Distribution, Competition, and Antitrust / IP Law

FTC Sues to Block Long-Term Pharmacy Acquisition

On January 27, the FTC filed an administrative complaint to block the proposed merger of Omnicare, Inc. and PharMerica Corp, the country’s two largest long-term care pharmacies.

According to the FTC, the Kentucky-based Omnicare’s $440 million acquisition would produce a firm with more than half of the U.S. market for pharmacy services at nursing homes and other long-term care facilities.  Patients at such facilities often receive prescriptions from Medicare Part D sponsors, which contract or work with Skilled Nursing Facilities (SNFs) to provide medications.

PharMerica is allegedly Omnicare’s largest and only national competitor.  According to the FTC, the merger would allow the combined company to force sponsors to accept higher prescription prices or risk being barred from offering Part D plans.  That is because to protect the fragile patient population and ensure that they receive the Part D benefits they are entitled to, the federal government requires Part D plans to provide SNF residents with “convenient access” to a network of long-term care pharmacies, such as Omnicare and PharMerica.  This ensures that SNF residents can get their prescription drugs from a long-term care pharmacy that contracts with the residents’ chosen Part D health plan. Health plans that cannot provide their beneficiaries with “convenient access” to long-term care pharmacies risk being barred from offering Medicare Part D health plans.

Due to its substantial market share, the combined firm likely would be a “must have” for Part D health plans, the FTC contends. Losing contracts with a combined Omnicare/PharMerica would put the Part D health plans at serious risk of failing to meet CMS’s “convenient access” standard.  This increased risk would allegedly provide the combined firm with an anticompetitive advantage in negotiating prices it charges Part D health plans for long-term care pharmacy services.

According to the complaint, any drug price increase would eventually be passed along to the government, which subsidizes close to 75% of the costs of Part D plans.

PharMerica has been fighting to resist the deal itself.

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About Howard Ullman

Antitrust, competition, and IP law enthusiast.

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