Rite Aid, SmithKline Beecham unite on mail order, health care initiatives

Drug Store News, April 7, 1997 by Lisa I. Fried

HORSHAM, Pa. -- Rite Aid has entered the mail order business by becoming an equal partner in SmithKline Beecham's Horsham, Pal-based mail order operation, Diversified Prescription Delivery. The alliance has also laid the foundation for the two companies to work together on a variety of health care initiatives.

At the end of October, Rite Aid became an equal partner in DPD. At that time Gary Sobocinski, who had been hired by Rite Aid in 1995 to research mail order pharmacy strategies for the chain, assumed management of the facility as operating general manager. In addition, Barbara Scannapeico joined DPD as chief financial officer from Smith-Kline Beecham's financial services division.

Sobocinski said the partnership benefits both companies. "SmithKline Beecham had a very good core business, wanted to grow it faster and felt they needed a partner to do it," he said. Specifically, the company "wanted a better supply line in terms of product and costs, operational strength and expertise running and managing a mail order business." For Rite Aid, the alliance enables it enter the mail order pharmacy business quickly and aggressively and expand the pharmacy services it offers customers.

The alliance is particularly intriguing to many in the chain drug industry because SmithKline Beecham operates one of the industry's largest PBMs, Diversified Pharmaceutical Services. "The spirit of the business venture is this," explained Sobocinski. "While some PBMs and drug chains define winning as beating or dominating in a particular area, both Rite Aid and SmithKline Beecham are trying to redefine winning as teaming or partnering. Both SmithKline Beecham and Rite Aid value the opportunity to work together to explore the benefits in pharmacy management as opposed to the traditional model, which exists today which is competition," he continued.

Sobocinksi said the two companies bring unique strengths to the venture, which will enable DPD to be stronger going forward than it could have been on its own.

"Each company has their own core competencies that when combined will be more powerful than either had by itself," he said noting that SmithKline Beecham manufactures pharmaceuticals and OTC medication, operates laboratories, and brings expertise running and marketing a huge PBM, managing pharmaceutical costs of employers, HMOs and PPOs, and understanding what services and compliance programs would be meaningful in providing pharmaceutical services at affordable costs. Rite Aid brings expertise running drug stores and providing pharmacy services, he said.

DPD, which was started a year ago by SmithKline Beecham, is now filling prescriptions for plan members of Diversified Pharmaceutical Services, Eagle Managed Care, Rite Aid's PBM, those served by the former Thrifty PayLess stores that Rite Aid acquired last year and other patients. Approximately 25 percent of the DPD's prescriptions are for patients not affiliated with DPS or Eagle Managed Care, he said.

Sobocinski declined to reveal the size of DPD except to say it is larger than mail order ventures operated by other drug chains "and stacks up well" when compared to most mail service businesses operated by the large PBMs. In total 150 employees work at the facility, which is based in Horsham, Pa.

While some of the large PBMs require members on maintenance medication to fill their prescriptions via mail order after one month of use, DPS and Eagle Managed Care will continue to allow the patients to decide how they wish to fill prescriptions.

This alliance between the two companies has opened the door for other joint efforts. "Rite Aid stores can also serve as a springboard to introduce patients to DPS programs and services" by serving as a distribution point for marketing information, said Sobocinski. "No standalone PBM has this type of cooperation from a retail chain."

In addition, later this year, Rite Aid will open laboratories in nine of its stores, which will offer a variety of tests for patients. SmithKline Beecham is a well-established operator of clinical laboratories. By operating in-store labs, Rite Aid's pharmacists can monitor patients and assist physicians with prescription dosage, he said. Among the patients that could benefit are diabetics, asthmatics and epileptics, he said.

Rite Aid will also work with SmithKline Beecham to develop health related programs in Rite Aid's markets.

"Both companies feel that they have positioned themselves with the clear leaders in the industry," he said. "There are many opportunities for both companies to work together."