January 16, 2012 
As anyone who follows the pharmacy industry knows (and now millions of consumers), Walgreens and Express Scripts have had an ongoing contract dispute since mid-2011. Most of us expected this to get resolved by the end of the year to minimize patient disruption, but it didn’t.
With that in mind, Walgreens has published several white papers to help articulate the results of their employer survey data and to help plans quantify the value of keeping Walgreens in the network. As this is a fascinating case study that will someday make a great Harvard case study, I reached out to Walgreens to get their thoughts on a few points.
Thanks to their PR team, I was able to get responses from Michael Polzin, their VP of Corporate Communications, to my questions.
As we’ve previously stated, we are now moving on without being part of the Express Scripts network. While we are open to any fair and competitive offer from them, we also are fine with continuing to operate our business without Express Scripts.
We intend to retain patients affected by this situation over time by reaching out on both a consumer level and a business-to-business level. To date, more than 120 health plans, employers and other Express Scripts clients have informed us that they have either changed pharmacy benefit managers (PBMs) or taken steps consistent with their contracts to maintain access to Walgreens pharmacies in 2012. That represents 10 million of the 88 million Express Scripts prescriptions we filled last year. We’re also in active negotiations with many health plans and employers to provide access to Walgreens in their networks as soon as their contracts allow. In addition to those 10 million prescriptions already retained, we also expect to retain many Medicare Part D patients who previously were in an Express Scripts-managed Part D plan and moved to a different plan during last fall’s open enrollment period. We will get more detail on those numbers when CMS announces the results of the open enrollment period later this month.
On the consumer level, they are very receptive to looking at options to continue using Walgreens pharmacies whenever possible. They want to retain their choice of pharmacy and are exercising that ability as best they can. For example, we’ve had great response this month with our Prescription Savings Club (PSC) promotion. The PSC offers savings on more than 8,000 brand name and all generic medications. During the month of January, you can get an annual membership in this program for just $5 ($10 for a family). We have seen more than 250,000 patients sign up for the club just since Jan. 1, and we continue to have record sign-up days. The interest we’ve seen in the club has been extraordinary.
As for differentiating the retail pharmacy experience, that is exactly what we are doing through our new Well Experience store format, which has piloted so far in about 20 Chicago area stores and the entire Indianapolis market. The pharmacy, health and wellness area of these stores are truly a game changer. The pharmacist is more accessible by bringing them out from behind the pharmacy counter to a desk in front of the pharmacy. As a result, patient interactions are higher than our pharmacists have ever experienced. The format also allows for tighter integration between our Take Care Clinic nurse practitioners and pharmacists to create a real community health corner.
We’ve had many CEOs of major health plans and large employers tour these Well Experience stores, and their No. 1 comment is, “This is exactly what we need. How fast can you make this happen?”
Our best ambassadors to consumers are our pharmacy staffs. They are the ones with the trusted relationship with our customers and are able to have individual, face-to-face conversations with them. They’ve done a tremendous job educating our patients, and that’s why we’re seeing so much interest in the PSC and have patients finding other ways to continue using Walgreens, such as using their spouse’s coverage, if available.
The same is true with physicians. Our pharmacy staff work with them every day and help them find the best options for their patients including generic alternatives that can be very competitive through the PSC card with a 90-day supply compared with the patient’s program under Express Scripts.
As for Wall Street, we’ve been quite active speaking at analyst conferences, addressing the issue on our earnings conference calls and at our recent annual shareholders meeting. The analysts also have found our white papers and other SEC filings to be helpful in understanding the situation.
Ultimately, payers/employers care about cost. If a PBM creates savings for them thru a limited network, can you summarize what they lose by not including Walgreens and how that transfers to hard dollar savings? Are Walgreens consumers more engaged with their health? Are they more satisfied with their healthcare?
Our research demonstrates the importance of Walgreens presence in a payers’ network in addition to the cost factor. A Walgreens proprietary survey conducted in December of 823 executives and managers who are key decision makers for pharmacy benefit decisions or provide input found that 82 percent of employers said that they would not exclude Walgreens for less than 5 percent savings on their total pharmacy spend. Sixty percent of employers would not exclude Walgreens for less than 10 percent savings, and 21 percent would not exclude Walgreens from their network regardless of the amount of savings. These findings on employer attitudes are consistent with recent research published by several leading equity research analysts. Clearly, employers value having Walgreens as a pharmacy option for their employees, but Express Scripts wants to take that choice away.
Now, add to that the small variation in costs among pharmacies. We believe that the vast majority of pharmacies, including Walgreens, receive reimbursements per prescription that fall within a narrow band, typically within less than 5 percent of one another. Therefore, excluding any pharmacy with our 20 percent market share from a 5 percent pricing band can only result in savings on the order of 1 percent or less. And that doesn’t take into consideration the additional savings Walgreens can provide through our leading generic dispensing rate or the 7 percent savings that payers can see by adding a 90-day refill option at our retail pharmacies.
It’s also important to point out that during negotiations, Walgreens offered to hold rates for a new contract flat and did not seek an increase in rates. The response from Express Scripts was to insist on being able to unilaterally define contract terms, such as what does and does not constitute a brand and generic drug. Express Scripts also proposed to slash Walgreens reimbursement rates to levels below the industry average cost to provide each prescription.
Walgreens is focused on helping payers with their total health care spend, not just the 10-12 percent of their health care costs that are spent on prescription drugs. While a patient with asthma can lower drug spend by not getting refills on their medication, the resulting emergency room visit that could result will be much more expensive overall for the payer. So we are focused on expanding the pharmacist’s role among health care providers to lower overall medical costs rather than focusing on drug spend alone.
Adherence is a big issue these days especially in Medicare where it is one of the key Star measures for PDP. One of the key value points in the paper is about adherence. How has Walgreens improved patient adherence and are you collaborating with payers to do this?
Walgreens pharmacies provide many medication adherence services, counseling and other assistance that lowers medical costs by improving outcomes. These include monthly adherence calls to inform patients about critical upcoming blood tests that are required to continue therapy; next-day home delivery for medications; assistance programs to help patients minimize risk resulting from economic circumstances that may negatively impact therapy compliance; and alerts for missed doses, at-risk patient behavior or serious adverse side effects that are communicated to a prescribing physician. We also offer 90-day supplies of medication, further promoting adherence. Walgreens pharmacists have consistently demonstrated increased adherence to chronic medicines for high-risk conditions for the populations that we serve. For example, for patients in one study who filled their statin and thyroid medications at community pharmacies and who consulted with a pharmacist, a significant improvement in first refill rates resulted (from 55.7 percent to 70.4 percent) after the adherence program was implemented.
While CVS has opted to own a PBM, Walgreens has sold their PBM. Has this experience with Express Scripts changed the way you interact and contract with PBMs? Do you think this will have broader implications on the industry?
I think it has helped us tremendously in terms of building closer relationships with other PBMs and payers. We’re moving forward with partners such as Catalyst Rx, Prime Therapeutics and SXC Health Solutions, and health plans such as Coventry and Humana. All of us see this as an opportunity to create a differentiated offering during the upcoming selling season.
See answer above.
See question 1 and our development of the Well Experience store and pharmacy format.
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