SUPERMARKET PHARMACISTS WARY ABOUT RITE AID, PCS DEAL

CHRISTINE BLANK

CAMP HILL, Pa. (FNS) -- Supermarket pharmacists fear Rite Aid's proposed acquisition of PCS Health Systems, Scottsdale, Ariz., could lead to anticompetitive practices that would give the drug chain a huge market advantage at the expense of other retailers, including supermarkets.

The $1.5 billion deal between Rite Aid here and Eli Lilly & Co., Indianapolis, which owns PCS, is tentatively scheduled to close Jan. 29.

"I wonder whether safeguards would be put in place to prevent Rite Aid's access to pricing and patient files," said John Beckner, pharmacy director at Ukrop's Super Markets, Richmond, Va.

Supermarket pharmacists are not alone in their concern over Rite Aid's merger with the largest pharmacy benefits manager. Staunch opposition has been voiced by pharmacy organizations, led by the National Community Pharmacists Association, Alexandria, Va., as well as the Food Marketing Institute, Washington, and the National Grocers Association, Reston, Va. All petitioned the FTC to halt the acquisition, but to no avail.

"Through such an acquisition, Rite Aid would have the name and location of every competing pharmacist, the prescription prices and quantities, and the number of prescriptions written," said Thomas Sata, president and chief executive officer of the NGA. "In essence, Rite Aid will have all necessary information on competitors to manipulate prices and services, and therefore unfairly control the marketplace."

"Private patient prescription information stored in the databases of independent pharmacies throughout the country could also become accessible by a competitor," said W. Whitaker Moose, president of the NCPA.

"Confidential information on the pricing strategies of our members -- the nation's 25,000 independent pharmacies -- would potentially be available through PCS to one of our primary chain drug store competitors," Moose added.

Rite Aid, with annual revenues of more than $12 billion, has about 3,900 stores in 30 states and the District of Columbia. It fills more than 225 million prescriptions a year, or $6 billion in prescription drug sales.

PCS, which serves health plans covering 56 million people, does business with an estimated 90% of all pharmacies, including those in supermarkets. It manages nearly 300 million prescriptions each year for more than 1,200 health plan sponsors. The PBM represents about $10 billion in drug expenditures.

Rite Aid's PBM, Eagle Managed Care, covers 4 million people. With both Eagle and PCS's clients, Rite Aid would essentially oversee the plans of 60 million individuals, according to an equity research report by Raymond James & Associates, St. Petersburg, Fla.

"In effect, Rite Aid would gain control of fully 40% of the 150 million covered lives in the PBM marketplace," said Calvin Anthony, executive vice president of the NCPA.

"This combination, together with Eagle Managed Care, our PBM, will enable Rite Aid to compete more vigorously," said Martin Grass, chairman and CEO of Rite Aid. "Our proven technology and record of superior execution have enabled Rite Aid to provide them [plan members] with high-quality pharmacy care and to control their health care costs better than any retail pharmacy provider," he added.

Even Wall Street analysts recognize the proposed acquisition's effect on Rite Aid's competition. "We believe the payback to Rite Aid will come in the form of payers steering more volume through its drug stores at the expense of the higher-cost operators, such as the independent druggists, the supermarkets and the mass merchants," according to Michael Glover Jr., an analyst who authored the report for Raymond James & Associates. The company urged its investors to buy Rite Aid stock after the PCS announcement, because the retailer is "enhancing its ability to become an important partner to the third-party payers."

At the same time, Rite Aid officials deny that the chain will have a monopoly on the market. "Ten percent [of the market] is hardly a monopoly. Over 40% of PCS's business is in states where Rite Aid doesn't even have a presence, and Rite Aid fills only 7% of PCS's prescriptions," said William Titelman, executive vice president of managed care and government affairs at Rite Aid.

In addition, he said he believes the issue raised about patient privacy is groundless. "Not only do we not sell confidential patient information, we have never done it."

"[The privacy concern] is nothing but a smoke screen designed to obscure the real reason independent pharmacies oppose the acquisition: fear that the accelerating and spiraling cost of pharmaceuticals will continue to fuel the marketplace's demand for highly efficient pharmacies that can provide lower costs to Prescription Benefit Plan sponsors," according to a Rite Aid statement.

Although Titelman recognizes independent and supermarket pharmacist concerns, the acquisition will actually benefit retailers, he said. "We think a PBM more closely aligned to retailers than manufacturers is better, because it brings them closer to the pharmacist, patient and physician.

"We are interested in creating a future for the corner drug stores. We are out there in the community and a lot more accessible than the emergency room of a hospital," he added.

Meanwhile, supermarket pharmacists are concerned about access to networks after the acquisition. "Would pharmacy operators other than Rite Aid be excluded from PCS networks?" Beckner asked. The networks could stifle competition by implementing preferential pricing or allow retailers to participate on a selective basis, he added. Currently, Ukrop's has access to "just about all third-party plans that we want to have access to," according to Beckner, but that could change.

However, Titelman insists that the networks will remain open. "PCS will always offer open networks because customers demand it," he said. Rite Aid competes in pharmacy networks run by its competitors, and competing retailers have always been allowed to participate in Rite Aid networks, Titelman added.