Walgreens to walk away from Express Scripts in 2012

Pharmacy cites breakdown in contract renewal negotiations

DEERFIELD, Ill. — Walgreens on Tuesday announced the company no longer will participate in the Express Scripts network beginning Jan. 1, 2012, citing unsuccessful renewal negotiations.

"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 president and CEO Greg Wasson said. “As the largest retail provider in their pharmacy network, we were surprised by Express Scripts' ultimate stance during our talks, which made it clear to us that they no longer had an interest in continuing a meaningful relationship."

The move eliminates almost 8,000 pharmacies from the PBM’s network, including all Walgreens locations and Duane Reade locations in New York.

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," Walgreens EVP and CFO Wade Miquelon said. "All parties involved in providing health care must work together to bring down costs. In a world where cost effectiveness and access to health care is so important, 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."

According to Walgreens, negotiations broke down for several reasons. For example, Express Scripts insisted on being able to unilaterally define contract terms, including what does and does not constitute a branded and generic drug, a factor that would have denied Walgreens the predictability necessary to reliably plan its business operations going forward, Walgreens stated.

The Chicago pharmacy operation also charged that Express Scripts proposed to cut reimbursement rates to “unacceptable levels” below the industry average cost to provide each prescription.

Walgreens stated it had proposed to lower rates on behalf of the Department of Defense’s Tricare program, a pharmacy benefit plan managed by Express Scripts. Under Walgreens’ proposal, the reimbursement cost for the DOD would have been lower than 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, the company stated.

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.

Moving forward, 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, consistent with their contractual agreements, to ensure their beneficiaries can continue to use the convenience of Walgreens' nationwide locations.

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