Walgreen Sees Flexibility To Keep Medco Clients If Merger Wins Approval

Date : 03/27/2012 @ 2:56PM
Source : Dow Jones News
Stock : Medcohealth Solutions Common Stock (MHS)
Quote : 70.3  0.0 (0.00%) @ 2:05AM

Walgreen Sees Flexibility To Keep Medco Clients If Merger Wins Approval

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Walgreen Co. (WAG) says it sees some flexibility in retaining access to Medco Health Solutions Inc.'s (MHS) clients even if the pharmacy-benefits manager is acquired.

Walgreen's management told analysts during an earnings conference call that while it hopes to maintain a relationship with Medco if a merger with Express Scripts were to occur, discussions with health plans and employers led the drugstore chain to believe Medco's clients have greater control to keep Walgreen in their network than Express Scripts' customers did.

A contract between Walgreen and Express Scripts expired at the end of last year over a dispute involving reimbursement rates.

Though Walgreen doesn't have full visibility into the specific clauses and contracts Medco has with its clients, Chief Financial Officer Wade Miquelon said Medco clients have the added benefit of watching the Express Scripts contract dispute unfold and can look ahead to when their contracts end.

Walgreen declined to provide any specific details about its terms with Medco, though Miquelon called the company's ongoing contract with Medco "fair for both parties." He added Walgreen intends to serve all patients unless the new company took "an extraordinary action, effectively terminating the existing contract or materially changing the terms or financial agreements."

Express Scripts spokesman Brian Henry said his company wouldn't speculate on how a potential merger with Medco could affect existing contracts. Medco declined to comment on the specifics of its contract, adding until the merger was completed, it continues to operate in competition with Express Scripts.

Walgreen on Tuesday said the impact of no longer being in Express Scripts network hurt fiscal second-quarter results by 7 cents a share, and it warned the loss of that business will result in a roughly 21-cent hit to fiscal-year earnings. Analysts and investors have fretted about the bottom-line impact if more clients were to be lost in the event Express Scripts wins regulatory approval to acquire Medco.

Last year, Walgreen filled about 125 million prescriptions for Medco members and this year, as a result of Medco's client changes, the drugstore is on pace to fill about 108 million prescriptions.

Taking into account some known client changes to other PBMs, including UnitedHealth Group Inc. (UNH), Walgreen estimates that the book of business with Medco will total about 74 million prescriptions at the start of next year. Miquelon warned actual 2013 business with Medco could face further adjustments following the PBM selling season.

Walgreen's shares were up 0.9% at $34.69 in recent trading, while Express Scripts and Medco each inched lower.

-By John Kell, Dow Jones Newswires; 212-416-2480; john.kell@dowjones.com

--Jon Kamp contributed to this article.

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