Walgreen Sees Flexibility To Keep Medco Clients If Merger Wins Approval
March 27 2012 - 2:56PM
Dow Jones News
Walgreen Co. (WAG) says it sees some flexibility in retaining
access to Medco Health Solutions Inc.'s (MHS) clients even if the
pharmacy-benefits manager is acquired.
Walgreen's management told analysts during an earnings
conference call that while it hopes to maintain a relationship with
Medco if a merger with Express Scripts were to occur, discussions
with health plans and employers led the drugstore chain to believe
Medco's clients have greater control to keep Walgreen in their
network than Express Scripts' customers did.
A contract between Walgreen and Express Scripts expired at the
end of last year over a dispute involving reimbursement rates.
Though Walgreen doesn't have full visibility into the specific
clauses and contracts Medco has with its clients, Chief Financial
Officer Wade Miquelon said Medco clients have the added benefit of
watching the Express Scripts contract dispute unfold and can look
ahead to when their contracts end.
Walgreen declined to provide any specific details about its
terms with Medco, though Miquelon called the company's ongoing
contract with Medco "fair for both parties." He added Walgreen
intends to serve all patients unless the new company took "an
extraordinary action, effectively terminating the existing contract
or materially changing the terms or financial agreements."
Express Scripts spokesman Brian Henry said his company wouldn't
speculate on how a potential merger with Medco could affect
existing contracts. Medco declined to comment on the specifics of
its contract, adding until the merger was completed, it continues
to operate in competition with Express Scripts.
Walgreen on Tuesday said the impact of no longer being in
Express Scripts network hurt fiscal second-quarter results by 7
cents a share, and it warned the loss of that business will result
in a roughly 21-cent hit to fiscal-year earnings. Analysts and
investors have fretted about the bottom-line impact if more clients
were to be lost in the event Express Scripts wins regulatory
approval to acquire Medco.
Last year, Walgreen filled about 125 million prescriptions for
Medco members and this year, as a result of Medco's client changes,
the drugstore is on pace to fill about 108 million
prescriptions.
Taking into account some known client changes to other PBMs,
including UnitedHealth Group Inc. (UNH), Walgreen estimates that
the book of business with Medco will total about 74 million
prescriptions at the start of next year. Miquelon warned actual
2013 business with Medco could face further adjustments following
the PBM selling season.
Walgreen's shares were up 0.9% at $34.69 in recent trading,
while Express Scripts and Medco each inched lower.
-By John Kell, Dow Jones Newswires; 212-416-2480;
john.kell@dowjones.com
--Jon Kamp contributed to this article.
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