It’s an old story, and one we’ve heard many times: Small, privately-owned business struggles to compete with corporate giant. Companies like Walmart, Home Depot, Barnes & Noble, et al. edge out local mom-and-pop stores because they can afford to offer lower prices to consumers. And mom and pop aren’t happy.
But the story is a bit more complex for local pharmacy owners. Bob Bradley, owner of Beacon Falls Pharmacy and founder of the Beacon Falls Merchant’s Association, says the vast majority of his business’s revenue is generated by selling prescriptions and pharmaceutical services. Retail operations (sales of greeting cards, newspapers, candy, and the like) are something of an afterthought.
“Prescription sales are our bread and butter, really,” added Jerry Russo, owner and manager of Nelson’s pharmacy in Naugatuck.
And since customers dole out the same co-pay for prescriptions at any pharmacy, privately-owned pharmacies are largely exempt from the problems of other small businesses. They don’t struggle to price-match giants like CVS, Rite-Aid, and Walgreens—simply because they don’t have to.
“We’re no different from [them],” Bradley said. “They don’t hurt us at all.”
But he says he’s been losing customers consistently in recent weeks. He chalks up the waning business to the insurance policies of several large area employers—Sikorsky, IBM and Northeast Utilities, to name a few—which require beneficiaries to order prescription drugs from mail-order companies like Caremark, Express Scripts or RegenceRx. Employees aren’t given the option to get their medications from traditional pharmacies.
“Patients want to have a choice of whether they use a mail-order service or their local pharmacy,” said Margherita Giuliano, Executive Vice President of the Connecticut Pharmacists Association.
Russo says his business has also been affected by this move toward compulsory mail-orders.
“It’s a big threat to independent pharmacies,” he said, “any pharmacy, really.”
Additionally, Russo says the cost-efficiency of these programs is not necessarily ideal.
With mail order companies, “Nothing is transparent,” Russo said. “I’ve heard a bunch of different stories, especially about discrepancy between prices … Nobody’s proven that [mail-order companies] have saved anybody money.”
He says the full, uninsured price of generic drugs is sometimes less than the co-pay charged by a mail-order company.
“I’m not sure mail-order companies will be honest” with pricing, he said. “But local pharmacies can meet or beat generic pricing,” even at full cost.
Russo says the higher prices for generics from mail-order pharmacies may be due to higher-dosage medications (pills that need to be taken only once a day, rather than twice or thrice a day).
“As long as people don’t mind taking drugs twice a day, we can save them money,” Russo said.
About two-thirds of all brand-name drugs, he says, are available in generic form.
A legal loophole and antitrust investigation
Connecticut law (C.G.S. Sec 38a-544) states, “No medical benefits contract on a group basis, whether issued by an insurance company, a hospital service corporation, a medical service corporation or a health care center, which provides coverage for prescription drugs may require any person covered under such contract to obtain prescription drugs from a mail order pharmacy as a condition of obtaining benefits for such drugs.”
So isn’t the insurance policy at these large companies illegal? Well, not quite.
It turns out employers can sidestep this law by utilizing a system of self-insurance, in which the companies finance medical claims directly and pay a fee to insurance agencies to administer claims processing. Some companies even take care of their own administration. The benefit to employers is the elimination of the profit margin built into a traditional insurance company’s premium, but this savings comes at a price—more risk incurred.
At any rate, companies that use a self-insured system are exempt from the state law under the federal Employee Retirement Income Security Act (ERISA), according to Giuliano.
“If that’s what the law is, you’ve got to follow the law,” Russo said, “but I’ve never heard someone say, ‘I want mail-order. I love mail-order.’”
It would seem, at first glance, the increasing trend toward a system of self-insurance and mail-order prescription drugs would be the death knell for all traditional pharmacies, not just privately-owned drugstores. But there is one very big exception.
In March, 2007, CVS merged—to the tune of $27 billion—with Caremark Rx, a pharmacy benefit manager (PBM) and prescription mail-order company.
Bradley called the merger “underhanded,” saying, “I think the [Federal Trade Commission] never should have allowed it.”
