Now that Express Scripts’ takeover of Medco has gotten the okay by federal regulators, it’s a done deal. The new company will be the nation’s largest pharmacy benefit manager, with only CVS-Caremark
There’s pressure on Express to get this deal done as well, as sources indicate the giant PBM will make some clients “whole” on scripts purchased at Walgreens, albeit only for a limited time. That’s costing Express more money every day; while the “limited time” make-whole deal will expire (for many customers) at the end of June, customers will not take kindly to an end in Express’ subsidy of Walgreens’ scripts. Most assuredly Walgreens is well aware of the growing pressure on Express, and likely made the decision to wait it out, hoping that a) the Medco deal would be rejected by the Feds, and b) as the make-whole guarantees expired, Express would be forced to sweeten their offer to Walgreens.
Now that the deal has been approved, there’s a bit more pressure on all parties to resolve their differences, sign a new contract, and move on. While Walgreens is a major force in retail pharmacy with their 8200 stores making them the largest chain, ESI-Medco will handle a full 40 percent of all scripts in the US.
That’s just too much market share; Walgreens has to get a deal done. Script volume declined by 8% – 9% late last year, likely as a result of the loss of ESI contract. Now that ESi brings those scripts to the bargaining table, Walgreens will be hard pressed to come up with any business case wherein not contracting with ESI-Medco is viable.
But, many (including your correspondent) also thought the two parties would get a deal done earlier this year. There is always the chance that there’s just too much of a gap, and/or too much animosity.
And, Walgreens does have an alternative ‘strategic option’; they can acquire Rite-Aid, thereby upping the ante. That deal has been rumored for some time, and could be part of their overall negotiating tactics, as well as a long-term strategic move.
Of course, Medco has had and continues to have a contract with Walgreens, a contract that resulted in 125 million scripts for Walgreens. Now that Express and Medco are coming together, the Medco contracting folks may (pure speculation here) take the lead on resolving the issue. As they’ve not been involved in the previous (failed) negotiations, they may be able to resolve the impasse more quickly by not having to rebuild relationships and re-establish trust.
Remember – while the deal is between companies, the deal-makers are people, and people have to get the deal done. I’d bet they will, and give odds.
What does this mean for you?
Consolidation among the largest buyers of scripts may mean lower costs for their customers, but as the market consolidates further, it could may lead to monopolistic pricing.
Apr
13
Express Scripts remains committed to providing our workers’ compensation clients the best services possible at the lowest net cost. To that end, the Walgreens mitigation plan – allowing clients to pay the lesser of state fee schedule or their contracted rate for Walgreens’ paper bills – will remain in place through the end of 2012. Our 24-hour support line continues to be available to assist injured workers in moving to a different, more cost-effective pharmacy. We continue to be open to welcoming Walgreens back into our network at appropriate rates for our clients.