Amid the ongoing Walgreen (WAG) and Express Script (ESRX) dispute related to the use of network benefits, Chinese Community Health Plan (“CCHP”), whose prescription drug insurance is managed by Express Script, has recently decided to transform to a new pharmacy benefits management (“PBM”) company, Navitus Health Solutions.
With this move, starting January 2012, the CCHP members will be able to access Walgreen pharmacies despite the prohibition related to the Walgreen-Express clash. The transition will also provide improved prescription drug services to CCHP members.
As an upshot of the current disagreement, effective January 1, 2012, Walgreen’s 7,700 pharmacies will not be a part of Express Scripts’ pharmacy provider network. As a result, the company will no longer be able to fill 90 million prescriptions of Express Scripts in fiscal 2012, which in turn represents a loss of approximately $5.3 billion in annual sales.
Similarly, Express Script member communities will be ceased from getting the benefit of Walgreen pharmacies network. To date, Individuals distressed by this disorder, include health care members of Anthem Blue Cross, Tricare and CCHP.
The backdrop of the conversion of CCHP to a PBM company was primarily the outcome of the approaching difficulties to be faced by the CCHP members in getting pharmacy access without the leading pharmacy provider Walgreen as a 24-hour pharmacies service option.
With just half a year left for the termination, in June 2011, Walgreen decided not to renew its agreement with Express Scripts as it considered the terms to be unfavorable. As per Walgreen, the current rates specified by Express Script are lower than the market rates.
Additionally, as the cost of non-specialty and specialty branded medications are expected to increase annually by about 10% and 14%, respectively, the patients and clients of Walgreen and Express Script may have the high chance to be burdened by the branded price inflation if the relation between the powerhouses does not smoothen.
For Walgreen, a negotiation could help provide optimal care at a reasonable and competitive rate in the U.S. But, non-renewal may hinder its business in the medium term and exploit its position in the drug and health care delivery sector.
Walgreen recently entered into a new deal with Express Scripts to provide services to Blue Cross and Blue Shield of Kansas City's prescription drug program (effective from January 2012). However, Express Scripts is yet to accept Walgreen’s terms for providing similar services to the members of the Defense Department's Tricare health care program.
Walgreen currently retains a Zacks #4 Rank (short-term Sell rating). We are encouraged by the company’s efforts to establish itself as a leading provider of pharmacy, health and wellness solutions and are confident about the long-term potential of the company. Currently, we are Neutral on the stock.
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