CVS Corporation; Revco D.S., Inc.; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 971-0060]

CVS Corporation; Revco D.S., Inc.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

-----------------------------------------------------------------------

SUMMARY: The consent agreement in this matter settles alleged

violations of federal law prohibiting unfair or deceptive acts or

practices or unfair methods of competition. The attached Analysis to

Aid Public Comment describes both the allegations in the draft

complaint that accompanies the consent agreement and the terms of the

consent order--embodied in the consent agreement--that would settle

these allegations.

DATES: Comments must be received on or before August 5, 1997.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary

of the Secretary, Room 159, 6th St. and Pa. Ave., N.W., Washington,

D.C. 20580.

FOR FURTHER INFORMATION CONTACT:

William J. Baer, Federal Trade Commission, H-374, 6th and Pennsylvania

Ave, NW., Washington, DC 20580. (202) 326-2932. George S. Cary, Federal

Trade Commission, H-374, 6th and Pennsylvania Ave, NW, Washington, DC

20580. (202) 326-3741.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Section 2.34 of

the Commission's Rules of Practice (16 CFR 2.34), notice is hereby

given that the above-captioned consent agreement containing a consent

order to cease and desist, having been filed with and accepted, subject

to final approval, by the Commission, has been placed on the public

record for a period of sixty (60) days. The following Analysis to Aid

Public Comment describes the terms of the consent agreement, and the

allegations in the accompanying complaint. An electronic copy of the

full text of the consent agreement package can be obtained from the

Commission Actions section of the FTC Home Page (for May 29, 1997), on

the World Wide Web, at ``http://www.ftc.gov/os/actions/htm.'' A paper

copy can be obtained from the FTC Public Reference Room, Room H-130,

Sixth Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580,

either in person or by calling (202) 326-3627. Public comment is

invited. Such comments or views will be considered by the Commission

and will be available for inspection and copying at its principal

office in accordance with Section 4.9(b)(6)(ii) of the Commission's

Rules of Practice (16 CFR 4.9(b)(6)(ii)).

Analysis of Proposed Consent Order To Aid Public Comment

The Federal Trade Commission (``Commission'') has accepted, subject

to final approval, an agreement containing a proposed Consent Order

from CVS Corporation and Revco D.S. Inc. (collectively, ``the

respondents'') under which the respondents would be required to divest

a total of 114 Revco retail drug stores in the state of Virginia to

Eckerd Corporation, a subsidiary of J.C. Penney Company, or to another

Commission-approved purchaser, and certain pharmacy assets related to

six Revco retail drug stores in the Binghamton, New York metropolitan

area to Medicine Shoppe, a subsidiary of Cardinal Health, or another

Commission-approved purchaser. The agreement is designed to remedy the

anticompetitive effects resulting from CVS's proposed acquisition of

Revco.

The proposed Consent Order has been placed on the public record for

sixty days for reception of comments by interested persons. Public

comment is invited regarding all aspects of the agreement including the

proposed divestitures to Eckerd Corporation and Medicine Shoppe.

Comments received during this period will become part of the public

record. After sixty days, the Commission will again review the

agreement and the comments received and will decide whether it should

withdraw from the agreement or make final the agreement's proposed

Order.

The proposed complaint alleges that the proposed acquisition, if

consummated, would violate Section 7 of the Clayton Act, as amended, 15

U.S.C. Sec. 18, and Section 5 of the FTC Act, as amended, 15 U.S.C.

Sec. 45, in the market for the retail sale of pharmacy services to

third-party payors in the State of Virginia and the Binghamton, New

York, metropolitan area.

The retail sale of pharmacy services to third-party payors refers

to prescription drugs sold by retail outlets such as drug store chains,

independent drug stores, food stores and mass merchandise stores to

third-party payors, which include insurance carriers, health

maintenance organizations, preferred provider

[[Page 31104]]

organizations, and corporate employers. Third-party payors provide

retail pharmacy service benefits to their beneficiaries, typically

through intermediaries known as pharmacy benefit management (``PBM'')

firms that create and administer retail pharmacy networks on behalf of

third-party payors, whereby third-party payor beneficiaries may go to

any pharmacy participating in the network to have prescriptions filled.

