civus
Minutes

Committee Hearing, May 21, 1998

Philadelphia City Council Committee HearingsMay 21, 1998

People mentioned

Names our system found in this transcript. Automatically extracted, so it can include anyone named in the record, not only officials or parties.

Organizations mentioned

Councilman Ortiz

Yes, it is. 104 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586

Councilman Nutter

Okay. And is it your, I guess, standard legal practice to do it by way of letters back and forth between the parties, or do you just normally sign a contract like you did two days ago?

Mr. Gurson

Sometimes I do it one way, and sometimes I do it another way.

Councilman Nutter

Okay, but you wanted to make sure you had a signed legal contract before you came to this hearing today.

Mr. Gurson

No, I would suggest City that the City presented that to us. We were prepared to go ahead as we were.

Councilman Nutter

Okay. Tell me, in the contract or in the series of letters, what are the service standards that we should expect?

Mr. Gurson

Excuse me, could I ask you to repeat that? I'm sorry.

Councilman Nutter

Sure. Can you point out to me in the contract or in the series of letters that you now refer to which you felt that you had a legal binding obligation to follow, can you tell me in this contract or the series of letters back and forth what the service standards 105 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 are that we, as public employees, should expect from Rite Aid?

Mr. Gurson

The exchange of letters does not set forth service standards. And you, as employees of the City, should expect first-rate service from Rite Aid 'cause that's what we try to give all of our customers, whether they're City employees or cash customers.

Councilman Nutter

Did the more detailed pharmacy services agreement that you signed in '96 with the City, did that have specific service standards? It talk about what public employees should expect from this contract with Rite Aid?

Mr. Gurson

Well, it incorporated the request for proposal, which, I assume, had service standards. It obligates us to provide services in accordance with the plan. The letters that were exchanged merely extended the contract -- the contract continued on at the new rate. The letters that were exchanged just had to do with the rates that were to be paid in the year 1998 and the copay.

Councilman Nutter

All right. Well, 106 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 the only thing that I've been able to find that may come close to that is item number 2 in the '96 contract, obligations of Rite Aid. It seems that you are obligated to provide each member or eligible dependent with a prescription drug program and other services, as described in the RFP and as provided in Attachment 1, upon presentation by the member and identification card supplied to the member. I assume this is supposed to read "by the City." This doesn't read right. Rite Aid has the right to approve the form of the identification card and the information contained thereon. Can you tell me what these service standards are, either from this contract or from the RFP?

Mr. Gurson

Well, from this contract, you can't tell, but it is -- I mean, from this contract, on the words, you can't tell. But it incorporates --

Councilman Nutter

So there are no 24 service standards provisions in the contract.

Mr. Gurson

No, that is not -- I 107 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 didn't say that. I said that you can't tell it from just looking at these pages of the contract because it is where it's supposed to provide prescriptions as described in the plan and the other services described in the RFP. So we have incorporated the RFP's requirement for services.

Councilman Nutter

What were those?

Mr. Gurson

We give drug counseling, as we do to everybody else.

Councilman Nutter

Really?

Councilman Nutter

Okay, continue.

Mr. Gurson

We give drug utilization review, we talk to them about drug interaction. The pharmacist is available to the customer to discuss the effects of drugs, talk to the doctor when --

Councilman Nutter

You do this for every person that comes into the store?

Mr. Gurson

We certainly do.

Councilman Nutter

Okay.

Councilman Ortiz

Mr. Chairman.

Councilman Nutter

Councilman Ortiz. 108 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586

Councilman Ortiz

I may have to leave for an appointment, but I have a series of questions along the lines. What is the entry-level wage for a Rite Aid employee?

Mr. Gurson

For entry level, you mean at the lowest level? It's cents above the 8 minimum wage per hour, the minimum per-hour wage. 9

Councilman Ortiz

What is that right 10 now? I forget what it is. I know that the federal law changed it.

Mr. Gurson

It's $5.75, sir.

Councilman Ortiz

$5 and --

Mr. Gurson

-- 75 cents an hour.

Councilman Ortiz

And does that include benefits?

Councilman Ortiz

Medical benefits, a benefits package?

Mr. Gurson

For those who are not part-time workers, yes.

Councilman Ortiz

And what -- and what constitutes part-time and not part-time?

Mr. Gurson

Working more than half a week. 109 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586

Councilman Ortiz

More than half a week. And what percentage of your employees work more than after a week?

Mr. Hushen

Councilman, I may be a little better equipped to answer that.

Councilman Nutter

Please identify yourself for the record, and get that microphone maybe a little closer to you.

