Consumers Benefit As The Rx Wars Begin

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“The prescription-drug wars are under way,” Timothy W. Martin informs us in the Wall Street Journal, although what we’re really talking about is the heavy artillery of gift cards and TV advertisements entering the fray now that, as of Saturday, members of Express Scripts can return to their local Walgreens to get their scripts filled.

"I don't ever recall a situation of this magnitude that occurred on one day," Larry Merlo, CEO of No. 2 CVS Caremark tells Martin. "The big thing we're trying to get patients to understand now is they can stay with us. They don't have to go back to Walgreen[s]."

Express Scripts, which is the largest pharmacy benefit manager (PBM) and the biggest drug store chain ended a “painful and protracted spat,” as the Chicago Tribune’sPeter Frost put it, in July, when they reached a new multi-year agreement that formally took effect Sept. 15. The companies had been publically feuding since mid-2011, when Walgreens announced that it would not fill prescriptions for people covered by Express Scripts as of Jan. 2012 “after its contract renewal negotiations failed on the grounds of uncompetitive reimbursement rates,” according to Forbes.

Walgreens is giving $25 gift cards to Express Scripts members who return to its pharmacy program. CVS Caremark, meanwhile, is offering discounts on non-pharmacy items and has unleashed a “barrage of advertisements” to let people know about it, Martin reports. And Kroger, which has more than 1,900 in-store pharmacies, is touting its benefits -– including as low as a $4 pricetag on generic drugs –- in TV ads.

In expressing his pleasure that a deal finally had been cut with Express Scripts, Walgreens president and CEO Greg Wasson said, “We are in the business of providing a broad range of pharmacy, health and wellness services to help meet the needs of all of our customers."

Aye, and there was the rub on earnings, which were down 10.8% for the company’s fiscal third quarter announced on June 19. Prescriptions filled in comparable stores decreased 9.1% in the quarter over the previous year. But while they still constitute the bulk of Walgreens’ business, “patients walking into a drugstore also help boost sales of shampoo, soap and Halloween candy-items that typically carry higher profit margins,” Martin writes.

The agreement in July came, Forbes’ Bruce Japsen pointed out at the time, as employers were preparing their benefit offerings to workers for the coming year were negotiating with this fall.

“Walgreen[s] insiders say they had a better opportunity to convince large employers and other customers who stuck with Express Scripts to choose a different PBM that has Walgreen[s] pharmacies in their network,” he wrote.

One thing for sure is that the battle brought unwanted attention to the PBM business, and Walgreens suffered the most, losing about 30% of its market value along with the customers that trudged off to rivals.

“Analysts and investors have battered the company and its executives for walking away from a substantial hunk of business and, to a lesser extent, for allowing the dispute to play out in the press,” the Chicago Tribune’s Frost pointed out.

“The dispute highlighted how easily consumers can find their healthcare choices limited when big companies bicker over who gets how much,” wrote the Los Angeles Times’ columnist David Lazarus. He went on to report that three companies -- Express Scripts, CVS Caremark and OptumRX -- account for about 75% of all prescriptions filled by PBMs.

“Chances are, they won't be shy about throwing their weight around in the future,” he observed. “And once again, consumers will be stuck in the middle.”

At least for as long as the war escalates, however, it looks like consumers will be the winners.

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1 comment on "Consumers Benefit As The Rx Wars Begin".

1. Ken Kueker from Billboard Connection
   

   commented on: September 17, 2012 at 12:22 p.m.
   I know the military health plans use Express Scripts...don't know about any other federal government health plans. This is a good example of why government involvement in health care may not be the best idea. Customer service and choice is reduced by the governments unwillingness to pay. That's why it has sometimes been hard to find good doctors who take TRICARE.

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