News from the Tennessee Valley Business
SUNDAY, JUNE 17, 2007

Pharmacist-owner Steve Sandlin hustles for the phone during a busy day at Pay-Less Pharmacy in Decatur.
Daily photo by Gary Cosby Jr.
Pharmacist-owner Steve Sandlin hustles for the phone during a busy day at Pay-Less Pharmacy in Decatur.

How he stayed independent
Price doesn’t always determine where customers shop, owner of Decatur Pay-Less Pharmacy finds

By Eric Fleischauer · 340-2435

Every business needs customers, and the best way to attract them is obvious: price.

Unless, that is, you are a pharmacist. Steve Sandlin, an owner of Pay-Less Pharmacy Group in Decatur, said Medicare and insurance companies have eliminated price as a relevant factor in the competition for customers.

So how does one compete? That’s easy, said Sandlin. Service.

After three decades in the business, though, “service” is an uncomfortable topic for Sandlin. Not because he fails to provide it, but because he struggles to view it as a competitive tool.

Losing a customer

He starts an interview lamenting the death of a man who had been his customer for at least 25 years. Sandlin knows the man’s wife and worries about her. He was a good man, Sandlin says. “I’ll miss him.”

Sandlin’s are among the few independent pharmacies to survive in this area under the onslaught of the mega-chains like Rite Aid, Walgreens, Wal-Mart and CVS. Not only has he survived; he has increased market share.

With deference to his unfeigned sorrow, the question must be asked: Is his sadness over a lost customer tied to his success?

His answer is slow in coming, but honest.

“I guess maybe it is. The hardest thing in this business is when people pass away. After a while, they are friends more than customers,” Sandlin said. “Yes, maybe they sense that. Maybe that’s part of why they come in the door.”

Price depends on volume, and Sandlin’s volume, although impressive on a per-store basis, is miniscule compared to the chains against which he competes. The oddity of a pharmacy industry increasingly managed by massive insurance interests and government agencies, especially since Medicare drug coverage went into effect in January 2006, is that the independent pharmacy has an opportunity to reclaim its turf.

If price is irrelevant to the consumer, service becomes paramount. Ma-and-pa stores never have lost the corner on service.

Focus on service

For Sandlin, as his concern for a deceased customer’s family makes clear, the focus on service comes naturally. But Sandlin has lots of employees (nine pharmacists, 15 pharmacy technicians and 25 clerks). How to communicate the importance of that concern for customers?

“I try to instill a good work ethic,” Sandlin said. “But also I tell them, ‘Treat people like you treat your granddaddy or grandmama.’ ”

Sandlin has seen lots of change since he opened his first store in 1976, but the addition of drug coverage to Medicare had been one of the most dramatic. He estimates about 20 percent of customers who once paid for their own medications now pay through Medicare providers.

Sandlin personally has met with more than a thousand people — some customers, some through public programs at the library — to sort through the various available plans. It’s not easy, because the best plan for a customer depends on how that plan treats particular medications. A drug that is “preferred” under one plan may not be under another, meaning dramatically different co-pays. There are 56 different plans available in Morgan County.

Complicating the equation and frustrating to Sandlin and other pharmacists is that Medicare regulations permit providers to switch their coverage of medications midstream. A plan that is best for a customer in June may be lousy in December if the provider changes its coverage of a particular medication.

“Someone may have picked a plan because it covers a particular drug, but a few months later the drug isn’t covered at all,” Sandlin said.

The difference between the best Medicare plan and the worst can translate into a 300-percent difference in what the customer pays out of pocket, Sandlin said.

“People come in and ask, ‘What’s the best plan?’ But that’s like throwing a dart at a dart board in a completely dark room and not knowing what wall you’re facing,” Sandlin said. “It all depends on what medications they are on.”

Sandlin said pharmacists expected an increase in revenue as a result of the Medicare drug plan, but it has not materialized. Most Medicare recipients apparently had been figuring out a way to pay for their medications without Medicare’s assistance.

The major difference Sandlin and others saw after Medicare added drug coverage was a drop in profits because of pricing restrictions. Another difference was a delay in payment. Unlike cash-paying customers, Medicare providers are slow in paying pharmacies.

“We have to pay our bills,” Sandlin said, “and somehow our wholesalers don’t understand not getting paid.”

The hurdles Sandlin faces with Medicare and insurance companies, of course, largely are irrelevant to the customer. They need their medications and they will pay about the same whichever pharmacy they frequent.

“It necessitates myself and all my employees doing a better job,” Sandlin said. “If they’re paying the same $20 co-pay everywhere, we need to make sure they prefer coming here.”

One way Sandlin accomplishes that is through inventory. Many chain stores pay bonuses to pharmacists who keep a reduced inventory of drugs. By maintaining a larger selection, Sandlin attracts customers needing medications that are missing from the shelves of competitors.

Another way Sandlin and other independent pharmacists compete with the chains is through free delivery, especially important to customers in assisted-care facilities.

But most important, Sandlin believes, is how he and his employees deal with the customer on a personal level.

“I was talking to a couple employees last night,” Sandlin said. “I tried to teach them that what those customers are spending is what is paying our salary. The money comes from customers who are gracious enough to allow us to serve them.”

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