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Health Plans Steer Members Away From Walgreen's Drugstores

By Jon Kamp Of DOW JONES NEWSWIRES As Walgreen Co. (WAG) gets closer to leaving Express Scripts Inc.'s (ESRX) pharmacy-benefit network on Jan. 1, big health plans are steering members toward other drugstores to make sure their medication is still covered. These efforts highlight the potential fallout Walgreen faces in its contract-renewal dispute with Express Scripts, which manages drug benefits for health insurers and employers. Express Scripts represents about 90 million prescriptions and $5.3 billion in annual Walgreen revenue, and while Walgreen doesn't expect to lose it all, the shift in traffic to competing drugstores could be substantial. WellPoint Inc. (WLP) and the U.S. military's Tricare health plan--which combined represent roughly half of Express Scripts' revenue--are among the big clients alerting their members. "Unless an agreement is reached between Express Scripts and Walgreens, members will no longer be able to receive coverage for their prescription medications from Walgreens pharmacies," WellPoint warned in an online post. The insurer, Express Script's biggest client, has sent letters about the change to pharmacy members who used Walgreen recently, plus all members on Medicare plans, a spokeswoman said. WellPoint has also reached out through automated and live phone calls, plus inserts in open-enrollment packages. Tricare has been working with Express Scripts since August to alert beneficiaries to the potential Walgreen network loss. These efforts include phone calls to members on specialty drugs, direct mailings and outreach to providers, a Tricare spokesman said. The military health plan is also following up with members whose prescriptions are still filled at Walgreen; the drugstore's current contract with Express Scripts runs through this year. Walgreen has tried hard to keep the Tricare business, which includes nearly 6 million beneficiaries and is Express Script's second-biggest client. Walgreen has an online petition for Tricare members to voice their desire to maintain Walgreen access; the drugstore recently said it had collected more than 250,000 signatures. Walgreen, which last month indicated little customer disruption, declined to offer updated comments on where things stand or potential changes ahead of its quarterly earnings report next week. The drugstore, which posted net sales above $72 billion in the fiscal year ended Aug. 31, has said long-term fall-out from accepting Express Scripts's terms would be worse than the short-term impact of losing business. Walgreen could win back some prescriptions if Express Scripts clients eventually depart for pharmacy-benefit managers that provide Walgreen access. While Walgreen is the biggest U.S. pharmacy chain with 7,700 outlets, there are tens of thousands of other pharmacies in Express Scripts's network. Tricare said about 99% of beneficiaries will have an alternative pharmacy within five miles, meeting or exceeding access standards in the health plan's contract with Express Scripts. Elsewhere, Blue Cross Blue Shield of Massachusetts said it has notified members they will have to switch from Walgreen pharmacies before Jan. 1. The largest private health plan in Massachusetts, with nearly 3 million members, said it is confident it will retain good pharmacy access. Arise Health Plan, a Wisconsin non-profit that covers the Green Bay Packers, has also advised members to move their prescriptions, Chief Operating officer Mark Minsloff said. Express Scripts--which has online tools to find other drugstores--has assured Arise all members who have used Walgreen have another option within four miles, Minsloff said. Likewise, WellPoint has done its own analysis and believes that, on average, members will have another in-network pharmacy within a half mile, spokeswoman Lori McLaughlin said. The insurer didn't have an estimate for how many members are affected. The Walgreen loss may still be straining WellPoint's relationship with Express Scripts, which earlier this week disclosed a contract dispute with the insurer. Express Scripts and WellPoint wouldn't disclose details, but some analysts believe the Walgreen issue could be involved. Walgreen shares have tumbled about 24% since the Express Scripts dispute went public in June. Analysts at William Blair believe losing Express Scripts-related traffic could cost Walgreen $3.1 billion in sales this fiscal year and $5.2 billion the next year. That would benefit companies like CVS Caremark Corp. (CVS) and Rite Aid Corp. (RAD), the second- and third-largest drugstore chains, respectively. "We're certainly in a position to capitalize," CVS Chief Executive Larry Merlo said in a recent interview. Walgreen, which has retained a handful of Express Scripts clients with contracts that allow them to maintain Walgreen access, has said it expects to achieve 97% to 99% of its fiscal 2011 prescription volume in the current year. Express Scripts, meanwhile, has said it expects 95% or more of its volume to move forward without Walgreen. -By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com

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