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Walgreens, ESI bury hatchet. Now what?

So Walgreens and Express Scripts have buried the hatchet. The question is, can the nation’s top pharmacy retailer regain the billions of dollars in contracted prescription revenues it ceded to its competitors after the two sides severed relations in January? And, given the way Walgreens has adjusted and reset its growth strategy since then, does it matter that much?

The two companies announced July 19, in a rather tersely worded statement, that they had “reached a multiyear pharmacy network agreement that includes rates and terms” that both sides could live with, although those terms were not disclosed. By (apparently) resolving a nearly year-long dispute over reimbursement terms with ESI, the new agreement allows Walgreens to smudge out the line in the sand it drew with the powerful PBM — a stand that smaller, less powerful chains and independents applauded.

The deal ends an ugly chapter in the history of the sometimes strained relationship between retail pharmacies and the pharmacy benefit management industry. But undoing the damage done to both sides will take time.

Left unsaid, at least explicitly, is the fact that there’s nothing exclusive about the new contract. Walgreens’ 7,907 drug stores will simply swim in a vast pool of more than 64,000 pharmacies nationwide participating in what both sides call “the broadest Express Scripts retail pharmacy network available to new and existing clients.”

That means Walgreens will have to compete the old fashioned way: it will have to fight, market by market, to win back the millions of customers who were forced to shift their prescription business to competitors like CVS/pharmacy, Walmart, Rite Aid and a slew of other mass merchant, supermarket and regional pharmacy operators. It’s what Drug Store News senior editor Michael Johnsen a href="http://drugstorenews.com/article/walgreens-and-esis-new-deal-september-will-be-about-battle-pharmacy-patient">calls a “return to block and tackle mode”.

To a weaker or less vertically integrated drug retailer, that might pose a huge threat to future growth and viability. But we’re talking about Walgreens. The chain can bring to bear a huge arsenal of competitive and strategic weapons, including massive economies of scale, a strong balance sheet and, not least, the capability of plugging numerous holes in the nation’s leaky health care bucket via a 50-state network of retail and clinical pharmacies, workplace health centers, specialty pharmacy services and retail clinics.

How will it play out long term? Let us know your prediction by clicking the link below.

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