--Walgreen joins with more health insurers to create limited
pharmacy networks for Medicare prescription drug plans
--Preferred networks offer financial incentives for seniors to
visit a preferred pharmacy chain
--Walgreen signs new agreements with Humana, UnitedHealth and
SmartD Rx
By John Kell
Walgreen Co. (WAG) is joining forces with more health insurers
to create limited pharmacy networks for Medicare prescription drug
plans, which can reduce costs for seniors while potentially lifting
volume at the drugstore chain's pharmacy counters.
Preferred pharmacy networks for Medicare Part D--the government
health plan's drug offering--offer financial incentives for seniors
to visit a preferred pharmacy chain, which in turn offers lower
costs to the plan's sponsors. Clients can visit pharmacies outside
the preferred network, but at a higher copay cost.
Walgreen will be a part of the preferred pharmacy networks for
Medicare Part D plans for Humana Inc. (HUM), UnitedHealth Group
Inc. (UNH), Coventry Health Care Inc. (CVH) and new Medicare Part D
offering SmartD Rx. A Walgreen spokesman said all of the agreements
were new with the exception of Coventry, whose preferred pharmacy
network Walgreen joined last year.
Humana helped pioneer this type of plan in 2010 through a
partnership with Wal-Mart Stores Inc. (WMT), and has said their
co-branded Part D offering has helped pump up its Part D membership
ranks.
Monday is the first day of Medicare's annual open enrollment
period, which runs through Dec. 7 and is the time seniors can sign
up for a new plan or change coverage. Those changes will then take
effect on Jan. 1.
Morningstar analyst Matthew Coffina said the disclosure signaled
a shift in Walgreen's strategy, saying it made sense to
increasingly participate in preferred or narrow networks, even if
the drugstore chain had to cede margins in favor of volumes.
"They tried to beat the pharmacy-benefit managers and now they
are joining them," Mr. Coffina said.
The most highly publicized example of that battle this year was
when Walgreen engaged in a contract spat with Express Scripts
Holding Co. (ESRX), opting to leave the PBM's network for several
months and resulting in millions of clients transferring their
prescriptions until the firms mended fences last month.
Mr. Coffina said Walgreen had previously argued that it could
command a premium for convenience from PBMs, as it touted the
company's vast network of drugstore chains that totals 7,944
domestically. PBMs handle drug plans for health plans, big
corporations and other clients, and they negotiate with pharmacies
over reimbursement rates for dispensing prescriptions.
"This announcement indicates that view has changed," Mr. Coffina
said, as convenience doesn't necessarily allow a drugstore chain
the ability to charge higher prices. He said PBMs and employers
aren't willing to pay extra to chains like Walgreen with over
50,000 domestic competitor pharmacies available to clients.
Walgreen on Wednesday said it has expanded its preferred network
relationships for the upcoming enrollment period to offer more
options for beneficiaries that use the company's locations and
services.
ISI Group analyst Ross Muken in a research note touted
Walgreen's expanded preferred network for the upcoming enrollment
period as an "incremental positive" for the company, as it could
help the chain reclaim prescriptions lost after it left
pharmacy-benefit manager Express Scripts's network for several
months earlier this year.
Mr. Muken said the agreements could also help improve traffic in
Walgreen's stores, a metric that has slumped this year when
millions of Express Scripts members were forced to transfer their
prescriptions away from Walgreen as the firms battled over a
contract. Walgreen is now attempting to win back those lost
clients.
Walgreen shares were up 2 cents at $35.62 in recent trading. The
stock has gained 7.7% this year, slightly under the S&P 500's
gain.
--Jon Kamp contributed to this article
Write to John Kell at john.kell@dowjones.com
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