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Medicaid without retail pharmacy: A recipe for disaster

BY Michael Johnsen

WHAT IT MEANS AND WHY IT’S IMPORTANT Simply put, if you take a significant number of retail pharmacies out of the Medicaid equation, it won’t be too long before overall healthcare expenditures begin skyrocketing.

(THE NEWS: Representing NACDS, Civello asks Obama to maintain emergency Medicaid funding. For the full story, click here)

And retail pharmacy pulling out of Medicaid is not an unlikely scenario. Retail pharmacy has long battled cuts to prescription drug reimbursement rates, even threatening to walk away from serving Medicaid patients when those cuts would force pharmacies to operate at a loss.

Already 29 states are actively considering Medicaid cuts this year, and another 15 have stated it’s too soon to tell whether or not Medicaid cuts will be necessary, according to an analysis from the Kaiser Family Foundation’s Commission on Medicaid and the Uninsured released last week. Those cuts are coming, in part, because more citizens are qualifying for healthcare assistance under Medicaid than ever before — the latest Kaiser estimates places the Medicaid population at 46.9 million and growing. And even as more citizens qualify for Medicaid assistance, states are contending with a still-dwindling tax base.

Of those 29 states, 21 are considering cuts to provider rates. The remaining eight states are considering reductions or restrictions in program benefits.

Those cuts are being considered today even with the current flow of federal assistance provided through the American Recovery and Reinvestment Act of 2009, never mind next year. State Medicaid directors already are bracing for fiscal 2011, where the slashing of Medicaid budgets without that reinstated federal assistance is a foregone conclusion.

According to the Kaiser report, an estimated $87 billion will have been funneled to states out of ARRA over a nine-quarter period ending in December 2010. That pales in comparison to the projected $290 billion in potential increased annual costs out of diminished pharmacy access and a corresponding lack of medication adherence among patients. Extrapolate that projected $290 billion across nine quarters, the increase in overall healthcare expenditures exceeds $650 billion. Spend $87 billion to save more than $650 billion. In retail, that’s called a return on investment.

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Rite Aid may be viable acquisition, analyst says

BY Michael Johnsen

BASEL, Switzerland Walgreens’ acquisition of Duane Reade on Wednesday may make Rite Aid a more attractive acquisition target, speculated UBS analyst Neil Currie in a research note issued Thursday.

Currie has rated Rite Aid a “buy,” which is unchanged from before Walgreens’ announcement yesterday, and has a 12-month price target of $4 for Rite Aid’s stock. Rite Aid was trading at around $1.50 early Thursday morning after having closed at $1.39 at end-of-day Wednesday.

Walmart may be one of the more likely suitors, Currie suggested, especially given the mass merchant’s potential urban and pharmacy business aspirations.

Currie also identified both Walgreens and CVS as possible suitors despite the fact that either of these chains might have to make significant divestitures to satisfy the Federal Trade Commission.

“We believe potential suitors for stores within the Rite Aid portfolio could include CVS, especially in the Pacific Northwest and Mountain regions; Walgreens in certain urban markets; and Walmart, given our view that Walmart has significant potential to grow in urban markets, is looking more closely at the economics of a smaller food/drug footprint and appears to have wider healthcare ambitions,” Currie wrote.

Based on evaluations of Walgreens’ acquisition of Duane Reade and CVS’ acquisition of Long’s Drug in 2008, the possible price-tag for a Rite Aid acquisition could ring as high as $7.7 billion.

Currie calculated that Duane Reade is selling at an enterprise value/store of $4.2 million, which compares with the $5.6 million paid for Long’s Drug by CVS in 2008. EV/store is a measure of a company’s value, often is calculated as market capitalization plus debt, minority interest and preferred shares, minus total cash and cash equivalents and divided by the store base.

Meanwhile, Rite Aid’s EV/store is calculated at approximately $1.6 million, Currie noted, given that Rite Aid’s salers/store is lower by 22%, versus Duane Reade and half of Long’s (in 2008). Multiply that $1.6 million/store evaluation by the approximate 4,800-strong Rite Aid store base and the likely cost for Rite Aid will calculate to about $7.7 billion.

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Publix earns top spot in consumer satisfaction survey

BY DSN STAFF

LAKELAND, Fla. Publix announced that it has been named the highest-ranking supermarket for customer satisfaction, according to the American Customer Satisfaction Index (ACSI).

Publix scored 86 points, a 4.9% increase from the previous year.

“Our associates’ ability to offer outstanding customer service is a differentiating factor for Publix,” said president Todd Jones. “I’m proud of our associates for continuing to go above and beyond to satisfy customers’ needs.”

 

The ACSI is produced through a partnership between the University of Michigan Business School, the American Society for Quality and the international consulting firm, CFI Group.

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