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AIS's Health Business Daily
Featured Story, July 23, 2010 CVS Caremark, Walgreens Mend Fences With New Network Deal Reprinted from MEDICARE PART D NEWS, a monthly newsletter with business and compliance news and strategies for the Medicare drug benefit. By Barbra Golub, Managing Editor After dropping Walgreen Co. from its pharmacy network, CVS Caremark Corp. said June 18 that the two companies had reached an agreement on a new pharmacy benefit manager network contract. Although it remains to be seen if the terms of the new contract are similar to the terms of the old one, one consultant says this is in the best interest of CVS Caremark, which faced big problems for its own Part D plan stemming from the dispute.
CVS Caremark said on June 9 that it has “no choice but to terminate Walgreens’ participation” in its retail pharmacy networks within 30 days. In addition, the PBM said Walgreens would no longer be included in its Medicare Part D retail pharmacy networks effective Jan. 1, 2011.
The dispute came to light on June 7, after Walgreens announced that it would no longer participate in any new and renewed prescription drug benefit contracts awarded to CVS Caremark because of the PBM’s unfair practice of steering pharmacy business to its own retail stores through CVS Caremark’s Maintenance Choice program. Among its list of grievances, Walgreens accused CVS Caremark of keeping it out of the loop when patients switch to a different pharmacy network or when the PBM acquires new prescription drug plan clients. Walgreens also cited the “growing unpredictability of CVS Caremark reimbursement rates” for its discontent and claimed that payments for certain drugs often do not reflect the market.
CVS Caremark claimed that Walgreens failed to respond to business negotiations and that its actions violated terms of its existing agreements. “In order to minimize patient disruption and provide network stability, CVS Caremark’s agreements with Walgreens and other retail pharmacies do not permit network participation on a selective basis,” the company said in a statement.
Now the parties seem to have reached an agreement, although neither side has revealed the financial terms of the new contract. Despite the unknown terms, Kemp Dolliver, managing director of equity research at Avondale Partners, LLC, tells PDN that he predicts that CVS Caremark did not “give any ground on the Maintenance Choice issue.” Maintenance Choice lets consumers buy 90-day supplies of drugs for chronic conditions at CVS pharmacies for the same price as mail order.
Adam Fein, president of Pembroke Consulting, Inc. and author of the Drugchannels.net blog, contends that the agreement seems like a bigger win for CVS Caremark “since Maintenance Choice remains in place.” He adds that Walgreens’ perceived bargaining power in the long run has been reduced. At the same time, Fein argues, some payers might remain wary of CVS Caremark’s ability to manage the retail network and maintain a stable program.
We are very pleased with the outcome of this mutual, multi-year agreement that meets our business objectives,” said Walgreens Executive Vice President of Pharmacy Kermit Crawford. “The agreement makes good business sense, provides the framework we need to operate our business going forward, and assures choice and convenience for the many consumers who look to us for quality pharmacy care.”
Per Lofberg, president of CVS Caremark’s pharmacy benefit management business, said, “We are pleased to have reached a mutually agreeable solution together with Walgreens that is consistent with our top priority to provide convenient access to affordable high-quality pharmacy health care. This new contract enables Walgreens to continue participating in CVS Caremark’s PBM national pharmacy network, provides enhanced network stability, eliminates any current or long-term disruption for our clients or their members and allows us to continue to fulfill our obligation to deliver cost-effective pharmacy benefits for our clients.”
CVS Caremark Dodges a Bullet
The new contract is good news for CVS Caremark, says Dolliver. If there was no contract Caremark would “clearly be disadvantaged,” he tells PDN, and Caremark would have faced a “big problem for their own Part D plan” if their beneficiaries lost the option to use Walgreens as their pharmacy. There would have been “noise and uncertainty as to whether the pharmacy is in the network,” he says. This would be coming from a population that is “resistant to change,” Dolliver adds.
It would have been the same for the Part D plans that CVS Caremark administers as a PBM, he contends. These plans hired CVS Caremark with the understanding that it offered a varied network of pharmacies, of which Walgreens was included, explained Dolliver. It would have caused them a lot of concern if their members could no longer go to Walgreens to get prescriptions filled. They may have been faced with losing beneficiaries during open enrollment.
Walgreens, Dolliver says, would not have faced the same level of problems as CVS Caremark. There would be “some [initial] disruption at the counter” for beneficiaries that were not aware that Walgreens was not in their plan’s network anymore. Nevertheless, Dolliver says that Walgreens probably would have “fared pretty well.” Since the cut off wasn’t going to happen till after the next Annual Enrollment Period, there probably would have been a shift of affected beneficiaries to plans with Walgreens in their networks, he says.
This is not the first time that Walgreens has threatened to pull out of CVS Caremark’s network. Greg Madsen, principal at consulting firm Innovative Rx Strategies, LLC, and formerly the senior vice president of retail services at CVS Caremark, told sister publication Drug Benefit News that Walgreens made a similar move in 2007, when it gave 10-day termination notices to five clients.
CVS Caremark maintained that Walgreens “has a demonstrated pattern of publicly objecting to plan designs not to their liking.” It adds that threatening network withdrawal is “not a proper way to resolve business issues.”
However, this also is not the first time that CVS Caremark has been criticized for unfairly steering patients to its stores. Since its 2007 merger, independent pharmacists have been trying to make a case against the integrated model, while several states and the Federal Trade Commission have launched investigations into potential anticompetitive practices by the company. Crawford said that in the three years since CVS and Caremark merged, its approach to Walgreens “has fundamentally changed.”
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