Mr. Hushen

My name's Ed Hushen. I'm the Regional Market Manager here in Philadelphia. And our members are part of Local 1776. So the clerical people, other than the pharmacy manager and the store managers, are members of a bargaining unit, and they're --

Councilman Ortiz

Excuse me, I didn't hear that.

Mr. Hushen

Other than our pharmacy manager and our store manager and our assistant manager, our members are members of the bargaining unit, so their salaries are scaled, based on length of service. And employees -- part-time employees are eligible for benefits, I believe, after 90 days, for themselves. "Part-time" is defined as 110 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 anybody working less than 35 hours. Full-time employees are entitled to benefits for themselves and their dependents, based on need. They can -- anybody that is in that unit gets -- goes through the benefit program through 1776.

Councilman Nutter

And do they pay for those benefits? Or is there an employer contribution or a combination? How does that work?

Mr. Hushen

I believe the members of the union do not; management do. I could get you a copy of the contract if you desire.

Councilman Nutter

Okay. And I thought the Councilman was going to ask the -- can you give us any sense of the breakout between part-time and full-time.

Mr. Hushen

It runs about 70/30; 70 percent part-time and 30 percent full-time.

Councilman Nutter

That's 70 percent part-time, 30 percent full-time?

Councilman Ortiz

I have to get going.

Councilman Nutter

Okay. Councilman 111 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 Cohen.

Councilman Cohen

Do you have any notion where that -- I -- I -- I -- you've got me stuttering, and not too much makes me stutter. But I can't understand a national company like Rite Aid having a majority of part-time employees. It begins to maybe clear some things in my mind 'cause I live very close to a Rite Aid that happened to be the linchpin of a community development -- not a community development, it was developed by private developers, but the community participated very much in the Champlost development on Broad and Champlost here in Philadelphia. And the community was very much interested in employment prospects, but they never, never had in mind temporary or part-time employment; they were interested in full-time jobs. And this is the first I've ever heard of any major company having -- other than McDonald's having that range of part-time -- you mean 70 percent of the employees are part-time 112 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 workers?

Councilman Cohen

Could you tell us, why does that exist? You're a full-time company, you operate long hours all the time.

Mr. Hushen

Right. And, generally, what it's designed to do is be able to provide the services when the public is shopping in the store. It's not designed to write a schedule in the store that can accommodate --

Councilman Cohen

Well, I'll tell you, this store at Broad and Champlost is busy from the time it opens to the time it closes. It's probably the most profitable store you have in the City, from what I gather.

Mr. Hushen

That store actually gets busier after 8 o'clock at night, and it's open till midnight.

Councilman Cohen

It's constantly busy.

Mr. Hushen

It's constantly busy, yes, sir.

Councilman Cohen

It's a good store, isn't it, from a business point of view from the 113 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 range of customers?

Mr. Hushen

Absolutely. And I'm hoping we have those safety caps for you now.

Councilman Cohen

But would that 70/30 percent apply to that store?

Mr. Hushen

Yes. Because what we're looking to do is bring in additional people at 8 o'clock in the evening to work till midnight to cover the peak of business that happens at that period of time. There may be another peak during the day, maybe from 11 to 2, maybe when there's lunches, it may be busier, so we'll bring people in at 11 to 2.

Councilman Cohen

Is that applicable to the pharmaceutical industry generally nationwide? Are there any studies made?

Mr. Hushen

I would say that's probably pretty much retail, not necessarily the drugstore business, but pretty much anybody that is dealing with the public will generally try to have the most people working at the time when they are the busiest.

Councilman Cohen

Does the union 114 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 agreement cover part-time as well as full-time?

Mr. Hushen

Yes, it does.

Councilman Cohen

With that one limitation that the benefits for part-time apply only to the individual worker?

Mr. Hushen

That is correct.

Councilman Cohen

While the full-time -- it just seems to me that with changes like that, there's an incentive to maintain a large-scale part-time force because it's cheaper for the company.

Mr. Hushen

Well, it's more productive to running the store is actually why we do it. The larger the volume the store would have a greater number of full-time employees, but the ratio would probably remain the same.

Councilman Cohen

It's 70/30. All right, Mr. Chairman, for the time being. Thank you.

Councilman Nutter

No problem. How many Rite Aid stores were there in the City in 1992?

Mr. Gurson

I believe approximately 50 or 60. 115 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586

Councilman Nutter

And how many are there now?

Mr. Gurson

There are 96.

Mr. Hushen

Mr. Chairman. Excuse me, Mr. Chairman. I think I may, again, be better. Can you hear me? I'm sorry. I think in 1992, we had about 97 stores. There have been ups and downs over the last few years probably, which is our fiscal year 1999, which we are in now, we will probably end with 89 stores in Philadelphia County. We have 96 today.

