Kroger is threatening to exit Express Scripts' network if the pharmacy benefit manager does not agree to a more “equitable and fair” contract.
Kroger said it has attempted--to no avail--to negotiate more favorable rates with Cigna subsidiary Express Scripts dozens of times over the past eight months, the company said in a news release. Express Scripts’ proposal is “far out of line” with the industry standard, according to the supermarket company.
Kroger is the nation’s sixth-largest pharmacy chain and operates 2,200 pharmacies and 220 clinics, most of which are located inside its grocery stores.
Express Scripts, meanwhile, said Kroger’s proposal would lead to higher drug costs for patients.
Kroger provides pharmacy services for 17 million patients, and more than 90% of its customers would be unaffected if the Express Scripts agreement ends, according to the grocer.
Express Scripts' sheer size makes the contract stakes higher for Kroger than for the PBM. Express Scripts gives Kroger access to millions of customers, said Antonio Ciaccia, CEO of drug pricing research firm 46brooklyn Research and president of 3 Axis Advisors. The grocery chain could be requesting a rate increase as a way to stymie staff shortages that have plagued the industry, he said.
The direct consequences of Kroger leaving its network would be modest for Express Scripts. Fewer than 1.5% of Express Scripts’ 108.2 million customers fill prescriptions at Kroger. Being excluded from Kroger would cause Express Scripts to lose less than 1% of the 1.6 billion orders the PBM is expected to process in 2023, Credit Suisse analyst A.J. Rice wrote in a research note Monday.
Nevertheless, if the grocery chain terminates its agreement with Express Scripts, CVS Health and Walgreens could benefit, Rice wrote. That’s what happened in 2012 when Walgreens publicly left the Express Scripts network. At the time, CVS and Rite Aid advertised that they would continue to fill prescriptions ordered through Express Scripts and captured significant market shares.
“In this case, Walgreens saw significant same-store declines in script volumes before eventually rejoining Express Script’s network. Net-net, we see this as a part of the ongoing negotiations between the two companies with limited implications for Cigna,” Rice wrote.
Termination of the Kroger contract could pose patient access issues, particularly for people who receive health coverage through the Tricare military benefits program.
Starting Oct. 24, approximately 15,000 community pharmacies will no longer fill prescriptions for Tricare military personnel and families after the government failed to reach an agreement with Express Scripts. Kroger’s announcement and Tricare network changes are unrelated, an Express Scripts spokesperson wrote in an email.
“Kroger’s timing is curious with everything happening with Tricare. It suggests that it's probably Express Scripts turning the dial a little bit,” said Antonio Ciaccia, CEO of drug pricing research firm 46brooklyn Research and president of 3 Axis Advisors.
The PBM could be asking to pay pharmacists less for dispensing medications, Ciaccia said. If Express Scripts loses a significant number of pharmacies, employers, state Medicaid programs and other government agencies could cut their contracts with the PBM over concerns about policyholders' ability to conveniently fill prescriptions, Ciaccia said.
More than three-quarters of independent retail pharmacies reported struggling with worker shortages over the past six months and 90% are looking to hire pharmacy technicians, according to an August survey of more than 300 independent pharmacy owners and managers by the National Community Pharmacists Association.
Large retail pharmacies are responding to the staffing crunch by offering big bonuses and reduced working hours. Walgreens is reportedly offering pharmacists sign-on bonuses as high as $75,000. Rite Aid has temporarily closed most pharmacies an hour earlier than normal to alleviate staff stress and help providers catch up on their work. CVS hired more than 10,000 pharmacy technicians in 2020 and plans to hire thousands more.
“From a Kroger perspective, it wouldn't surprise me if these pressures that we’re feeling and seeing in other pharmacy chains are also being reflected" in the dispute with Express Scripts, Ciaccia said. He described Kroger's position as, "Look, we are not going to be able to continue to stay ahead of our staffing challenges if we're faced with rates that are going to be increasingly less sustainable."
Kroger in May reportedly stopped accepting GoodRx prescription discounts at its facilities. This represented 25% of GoodRx’s prescription business and led the digital health company to cut its quarterly guidance by $30 million. GoodRx said the issue was resolved in its second-quarter earnings call in August, although it did not provide details.