Small Pharmacy Faces Big Competition

November 10, 2006
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GRAND RAPIDS — When William Overkamp opened his insurance-free pharmacy three years ago, he knew he would be facing a lot of competition. Not accepting insurance is an obstacle he was willing to accept, because his cash prices — especially for larger quantities — are likely to be lower than an insurance plan’s price.

But Overkamp probably didn’t count on his Bill’s Pills pharmacy having to compete against discount chains that are charging less for some medications than it costs to bottle and package them and are even giving drugs away. Nor did he think when he opened his business in 2003 that Medicare would actually offer a drug insurance policy to the population that purchases the most pharmaceuticals.

Still, after a rough sales period earlier this year, Overkamp said business has gotten better.

“It’s starting to pick back up again. We were really good through January, February and March, and then it kind of died off as more and more seniors got on that Medicare Part D program. And because of their insurance, they had to go to other pharmacies, and I was forced to transfer those prescriptions to other pharmacies,” he said.

But Overkamp said business has stabilized during the past few months. Many of his former customers who enrolled in a Part D program hit the plan’s notorious “doughnut hole” that doesn’t offer any coverage; they returned to Bill’s Pills because Overkamp’s cash price is lower than what they would pay at the pharmacies they switched to for Part D.

“They are back to paying cash for their prescriptions, and they’re coming back for some opportunities that we have been able to provide for them,” he said.

Then Wal-Mart announced it would sell over 140 generic drugs for $4 per prescription. The world’s largest retailer activated that policy in Michigan after Meijer Inc. said it would make seven generic antibiotics available to customers at no charge.

Overkamp, though, said the Meijer program hasn’t greatly affected his business because generic antibiotics aren’t that expensive to begin with. But he added that it’s difficult for him to go head-to-head with the regional discount chain because he doesn’t sell clothing, food, housewares, paint or automotive parts.

“Obviously, they’re doing that to fill volume for the rest of their store — and I don’t have a rest of the store to fill volume for,” he said.

Combating Wal-Mart’s generic pricing, though, is a bit more difficult for Overkamp. But he has found a way, at least on some of the prescriptions that have come across his counter.

“If we’ve been able to, we’ve been moving them to a three-month supply for $12. Then at least I can pay for my time, my product, the ink, the labels and the vials — those types of things. So I’ve been matching their prices for three-month supplies,” he said.

“But not on all the medications. They’re selling a lot of the medications below cost, and I don’t have that luxury.”

Overkamp said Wal-Mart’s $4 pricing policy might cover most of the cost of the drug, but likely doesn’t cover the packaging, labeling and personnel expense to put the medications in the bottles. A recent industry estimate revealed that Wal-Mart is losing up to $5 on every $4 prescription its pharmacies fill.

“I think the average price that I’ve seen in the latest literature for service or labor cost to get a prescription pulled together is probably around $9. That’s not the cost of the drug; that’s the cost of doing business, keeping the lights on, paying the technicians,” he said.

Overkamp has been doing business in Suite A at 1425 Michigan St. NE, which is also where the West Michigan Center for Family Health is located, and at www.billspillsonline.com.

To keep expenses down, he doesn’t pay technicians because he doesn’t have any on staff, so his customers always deal with the owner of the business. The other part of his business plan seems to be working, too, which is to offer his customers larger supplies, such as 90-day amounts instead of a month’s supply. A bigger quantity saves his customers money and raises his margin.

“We’re able to keep our costs down pretty good, and by going with larger quantities for the patients, we’ve been successful at generating some revenue from the prescriptions,” he said.

Bill’s Pills is one of only a handful of insurance-free retail pharmacies in the country. But there may be a few more coming in the near future, as Overkamp is working on an expansion plan with the West Michigan Center for Family Health. He has become a part owner of that medical center and plans to direct the creation of the center’s pharmacies and also staff and manage the businesses.

“The future is looking great right now, particularly with our thoughts on expansion with the West Michigan Center for Family Health. At that point, we will probably change the name of those pharmacies to Centers for Family Health pharmacies or Family Health Pharmacy, and open those up in conjunction with the expansion for that program,” he said.

“I think we will leave Bill’s Pills right here. The name has pretty good recognition, particularly in the doctors’ offices. I would say 80 percent of my patients are coming here at the recommendation of a physician’s office.”

How They Do It

GRAND RAPIDS — According to the Heartland Institute in Chicago, insurance-free pharmacies like Bill’s Pills can offer lower prices on prescriptions because these businesses focus on generic drugs, which have significantly lower prices than the brand-name drugs that are reimbursed by insurance companies.

A Minneapolis newspaper reported two years ago that most pharmacies typically make little or no profit on sales of brand-name drugs covered by insurance. So these pharmacies hike their prices on generic drugs — by as much as 500 percent, according to the report —to compensate for the lack of a margin on brand-name drugs.

Also, because cash-only pharmacies don’t accept insurance plans, they don’t have the expense of processing claims or determining a customer’s eligibility for benefits, which keeps expenses lower and margin higher.

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