Walgreen drops Express Scripts contract

Walgreen Co. said it did not renew a $5.3 billion annual contract with Express Scripts, in part because the pharmacy benefits manager was proposing “unacceptable” reimbursement rates that it says are below the industry average.

The Deerfield, Ill.-based pharmacy chain said 7,700 Walgreens and Duane Reade pharmacies will be removed from the Express Scripts network starting Jan. 1, 2012.

“Based on the terms and rates that Express Scripts has insisted on and after months of unsuccessful negotiations, we have reluctantly concluded that this does not make sense for our business and the strategic direction of our company to continue our relationship with them,” Greg Wasson, president and CEO of Walgreen, said during a conference call.

Roughly 7%, or $5.3 billion, of Walgreen's total sales are expected to come from St. Louis-based Express Scripts reimbursements in fiscal 2011, according to Walgreen.

“We believe the long-term ramifications of accepting Express Scripts' proposal with below market rates and minimal predictability for the services we provide would have been much worse than any short-term impact to our earnings,” CFO and Executive Vice President Wade Miqelon said in a Walgreen news release.

The company said it remained optimistic and is preparing plans to reach out to Medicare beneficiaries—Medicare Part D patients make up an 11% slice of the company's business with Express Scripts—during the upcoming open enrollment season.

Express Scripts issued a release stating that Walgreen's “current rates are not competitive with pharmacy peers” and patients and clients will face branded price inflation under Walgreen's proposal.

The St. Louis-based company also disputed Walgreen's claims that Express Scripts changed the definition of generic and brand-name drugs. Walgreen had said that Express Scripts “insisted on being able to unilaterally define contract terms, including what does and does not constitute a brand and generic drug.”