CVS, Walgreen settle contract dispute

CVS Caremark and Walgreen said Friday that they have agreed on a deal under which Walgreen will continue participating in its drugstore rival's pharmacy benefit management program.
CVS Caremark and Walgreen said Friday that they have agreed on a deal under which Walgreen will continue participating in its drugstore rival's pharmacy benefit management program. Lisa Poole / AP
/ Source: The Associated Press

CVS Caremark Corp. and Walgreen Co. have settled a dispute that threatened to change where millions of Americans can fill prescriptions.

The companies, which said Friday they have agreed on a multiyear deal but did not disclose its terms, were battling over the amounts Caremark reimburses Walgreen for filling prescriptions for Caremark patients.

Shares of both companies rose Friday.

Walgreen and CVS do billions of dollars in business together each year, as Walgreen is the largest U.S. drugstore operator and CVS's Caremark is the third largest prescription benefits manager. It handled drug benefits for about 53 million people last year. At the same time, the CVS drug store chain is Walgreen's top competitor.

Last week, the companies said they would end their relationship and Walgreen would stop accepting Caremark insurance.

Walgreen, based in Deerfield, Ill., with more than 7,500 stores across the country, wanted Caremark to pay it more for filling prescriptions, and it wanted Caremark to drop policies encouraging members to fill prescriptions at CVS's 7,000 stores.

Individual plan vary, so even before the recent dispute, some Caremark plans didn't cover prescriptions filled at Walgreen stores, and they still won't.

Caremark said last week that Walgreen was demanding unreasonable rates that would drive up health care costs for both Caremark patients and benefit sponsors like employers. It said it would stop letting its patients fill prescriptions at Walgreen July 9, although some Walgreen stores would have stayed in the Caremark network longer.

Millions of prescriptions and billions of dollars in sales hung in the balance: Most people whose prescriptions are managed by Caremark would have had to go to CVS or stores like Kroger or Safeway if they wanted coverage for their drug costs. Thousands of stores participate in Caremark plans, and CVS Caremark said shoppers would suffer little to no inconvenience without Walgreen.

Walgreen said one in 10 prescriptions it fills is managed by Caremark. Those prescriptions brought in more than $4.5 billion over the last year, or 7 percent of Walgreen's total revenue. Roughly two-thirds of Walgreen's revenue comes from filling prescriptions.

CVS's Caremark unit negotiates contracts with employers to insure their workers' drug benefits, and it pays pharmacies to fill prescriptions. It makes money by negotiating volume discounts and pocketing some of those savings.

Analysts said Caremark ran the risk of losing contracts with health plan sponsors who wanted their network to include the nation's largest chain of drugstores. Some said Caremark also could have lost business to rivals Medco Health Solutions and Express Scripts as a result of the dispute.

On June 7, Walgreen announced it wanted to bring a gradual end to its relationship with Woonsocket, R.I.-based CVS Caremark. Two days later, CVS Caremark upped the ante by saying it wanted to break up in a month.

Kermit Crawford, executive vice president of pharmacy for Walgreen, said in a statement that he is pleased at the new pact. He said it "assures choice and convenience for the many consumers who look to us for quality pharmacy care."

Per Lofberg, president of CVS' pharmacy benefit management business, also said in a statement that he was glad.

"We are pleased to have reached a mutually agreeable solution together with Walgreens that is consistent with our top priority to provide convenient access to affordable high-quality pharmacy health care," Lofberg said.

Shares of CVS rose 59 cents, or 1.9 percent, to close Friday at $32.43, after picking up 5.2 percent earlier in the day.

Walgreen shares closed up 82 cents, or 2.8 percent, at $30.09 after rising as much as 7.2 percent.