Rite Aid's $2 billion acquisition of a pharmacy benefits manager steers the drugstore chain toward a potentially lucrative focus for health care companies: Finding ways to tame customer costs.
The nation's third-largest drugstore chain is buying EnvisionRx which, like all pharmacy benefit managers, can exercise considerable influence over how much patients pay for their medications.
So-called PBMs run prescription drug plans for customers that include employers and insurers. They negotiate prices with drugmakers, process mail-order prescriptions and try to keep tabs on whether patients are taking their medicines, all in an attempt to keep costs down for their customers.
Health care expenses have been a top concern for years for insurers and employers who provide coverage for their workers. They've also become a growing headache for patients who have seen their insurance coverage shrink, leaving them with a bigger share of the bill at places like drugstore pharmacies.
That broad concern over cost is helping to reshape how Rite Aid serves its customers, Chairman and CEO John Standley said after his company announced its acquisition on Wednesday.
Rite Aid Corp., which sold its previous PBM operation in 2001, will re-enter a market brimming with competition from large, national players like Express Scripts Holding Co., which serves about 85 million people, and rival drugstore operator CVS Health Corp.
But Standley said the combination with EnvisionRx, which serves 21 million people, will help his company carve its own, sizeable share of that market. He said Rite Aid can help the PBM get better prices for drugs, and the companies will combine strong programs aimed at helping people stick to their prescriptions.
"That is the best way to drive down health care costs," Standley said.
EnvisionRx also will help Rite Aid fill more prescriptions for specialty drugs, complex and expensive medicines that are becoming a growing source of revenue for drugstore chains and pharmacy benefit managers.
EnvisionRx, which is based in Twinsburg, Ohio, also brings to the deal a Medicare prescription drug plan that covers 400,000 people. Medicare drug coverage, in general, is growing as more members of the baby boom generation become eligible for the plans, which cover people who are over 65.
Standley said Rite Aid drugstores have been excluded from the preferred networks of many Medicare plans. That means customers would have to make higher co-payments if they filled prescriptions at Rite Aid pharmacies. With this deal, the company will be in that plan's preferred network, and that has the potential to bring more customers to its stores.
"That is hugely exciting to us," he said.
Rite Aid will pay $1.8 billion in cash and $200 million in stock for EnvisionRx, which is owned by the investment firm TPG. The boards of directors for both companies have approved the acquisition, which is expected to close in September.
The deal is the latest example of a financial rebound for Rite Aid, which runs 4,569 drugstores, a total that trails Walgreen Co. and CVS Health. It went several years without recording a quarterly profit, before ending that streak in late 2012, when its stock price slipped below $1.
Rite Aid's performance has improved in recent years as it worked aggressively to pare debt, close underperforming stores and installing in others a new wellness theme that features more organic food and personal care products, among other items.
Wednesday's announcement came nearly two months after Rite Aid said its fiscal third-quarter earnings jumped 47 percent in a performance that trumped Wall Street expectations.
Shares of Camp Hill, Pennsylvania-based Rite Aid climbed more than 6 percent, or 50 cents, to $8.08, Wednesday afternoon, while broader trading indexes slipped.
That stock price soared 49 percent last year, more than quadrupling the 11.4 percent advance of the Standard & Poor's 500 index.