Walgreens, CVS end feud over drug benefit plans

The battle between the two giant drug chains over CVS Caremark's pharmacy benefit management plan threatened to disrupt prescribing patterns.

By Pamela Lewis Dolan — Posted June 21, 2010

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A battle between pharmacy giants CVS Caremark and Walgreen Corp. came to an end June 18 when the two parties announced a deal that averted what could have been a headache-inducing situation for physicians.

Walgreens announced earlier in June that it no longer would participate in new and renewed prescription drug plans administered by CVS Caremark but would continue to honor existing contracts. CVS Caremark reacted with an announcement that it was completely removing Walgreens from its pharmacy benefit management network, starting in July. The situation was expected to cause confusion and more work for physicians, whose patients' prescriptions no longer could have been filled at one of the nation's largest pharmacy chains.

However, the two parties announced a little more than a week after they severed ties that they had reached a multiyear agreement under which Walgreens still would participate in the CVS Caremark PBM network. Financial terms of the agreement were not disclosed.

"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," Kermit Crawford, Walgreens' executive vice president of pharmacy, said in a statement.

When Walgreens first made the announcement that it no longer would participate in CVS Caremark's PBM network, John Norton, associate director of public relations for the National Community Pharmacists Assn., expressed concern over the confusion it was sure to cause patients and the additional workload that it would mean for physicians.

"There's no way around it. If a patient has been using a specific pharmacy, and suddenly they can't fill their prescription there, that's going to cause the patient to ask, 'What other option do I have?' " he said.

Walgreens said it initially had made the decision to terminate its partnership with CVS Caremark after the two had lengthy discussions about several grievances Walgreens had. One sore spot was the existence of CVS Caremark plans that require patients to use only CVS pharmacies or Caremark's mail order prescription service.

Other complaints included the lack of information Walgreens said it receives regarding drug plans that are transferred to a differently priced CVS Caremark pharmacy network, and the unpredictability of CVS Caremark's reimbursement rates to Walgreens.

At the time of the break, Norton expressed optimism that the two companies eventually would reach an agreement that would make things better for physicians.

"When a physician makes a prescription, they just want that patient to get that order filled. But if there is no CVS pharmacy nearby, or Caremark mail order takes too long to get, it makes things more difficult. You don't really want a lot of games played when you make a prescription, and a lot of times they are very important prescriptions that need to be filled in a timely fashion."

The FTC launched an investigation of CVS Caremark in fall 2009 at the NCPA's urging. The organization said it had received several complaints that the 2007 merger of CVS Corp. and Caremark Rx created conflicts of interest, and that the company was trying to steer business solely to its own stores. That investigation is still ongoing. In May, the company acknowledged in an SEC filing that its business practices also were being probed by 24 states.

Gregory Wasson, Walgreen Corp. president and CEO, said in a conference call the company held for investors on June 7 that claims adjudicated by CVS Caremark account for 7% of total company sales, which were $63 billion in 2009.

CVS paid $26 billion to acquire Caremark in 2007, $5 billion more than its first offer, as it fought Express Scripts for the business. However, some analysts have questioned whether the deal was worth the money. CVS Caremark in fall 2009 acknowledged that it had lost $4.5 billion in contracts for 2010. Meanwhile, Walgreens operates its own much smaller PBM, with the company electing not to make it bigger through acquisitions.

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