Walgreens buys Morton Pharmacy chain

Morton Pharmacy, a 79-year-old retail pharmacy chain, is selling a majority of its business to Walgreens because of what Morton executives call a difficult business climate for community pharmacies.

In late August, Morton Pharmacy sold 12 of its 13 retail pharmacies to Walgreens for an undisclosed amount (its retail business generates approximately $30 million in revenues annually). The retail locations will close August 31, and Morton’s customer prescriptions will be automatically transferred to Walgreens.

Morton’s will hold onto its successful long-term-care pharmacy division, Morton LTC, which earns $20 million in revenues annually. “We are doing what we need to do and focus on; long-term care is about 40% of our business,” said Steve Morton, president and CEO of Morton Pharmacy. Morton currently has 2 closed-shop LTC pharmacies (not open to the public) and will expand to a third closed-shop location.

Several factors led Morton’s executives to make the decision to sell most of its retail pharmacy business. “It’s the declining reimbursement environment, mandatory mail-order plans, the closed networks that are starting to become popular across the country, $4 generics programs, and predatory audits,” Morton said.

Both health insurance companies and government programs are slashing reimbursements, according to Morton, a practice that is “not providing enough margins for us to serve patients.” In addition, the purpose of audits conducted by pharmacy benefit managers (PBMs) has changed from detection of fraudulent claims to making extra money for the PBMs, according to Morton. “They are looking for administrative mistakes so they can look to recoup claims. It is a revenue-generating technique,” Morton said.

The $4 generics programs provided by Walmart and other large chains is also hurting independent pharmacies, Morton said. “Some of the mass merchants are starting to use pharmacy as a loss leader. We certainly can’t fill a prescription for $4 and cover the operating costs of a pharmacy.”

Walgreens is interviewing Morton’s employees and is expected to hire “some, but not all” of them, said Morton.