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Drugstores' dilemma is Walgreens opportunity

Buyout offers infuriate some independents, who see the drug giant as a prime source of their troubles.

By KRIS HUNDLEY
Published June 2, 2006

	[Times photo: Joseph Garnett Jr.]
	Pharmacist Dan Fucarino, owner of Carrollwood Pharmacy in Tampa, is one of many independent pharmacists who recently received a letter from Walgreens asking him to sell out. He's refusing.

Walgreens, with 5,200 stores, is the No. 1 drugstore by sales in the United States. But like all successful chains, it wants more.

Recently Walgreens, which plans to add 475 locations this year, has been sending inquiries to independent pharmacists nationwide, including several in the Tampa Bay area, asking if they're interested in being acquired by the Deerfield, Ill., chain.

The query, the first of its kind, got a great response from most independents, a Walgreens spokesman said. But at least a few recipients were fuming after getting the pitch to sell.

Their gripe? Independents say their margins have been squeezed since the start of the year, thanks to stingy reimbursements and slow payments from the pharmacy benefit managers who handle the new Medicare drug program.

And the pharmacy benefit manager for United Healthcare, the Medicare drug plan that has attracted the most members, is none other than Walgreens Health Initiatives, a wholly owned subsidiary of the drug chain.

That means the company that's looking to buy independent pharmacists' businesses is the same one putting them in a financial bind that might force them to sell.

"Medicare Part D is sucking us dry,'' said Bill Ainley, who has owned Highland Pharmacy in Clearwater since 1989. "We've shown losses so far this year because reimbursements are about half what they were under Medicaid, and we're waiting a month or two for checks from the PBMs.''

Ainley said he doesn't intend to respond to the inquiry letter he received from Walgreens' manager of pharmacy acquisitions, Robbie Jacobs. "If I'm making a little bit here, it's still more than they'll pay you for your business,'' he said.

Nicholas Saraniti, director of operations at ComCare Pharmacy in Fort Lauderdale, got Walgreens' scouting letter through a fellow independent pharmacist. He said they were both incensed by its opening sentence, which refers to "today's challenging pharmacy environment of Medicare and Medicaid changes, pharmacist shortages and shrinking margins.''

"The timing was infuriating,'' said Saraniti, who has been active in the lobbying efforts by independent druggists to improve both the amount and speed of reimbursements by PBMs. "They talk about 'dwindling margins,' when at the exact same time, they set our reimbursement rates and tie up our cash flow. I have nothing personal against Walgreens, but there's no reason to pour salt in our wounds.''

Michael Polzin, spokesman for Walgreens, which had $42.2-billion in sales for fiscal 2005, said most independent pharmacists who responded to the letter were flattered by the chain's interest in their business. "They were glad to hear they and their staff had the option of joining our company," he said.

Dan Fucarino, owner of Carrollwood Pharmacy and Compounding Center in Tampa, said that while it's nice people want to buy his business, it upsets him that independents are selling out.

"The less people who compete with Walgreens, the more they can force the market,'' said Fucarino, who has had to take out a loan to pay his bills this year but has no plans to sell now. "They've already got every corner in America.''

Kris Hundley can be reached at hundley@sptimes.com or (727) 892-2996.

HOW THEY COMPARE

Here's a look at how the independent drugstores compare to Walgreens:

24,500: Number of single-store independent pharmacies

5,200: Number of Walgreens stores

42 percent: Independents as a percentage of the nation's total number of drugstores

$98-billion: Total sales of independent drugstores

$42.2-billion: Walgreens' sales fiscal 2005

1.6-billion: Prescriptions filled by independent pharmacists each year

490-million: Prescriptions filled by Walgreens stores (fiscal 2005)

Sources: National Community Pharmacists Association; Walgreens

[Last modified June 2, 2006, 05:54:01]