Walgreen Says No to Doing Business with CVS Caremark

Discussion
Jun 08, 2010
George Anderson

By George Anderson

Walgreens announced yesterday it would no longer do business with CVS Caremark. The drugstore chain believes CVS’s pharmacy
benefits management (PBM) division is set up to drive down its profits while
pushing consumers to do business at CVS stores.

In particular, Walgreen took
issue with CVS Caremark’s Maintenance Choice
program. The drugstore chain said the CVS program forces many patients to either
use its mail order service or one of its pharmacies.

“In the three years
since the CVS Caremark merger, it has become increasingly clear to us that
Caremark’s
approach to Walgreens as a community pharmacy within CVS Caremark’s retail
network has fundamentally changed, and we are no longer viewed as a valued
community pharmacy within its PBM network,” Kermit
Crawford, executive vice president of pharmacy for Walgreens, said in a press
release.

CVS Caremark put the blame squarely back on its rival.”Today’s
announcement by Walgreens is nothing more than a transparent effort to raise
its reimbursement rates at the expense of plan sponsors and members and illustrates
an inability to adapt to the demands of the marketplace … The fact is our
clients, not retail pharmacies, dictate plan designs. Unfortunately, Walgreens
has a demonstrated pattern of publicly objecting to plan designs not to their
liking, such as mail based programs and other innovative programs that are
designed to reduce costs and meet client needs.”

The move, assuming the
two parties don’t arrive at a truce, could be costly for both companies.

Walgreen,
which said it would handle current Caremark contracts but not new ones, gets
about seven percent of its annual revenue from doing business with its rival
based on an Associated Press report.

CVS Caremark could find it more
difficult to get companies to sign on for its PBM program if Walgreen was not
an option for filling prescriptions.

Discussion Question: What is your take on Walgreens’ decision to no longer
work with CVS Caremark’s pharmacy benefits manager business?

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12 Comments on "Walgreen Says No to Doing Business with CVS Caremark"


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Charlie Moro
Guest
Charlie Moro
10 years 10 months ago

This does not seem to be so simple as to what company will be hurt in this battle. They both have a profit motive that I am sure is part of the foundation for whatever program is developed. The near-term issue for both is how exactly does it hurt the end user–the customer–by limiting their options and maybe raising their costs of drugs or the costs of inconvenience.

The customer at the end of the day is going to drive some changes in not only these two companies but in the opportunity window for some other company to fill in the gap for cost and convenience.

Do you think the pharmacy team in Bentonville is developing a strategy as we speak?

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
10 years 10 months ago

This issue is very similar to what happened to Pepsi many years ago when they owned restaurants. Restaurant chains that competed with Pepsi chains started dropping Pepsi and doing business with only Coca-Cola. Chains felt that each time they purchased Pepsi brands they were supporting their competitors in the restaurant business. Ultimately, Pepsi spun the restaurants off into their own company called Yum Brands.

This business issue is not much different. Caremark clearly benefits CVS and its overall bottom line. Walgreens support of Caremark over the last 3 years has only helped CVS. This will hurt both companies in the short term, but long term, Walgreen’s has made a smart move as long as they can build or work with another company that helps the consumer save.

David Biernbaum
Guest
10 years 10 months ago

Time will tell that Walgreens and CVS Caremark probably will need to find some common ground to work together.

Roger Saunders
Guest
10 years 10 months ago

Each group is going to feel some pain, as they will be making things more difficult for the consumer and for the companies that choose to have PBM programs a part of their health insurance programs.

Walgreens has 7,000 of the 64,000 pharmacy locations around the country, nearly 11% of total.

The potential upside, should this discussion between the two firms linger will be other PBMs like Express Scripts, Medco, etc., as well as grocery and mass merchant retailers who have pharmacy locations. The consumer and companies will vote with their feet.

Dan Raftery
Guest
10 years 10 months ago

It was only a matter of time before this happened. What I’ve never understood is how the FTC allowed the CVS Caremark deal in the first place.

Doug Fleener
Guest
10 years 10 months ago

What I find most surprising is how long it took to happen. Clearly CVS bought Caremark to boost their own sales, and so why wouldn’t we think they’d cherry pick the customers? At the same time, I can’t imagine Walgreens really wants to walk away from 7% (or whatever it is) of their customers.

I think both parties will need to find a compromise, but I wouldn’t be surprised that long-term, CVS will spin Caremark off.

Ed Rosenbaum
Guest
10 years 10 months ago

This took longer to happen than I would have thought. I expected it long before this.

Both companies are going to be hurt financially, Walgreens more than CVS in my opinion. CVS is the bigger player here and Walgreens is taking exception too loudly. Somehow they both have to return to the table and work it out. Or Walgreens might purchase a supplier like Caremark and begin competing. That will take too long to find and make happen, creating a much larger expense that could be difficult to recoup.

So admit you aren’t happy about it and get to a position to make it work for both sides.

Susan Rider
Guest
Susan Rider
10 years 10 months ago

Maybe the winner is not CVS or Walgreens but Wal-Mart. This conflict doesn’t seem to mean much to the consumer except to make them realize that the price options may be better somewhere else.

Frank DiPasquale
Guest
Frank DiPasquale
10 years 10 months ago

As stated in the article, the FTC has this company under investigation. I agree with Dan Raftery–how did the FTC allow this merger in the first place, and now how does the FTC unravel the problem they created? The behavior alleged by Walgreens is apparently not exclusive to them.

Jeff Hall
Guest
10 years 10 months ago

This will be an interesting stand-off to see play out. Unless Walgreens has identified an alternative to Caremark, it is hard to imagine them simply walking away from 7% of annual revenue. My bet is they’ll eventually come to an agreement that protects both parties’ interests.

Janet Schmidt
Guest
Janet Schmidt
10 years 10 months ago

Even though our drug plan is with CVS/Caremark, my husband and I get all of our prescriptions filled at Walgreens simply because it is more convenient. We make other purchases there at the same time. If Walgreens follows through with this we will have no choice but to move all of our prescriptions. Should that occur, we will have no need to set foot in Walgreens. Their merchandise selection and pricing is not enough of a draw on its own.

Kai Clarke
Guest
10 years 10 months ago

Duh! Why didn’t Walgreens stop doing business with Caremark as soon as they merged with their #1 competitor? This is a real no-brainer! Walgreens needs to either find a non-competitive partner for this or do it themselves. Less is more, but doing business with your competitor, especially in very competitive, recessionary times, just does not work.

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