Drug War!

A Dispute Over Filling Prescriptions

Published: June 9, 2010

A fight has broken out between the nation’s biggest drugstore chains, Walgreen and CVS Caremark, potentially affecting where millions of consumers can fill their prescriptions.

J.B. Reed/Bloomberg News

A Walgreen store in New York. The chain has about 7,500 stores nationwide.

On Monday, Walgreen, which operates about 7,500 drugstores across the country, announced it would not participate as a prescription drug provider for customers in new drug benefit plans administered by CVS Caremark.

CVS Caremark, besides operating more than 7,000 of its own drugstores, is also a leading provider of prescription drug benefit plans that many employers offer workers and their dependents.

On Wednesday, CVS Caremark countered the Walgreen move. The company said that anyone now enrolled in its drug benefit plans would have to stop filling their prescriptions at Walgreen within a month.

“It’s a real big game of chicken, and I don’t know who’s going to win this one,” said Edward A. Kaplan, a benefits expert at the Segal Company, a consultant to big employers.

Mr. Kaplan said he was working with employers to determine how many of their workers might be affected if they were forced to stop using Walgreen under their plans.

Smaller drugstore operators had already raised antitrust concerns against CVS Caremark, citing potential conflicts caused by its dual role as a pharmacy chain and a drug plan administrator. The National Community Pharmacists Association, which represents independent drugstores, said the Federal Trade Commission was investigating its accusations of anti-competitive practices by CVS Caremark.

The commission confirmed the investigation but declined to comment on the nature of the inquiry.

Attorneys general in 24 states are conducting a similar investigation, according to CVS Caremark.

In a statement, CVS Caremark said Wednesday it remained “confident that our business practices and service offerings are being conducted in compliance with antitrust laws.”

While CVS Caremark said that the vast majority of customers could easily find a nearby pharmacy other than Walgreen, Mr. Kaplan and other benefits consultants said the standoff could be disruptive.

In certain companies, they say, as many as 20 to 30 percent of employees enrolled in plans administered by CVS Caremark are filling their prescriptions at Walgreen. For those corporations, “it is significant,” said David Dross, an executive for the consultant Mercer who advises companies on pharmacy benefits.

This dispute, of course, could be brinksmanship of the sort that frequently occurs between health insurance plans and hospitals, in which consumers are threatened with the possibility of their hospital’s being dropped from an insurer’s network until the two parties finally reach an agreement on how much the hospital should be paid.

In deciding to drop Walgreen before Walgreen could drop it, CVS Caremark said it was simply reacting to its rival’s attempt to extract higher payments for the drugs that CVS Caremark enrollees buy at its stores.

“Walgreen’s announcement was nothing more than a transparent attempt to try to raise the pharmacy reimbursement rates it receives from CVS Caremark,” the company said in a statement on Wednesday.

Besides battling over drugstore customers, Walgreen and CVS Caremark compete to a lesser extent in providing employee drug benefit plans, although CVS Caremark is a much bigger player in that field.

The two companies “are effectively choosing to be direct competitors in administering plan benefits as well as prescription drugs,” said George Hill, an analyst with Leerink Swann.

Because employers may resist limiting the choice of pharmacies for their workers, the dispute could benefit some competing drug plan managers like Express Scripts and Medco Health Solutions, analysts said.

In announcing Monday that it would no longer participate in CVS Caremark drug plans, Walgreen said that its rival was essentially using its prescription coverage business to steer patients to its own CVS drugstores, discriminating against competitors.

Over time, “we went from being a valued provider within CVS Caremark’s network to, we believe, being more of a competitor to CVS drugstores within their network,” Gregory D. Wasson, the chief executive of Walgreen, said in a phone interview on Wednesday.

Certain CVS Caremark drug benefit plans have diverted long-standing customers away from Walgreen and the pharmacists with whom those customers have trusted relationships, Walgreen said. In particular, Walgreen cited Maintenance Choice, a CVS Caremark drug plan that requires people taking long-term medications to refill their prescriptions at a CVS pharmacy or through the company’s mail service — or to pay more, potentially full price, at a competing pharmacy.

CVS Caremark said on Wednesday that those plans were meant to provide more choice for workers whose employers would otherwise restrict them to mail-order services for long-term prescriptions.

The Walgreen complaints echo some of the concerns that smaller drugstores have raised about CVS Caremark, said B. Kemp Dolliver, a research analyst who follows the industry for Avondale Partners. Mr. Dolliver personally owns stock in two drug benefit competitors to CVS Caremark. The Federal Trade Commission is currently looking into some of the issues raised by the smaller pharmacies, he said, and the Walgreen dispute could draw even more attention to these potential concerns.

Independent pharmacists argue CVS Caremark has limited consumers’ choices of where to refill their prescriptions.

“When a patient does not have the right to choose the health care provider, in this case the pharmacy that they choose and trust, that’s not good,” said Joseph H. Harmison, the president of the National Community Pharmacists Association, a group representing nearly 23,000 independent community pharmacies and pharmacy chains.

Some people who feel intimidated by physicians turn to their local pharmacists for medical advice about their prescriptions, he said. “The pharmacist is often the person a patient will wait to ask the questions to,” he said.

Last May, his association filed a complaint with the Federal Trade Commission alleging that CVS Caremark had used its dominant position in the pharmaceutical service industry to eliminate consumer choice and drive consumers away from competing pharmacies.

The F.T.C. confirmed Wednesday that it was investigating CVS Caremark, but Richard A. Feinstein, the director of the agency’s bureau of competition said the commission would not comment on the subject of the probe.

Consultants and analysts say it is unclear whether the pharmacy benefit business will move toward a business model in which patients will no longer be able to fill their prescriptions at every drugstore but be forced to go to a select group of retailers.