Table of Contents
With the end of the year less than three weeks away, it appears all but certain that Walgreens will not be part of Express Scripts’ network of pharmacy providers when 2012 gets under way.
Barring an eleventh-hour breakthrough in the protracted contract renewal negotiations between the drug chain and the PBM, fallout from the dispute, which has serious implications for pharmacy care, will soon begin to be felt by the two companies and the patients and payers they serve.
The disagreement stems from contract terms proposed by Express Scripts that contain what Walgreens executives characterized as “below-market rates and minimal predictability for the services we provide” when they first spoke publicly about the issue last June. At the time they made it clear that the retailer was willing to walk away from prescriptions managed by Express Scripts if no better offer was forthcoming.
If Express Scripts were to win its battle with Walgreens, the long-term pressure on the profitability of community pharmacy would only increase. |
Now Walgreens is ready to face the future without Express Scripts in order to stand by its commitment, as expressed by chief executive officer Greg Wasson, to “provide quality, convenient and cost-effective pharmacy services to our patients.”
Despite the disruption to as many as 90 million prescriptions managed by Express Scripts that Walgreens filled in 2011, representing up to $5.3 billion in revenue, the drug chain anticipates that prescription volume in fiscal 2012 will be 97% to 99% of the prior-year level, according to a recent filing with the Securities and Exchange Commission. (Express Scripts also expects to retain the lion’s share of its business. Guidance issued along with third quarter financial results indicates that 95% of its current clients’ prescription business will move forward next year.)
To counter the PBM’s intransigence Walgreens has appealed to patients and payers, highlighting what will be lost when they no longer have access to its pharmacies.
“This is about the value that community pharmacy brings to the health care system and our ability to lower the overall cost of health care,” notes Kermit Crawford, president of Walgreens’ pharmacy, health and wellness division. “Express Scripts has basically said that retail pharmacists are dots on a map, and it doesn’t matter if people go from one to another. We’re saying, ‘No, you’re wrong, the pharmacist-patient relationship does matter. We do provide value.’ ”
He cites flu shots as an example of the positive impact Walgreens’ 7,786 in-store pharmacies have on the cost and accessibility of health care: “When you consider that a week’s worth of Tamiflu costs about $89 and it requires a visit to a physician’s office to get a prescription, the value we provide with a $30 flu immunization is very real. And by offering walk-in service we’re making it much more likely that people will actually go out and get a flu shot.”
A similar case is made in the SEC filing for other parts of the company’s extensive health care offerings, which, in addition to a complete range of pharmacy services, include health screenings, in-store clinics, coordinated wellness care, work-site health centers and assistance with medication adherence.
The argument is striking a chord with members of the target audience. The Form 8-K filed with the SEC indicates that some health plans, employers and other payers are signing agreements that give their members continued access to Walgreens pharmacies, while others are working toward direct-contract or custom network arrangements with the company.
Express Scripts’ unwillingness to come to terms with Walgreens is all the more puzzling because the drug chain’s costs are in line with the rest of the retail pharmacy industry.
“Many payers recognize that excluding Walgreens does not provide meaningful savings, because our unit prices are competitive with other pharmacies,” states the retailer’s 8-K filing. “The vast majority of pharmacy reimbursement is within a narrow band, typically less than 5% of one another. Walgreens’ unit prices fall within that narrow band, and are especially competitive when compared with pharmacies that provide comparable levels of convenience and service.”
And those figures do not take into account the economic benefits derived from the input of the chain’s pharmacists.
“To offer just one illustration of the savings we provide, Walgreens drives a greater penetration of lower-cost generic drugs — nearly 74% penetration for Express Scripts clients in 2010 — than the industry as a whole,” says the SEC filing. “This penetration was 140 basis points better than the average of Express Scripts’ retail network that does not include Walgreens (based on Express Scripts data). This better generics performance translates into average savings of around $2 per script, or an estimated $180 million savings last year to Express Scripts and its clients.”
In addition, the retailer has succeeded in driving down expenditures by offering 90-day prescriptions at retail as well as through the mail. For drugs used to treat chronic conditions, the 8-K filing says, the program generates 6% to 8% savings compared with 30-day scripts, while at the same time increasing consumer choice.
As Crawford indicates, the source of the conflict between Walgreens and Express Scripts transcends such questions as costs, restricted networks and what constitutes a generic drug. “The bigger issue is the value that not only Walgreens but others in community pharmacy bring to health care,” he asserts. “It’s about the importance of the relationship that our pharmacists have with their customers, and what they can do to keep people healthy and lower overall health care costs.”
Walgreens is confident that patients and payers who don’t already grasp what they have to lose will have their eyes opened come January 1.
“Once patients covered by Express Scripts lose access to Walgreens pharmacies they’ll have a clear understanding of what’s at stake,” says Crawford. “Then they will make it very clear as to whether or not they want us in their network. We believe we’ll be in a very strong position when the PBM selling season for 2013 comes around.”
Walgreens’ competitors are, quite understandably, vying for the Express Scripts business that the drug chain is forgoing. In the short run, picking up a sizable share of as much as $5 billion in prescription drug sales would be a good thing for an individual pharmacy operator.
But if Express Scripts were to win its battle with Walgreens, the long-term pressure on the profitability of community pharmacy would only increase, even as its stature among health care providers was diminished. With that much on the line, one can only hope that Walgreens prevails.
