Newfoundland and Labrador Govt. delivering for Shoppers Drug Mart

Shoppers CEO predicts DOOM for Independents

The Newfoundland and Labrador government is about to serve a central Canadian company - local businesses on a platter.

With 100 million local dollars invested in the provincial economy - independent pharmacies have been told by their government that they don't matter.

As witnessed in the House of Assembly - PC Cabinet members and backbenchers chided these local owners with calls to show their T-4's and state where they take vacations.

The general assertion of government is that independents are filling their pockets with rebates.

Despite the lies and misleading statements by these politicians - Shoppers Drug Mart's CEO is backing up what the independent stores  have been warning against.

In the Globe and Mail yesterday Domenic Pilla spells it out clearly for all to see.
 

“We are facing the single worst commercial environment that the drug sector has ever faced … But who is in the absolute best position in Canada to weather that – in some cases to take advantage of that? It’s Shoppers Drug Mart.”

He said that as the country’s largest drugstore chain, Shoppers is best positioned to navigate the road ahead, with economies of scale to help it lower its costs.

And he wants to buy competitors as reduced government reimbursements start to squeeze smaller rivals, he said. “That’s a freight train accident waiting to happen. How it will happen and how quickly it will happen ... is something that is still to be told.” 

His estimated that Shoppers pharmacies probably could add another 30 per cent more prescription files without having to invest in fixed costs. “That would make acquisitions for us very accretive.”

Newfoundland and Labrador's Minister of Innovation, Business and Rural Development might want to look long and hard in the mirror today - as he personally participated in the likely destruction of local investors. 

As Shoppers talks about chewing up local businesses - it does so while saying they don't have to invest a cent in fixed assets. The government of Newfoundland and Labrador is clearly stating their position on local business and investment. 

To top it all off the monies lost to the treasury - particularly monies needed for health - will far outweigh any potential savings to the government from their new generic drug pricing model. 

Further the services provided by these independents - that will be lost from the policy will cost the government tens of millions more. 

Particularly puzzling is the government's insistence that these independents sit at a table with Shoppers employees and come to a common position. What might that be? We the independents agree to turn over our investments to you as cheaply as we can? 

The buffoonery in the House of Assembly underscores the actual ignorance or complicit behavior that will in the end ruin local business, diminish front-line health services, and drive the costs of those services through the roof. 

Bravo - why not stand in your place and take a bow.

Government Ignores Reality - will cost Seniors and Families

News Release

New Pricing Scheme Threatens Rural and Inner-city Services

For immediate release, St. John’s – 26/03/2012

Minister of Health Susan Sullivan is demonstrating a dangerous level of ignorance as she adopts a health policy that will irreparably harm front-line health care delivery in rural communities and inner-city neighbourhoods. 

The changes proposed to the generic pricing model to keep up with other provinces in Canada ignore the social demographics, geography and specific needs of Newfoundland and Labrador.

The Council’s spokesperson, Robert Doyle says, “Do we want Newfoundland and Labrador to spend more - per-capita - on generic drugs? No! But will the Dunderdale government achieve lowering the costs by simply copying the models of other provinces? No!” 

Here's why:

1. Our population is aging more quickly and therefore there is a greater requirement for chronic disease medications. 

2. The prevalence of conditions such as diabetes is higher in our province.

3. The lack of medication and disease management programs involving community pharmacy. 

Doyle adds, “The Government of Newfoundland and Labrador will not lower health care costs they will grow them. The Government of Newfoundland and Labrador will lose any ability to provide medication and disease management programs in rural areas and in the inner-city. The Government of Newfoundland and Labrador will lose informal collaborative medication and disease management currently taking place in independent pharmacies.” 

The Council believes this is not an issue of escalating drug prices – as the prices are going down every year as more generics enter the marketplace and through natural competition among generic manufacturers. This is an issue of poor policy review, research, and planning.

The government tried to buy the silence of pharmacies by signing a non-binding amending agreement with the Pharmacists’ Association of Newfoundland and Labrador. It does nothing for the viability of independent pharmacy and is an insult to local small business. 

“The Minister either does not understand or refuses to see the inherent problems in the government’s plan. The government does not have the information it needs to make this decision and it will result in unintended consequences”, Doyle says. 

Government says it will save tens of millions of dollars from a generic drug price reduction – that is not the case.  While generic drugs are being used in the majority of prescriptions filled they make up less than 40% of costs to the program. 

Doyle states, “If government wants to make a real difference in current costs and sustain costs in the future they must look at increasing generic utilization and developing – with pharmacy – a real medication and disease management program.” 

The Council is holding a meeting of its members within the next week and decisions regarding the next course of action will be discussed and ratified at that time.

The first decision has already been made – the Council will engage Dr. Wade Locke to do a thorough analysis of the situation and to develop a made in Newfoundland and Labrador solution.

