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Published: Friday, 6/18/2010

Walgreen and CVS strike new deal, avoiding split

NEW YORK — CVS Caremark Corp. and Walgreen Co. have settled a contract dispute that would have prevented thousands of people from getting their prescriptions filled at Walgreen stores.

The two companies said Friday they agreed on a multiyear deal but did not disclose any terms. Shares of both companies rose more than 3 percent in morning trading.

The companies have been negotiating for months and earlier this month said they would end their relationship. That partnership allows people whose prescription drug benefits are handled by Caremark to be reimbursed for prescriptions filled at Walgreen's pharmacies. Walgreen has more than 7,500 outlets and is the largest U.S. drugstore chain operator, slightly ahead of CVS.

CVS Caremark, based in Woonsocket, R.I., said Walgreen's participation means the CVS Caremark national pharmacy network, the industry's largest, will have more than 64,000 participating pharmacies.

Walgreen, based in Deerfield, Ill., wanted to be paid more for filling prescriptions, and criticized Caremark for not paying enough and for policies that encourage shoppers to fill their prescriptions at CVS stores.

Caremark makes money by reducing costs for plan members and sponsors, and said Walgreen was demanding unreasonable rates that would have driven up health care costs.

Thousands of prescriptions and billions of dollars in sales hung in the balance: Walgreen said one out of every 10 prescriptions filled at its pharmacies is managed by Caremark. Those prescriptions bought in more than $4.5 billion in revenue over the last year, or 7 percent of Walgreen's total revenue.

Analysts said CVS Caremark ran the risk of losing contracts to health plan sponsors who did not want to join a network that left out the nation's largest chain of drugstores. The dispute went public while Caremark was trying to sign clients to contracts that go into effect next year.

Walgreen said June 7 that it wanted to end its relationship with CVS Caremark gradually, but CVS Caremark said two days later that it would exclude Walgreen from its networks in a month. Starting July 9, most people whose prescriptions are managed by Caremark would have had to go to stores like CVS, Kroger or Safeway if they wanted to be reimbursed for their drug costs.

“We are very pleased with the outcome of this mutual, multiyear agreement that meets our business objectives,” Kermit Crawford, executive vice president of pharmacy for Walgreen, said in a statement. “The agreement makes good business sense, provides the framework we need to operate our business going forward, and assures choice and convenience for the many consumers who look to us for quality pharmacy care.”

Caremark has one of the largest pharmacy benefits management networks. It negotiates contracts with employers and handles the drug benefit part of their health plans, paying pharmacies to fill prescriptions. It saves money by negotiating volume discounts.

“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,” Per Lofberg, president of CVS' pharmacy benefit management business, said in a statement.

Shares of CVS rose $1.04, or 3.3 percent, to $32.88 in morning trading while shares of Walgreen rose $1.13, or 3.9 percent, to $30.40.


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