Walgreen Co. has launched a letter-writing campaign to benefits consultants that outlines the reasons it likely won’t be part of Express Scripts Inc.’s pharmacy provider network after December 31.


Walgreens, Express Scripts, Kermit Crawford, letter-writing campaign, pharmacy provider, PBM, pharmacy benefit manager, Express Scripts pharmacy network, Walgreens retail pharmacies, generic drug, pharmacy benefit management, prescription drug, Mark Miller, William Blair & Co., Medco Health Solutions, John Schultz, Russell Redman
































































































































































































































INSIDE THIS ISSUE
News
Opinion
Other Services
Reprints / E-Prints
Submit News
White Papers

Retail News Breaks

Walgreens goes on offensive in PBM dispute

August 11th, 2011

DEERFIELD, Ill. – Walgreen Co. has launched a letter-writing campaign to benefits consultants that outlines the reasons it likely won’t be part of Express Scripts Inc.’s pharmacy provider network after December 31.

Kermit Crawford, president of pharmacy, health and wellness at Walgreens, notes in the correspondence that the two sides remain far apart on key issues and urged the consultants advise their clients to plan accordingly.

Walgreens announced in late June that it plans to exit Express Scripts' pharmacy network because of unsuccessful contract renewal talks. The drug chain, which has more than 7,700 stores, said the breakdown in negotiations will lead it to not participate in the Express Scripts network starting Jan. 1, 2012.

“Walgreens reluctantly reached our decision regarding Express Scripts for several reasons,” says the letter. “Express Scripts proposed numerous changes to the existing agreement and insisted on being able unilaterally to define contract terms — including being able to ‘solely’ determine what does and does not constitute a brand and generic drug. Express Scripts also wanted to change the definition of the generic drug effective rate that would have resulted in changing the reimbursement for newly introduced single-source generic drugs.

“Express Scripts rejected Walgreens’ request to be informed in advance if the PBM [pharmacy benefit manager] intends to add or transfer a prescription drug plan to a different Express Scripts pharmacy network and provide patients with equal access to Walgreens retail pharmacies. Walgreens has no intention of determining plan design — but we do want predictability for our business if we give a preferred rate.”

The letter says Express Scripts proposed to cut reimbursement rates to “unacceptable levels that would be below the industry average cost” to provide each prescription.

“Express Scripts currently has very competitive rates from Walgreens, and we offered to hold rates for new contracts at the levels that would be in effect at year-end,” the letter states.

“We have already begun notifying our Express Scripts network patients that as of January 1, 2012, we will no longer be in the Express Scripts network. We will advise Medicare Part D patients that they have the option to select a network during open enrollment that includes Walgreens, and we expect that many will do so.”

In the letter, Crawford points out that Walgreens provides significant value to plan sponsors and their members, including better generic performance translating to increased savings for plan sponsors; more convenience and access, leading to fewer emergency room visits and other hospital costs; competitive unit prices validated by external benchmarks; savings from chronic medication management that cut pharmacy and medical costs; and broader health care value, such as access to over 26,000 pharmacists certified to provide immunizations.

“Plan sponsors whose pharmacy benefit management contracts are currently up for renewal may wish to select a PBM that includes Walgreens’ more than 7,700 pharmacies in their network,” Crawford states.

In a statement after Walgreens announced its plan to leave the pharmacy provider network, Express Scripts called the drug chain’s move “shocking” but expressed hope for an accord.

“On average, another pharmacy within the Express Scripts network is within one-half mile of a Walgreens pharmacy. Even without Walgreens in our network, we meet all client guarantees for access,” the PBM stated. “Express Scripts is optimistic that Walgreens will return to the table and negotiate in good faith toward a common goal of providing optimal care at a reasonable and competitive rate for tens of millions of Americans.”

Analyst Mark Miller of William Blair & Co., which rearlier this month hosted investor meetings with Walgreens chief financial officer Wade Miquelon, reported that the Walgreens-Express Scripts dispute appears likely to carry over into next year.

"We now believe Walgreens' dispute with Express Scripts may be more protracted than current [Wall] Street expectations," Miller wrote in a research note released this week. "We now estimate there is a 50% chance this impasse continues into 2012; previously, we estimated 80% likelihood of settlement by year end. Mr. Miquelon was definitive on the company's approach. 'This is not a negotiation,' he said. 'This is a stand.' "

Miller also noted that Walgreens' alternatives to an agreement with Express Scripts "appear stronger than investors initially perceived." Walgreens' management has said it expects Express Scripts to account for $5.3 billion, or about 7%, of the drug chain's fiscal 2011 sales.

"Of the 11% of sales related to Express Scripts' Medicare Part D, Walgreens intends to educate customers about their pharmacy options in the fall sign-up period, which may allow the company to retain a large portion of this business," Miller said in his analysis. Walgreens, too, has some bargaining leverage regarding prescription sales to the Department of Defense, managed care organizations and commercial businesses, he added.

Meanwhile, Express Scripts bolstered its position in the dispute last month with its blockbuster $29.1 billion deal to buy Medco Health Solutions Inc. The agreement, if approved by regulators, would create the nation's biggest pharmacy benefit manager, with roughly a 30% share of the PBM market in terms of prescription drug volume.

More Retail News Breaks >>
Advertisement