Walgreens Walks Away from Express Scripts Negotiations

Walgreens (Deerfield, Ill.) said that contract renewal negotiations with pharmacy benefit manager Express Scripts Inc. (St. Louis) have been unsuccessful, and as a result the company is planning not to be part of Express Scripts’ pharmacy provider network as of Jan. 1, 2012. Beginning next year, Express Scripts’ network would no longer include Walgreens 7,700 pharmacies nationwide, including Walgreens more than 250 Duane Reade pharmacies in the New York City area.

Express Scripts Inc. said it is open to continued negotiations with Walgreens to make prescription drugs affordable and accessible for American families.

Walgreens said it had reluctantly reached this conclusion for the following reasons:
• Express Scripts insisted on being able to unilaterally define contract terms, including what does and does not constitute a brand and generic drug, which would have denied Walgreens the predictability necessary to reliably plan its business operations going forward.
• Express Scripts rejected Walgreens request to be informed in advance if Express Scripts intends to add or transfer a prescription drug plan to a different Express Scripts pharmacy network, and to provide patients with equal access to Walgreens retail pharmacies. Walgreens cannot reliably plan business operations without clear terms, transparency and predictability governing the provider network relationship.
• Express Scripts proposed to cut reimbursement rates to unacceptable levels below the industry average cost to provide each prescription. Walgreens proposed to lower rates on behalf of the Department of Defense (DoD) Tricare program, a pharmacy benefit plan managed by Express Scripts. Under Walgreens proposal, the reimbursement cost for the DoD would have been lower than under Walgreens commercial rates. In addition, Walgreens offered to contract separately with Express Scripts for Tricare beneficiaries, in order to continue providing services for all active and retired military personnel. For all other plans managed by Express Scripts, Walgreens offered to hold rates for a new contract at the level that will be in effect with Express Scripts at year end, which will be lower than current rates.

Here is the Express Scripts perspective:

Market Conditions Require Competitive Rates
• Walgreens' current rates are not competitive with its pharmacy peers. We are negotiating for Walgreens to provide competitive market rates. Over the next three years, the costs of non-specialty branded medications are projected to increase approximately 10 percent per year (more than 30 percent over three years), the costs of branded specialty medications are projected to increase more than 14 percent per year (nearly 50 percent over three years), and more than $60 billion worth of branded medications will lose patent protection, opening the door to more affordable generic alternatives. Without Walgreens providing reasonable adjustments to its rates, our clients and patients will bear the financial burden of branded price inflation, while not receiving the full economic benefit of increased generic utilization. Under Walgreens' current proposal, the added cost burden to our clients would result directly in profits to Walgreens.

Express Scripts Seeking No Other Changes to Contract Terms
• Express Scripts has requested the same contract terms that were mutually agreed upon in the existing contract. To be clear, Express Scripts has not asked to change the definitions of branded and generic medicines.

Control of Pharmacy Benefit Plan Design Should Remain with Plan Sponsors
• Walgreens wants to dictate which clients and members to serve, focusing on the most profitable patients. Neither network providers nor Express Scripts should control pharmacy benefit plan design. This is the sole responsibility of plan sponsors to represent the best interests of their members.