How could the biggest pharmacy benefit manager in the country continue to exclude the nation's biggest drug store chain from its network. As a former Walgreens customer, I was dismayed at first, but then I got over it and went on with my life. I had choices.
But I'm sure there were many others for whom Walgreens was the only viable alternative for drugs and other products. So it was no real surprise that the two industry giants, Express Scripts and Walgreen Co., finally reached agreement to end the dispute that in January 2012 forced millions of customers to switch pharmacies in order to get covered drugs.
There is a lot of chatter about who caved first. Was Express Scripts finding it difficult to retain customers of its recent acquisition, Medco Health Solutions, or to go after new clients. Or did Walgreens feel the greater pressure to sign a deal The drug store giant noted in its most recent quarterly report that its revenues declined by 3 percent largely due to other drug stores getting the Express Scripts business. The terms of the new network deal were not disclosed.
But there's no doubt that both sides had a lot to gain by mending their relationship. Although Walgreens saw scripts slip through its fingers, PBMs competing with Express Scripts were touting their inclusion of Walgreens as a key differentiator as they went after clients for 2013.
Whatever the case, the effect of the Express Scripts dispute with Walgreens spreads beyond these two companies. It adds fuel to the case being made now for the option of narrow networks a trend that we've seen in the health plan industry with physicians and hospitals.
Express Scripts says that Walgreens will be included in its broadest network of some 64,000 pharmacies. That indicates that the PBM will continue to maintain smaller network options that give plan sponsors a way to save money. And in today's reform environment, every penny counts.
In the pharmacy realm, we've seen increased popularity of Medicare prescription drug plans paired with preferred networks and attractive discounts on drugs. These include the Aetna prescription drug plan that offers $3 preferred generics through CVS pharmacies and the Humana Walmart PreferredRx plan with $1 preferred generics. It's likely we'll see these kinds of plans crop up in the insurance exchanges in 2014, now that the Supreme Court has green-lighted the Affordable Care Act.
Almost all major PBMs now offer restricted network solutions, although they also note that plenty of customers prefer the broadest national access. CVS Caremark President Per Lofberg recently remarked to Wall Street analysts that many plan sponsors can be well-served with less than the full complement of some 65,000 pharmacies in the country. Reducing the network by 20 percent or 30 percent, he said, can save plan sponsors 2 percent on drug purchases.
Express Scripts, having retained more than 95 percent of its contracts without Walgreens in 2012, was emboldened by its experience. Executives recently reported some success in convincing customers under Medco contracts to drop Walgreens on their own to save money. Express Scripts already has a Select Network option and plans to release a new program, Express Advantage, in 2013 that features tiered retail networks. Members who want the open network will have to pay higher copays.
While it was inconvenient to switch from Walgreens last January, CVS Caremark has served me well, though I drive a little farther and the lines are longer. It's no wonder. CVS Caremark has picked up a lot of business. In the first quarter of 2012, it reported gaining about 5.7 million to 6.5 million prescriptions because of the impasse.
Once the agreement was announced, CVS Caremark said that it expects to retain at least half of the business gained from Express Scripts throughout 2012. Whether customers will return to Walgreens really depends on three things: service, convenience and price. For me, the convenience is a big factor. No matter what pharmacy I go to, I pay the same copay.
But if consumers are paying for their drugs out of pocket, particularly if they have a high-deductible plan with a health savings account, they will go to the pharmacy that will save them money. Thus, the discounts that pharmacies negotiate with health plans will be a critical factor in pharmacies success in gaining new customers from the insurance exchanges in 2014. Undoubtedly, those exchange consumers will have a choice among plans that includes restricted network options.
I haven't yet decided whether I'll return to Walgreens, although I apparently have some time. Walgreens doesn't return to the network until Sept. 15, 2012. Until then, I suspect Walgreen Co. is feverishly working on a plan to lure its former customers back into the fold.