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CVS, Medco Oppose Postal Cuts, Citing Delays, Costs

Mail Carrier
The Post Office may end Saturday delivery. Photographer: Justin Sullivan/Getty Images

June 21 (Bloomberg) -- CVS Caremark Corp. and Medco Health Solutions Inc. are opposing the U.S. Postal Service’s plan to end Saturday delivery, saying the move would delay needed medicines and may boost mail-order drug prices.

The pharmacy-benefits management companies, which shipped more than 150 million drug orders last year, joined retailer Crate and Barrel and publishers of small newspapers to challenge the Postal Service and its plan to cut service to save about $3 billion a year.

“Eliminating Saturday delivery would create difficulties for many individuals and could be dangerous for patients who need their medications on time,” Ken Czarnecki, CVS senior vice president of mail pharmacy operations, said in testimony today at a Postal Regulatory Commission hearing in Chicago.

Postmaster General John Potter, facing projected deficits of $7 billion this year and $250 billion by 2020, is seeking support from business for budget cuts including the first change in delivery schedules since six-day service began in 1863. The Postal Service lost $1.6 billion in its recent quarter as customers continued to use the Internet in place of letters, print publications and monthly bills that arrive by mail.

A cut in Saturday service “will negatively affect certain customers’ ability to conveniently place orders, learn of our product offerings, hear about our promotional events, receive orders and return product,” John R. Seebeck, direct marketing business director for Euromarket Designs Inc., owner of Crate and Barrel and Land of Nod, said in testimony for the hearing.

Higher Costs Seen

CVS, the largest U.S. provider of prescription drugs, shipped more than 50 million orders in 2009, most by mail. CVS, based in Woonsocket, Rhode Island, probably would turn to private-delivery companies to get drugs to customers on Saturday if mail delivery is ended, at an estimated annual cost of $50 million, according to Czarnecki.

“Mail-order pharmacies and other merchants will have no choice but to shift these costs to patients,” Czarnecki says in his testimony. “Added costs not only impact patients’ pockets, but will also place significant fiscal strain on our health care system.”

Medco, based in Franklin Lakes, New Jersey, dispensed 103 million prescriptions through the mail in 2009, spokeswoman Melissa Mackey said. Medco’s mail-order business is expanding, with a 5.8 percent rise in shipped prescriptions in the first quarter, according to a U.S. regulatory filing.

Orders Delayed

Cutting Saturday delivery would delay about 300,000 orders, according to Bloomberg calculations using the company’s data.

In addition to opposition from mail-order prescription providers led by the Washington-based Pharmaceutical Care Management Association, Potter’s plan has drawn a neutral stance from Netflix Inc., which ships or receives 4 million DVDs daily, and support from magazine publisher Time Warner Inc.

“Nobody’s for eliminating Saturday, and I think that would include the Postal Service” said Art Sackler, executive director of the Washington-based National Postal Policy Council, representing 29 companies that are among the biggest mail customers. “There are those who would consider it a necessary evil on the way to trying to right the Postal Service’s financial ship.”

The council, whose members include AT&T Inc., the largest U.S. phone company and Bank of America Corp., the biggest U.S. lender, hasn’t taken a position because its members are split.

Community Newspapers

Community newspapers that distribute copies by mail are among those most concerned, as are industries that depend on remittances and cash flow, Sackler said.

“The proposal to end Saturday delivery would have an immediate and irreparably harmful effect upon our newspaper,” said Christopher Huckle, publisher of the Cadillac News in northwest Michigan, which is delivered daily to 8,500 customers by mail. “It surprises me that I now must approach my largest vendor and plead for a continuation of service.” Huckle said he spends about $100,000 a year to deliver on Saturdays.

Post offices would remain open on Saturday under the plan. After meeting customers, Potter also tweaked his proposal to continue delivery to mail boxes inside post office branches. Companies that get payments by mail rely on boxes. Restoring the service sliced $500 million from projected savings.

Potter, 54, is fighting to hold on to as much mail volume as possible after the recession hastened the trend toward customers paying bills, ordering products and communicating with businesses online instead of by mail.

Hard Copy, Electronic

“Once a transaction moves from hard copy to electronic, it stays that way,” Potter said in a May 11 interview at Bloomberg’s Washington office. “We have to just face the reality of the situation. That’s why we put together the plan going out to 2020.”

Labor unions, led by the American Postal Workers Union and National Association of Letter Carriers, say that reducing service would be self-defeating.

“You’re not long for this world in terms of competing if you’re going to make your bottom line by making cuts,” postal workers union President William Burrus said in an interview. The union would lose about 2,000 jobs, or 1 percent of its members, if mail isn’t delivered on Saturdays, he said.

Potter won support from Time Warner, which mails out more than 20 magazines including Time, Sports Illustrated and People. The postmaster said he explained “the economics and they quickly came around” during a meeting with Time Inc. Chief Executive Officer Ann S. Moore.

‘Health Post Office’

“We need a healthy Postal Service,” John O’Brien, vice president of distribution and regulatory at the company’s Time Inc. periodical division, said in an interview last month.

Resisting the cut may result in higher rates for business mail, said William Olson, legal counsel for the Association of Priority Mail Users, whose members include defense contractor Northrop Grumman Corp.

Potter isn’t making specific promises to hold down rates if businesses back the end of Saturday service after the meetings, according to spokeswoman Gerry McKiernan. “There was no direct linkage between five-day and rates,” McKiernan said.

Weekly magazines such as the Economist depend on Friday and Saturday mail delivery to get publications to subscribers during the weekend, said Gene Del Polito, president of the Association of Postal Commerce, which represents mail customers such as publishers Conde Nast Publications Inc. and the Newsletter and Electronic Publishers Association.

Economist Experiments

“The last thing they want is to have it arrive Monday morning” when subscribers are “back at work and their minds are on other things,” Del Polito said.

The London-based Economist has begun testing delivery by newspaper carriers in Washington’s suburbs. Dayna De Simone, a spokeswoman for the Economist, declined to comment.

Bloomberg LP, the parent of Bloomberg News, publishes Bloomberg Businessweek and Bloomberg Markets magazines.

“We understand the decisions enterprises make to be competitive and support the U.S. Postal Service’s efforts to remain viable,” Bloomberg Businessweek spokesman Carl Fischer said in an e-mail.

Mail-order catalog companies “feel as if they could accommodate” five-day delivery, said Del Polito, whose Arlington, Virginia-based group represents retailers including L.L. Bean Inc. and the American Catalog Mailers Association.

While Netflix Inc. is “obviously a big customer of the Postal Service,” it isn’t taking a position on Saturday delivery, said spokesman Steve Swasey. The Los Gatos, California-based company is expanding its service of movies streamed over the Internet.

To contact the reporter on this story: Angela Greiling Keane in Washington at agreilingkea@bloomberg.net.

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net.

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