By Phil Wahba
NEW YORK (Reuters) - CVS Caremark Corp
The two drugstore rivals' shares fell on Wednesday as both stand to lose in the dispute. Shares of Walgreen, which gets about 7 percent of its revenue from the CVS drug plan business, were down 0.9 percent, while CVS's shares slipped 0.8 percent.
CVS Caremark's pharmacy benefits management (PBM) business administers prescription drug benefits for employers and health plans, as well as a large mail-order pharmacy.
Walgreen said on Monday it would not be a provider for any new or renewed drug plans handled by CVS's PBM network, because it favored CVS pharmacies. It cited efforts by CVS to divert more patients to its own drugstores and reimbursement rates that did not reflect the market.
But CVS said on Wednesday it would terminate Walgreen's participation in its retail pharmacy networks in 30 days, adding the agreement did not permit a selective partnership. CVS said Walgreen gets reimbursement rates similar to other big national chains.
CVS will also end Walgreen's participation in one of its Medicare retail pharmacy networks as of January 1.
Analysts doubted the two largest U.S. drugstore chains would disengage for good over the long term. Some see CVS rivals in the PBM sector, such as Medco Health Solutions Inc
"I still think it's a negotiating tactic on both sides. CVS has upped the ante," said Gabelli & Co analyst Jeff Jonas.
CVS's PBM business lost $4.8 billion in contracts last year and the company also has much at stake in this dispute, Gimme Credit's Director of Research Carol Levenson said in a note.
"Not only is Walgreen the nation's biggest pharmacy chain, but it also fills one out of every five prescriptions in the U.S.," she wrote.
Walgreen holds an 18 percent market share.
TIT FOR TAT
CVS, which bought Caremark for $27 billion in 2007 to expand its PBM operations, said it tried to negotiate with its rival to no avail and downplayed the importance of Walgreen's business.
CVS estimated that, of the 64,000 pharmacies that participate in its PBM business, about 7,000 are Walgreens drugstores. It also said member access to its network of pharmacies would remain basically unchanged without Walgreen.
The Walgreen move earlier this week did not cover existing PBM contracts, which it said tend to last for about three years. As a result, Walgreen did not expect the full revenue impact from its decision to hit for several years.
"Walgreens' announcement was nothing more than a transparent attempt to try to raise the pharmacy. Top reimbursement rates it receives from CVS Caremark," CVS PBM President Per Lofberg said in a statement.
He accused Walgreen of using such tactics in the past against employers and health insurers.
"We believe this approach is totally contrary to the needs of our clients who are all struggling to keep pharmacy health care affordable," he said.
Walgreen's Executive Vice President of Pharmacy Kermit Crawford said in response that CVS's actions showed a "patent disregard for patient choice and broad access" when it comes to filling prescriptions by canceling all participation outright.
CVS is the subject of a Federal Trade Commission investigation into its business practices.
The FTC, which approved CVS's purchase of Caremark, has been looking into allegations the merger gave CVS incentives to convince patients to get their prescriptions filled at their pharmacies.
"There have been many complaints about it (the merger) in its aftermath," Richard Feinstein, director of the FTC's Bureau of Competition, said on Wednesday at a breakfast to discuss antitrust matters. He declined to discuss the status of the investigation, which began in August 2009.
Walgreen shares were down 28 cents at $30.33, while CVS shares fell about 26 cents to $30.86 in midday trading. Medco rose 1.5 percent and Express Scripts gained 1 percent.
(Reporting by Phil Wahba; additional reporting by Diane Bartz in Washington and Nivedita Bhattacharjee in New York; editing by Michele Gershberg, Maureen Bavdek and Andre Grenon)
