The line has been drawn in the sand for Walgreens. They have decided to decline to participate in filling Express Scripts prescriptions starting on January 1st, 2012 if no agreement is made with the pharmacy benefit manager (PBM) by the end of the year according to this article. But what does this all mean for community pharmacy and for Walgreens and Express Scripts going forward?
Is this just a replay of last year’s spat between Walgreens and CVS/Caremark? That very public “misunderstanding” between those two companies resolved itself rather quickly and seemingly ended up being more of a publicity generator than anything else for both companies involved. In the end their dispute was resolved and patients weren’t affected by the highly publicized bickering.
But is this fight different? Walgreens fills a lot of prescriptions for Express Scripts. They are expected to process 90 million prescriptions for the PBM this year including the Tricare contract that serves the military. It is estimated that 7% of the prescriptions filled by Walgreens this year are for Express Scripts patients. That translates into about $5 billion in sales if you are wondering what kind of monetary scale is involved. So it would appear that these companies need each other and a deal would be in both of their best interests.
But Walgreens has so far stood firm and stated that they made the decision to break from Express Scripts because reimbursement rates were uncompetitive. Express Scripts reportedly was “shocked” by this development and argues that they pay more than fair reimbursement rates to Walgreens for processing all of those prescription claims. I’ve got to think that Walgreens is closer to the truth than Express Scripts if you actually examine the typical PBM contract that pharmacies are often stuck signing.
So what do I make out of all of this? To be honest at first I thought this was just a ploy by Walgreens. Just like the CVS vs. Walgreens fight that turned out to be a lot less of a battle than originally billed I expected a quick deal from Walgreens after this announcement was made towards the end of last month. But here we are almost a month after the announcement and Walgreens seems to be holding the line and standing their ground. But there is still almost half a year between now and the pending end to their agreement so there is plenty of time for these two companies to kiss and make up.
But honestly, I for one hope that they don’t come to an agreement unless it involves Express Scripts meeting Walgreens demands for higher reimbursement rates in 2012. The PBM industry has boldly bullied the community pharmacy industry with aggressive contracts that pay paltry reimbursement rates and they use a “take it or leave it” tactic that always implied they weren’t interested in being fair or actually negotiating a contract with drugstores.
The results have been that PBMs have grown by leaps and bounds and have made lots of money off pharmacies that struggle to survive with pitiful reimbursement rates for services rendered. The system hasn’t been fair for pharmacies in quite some time and it really demonstrates how bad it has gotten if a large player like Walgreens has had enough and said no to a PBM. If a community pharmacy with the scale of Walgreens can’t make money signing these contracts with PBMs think about how the insurance industry has affected the business of the little independents that don’t have the advantage of scale that a Walgreens or CVS or Rite Aid chain enjoys!
But the problem with trying to fight with PBMs is the economics of scale. I’ve always felt like a true stand against the insurance industry had to come from a big chain player like CVS or Walgreens. They are the only retail pharmacy companies large enough to really matter in a fight with a PBM over reimbursement rates. It takes the scale of a Walgreens company and their 7700 plus pharmacies to really impact a company like Express Scripts. If an independent or even a small regional pharmacy chain tries to stand up to a PBM they will simply walk away from the negotiating table and tell their plan participants to find another pharmacy or use mail order.
This dispute however is different and large enough to matter. Walgreens actually is dominant in some large markets so this just find another pharmacy idea has a different meaning for Express Scripts patients currently shopping at Walgreens pharmacies. And don’t forget that Express Scripts processes Tricare so the military beneficiaries using Tricare insurance will also be affected by Walgreens dropping out of Express Script’s network should things not change by 2012.
I must say that I’ve been very critical of the big chain drugstores because of their impact on community pharmacy. I think that a lot of what is wrong with how we deliver prescriptions to patients is a direct result of their influence and power over our industry. But for once a large chain is taking on a fight worth while and doing something positive for the industry and I have to give Walgreens some credit for standing up to Express Scripts. This kind of fight had to come from them and not some small independent who is equally fed up with PBMs and bad contracts but doesn’t have the muscle to make an effective stand against them. But 90 million prescriptions is a scale that matters to Express Scripts and it’s bottom line and Walgreens is taking a chance themselves to lose all of that revenue.
I hope that Walgreens stands it’s ground and won’t cave in to Express Scripts. Sure the revenue hit will hurt but they’ve acquired drugstore.com to increase their online presence and honestly what good is all of that additional revenue if you are losing money when you fill millions of prescriptions just so an insurance company can make even more profits for themselves? Look at the bottom line numbers and you will realize that Walgreens needs to take this stand against Express Scripts no matter what the revenue hit for 2012 might be.
The climate is changing for community pharmacy. Pharmacies are starting to realize that they have been getting the raw deal from PBMs for several years now and we can’t survive going forward unless there are actually fair contracts being signed that reflect the actual cost of filling prescriptions and doing business. It is time to take on the PBMs and challenge their dominance of our profession. We can’t sustain ourselves on these ridiculously low reimbursement rates currently being paid by the PBM industry. And a chain drugstore with the size to really challenge the PBM industry has finally stepped up to the plate and said enough is enough.
I do feel bad for patients that might be caught in the middle of this dispute. They shouldn’t have to worry about having to change pharmacies next year for the simple reason that a chain will no longer accept their prescription insurance. But this is an important fight for Walgreens and the rest of the retail pharmacy world. We can’t continue to be taken advantage of by the PBM industry. It won’t do these patients any good if a pharmacy closes shop because it can’t make enough money from filling prescriptions. In that scenario patients definitely lose.
We must try to take back a little control of the healthcare system from the insurance industry that has completely infiltrated every aspect of healthcare services and patient care. Pharmacies shouldn’t be expected to operate at a loss or not get reimbursed a fair fee for providing a service to patients and plan participants. And up until now the PBM world has held all the power and influence regarding these prescription PBM contracts. No industry will thrive and grow going forward if one player holds all of the power. The balance of power must be shifted for a healthier retail pharmacy industry for everyone.
It is time for the tables to be turned and the shift of power to swing back a little to the pharmacies that actually provide these services and products to patients. And this Walgreens vs. Express Scripts dispute might just be round one of a long and continued fight between the pharmacy providers and the insurers going forward. I just hope that Walgreens stands their ground and takes round one for the pharmacies.
The Redheaded Pharmacist
The Redheaded Pharmacist has been working full time in retail pharmacy for more than a decade. He is in his mid 30s, and, yes, he has red hair.
Disclaimer: This blog represents the opinions of the author and the author alone. It does not represent any pharmacy group or organization. I also will leave out or change the names of patients/customers to protect their privacy and comply with government regulations regarding patient privacy rights and personal information.
The viewpoint expressed in this article is the opinion of the author and is not necessarily the viewpoint of the owners or employees at Healthcare Staffing Innovations, LLC.
