Om­ni­care for­got to men­tion ...

Part D’s ef­fect not fac­tored in its ar­gu­ment for hos­tile Pharmer­ica takeover

Modern Healthcare - - THE WEEK IN HEALTHCARE - Jaimy Lee

Om­ni­care’s ar­gu­ment that the Fed­eral Trade Com­mis­sion has al­ready de­clared the in­sti­tu­tional phar­macy mar­ket com­pet­i­tive fails to take into ac­count the full im­pact of Medi­care Part D.

The Cov­ing­ton, Ky.-based com­pany raised that as­sess­ment in de­fense af­ter the FTC sued to block its hos­tile takeover of Louisville, Ky.-based Pharmer­ica Corp. in late Jan­uary. The FTC al­leges the deal is anti-com­pet­i­tive and could lead to higher drug prices for the 1.6 mil­lion Medi­care ben­e­fi­cia­ries who re­side in skilled nurs­ing homes.

The FTC last eval­u­ated the longterm-care phar­macy mar­ket in 2005, about six months be­fore the Medi­care Part D drug pro­gram went into ef­fect. At that time, Om­ni­care sought to ac­quire Neigh­bor­care, one of the largest in­sti­tu­tional phar­ma­cies in the U.S.

“The FTC has al­ready ex­am­ined the in­sti­tu­tional phar­macy in­dus­try, not­ing the nu­mer­ous play­ers and ex­plain­ing how the ease of en­try and other mar­ket con­di­tions fa­cil­i­tate com­pe­ti­tion,” Om­ni­care said in a state­ment re­spond­ing to the FTC ad­min­is­tra­tive com­plaint. “The in­sti­tu­tional phar­macy busi­ness is com­pet­i­tive and Om­ni­care is con­fi­dent it would re­main so af­ter the trans­ac­tion.”

How­ever, the in­tro­duc­tion of Medi­care Part D, in­clud­ing the “con­ve­nient ac­cess” rule, which re­quires Part D spon­sors to pro­vide each en­rollee with con­ve­nient ac­cess to their long-term-care phar­macy, has sig­nif­i­cantly changed the pay­ment struc­ture and the makeup of the in­sti­tu­tional phar­macy mar­ket. The CMS in­tro­duced the rule in 2005.

Ac­cord­ing to the FTC, Om­ni­care and Pharmer­ica com­bined would con­trol 57% of the in­sti­tu­tional phar­macy mar­ket. Om­ni­care is the largest in­sti­tu­tional phar­macy provider based on the num­ber of skilled-nurs­ing fa­cil­ity beds it ser­vices.

“The com­pet­i­tive dy­nam­ics are dif­fer­ent,” said Ja­son Gurda, a Leerink Swan an­a­lyst. “There is an op­por­tu­nity for in­sti­tu­tional phar­ma­cies with scale to try to use their lever­age to get bet­ter rates.”

Be­fore 2006, long-term-care phar­ma­cies were re­im­bursed at the same rate through state Med­i­caid pro­grams. Now, in­sti­tu­tional phar­ma­cies se­cure pri­vate con­tracts with Part D spon­sors, such as Unit­edhealth Group and Hu­mana. They also con­tract with skilled­nurs­ing homes.

Even the FTC’S in­ves­ti­ga­tion in 2005 noted the “sub­stan­tial changes” that Part D would bring into the mar­ket. Part D rev­enue made up about 45% of to­tal rev­enue for both Om­ni­care and Pharmer­ica in 2010.

In­creased share in the in­sti­tu­tional phar­macy mar­ket would pro­vide Om­ni­care with “un­par­al­leled power” when ne­go­ti­at­ing with spon­sors. Be­cause the CMS can bar Part D spon­sors that do not sat­isfy the con­ve­nient ac­cess re­quire­ment, spon­sors may be will­ing to ac­cept less fa­vor­able rates from Om­ni­care.

“Post-con­sol­i­da­tion, it would be vir­tu­ally im­pos­si­ble for a spon­sor to es­tab­lish con­ve­nient ac­cess with­out the com­bined firm in its net­work due to the sheer num­ber of LTC phar­ma­cies that Om­ni­care would own,” a CMS of­fi­cial told the FTC, ac­cord­ing to the com­plaint.

Om­ni­care and Pharmer­ica may have in­creased bar­gain­ing lever­age with Part D spon­sors, but both com­pa­nies have lost some mar­ket share with skilled-nurs­ing homes over the past three years, Gurda said. He noted that lo­cal phar­ma­cies that are will­ing to pro­vide more flex­i­bil­ity on pric­ing re­main com­peti­tors for Om­ni­care and Pharmer­ica in some in­stances.

The FTC also said that the deal, though it could lead to higher re­im­burse­ment rates paid by the spon­sors and ben­e­fi­cia­ries, would not likely in­crease prices for skilled-nurs­ing fa­cil­i­ties.

A spokes­woman for the Amer­i­can Health Care As­so­ci­a­tion, which rep­re­sents long-term-care providers, said phar­macy size does not af­fect how a skilled-nurs­ing fa­cil­ity chooses a phar­macy. “Lit­tle has changed in terms of how a fa­cil­ity de­ter­mines which phar­macy or phar­ma­cies to work with to en­sure pa­tients and res­i­dents re­ceive needed pre­scrip­tion med­i­ca­tion,” the spokes­woman wrote in an e-mail.

The Na­tional Com­mu­nity Phar­ma­cists As­so­ci­a­tion op­poses the deal. About 34% of its 23,000 mem­bers serve a long-term-care fa­cil­ity. In a Dec. 2 let­ter to the FTC, the NCPA wrote that it be­lieves Om­ni­care’s ac­qui­si­tion of Pharmer­ica would “lead to re­duced ac­cess and fewer lo­cal ser­vices for res­i­dents in nurs­ing homes and other se­niorcare fa­cil­i­ties.”

“Hav­ing them com­pete with each other and with in­de­pen­dent phar­ma­cies is rather healthy for the mar­ket­place,” Bill Popo­ma­ro­nis, the NCPA’S vice pres­i­dent of long-term and home health­care phar­macy ser­vices, said in an in­ter­view.

Pharmer­ica, which op­poses the deal, be­gan to pub­licly ques­tion the fea­si­bil­ity of the trans­ac­tion last sum­mer.

“An­titrust clear­ance to com­bine the No. 1 and No. 2 play­ers in in­sti­tu­tional phar­macy is likely to be dif­fi­cult to achieve and in­volve lengthy ad­min­is­tra­tive and court pro­ceed­ings,” Pharmer­ica CEO Gre­gory Weishar said in a let­ter to Om­ni­care CEO John Figueroa.


Com­mu­nity phar­ma­cists ar­gue nurs­ing home res­i­dents would see re­duced ac­cess and fewer lo­cal ser­vices if Om­ni­care suc­ceeds in the takeover.

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