CVS, Walgreens bid to dominate drug retail

Ever since CVS bought Caremark, which runs pharmacy benefit plans, in 2007, community pharmacists have been complaining, and CVS has been making promises about treating them fairly. They have not.

CVS Caremark and Walgreen's announced they have settled a dispute that had kicked the latter out of the former's pharmacy benefit plans.

Terms were not disclosed.

Regulators should be very wary of this. CVS and Walgreen's are the dominant players in the retail pharmacy trade. Supermarket chains Kroger and Safeway were down on the news. Analysts now like CVS stock.

Business writers were entertained by the spat. Walgreen's war-like statements, and CVS' war-like replies, made for great theater.

But they obscured a more dangerous reality.

There are many ways in which money is wasted and choices denied in our present health system. Workers don't really buy coverage -- we take what employers may give us. Price transparency does not exist -- we think only in terms of co-pays or percentages and can't really shop.

An exception lies in the drugs we buy. We get to choose our merchant, and the co-pay in all instances is supposed to be the same.

Now even that small choice is under threat.

Ever since CVS bought Caremark, which runs pharmacy benefit plans, in 2007, community pharmacists have been complaining, and CVS has been making promises about treating them fairly. They have not. They have steered consumers toward their own stores, the small fry claim.

Both the FTC's consumer protection and competition bureaus have been investigating the charge, and the Walgreen's deal obscures the fact that CVS founder Thomas Ryan announced his retirement this week, aged 56, replaced by a 54 year old lieutenant.

Why is he leaving, really? In addition to the FTC, CVS now faces investigations by the DEA, the SEC, and Department of Health and Human Services.

Sen. Amy Klobuchar, echoing the community pharmacist complaints, told a hearing recently consumers are being steered away from local outlets to CVS stores miles away, and charged higher co-pays unless they cooperate.  Republican Jim Jordan has also written in support of the complaints.

The National Community Pharmacists Association (NCPA) calls CVS' tactics a "pay for delay" program. Personally I have gotten both letters and phone calls since the CVS Caremark acquisition, from my insurer, promising a better deal if I switch my prescriptions to CVS' mail-order plan.

They are not making this stuff up.

There is an inherent conflict of interest when a merchant owns a payment system. WalMart's efforts to create a bank were frustrated for years precisely over this concern. Ironically WalMart gave up its effort the same year CVS was allowed to buy Caremark.

A pharmacy benefit plan is a lot like a credit card processor, only additional checks are required against the terms of a customer's insurance plan.

At minimum, consumers deserve to know the terms of the CVS-Walgreen's deal, and local pharmacists need to be given the same terms. The best solution is for the CVS-Caremark merger to be undone, ending the conflict of interest for good.

This post was originally published on Smartplanet.com

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