Inside This Issue - Opinion
Walgreens has to be ready for long haul
February 20th, 2012
Walgreens recently released its first monthly sales report since parting ways with Express Scripts, and the numbers, while not unexpected, are sobering. Total volume at the drug chain declined 2.3% in January and comparable-store sales were off 4.6%.
The retailer’s front-end business remained solid, with overall sales by that measure rising 2.7% and same-store results increasing 1.6%. The problem, which Walgreens executives warned about as early as last June, arose in the pharmacy department, where volume dropped significantly, largely due to an impasse in contract renewal negotiations with Express Scripts, one of the nation’s top three pharmacy benefits management companies.
Because Walgreens rejected a proposal that included what were characterized as below-market reimbursement rates and other terms that would have introduced a high degree of uncertainty in managing its prescription drug business, the retailer was excluded from Express Scripts’ network at the beginning of this year. With the PBM, which processed 12.4% of the scripts filled at Walgreens in January 2011, out of the picture, the retailer’s pharmacy sales decreased 6% last month and comparable-store volume fell 7.9%.
Many people, both inside and outside the pharmacy sector, are now questioning the wisdom of Walgreens’ tough stance. Management is being second-guessed over its determination to place principle — an insistence that the full value of community pharmacy be recognized by benefits managers and other payers — above a contract that accounted for some 90 million prescriptions and $5.3 billion in revenue during fiscal 2011.
The easy thing for Walgreens would have been to accommodate Express Scripts and go on with business as usual. The retailer deserves credit for sticking to its guns. If the profession is to assume the bigger role in health care delivery envisioned by its supporters, remuneration will have to address services rendered as well as products dispensed.
The outcome of this fight will take many months to determine, at least until the completion of next fall’s PBM selling season. Walgreens has to be ready for the long haul if it is to prevail in what could be a defining moment for community pharmacy, one that either raises its standing or pushes it in the direction of a commodity business.