(Updates throughout with comments from Delaware's Health and
Social Services.)
DOW JONES NEWSWIRES
Walgreen Co. (WAG) said it had made significant concessions in
talks with the state of Delaware's about its planned reimbursement
cuts and warned the state's proposal would cause more significant
disruptions to Medicaid patients than its officials expect.
"Cutting reimbursement rates to pharmacies isn't in the best
interests of patients, pharmacies or the state when that leads to
less access for patients and higher costs," said Walgreen senior
vice president Kermit Crawford.
The company added it previously agreed to accept nearly
two-thirds of the rate cut proposed by the state.
Rita Landgraf, secretary of Delaware's Department of Health and
Social Services, said the state had unsuccessfully tried to
negotiate with Walgreen in May, and presented a reimbursement rate
that represented a 50% reduction from its planned rate cut.
Landgraf said the company verbally said it couldn't accept the
negotiated rate.
Walgreen said the state's current proposal would result in the
company losing money on 84% of the brand-name prescriptions it
fills for the Delaware Medicaid program.
Earlier this month, the nation's largest drugstore chain by
sales said new state rules involving Medicaid reimbursement that
are scheduled to become part of the state's new budget on July 1
would reduce the price for brand-name medications, making it
uneconomical for pharmacies to continue to fill the
prescriptions.
The state, meanwhile, responded by saying businesses needed to
help share in the burden of the recession. On Wednesday, Crawford
said Delaware was "attempting to place unfair budget burdens on the
backs of pharmacies."
"The state is turning a blind eye to the disruption its rate cut
will cause to those who are in most need of assistance," Crawford
added.
As a result of the planned changes, Walgreen said it would pull
all of its Happy Harry's pharmacies from the program as of July 6.
Walgreen, which acquired the Happy Harry's pharmacies in 2006, is
the largest pharmacy provider in Delaware.
The company maintained it believed the state would realize
savings by improving generic dispensing throughout its entire
pharmacy network.
For example, Walgreen said it fills 69% of Medicaid
prescriptions with generics, while all other pharmacies in the
state fill 63% with generics. It said that each percentage point
amounts to $1.2 million in potential savings, and said Delaware
could save more than $7 million a year by bringing other providers
up to Happy Harry's and Walgreen's level.
Delaware spokeswoman Landgraf said Walgreen at one point said
savings of $10 million could be achieved through other means, but
said the company wouldn't detail any specifics about how those
savings could be achieved.
"My guess is that they don't believe we expense generics at the
rate in which we could, but our total rate for generics through the
Medicaid program is 89%," Landgraf said. She added that rate was
regardless of what pharmacies within Delaware are dispensing.
"We are mandated by the Medicaid program to use generics and the
only time Delaware uses the brand name is when a doctor provides
the state with medical evidence as to why they believe strongly
that a brand should be used over a generic," Landgraf said.
Landgraf said the state was disappointed it couldn't reach a
partnership agreement with Walgreen, adding it "didn't foresee
negotiations going forward at this point." Delaware is already in
the process of looking at other locations to get prescriptions
filled at other pharmacies, and Landgraf said the state was
"confident there is adequate access."
Rite Aid Corp. (RAD) is the second-largest pharmacy provider in
the state, with CVS Caremark Corp. (CVS) and Wal-Mart Stores Inc.
(WMT) having a large presence as well.
Shares of Walgreen were inactive in after-hours trading, after
closing up 1.2% to $30.
-By John Kell, Dow Jones Newswires; 201-938-5285;
john.kell@dowjones.com