FTC Fights Hostile Takeover of PharMerica

WASHINGTON (CN) - The Federal Trade Commission has sued to block the hostile takeover of the nation's second-largest nursing home pharmacy provider, PharMerica, by the biggest one, Omnicare.

The FTC says the merger would give Omnicare 57 percent of the market for providing drugs to nursing homes, allowing it to raise drug prices for Medicare recipients, in violation of the Clayton antitrust act.

"If Omnicare is allowed to purchase its biggest and only national competitor, it will diminish competition and raise health care costs - leaving taxpayers and patients to foot the bill," the FTC's Bureau of Competition Director Richard Feinstein said in a statement.

In the complaint before the Federal Trade Commission, Uncle Sam says Omnicare already uses its size to bully nursing homes, by threatening to drop out of their provider networks if they don't agree to higher prices.

Nursing homes can't let that happen because the Centers for Medicare and Medicaid Services requires them to provide Medicare Part D recipients with "convenient access" to long-term pharmacy care. The larger the supplier, the more likely the CMS is to require its inclusion in a nursing home's provider network.

"Omnicare has explicitly and successfully invoked the risk that Part D sponsors face if they fail to contract with it in its negotiations with several Part D sponsors," the complaint states. "Indeed, Omnicare's standard negotiating practice is to threaten to terminate its participation in the Part D sponsor's LTC [long term care] pharmacy network if the sponsor refuses its demand for higher rates or better terms. To drive home that risk, Omnicare has repeatedly threatened to bring the impasse to CMS's attention, placing CMS approval of the sponsor's entire Part D business at risk."

Long-term care pharmacies do not sell drugs over the counter. They negotiate usually exclusive contracts with nursing homes to provide drugs to residents.

PharMerica rejected Omnicare's unsolicited offer of $15 per share in August. Omnicare filed suitin September, alleging that PharMerica's board breached its fiduciary duty to shareholders by refusing to investigate the offer.

PharMerica said at the time that the offer undervalued the company. That offer has been extended to Feb. 17.

While the number of Part D beneficiaries served by the two companies was redacted in the FTC complaint, the FTC said that Delaware-based Omnicare operates 204 pharmacy facilities in 44 states, generating revenues of $6.1 billion.

Omnicare CEO Jon Figueroa has boasted that his company supplies drugs to 50 percent of the residents of U.S. nursing homes.

Kentucky-based PharMerica operates 97 facilities in 43 states, with $1.8 billion in revenue, according to the FTC.

Their next-largest competitor commands just 2 percent of the market, with several small regional companies making up the remaining 41 percent of the market.

FTC commissioners voted 3-1 to issue the complaint; only Commissioner J. Thomas Rosch voted no.

The case will be heard before an FTC administrative law judge in June.

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