In establishing these pharmacy networks, third-party payors generally

rely on competition among large pharmacy chains to keep the cost of

pharmacy services competitive. In markets where only a small number of

pharmacy chains compete, third-party payors may pay higher rates for

pharmacy services. Where a single pharmacy chain controls a large share

of pharmacy locations in a given area, the chain is able to extract

higher prices.

For purposes of assessing competitive harm in the market for the

retail sale of pharmacy services to third-party payors, both states and

metropolitan statistical areas may be appropriate geographic areas.

Many third-party payors require coverage for their beneficiaries

throughout a state or just in certain metropolitan areas where the

majority of their beneficiaries reside. While the geographic areas in

which to assess the potential competitive harm of a proposed

acquisition depend on where particular third-party payors'

beneficiaries reside, states and MSAs are close proxies for such plan-

by-plan analysis.

CVS's proposed acquisition of Revco will give the combined entity a

dominant position both in the state of Virginia and in the Binghamton,

New York, metropolitan area. As a result, the complaint alleges that

third-party payors would be unable cost-effectively to assemble

pharmacy networks that did not include CVS or Revco stores, and

therefore, CVS would be able to increase prices for the retail sale of

pharmacy services to third-party payors. The complaint also alleges

that timely entry in the market for the retail sale of pharmacy

services to third-party payors in these geographic markets on the scale

necessary to offset the competitive harm resulting from the combination

of CVS and Revco is unlikely.

The proposed Consent Order would remedy the alleged violations by

requiring divestitures to restore the lost competition that would

result from the acquisitions. Under the proposed Consent Order, the

respondents would be required to divest 114 Revco drug stores in

Virginia to Eckerd or to a Commission-approved purchaser. The proposed

Consent Order also requires the respondents to divest either specific

pharmacy assets related to six Revco drug stores in the Binghamton, New

York, metropolitan area to Medicine Shoppe International, Inc., or its

subsidiary, Pharmacy Operations, Inc., or, six Revco drug stores in the

Binghamton, New York, area to a Commission-approved purchaser. The

respondents have ten days from the date the Order becomes final or four

months after the Commission accepts the Agreement Containing Consent

Order for public comment, whichever is later, to accomplish each

divestiture to the named purchaser. Alternatively, if the respondents

do not divest to Eckerd or Medicine Shoppe, they must divest to

alternative Commission-approved buyers three months from the date the

Order becomes final.

The proposed Order requires that the assets being divested in

Virginia and Binghamton, New York, each go to a single purchaser in

order to ensure competition by recreating a chain of sufficient size

and coverage to serve as an alternative anchor pharmacy chain for a PBM

retail pharmacy network.

Under the proposed Order, if either divestiture is not accomplished

within the required time period, then the Commission may appoint a

trustee to divest all 234 Revco drug stores in Virginia and the eleven

CVS drug stores in the Binghamton, New York, metropolitan area,

whichever applies. These ``crown jewel'' provisions in the proposed

Order help ensure that a trustee would be able to accomplish each

divestiture. The Order also contains an Asset Maintenance Agreement

that requires CVS, pending divestiture, to maintain the Revco stores

and assets relating to the Revco stores in the same condition and in

the same business as they have been operating prior to the acquisition.

Under the proposed Order, the respondents must submit an initial

report on compliance with the terms of the Asset Maintenance Agreement

and on how they intend to comply with the divestiture provisions of the

proposed Order. In addition, the respondents must provide the

Commission with a report of compliance with the divestiture provisions

of the Order within thirty days following the date this Order becomes

final, and every thirty days thereafter until CVS and Revco have fully

complied with the divestiture provisions of the proposed Order.

The purpose of this analysis is to facilitate public comment on the

proposed Order, and it is not intended to constitute an official

interpretation of the agreement and proposed Order or to modify in any

way their terms.

Donald S. Clark,

Secretary.

[FR Doc. 97-14745 Filed 6-5-97; 8:45 am]

BILLING CODE 6750-01-M