WHAT IT MEANS AND WHY IT'S IMPORTANT — Narrow networks. They're all the rage. If nothing else, narrow pharmacy benefit management networks emphasize local; and one analysis thread common among all the pundits discussing Walgreens' recent acquisition of USA Drug is that Walgreens just got a whole lot more local across the Southeast. There's a saying in the Southeast: "He who wants milk should not sit himself in the middle of a pasture waiting for a cow to back up to him." This proposed USA Drug acquisition is proof that Walgreens is by no means out to pasture, and with this acquisition they just became that much more relevant to southeastern employers considering the virtues of those narrow networks.
(THE NEWS: Walgreens to acquire mid-South drug store chain. For the full story, click here.)
The Walgreens/USA Drug deal is an important fill-in acquisition made all the more relevant by that trend toward narrow that the Wall Street Journal highlighted just last week (for that story, click here.) "Local market share growth provides incremental bargaining power against pharmacy benefit managers and payers," noted industry consultant Adam Fein in his latest DrugChannels blog. "Walgreens' market share is already above 40% in such major cities as Chicago, Houston, Miami, San Francisco, Phoenix, Minneapolis, and St. Louis. The Southeast, where USA Drugs is strongest, fills an important map gap. Express Scripts was able to drop Walgreens from it network while still meeting access requirements, but it gets harder as the chain spreads."
And that begs the question: Are more regional-chain buyouts to come? So far, the general consensus is "You betcha!," at least according to a Drug Store News online reader poll posted last week. So far 81% (out of the 93 voters) feel that more regional chain buyouts are on the horizon. And it's not just because of the narrow networks, necessarily. There also are mounting margin pressures and relatively no growth in the number of prescriptions dispensed nationwide that are making regional acquisitions very attractive. "Buying share is cheaper than taking it," Fein noted in his blog.
In addition, regional operators eyeing their golden years may be primed to sell. "Sadly, the age of entrepreneurial family-owned small chains is passing and if the price is attractive enough most will take the money and call it a day," suggested Jay Forbes, president of the Forbes Connection.
What do you think? Join the conversation and vote here.