Fay's draws line in the sand with 3rd-party reimbursement - Fay's Drug Company Inc

SYRACUSE, N.Y. - Eroding pharmacy margins have become such a problem for Fay's that the company has publicly drawn a line in the sand: It will now walk away from some third-party plans that don't meet its profit-margin objectives. The move is part of an overall strategy to cut costs and improve profitability at the chain.

"Those plans that set `take-it-or-leave-it' reimbursement rates that fail to take into account our cost of doing business or the value of our professional pharmacy services will have to look elsewhere for such services in the future," said Henry Panasci Jr., Fay's chairman and chief executive, at the company's annual meeting here last month.

Panasci's firm stance was echoed by president and chief operating officer David Panasci after the meeting. Third-party plans, the younger Panasci told Drug Store News, are now being evaluated with an eye toward their total impact on the chain's profitability.

Coming off a disappointing first quarter (earnings dropped from $2 million to $772,000), Fay's top executives spent a great deal of time at the annual meeting airing their plans to cut costs and improve profitability.

"Let me state in no uncertain terms that I share your disappointment with these first-quarter results," David Panasci told shareholders. "Management at all levels of the company recognizes that cost reductions must be made immediately. We are evaluating all non-value-added activities that can be eliminated, as well as more cost-effective ways to deliver the critical functions that drive our business."

Fay's executives reiterated plans to sell the chain's automotive (Wheels) and office supply (The Paper Cutter) units and focus attention on its drug store operations. Funds from the sale of nondrug store operations would be funneled into reducing debt, stepping up marketing efforts in Fay's mail-order pharmacy operation and expanding the store count, said the senior Panasci.

Other plans mentioned include re-engineering supply chain management; adding more 24-hour and extended-hour stores and drive-through pharmacies; and improving POS, pharmacy and central computer systems.

Last year, Fay's managers from marketing, MIS, purchasing and distribution joined together to form a re-engineering supply chain team. The goal: to take costs out of the system and improve the process. "Once complete, this will have a profound effect on the cost of supplying products to our drug stores, the way buying decisions are made, the assortment of products we carry, and the number of days of inventory in our distribution center," said Henry Panasci.

The senior Panasci also addressed a shareholder's question about the minimal growth in the value of the stock compared to competitors. "I can't comment about the vagaries of the marketplace. Apparently, we are not as attractive as Walgreen, Revco or Eckerd," he said.

"One of the things we have done is grow a lot faster than some of these companies," Panasci added. "We have grown a lot faster, developed new business, put a lot of money into technology and put a lot of resources into bringing Paper Cutter and Wheels up to speed."

Another shareholder questioned the source of the high volume of trading of the company's shares of stock in March. "We have no knowledge of anyone accumulating blocks of stock," responded Henry Panasci.

COPYRIGHT 1995 Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission.
COPYRIGHT 2004 Gale Group