Pharmacies' steps to protest plan draw probe Giant, NeighborCare, Rite Aid persuaded state to drop Medco

Antitrust investigation

Chains say not joining prescription program didn't restrain trade

January 30, 1996|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF

Federal antitrust investigators are probing the steps that Maryland pharmacy chains took to persuade the state to cancel a proposed prescription drug plan for state employees.

The prescription plan would have meant much lower profits for druggists, but pharmacy executives yesterday denied any wrongdoing.

Maryland's Board of Public Works canceled a deal under which the insurance contract for the prescription drug plan covering 200,000 state employees, retirees and their dependents would have been awarded to Medco Containment Services Inc. as of Jan. 1.

The Dec. 27 vote derailed a contract that would have saved the state an estimated $60 million over four years. But officials said they were concerned that Medco would not be able to deliver the promised services, because major drug chains -- including Rite Aid Corp., Giant Food Inc. and NeighborCare -- refused to do business with Medco, saying reimbursement rates would force them to lose money.

In all, about half of Maryland's pharmacies refused to honor the Medco plan, which would have left state employees to choose between using only the remaining drugstores or paying for their own prescriptions.

The Federal Trade Commission investigation was disclosed by Medco spokesman Kevin Colgan.

Lawyers for both Giant and Rite Aid denied yesterday that they had been contacted by the FTC. An FTC spokeswoman declined to confirm or deny whether the agency has launched a specific probe.

"All our investigations remain non-public until we launch an enforcement action," FTC spokeswoman Claudia Farrell said.

The probe, which parallels a similar inquiry by the state attorney general's office, would lead to an enforcement action only if investigators believed the pharmacists formed an illegal combination that restrained trade in prescription drugs. If each decided independently to opt out of the state's deal with Medco, law would have been violated.

Mr. Colgan said two things make Medco suspect the pharmacies broke the law.

First, the decisions of most of the chains to reject the Medco proposal became public during the same week in December.

Second, full-page newspaper ads bearing Rite Aid's logo urged state employees to call the governor to protest the contract, and the ads carried a headline that highlighted the refusal of Rite Aid, NeighborCare and Giant to deal with Medco.

"It's interesting there were ads in The Baltimore Sun and the Washington Post about this," Mr. Colgan said.

He added that Rite Aid signed a consent decree in 1990 with the FTC, in which the company denied it had broken antitrust laws in an effort to derail a Medco deal to provide New York state employees with prescription drug coverage but agreed to cease anticompetitive practices.

Rite Aid and Giant officials insisted that the ads were Rite Aid's work alone, and insisted they have not talked to any competitors about the Maryland deal. NeighborCare officials couldn't be reached for comment.

"We paid for 100 percent of the ad, we prepared 100 percent of the ad, and we haven't talked to our competitors about it before or since," said Franklin Brown, general counsel for Camp Hill, Pa.-based Rite Aid, which has about 180 Maryland stores.

Mr. Brown said the different drug chains' opposition to the Medco deal became public at the same time in December because that's when a Sun reporter called all the chains to ask their opinions. Rite Aid had decided not to participate months before, he insisted.

Giant general counsel David Rutstein said the use of Giant's name in Rite Aid's ads was unauthorized. "We saw that ad for the first time when each of us opened our newspaper," he said.

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