It was a busy summer in the pharmacy benefits management business. First, in June, pharmacy chain Walgreens announced it would withdraw from Express Scripts' pharmacy provider network starting Jan. 1, 2012. Walgreens said the poor contract terms Express Scripts was offering - including prescription reimbursement rates below the industry average - made it impossible for the pharmacy chain to continue its relationship with the PBM.
"Under the terms proposed by Express Scripts, it would not make good business sense for the strategic direction of our company to continue our relationship with them," said Greg Wasson, president and CEO of Walgreens.
Walgreens executive vice president and chief financial officer, Wade Miquelon, said, "We believe the long-term ramifications of accepting Express Scripts' proposal with below-market rates and minimal predictability for the services we provide would have been much worse than any short-term impact on our earnings."
Express Scripts, for its part, expressed shock that Walgreens "prematurely" walked away from negotiations. The company addressed Walgreens' assertions in a statement, saying that Walgreens' current rates are not competitive with its pharmacy peers, Express Scripts has requested the same contract terms that were mutually agreed upon in the existing contract, and that control of pharmacy benefit plan design should remain with plan sponsors, not be dictated by network providers or Express Scripts.
Some PBM-watchers believe Walgreens will reach an agreement with Express Scripts before the end of the year, especially in light of the Express Scripts-Medco merger announced in July.
"I'm not, nor have I been, really concerned about it," says Kenneth Dowell, president of Excelsior Solutions, LLC, a pharmaceutical consulting firm. "If it were to happen, and some of my clients actually lost Walgreens out of their network, absolutely it would be a concern. But I've seen it so many times. It's kind of like I wasn't worried about the NFL season not happening. It seems like at the last second they always seem to work it out."
Michael Jacobs, national clinical practice leader with Buck Consultants, says he's "eternally optimistic they will reach an agreement. I think it's in the best interest of everyone."
Still, plan sponsors should be ready with some kind of communication to employees during open enrollment this year should Walgreens actually pull out of the Express Scripts network. He says he's been pretty clear with Express Scripts that this communication is something they should take responsibility for.
Plan sponsors should take the attitude that "it's their responsibility to take care of my member and communicate their options to them and to get me a better rate for my limited network so that I can save money. Otherwise I will move my business if they don't do it," says Jacobs. "And we've been pretty clear with Express Scripts that our expectation is that they will run their disruption analysis and notify members."
News of the Express Scripts-Medco merger surprised Dowell but, overall, he believes it's a good thing for employers.
"The more purchasing power these PBMs have, the better discounts and the better value the payers can get through these vendors," he says. "It's not like the top two came together and there's no one else. There are still three or four other major players that can force Medco/Express Scripts to be a competitive player. They don't own the whole market."
Jacobs also dismisses the idea that the merger will undermine competition. "What this does is take two companies that sell something that's very similar and enhances their offering a little bit," he says. "Medco's better at getting high mail penetration. I think their specialty pharmacy is probably a little better clinically. I think Express Scripts has more efficient modeling and a little bit easier-to-use data and reporting, which I think will help all the Medco clients."
But not everyone is thrilled with the merger. Both The National Community Pharmacists Association and the Independent Specialty Pharmacy Coalition have urged the Federal Trade Commission to block the merger between Express Scripts and Medco.
"The proposed merger of Express Scripts and Medco would quite simply make a bad situation much worse for American employers, government agencies, consumers and pharmacists," said Douglas Hoey, executive vice president and CEO of NCPA. "The major PBMs already wield an unchecked, one-sided advantage in setting contract and reimbursement terms for community pharmacists, undermining their viability to continue serving patients. Approval of this merger would further distort this marketplace, to the detriment of patients, true competition and lower prices."
The ISPC, meanwhile, issued a statement saying both Express Scripts and Medco have large specialty pharmacy businesses, which creates a conflict of interest with their drug authorization duties as PBMs.
"This proposed deal poses tremendous risks to all consumers, especially those dependent on vital specialty drugs," said Russell Gay, executive director of the ISPC. "Allowing any PBM to acquire a dominant position in the specialty drug market will be a giant step backwards in our nation's efforts to improve health care and manage drug costs."
Express Scripts had no comment on the NCPA's and ISPC's calls to have the deal blocked by the FTC and referred to its press release announcing the deal: "Express Scripts and Medco believe they will be successful working through the regulatory review process. Competition in the pharmacy benefit management business is intense. Competition comes from several sources, including retail pharmacy PBMs, managed care PBMs, independent PBMs and specialized PBMs. The PBM business will continue to remain competitive after this transaction, as PBMs will continually drive for greater efficiencies to provide better service and pricing to their customers."
Jacob doesn't believe anything will change dramatically for either Medco or Express Scripts employer-clients until 2013, well after the deal closes. Subject to regulatory approval, the deal is expected to close in the first half of 2012.
"Medco had a very good sales year about three years ago. A lot of people left CVS Caremark and Express and went to Medco," notes Jacobs. "Those contracts are coming up for renewal next year. And what we would anticipate is that a fair number of those are going to go out to bid. If Medco's been servicing those clients effectively, nothing will dramatically change in 2013. So, for most of our clients, our advice is to sit tight."
Nevertheless, both Jacobs and Dowell say this is an ideal time for employers to revisit their PBM contracts.
"Don't just let it auto-renew," cautions Dowell. "Use this as an opportunity to make sure you're getting the best deal out there because they [PBMs] are going to be fighting for this business like crazy. And there's going to be a real fight to the bottom when it comes to pricing."
Employers should also be aware that, as the two companies consolidate, account management teams are likely to change, and that could affect service levels. "Because the Medco team has to learn the Express Scripts tools, and the Express Scripts team will have to learn whatever new tools they're going to use out of Medco, there is the possibility of some deterioration of account management service levels," says Jacobs. "[Employers] should pay attention to their service and performance guarantees."
In addition, he says, employers should ask to see testing results from system conversions.
"In 2012, when these system conversions start taking place, the last thing you want to do is cause unnecessary disruption for your employees and their dependents," says Jacobs. "So, what they should do is demand to see testing results before the conversion is allowed to go live on the new system."
And, finally, Jacobs urges employers to check the disclosure and audit rights they currently have and make sure those carry forward. "If you're a current Medco client and you were thinking of auditing Medco in 2012, I would strongly suggest you do it before the deal closes," he says.
Walgreens speaks out
Kermit Crawford, president of Walgreens' pharmacy, health and wellness business, sat down with EBN to discuss his company's position. Here's part of what he had to say:
"When we look at this whole withdrawal, it is really a difference in philosophy. ... We think that, at Walgreens, we have the ability to connect the dots in American health care. We have the footprint, the convenient access, the quality and the cost-effective pharmacy services, along with the relationship with patients, physicians, with health plans and employers, that make us significantly greater than a dot on the map. Those capabilites give us the ability to connect the dots within the health care map in the U.S.
For a full transcript, go to ebn.benefitnews.com/news/walgreens-pharmacy-health-care-drug-costs-2716900.1.html.
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