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Ross lays out details on sale of drugstore

September 25, 2009 at 4:53 a.m.

— Denying that he got a sweet deal from a buyer hoping to influence health-care policy, Rep. Mike Ross on Thursday released extensive details on the sale of his Prescott pharmacy to USA Drug.

"I was treated like everybody else," Ross said, denouncing what he termed "a political witch hunt."

Meanwhile, the only other pharmacy owner in Prescott - Ross' former political and business rival - said the deal seemed fair.

"I would have bought it for that," said AllCare pharmacy owner state Sen. Percy Malone. In 1992, he and Ross ran a spirited Democratic primary campaign against each other for the state Senate.

Malone said he "didn't see anything out of line" in the price USA Drug paid and added that since there were only two drugstores in the town of 3,686 people, the price would likely be higher than the property's assessed value.

Citizens for Responsibility and Ethics in Washington on Wednesday called for a Department of Justice investigation into the sale of Holly's Health Mart, a pharmacy Ross co-owned with his wife, Holiday, "Holly." The advocacy group based its request on a story researched by ProPublica that quoted two real estate professionals saying Ross got paid between $143,850 and $220,000 more than the property was worth.

In releasing details of the transaction Ross said he had "nothing to hide."

"This is a political witch hunt," he said.

In addition to $420,000 that Mike and Holly Ross were paid for the 4,200-square-foot building and the roughly 1 acre the store sits on, they were paid $724,420.10 for the pharmacy's assets.

The assets were tabulated by a third party, Washington Inventory Services, and include all accounts receivable, on a sliding scale. For instance, accounts that were between 61 days and 90 days old were discounted in value by 50 percent. Accounts between 91 and 120 days old were discounted by 75 percent.

Washington Inventory Services valued inventory on the shelves at $450,565.40.

"They counted every bottle of deodorant and every prescription bottle," Ross said.

In addition to the pharmacy's assets, USA Drug founder Stephen LaFrance, who did not return calls for comment, paid the Rosses $110,000 to agree not to compete with the newly acquired store for 10 years at any pharmacy within 20 miles.

Records released by Ross and USA Drug on Thursday suggest that the Pine Bluff corporation didn't pay an exorbitant price for the business.

Scott Pace of the Arkansas Pharmacists Association said earlier this week that buyers will commonly pay "upward" of $10 per prescription filled.

But USA Drug paid the Rosses $2.41 for each of their business's 64,245 prescriptions, Ross said, for a total of $154,886.25.

"That's some super deal I got there," Ross said, dryly.

Citizens for Responsibility and Ethics in Washington contends that the price LaFrance and USA Drug paid for the pharmacy - the building it is in, the land it is on, its inventory, accounts receivable and a promise from the Rosses not to compete - could amount to a hefty political payoff.

The land and building alone, the group said, were appraised at $263,000 in 2007, far less than the $420,000 purchase price.

By paying more than what the pharmacy was worth, Citizens for Responsibility and Ethics in Washington suggested in their letter to the Justice Department on Wednesday that USA Drug expected Ross to take care of pharmacy interests and oppose any government-run health-care provisions in the pending legislation.

Ross contended that the county assessment didn't take into account the fact that the building housed a working pharmacy. He also noted that in 1998, he spent $316,000 constructing the building.

"Anybody could build a store across the street and start a pharmacy," Ross said, "but they want an established business."

The fact that Holly's Health Mart is one of only two pharmacies in Prescott and is located, according to Ross, "a stone's throw" from several doctor's offices, only adds to the store's value.

"If someone was buying it for a hardware store or a pawnshop, it wouldn't be worth as much."

ProPublica is an investigative reporting group financed by the Sandler Foundation, a group that gives grants to groups promoting liberal causes. It had its story published Tuesday in Politico, a Washington trade paper. The story called $420,000 an "eye-popping price for real estate in a tiny train and lumber town."

The story quoted Prescott real estate appraiser Adam Guthrie, chairman of the Nevada County Board of Equalization, as saying "you can buy half the town of Prescott for $420,000."

Other pharmacists in Arkansas have in recent years gone through the painstaking task of assigning a value to their life's work.

David Smith sold Central Pharmacy in Conway to Cardinal Health Care in 2006. Cardinal subsequently sold it to the Medicine Shoppe.

Smith, who manages the pharmacy, wouldn't provide certain details of his transaction. But he did say that he received at least $50,000 in a non-compete agreement that stipulated that he couldn't work for another pharmacy within five miles for a three-year period.

Holly and Mike Ross received $110,000, but their non-compete agreement came with much more stringent terms. They agreed not to work for a competitor within 20 miles for a period of 10 years.

Smith said USA Drug "got an incredible deal. If they had paid $250,000 that would have been a deal."

That's because, Smith said, to a great extent a pharmacy's value is tied up in the pharmacist himself. "The store revolves around the store owner or pharmacist," he said. "That's the face people trust."

To illustrate how important the noncompete agreement is, he said it was a "huge" deal that LaFrance hasn't switched signs on the front of Holly's Health Mart.

"It's a very shrewd move on his part to have retained that name," he said.

The money included to secure the noncompete agreement is slightly higher than this year's average salary of 2009 graduates of University of Arkansas Medical Sciences College of Pharmacy. Based on 91 responses, the average annual salary for graduates is $108,896.

It's also common for a pharmacy chain to pay higher than assessed property values when acquiring land and buildings.

Larger chains have paid premiums for land in smaller Arkansas towns in recent years. For instance, Walgreen Co., the Illinois-based drug giant, purchased 2.8 acres and a building in Wynne in 2007 for $650,000. The current value of the land, according to the Cross County assessor's office is $145,800.

The same year, the chain bought an empty 1.3-acre plot in Newport for $560,000. In 2008, the Jackson County assessor pegged the land's value at $35,900.

And in 2008, according to Garland County records, Walgreen paid $990,000 for 1.8 acres and a building that was listed with a $282,650 value.

Front Section, Pages 1, 10 on 09/25/2009

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