Drug Stores
Cheap prescription drugs from the likes of Wal-Mart (which claims to have saved consumers more than $1 billion since rolling back pharmaceutical prices in September 2006), Target and major supermarket chains aren’t worrying the large drug store chains. For the most part, CVS, Walgreen and Rite Aid have ignored the bargain-basement approach to pharmacy pricing, absorbed the punch from the competition and moved on.
What’s of more concern to this segment are the reimbursement rates on Medicaid prescriptions delineated in the Deficit Reduction Act of 2005. The large drug store chains have deep enough pockets to deal with the low rates, but reduced revenues could precipitate a wave of pharmacy closings in rural areas and low income communities, where marginal locations are pushed into the “underperforming” category.
One industry survey indicates as many as 11,100 pharmacies could close as a result of low reimbursement rates. “These cuts threaten to diminish access to medications and pharmacy services, and they also threaten the vitality of communities,” says Steve Anderson, head of the National Association of Chain Drug Stores. “Pharmacies are the face of neighborhood health care, but these cuts could wipe these faces away, particularly in rural and urban areas with higher Medicaid populations.”
A snapshot of the industry shows that chain drug stores accounted for 40.4 percent of the $260 billion in domestic prescription sales last year, with supermarkets ringing up 11 percent and mass merchants 9.9 percent. Mail order houses handled 20.5 percent of the script business; independent druggists, 18.2 percent.
Whatever else is causing foment among drug Power Players, it isn’t the economy, at least so far as CVS is concerned. CEO Thomas Ryan says only about 3 percent of the chain’s business has been affected by the economy, and he’s projecting sales gains of 13 to 16 percent this year. Walgreen is not quite so upbeat, and has been strengthening its hand in non-traditional businesses like work-site services and specialty pharmacies. Rite Aid just ended a money-losing year and is facing escalating costs as it wraps up the integration of former Eckerd and Brooks Pharmacy stores.
