To quote the great Peter Finch’s character Howard Beale in Network “….My life has value….I’m mad as hell, and I’m not going to take this anymore.” I guess this may apply to anticipated potential unrest when pharmacy benefit plan sponsors go to renew their CVS/Caremark contracts and find out that Walgreens has decided to drop out of the Caremark network. While it won’t take effect for current contracts, it will apply for all new contracts and renewals. With the announcement yesterday (http://bit.ly/cUXu80), Walgreens sent the analysts scurrying for answers. Was this a pre-emptive strike against an arch-rival, a response to the market impact that Caremark’s Maintenance Choice (90-Day at Retail program) has had, or a little of both? Maybe even a little competitive envy, since Walgreens PBM arm, Walgreens Health Initiatives, offers a similar 90-Day at Retail program to Caremark’s, called Advantage 90. In any case, it was a bold announcement by Walgreens, since the Caremark business represents about 11% of their revenues!
In our opinion, this movement is the beginning of what we’ll call “Being Networked.” It’s actually a progression of what we at WBC (www.wbcbaltimore.com) , and others have called “The Walmart Effect,” i.e., bringing improved pricing through select networks (we like that term over “restricted”). Being Networked then means that plan sponsors will be presented the choice of reducing the size of their PBM network in exchange for improved pricing, all while trying to balance any potential employee/member noise over the loss of retail outlets. In the case of Walgreens and Caremark, however, the plan sponsor won’t have a choice. Walgreens has made it for them!
A number of issues remain to be seen. Will Caremark find 1/1/11 renewals difficult to sell, without the Walgreens stores? Will employees/members really care? Will improved discounts off of AWP (as a result of a select network)really change the net cost of drugs to any substantial degree? As in most areas of PBM-ology, the answer is ” It depends.” Mostly, it depends on the geography of the plan sponsor and their employees/members. In many areas, Caremark can easily jettison Walgreens without missing a beat. Benefit managers will hardly hear a peep from employees, simply because CVS, Rite-Aid, Walmart, Target and the supermarkets offer more than adequate access. The fact is, just about no plan sponsors needs the full 60,000+ store retail networks offered by most PBMs. The opposite is also true in some markets where Walgreens rule. It should be interesting to see what happens in metro NYC with the Duane Reade chain that was purchased by Walgreens in March 2010 and remains the dominant retail outlet in that market .
The real story behind the story, however, in the opinion of WBC, is how does a plan sponsor select a PBM to manage their pharmacy benefit? The plan sponsors generally are looking for three things: reduced cost, member satisfaction, and management assistance so the H.R. departments aren’t taxed with pharmacy benefit- related issues. This announcement from Walgreens may motivate plan sponsors to dig a little deeper as to what they are receiving from their PBM. We believe it should also open the discussion regarding not just meaningless superficial discounts in a spreadsheet analysis, but real plan management for significant reduced net cost.