Consumers caught in CVS-Walgreens crossfire

By Parija Kavilanz, senior writer


NEW YORK (CNNMoney.com) -- The feud between two of the nation's largest drug chains intensified Wednesday after CVS Caremark dropped rival Walgreens from its pharmacy benefits plan, a move that could force some consumers to pay much more for drugs at Walgreens pharmacies.

Stocks of both companies fell Wednesday, with CVS down about 1.5% and Walgreen Co. down nearly 3%.

CVS (CVS, Fortune 500) said it was terminating Walgreens (WAG, Fortune 500) from its pharmacy benefits management after Walgreens "surprised" its rival on Monday by announcing that it will no longer participate in new or renewed plans from CVS' drug benefits unit.

CVS Caremark said the termination would take effect in 30 days, or as otherwise required by applicable law or contract requirements. In addition, CVS Caremark said it was terminating Walgreens' participation in its Medicare Part D retail pharmacy networks effective Jan. 1.

Consequently, some CVS Caremark plan members may not have their prescriptions honored at a Walgreens pharmacy after the 30-day period.

In that situation, plan members can still choose to go to Walgreens for their drugs, but would have to pay the full cash price for their prescriptions, according to CVS spokeswoman Christine Cramer.

"The prescription would not be eligible for the discounts negotiated between the plan and the PBM," she said in a statement e-mailed to CNNMoney.

For other CVS Caremark members, depending on their plan designs, they may be able to fill prescriptions at Walgreens pharmacies, but "out of network" benefit rules would apply next month.

That means members would have to submit a paper claim to Caremark for a portion of the prescription costs paid by the member to Walgreens. Cramer said CVS Caremark typically processes such paper claims for a fee.

Walgreens spokesman Michael Polzin said CVS' actions were "disappointing" and would impact consumers.

"Walgreens has more than 50% of the nation's 24-hour and drive-thru pharmacies," he said. "Right now, you may be 2 miles from a Walgreens, but because of this action, you may have to drive 20 miles to another pharmacy to get prescriptions filled."

Walgreens operates more than 7,500 stores nationwide. It and its affiliates, including Duane Reade in the New York area, are often the dominant drug store chain in a region.

For its part, CVS maintains that without Walgreens, its pharmacy network includes about 57,000 pharmacies across the country, including other national and regional retail chains, supermarket-based pharmacies and independent pharmacies.

"More than 92% of Caremark members have access to a participating pharmacy within a 5-mile radius of where they live, either with or without Walgreens in the network," said Cramer.

Earlier this week, Walgreens cited several reasons for its decision to limit its relationship with CVS Caremark. Among them, the company alleged that CVS Caremark drug plans were increasingly requiring patients to fill their prescriptions at CVS or through Caremark mail services, instead of at Walgreens or other pharmacies.

The company also said CVS Caremark's reimbursement rates for drugs were unpredictable and "often don't reflect the market" rates.

CVS hit back, saying Walgreens announcement was "nothing more than a transparent attempt to try to raise the pharmacy reimbursement rates it receives from CVS Caremark."

"We've seen Walgreens use this approach in the past, targeting employers, health insurers, government entities and other plan sponsors," Per Lofberg, president of CVS Caremark's PBM business, said in a statement Wednesday.

Walgreens also runs a PBM plan, with a few million members, according to Polzin. He said Walgreens' PBM members can still get their prescriptions filled at CVS pharmacies. To top of page

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