon in the industry's arsenal has been the increasing shift toward generic drugs, which "has given us some protection from the erosion in margins," noted Michael LeBlanc, director of pharmacy for Winn-Dixie Stores.

On a deeper level, the erosion of dispensing profit margins is forcing the industry to adapt and search for new business opportunities. That search has triggered a re-evaluation of the roles of both the community pharmacist and the pharmacy technician, and a growing avalanche of pharmacy care and disease management programs by pharmacists in collaboration with local physicians and health plan sponsors.

On an important note, more of those programs are being paid for as acceptance of the concept grows through successful partnerships that demonstrate improved patient outcomes and lowered overall heath care costs for patients with diabetes, asthma, hypertension and other conditions. And that, say pharmacy leaders, is a good thing.

There's a vast movement of patients more interested in their health, and willing to pay something for the services we now offer," said Ron Sims, president and chief operating officer of Marsh Drugs.

2002 retail pharmacy sales $182.7 billion

Supermarket              11.9%
Mail order               18.4%
Traditional chain drug   40.1%
Independent              20.2%
Mass/merchant             9.5%

Source: National Association of Chain Drug Stores and IMS Health

Note: Table made from pie chart.

Prescription drug sales by channel

                                    2001                      2002
                         $        % Change         $        % change
                      sales *     over 2000     sales *     over 2001

Traditional chain     $67.7         10.6%        $73.4         8.4%
Mass merchant          15.2         12.2          17.4        14.3
Supermarket            19.8         14.1          21.8         9.9
Independents           33.9          8.1          36.8         8.2
Mail order             27.6         24.6          33.5        21.7
Total                  164.1        12.7         182.7        11.3

* In billions

Source: National Association of Chain Drug Stores and IMS Health

Prescriptions dispensed by channel

                              2001                      2002

                      No. of *     % change     No. of *      % change
                    prescriptions  over 2000  prescriptions  over 2001

Traditional chain          1,418       5.5%          1,474       3.9%
Mass merchant                311        6.3            339        8.9
Supermarket                  418        6.0            444        6.2
Independents                 700        1.6            710        1.1
Mail order                   161       10.7            174        7.9
Total                      3,008        5.0          3,141        4.3

Source: National Association of Chain Drug Stores and IMS Health

* In millions

2002 retail pharmacy sales

        $182.7 billion

Mail order               18.4%
Traditional chain drug   40.1%
Independent              20.2%
Mass Merchant             9.5%
Supermarket              11.9%

Source: National Association of Chain Drug Stores and IMS Health.

Note: Table made from pie chart.

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