Cliff Buchan
News EditorJim Garrison heads a drug store that filled its first prescription in 1933. Dan Hagen is the owner of a Forest Lake drug store that saw its start in 1962. Combined the two stores have more than 100 years of service to the area.
At Rolseth Drug, the downtown store and owner Garrison has survived the Forest Lake business transformation that has seen shopping centers and now big-box stores with pharmacies. It is much the same with Hagenís Lakes Snyder Pharmacy at the Lake Shoppes, one of the regional shopping areas that opened in the early 1980s.
As independent business owners, both Hagen and Garrison rely heavily on their pharmacy sales and augment their prescription-filling business with a wide range of inventory from greeting cards and gifts to milk and health and beauty products.
Itís one of the facts of life for stores that are fighting new forms of competition and must still find ways to serve customers that keep those customers coming back.
Competition changes
And it is a task that is getting no easier, the two owners say. As 2004 unfolds, the two pharmacists continue to fight changing competition.
For Hagen and Garrison, the job today is far more than battling the likes of pharmacies at Wal-Mart, Target, Cub Foods and the newest arrival, Walgreens.
Today, for all drug stores, the competition is coming in form of on-line pharmacies, mail-order drug warehouses, burdensome state taxes and now even the state of Minnesota that only recently launched its Minnesota RxConnect, an on-line service that provides links to two Canadian pharmacies.
ìWeíre the middle men,î Garrison said. ìWeíre caught. Weíre the pawns in this pricing game.î
Hagen agrees, saying, ìItís frustrating. Everyone knows the cost of drugs in the United States is high. Weíre caught in the middle on the price issue.î
The ability to compete with local big box pharmacies and the ever-growing mail-house competitors has been complicated from the stateís foray into the prescription drug controversy. Minnesota RxConnect is seen by the state as a move to help consumers, but is a plan criticized by the Federal Drug Administration.
Garrison and Hagen also have philosophical questions over the stateís move.
The two men believe there is a fairness test the state is failing to meet by imposing its 2 percent Minnesota Health Care tax on all prescriptions and turning around and launching an Internet program that could siphon business from drug stores across the state.
Hagen aims his beef at Republican Gov. Tim Pawlenty who pushed for the state Internet site over frustrations he felt with the problem of rising drug prices. ìThen he complains and sends people to Canada,î Hagen said.
A contradiction
For Hagen, the real contradiction lies in the 2 percent health care tax that is placed on all prescription drug orders. ìIíll pay at least $70,000 this year in the health care tax,î Hagen said.
With six pharmacies in Forest Lake, the cityís total payment to state tax coffers could easily top $400,000, Hagen said. The state tax is used to fund the state insurance plan for the uninsured, Hagen said.
It is the 2 percent tax hike that is working to drive off other business, Garrison and Hagen said.
In todayís market, both stores are seeing a decline in the growth of prescription counts as a result of health maintenance organizations that are mandating that their clients use mail-order houses to fill drug needs.
Mail orders hurt
ìMail order is what is really hurting us,î Hagen said. ìThat 2 percent is really killing us. To the HMO that is a lot of money.î
By ordering its participants to place drug orders with out-of-state pharmacies, the HMOs dodge the 2 percent tax, Hagen says. Both pharmacists see their business growth as flat or declining.
As the area continues to grow, Hagen says his business should be growing but he is seeing no increase in the 2000 prescriptions that his store fills each week.
ìWe were up to 2000 last year and it should be growing, but it is going the other way,î Hagen said.
Profit margin low
Garrison and Hagen said there is a misconception in the public that drug stores are reaping the profits from the high price of drugs. Not so, the two men said.
Hereís an example shared by Hagen. An order of the cholesterol-fighting Lipitor costs the store $61.25. The patient will pay $70 for the 30, 10-miligram tablets. After the 2 percent health care tax is tacked on, the store will realize a profit of $7.50. The margin is slim in order for the store to make a profit.
When store owners factor their daily overhead, salaries and the time involved with patient counseling, the margin grows even smaller, Hagen says.
ìI understand why they (consumers) look elsewhere,î Garrison said.
For Garrison, who also owns Wyoming Drug, there is a fairness issue for pharmacists in the United States who do not operate on the same field with their competitors in Canada and Mexico.
Because Canada does not honor U.S. patent laws, they drive a tougher bargain with U.S, pharmaceutical companies and buy drugs at a lower cost. Those savings translate into lower consumer costs.
But, when the Canadian limited supply of drugs runs out, drugs are purchased on the world market and re-imported. The U.S. does not allow re-importation of drug products.
ìThere is no quality control,î Garrison says, echoing FDA concerns. ìThere are safety issues we need to be aware of.î
More profit factors
Hagen understands that the free market system in the U.S. is driven by a philosophy that the manufacturers most show a profit to reward stock holders and support the firmís research and development of new products.
ìThey (companies) are pushed to make a profit,î Hagen said. ìWhere can they make it other than in the United States?î
Making a profit has two faces. While it is imperative on the big drug manufacturers to show a profit, it is just as vital for independently owned stores like Rolseth Drug and Lakes Snyder Pharmacy to show a profit, the two business owners said.
Hagenís store employs 22 workers. He recently expanded his store, added a drive-through window for the pharmacy and brought on board a fully automated drug dispensing system, all in the name of improved efficiency and more customer convenience.
But they come with operating costs, including $2000 a month for the automated dispensing system, Hagen said.
And the fact of life for both stores is the pharmacy produces 90 percent of the business revenue.
ìAs the accounts go down can we afford to keep all the people we have?î Hagen asked.
Uptown at Rolseth Drug, Garrison says his nine-employee team works to hold down costs. ìWe do everything we can to curtail our costs and keep our overhead low,î Garrison says.
What can be done?
If pharmacists across Minnesota are to see improvements, they will need to be found in the prices they pay to manufacturers for drugs.
ìWe want the companies to be profitable,î Garrison adds, but adds a fairer and more equitable pricing structure is needed to end the exodus of accounts to Canada.
ìWhy donít they sell it to us for less?î Garrison asks.
Hagen said the state could be helpful by changing or eliminating the 2 percent health care tax. But a bill in the state legislature that would make changes is showing little energy, Hagen said.
If no relief can be found in the taxing matter and the cost of drugs from manufacturers, Garrison says there is one other solution that may have to be considered.
ìAllow us to import drugs if safety can be guaranteed,î Garrison said.
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