How North Bay independent pharmacies are beating the odds

When the 9,000-plus-stores Walgreens scooped up the last 22 Pharmaca stores last month, including three in the North Bay, it was another example of how difficult it is for small pharmacies to survive.

For years, Walgreens, CVS and other big players in the retail health care space have been acquiring independent pharmacies, using a business model the smaller players can’t easily overcome.

“Insurance reimbursement rates are down, and Medicare claw backs, or DIR fees, are hurting pharmacies,” said Mark Guttormsen, co-owner of Dollar Drug in Santa Rosa. DIR, short for Direct and Indirect Remuneration fees, are collected for Medicare-covered drugs and managed by pharmacy benefit managers — the middleman between pharmacies and insurance companies.

PBMs, which don’t reimburse independent pharmacies quickly, also collect more money after prescriptions have gone out the door, cutting further into profits, Guttormsen explained.

Yet some independent pharmacies in the North Bay, including Dollar Drug, have found a way to carry on, and a lot of it has to do with selling more products than prescription drugs.

“You can't just rely on filling common prescriptions,” Guttormsen said. “You have to have different revenue streams.”

Finding a niche

Dollar Drug, founded in 1984, sells an array of retail items and also has a couple of specialties.

One is compounding. Opened in 1984, Dollar Drug was the first in Sonoma County to prepare individually tailored drugs based on a doctor’s instructions.

And there’s something else.

“We have a niche where we service hospice,” Guttormsen said, explaining hospice providers like independent pharmacies because of the specialized service they can provide. That includes palliative medications, such as morphine and other opiod drugs that are used for illnesses that can’t be cured. "So hospice is important to us, as well as the compounding.”

So far, Dollar Drug has continued to fend off the likes of Walgreens and CVS.

“We get solicited frequently by those groups wanting to come in and buy our business,” said Guttormsen. “They sort of take the Amazon approach, and Amazon has got their hands in it, too, where they try to take over every facet of the business.”

But Dollar Drug has remained profitable, and for as long as that is possible, the owners will stay in business, Guttormsen said. Dollar Drug’s annual revenue is approximately $6 million, he said.

“I worked at a (pharmacy) chain when I first came out of school,” said Guttormsen, noting several of the owners have, too. “We understand what that side is like, and we would prefer to run the business our way, the way that we feel a pharmacy should be done.”

Longtime customer Rose Watson, of Santa Rosa, said she got her medications filled at Walgreens for many years and was routinely frustrated because of the long waits and lack of personalized service.

Watson said she didn’t know about Dollar Drug until her husband discovered the store about 15 years ago.

“They know who you are as soon as you walk in the door,” she said. “When you want their advice, they’ll talk to you, and you don’t have to wait.”

And she routinely refers people to Dollar Drug.

“If they left, I would be sad and not know where to go,” Watson said.

Guttormsen, who has been with Dollar Drug for 17 years, said the store prides itself on customer service and has had little turnover in staffing, which helps patients with continuity of care.

Only choice in town

“You know in real estate, they say ‘location, location, location,’” said Zsuzsanna Biran, pharmacist and owner of West Marin Pharmacy, located on the coastline of Point Reyes Station. “I don't have any competition here.” Hers is the sole independent pharmacy within about a 17-mile radius, she said.

Biran, also a West Marin resident, bought the pharmacy from its previous owner 15 years ago, fulfilling a lifelong dream to have her own store.

“I never thought I would last this long,” Biran said, referring to the prolific closures of small pharmacies in her area that left hers the last one standing. “But I'm still here, and I love it. I really love it.”

Biran sells retail items like sunglasses and greeting cards, and works to differentiate West Marin Pharmacy by specializing in holistic health medicines, such as echinacea, ginseng, chamomile and elderberry.

“I went to the American School of Herbalism, so I have knowledge of herbal medications and traditional Chinese medications,” Biran said. That allows her to consult with customers interested in homeopathic medicine and supplements, or just advise them about potential side effects from certain prescription medications. “Another pharmacy may not tie into that.”

And there’s something else working in her favor.

