Family Pharmacy shutters

Miguel Nunez: Family Pharmacy's closure is a tragedy for independent pharmacies.

Ron Fitzwater: Independent pharmacies have been feeling financial pressure for years.

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After more than four decades operating in the Ozarks, Family Pharmacy Inc. is closed for business.

The company, acquired in 2018 out of bankruptcy court by Smith Management Services LLC for $16 million, shuttered all 23 of its Missouri stores.

An employee at Family Pharmacy’s 527 W. Kearney St. store confirmed Sept. 2 was the final day in operation. Walgreens spokesperson Phil Caruso said the company reached an agreement with Family Pharmacy to acquire the prescription records from 20 Family Pharmacy stores in southwest Missouri. He declined to disclose the financial terms of the deal.

Family Pharmacy’s Ozark office at 4101 N. State Highway NN served as headquarters for Smith Management Services, a subsidiary of South Carolina-based J.M. Smith Corp. Attempts to reach J.M. Smith Corp. officials were unsuccessful by press time and Carrie Tennis, senior director of operations for Smith Management Services, didn’t return messages seeking comment.

Family Pharmacy’s closure comes on the heels of two other local independent pharmacies – Downtown Pharmacy and Sunshine Health Mart Pharmacy – ceasing operations this summer.

“It’s very sad. I consider that a tragedy in our field, seeing 23 stores closing down all at one time,” said Miguel Nunez, director of pharmacies at Grove Pharmacy, in reference to Family Pharmacy.

Grove Pharmacy, which began in 1952, operates three Springfield stores. Nunez said the company isn’t looking to expand its operations. Industry challenges for independent pharmacy owners, such as a downward trend of reimbursement rates for Medicaid and Medicare prescriptions, are a contributing factor in a desire to stand pat, he said.

“As we are operating right now, the reimbursement that the insurance companies are giving the pharmacy, that doesn’t invite the existing owners to open more locations and go through the hardship of overhead and not being able to make it,” Nunez said.

Tennis and others on the Family Pharmacy corporate team were promoted last year to lead operations for all 11 of Smith Management Services’ East Coast pharmacies. It’s unclear if stores outside of the Springfield area are closing.

A 20-year veteran of Family Pharmacy, Tennis told Springfield Business Journal in an October 2019 interview that the company’s management team stayed intact after the acquisition. Family Pharmacy reported 265 employees at the end of 2019.

The pharmacy previously was operated by founders Lynn and Janet Morris. It was founded in 1977.

Uneven playing field
In the retail pharmacy industry, pharmacy benefit managers are placing themselves between providers and patients on an increasing level, said Missouri Pharmacy Association CEO Ron Fitzwater. The pharmacy benefit managers are third-party administrators of prescription drug benefits on behalf of health insurers. It’s a very uneven playing field, he said.

“They come in and set very complicated and reduced reimbursement structures and make it very difficult for pharmacists to negotiate on a reasonable amount for services provided,” he said. “The pharmacist has essentially zero leverage in those negotiations. The pharmacy benefit managers have continued to squeeze and squeeze, and has pushed community pharmacists out of the marketplace to the detriment of patients.”

Independent pharmacies have felt the financial pressure for years, Fitzwater said. It’s being reflected in decreasing number of independent pharmacies in the state, he said. The count is down to around 470. He estimated it was at a peak of 800 several decades ago.

The pharmacy closure impact expands beyond Missouri.

One in eight U.S. pharmacies closed in recent years, with independent pharmacies particularly hard hit, according to a 2019 University of Illinois at Chicago study. The study noted 9,654 pharmacies closed from 2009 to 2015. Independent pharmacies were three times more likely to close than chain pharmacies. The study authors said payment reforms, including higher reimbursement rates for Medicaid and Medicare prescriptions, are needed to help pharmacies most at-risk for closure.

Nunez said the reimbursement Medicare and Medicaid gives his pharmacy is sometimes not even near the cost for the medication. When the pharmacy purchases medication from a distribution center, those bills have to be paid within two weeks. However, the reimbursement money isn’t received for 45-60 days, he said.

“Unless you have the capital to function, it will be very tough for you to survive those circumstances,” he said.

Fitzwater said large chains such as Walgreens and CVS have a much different business model that doesn’t rely on retail pharmacy sales.

“Our independents are typically 90%-plus pharmacy related,” he said. “They have small front ends of some over-the-counter products. But they are mainly focused on pharmacy. The large chains, just because of buying power, have the ability to purchase products at lesser costs than what an independent would.”

Making a go
Battlefield Pharmacy LLC is a relative newcomer to the independent pharmacy scene, opening in June 2019. Matt McNitt co-owns the 4062 W. Republic Road shop with Justin Humphreys and Steve McClanahan. Startup costs were around $150,000, he said.

The pharmacy has had monthly revenue growth since opening, McNitt said, declining to disclose figures. Customer prescription volume has grown close to 10% monthly in 2020 amid the COVID-19 pandemic, he said. Free delivery to homes and workplaces in the Springfield area has helped fuel the increase.

“We try to cater to not only those who are homebound or just don’t have the means to come here, but also for those who are busier and can’t make it to us,” he said.

Even before the pandemic, online shopping and mail-order sales of pharmaceuticals were becoming increasingly popular. According to an August report from global market research firm Brand Essence Market Research, the global e-pharmacy market, valued at $38 billion in 2017, is expected to grow at a rate of 15% by 2025.

McNitt said his business isn’t solely reliant on prescription reimbursement and seeks to offer clinical programs such as health screenings, immunizations and medication therapy management to generate extra revenue.

“We thought we could offer service that hasn’t been seen in a while in addition to just making the adjustments necessary to not only survive but thrive,” he said.

Fitzwater said Family Pharmacy’s closure demonstrates the challenges of the retail pharmacy market. However, it’s a field the Missouri Pharmacy Association still sees as a viable one as opportunities exist to start pharmacies statewide, particularly in underserved rural communities.

“The real crux is creating a reimbursement model where it makes sense for a young pharmacist to want to take the risk, or a thriving independent wanting to expand into another community,” he said.

Web Editor Geoff Pickle contributed.