CAMP HILL, Pa.-By re-entering the prescription benefit management business to retaliate against mandatory mail order, Rite Aid Corp. could stimulate competition in the PBM market and offer employers a viable alternative, industry experts say.

But some prescription benefit industry leaders are expressing skepticism that the Camp Hill, Pa.-based drugstore chain will be able to compete with the "Big 3"-Franklin Lakes, N.J.-based Medco Health Solutions Inc., Nashville-based Caremark Rx Inc. and St. Louis-based Express-Scripts Inc.-that control 80% to 90% of the PBM market.

Rite Aid, one of the nation's leading drugstore chains with approximately 3,400 stores in 28 states and the District of Columbia, announced April 22 that it was contracting with Duluth, Ga.-based ProCare RX to provide back-office services to create a new, yet-to-be-named, PBM.

In addition to providing all of the usual PBM services, Rite Aid will also offer 90-day refills at all of its in-store pharmacies-at the same cost to employers and health plans as mandatory mail-order refills, a Rite Aid spokeswoman said.

The move follows a similar announcement in February by Deerfield, Ill.-based Walgreen Co., which began offering 90-day refills at its 4,761 in-store pharmacies through its PBM, Walgreens Health Initiatives, after the drugstore chain announced it was dropping out of a prescription benefit plan offered by the state of Ohio because of a mandatory mail-order requirement.

"Mandatory mail wasn't that big until last year, and then mail started really to hurt us. And there was definitely a need to find a way to combat mail," the Rite Aid spokeswoman said. "We want to keep people in our stores, because not only do you lose pharmacy business when people go to mail, you also tend to lose some of your front-end business because they're not in the stores as often."

In fact, Rite Aid announced publicly in early September 2004 that "we were getting particularly hurt by United Auto Workers' shift to mandatory mail that we were going to look into ways to combat mail order," she said.

After considering whether to start up or buy an existing PBM, Rite Aid opted to launch its own PBM and contracted with ProCare RX to provide the back-office services.

ProCare RX, which initially began in 1988 to provide claims processing services to the insurance industry, has evolved into a fully integrated PBM. Because it can offer 90-day refills at the pharmacy for the same price as mail order, Rite Aid's new PBM will be marketed to health insurance companies, health plans and employers as a cost-effective alternative, the spokeswoman said.

Surprising move

Rite Aid's decision to re-enter the PBM business came as a surprise to many industry observers, because the company had exited the business in 2000 with its divestiture of PCS Health Systems Inc., a PBM it had owned for only a year, to Irving, Texas-based Advance Paradigm (BI, July 17, 2000).

But the Rite Aid spokeswoman explained that, had it not been for the financial difficulties that Rite Aid faced at the time, it was unlikely the company would ever have left the PBM business.

"Rite Aid sold PCS to keep the company from going bankrupt," she said, attributing the company's losses to illegal activities by several high-level Rite Aid executives.

Former Rite Aid Chief Executive Officer Martin Grass resigned in October 1999 and was convicted in 2004 of charges of conspiracy to commit accounting fraud and conspiracy to obstruct justice and is now serving a eight-year prison sentence. Four other former Rite Aid executives were also prosecuted.

John Malley, national practice leader of the pharmacy benefit consulting practice at PwC, said Rite Aid's re-entry to the PBM market will create more choice for employers.

"With large employers, there is a mindset that they only have three choices," Mr. Malley said.

And because Rite Aid and other retail pharmacy-owned PBMs are now offering "something different" from their competition, namely 90-day refills at its retail stores, it may be an attractive alternative to those major players, he added.

"I do think employers are looking for another large PBM," Mr. Malley said. "I think they miss the way it used to be with PCS and Caremark separate."

Caremark Rx Inc. purchased rival AdvancePCS in 2003, combining the fourth- and second-largest PBMs (BI, Sept. 22, 2003).

And although Rite Aid may have some marketing challenges ahead of it, "they could possibly offer employers a legitimate fourth choice," Mr. Malley said. "A lot of people are waiting for another PBM to enter the market, but it doesn't seem to be happening any time soon."

In fact, one employer, whose mandatory mail-order requirement prompted Walgreens and CVS/ Pharmacy to drop out of its network earlier this year, said it would welcome the competition from retail pharmacies if it would lower its health care costs.

"Certainly, it would be something we, as an employer, would consider if it is, in fact, as cost-effective as doing it through mail order," said Nan Neff, benefits administrator for the state of Ohio in Columbus.

Because the state's joint management-labor health care committee is just beginning to explore other options as it prepares to renegotiate its contract with some 107,000 employees scheduled to expire in March 2006, "we really are interested in what the marketplace can show us so we can consider changes," she said.

In fact, Ms. Neff said she is already beginning to receive overtures from the other retail drugstore chains seeking to capture the state's business. "Any competition that will create better pricing for us as an employer is excellent," she said.

"If we can give the great access to our employees to be able to go to the retail stores, and save both the state and the employees money by doing that, that's wonderful," Ms. Neff said.

Indeed, "driving down the costs of drugs through competition is in the interests of consumers and payers," observed Helen Darling, president of the Washington-based National Business Group on Health.

Some are doubtful

Other industry observers expressed skepticism at Rite Aid's prospects.

John M. Rector, general counsel to the National Community Pharmacists Assn., said that when he read about the acquisition, he wrote on the top of his newspaper "Again."

While acknowledging that Rite Aid was motivated by what he called "these unfair practices of these giant PBMs," Mr. Rector said he was not wholly supportive. "We strongly opposed their acquisition of Advance PCS," he said.

Mark Merritt, president and CEO of the Pharmaceutical Care Management Assn., the Washington-based PBM trade group, questioned Rite Aid's ability to compete effectively with mail order using a retail product. "This creates an interesting business and policy cross pressures for retail pharmacy. On the business side, they won't be able to establish retail networks that generate cost savings because their competitors won't allow that. Secondly, they won't have the scale or cost-savings ability to compete with PBMs on mail order effectively," he said.

"On the policy side, while PBM activities may be a startup franchise for retail, their policy agenda will be driven from the chain drugstore side, which opposes expansion of mail order and opposes other key practices of PBMs," Mr. Merritt said.

Gloria Gonzalez contributed to this article.