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Additional Information

The CICPO represents the majority of independent pharmacies in Newfoundland and Labrador.

The CICPO members are located throughout Newfoundland and Labrador and are the only model of pharmacy available in dozens of regions.

Independent pharmacies average 10% front-store sales (other than prescription medications) and 90% back-store (prescription medications) in its sales mix.

Chain drugstores and mass retailers; Shopper’s Drug Mart, Lawton’s/Sobeys, Walmart, Zellers, Costco, and Loblaws range from a 50/50 sales mix with many averaging over 90% in front store sales.

The changes to the generic pricing policy will severely affect independent pharmacies while the chain drugstores and mass retailers gain opportunities to consolidate the marketplace.

Chain drugstores and mass retailers have buffers from revenue loss such as:

a)      In-house wholesale

b)      Front shop sales

c)       Private label generic drugs

d)      Mass purchasing power

This gives the chains and mass retailers a governmental regulated advantage over Newfoundland and Labrador pharmacies.

Government’s negotiation with PANL does not bind corporations and therefore may result in a rejection of the government drug card.

Private Insurance companies negotiate directly with business which is contrary to the position of the Government of Newfoundland and Labrador – which negotiates with a professional body that has no corporate authority to negotiate.

Generic drug prices have been reduced over the past five years from 70 per cent of brand to 50 per cent of brand through natural competition. Generic drug prices are going down every year. It is the only area of reduced costs in the Health system.

The Government of Newfoundland and Labrador has not completed a review on the potential unintended consequences of this policy and does not have any information that rural and inner-city independent pharmacies can survive this cut to revenues.

Economist Dr. Wade Locke believes that a complete study should be undertaken before this policy is adopted – including developing an optimum model for Newfoundland and Labrador considering – demographics, geography, services, and pricing.

Will Dunderdale Government protect you from this?

As you are aware the Council of Independent Community Pharmacy Owners has been advising the public and media that changes occurring in Pharmacy Policies throughout Canada may be detrimental to you - the patient.

Recently in Ontario, the College of Pharmacists licensed a mail order pharmacy. This pharmacy located in one physical location - Express Scripts Canada Pharmacy - is promoting the transfer of your prescription from the local pharmacy to them. The medications they are interested in are "maintenance" medications for ongoing chronic conditions.

They promote the advantage of home delivery and say "you will have no need for monthly trips to the retail pharmacy" - and "free" delivery my mail.

They are pleased to advise you to have a 30 day supply on hand before you convert to them - presumably from your local pharmacy.

See the Video Here

Now consider for a moment that all patients of a local pharmacy convert to a mail in pharmacy - what happens to the local pharmacy? I think we can all be wary that your local pharmacy would not survive. Then when you need medications which are not "maintenance" such as anti-biotics or a supply of life saving medications after just having been released from a hospital - where do you go?

If you do not have an insurer or cannot have access to the mail-in pharmacy where do you go?

In the event of a change in medication to take affect immediately - where do you go?

If you want to consult with your pharmacist in person - where do you go?

Perhaps you live in the city and a big chain store is near by - no problem for you right? Well who knows? What if you live in a community where there is only one independent pharmacy what will you do?

The video compares shopping online and banking online to prescriptions online - that is irresponsible. This is your health. This is your health care professional and access.

If you are a cash paying customer or one that is on income assistance where do you go?

If the weather is bad - delayed delivery - where do you go?

This American headquartered company wants all the constant prescriptions without having to deal face to face with you the patients. They also do not want the medications that are once only or infrequent prescriptions. They want to suck all the profits they can away from your community, your province and your neighbourhoods.

What does this have to do with you in Newfoundland and Labrador. The answer to that is two-fold.

1. When contacting the mail order pharmacy by phone - the person on the phone says they expect to be able to deliver services in Newfoundland and Labrador (eastern provinces) by March or May.

2. This is the same company that is attempting to negotiate a contract with independent pharmacies in Newfoundland and Labrador for the acceptance of the Desjardins Card. Obviously they are in a conflict and we now have to deal with that. By the way that would be all provincial government employees.

Now to see what the American Version of the video shows: Press HERE

Here they talk about the accuracy and numbers of prescriptions they fill. How would we know that? Is that going to be allowed in Canada?

One thing is for sure - we must stand up for community and neighbourhood based pharmacies before it is too late.

A final note: they claim you MAY save money. What we will do is keep funneling health care dollars out of our communities and province along with direct personal access to health care professionals. That saves nobody money - but can destroy a very exceptional pharmacy network.

Why CICPO will Not sit with Drugstore Chains

Please read below: This is in part is why Newfoundland and Labrador Independent Drugstores must not sit with mass retailers.

Why CICPO must not sit at a table with the chains!

