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Implications for pharma are in continuing pricing pressure, and preferences for distribution channels
The battle for winning patient/consumer loyalty for drug dispensing might be over, but the war is still on. At the beginning of the year, Walgreens (Deerfield, IL), the largest chain pharmacy by store count, opted not to renew its dispensing contract with Express Scripts (St. Louis), even as that company was finalizing its acquisition of Medco, the No. 3 PBM (which passed regulatory review in the spring). Under conventional drug-dispensing practices, most chain pharmacies will fill prescriptions brought to them under the policies of most PBMs, for a fee negotiated with the PBM. Walgreens did not want to comply with Express Scripts’ terms, and Express Scripts basically walked away from the business. The result: signs in various competing pharmacy windows saying, “We honor Express Scripts prescriptions,” and a 15% drop in Walgreens’ same-store sales.
Now, after some stockholder unrest (partially brought on by Walgreens decision to acquire the UK pharmacy and distributor, Alliance Boots), Walgreens has agreed to (undisclosed) terms with Express Scripts. Now, too, the idea that a drug-dispensing network can be set up independently of some or many retail pharmacies—the so-called “narrow network”—has more or less been validated. Express Scripts apparently did not lose contracts with employer health plans (which was the risk it took), and now seems to have a freer hand in getting various pharmacy chains or other purchasing networks to bid against each other for the Express Scripts business. Medco’s existing pharmacy relationships (which are up for renewal after the acquisition) are already reportedly in play. Express Scripts, in its annual Drug Trend Report, said that the situation in the first half of the year confirmed its belief that “the vast majority of the US has an oversupply of pharmacies, suggesting that networks can be tightened significantly” (Pharmaceutical Commerce, July/Aug, p. 8).
Does this industry churning matter to pharma manufacturers? On one level, it means a tougher negotiation with PBMs on drug pricing and tiers. On another level, it could affect the existing limited-distribution agreements for specialty pharmaceuticals (which are handled by the specialty-pharmacy arms of both PBMs and chain pharmacies), as well as the small but growing number of business relationships between manufacturers and chain pharmacies for coupon redemptions, medication adherence programs and other types of patient outreach.