The public spat between retail drug giant Walgreens and PBM/retail giant CVS Caremark ended last week. The first question most will ask is ‘who won’? After asking that myself, I realized that’s not the most important issue.
From here, it looks like the winners will be employers and members, who should be able to continue to access Walgreens thru Caremark (the giant PBM has some 2200 corporate clients and claims 53 million lives. As the financial details of the deal weren’t (publicly) disclosed, we don’t know if:
a) Caremark agreed to stop shifting Walgreens customers to Caremark mail order;
b) Caremark will stop trying to move members from Walgreens stores over to CVS (one of Walgreens’ allegations)
c) Walgreens decided the pain was going to outweigh the benefits of dropping Caremark
d) the execs decided to set aside their concerns when their stock prices took a hit.
This last likely had some influence, as both companies (in theory) exist to serve their shareholders. Both entities’ share prices declined after the spat became public; when the resolution was announced share values jumped 5% for each company.
Sources indicate that the deal included compromise on two key points – Caremark will continue to market PBM options that favor CVS stores and Walgreens will get their concerns about pricing inconsistencies addressed.
There’s no question the loss of Walgreens, the nation’s largest pharmacy chain with 7000+ stores, would have significantly hurt Caremark’s marketing efforts, especially in New York, San Francisco, and other key markets where Walgreens is the dominant chain. And the timing was tough for the big PBM, coming just as large employers were making decisions about their 2011 benefit plans. Perhaps Caremark felt a bit of pressure from current customers, and decided to compromise rather than risk losing significant share to competitors Medco and Express Scripts.
Conversely, although Caremark’s prescription business only accounted for 7% of revenues, the people picking up scripts also bought cosmetics, batteries, toiletries, and other products that probably accounted for a few more percentage points of revenue for Walgreens. In the low-margin retail pharmacy business, the loss of these profitable dollars would be very, very hard to offset.
What does this mean for you?
The takeaway for me is a renewed realization of just how interdependent providers and payers are.
As you think about markets in health care, it is helpful to remember most are highly mature with significant barriers to entry especially for payers.
Jun
28