Mr. Gurson

We have 96 today.

Councilman Nutter

How many did you have in '92? That was the question. I don't know how you could have less stores because you're opening stores in every zip code in the City. Something is not adding up.

Mr. Hushen

Well, what we've been doing, Councilman, is opening and closing and relocating and consolidating. What we do is open one store, which is generally a bigger, larger store, and we may close two or three smaller stores and consolidate it 116 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 into one bigger lotion, so the net result pretty much remains static.

Councilman Nutter

Right, but you've left the a little confused. How many stores did you have in 1992?

Mr. Hushen

In 1992, I believe we had 97 stores.

Councilman Nutter

97 stores. In Philadelphia?

Mr. Hushen

In Philadelphia County.

Councilman Nutter

And now you have how many?

Councilman Nutter

Well, how many stores have you built from 1992 to 1998?

Mr. Hushen

We have probably relocated, expanded or built new probably about 20.

Councilman Nutter

You mentioned that in some cases, you've closed your own stores?

Mr. Hushen

That is correct.

Councilman Nutter

Because you built a new, larger one somewhere else?

Mr. Hushen

That is correct. In many 117 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 case, we may have closed or three stores.

Councilman Nutter

Right. How many independent pharmacies have you purchased in that time period?

Mr. Hushen

I would be guessing. I will say probably about 60.

Councilman Nutter

I'm sorry?

Councilman Nutter

60?

Councilman Nutter

You had 97 stores of your own in 1997.

Mr. Hushen

Correct.

Councilman Nutter

And you now say that in 1998, you have 96 stores.

Mr. Hushen

Correct.

Councilman Nutter

In the time period from '92 to '98, you opened or expanded or built new 20 stores.

Mr. Hushen

Correct.

Councilman Nutter

And you bought 60 independent pharmacies in the City.

Mr. Hushen

Correct.

Councilman Nutter

What did you do 118 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 with those stores?

Mr. Hushen

We moved them into existing Rite Aid stores. We buy the prescription files.

Councilman Nutter

All right. So let's not be as soft with the language. You buy an independent store, then you close it, correct?

Mr. Hushen

Correct.

Councilman Nutter

And then you move the prescriptions to your store:

Mr. Hushen

Correct.

Councilman Nutter

So, in effect, what you've really done is maintained your level of stores, closed 60 other independent stores, moved all the prescriptions to your stores, the net of effect which really could be that you have 98 plus 60. The stenographer cannot record shrugs of shoulders. It's impossible.

Mr. Hushen

I understand.

Councilman Nutter

Is that right? I mean, these are all the facts, right?

Mr. Hushen

(No response.)

Councilman Nutter

You could 119 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 effectively say that all of those stores -- you bought the stores.

Mr. Gurson

Correct.

Councilman Nutter

Whether you operate it or not, it's your store.

Mr. Gurson

Correct.

Councilman Nutter

You chose to close them.

Mr. Gurson

In some cases.

Councilman Nutter

Because you'd have the people coming to your store.

Mr. Gurson

Well, it was our store.

Councilman Nutter

I understand.

Mr. Gurson

We wanted to be in better real estate.

Councilman Nutter

But for net-net adding purposes, 98 plus 60 would incorporate the entire Rite Aid network. You just chose not to operate the 60 stores as stores because you consolidated them into your own locations with the prescriptions and the people, right?

Mr. Gurson

You could look at it that way, yes.

Mr. Nutter

Okay. 120 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586

Councilman Cohen

But, Mr. Chairman, another way of looking at it would be that you just eliminated a lot of independent stores, and the physical locations available to people have been reduced, in the example you give, from maybe 156 or 158 to some 60 lower. Is that what you're saying? You found these big stores more successful and, I assume, more efficient, whatever standards you applied. But from the point of view of the public, you did what so many of us complained about CoreStates and First Union. You reduced the number of locations that people had available to them to get prescriptions filled. Is that right?

Mr. Gurson

There are fewer pharmacy counters and --

Councilman Cohen

Fewer locations.

Mr. Gurson

There are fewer pharmacy locations than there were, correct.

Councilman Cohen

All right. I think we need that on the record. You know, there is in Philadelphia the overwhelming perception that there has been a huge increase in the number of Rite Aid stores. You'll 121 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 probably hear about that in the community meeting on June 1st up at the Eye Institute. That's the feeling widespread everywhere.

Councilman Nutter

Mm-hmm.

Councilman Cohen

And they're going to find it very difficult to believe that the number of Rite Aid stores has remained the same.

