Express Scripts and Walgreen have been battling over payment issues for months. Walgreen said Wednesday that it has been unsuccessful at getting most of its customers who have their drug coverage managed by Express Scripts to switch to another pharmacy benefit manager, or P.B.M.
Barring a last-minute agreement, the relationship will end Jan. 1. Customers covered by an Express Scripts prescription plan will then have to switch to another pharmacy or pay higher costs for their drugs if they stay at Walgreen.
“While we remain open to any fair and competitive offer from Express Scripts, we firmly believe that accepting their proposal was not in the best interests of our shareholders,” said Walgreen’s chief executive, Gregory D. Wasson, in a statement. The company said its negotiations with health plans and employers have resulted in retaining just 11.4 percent, or about 10 million, of the 90 million prescriptions managed by Express Scripts that were filled by Walgreen in the fiscal year that ended Aug. 31.
Walgreen, based in Deerfield, Ill., is the nation’s largest pharmacy chain with more than 8,200 locations in the United States. Its retail stores operate under the Walgreens and Duane Reade names.
Walgreen said it expected a negative impact of 21 cents a share in fiscal 2012 from the loss of Express Scripts customers. The company would not release a specific estimate of the lost revenue, but analysts expect more than $4 billion could be at risk, given the retention figures released Wednesday. Walgreen generated $5.3 billion, or 7 percent of its $72 billion in fiscal 2011 revenue, from customers with drug coverage managed by Express Scripts.
Walgreen shares, which fell sharply early on Wednesday, were down about 1.5 percent in midday trading to about $33.
The contract dispute has already had a slight impact on Walgreen earnings.
On Wednesday, Walgreen said higher costs across the company contributed to a 4.5 percent decline in profits to $554 million in the company’s first quarter, ended Nov. 30. Net income rose a penny to 63 cents a share, from 62 cents, in the year-ago quarter, trailing most analysts’ estimates of 67 cents.
Walgreen said its decision not to be a part of Express Scripts pharmacy network cost 1 cent a share in comparable pharmacy sales and 1 cent a share in related expenses. Walgreen said sales rose 4.7 percent to $18.1 billion in the quarter.
Mr. Wasson would not speculate on any additional potential impact to Walgreen should Express Scripts complete its proposed $29 billion acquisition of Medco Health Solutions, another leading pharmacy benefit manager. That deal has raised antitrust concerns among some lawmakers, and the Federal Trade Commission has requested additional information from the companies before deciding whether to approve the combination.
Walgreen said it expected its total prescription volume for fiscal 2012 to dip 1 to 3 percent. That is in contrast to recent annual growth, amid favorable demographics that include an aging population of baby boomers and a rising number of Americans with chronic conditions that require taking medicines every day. Walgreen’s prescription volume rose more than 5 percent in its fiscal 2011 to 819 million prescriptions.
Walgreen has made a major push to get health plans and employers to end relationships with Express Scripts and contract directly with Walgreen. The drugstore chain said more than 100 health plans, employers and other clients have either changed benefit managers or taken steps to maintain access to Walgreens pharmacies in 2012. But some major clients, including the health insurance giant Wellpoint and the United States military’s Tricare plan, stuck with Express Scripts.
Mr. Wasson said Walgreen continued to negotiate with employers and health plans and said the company would gradually win back business over the course of next year as employer and health plan contracts with Express Scripts expired.
“These results, and what we’re seeing in the marketplace, confirm our confidence as next year’s P.B.M. selling season begins,” said Mr. Wasson in a statement. “We’re already working with many health plans and P.B.M.’s who value the role Walgreens and community pharmacies play in lowering overall health care and prescription costs.”
Meanwhile, Walgreen rivals like CVS Caremark and Wal-Mart have been marketing aggressively, including running radio ads, to woo its customers. A CVS spokeswoman said the pharmacy chain expected to pick up 20 million prescriptions managed by Express Scripts in 2012 that were previously filled by Walgreen.
“We have significant overlap with Walgreens stores,” said Carolyn Castel, the CVS Caremark spokeswoman, in an interview. “Forty-three percent of our stores are within one mile of a Walgreens store; 78 percent are within three miles; and 85 percent are within five miles. We think many customers are more likely to move to another major chain due to convenience, pharmacies with drive-throughs, 24-hour locations and service reputation versus any other channel.”
Article source: http://feeds.nytimes.com/click.phdo?i=45d5e9585c4dde39929e3f4fe7204778
Speak Your Mind
You must be logged in to post a comment.