As consolidation marches ahead in the health field, the call for stronger anti-trust reviews of potential merger is heightening.
The latest: Walgreens’ proposed purchase of mega-rival Rite Aid. Driven in large measure by the desire to combine the two retailers’ pharmacy operations, the merger has drawn considerable attention from those concerned about escalating prescription drug costs.
On the surface, the deal would seem to be a great one for all shareholders involved. Walgreens is performing well from a P&L standpoint, having just concluded a very profitable quarter and fiscal year. The Street seems to support the move: Rite Aid’s stock, which had been nearly dead, has peaked of late, and Walgreens has traded in a historically strong range.
Apart from questions about how many stores would have to be shed and how long the Rite Aid brand would survive, analysts are weighing in on a larger issue: Such a merger would create not just a larger drug chain, but a new health care provider with considerable purchasing clout in the pharmaceuticals marketplace.
Walgreens officials have already hinted at the potential savings in prescription drug costs the merger could produce. But those savings would drop to Walgreens — and not necessarily to the end consumer. Further, merger observers have noted that insurers and benefits managers have been pressuring pharmacies to cap or reduce drug costs through such tactics as lower reimbursements. This combination of the second and third largest drug chains (behind CVS) could shift the balance of power on that cost control effort, experts suggest.
Both parties have agreed to the merger, which won’t get final approval from the feds until sometime next year.
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Dan Cook
Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.