Councilman Nutter

Right. You know, I have to admit that I was quite honestly stunned at the numbers, which is why I was having some confusion. I mean, four new Rite Aids, built from the ground, in the past three or four years have been done just in the district that I represent. Those stores did not exist anywhere else. You didn't demolish something -- a pharmacy and put a store there. None of these stores existed before. So that's why, as Councilman Cohen says, there is a general perception that there is a huge number of new Rite Aid stores in the City.

Mr. Gurson

And we would hope that there will be more, sir.

Councilman Nutter

I bet you would.

Mr. Gurson

There is some economic 122 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 activity for the City. We are an employer in --

Councilman Cohen

Apparently, that is not the outlook of your company.

Councilman Nutter

Right.

Councilman Cohen

The outlook of your company is to expand existing sites because, for some reason, whatever criteria you use, at least over the four-year period we're talking about, that's been the experience.

Councilman Nutter

Right.

Councilman Cohen

Existing sites have been expanded while 60 different locations have gone out of existence as sites where people could go to get prescriptions filled.

Councilman Nutter

When you buy a store and then close it and shift the prescriptions over, what happens to the people who worked in those stores?

Mr. Gurson

Sometimes the pharmacist comes to work for us, the employees are offered jobs if they want. They are -- sometimes it's an owner-operator who's looking to retire and has an asset that he want to capitalize on and he sells it to us and moves on. 123 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586

Councilman Nutter

Do you have any data on what has actually happened in all of those cases?

Mr. Gurson

Well, first of all, you have to understand, when we buy a pharmacy, this doesn't happen in a one-day process. We don't boy it and close it down the day we buy it and fire all of the people. We operate it in place for some period of time, sometimes longer, sometimes shorter, as we build the store into which we're going to put it. People are offered jobs, the pharmacists are offered jobs.

Councilman Cohen

Mr. Chairman, can I --

Councilman Nutter

Councilman Cohen.

Councilman Cohen

City Council, just so you know where we're coming from, we have a responsibility in this area, and we have power in different directions. Technically, frequently in the internal operation of government, one body, the executive and the legislative body, two separate bodies, often have disagreements. 124 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 One of the techniques used by the City Administration in Philadelphia to limit the ability of the City Council to make decisions is to have this system -- instead of a three-year contract, to have a one-year contract with options. Because in the Home Rule Charter, the City Administration is empowered to enter into one-year contracts. It has not yet been tested whether the City's theory is legal. At some point, probably in the next year or two, there will be a test. Now, the City Council has its own powers, which we have studying and considering. For example, when we ran into problems with SEPTA and felt that the SEPTA management was not being fully cooperative the City Council passed a transfer ordinance which took the money from the Public Property Department where usually the money is put, and the money was put into the City Council budget so that only City Council had the authorization to release it. There has been much talk, but maybe that's what we're going to have to do in the health area because there's just been such a cloak 125 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 of mystery. Nobody has known. For example, apparently, the City Solicitor's office did not know about this amendment to a contract. Because, as I understand it, Councilman Nutter requested an opinion, and one would think the City's own Law Department would have known that there was a contract which in fact did not expire at the end of 1993, was it? And that this amendment existed. But the City Solicitor wrote an opinion totally unaware of this exchanges of letters. You know, I don't know whether that indicates internal intrigue in which the City Solicitor is kept ignorant of what the executive body is doing. But we're very much concerned because we're not so sure -- maybe it is good, but we're not so sure that it's good for people to have fewer locations to go to. We know, in the banking business, we think it's bad. And one of the terms before various groups in Philadelphia agreed to consider the integration and merger of First Union and CoreStates was to demand adequate banking sites. And so I think there is some questionable aspects to a policy of really taking 126 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 out these independent pharmacies and not substituting anything for them and resulting in fewer locations. There will be many other questions raised about the Rite Aid method of operation, which I'm waiting until -- you know, I expect most of them will be covered by Chairman Nutter. But if not, they will be covered by other Members of Council. So I'm just indicating we are very much concerned about this matter. And while we tried to cooperate with the City Administration and with Rite Aid, you know, and supported the contracts at the beginning, we feel we're kind of at a breaking point. We don't have answers to give to the constituents out in the community because it looks like it's been a "take-everything-give-nothing- back-to-the-community" philosophy that's motivated Rite Aid, and that's the kind of thing I think Rite Aid is, if it chooses to continue with the City of Philadelphia, I think you're going to have to deal with that.

