but I can't put my finger on it. Per the 1st qtr earnings conference call, Wasson says they tried again to resolve contract issues with Esrx last week, then turns around and says they are excited to go forward without them. Wasson is "locked and loaded" and Wade is continuing to "play the game". The effect on pharmacy GP is "material". ESRX is UP, MHS is UP and CVS is UP while WAG continues to go DOWN. There is more to this dispute than is revealed. Could it be that ESRX is paying back for the brand filling vs. generic that took place a few years back? Coult it be that they want the payback in the new contract? Definitely more than meets the eye going on in the background. Has this dispute become personal? Battle of the egos? Anybody care to speculate? (of particular interest is Wades comment of continuing to play the game!)
Personal or Not, this is about delivering to Wall street goals and projections.
Walgreens CEO from his statement, will not just sit by and kick the Can down the road into 1/1/12. Expenses where booked for the costs, going after Esrx book of business, And the Med D patient.
The CFO funded this exercise and needs a out should this go into June of 2012.. and the next Med.D selling season. My question is the CFO's model on retention, and utilization of Rx's by Plan members. This is way outside the expertise of a Retail Drug store and poses a risk of younger workers who don't fit the statistical models of utilization..
1. WAG trying to acquire RAD? A possibility. Would create more market power to counter PBMs. 2. What's going on with Wellpoint dispute with ESRX? Could it be they are trying to keep WAG in network? 3. WAG makes last ditch effort to resolve things with ESRX and offer to be lowest cost pharmacy for military members, but yet this isn't good enough for ESRX? Sounds personal to me since ESRX turned this down. Given they turned this down, one would believe the people making the military decisions would have to take notice. What would be wrong with WAG guaranteeing to be the lowest priced in network pharmacy? If I'm in charge of the military pharmacy contracts, I'm calling ESRX and raising h***. 4. ESRX wants to take WAG down with a crazy contract so they can then take down every other pharmacy with the same crappy contract and fill their pockets full of money at the providers expense. If WAG folds, everyone else would fold as well or lose their business to WAG. 5. ESRX didn't realize the fight they've picked. WAG is going to be relentless until they win this battle one way or another. This whole fiasco is going to cost them more than if they would have just come to an agreement. WAG will go after EVERY ESRX client to sway them to use a different PBM. If I were CEO of ESRX, I would want this issue affecting my selling season nor my potential merger with Medco. IMO, this could be viewed as a preview of the monopolistic practices ESRX/Medco would partake in should the merger be approved. 6. While I believe WAG is taking the short-term hit, I can't help but wonder what plays in this chess game have yet to be seen.
Interesting post. I think you are spot on regarding Express Scripts' intent here. This is not so much just another contract negotiation as it is a strategic move to force their reimbursement structure and mail-order model on the industry. You are absolutely right that if WAG were to cave, then everyone else in the industry would essentially be forced to fall in line, or risk losing massive market share. It's created an odd dynamic whereby WAG is fighting a fight, not just for itself, but in essence on behalf of all retail chain and indies (i.e. it's competitors).
It has been very interesting and insightful to watch the WAG response from the inside (full disclosure, I'm a WAG employer, NOT an investor here). What started as an effort to mitigate the damage done by losing ESRX (by convincing dozens of plans, companies, etc. to dump ESRX and by moving a lot of ESRX Medicare Part D into participating plans) has evolved into something else altogether. There is no talk, no chatter even, within the company of there being any potential deal with ESRX, now or ever. Rather, WAG seems to be in the process of attempting some massive end-around which would/might reshape the whole industry. The interesting thing is people (my superiors, for example) are very tight-lipped when it comes to talking about forward strategy (aside from what is known publicly). I don't know how this will take shape over the long-term, whether it involves further direct contracting, buy-outs of pharmacy chains that have existing contracts with Express Scripts, Walgreens getting into the insurance business themselves, further pressure on employers, insurers, and other entities like Tricare/DoD, to revamp their pharmacy benefits to include Walgreens.
All told, I agree that WAG is going to take a short-term hit as a result of this failed deal, but I think there are some big plans being put into motion that might essentially reshape the industry as we know it. PBM's might well moving into an era of less relevance.
It's hard to predict exactly how this will play out, but as I've said before on this board many times, I suspect it is going to end badly for ESRX.
That acted the bully and chose a fight but didn't stop to consider the consequences of what might happen if things didn't go their way.
Essentially, WAG has thumbed their nose at ESRX and the MHS/ESRX merger is seeming more and more likely to fail. I wonder what meetings in the ESRX strategy room are like these days. I bet they are tense!!