Whoa. This is bad news for Walgreen, which is battling to win back the 22 million consumers whose prescription benefits are managed by Express Scripts. (Details below.) Last fall, the company even made an extra effort to retain the TRICARE business, so the rejection must be doubly humiliating.
Walgreen didn’t even bother to spin the news, declining comment to the Wall Street Journal and ignoring the issue in its newsroom. I wonder if Walgreen's executives have a twinge of regret for how this whole situation has played out.
And no matter how you view the Walgreen/TRICARE news, it’s clearly another compelling data point for preferred and limited pharmacy networks.
Express Scripts administers the pharmacy benefit for the TRICARE Pharmacy Program, which covers Uniformed Service members, retirees and their families worldwide.
Last year, Walgreen's TRICARE business was about 15 million prescriptions, or 17% of Walgreen’s total business with Express Scripts. See the chart reproduced in Walgreens is Losing Its Battle with Express Scripts. Retaining the business was a building block for the fanciful 70% retention rate scenario.
Last Fall, Walgreen tried to negotiate the TRICARE renewal separately from Express Scripts’ commercial business, offering “an ironclad guarantee that Walgreens prices would match or beat the average costs per adjusted prescription of all other pharmacies in the Tricare network.” (source) Walgreen even trumpeted a petition signed by 250,000 TRICARE beneficiaries, “demanding access to Walgreens pharmacies under the TRICARE pharmacy program.” (source) Double fail.
THE NARROW NETWORK REVOLUTION
Limited (restricted) networks, which eliminate certain pharmacies from a network, are still uncommon. A high-profile convert like TRICARE helps to validate and publicize the concept of restricted networks. As a government organization, TRICARE may have been forced to seek the lowest cost and drop Walgreen, even at a small-ish savings.
As I see it, such commercial payers as employers and health plans are more likely to choose a preferred (not restricted) network—a pharmacy network that offers a financial incentive to use certain pharmacies within a broad network, but no mandate. Consumers retain the ability to choose their pharmacy, while being partially exposed to the costs of this choice. I suspect that commercial payers perceive bigger savings opportunities with strategies that have less beneficiary disruption to access.
Medicare Part D has been the leading indicator for preferred networks because consumer preferences get expressed clearly. Part D beneficiaries annually choose a new plan for themselves, rather than having a benefit administrator or HR department make the choice on the beneficiaries’ behalf. The data clearly show that seniors are selecting these models, per the data in Humana-Walmart Preferred Network Plan Wins Big in Part D.
For more on new network models, see the section starting on page 90 of the 2011-12 Economic Report on Retail and Specialty Pharmacies.
WHAT ME, WORRY?
On the plus side, Walgreen's August sales were slightly more positive, with same-store prescription growth of 3.9% (excluding the negative Express Scripts effect).
But now there are some new unknowns:
- Does TRICARE's move validate the narrow network revolution?
- How much more will Walgreen's have to spend to woo back the now-available 83% of Express Scripts' prescription?
- Will any other Express Scripts' clients opt-in to the non-Walgreen restricted network?