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The Pharmacist Is Out: Supermarkets Close Pharmacy Counters

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In some towns, it’s getting harder to pick up your blood-pressure pills with that gallon of milk and rotisserie chicken.

Hundreds of regional grocery stores in cities from Minneapolis to Seattle are closing or selling pharmacy counters, which have been struggling as consumers make fewer trips to fill prescriptions and big drugstore chains tighten their grip on the U.S. market.

Grocery pharmacies are getting hit on several fronts, analysts and the companies say. They are too small to wrest competitive reimbursement rates on drugs, they aren’t connected to big medical networks or insurers, and they generally lack walk-in clinics and other health services that draw many customers to CVS and Walgreens locations.

“Our establishment had a community feel, it wasn’t overly busy so we got to really care for our customers,” said

Phillip Breker,

who managed a now-closed pharmacy at Lunds & Byerlys, a Minneapolis-area grocery chain. “I also saw the numbers in the back end and how that soured in the last 10 years. The company made the right decision.”

Grocery pharmacies are the latest casualty of industry consolidation that has for years been forcing mom-and-pop drugstores to close. Even some big players have rethought the market.

Target Corp.


TGT -1.05%

sold off its pharmacy business to

CVS Health Corp.


CVS -2.86%

five years ago.

Supermarkets have viewed pharmacies as a tool to draw shoppers in. Fueled by easy profits and relatively low startup costs, legions of stores added pharmacy counters in the 1980s and 1990s. Grocery drugstores proliferated to account for roughly 14% of retail pharmacy prescriptions, according to the National Association of Drug Stores.

The number of grocery pharmacies declined for the first time in years in 2017, the latest year for which data is available, to 9,026, down from 9,344 in 2016.

Consumers are increasingly getting 90-day supplies of their medicines or getting prescriptions delivered in the mail. Those trends are resulting in a decline in foot traffic to supermarket pharmacies, which were typically located at the back of stores. Meantime, profits are ever harder to come by as the health-care industry consolidates.

CVS and

Walgreens Boots Alliance Inc.,

the nation’s biggest players, contributed more than 40% of U.S. prescription revenues in 2018, according to Drug Channels Institute, which provides research on the drug supply chain.

The chains, which now either own or have partnerships with the biggest insurers and pharmacy-benefit managers, are able to secure better deals on drug costs that largely shut out the industry’s smaller players. Pharmacy-benefit managers serve insurers and other clients by choosing which medicines to cover and pushing for lower prices from drugmakers and sellers.

CVS and

Walgreens


WBA -2.36%

also are working to transform drugstores into health-care hubs, offering services from blood testing to chronic-disease management.

“The biggest companies in health care now have pharmacists and doctors, they own medical practices, and they own urgent-care clinics,” Baird analyst

Eric Coldwell

said. Grocery pharmacies “have none of this. They have a store to go into to buy lemons and bread.”

Kroger, one of the supermarket chains that still see pharmacies as a key element of their business, says pharmacy customers tend to spend more on groceries.


Photo:

Rogelio V. Solis/Associated Press

The tougher conditions come as the entire drugstore industry copes with a shift to online shopping and shrinking profits in prescription medicines, which often disproportionately affect smaller players.

Walgreens and CVS have closed or are closing more than 300 underperforming stores, while

Rite Aid Corp.,

the No. 3 U.S. chain, is struggling to turn itself around after regulators blocked a merger with Walgreens in 2017.

Raley’s Supermarkets, a West Sacramento, Calif., chain of about 120 stores, last year shut down a third of its roughly 100 pharmacies and transferred prescriptions to nearby Walgreens, CVS and Rite Aid stores. Those grocery pharmacies had low prescription rates, were losing money and didn’t merit high operating and labor costs, according to Raley’s.

“There is the benefit of having a pharmacy relative to the grocery-sale lift and the convenience factor of having both in the store, but the economics do not work,” said

Keith Knopf,

chief executive of Raley’s.

Profitability for grocers has become harder to achieve in recent years, and pharmacies play a less important role today in attracting customers, Mr. Knopf said. Raley’s is cutting hours for the remaining pharmacies to improve profits and create efficiency. Pharmacies make up roughly 20% of Raley’s total sales.

Many grocers still view pharmacies as a key part of their business.

Kroger Co.,


KR -0.88%

the biggest U.S. supermarket chain, said its pharmacy business is expected to improve this year after lower-than-expected profits in 2019. Kroger has said pharmacy shoppers tend to be more loyal, spending three times as much as nonpharmacy customers.

