Times they are a changin’ AGAIN With the Walgreens announcement last week of the acquisition of Rite Aid, things just got even more interesting in the Pharmacy Benefits arena. It now appears we will have two Retail ownership based PBMs in the marketplace. Here is what we know: Rite Aid is to become a wholly owned subsidiary of Walgreens Boots Alliance The Rite Aid stores will operate as Rite Aid for an undefined period. (This is typical in the industry and for Walgreens in particular as you look at other acquisitions such as Duane Reade in NY) Rite Aid margins (estimated at below 1%), especially by store, are significantly lower than Walgreens (estimated above 4% ) This is the financial opportunity I expect Walgreens will try to capitalize on. We would expect some Walgreens/Rite Aid store closures. These could be because the stores were low performing or because of anti-competitive forces with this acquisition as the Federal Trade Commission (FTC) FTC reviews the acquisition With these additional stores, Walgreens will have a more competitive presence in the following states as compared to CVS Health: • AL • MI • NJ • VA • CA • NC • PA • WV • MA • NH • RI Greater leverage in retail network contracts on both the retail level and the PBM level. Greater purchasing power from wholesalers and pharmaceutical manufacturers. With Rite Aid’s acquisition of RediClinic in 2014, the Walgreens acquisition will add more clinics to its inventory. Envision brings the PBM back to Walgreens (which had been “sold” to CatalystRx, now Catamaran/Optum.) As part of the acquisition, Walgreens acquires Envision. This will provide some competition to the CVS Health PBM. The new “Envision” or at least the PBM we know as Envision will definitely be changing even more than it already has. Will it be a good thing for purchasers of PBM services? Walgreens will now control 1/5 of the pharmacies in the country and between the two (Walgreens and CVS) almost a third of the pharmacies in the country. Envision has its own Specialty which can be expected to be merged into the Walgreens Specialty program. This provides added lives and purchasing power for Walgreens. Expect integration of this early on. Envision has its own Mail Order Pharmacy. This too will be added to the Walgreens mail service offerings. Expect the Envision mail order to be moved to a Walgreens facility in fairly short order. It’s hard to say whether the acquisition will pass the FTC or not, but after seeing the Medco-ESI deal go through it wouldn’t surprise me. Granted, in some ways, this is a bigger deal with the amount of retail pharmacy business involved, but I still think it has a very good chance of being upheld with possibly only some minor divestitures. What does this mean for employers, unions and payers? Nothing significant would be expected to occur in the next 6 to 9 months. There will be a delay for the FTC to review and comment. There could be more network disruption as Walgreens can more effectively compete against CVS and opt in/out of networks. A possible replay of the ESI hold out…….
It means that it will become more important than ever to have a good solid PBM contract to protect your financial interests as this market goes through another dramatic change.