PDN outs top execs, signs up Walgreens

Drug Store News, April 3, 1995 by Ken Rankin, James Frederick

ALEXANDRIA, Va. - Closing out a hectic month, the fledgling Pharmacy Direct Network ousted two of its top leaders and snagged the chain drug industry's top player - Walgreen Co. - in March, boosting its total network enrollment to its pharmacy provider ranks.

Walgreen signed on last month as a paid member of the Pharmacy Direct Network (PDN), ending a six-month holdout after balking at the organization's $300 per store ($450,000 chainwide) "charter membership" fee. Terms of the membership arrangement were not released. PDN officials also confirmed that Wal-Mart, another major chain that boycotted the network, is now in negotiations to join.

"We initially had some concerns with the way PDN was structured and how they were going to sell plans," said Walgreen spokesman Michael Polzin. Polzin would not elaborate, but added, "those issues have been resolved."

"We're just very happy to have [Walgreen] aboard," said Eric Sorkin, senior vice president of marketing and product development for PDN.

The addition of Walgreens couldn't come at a better time for PDN, which is searching aggressively for new leadership following the abrupt termination March 10 of two top executives: president and chief executive Robert Pfotenhauer and secretary/general counsel Gregory Saunders.

The staff shakeup raised new questions about the role of the network, which was established nearly a year ago by chain drug industry executives "to provide employers, insurance companies, and government financed programs with a competitive" (and distinctly pro-community pharmacy) "alternative to traditional pharmacy benefit management (PBM) programs."

With pharmaceutical manufacturers such as Merck, SmithKline Beecham and Lilly buying up established PBMslike Medcor/PAID, DPS and PCS, most leading drug chains and independents supported PDN as a vehicle for giving retail pharmacy greater leverage in a marketplace tilting headlong toward managed care providers.

Despite an unprecedented $300 per store initiation fee, most top NACDS chains and thousands of independent pharmacists signed on as "charter members" of the new network. At last count - and prior to the addition of Walgreens' more than 2,000 stores - PDN already claimed a total membership operating more than 32,000 pharmacies throughout the country, according to Sorkin.

"The more members we have, the more formidable the force," he said in an interview.

The organization has not been nearly as successful, however, in attracting contracts with employers and other third-party payors to provide pharmaceutical service benefits.

Although NACDS officials who midwifed the birth of PDN expected the new network to land a number of major contracts that were set to expire at the end of 1994, the organization closed out the year with only one customer - Fuji Photo Film USA, a small contract covering "only about 2,000 `lives'," according to one source.

Since then PDN has picked up a dozen more accounts, but a spokesman for the network told Drug Store News the others are even smaller than the Fuji contract.

At the recent NACDS Small Chain Conference in Orlando, a number of retail executives expressed concern about competition from other PBMs, and about PDN's ability to provide smaller chains with enough real benefits to outweigh the cost of membership. Most, however, said they remained hopeful about the organization's long-term prospects.

Adding to PDN's troubles: bad blood with officials at Wal-Mart, who Pfotenhauer accused of improperly using the chain's buying clout to "encourage" vendors to contract for pharmacy services with PDN's competitors.

In announcing last month's staff shake-up, PDN officials offered no explanation for the abrupt terminations of Pfotenhauer and Saunders, but stressed that the changes relate to both the management and the "direction" of the organization.

NACDS President Ronald L. Ziegler, who chairs PDN's Board of Directors, thanked the two departing officials "for the time and effort they have committed during the initial stages of PDN's existence."

Ziegler also expressed continued confidence in "the tremendous potential of PDN," and said the board "intends to move forward aggressively."

Until a new CEO is brought in, PDN will be managed by an operating committee of the board of directors. Chain pharmacy veteran Donald Hoscheit, who served as a consultant during the formation of PDN, has returned to active duty and will assist in the management of the network.