“We’ve been able to connect the relationship with food and are starting to build out new revenue streams,” Kroger finance chief

Gary Millerchip

said at an investor meeting in November.

Lunds & Byerlys, the Minnesota chain, shut all 14 of its supermarket pharmacies last year. At each location, it posted a sign that has become increasingly common: “The pharmacy is now closed. Your prescription records have been transferred to Walgreens.”

Mr. Breker, the pharmacy manager, now works for Walgreens at a location in a nearby town. “I literally cried at the counter with dozens of people,” he said. “They felt a loss here.”

Write to Sharon Terlep at sharon.terlep@wsj.com and Jaewon Kang at jaewon.kang@wsj.com

Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Trump takes flak from Dems after proposing $2.5B to fight Coronavirus

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Democrats slam White House’s ‘dangerous incompetence’ on coronavirus response; reaction and analysis on ‘Outnumbered.’ #FoxNews

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Here’s how to appeal higher Medicare premiums

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The annual income of older Americans could drop significantly from one year to the next for a variety of reasons. It might be retirement or the death of a spouse, perhaps, or the sale of a business.

Yet it might take Medicare — which charges higher earners more for premiums — a couple years to adjust when income falls below the threshold.

If you’re paying more than the standard amounts for Medicare Part B (outpatient services) and Part D (prescription drugs) through so-called income-related monthly adjustment amounts, or IRMAAs, the difference can reach into the hundreds of dollars per month. And, the surcharge is often based on your tax return from two years prior — which may not accurately reflect your current financial situation.

“We see it all the time,” said Danielle Roberts, co-founder of insurance firm Boomer Benefits in Fort Worth, Texas. “They end up having to contact Social Security and show they’re not earning that amount anymore.”

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Of Medicare’s 62 million beneficiaries, about 7% — 4.3 million people — pay those monthly surcharges, due to various legislative changes over the years that have required higher-earners to pay a greater share of the program’s costs.

For individuals, IRMAAs kick in if your modified adjusted gross income is more than $87,000; for married couples filing joint tax returns, they start above $174,000.

The standard monthly premium for Part B this year is $144.60, which is what most Medicare beneficiaries pay. (Part A, which is for hospital coverage, typically comes with no premium.) The surcharge for higher earners is from $57.80 to $347, depending on income. That results in premiums ranging from $202.40 to $491.60.

For Part D, the surcharges range from $12.20 to $76.40. That’s in addition to any premium you pay, whether through a standalone prescription drug plan or through an Advantage Plan, which typically includes Part D coverage. While the premiums vary for prescription coverage, the average for 2020 is about $42.

As mentioned, the Social Security Administration relies on your most recently filed tax return — which often is from two years prior — when determining whether you’ll be charged the extra amounts. In other words, for 2020, that would have meant your 2018 tax return was used.

“They did the adjustment late last year and, at that point, they only had your 2018 tax return because you hadn’t prepared your 2019 return yet,” explained Roger Luchene, a Medicare agent with Hammer Financial Group in Schererville, Indiana.

The process to prove that your current income is lower involves asking the agency (either over the phone or in writing) to reconsider their assessment. You also have to fill out a form and provide supporting documents. While it depends on your situation, suitable proof may include a more recent tax return, a letter from your former employer stating that you retired, more recent pay stubs or something similar showing evidence that your income has dropped.

The required form includes a list of “life-changing” events that qualify as reasons for reducing or eliminating the IRMAAs, including marriage, death of a spouse, divorce, loss of pension or the fact that you stopped working or reduced your hours.

As long as you meet one of the qualifying reasons, “most of the time it gets adjusted,” said Elizabeth Gavino, founder of Lewin & Gavino in New York and an independent broker and general agent for Medicare plans.

If it doesn’t, you can appeal the decision to an administrative law judge, although the process could take time and you’d continue paying those surcharges in the meantime, Roberts said.

Additionally, the SSA reevaluates your situation every year, which means the IRMAAs (or whether you pay them) could change annually, depending on how volatile your income is.

Roberts said she’s seen some Medicare beneficiaries who take no medications simply decide to not sign up for coverage, in order to avoid paying so much for a Part D plan that they think they’ll never use.

Be aware, however, that the decision could leave you financially vulnerable if your long-term health unexpectedly changes or a one-time health event requires prescription drugs. You also could face late-enrollment penalties, as well, if you don’t qualify for an exception. (The same goes for enrolling late in Part B.)

“You’d be caught without coverage and have to pay out of pocket,” Roberts said. “And, you’d have to wait until the next [enrollment] period to get into a plan.”

