Express Scripts-Walgreen Pricing Dispute Affects Plan Members’ Pharmacy Options

Reprinted from HEALTH PLAN WEEK, the most reliable source of objective business, financial and regulatory news of the health insurance industry.

By Jonathan Block, Editor
December 26, 2011 Volume 21 Issue 45

A pricing dispute between pharmacy benefit manager (PBM) Express Scripts, Inc. and drugstore chain Walgreen Co. means that on Jan. 1, people covered by several larger insurers, including WellPoint, Inc., will not be able to have their prescriptions filled at Walgreens stores. One industry consultant who closely watches the PBM space says the change could cause some confusion among plan members, while another says the change might have an impact only in rural areas where pharmacy options are fewer.
“It’s unusual for the negotiations between PBMs and retailers to be aggressive,” says George Van Antwerp, general manager of pharmacy solutions at Silverlink Communications. “The idea of a big pharmacy not being an option for a big PBM’s clients hasn’t been a scenario before.”
He tells HPW that it will be imperative for health plans to notify their members about the changes, help them understand why it’s happening and identify alternatives for getting prescriptions filled.

The impact of Walgreens’ departure from Express Scripts’ network depends on where plan members live, says Randy Vogenberg, a principal at the Institute for Integrated Healthcare. In most urban areas, there are plenty of alternatives to Walgreens, he tells HPW. But in suburban and rural areas, members could face greater inconvenience, especially if Walgreens is the dominant pharmacy. He adds that it appears Walgreens is “taking a stand against middleman PBMs, which they’ve done before, and bet on what they can do best for the long run while assuming PBMs will not last in their current model.”

But the dispute could have unintended consequences for Express Scripts by potentially upsetting a favorable Dept. of Justice review of its planned acquisition of Medco Health Services, Inc., Vogenberg says, noting that AT&T recently abandoned its bid to acquire fellow wireless provider T-Mobile USA, Inc. because of opposition.
Disagreement Affects WellPoint Members

WellPoint, the nation’s second largest carrier by medical enrollment, uses Express Scripts to administer prescription drug plans for members and to negotiate with retail pharmacies. The health plan operator has been preparing for the loss of Walgreens as a network pharmacy by sending at least one letter to members who have had a prescription filled at a Walgreens within the last 120 days, WellPoint spokesperson Lori McLaughlin tells HPW.

Medicare, Medicaid and commercial members have received letters and live agent phone calls, while members with multiple Walgreens prescriptions will receive an additional phone call from a live person. Members also will be unable to get prescriptions filled at Duane Reade, OptionCare, or Happy Harry’s pharmacies as well come Jan. 1 because of pricing issues.
“We would prefer that Walgreens remain in the pharmacy provider network used by our members,” WellPoint said in a prepared statement. “Even without Walgreens, there will continue to be more than 56,000 retail pharmacies nationwide to serve our members.”

Blue Cross Blue Shield of Massachusetts (BCBSMA) has notified its members about the loss of Walgreens, and explained that other network pharmacies are often an average of a half mile from a Walgreens pharmacy.

“Walgreens is demanding price increases that are much higher than what other pharmacies within our retail pharmacy network have agreed to for 2012, which would raise our members’ pharmacy costs over time,” BCBSMA spokesperson Jenna McPhee tells HPW. “Pharmacy costs account for approximately 15% of each premium dollar….We fully support Express Scripts’ commitment to keeping prescription drugs more affordable for our members.”

Highmark Drops Walgreens, Target

At least one other health plan operator will be dropping Walgreens from its participating-pharmacy list, but for reasons independent of the contract disagreement. Starting next year, Pittsburgh-based Highmark Inc. will begin a two-year transition to remove Walgreens and Target Corp. stores from its network in an effort to eliminate redundancy and save money for members, says Gary Golebiewski, director of pharmacy operations for the insurer, which is the largest in the region with 2.5 million members.

He says that Target and especially Walgreens have a small presence — only 35 stores — in the greater Pittsburgh area. Just 7% of Highmark’s pharmacy claims are from Walgreens, and only 2% are from Target. The exclusion of the two chains means members will have access to 52,000 pharmacies nationwide instead of 61,000.

With the smaller network, Highmark will be able to negotiate deeper discounts with pharmacies that remain in it, Golebiewski says. In response to client demand, the insurer will be offering plans with an even narrower pharmacy network that will have 28,000 participating pharmacies nationwide, but in return will provide for even deeper savings, he adds.
Dispensing, Reimbursement Prices Are at Issue

Express Scripts has said that beginning Jan. 1, after the end of a three-year contract, Walgreens will no longer be a participating provider in its pharmacy network. The withdrawal stems from a disagreement over dispensing and drug reimbursement rates.

While Express Scripts was trying to negotiate a lower dispensing rate with Walgreens, the drugstore chain wanted an increase in that rate, according to Express Scripts spokesperson Thom Gross, who notes, “It’s Walgreens who is dropping us.” He tells HPW that if the PBM had accepted Walgreens terms, its dispensing costs would have been 20% higher than its average book of business with its other network pharmacies.

Gross says that asking for a fee reduction is a normal part of PBM contract negotiations, and most pharmacies expect it. He adds that the reduction is in response to drug-price inflation.

“We want to negotiate a rate that is fair…and protect clients from rising prices. We welcome them back to negotiations at rates that are competitive to other pharmacies in our network,” he says. He notes that Walgreens also asked to change terms and definitions in the contract that would have had the effect of redefining what brand and generics are, “and would have added costs to our clients.”

Walgreens first made known its intentions of dropping out of Express Scripts’ network back in June when it issued a news release stating its reasons for the breakdown in contract negotiations.

Among the reasons the drugstore chain cited were an Express Scripts proposal to cut reimbursement rates to “unacceptable levels” below the industry average cost” and the PBM’s rejection of Walgreens’ request to be informed if Express Scripts intends to transfer a prescription drug plan to a different pharmacy network and provide patients with access to Walgreens pharmacies.

During a first-quarter 2012 earnings call Dec. 21, Walgreens CEO Gregory Wasson said his company reached out to Express Scripts the prior week, but to no avail.

“Unfortunately, the response we got back was not very meaningful, and more importantly, the response was suggested to kick the can down the road past Jan. 1.”

“We deserve a fair and acceptable reimbursement compensation for the services we provide, and that’s what this issue is about with Express Scripts so we wouldn’t accept anything different from any [other] PBM,” Wasson added.