CVS Caremark Corp. has turned up the heat in the feud that erupted this week with rival pharmacy operator Walgreen Co.


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CVS Caremark to kick Walgreens out of Rx network

June 9th, 2010

WOONSOCKET, R.I. – CVS Caremark Corp. has turned up the heat in the feud that erupted this week with rival pharmacy operator Walgreen Co.

On Wednesday CVS Caremark said it plans to terminate Walgreens' participation in its pharmacy benefit management unit's retail network in 30 days and the Deerfield, Ill.-based drug store chain's participation in its Medicare Part D retail pharmacy networks effective Jan. 1.

The move comes after Walgreens announced Monday that it's exiting the Caremark network and won't be a pharmacy provider in any new and renewed prescription plans awarded to the pharmacy benefit manager after June 7. Following the announcement, CVS Caremark stated that it was "surprised and disappointed" by Walgreens' decision.

Walgreens and CVS Caremark are the nation's No. 1 and No. 2 operators of drug stores, respectively, each with more than 7,000 stores.

Explaining its action, Walgreens said Monday that it's "no longer in the best interests of its customers, pharmacists and shareholders to grow its future business with CVS Caremark." Walgreens — the largest pharmacy provider in the Caremark's network — cited issues with CVS Caremark regarding its Maintenance Choice program, transfers of prescription plans to other pharmacies and reimbursement rates.

CVS Caremark said Wednesday that Walgreens' action violated the terms of its existing agreements and that the drug store chain has "failed to respond to efforts by CVS Caremark to continue business negotiations."

"Walgreens' announcement was nothing more than a transparent attempt to try to raise the pharmacy reimbursement rates it receives from CVS Caremark," Per Lofberg, president of CVS Caremark's PBM business, said in a statement. "We've seen Walgreens use this approach in the past, targeting employers, health insurers, government entities and other plan sponsors. We believe this approach is totally contrary to the needs of our clients, who are all struggling to keep pharmacy health care affordable in today's challenging environment."

Walgreens' pharmacy chief Kermit Crawford stated Wednesday that his company is "disappointed but not surprised that CVS Caremark has taken this action" by terminating Walgreens' participation in its PBM pharmacy networks.

"In making our decision not to participate in any new and renewed plans by CVS Caremark, we sought to minimize any disruption to existing relationships between pharmacists and patients," commented Crawford, executive vice president of pharmacy at Walgreens. "CVS Caremark's move plainly contradicts its own statement on June 7 that their mission is to provide broad access and choice for consumers. Their patent disregard for patient choice and broad access reflected in today's decision reinforces our conviction that it would not have been in the best interests of our patients, pharmacists or shareholders to grow our business with CVS Caremark.

"Regardless of CVS Caremark’s decision, we are confident of our ability to continue to grow our business as a provider in hundreds of other pharmacy benefit networks and as a direct provider to employers," Crawford added.

According to CVS Caremark, Walgreens receives comparable reimbursement rates to those of other large national retail chains — including CVS/pharmacy — yet Walgreens has continued to seek higher reimbursement rates. CVS Caremark stated that to minimize patient disruption and maintain a stable network, its agreements with Walgreens and other retail pharmacies "do not permit network participation on a selective basis."

"We regret any inconvenience this change may have on plan members who currently fill their prescriptions at Walgreens but are confident that through our remaining valued network partners, we will continue to provide excellent geographic coverage for our clients and their members across the country," CVS Caremark chairman and chief executive officer Tom Ryan said in a statement. "We will continue to provide convenient and affordable pharmacy care to members, and we are committed to a smooth transition of affected members to other pharmacy providers in our networks."

CVS Caremark noted that its network of participating pharmacies is "currently the largest ever maintained by our PBM business, with more than 64,000 participants, only 7,000 of which are Walgreens stores."

The company reported that with Walgreens in the CVS Caremark pharmacy network, 85.9% of members on a national basis have access to a network pharmacy within a 3-mile radius of where they live, but that percentage drops only to 85.7% without Walgreens in the PBM network.

Walgreens said Monday that it notified CVS Caremark of its decision to leave the Caremark pharmacy network in a letter. Walgreens contends that CVS Caremark's promotion of its Maintenance Choice program limits patient choice and that its reimbursement rates are unpredictable and don't reflect the market, among other issues.

"In the three years since the CVS-Caremark merger, it has become increasingly clear to us that Caremark's approach to Walgreens as a community pharmacy within CVS Caremark’s retail network has fundamentally changed, and we are no longer viewed as a valued community pharmacy within its PBM network," Crawford said in a statement released Monday.

Walgreens, which has over 7,500 drug stores in all 50 states plus Washington, D.C., and Puerto Rico, reported that it operates pharmacies within 5 miles of nearly eight in 10 Americans.

Shares of both CVS Caremark and Walgreens were trading down as of noon Wednesday. CVS Caremark shares were down 30 cents to $30.86, while Walgreens shares were down 28 cents to $30.33.

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