West Marin Pharmacy is situated by the Point Reyes National Seashore, a vacation destination that attracts droves of tourists every year.

“A lot of people do forget their medications, so they end up here and then they buy the knickknacks, they buy souvenirs,” Biran said. Even ice cream is for sale at West Marin Pharmacy.

But none of that diversification is enough for Biran to feel secure that her store can withstand the low insurance-reimbursement model for the long term. She declined to state West Marin Pharmacy’s annual revenue.

It’s also possible the county she calls home could eventually put her out of business.

“There’s a big shortage of affordable housing in this area,” Biran said, adding the strip mall where her pharmacy is located could end up on the chopping block. “If they really want to tear the building down and build affordable housing, well then where does that leave the pharmacy?”

Biran doesn’t expect she’ll have to leave anytime soon, but she’s thinking proactively.

“There's a very nice grocery store here, just kitty corner across the street down Main Street, and I thought ‘Well, a lot of grocery stores have pharmacies,’” she said. “Maybe I could move in there.”

Shifting businesses

Napa’s Family Medical was born out Family Drug, which actually did close in 2019, after 67 years in business — 40 of those years operated by the Gracia family. The pharmacy also sold a variety of retail products and, over the years, built up a specialty selling medical supplies.

After Family Drug closed, the Gracias opened Family Medical in March 2020, also in Napa.

It was a natural transition, said Joe Gracia, who owns Family Medical with his wife, Neanna Gracia.

Family Drug began selling medical supplies in the mid-2000s and grew that part of the business over the years, finding its niche in selling compression garments, such as socks, stockings, boots and bandages, for patients who have lymphedema.

Lymphedema is a chronic disease that causes lymphatic fluid to collect in the body, which often causes swelling in the arms and legs, according to the National Institutes of Health.

Family Medical continues to focus on compression garments. But it’s not the only game in town. Its competitor, Piner’s Medical Supply, specializes in bigger equipment like patient lifts, wheelchairs and walkers, to name a few.

“So, while yes, they are competition … we really work together quite a lot,” Gracia said, explaining sometimes a customer needs a product the other doesn’t carry. “We call each other frequently.”

Family Medical also has contracts with health care providers, including Kaiser Permanente, going back to when the Gracias were selling compression garments at the pharmacy.

That business has grown, so much so that Family Medical in January opened an 800-square-foot satellite office in Santa Rosa, near Kaiser Permanente, to do the measuring and fitting for the patients who need compression garments.

Long story short

Gracia explained that what led to the closure of Family Drug was a confluence of low insurance reimbursements and the building’s lease coming up for renewal. He sold the pharmacy’s patient data to CVS, declining to discuss details.

One of the trends with big health care retailers that are acquiring independent pharmacies is to buy the patient data — not the actual physical store — and transfer the prescriptions to an existing store.

Family Drug shared a building with a handful of other tenants, Gracia said. The building was purchased by an investment group with plans to redesign the entire structure, and that would have reduced Family Drug’s space from just shy of 10,000 square feet to roughly 2,000 square feet, he said.

“They were going to basically cut our floorspace and increase our rent,” Gracia said, adding the new owners also wanted Family Drug’s medical equipment to be moved toward the back of the store so passersby wouldn’t see it. “They said, and I'm quoting, ‘It didn't fit the look of the new facility.’”

Gracia grew up in his family’s pharmacy and said he misses the people.

“When you work in a place like that for so long, you get to build a real personal relationship with all of the people that come in … and you get to see generations of (families),” he said. “In our new location, we're doing something that's very similar, but different. That's what it's all about, is trying to help people get through tough times.”

Cheryl Sarfaty covers tourism, hospitality, health care and employment. She previously worked for a Gannett daily newspaper in New Jersey and NJBIZ, the state’s business journal. Cheryl has freelanced for business journals in Sacramento, Silicon Valley, San Francisco and Lehigh Valley, Pennsylvania. She has a bachelor’s degree in journalism from California State University, Northridge. Reach her at cheryl.sarfaty@busjrnl.com or 707-521-4259.

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