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Walgreen battle over drug prices will limit consumer choice

Anthem Blue Cross members will not be able to fill prescriptions at Walgreens stores starting Jan. 1, the result of the insurer's drug benefit manager and the chain being unable to reach an agreement.

October 07, 2011|David Lazarus
  • Walgreen Co., the nations largest drugstore chain, wants what it says is a fair reimbursement rate. Express Scripts Inc., which is on the verge of becoming the largest pharmacy benefit manager, says Walgreen is asking for too much. Above, a Walgreens store in downtown Chicago.
Walgreen Co., the nations largest drugstore chain, wants what it says is… (Brian Kersey, Bloomberg )

Darby Ziegler stopped by her local Walgreens drugstore in Huntington Beach the other day to refill a prescription. She got her meds — and some surprising news.

Beginning Jan. 1, Walgreens will no longer fill prescriptions for Anthem Blue Cross members, meaning that they'll have to switch to another drugstore if they want their insurance to keep covering their meds.

"My husband and I have been going to this Walgreens for 10 or 12 years," said Ziegler, 43. "They don't even have to look us up on the computer. They know us. We have a personal relationship."

Yes, she could take her business to CVS or some other pharmacy if she had to. But Ziegler said this would be less convenient than going to her nearby Walgreens. She also resents being told where to shop.

"It's just like all the rate increases for our insurance," Ziegler said. "All they care about are profits."

In this case, though, it's not the insurance giant calling the shots. Instead, it's Anthem's pharmacy benefit manager, a St. Louis company called Express Scripts Inc.

The dispute between Walgreens and Express Scripts highlights how consumers can find their healthcare choices limited by the money-minded business decisions of big corporations.

A pharmacy benefit manager is basically a middleman whose job is to keep prescription drug costs down for insurers and employers. It negotiates with drugstores and drug companies to get the lowest price for clients.

Walgreen Co., the nation's largest drugstore chain, wants what it says is a fair reimbursement rate. Express Scripts, which is on the verge of becoming the largest pharmacy benefit manager, says Walgreen is asking for too much.

And stuck in the middle are healthcare consumers who have seen their average cost for family coverage rise 9% this year to $15,703, according to the Kaiser Family Foundation.

On her recent visit to Walgreens, Ziegler was handed a notice from the drugstore saying that "due to contract renewal issues," no more Express Scripts prescriptions will be filled after Dec. 31.

"We are very disappointed that Express Scripts doesn't place the same value on the relationships we have with our patients and the counseling we provide," it said.

The notice encouraged customers to contact their employer and ask to maintain a relationship with the drugstore. Walgreen has also created a website, IChooseWalgreens.com, which provides a sample letter attesting to how much you "value the care and convenience that my Walgreens pharmacy offers me every day."

Walgreen and Express Scripts have been duking it out since the summer, when talks for a three-year contract extension broke down. Express Scripts sued Walgreen last month, arguing that the drugstore chain is trying to steal its customers.

The stakes are high. Walgreen said in a filing with the Securities and Exchange Commission that cutting ties with Express Scripts could cost the chain about $5.3 billion in annual sales.

Express Scripts represents about 2,100 clients, including health insurers and large employers.

Michael Polzin, a Walgreen spokesman, told me that even though it would be a significant blow to the company's bottom line if it lost the business Express Scripts brings its way, the chain has to draw the line somewhere if it wants to maintain fair reimbursement.

"The long-term ramifications of accepting their proposed contract would be much worse than the short-term impact," he said.

So how far apart are the two sides? Depends on whom you ask.

Polzin said Walgreen is offering a deal whereby it would see a 2% annual increase in reimbursement payments over three years.

But Brian Harvey, an Express Scripts spokesman, said Walgreen wants about 20% more than what comparable drugstores receive.

"We're just trying to do right by our clients," he said. "This means keeping the cost of pharmacy benefits as low as possible."

That's something Express Scripts will soon have more clout to do. The company is spending about $29 billion to acquire rival Medco Health Solutions Inc. If the deal passes regulatory muster, it would give Express Scripts control over about a third of the market for pharmacy benefits. Nearly 4 billion prescriptions are dispensed in the U.S. annually.

Obviously steps should be taken to keep medical costs down. Both Express Scripts and Walgreen say that's what they're trying to do.

But it's hard not to think all we're really seeing here is two large, profit-hungry corporate behemoths fighting over as much of our healthcare dollars as they can get their hands on.

Inevitably, prices will go up for consumers and choices will be further limited.

Walgreen's Polzin said the company was ready to return to the bargaining table with Express Scripts at any time. Express Scripts' Harvey said the same.

Neither said this would happen any time soon.

And come January, Ziegler has no idea where she'll be getting her prescriptions filled.

Healthcare business as usual.

David Lazarus' column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5. Send your tips or feedback to david.lazarus@latimes.com.

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