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Health care costs

Walgreen's deal likely to raise consumer costs

Jayne O'Donnell
USA TODAY

Walgreens Boots Alliance says it isn't trying to bolster its bargaining clout with its $17.2 billion acquisition of the Rite Aid drug store chain.  Instead, it's trying to improve health care delivery for consumers,  CEO Stefano Pessinam  says.

Others aren't sure that's the case.

"Everyone in healthcare is trying to get bigger than the next company they’re negotiating with,"  pharmacist Doug Hoey, CEO of the National Community Pharmacists Association, says.

Hospitals and health insurers have been ringing up mega-deals of their own in recent years and months. This summer alone, insurer Aetna announced plans to acquire Humana, and Anthem heralded plans to buy Cigna.

Standalone hospitals, especially in rural areas, are either being gobbled up by big chains or shuttered. And CVS Health bought 1,600 of Target's retail pharmacies.

Walgreens and Rite Aid face one giant rival

The Walgreens deal comes as drug prices are soaring.

The Health Care Cost Institute plans to report Thursday that spending on brand prescription drugs in 2014 jumped by $45 per person, an increase that's four times larger than in 2013. That's despite the fact that overall use of these drugs was down 16%. HCCI said much of the spending increase was due to the use of high-prices Hepatitis C drugs that became available starting in late 2013.

The deal is "going to hurt consumers in the end," Susan Hayes, who is a principal at the consulting firm Pharmacy Outcomes Specialists, said. "Consumers are going to have less say over drug pricing."

For the small pharmacies Hoey's group represents, the deal could set them back even more as they struggle to get higher – and faster – reimbursements from the pharmacy benefit management companies (PBM) that control nearly all of drug pricing.

The role of PBMs have expanded from simply handling prescription billing about 15 years ago to deciding which drugs insurers cover, what they cost and how much pharmacies are reimbursed for them. They are the middlemen that handle drug plans for employers and insurers and include CVS' Caremark and the mail order drug company Express Scripts.

With the deal, Walgreens gains Rite Aid's PBM Envision Pharmaceutical Services.

"That's why I think they wanted Rite Aid," Hayes said.

Do drug benefit managers reduce health costs?

Pessinam says the two drug stores chains will create "an even better network, with more health and wellness solutions available in stores and online."  In a statement, he also emphasized the deal will help the combined company speed up its delivery of innovative healthcare solutions.

Pharmacy technician Emma Mendoza helps a customer at a Walgreens pharmacy on September 19, 2013 in Wheeling, Illinois.

Hoey says one way small drug stores hope to compete is by offering blood pressure screenings and other care that helps keep people healthy.

The Affordable Care Act created new methods to reward hospitals and doctors for the quality rather than the quantity of the healthcare they provide. Medicare and private insurers are moving quickly towards these "value-based" payment models, which can include groups of doctors, hospitals and pharmacies that all agree to share in the care of certain patients.

But the increasingly large chains are doing this too. And, when combined, Hayes said, Walgreens and Rite Aid are "going to be a force to be reckoned with in the industry."


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