When Walgreens announced that it would not be a part of the Express Scripts (“ESI”) network in 2012, waves of uncertainty reverberated throughout the PBM world. Would this development help or hurt plan sponsors’ efforts to reduce pharmacy benefit costs? Would a restricted pharmacy network drive ESI clients away? Will Walgreens take a similar tact with Medco? What impact will it have on the ESI selling season? At WBC (www.wbcbaltimore.com), we saw it coming and are fascinated with the implications. Our PBM consulting for those plan sponsors interested in reducing pharmacy benefit costs can demonstrate that this development may actually prove useful.
Last summer, Walgreens and CVS/Caremark caused sparks with the announcement that Walgreens was leaving the Caremark network. That separation was short-lived, however, as cooler heads prevailed
and saw it was a losing proposition for both parties. Some have opined that the current lover’s quarrel involving Walgreens is just a negotiating ploy and will also work itself out so that the two parties can continue to do business. The relationship brings a handsome chunk of change Walgreens way to the tune of $5.6 billion in annual Rx’s. Of course, that may be wishful thinking and this dispute may have some bite to its bark!
To re-cap, Walgreens walked away from negotiating an extended deal with Express Scripts. The bones of contention centered on three stated issues. According to the Walgreens press release, the issues are:
1. The desire by Express Scripts to define contract terms, including what a brand drug is and what should be declared a generic (Note to plan sponsors: if it’s this important to ESI and Walgreens, it should be evident that it should be important to you in your PBM contract);
2. The request that Walgreens be notified in advance when Express Scripts decides to transfer a prescription to another network pharmacy; and
3. A reduction in reimbursement rates to a level that Walgreens felt was unacceptable.
The loss of Walgreens retail outlets would be a significant dent in the Express Scripts network, particularly in key markets, such as NY Metro and Chicagoland. Losing the Duane Reade chain (a Walgreens subsidiary) in NY may prove particularly painful to the Express Scripts block of labor business. Plus, we can’t believe the huge Department of Defence (“DOD”) contract held by ESI would passively allow Walgreens to jump ship without throwing a fit. They would/should be exerting heavy pressure on their ESI account managers to “fix it.”
So where is the silver lining in this melodrama? Well, it gets plan sponsors to start thinking about the merits of a restricted network, one that we like to call “right-sized.” We haven’t met the plan sponsor who truly needs the 64,000 store variety. The vast majority would do just fine with a network half that size or smaller. So the reduction to 55,000 or so really shouldn’t prove a major obstacle for Express Scripts clients. This right-sizing allows the PBM to perform a disruption analysis and present their case to their clients. Does the plan really need a pharmacy on every corner? Will their members have adequate access with the reduced version? If they discover that a “select” network meets their needs, then opting for a smaller network with better discounts may prove more beneficial to the plan.
How this plays out remains to be seen. We believe both sluggers have more to lose than to gain by parting ways. Wall Street seems to agree, yet the Street appears to be siding with ESI. Their stock is slightly up, while Walgreens is still down almost 6% since the announcement. Stay tuned for some real summer fireworks!