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Subscription Companies Make Quitting Easier

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Companies that sell subscriptions to products—everything from razors and high-fashion clothing to pet products and meal kits—are locked in fierce competition.

To make their wares more appealing to customers, some companies are executing a counterintuitive twist on that strategy: They are making it easy to quit.

ClassPass Inc., which has a monthly subscription service that gives users access to exercise classes at a variety of gyms and studios, is phasing out a live-chat feature that customers have had to contend with when they cancel.

The chat was partly designed to encourage customers to find a better plan that they might not have been aware of before signing off for good, according to

Lauren Cowher

Hill, director of global customer experience at ClassPass.

But the company is rolling out technology to automate its cancellation process, Ms. Cowher Hill said, with the goal of making it available to all global consumers in the coming months.

“We know the ability to pause or make changes to a membership is something our members deeply value,” Ms. Cowher Hill said. “And this isn’t just true for ClassPass. Globally, there is a growing desire for a frictionless cancellation flow, especially for subscription services, and we’re proud to be making strides to deliver that.”

ClassPass is using what it learned from the live chat process to inform its automated cancellation system, she said.

Many companies have used onerous policies and processes to keep customers past trial periods and discourage them from canceling later, according to Robbie Kellman Baxter, a consultant specializing in membership models and subscription pricing and author of a forthcoming book, “The Forever Transaction: How to Build a Subscription Model So Compelling, Your Customers Will Never Want to Leave.” But that isn’t a winning long-term strategy, she said.

“If you’re trying to have a long-term relationship with your customer and you’re kind of sneaky with the terms, you’re not going to be generating trust,” Ms. Baxter said.

Some companies have also been called out for difficult cancellation rules.

Rent the Runway subscribers can now pause or cancel memberships by sending a single email.



Photo:

Shannon stapleton/Reuters

The Honest Co., a consumer-goods company co-founded by actress

Jessica Alba,

was criticized in 2016 for making subscribers call on the phone before they could cancel. It changed its policy that December to allow cancellation online.

Last year, Rent the Runway began letting subscribers to its fashion service immediately pause or cancel memberships by sending a single email. It previously required members to call or email a “Membership Concierge,” which had drawn complaints for sometimes replying slowly.

The company made the change to make things easier for members, but a representative noted another benefit as well: It lightened inbound calls to the customer service team.

Easy cancellation policies could actually help businesses lure in more subscribers and encourage more customers to come back if they have left, said Peter Fader, a professor of marketing at the Wharton School of the University of Pennsylvania. Such policies, he says, make the subscription experience more personal by making customers feel fairly treated.

That could help the subscription companies’ broader efforts to make recurring shipments and automatic charges feel less transactional and more like membership in a club.

Harry’s Inc., the subscription razor service that also sells products in retail stores, last May launched what it describes as a “core membership” program that costs $15 a year, giving customers discounts when they shop online as well as free engravings and access to limited-edition products. It started the program because customer feedback indicated a desire for specialized services, according to

Kalpana Ganti,

head of digital product at Harry’s.

Harry’s says it has converted 57% of subscribers of its basic monthly plan to a new “core” membership program.



Photo:

Bebeto Matthews/Associated Press

The company has converted 57% of subscribers to its basic monthly plan to the new membership program, Ms. Ganti said.

Harry’s said customers can cancel either through Harrys.com—by clicking a button on their profile—or by getting in touch with the customer support team via phone or email.

Personalized services and other membership touches help companies connect with customers who are increasingly subscribing instead of making individual purchases, said

Tien Tzuo,

founder and CEO of Zuora Inc., a provider of software for subscription companies. Companies that offer membership services are trying to project a broader lifestyle that will appeal to customers and add value beyond the product itself, Mr. Tzuo said.

Brightly marked, easy exits could become an essential feature of membership models, according to

Greg Alvo,

founder and CEO of the subscription software company OrderGroove Inc. His company’s clients include

GNC Holdings Inc.,

which upgraded its interface last May to make it easier for customers to modify or cancel their subscriptions.

Making quitting simple could even become the law. A 2018 California regulation began requiring companies that let consumers subscribe online to also let them opt out online. “We think this is a precursor to more consumer protections to come,” said

Guy Marion,

chief executive officer and co-founder at Brightback Inc., which offers automated customer retention software for subscription companies.

“Subscription businesses are in the midst of exploring how to best transition their cancel experiences online, reflecting both the shifting consumer expectation and new regulatory requirements,” Mr. Marion said.

Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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