Selling the Pharm


McCalla Pharmacy exists within a cozy time-warp of sorts, hand-delivering medication and conducting business on a first-name basis from its landmark location on Forest Avenue in Laguna Beach. The oldest pharmacy in town, it’s where Mayberry meets the beach--the kind of place where folks scrawl handwritten IOUs if they’re a bit shy of the tab.

“We’ve traded at McCalla’s for just about 30 years now,” says Dorothy Chivens, 80. “They’ve seen us through a lot of things. Even deliver to us if that’s what we need. They’re just so accommodating.”

But such good-neighbor policies are becoming a thing of the past, say independent pharmacy owners in Orange County, as health maintenance organization and insurance company practices chip away at their once thriving businesses.

Nationally, according to industry statistics, more than 2,000 independent pharmacies went out of business in 1996; California pharmacies are closing at a rate of one per business day. In Orange County, about 15% of independents close their doors for the last time each year.


The problem centers around low reimbursement rates from insurance companies and the increasing number of providers contracting with large drugstore chains. Insurance companies also encourage drug makers to offer price discounts for HMOs, plan hospitals and mail-order pharmacies--discounts often unavailable to independents.

“It’s gradually putting me out of business,” says McCalla owner Susie McCalla Ornellas, who bought the family pharmacy five years ago from her father, Bud “Mac” McCalla, who opened it in 1958.

“I had to stop filling AIDS prescriptions, which just killed me,” she said. “I just told my last three patients. It was crushing.”

On a typical $26 prescription, says Ornellas, the insurance company will reimburse her about $17.50. The drug costs her $18.


“Obviously, this is a big loss,” says Ornellas, 41. “You can’t run a business on a loss.”


Pharmacist Eddie Boring says he “saw the handwriting on the wall” six years ago when he decided to sell Eddie’s Family Pharmacy in San Clemente, which had been owned by his family for 31 years. It went out of business three years after he sold it. He now works behind the counter at McCalla’s.

“I love this business, but it’s changing,” said Boring, 62. “It keeps getting worse. Here, we fill about 100 prescriptions a day. . . . That was great money before. Now you can do a lot of business and still not make any money. Pharmacies are closing right and left.”

Neighborhood pharmacists say things were very different when the customer paid out-of-pocket for prescriptions. While third-party payments make prescriptions available to consumers at a significant savings, pharmacists say, the practice slashes their profit to the bone.

“HMOs are just one of the new challenges within the last decade,” says Carlo Michelotti, head of the California Pharmacists Assn. “It’s the whole notion of third-party payment. Sixty percent of the population has a plastic card in their pocket that’s paying for their medicine, and it’s hurting existing business.”

Health insurance industry heads say they are tired of being portrayed as the Big Bad Wolf.

“The whole situation is analogous to a Wal-Mart moving into your hometown,” says Richard Coorsh, spokesman for the Health Insurance Assn. of America.


Pharmacy customers are “voting with their pocketbooks,” says Coorsh, creating modifications in the industry.

“While we are extremely sensitive to the plight that some of the independents are facing, the key issue is, what does the consumer want? The people will ultimately decide where to shop based on where they can get the most bang for their health-care buck.”

But change doesn’t come easily, and many Orange County pharmacists running mom-and-pop stores say the cuts go much deeper than just profit. They say the modifications in the industry are defacing the whole “small-town” atmosphere of their family businesses--places where they do much more than just count pills.

“Think about it. Where else can you get medical advice without an appointment?,” asks Ornellas of her pharmacy, one of three Laguna Beach businesses that remained open during the fire that paralyzed the city in fall 1993.

“People ask me questions all day long, things they are sometimes embarrassed to ask their doctors. We are a part of their lives.”

But even that free-advice policy is changing. Some pharmacists now put a meter on their medical advice, says Jacqueline Krause, president of the Orange County Pharmacists Assn.

They call it “disease management,” a more hands-on health counseling service where pharmacists work with the doctor to educate the patient about his illness. The pharmacists providing the service charge about $1 a minute, according to Ornellas.

“You’ll see more pharmacists gearing up to provide more services,” says Krause, whose association represents 400 of the county’s 2,000 pharmacists. “That’s the kind of change I’m seeing.”


“I’m looking into it,” says McCalla about the new practice of pharmacists charging patients for consultations, “which is really sad. I got into this business because I love dealing with people. But other pharmacists are charging for the free medical advice we’ve been giving for years. You have to do what you have to do to stay in business.”


Independents in beach cites are hanging on because of tourist shopping, but most neighborhood pharmacies in the county are making changes to attract business, from adding soda fountains to carrying specialty gifts.

“We get a lot of foot traffic, so that saves us,” Ornellas says. “But we did beef up our gift section. You have to do something different.”

Abandoning mom-and-pop ways is a bitter pill for neighborhood pharmacy owners in Orange County, many of whom have for decades delivered medications and set up personal charge accounts.

“It’s hard for pharmacists to say to clients they’ve known for 20 years, ‘I can’t fill your prescription,’ ” says Steve Feldman, owner of California Pharmacy & Compounding Center in Costa Mesa.

It was clear, says Feldman, that some innovative changes were needed to keep his business afloat. As have other pharmacists struggling to make it, he found a “specialty niche” to generate new business. Feldman’s store specializes in custom medications and natural hormones.

“There are a lot of whiners out there, and those are the ones who lose their businesses,” he says. “People have to make changes and adjustments to move ahead. Those are the pharmacists who stay open.”

But many pharmacists are still bucking the system, fighting to keep doing business the old-fashioned way.

To illustrate what they consider a collective life-and-death struggle with health insurance providers, thousands of independent pharmacists across the nation have observed “dates of mourning,” staging mock funerals and draping store counters in black.

A lawsuit filed two years ago by the 1,300-member California Pharmacists Assn. against six HMOs claims the rock-bottom reimbursement costs for drugs are set to force them out of business. About half of the companies in the case reached an out-of-court settlement with the pharmacists; the suit is pending for the others.

“It’s never going to get better,” said one Orange County druggist. “If anything’s going to change, it’s the way I do business. You can’t fight city hall.”