HIPAA, Medicare top talks at annual FMI Rx conference

Drug Store News, April 28, 2003 by James Frederick

PALM SPRINGS, Calif -- In what could be its last forum as a completely separate event, the Food Marketing Institute's 2003 Supermarket Pharmacy Conference drew more than 300 attendees to this desert resort town in mid-April. Next year, FMI will shift the event to Chicago May 1 to 4, where it will run back-to-back with the organization's massive Annual Supermarket Industry Convention.

Among those in attendance at the pharmacy event: nearly 60 supermarket pharmacy executives, as well as dozens of wholesaler executives, more than 100 vendors and several dozen educators and pharmacy association representatives. Participants were treated to a wide range of topics on broad-based issues like Medicare reform, compliance with HIPAA patient-privacy regulations, emerging health concerns, shifting consumer demographics and finding the right technology for their own pharmacies. They also participated in discussions on pharmacy residency programs, increasing generic drug utilization and other pharmacy-specific topics.

Among the highlights: a talk by Chris Jennings, senior health policy advisor to the president during 'the Clinton administration. Jennings gave members a first-hand look at current efforts to enact Medicare drug benefit legislation and predicted that prescription benefit managers will play a big role in any drug benefit plan for seniors that becomes law. The conference opened amid a backdrop of declining sales or profits at some of the biggest chains.

"The entire industry is a little flat right now," said Mark Shadle, vice president of pharmacy operations for Albertson's, in an interview at the event. "The consumer has changed, and we've allowed the Wal-Marts of the world to gain momentum. We assumed that supermarkets just owned that business forever, and we don't. We have to remember that the consumer owns the business, and we have to earn their loyalty."

Winn-Dixie Stores pharmacy business development manager Mike LeBlanc agreed. "Business in general is tough right now, our industry is probably the hardest hit," he said. "You can't raise prices right now [on OTC products], and on the prescription side, managed care is looking for every penny it can save for its insurers."

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."

Preliminary findings from the FMI's 2003 Supermarket Pharmacy Survey appear to underscore the tough conditions of today's competitive climate for food/drug retailers. According to the research--which will be presented in final form later this year--the average food-store pharmacy is filling fewer prescriptions now than it was a year or two ago.

Median number of scripts filled per day, FMI notes in the preliminary report, fell to 120 per pharmacy in 2002, from 125 in 2001 and 54 in 1998. And average weekly prescription sales per supermarket slid to a median of $37,000 last year, down from $39,017 in 2001.

On the plus side, supermarket pharmacy gross margins appear to have stabilized at a median level of 20 percent. Higher rates of generic-drug dispensing--which rose to 45 percent of total prescriptions dispensed at food-store pharmacies last year from 43 percent the year before, according to FMI--likely helped firm up margins, but may have been a factor in the decline in median prescription revenues.

"Generic dispensing has given us some protection from the erosion in margins," WinnDixie's LeBlanc noted. "The challenge for the pharmacy industry will be to sustain that higher generic utilization rate going forward."

Another plus, according to the preliminary numbers: Average annual inventory returns on pharmaceuticals improved last year to a median of 11 per store. And average gross margins held steady at 16 percent on third party script sales and at 33 percent for cash-paying customers.

Common pharmacy concerns

Beyond the tough competitive picture, food-store pharmacy leaders share many of the same concerns and hopes common to all community pharmacy providers. One big headache continues to be inadequate reimbursement from health plan payers for prescriptions dispensed to party patients, who now account for nearly 87 percent of all scripts dispensed in supermarkets, according to FMI. And payment for additional pharmacist services beyond dispensing, many conference participants complained, remains largely a phantom.

"The existing infrastructure of payment for pharmacies ... with prescription drugs as a commodity" is an industrywide problem, agreed Ron Sims, president and chief operating officer of Marsh Drugs. "We can provide a lot of other services ... but we're telling our patients, 'You're going to have to pay for it."'

Patients themselves, rather than the health plans they belong to, are going to drive the new pharmacy model, Sims predicted in an interview at the conference. "There's a vast movement of patients more interested in their health and willing to pay something for the services we now offer," he said.