Thursday, July 19, 2012

Walgreen Cuts a Deal with Express Scripts

Today's inevitable surprise: Express Scripts and Walgreens Announce New Pharmacy Network Agreement.

Did Walgreen cave? Few people know the truth since (also as expected): "The companies are not disclosing the terms of the new contract."

I suspect that Walgreen bowed to the economic realities outlined in Walgreens is Losing Its Battle with Express Scripts and shareholder disappointment with the questionable Alliance Boots deal. Nonetheless, expect Walgreen's shareholders to breathe a sigh of relief.

Note that "Walgreens will participate in the broadest Express Scripts retail pharmacy network available to new and existing clients." Translation: Express Scripts will still be marketing Express Advantage Network, its tiered network option.

I posted the full text of today's happy talk press release after the jump. Stay tuned for more pharmacy network disruption.

Here's the full text of the press release.

Express Scripts and Walgreens Announce New Pharmacy Network Agreement

ST. LOUIS & DEERFIELD, Ill., July 19, 2012 - Express Scripts (NASDAQ: ESRX) and Walgreens (NYSE: WAG) (NASDAQ: WAG) today announced the companies have reached a multi-year pharmacy network agreement that includes rates and terms under which Walgreens will participate in the broadest Express Scripts retail pharmacy network available to new and existing clients. The companies are not disclosing the terms of the new contract.

Walgreens will be part of the broadest network of pharmacies available to Express Scripts clients, as of September 15, 2012. Express Scripts will work to ensure a smooth transition for those plan sponsors who will want to include Walgreens pharmacies in their network.

"As I've said, we are in the business of providing a broad range of pharmacy, health and wellness services to help meet the needs of all of our customers,” said Greg Wasson, president and CEO of Walgreens. “I am pleased that Walgreens and Express Scripts have been able to reach an agreement that works for both parties and is consistent with our company’s principles. This agreement is good for our shareholders, our employees and the patients and communities we serve every day. We look forward to once again filling prescriptions and offering our health and wellness services as part of the Express Scripts network."

“We are happy to include Walgreens in our broadest network of pharmacies and we are pleased to reach an agreement to do so,” said George Paz, chairman and CEO of Express Scripts. “Our business model is based on strong alignment with our plan sponsors -- employers, health plans, unions and government health programs -- providing them with a clinically sound and economically responsible pharmacy benefit.”

The broadest Express Scripts network now offers more than 64,000 pharmacies nationwide, including Walgreens, providing a broad array of quality pharmacy care options.

17 comments:

  1. A Proud Pharmacy OwnerJuly 19, 2012

    This is bad news. Walgreens stood up to the PBM bully and now runs away. How will we take back our industry?

    ReplyDelete
  2. Thinking Outside the BoxJuly 19, 2012

    Or it could be that ESI figured out that commoditized and restricted networks that focus on cutting pennies, nickels and dimes, instead of where the real savings are, don't really help win new organic business, which seems to be a problem for ESI...and that larger Medco clients want no part of that apporach...

    ReplyDelete
  3. "our" industry? Seriously?

    ReplyDelete
  4. AnonymousJuly 19, 2012

    "Walgreens will be part of the broadest network of pharmacies available to Express Scripts clients, as of September 15, 2012. "

    Why is there a 2 month delay?

    ReplyDelete
    Replies
    1. AnonymousJuly 20, 2012

      ESI has to build the network in the system- it doesn't happen with a flip of a switch. Also clients need the opportunity to determine if they want Walgreens In their network or if they will remain where they are.

      Delete
  5. No idea.  There's no technical reason for such a delay that I know. I presume it's just another negotiating point that went in ESI's favor.

    ReplyDelete
    Replies
    1. AnonymousJuly 20, 2012

      This is incorrect. Adjudication platforms do require technical maintenance and are very intricated to ensure it performs correctly. There is build out, qa, etc. that takes time.

