The deal looked too good to be true: discount cards for prescription drugs provided free to residents of Winston-Salem at no cost to the city.
Who in their right mind -- especially city council members elected to office -- could possibly vote against such a deal?
With little fanfare and even less debate, city officials leaped at the prospect and started distributing the cards last month.
Provided by CVS Caremark, the cards allow residents to receive discounts of up to 20 percent at participating pharmacies for prescriptions not covered by insurance.
Voting "no" to such a proposal would be a short step away from signing off on a proclamation denouncing puppies and Santa Claus.
"My concern is that the city unknowingly gave some benefits to a larger competitor," said Dave Marley, the owner of Marley Drugs and a vocal defender of independent pharmacies. "Nobody asked what was in it for CVS or how it might hurt local businesses."
Due diligence done
At first glance, the proposal looked pretty good. Several council members familiar with the plan CVS Caremark provides through the National League of Cities asked the city's paid staff to look into the program earlier this year.
According to Martha Wheelock, an assistant city manager, here's what they found: The city doesn't benefit in any way -- no "gifts" from CVS Caremark -- nor does it cost the city anything to participate; a large number of pharmacies, in Winston-Salem's case, nearly 70, participate, so it didn't appear to favor one over another; nearly 350 other cities are already involved; and residents can get discounts of up to 20 percent on certain drugs not covered by insurance.
The rub, according to Marley, is hard to detect.
Because CVS is a large chain pharmacy that happens to own Caremark -- a pharmacy benefit-management company with a sizable mail-order component -- it gets an unfair direct-marketing advantage by knowing exactly what prescriptions are being taken by patients who use independent pharmacies.
"Now they can target my customers directly with the information they get from that card," Marley said. "And it turns on its head discount generic programs.
"What's a greater savings, 15 or 20 percent off a brand-name drug that might cost $150 or getting a $20 generic in place of that same drug? (Independent) pharmacies take great pride in that. Any brick-and-mortar store worth its salt is going to try to move away from the brands to generics."
Christine Cramer, a spokeswoman for CVS Caremark said the company "does not use the information that is collected during the claims processing to solicit or advertise to NLC program participants."
Free lunch?
If they want to do business with health-insurance companies and large employers who've signed prescription-drug-benefit contracts with CVS Caremark, other pharmacies -- the small independents and other chains -- have no choice but to participate in the discount program.
It's hard to find fault with CVS Caremark for its approach. It's using its size in the free marketplace to squeeze competition. Bare-knuckles capitalism.
Still, you can see Marley's point.
A large pharmacy that also owns a prescription-drug-benefit-management company might be too big. It's not difficult to imagine a large chain steering patients -- particularly those who get their prescriptions through the mail -- toward more profitable brand-name drugs or using proprietary information gleaned from the new discount cards to make a direct pitch for a customer's business.
If so, that could indeed put a squeeze on the local little guy, surely an unintended consequence of the city's participation. Officials, to their credit, have pledged to review the situation in January once concrete data about use of the program is available.
"On its face, you can understand why officials did it," Marley said. "It looks like a free lunch and they look like heroes."
ssexton@wsjournal.com
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