FTC opposes OmniCare's proposed takeover of PharMerica

The Federal Trade Commission filed a lawsuit Friday seeking to block long-term care pharmacy services company OmniCare Inc.'s hostile takeover attempt of rival PharMerica Corp.

"If Omnicare is allowed to purchase its biggest and only national competitor, it will diminish competition and raise healthcare costs – leaving taxpayers and patients to foot the bill," said Richard Feinstein, director of the FTC's Bureau of Competition, in a press release. "The Bureau will continue to be vigilant in our efforts to prevent these sorts of anticompetitive deals."

According to the complaint by the FTC, combining the nation's largest and second largest companies that provide pharmacy service to skilled nursing facilities (SNFs) could potentially increase drug prices to the approximately 1.6 million people in SNFs currently covered by Medicare Part D prescription drug plans.

Of particular concern to the FTC and the Centers for Medicare & Medicaid Services, is the fact that OmniCare has exclusive contracts with more than 16,000 SNFs and, by its own admission, already provides service to roughly 50 percent of the population in nursing homes across the country.

"Because OmniCare serves far more SNF beds than any other LTC pharmacy, it is often able to extract higher prices and other more favorable contract terms from Part D sponsor," the complaint noted. "…Indeed, OmniCare's standard negotiating practice is to threaten to terminate its participation in the Part D sponsor's LTC Pharmacy network if the sponsor refuses its demand for higher rates or better terms."

The complaint further states that OmniCare had "repeatedly threatened" to bring any contract negotiating impasse to the attention of CMS, an action that would potentially jeopardize a pan sponsor's CMS approval of its Part D plan, as a negotiating tactic to strong-arm favorable terms.

OmniCare took issue with the FTC action. In a statement release late Friday, the company stated, ""We strongly disagree with the FTC's decision to seek to block the proposed transaction. We also disagree with the FTC's claim for the need to protect insurance companies as a result of this combination. The FTC has already examined the institutional pharmacy industry, noting the numerous players and explaining how the ease of entry and other market conditions facilitate competition. The institutional pharmacy business is competitive and Omnicare is confident it would remain so after the transaction."

But the FTC isn't so sure and paints the picture of one LTC pharmacy Goliath versus a number of widely dispersed regional Davids. According to the complaint, the FTC estimates the merger would provide OmniCare with roughly 57 percent market share. The next largest competitor would have a 2 percent share.

The deal, originally suggested in late August and made official by a $15 per share tender offer on September 7, has been extended four times by OmniCare, most recently Friday in response to the FTC action. PharMerica has expressed its own antitrust concerns in resisting the takeover.