Shoppers Drug Mart Corporation

Excerpts from 2010 Annual Report

Shoppers Drug Mart Corporation is the licensor of full-service retail drug stores operating under the name Shoppers Drug Mart® (Pharmaprix®in Québec). 

Leading Through Change   A message from David Williams, Chair of the Board of Directors

There is no doubt that the implementation of drug system reform initiatives in Ontario and in other provinces across the country will continue to have an impact on our industry and our business into 2011 and beyond, resulting in structural changes to both the competitive landscape and the private payer market.

… we are poised to capitalize on the expected consolidation of the marketplace, which we view as another attractive opportunity to gain market share and increase profitability.

Associate-owned Store Network

As at January 1, 2011, there were 1,182 Shoppers Drug Mart/Pharmaprix retail drug stores owned and operated by the Company’s licensees (“Associates”). An Associate is a pharmacist-owner of a corporation that is licensed to operate a retail drug store at a specific location using the Company’s trademarks. The Company’s licensed stores are located in prime locations in each province and two territories, making Shoppers Drug Mart/Pharmaprix stores among the most convenient retail outlets in Canada.

The Company operates in Québec primarily under the Pharmaprix® and Pharmaprix Simplement Santé® trade names. Under Québec law, profits generated from the prescription area or dispensary may only be earned by a pharmacist or a corporation controlled by a pharmacist. As a result of these restrictions, the licence agreement used for Québec Associates differs from the Associate agreement used in other provinces.

Under the licensing arrangements, the Company receives a substantial share of Associate store profits. The Company’s share of Associate store profits is reflective of its investment in, and commitment to, the operations of the Associates’ stores.

The success of the Company and the reputation of its brands are closely tied to the performance of its Associate-owned drug stores. Accordingly, the Company relies on its Associates to successfully operate, manage and execute the retail programs and strategies of the Company at their respective locations. 

The Company supports the operations of its Associates in many ways, including the provision of training and continuing education programs, as well as assistance with various administrative tasks. In addition, each Associate agrees to comply with the policies, marketing plans and operating standards prescribed by the Company, as specified in the Associate agreements with individual Associates. As well, through head lease control, the Company maintains control of all locations in its Associate owned store network.

Under the Canadian Institute of Chartered Accountants’ (“CICA”) Accounting Guideline 15, “Consolidation of Variable Interest Entities”, the Company consolidates the Associate-owned stores. The individual Associate-owned stores that comprise the Company’s store network are variable interest entities (“VIE”) and the Company is the primary beneficiary. 

The Company’s business strategies are designed to drive sales growth, maximize gross margin dollars and operating cash flow, leverage cost reduction opportunities and build customer loyalty. The Company believes that proper execution of its strategies will strengthen its position as the licensor of Canada’s leading drug store group, thereby generating increased revenue and profitability, which, in turn, should enhance long-term shareholder value. 

The dedication of the Company’s Associate-owners, combined with its ability to recruit, develop and retain talented pharmacists and technicians, has been, and continues to be, the primary contributor to the Company establishing itself as a leader in the practice of community pharmacy and health. Going forward, the Company intends to build upon this leadership position by continuing to deliver innovative pharmacy products, services and programs, including the introduction in 2010 of its own private label generic drug products marketed under the trademark SANIS™, that aim to improve patient health outcomes, build loyalty with patients and third-party payers, increase market share and enhance profitability. 

The Company plans to allocate $360 million to capital expenditures in 2011, with approximately 75% of this amount to be invested in the store network, including any related investments to acquire drug stores, prescription files and land. 

Competition

The Company faces competition from many retailers in the front store merchandise and non-prescription drug categories. The Company’s competitors in the retail pharmacy business include independent operators, banner groups, retail chains, mass merchandisers and larger supermarket chains with combination food/drug retail operations. These competitors may reduce prices in front store merchandise or reduce dispensing fees to increase market share, which could have an adverse impact on the Company’s market share and/or earnings.

Third-party Service Providers

The Company is reliant upon third-party service providers in respect of certain of its operations. It is possible that negative events affecting these third-party service providers could, in turn, negatively impact the Company. While the Company has no direct influence over how such third parties are managed, it has entered into contractual arrangements to formalize these relationships. In order to minimize operating risks, the Company actively monitors and manages its relationships with its thirdparty service providers. 

Real Estate

Successful implementation of the Company’s growth strategies is dependent upon the Company’s ability to increase the selling square footage of its Associate-owned store network through new store openings and acquisitions, expansions of existing stores and relocations of other stores to superior sites. The availability of suitable store locations and redevelopment opportunities with respect to existing stores, and the lease terms that the Company is able to negotiate in connection with new leases and store upgrading, may impact the Company’s ability to execute its strategic plan to the extent that desirable locations and/or redevelopment opportunities are not available on reasonable commercial terms.