LYNNWOOD – The owner of a new pharmacy here says he’s found a way to offer prescription drugs that typically are cheaper than those in Canada – by insisting that customers pay in cash, not through insurance companies.

Cutting out insurance companies allows Save Now Discount Drugs to cut back on its overhead, which means it can pass savings on to customers, said owner Todd McElroy.

“We’re doing less than our major competitors, and we make more because we don’t take insurance,” said McElroy, who opened the drugstore in the spring.

It’s part of a trend in the pharmacy industry, said William Fassett, dean of the College of Pharmacy at Washington State University.

“I don’t know what the numbers are, but it’s my impression that it’s a growing number of independent pharmacy owners that are going insurance-free,” he said. “There are more and more independent pharmacists announcing to their colleagues that ‘I’ve stopped taking insurance and my life is so much better.’ “

Profit margins for independent pharmacies have been squeezed over the decades, as wholesale drug costs have climbed while payments to drugstores from insurance companies have been cut, Fassett said.

In the 1980s, the typical prescription cost $5, on which the pharmacy would realize about $2.17 in profit, he said. But by 2000, the typical prescription cost $60, of which $3.80 would go to the pharmacist.

If a customer today pays a drug-store bill with a credit card, it’s altogether possible that the credit card company will make a bigger profit on the transaction than the pharmacist, Fassett said.

Other studies show that between 40 percent and 60 percent of a pharmacist’s day is spent dealing with insurance companies, he said – submitting claims and re-submitting claims that get rejected.

That’s led to the growth of major drugstore chains, said McElroy, who used to be a consultant in the industry. The major chains can negotiate drug discounts with suppliers and hire teams of specialists to handle insurance claims, so they’ve been able to grow.

“Walgreen’s is out there, and they’re great and they’re excellent at what they do,” he said.

For independents, that’s not really an option, but McElroy thinks he’s found a business model that will allow his store to compete.

The model depends heavily on substituting lower-cost generic drugs for the expensive brand-name drugs. In most cases, McElroy said, he can offer a generic alternative at a price that’s lower than what a patient with insurance would fork out in a co-pay to get the brand-name equivalent.

“It’s cheaper, even using your co-pay,” he said. “If you can take a generic alternative to a branded drug, do it. You’re going to save a fortune.”

Because of the differences in U.S. and Canadian drug pricing systems, generic drugs here are less expensive than north of the border, McElroy said. The savings in Canada are on the brand-name drugs.

And generics are also more profitable for the pharmacies, Fassett said. Because the drugs cost so much less wholesale, the pharmacy can take a bigger percentage markup and still offer a better value to customers.

By not working with insurance companies, pharmacies can cut their overhead and provide better service “because they’re spending all of their time providing professional services instead of insurance company services,” Fassett said.

Plus, the pharmacy benefits from getting its money from each sale immediately from patients, instead of weeks or months later from insurance companies.

The pharmacy still might lose money on sales of brand-name drugs, but when you combine the better profit margin on generics with the lower cost of doing business without insurance reimbursements, you can run a profitable business, Fassett said.

Customers benefit, too, particularly those who have poor insurance or none at all, he said. “The people are getting a good deal – essentially what they’d have if they had insurance.”

McElroy opened Save Now in May. Sales were “dismal” to start, but they’ve increased steadily and the store is now filling anywhere from 35 to 60 prescriptions a day – right on target for the first year.

“We’re about a third of the way to being profitable,” he said.

It’ll only get better, as more people find the store, McElroy said. “They’re going to come here because of price.”

Reporter Bryan Corliss: 425-339-3454 or corliss@heraldnet.com.