Is Walgreens going to bend?

With the end of the year fast approaching, the dispute between pharmacy giant Walgreens and equally-giant PBM Express Scripts shows no sign of resolution. There’s been no disclosure of any discussions for
Meanwhile, the contretemps is already starting to hurt the retail chain, as Walgreens announced earnings were lower than projected in part due to the Express Scripts issue; Walgreens share price declined over six percent on the news.
This is a big deal – Express accounts for over $5 billion in annual sales at Walgreens 7800 stores, and losing the pharmacy scripts means patients won’t be coming in and picking up toiletries, batteries, and consumables while they’re waiting for their scripts to be filled.
So, will Walgreens bend?
I’d have to say “probably, but not definitely” yes.

Here’s why.
As Express’ members need refills, they’ll head back to Walgreens only to find their card doesn’t work. They’ll then take their scripts – and their other purchases – elsewhere. This won’t have much of an impact until later in January, so I’d expect Walgreens and ESI to work out a deal sometime before mid-February.
The problem Walgreens has is there is a CVS right across the street, and a Rite-Aid on the other corner, and a WalMart down the road next to the Safeway, all of whom still work with Express. So there really isn’t any incentive for the member to protest if they can’t get their script filled at Walgreens.
There’s quite a different take for workers comp claimants. There isn’t any deductible or copay, and Walgreens will (very likely) continue to fill scripts for Express’ workers comp claimants and send the bills to the insurers on paper. The chain knows the claims are good, and they know they’ll get paid. Actually they’ll get paid more as reimbursement will be at fee schedule and not at the deep discount Express currently enjoys at Walgreens.
That said, I do think it is ‘when’ and not “if” the issue gets resolved.
What does this mean for you?
Hope it gets worked out, but prepare – just in case.

5 thoughts on “Is Walgreens going to bend?

  1. Actually, in some WC situations, non-participating pharmacies can paper bill the insurers all they want, under certain laws, those bills are not compensable. We do not accept, nor do we pay paper bills from non-participating pharmacies.

  2. Joe,
    Will your “maybe” turn to “absolutely” if the ES/Medco merger is consumated?

  3. There are four main ways for PBM’s like Express-Scripts to make money. They are: administrative fees, rebates from drug companies, the spread between what pharmacies are reimbursed and what employers are billed, and profits from filling mail order prescriptions for generic drugs. ESRX seems to rely heavily on the spread between pharmacy reimbursement rates and what employers are billed because it’s so opaque to the employer.
    When Walgreen has the opportunity to show its reimbursement rates to employers, employers express surprise at how low they are compared to what the employer pays ESRX. WAG can’t do this, though, until the employer’s contract with ESRX is close to expiration or they have a provision that allows it. Otherwise, it’s considered tortuous interference with ESRX’ contract on Walgreen’s part.
    According to a recent study commissioned by WAG, fully 80% of employers would require at least a 5% saving in their drug spend to accept a network that excludes WAG while 60% of employers would need a 10% saving. With the relatively low variance in what different drug retailers get paid by PBM’s and WAG’s above average generic fill rate, such savings are difficult if not impossible to achieve. WAG thinks it can win much of this business back over time as employer contracts expire with ESRX and they either go elsewhere or negotiate terms that allow them to include WAG in their particular network. Separately, if the dispute continues without a resolution, it will likely be a negative factor to anti-trust regulators evaluating the proposed merger with Medco, especially since the proposed combination would give the merged company a 60% market share in the mail order prescription segment.
    Two days after the first quarter earnings announcement, the stock is now above where it was prior to the earnings report following an initial sharp selloff.