Mr. Gurson

Well, Mr. Chairman I would 127 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 only respectfully disagree with the statement that we give nothing back to the City and to your constituents and the other members of the Council's constituents. We open and operate clean, bright, well-lit stores, with easy access, in every zip code in this city. We do not choose wealthy neighborhoods or not-wealthy neighborhoods. We are where the people are, and we hire the people from the neighborhoods in which we operate. And we pay them a wage that is negotiated with their bargaining unit. Rite Aid Corporation gets much from this city, and Rite Aid Corporation believes it gives back to this city. We page wages, wages result in tax revenues for the City, we pay taxes in the City, and we provide service in every nook and cranny of this city.

Councilman Nutter

Mr. Gurson, tell me, what were the total revenues for Rite Aid in Philadelphia in 1992?

Mr. Gurson

I cannot give you that; I just do not know. I don't know what they were. I don't know what they were in Philadelphia in 1997 128 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 either.

Councilman Nutter

Can you get us that information?

Councilman Nutter

Do you have any sense of whether the revenues in 1997 were greater than they were in 1992?

Mr. Gurson

Oh, I'm sure they were.

Councilman Nutter

Could you also get us some information about the breakdown between your revenues generated by your pharmacy component, and then many of your stores have kind of everything else, all of the front-end-of- the-store stuff. I think your layout primarily dictates that you have to get through, you know, milk and candy and potato chips and cough medicine and all of that before you can actually get to the back with the pharmacist. So I'd be interested in a breakdown between those two. Nationwide, sales are up; is that correct?

Mr. Gurson

Yes, they are, sir.

Councilman Nutter

Okay. What other 129 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 major employers in the City does Rite Aid have prescription plan business with?

Mr. Gurson

SEPTA, sir.

Councilman Nutter

SEPTA? You have all SEPTA employees?

Councilman Nutter

What is Eagle Managed Care?

Mr. Gurson

Eagle Managed Care is a wholly-owned subsidiary of Rite Aid Corporation. It is, in fact, our pharmacy benefit managing arm.

Councilman Nutter

So what does it do?

Mr. Gurson

It manages prescription plans like the City's plan.

Councilman Nutter

What does that mean? What do you mean, it manages them? What does that mean?

Mr. Gurson

Well, that's what Rite Aid does for you, for the City today, in this plan that you're having hearings about. The pharmacy benefit manager is a company that contracts with an employer or a group of employers to provide -- to put together a 130 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 network of pharmacies in which prescriptions of the members of that plan -- at which prescriptions of the members of that plan can be filled.

Councilman Nutter

So they do all the billing and run the computer system?

Mr. Gurson

Correct, correct. And that's either done on a capitated basis or a fee-for-service basis or some variation of the two.

Councilman Nutter

Okay. And what does Capital Management Enterprises do and what's the nature of their relationship to either Eagle Managed Care or Rite Aid in this whole process?

Mr. Gurson

They -- we -- I believe in the City's plan, they're a consultant to the City.

Councilman Nutter

A consultant for what?

Mr. Gurson

I assume for health-care benefits.

Councilman Nutter

Well, I mean, there's some level of correspondence that seems to go back and forth between the two of you. I'm a little perplexed.

Mr. Gurson

Capital Management Systems 131 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 is, to my knowledge, the City's consultant with respect to the plan that's the subject of the contract that we're talking about today net.

Councilman Nutter

They helped negotiate the contract?

Mr. Gurson

I believe they did.

Councilman Nutter

Okay. And the fees that go with it?

Mr. Gurson

I assume they did that too, sir.

Councilman Nutter

Okay. And do we know who pays Capital?

Mr. Gurson

I assume the City does.

Councilman Nutter

Capital Management?

Mr. Gurson

I assume that the City does.

Councilman Nutter

Okay. Rite Aid doesn't pay?

Mr. Gurson

Rite Aid does not.

Councilman Nutter

Or Eagle?

Mr. Gurson

Or Eagle.

Councilman Nutter

Okay, all right. Now, is it my understanding that -- 132 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586

Mr. Gurson

Can I -- can I -- when I say -- I want to correct my answer in this sense and because I don't know the specific answer here. There are many times that a plan says I have a consultant. And as part of the contract, you must pay the fee that I am going to pay to my consultant or my broker. And that may be the case in the City plan, but I do not believe it is. I believe the City pays Capital Management System.

Councilman Nutter

So your corrected answer is that you're not sure whether Rite Aid pays the consultant or not.

Mr. Gurson

But I believe it does not.

Councilman Nutter

Okay.

Councilman Cohen

And is it a totally independent company, independent of Rite Aid?

Mr. Gurson

Yes, sir.

Councilman Cohen

Do we know who the principals are? Is it a small corporation, a larger one?