And indeed, the FTC has since accumulated quite a history with CVS Caremark.
In February of this year, the corporation paid the U.S. government a $2.25 million settlement following an extensive investigation into HIPAA (Health Insurance Portability and Accountability Act) privacy noncompliance, involving the improper disposal of health information.
And the FTC has recently renewed its unfavorable interest in CVS Caremark, this time over antitrust concerns.
In May, the Wall Street Journal reported that CVS Caremark was funneling customers to its own pharmacies by raising co-pays for patients filling prescriptions at other pharmacies.
Bradley says his pharmacy deals with CVS Caremark, on the prescription benefit management side, to adjudicate claims. But the giant is then “data-mining” and using that patient information to market mail-order services directly to Bradley’s customers, he claims.
“[This practice] is a HIPAA violation, if you ask me,” Russo said. “I don’t think [CVS Caremark] is using its clout in an appropriate way.”
According to the National Community Pharmacists Association (NCPA), these complaints are not altogether uncommon.
“Patients consistently complain of higher prices, fewer choices and privacy violations,” NCPA Executive Vice President and CEO Bruce T. Roberts said in a written statement. “Patients cite steep penalties for choosing other pharmacies, if they’re allowed a choice at all. Aggressive marketing tactics tap into vast databases of private medical records. Meaningful competition has been severely diminished.”
A Nov. 5 Security and Exchange Commission filing from CVS Caremark said the FTC was, as of August, conducting a “nonpublic investigation” into the company’s business practices. CVS Caremark said it is cooperating with the investigation and “remains confident that [its] business practices and service offerings, which are designed to reduce health-care costs and expand consumer choice, are being conducted in compliance with the antitrust laws.”
Giuliano says there are “many concerns” about the practices of not just CVS Caremark, but other PBMs, to boot.
“CVS Caremark is the most concerning,” she said, “because they have their own brick-and-mortar stores,” but other PBMs are involved in similar aggressive marketing schemes.
It seems almost unavoidable, as competing pharmacies and PBMs are all networked together.
“It’s like giving the fox the key to the henhouse,” Giuliano quipped.
The advantages of buying local
Bradley says the problems with getting prescriptions from mail-order companies run deeper than just the offenses allegedly perpetrated by CVS Caremark.
First of all, Bradley contends the role a pharmacist plays in the greater picture of patients’ health is far too important to be relegated to what he considers impersonal phone service.
A pharmacist is “the last line of defense,” Bradley said, the person who, if a patient is prescribed conflicting medications by unaware practitioners, will foresee and prevent bad medicinal interactions. Additionally, community pharmacists tend to know customers’ individual health profiles and can recommend over-the-counter drugs or treatments to suit particularized needs.
“Years ago, people used to use the same pharmacy for everything,” Russo said. “Now I don’t know what they’re taking. I don’t have the whole picture anymore. It’s hard to make professional decisions about what’s safe.”
“It’s all about relationships,” Giuliano added. “Growing up, I knew who my physician was, and I knew who my pharmacist was. I was able to trust them and go to them.”
And though getting prescriptions through the mail might seem more convenient than making monthly or biweekly runs to the neighborhood pharmacy, Bradley says mail-order prescriptions can also be questionable in terms of quality control.
There is always a degree of uncertainty with the mail, he says. Patients might have to wait an extra day or two for medicine they need immediately, and insurers might not cover an emergency supply from a local pharmacy.
Even if a prescription is delivered on time dependably, exposure to extreme temperatures puts the medicine at risk of expiration.
Giuliano adds medications are sometimes stolen from mailboxes.
Bradley says he was once on a delivery for Beacon Falls Pharmacy right after an ice storm. He noticed a package as he approached the front door, nestled back in the bushes, apparently knocked off the stoop and out of plain sight. It turned out to be a medication shipped to one of the residents. It had been there for days.
Bradley says though his business has been affected by the advent of mail-order services, the four-year-old Beacon Falls Pharmacy is generally “doing OK.”
“I’m content with our profit margin,” he said. “But being so new, it wouldn’t take a lot for us to go back into the red.”