Even if Walgreen moves aggressively, hospice pharmacy is likely to make up just a fraction of the billions in revenue the company lost this year due to a protracted dispute with pharmacy benefit manager Express Scripts Holding Co. that ended in mid-September. Omnicare Inc., the dominant player in hospice pharmacy, generated about $174 million in revenue in 2011 from the specialized field.
The move seemingly signals a change in strategy for Walgreen, which exited the long-term care business in September 2010, saying it didn't want to make the “significant additional investment” to become a market leader.
Now, Walgreen is apparently coming back with a more focused approach, targeting just one part of the $14 billion annual institutional pharmacy industry, which sells drugs to assisted-living facilities and nursing homes as well as hospice providers.
The new effort is an example of how important business decisions are sometimes the result of trial and error, as executives replace one plan with another, experts in corporate strategy say.
“They learned a good lesson (from the old long-term care business), and from that time forward they've been searching for another, smarter way to get back into that business,” says James Schrager, a professor at the University of Chicago's Booth School of Business.
Walgreen's interest in the field dates to at least 2005, when it formed a joint venture with an Aurora, Colo.-based specialty pharmacy to cater to assisted-living and specialty-care facilities. Walgreen bought out its partner two years later.
In 2010, Walgreen traded the long-term care business to Omnicare in exchange for the Covington, Ky., company's home-infusion business.
A few months after the sale, Walgreen signed a yearlong trial agreement with OnePoint Patient Care LLC, a Morton Grove-based hospice pharmacist, to fill medication orders for OnePoint in Las Vegas. In October 2011, the deal was extended, with plans to expand the arrangement to include three more markets.
But the relationship turned rocky, and at an Oct. 5 meeting with OnePoint Chairman and CEO James Otterbeck, Walgreen Divisional Vice President Jack Cantlin said his company was starting a “national hospice program,” according to a Walgreen meeting agenda attached to OnePoint's complaint, filed Dec. 3 in Cook County Circuit Court. A Walgreen spokesman declines to comment, and a OnePoint spokeswoman declines to comment on Walgreen's plans.
Unlike other health care sectors, the hospice industry isn't dominated by pharmacy benefit managers such as St. Louis-based Express Scripts, which use their leverage to bargain for better prices. That gives Walgreen a chance to negotiate directly with providers.
Walgreen “ultimately wants to cut out that middleman,” says Steve Morton, CEO of Menasha, Wis.-based Morton Long Term Care Pharmacy Solutions. In the hospice business, “there isn't as much of a squeeze on the margins because the PBMs aren't as involved.”
Stefanie Woodrow, a Birmingham, Ala.-based health care consultant and former hospice administrator, adds: “In doctors' offices, patients have the right to choose their pharmacy. But when you enter hospice, you have to go under the hospice's pharmacy.”
Claire Bushey contributed.