The Walgreen Company on Tuesday braced Wall Street for a projected loss in 2012 of more than $3 billion in revenue because of the planned loss of business from customers who have their prescription drug coverage managed by Express Scripts.
Express Scripts is the large pharmacy benefit manager that Walgreen is battling over payment issues.
The proposed merger between Express Scripts and Medco Health complicates matters, given that federal regulators are scrutinizing the deal.
Going without Express Scripts is a gamble for Walgreen, the nation’s largest pharmacy chain. Walgreen, which is based in Deerfield, Ill., generated $5.3 billion, or 7 percent, of its $72 billion fiscal 2011 revenue from customers with drug coverage managed by Express Scripts, but the company is hoping to retain some of that money.
Much of the rift, which began three months ago, centers on how much Walgreen is getting paid by Express Scripts to dispense prescriptions and how much the company pays Walgreen for the costs of the drugs. Express Scripts is a pharmacy benefit manager, which works as a middleman between employers and drug makers when it comes to buying prescription drugs.
“We are planning not to be part of the Express Script network as of the first of the year,” Gregory D. Wasson, the chief executive of Walgreen, told analysts and investors.
In a conference call after the company’s fourth-quarter and full-year fiscal 2011 earnings release, Walgreen executives outlined three potential situations in which they could retain 25 to 75 percent of the customers who have Express Scripts benefit plans.
Depending on retention, Walgreen said the company could experience a negative impact of 7 to 21 cents a share for its fiscal 2012, which began Sept. 1 and runs through Aug. 31, 2012. Its contract with Express Scripts expires at the end of this year, leaving open the possibility that some resolution could be reached in the coming months.
To mitigate the threatened loss of business from Express Scripts customers, Walgreen said it had been in talks with large health plans and employers about ending relationships with Express Scripts and contracting directly with Walgreen, but it would not provide specifics or name companies that were considering leaving.
“We’re not going to speculate on retention,” Mr. Wasson said. “We’re encouraged by the response we are receiving.”
The dispute comes at the peak of fall open enrollment season when companies disclose to workers their benefit options for the following year. It is during this time that workers will be deciding which health plans to choose. In addition, senior citizens covered by Medicare health insurance will also soon be choosing their drug coverage options for 2012.
Both sides say they are trying to provide the best deal to employers while saving the health care system money.
Express Scripts says Walgreen’s fees and costs to provide prescriptions are too high. “We would still welcome back Walgreens in our network at rates that are more aligned with rates that are right for our clients,” said Brian Henry, a spokesman for Express Scripts.
But Walgreen says its rates are in line with the market and it gives customers the best buy at the pharmacy counter with its services that include educating customers and moving them to cheaper generic drugs. Walgreen also markets a program where consumers can get 90-day prescriptions at the pharmacy counter.
In its fiscal fourth quarter that ended Aug. 31, Walgreen said profits jumped 69 percent to $792 million, or 87 cents a share, because of strong prescription sales and a gain from the sale of its Walgreens Health Initiatives business, a manager of pharmacy benefits. Revenue increased 6.5 percent to $18 billion.
Walgreen sold the health initiatives unit in June to Catalyst Health Solutions, which is based in Maryland. Fourth-quarter earnings excluding the sale of the health initiatives business were 57 cents a share.
Shares of Walgreen fell 6.2 percent, or $2.26 a share, to close at $33.77
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