Walgreens, Express Scripts Part Ways

By Kate H. Gamble

Contract renewal negotiations between Walgreens and pharmacy benefit manager Express Scripts, Inc. have broken down, according to the drugstore chain. Beginning on January 1, 2012, Express Scripts’ network will no longer include Walgreens’ 7,700 pharmacies nationwide, including more than 250 Duane Reade pharmacies in the New York City area.

“While we have sought to negotiate a contract renewal agreement over the past several months, those talks have been unsuccessful,” said Walgreens President and CEO Greg Wasson in a statement. “Under the terms proposed by Express Scripts, it would not make good business sense for the strategic direction of our company to continue our relationship with them.”

Walgreens cited the following reasons for the split:

• Express Scripts insisted on being able to unilaterally define contract terms, including what does and does not constitute a brand and generic drug, which would have denied Walgreens the predictability necessary to reliably plan its business operations going forward.
• Express Scripts rejected Walgreens request to be informed in advance if Express Scripts intends to add or transfer a prescription drug plan to a different Express Scripts pharmacy network, and to provide patients with equal access to Walgreens retail pharmacies. Walgreens cannot reliably plan business operations without clear terms, transparency and predictability governing the provider network relationship.
• Express Scripts proposed to cut reimbursement rates below the industry average cost to provide each prescription. Walgreens proposed to lower rates on behalf of the Department of Defense (DoD) Tricare program, a pharmacy benefit plan managed by Express Scripts. Under Walgreens proposal, the reimbursement cost for the DoD would have been lower than under Walgreens commercial rates. In addition, Walgreens offered to contract separately with Express Scripts for Tricare beneficiaries, in order to continue providing services for all active and retired military personnel. For all other plans managed by Express Scripts, Walgreens offered to hold rates for a new contract at the level that will be in effect with Express Scripts at year end, which will be lower than current rates.

In their intermediary role as a pharmacy benefit manager, Express Scripts processes approximately 90 million prescriptions that are expected to be filled by Walgreens in fiscal 2011, representing approximately $5.3 billion in annual sales. “We believe the long-term ramifications of accepting Express Scripts’ proposal with below market rates and minimal predictability for the services we provide would have been much worse than any short-term impact to our earnings,” said Wade Miquelon, Walgreens executive vice president and chief financial officer. “Any time an intermediary continues to disproportionately grow its profit per prescription at the expense of the provider delivering the service, the relationship is out of balance.”

Walgreens noted that Medicare Part D patients who use its pharmacies will continue to have the option during the open enrollment period near the end of the year to choose a Part D plan that includes Walgreens. In addition, some Express Scripts clients may have the ability to include Walgreens as part of their benefit offering. As a result, Walgreens said it will look for opportunities to have discussions with Express Scripts clients to ensure their beneficiaries can continue to use Walgreens.