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Walgreens, CVS Caremark in spat over Rx services
June 7th, 2010
Walgreens will no longer provide pharmacy services for CVS Caremark drug benefit plans.
NEW YORK – Walgreen Co. and CVS Caremark Corp., which operate the nation's two largest drug store chains, are at odds over issues related to the Caremark pharmacy benefits management (PBM) business.
Walgreens said Monday morning that it has sent a letter to CVS Caremark stating that it won't be a pharmacy provider in any new and renewed prescription plans awarded after June 7 to the Caremark PBM unit. Caremark, which provides pharmacy benefits to employers and other clients, joined with CVS in a 2007 merger.
Explaining its reason for the move, Walgreens said it concluded that it's "no longer in the best interests of its customers, pharmacists and shareholders to grow its future business with CVS Caremark."
In a statement on the matter Monday afternoon, CVS Caremark said it was "surprised" by Walgreens' decision and called its action a negotiating move to increase its prescription drug reimbursement rate from the Caremark PBM unit.
Deerfield, Ill.-based Walgreens — the largest pharmacy provider in the Caremark PBM network — said that in the letter to CVS Caremark it cited issues with the company's Maintenance Choice prescription program, transfers of prescription plans to other pharmacies and reimbursement rates.
"Walgreens participates in hundreds of pharmacy benefit networks, which serve an important function in the marketplace by providing comprehensive access to prescription services for patients in prescription drug plans across the country," Walgreens president and chief executive officer Greg Wasson said in a statement. "Unfortunately, as a result of CVS Caremark's pharmacy benefit management practices toward Walgreens, it no longer makes good business sense for Walgreens to be part of their network for new and renewed plans. We will continue to participate in current CVS Caremark plans to provide continuity of care and service to our pharmacy patients."
Kermit Crawford, executive vice president of pharmacy for Walgreens, said in a statement, "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."
Walgreens has more than 7,500 drug stores, including locations in all 50 states, and said it operates pharmacies within 5 miles of nearly eight in 10 Americans.
"We were surprised and disappointed by Walgreens' announced intention not to participate on a go-forward basis in CVS Caremark PBM pharmacy networks," CVS Caremark said in a statement released Monday afternoon. "Our network of participating pharmacies is currently the largest ever maintained by Caremark Pharmacy Services, our PBM business, with more than 64,000 participants (only about 7,000 of which are Walgreens stores). Walgreens is offered comparable reimbursement rates as other large national retail chains, including CVS/pharmacy."
Woonsocket, R.I.-based CVS Caremark noted that the matter isn't closed and that it aims to keep talks going with Walgreens.
"CVS Caremark remains open to discussions regarding Walgreens' continued participation in our PBM pharmacy networks," CVS Caremark stated. "In fact, we just recently met with Walgreens management regarding these issues."
According to CVS Caremark, Walgreens' action is a strategy to try to boost its reimbursement rate from Caremark. The company alluded to Walgreens' move earlier this year to stop accepting new Medicaid patients in its Washington stores because of state cutbacks in pharmacy reimbursement.
"Walgreens has tried this approach several times in the past, targeting employers, health insurers and government entities," the statement from CVS Caremark said. "Today's announcement by Walgreens is nothing more than a transparent effort to raise its reimbursement rates at the expense of plan sponsors and members and illustrates an inability to adapt to the demands of the marketplace in today's challenging and rapidly evolving health care environment."
CVS Caremark reported that it's the nation's largest provider of prescriptions, filling or managing more than 1 billion prescriptions annually. Along with its Caremark Pharmacy Services division, the company provides prescriptions through over 7,000 CVS/pharmacy stores.
Sanford Bernstein & Co. analyst Helene Wolk said in a research note that Walgreens' move represents a negotiating tactic to hike its reimbursement from Caremark.
"We believe Walgreens is choosing to use its leverage to force CVS to provide higher reimbursement," Wolk explained in the research report, released early Monday afternoon before CVS Caremark issued its statement on Walgreens' action. "Walgreens faces a tough pharmacy market, continued pressure on front-end comps and reimbursement pressure from a variety of sources, which we believe has pushed the company to take this aggressive stance in its negotiation."
Other chain pharmacy operators aren't likely to employ the same aggressive tactics in their PBM dealings with CVS Caremark, according to Wolk.
"We do not believe other drug retailers have the necessary market power to follow Walgreens' approach," she said in the research report. "The next biggest players in the market, Rite Aid and Walmart, have less than half the share of Walgreens."