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Walgreens to stay in Caremark's prescription-plan network

The companies settle a dispute that threatened to prevent thousands of people from filling their prescriptions at Walgreens and to disrupt both companies' business.

June 19, 2010|By Michael Oneal

It turns out Walgreen Co. and CVS Caremark Corp. need each other after all.

After months of contract negotiations, punctuated by a two-week public brawl, the two drugstore giants announced Friday that they had settled a dispute that threatened to prevent thousands of people from filling their prescriptions at Walgreens stores.

At issue: the way Caremark, one of the nation's biggest prescription-plan operators, prices discounts for prescriptions filled at Walgreens pharmacies, which often compete fiercely with nearby CVS stores nationwide.

The terms of the settlement were not disclosed. But the truce will avert a major disruption for Walgreens customers and for the business operations of both companies.

The relief was evident in two companies' stock prices. Shares of Walgreen and CVS Caremark both ended up Friday after tumbling more than 5% since the public battle began.

The dispute made clear that Walgreen and CVS Caremark depend on each other. Illinois-based Walgreen has 7,522 outlets and is the largest U.S. drugstore chain operator, slightly ahead of CVS. Rhode Island-based Caremark, which negotiates prescription benefit plans with employers nationwide, covers one out of every 10 Walgreens pharmacy customers, generating about $4.5 billion in revenue, Walgreen said.

That relationship, however, has been complicated since CVS bought Caremark three years ago. Tensions boiled over June 7, when Walgreens announced it was pulling out of the Caremark prescription network. It said that Caremark wasn't paying enough for prescriptions filled at Walgreens and that it had set up policies that encouraged plan participants to take their business to CVS.

Walgreens said at the time that the pullback would be gradual. Two days later, Caremark said it would cut off Walgreens a month from then, saying Walgreens was demanding discounts that were too steep.

Analysts told the Associated Press that CVS Caremark risked losing contracts with health plan sponsors that did not want to join a network lacking the nation's largest chain of drugstores. The dispute went public while Caremark was trying to sign clients to contracts that go into effect next year.

Kermit Crawford, Walgreen's executive vice president of pharmacy, said in a June 7 release: "In the three years since the CVS-Caremark merger, it has become increasingly clear to us that Caremark's approach to Walgreens as a community pharmacy within CVS Caremark's retail network has fundamentally changed, and we are no longer viewed as a valued community pharmacy within its PBM network."

On Friday, however, both sides were playing nice.

"We are very pleased with the outcome of this mutual, multiyear agreement that meets our business objectives," Crawford said. "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."

mdoneal@tribune.com

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