PHARMACIDE NEIGHBORHOOD DRUGSTORES AILING.

Byline: JULIA M. SCOTT

Staff Writer

It may be time to say goodbye to your local pharmacy.

A federal government drug program designed to make Americans healthier has put many drugstores on their deathbeds.

Particularly hard hit are local, independently owned pharmacies that rely heavily on income from dispensing pills. Some 600 stores have shut their doors nationwide, while survivors are increasingly relying on niche businesses, like selling sodas and knickknacks, to get by.

"All pharmacies are going to be destroyed," said Dany Sharim, who owns Century Discount Pharmacy on Sherman Way in Reseda. "I'm almost sure of it."

Cheaper drugs

The government drug program, known as Medicare Part D, is creating a brutally efficient network of pharmacies.

Government officials say the plan is designed to make drugs cheaper, but pharmacists say it has virtually removed what little profit was still left in the business of dispensing prescriptions.

As part of the 16-month-old program, scores of lucrative Medi-Cal patients were switched over to the lower-paying Medicare plan, using Part D for their prescriptions.

Under Part D, the payment a pharmacist receives from health insurers for each prescription it fills is less than what it was under Medi-Cal.

It is unclear how many more local pharmacies will close because of Part D. Under the lower reimbursement rates with Part D, owners of one in three local pharmacies are considering going out of business, according to the National Community Pharmacists Association. Almost 90 percent had worse cash flow after Part D started, and more than half borrowed money to stay in business.

Pharmacies are struggling because their profit margins are slim to start with, according to John Cronin, an attorney for the California Pharmacists Association who owns two pharmacies in San Diego County.

Independent pharmacies typically make a 4 percent profit overall, Cronin said. But a reduction in prescription reimbursement has reduced that margin to just 2 percent, cutting profits in half. To boost their earnings, pharmacists have laid off employees or negotiated better prices for the drugs they buy, Cronin said. Many who haven't trimmed costs have sold their businesses or closed.

Layoffs, second jobs

A typical independent pharmacy gets 92 percent of its income from filling prescriptions, leaving little wiggle room when money from dispensing medicine drops.

Pharmacist Sharim, who relies almost entirely on prescription income, has seen his profits evaporate since Part D took effect. He took a second job as a security adviser and laid off two employees to make up for lost dollars.

Sharim stays in business because the work is so satisfying, he said.

At Hado Pharmacy on Reseda Boulevard in Reseda, Susan Do has seen her revenue slashed by half. About 80 percent of her income comes from filling prescriptions. She has been in business for 11 years and thinks about retiring.

"I don't know what to do," Do said.

Lower prescription payments have also dented profits at big chains like CVS or Rite Aid, but the damage does not appear to be as deep.

That's because chains rely less on prescription income and more on sales of sundry items and impulse purchases like lipstick and Band Aids. Part D has bumped up foot traffic because more people are eligible for prescription coverage under it, and more customers mean more impulse buys, says Mike DeAngelis, a CVS spokesman.

"We are certainly impacted by lower reimbursement rates, but the higher utilization rates partially offsets it," he said.

At Rite Aid, profit from filling generic prescriptions "helped offset a substantial portion of the lower reimbursement for Medicare Part D," said CEO Mary Sammons during a conference call Dec. 21. Increased demand for prescriptions under Part D will hopefully offset lower payments, she added.

Big advantages

Private health insurers like Blue Cross or Health Net negotiate prescription payments with pharmacies.

The problem is local pharmacies don't have the power to win good rates, Cronin said.

"The insurance plans have so much leverage that they can essentially impose what they want," Cronin said.

At Health Net of California in Woodland Hills, determining pay for prescriptions is "a complicated formula" tied to the average wholesale price of a drug, said spokesman Brad Kieffer. He declined to provide further details but said Health Net has a stake in setting fair pay.

"Our motivation is to ensure we have a strong network of pharmacies that serve our customers," he said. "We want to make sure our customers have convenient access to their medications."

Doesn't pay to sell

In rare cases, private insurers are paying pharmacies less than what it costs a pharmacy to buy the medicine from the drugmaker or wholesaler.

Sharim buys Glucose strips that measure blood sugar levels for $60. When he fills a customer's prescription for the strips, he files a claim with the private insurer, which later sends him a check for $40.

More often, Sharim will see his profit of a few dollars per prescription disappear into the costs of dispensing the drugs, he said.

Sharim holds up a familiar prescription bottle and a white cap. Together they cost $1.20. The label with dosage directions is another 80 cents. Then it takes a few minutes to call a doctor and confirm the prescription or find an alternate drug if need be.

It all adds up.

But falling profits at local pharmacies mean savings for the rest of us. And that's a good thing, according to Jeff Nelligan, a Medicare spokesman.

"Generally a competitive market yields more efficiencies and lower prices," Nelligan said, "which is good for consumers and good for taxpayers."

The Medicare program, including the Part D prescription program, is saving taxpayers $197 billion over 10 years, Nelligan said. In 2006, enrollees saved an average of $1,200 in prescription costs, with average monthly premiums of $24.

The program is saving consumers a wad, but it is coming out of the wallet of your local pharmacist who calls you by name and remembers to ask about your children.

Steady decline

Since 1960, about 35,000 independently owned pharmacies have closed because of competition from chains, the dwindling numbers of cash patients, and the growth of managed-care companies that are able to negotiate lower prescription payments.

"This might have been the straw that broke the camel's back," said Carol Cook, a spokeswoman for the National Community Pharmacists Association. "If there was a pharmacy that was struggling before January, Medicare Part D probably put them over the fence."

julia.scott(at)dailynews.com

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CAPTION(S):

2 photos

Photo:

(1 -- color) The soda fountain is one of the ways to bring people into the pharmacy at Fair Oaks Pharmacy in South Pasadena.

John McCoy/Staff Photographer

(2) Eileen O'Rourke shops for jewelry at Dana Drug. The Burbank store sells much more than just drugs, and it helps the store compete with big chain pharmacies.

David Sprague/Staff Photographer