      Delete
  6. Here's an example of the go-forward problems for WAG...CVS "expects to retain at least 50% of the business gained from the impasse in the fourth quarter." See < a href='http://phx.corporate-ir.net/phoenix.zhtml?c=99533&p=irol-newsArticle&ID=1716450&highlight='>CVS Caremark Raises 2012 Estimate of Impact From Walgreens / Express Scripts Stalemate by 5 Cents

    ReplyDelete
  7. Thomas North321July 19, 2012

    And I'm sure they are going to take a margin hit on this new contract. So in the end, they lost a significant number of customers, and are probably going to end up getting paid a lower rate anyway, for the ones who do return.

    To steal a line from Seinfeld, "So you held out... for less money."

    ReplyDelete
  8. LOL! Can't believe I forgot that quote! 

    Here's the full exchange, with George standing in for Walgreens.

    "Let me see if I understand this. In other words, you held out for... less money."
    "I was wrong, you were right."
    "You know, the basic idea of negotiation, as I
    understand it, is to get your price to go up." 
    "You're smart, I'm dumb."
    "You know, this is how they negotiate in the bizarro world."

    Source: Jerry and George, in "The Watch"

    ReplyDelete
  9. Thinking Outside the BoxJuly 19, 2012

    Anyone know how many NEW 25,000 + size clients ESI picked up with their restricted network approach?

    ReplyDelete
  10. Putt-Dave MarleyJuly 19, 2012

    If only those pennies went to the public. Those pennies, and all the other "savings" goes to fatten ESI's bottom line. For those that think ESI actually saves employers money, ESI and the other  PBM's thank you for your naivete.

    ReplyDelete
  11. An inquiring pharmcistJuly 20, 2012

    The reality is that Walgreens shot themselves in the foot on this one. The monthly same store sales in Rx and front store are taking a major hit. This may also be a job preservation move by senior management especially as Walgreens heads towards the end of their fiscal year. As previously stated, what percentage of patients will return to Walgreens and what percentage is also needed to decrease their financial loss? Walgreens has cut help out of the stores due to the loss of ESI. What type of customer service problems will potentially arise if patients decide to try Walgreens again? I suspect time will tell.

    ReplyDelete
    Replies
    1. AnonymousJuly 20, 2012

      Very true- the reason they were blocked is they wanted more money than other retail pharmacies for doing the same thing. Now that members have converted, the conversion of those who go back may not be as high as anticipated because members have acclimated to a new pharmacy over the past 7 months.

      Delete
  12. AnonymousJuly 20, 2012

    Meanwhile, Walgreens has Dumped unheard-of amounts of money into CCR and added loss prevention measures to keep an eye on employees, cut hours and staff, stiffed employees by 50% in wage increases this year, cut their customer savings opportunities in half, opened a couple of sushi bars, and unleashed the most ridiculous ad campaign I have ever seen,

    ReplyDelete
  13. AnonymousJuly 21, 2012

    As a former employee who was laid off due to the "non-negotiable ESI terms," I have to say I'm not surprised they've re-joined. Walgreens didn't even allow 4 months to go by before making the decision of laying off over 100 employees. Not even a year has passed by and they are now giving in. What does that tell you about the way their corporation is being managed? Walgreens makes poor business decisions & doesn't put their employees first which I believe is crucial since we are the ones providing the service to continue increasing sales.

    ReplyDelete
  14. Broncofan7July 25, 2012

    It WAS the Pharmacist's industry..until 10/6/1951 when Durham/Humphrey was signed into Law making Pharmacists the errand boys for Physicians and big Pharma. Add into the mix FOR profit middlemen who deceive  uneducated HR departments all over America into thinking that they, the MIDDLEMEN, can SAVE their clients money (Really? where else does utilizing a middleman (who by definition is another party who has to also make a profit) save you money??) and what you have is an out of control industry that needs the light of the Department of Justice shone on it to break up the corruption that takes place on a MAJOR scale by Big Pharma with PBM rebates, etc and PBM's with generic spread pricing and anti competitive practices such as data mining of their competitors (yes the local Pharamcies) #1) we need price controls on medications #2) we need to put in a firewall between insurance claims adjudicators and dispensing pharmacies IE NO PBM SHOULD BE ABLE TO OWN THEIR OWN DISPENSING PHARMACY. thats eliminates the perception (and reality) of their inherent conflict of interest...I solved the problems of our Drug industry in this short paragraph..now onto world hunger.......

    ReplyDelete

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