Walgreens & Rite Aid Deal Could Impact Drug Prices

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Walgreen's proposed acquisition of Rite Aid could have a big impact on high drug prices, but how remains to be seen.

The $17.2 billion deal announced Tuesday would create the largest pharmacy chain in the U.S. if regulators approve it. Some experts say the combined chain could reduce costs and create more leverage when negotiating with drug companies over prices, while others are worried the consolidation could hurt consumers.

High drug prices have become a top problem in the U.S.. A poll released Wednesday found many people were concerned about how to afford pricey drugs that treat ailments such as hepatitis and cancer.

The deal would open up Walgreens to the pharmacy benefits manager business, as Rite Aid acquired a pharmacy benefits manager for more than $1 billion earlier this year.

A pharmacy benefits manager handles the drug benefits for a health insurance plan. It is commonly tasked with negotiating with drug companies to get a lower price.

Walgreens' biggest competitor, CVS Caremark, has a pharmacy benefits business.

The push into pharmacy benefits is a "nice diversification for Walgreens," said Dan Mendelson, president of healthcare research firm Avalere Health. "It makes sense for them to be engaging in that way because they sit at that place between the consumer and the drug."

Mendelson said combining the systems of Rite Aid and Walgreens could help reduce costs and deploy resources more effectively on pharmacy benefits.

Others were skeptical of the deal, which still needs to be approved by antitrust regulators.

"Consumers don't benefit when two leading pharmacy chains combine," said Jamie Court, president of the advocacy group Consumer Watchdog. "It's likely to mean fewer locations, less convenience and higher prices for consumers, as well as lost jobs."

Court said he hopes the federal government stops the deal and signals that there is "only so much consolidation in the healthcare sector that will be tolerated as consumers pay more and more out of pocket for their healthcare under government requirements."

Court's comments hint at another reason for the purchase. Over the past year there a wave of consolidation has hit the healthcare industry.

It started with hospitals and doctors' offices merging partly to help meet Affordable Care Act requirements. Then insurers started to combine because the hospital systems had more leverage on insurance rates.

Now pharmacy chains are trying to get in on the act.

The Walgreen-Rite Aid merger, if cleared, would create a chain with about 12,000 stores.

"That's nearly 20 percent of the brick and mortar pharmacies in the U.S.," according to Douglas Hoey, CEO of the National Community Pharmacists Association Thursday.

It is also several thousand more than that owned by CVS, which has nearly 8,000 stores in the U.S.

Hoey said regulators should scrutinize the deal, particularly in regions that have high concentrations of their pharmacies.

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