Ross sold pharmacy for more than apparent value

[September 25, 2009]  LITTLE ROCK, Ark. (AP) -- By all indications, the Holly's Health Mart drugstore owned by Rep. Mike Ross and his wife appeared to be worth no more than $300,000.

On his taxes, Ross said it cost nearly $316,000 to build and told the Internal Revenue Service the property was losing value. The local assessor put its value at $263,700. And for two consecutive years, Ross filed disclosure forms saying it was worth less than $250,000.

But when a drugstore chain showed up at the congressman's door with an offer to buy it, the value of the blue-and-white, one-story building in Prescott jumped by half.

As part of a $1.25 million deal, USA Drug purchased the land and building alone for $420,000 in June 2007. Ross and his wife also received more than $834,000 for a customer list, store inventory and an agreement to not compete with the new owners.

In a Thursday interview with The Associated Press, Ross couldn't explain how USA Drug arrived at the sale price. The company hasn't returned repeated calls seeking comment about the transaction. A citizens group in Washington has asked the Justice Department to investigate the deal after reports suggested Ross -- who is heavily involved in the ongoing national debate over health care -- may have profited excessively from the sale.

But Ross told the AP he sold the pharmacy in part to avoid such criticism.

"I felt like I was getting rid of a conflict of interest by selling the pharmacy," Ross said. "I suspect that if I still owned it, you and I would be having the same conversation. It would just be about, you know, is the fact I own a pharmacy influencing my decisions? And I can't control that, because I owned the pharmacy well before I was in the United States Congress."

Ross is chairman of the health care task force of the fiscally conservative Blue Dog Democrats, whose support is critical to the success of President Barack Obama's efforts to reform health care. Pharmacies have an interest in how the health care debate turns out because of its potential impact on drug prices.

The group Citizens for Responsibility and Ethics in Washington questioned the transaction Wednesday in a complaint filed with the Justice Department. It wants to know whether Ross received a fair price for the property or benefited solely because he is a congressman.

Ross on Thursday again defended the sale, which was first reported by the Web site ProPublica. The Democratic congressman called the story part of a "left-wing, special interest conspiracy against me."

He said USA Drug had approached him in early to mid-2007 about buying the pharmacy, but that his memory was hazy on several key details of the sale -- including who proposed the $420,000 price tag.

"There was very little negotiation. ... I think most family pharmacies will tell you that when a chain comes in to buy you, they usually come with their best offer and there's not much negotiation that goes on," Ross said.

In all, the drugstore chain paid Ross and his wife, Holly, more than $1.25 million for the store and its assets, including $420,000 for the 4,200-square-foot building; $154,886 for the pharmacy's prescription files, including its customer list; and $450,565 for the pharmacy's inventory, shelves and supplies. It even reimbursed Ross $209.24 for unused postage, according to documents Ross provided to the AP.

Holly Ross was paid $108,000 to not compete with the new owners. The congressman and Ross Pharmacy Inc. each were paid $1,000 as part of the non-compete agreement.

"This was a profitable business. Of course we sold it for profit," Ross said.

Ross would not say how much of a profit he and his wife made from the sale after taxes and expenses. On a tax form he filed in 2007, he reported $315,842 in construction costs for the pharmacy building and the gross sale price of $420,000.

But during the nine years Ross owned the building, the record indicates, Ross depreciated its value on his taxes. The document blacked out the exact depreciation Ross reported on the building and the total gain he reported from the sale to USA Drug. Ross would not say how much in taxes he paid on the sale, but said he adjusted the prices appropriately when calculating his tax liability.

At the time of the sale, the Nevada County assessor valued the property at $263,700. Ross said Thursday that listing the store's value at less than $250,000 in 2005 and 2006 on his financial disclosure forms, which are required annually from members of Congress, was a clerical error.

"Seven out of nine years, I checked the $250,000 to ($500,000) and if I checked the other box, all I can tell you is it must have been an error," Ross said, adding that he would amend the documents if the House Ethics Committee recommended he do so.

Campaign finance reports show USA Drug founder Stephen LaFrance gave Ross a $2,300 campaign donation two weeks after the sale, and another $500 last November. Ross said he has met LaFrance "three or four times" and that they never discussed legislation.

LaFrance founded Pine Bluff-based USA Drug in 1968 and has expanded it into a chain of more than 170 stores across Arkansas, Mississippi, Missouri, Oklahoma and Tennessee. He also operates a distribution center for health, beauty and general merchandise products.

The company's most recent major acquisitions occurred in 2004, when it took over 56 Oklahoma stores in a pair of transactions, giving it 169 across the five states.

As a privately held company, it does not generally disclose purchase prices. When releasing some specifics of the deal late Wednesday night, USA Drug President and CEO Joe Courtright wrote to Ross, "This should certainly clear up any misunderstandings the press may have about our transaction."

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On the Net:

Ross' disclosure forms and personal finance reports: http://tinyurl.com/ydpldym

[Associated Press; By ANDREW DeMILLO and KELLY P. KISSEL]

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