Express Scripts Gets $2.4 Billion Maryland Deal Despite Walgreen Issue

Maryland's Board of Public Works has awarded Express Scripts Inc. (ESRX) a five-year, $2.4 billion contract to provide pharmacy benefits and prescription coverage for state workers and retirees, despite concerns about those people losing access to Walgreen Co. (WAG) pharmacies.

The decision marks a win for Express Scripts, which secured a large deal despite its fractured relationship with the nation's biggest drugstore chain. Walgreen dropped out of Express Scripts's network on Jan. 1 because the two sides couldn't agree on contract terms, sending Express Scripts-covered members to other pharmacies.

The pharmacy-benefit manager in May will replace Catalyst Rx, a unit of Catalyst Health Solutions Inc. (CHSI), as the PBM serving Maryland workers, retirees and dependents. Express Scripts was picked based on estimates it can save the state more than $100 million over the next five years.

Still, Wednesday's decision by the three-member Public Works board was not without controversy. Board member Peter Franchot, also the state comptroller, raised concerns about the disruption for people forced to switch from Walgreen, which has 58 pharmacies in Maryland.

He voted against the contract award while also raising concerns about taking away business from a local firm--Catalyst is based in Rockville, Md.--in favor of St. Louis-based Express Scripts.

But the other board members, State Treasurer Nancy Kopp and Gov. Martin O'Malley, voted to give Express Scripts the business.

The contract-award process has dragged more than a year, and has been fiercely contested, according to The Baltimore Sun, which reported on the matter Thursday. Catalyst was unsuccessful in an appeal process, the newspaper reported.

David Blair, Catalyst's chief executive, called the Walgreen issue the "most troubling" in the contract dispute, but not because of concerns about access. Instead, he argued bids weren't evaluated fairly because once Express Scripts lost Walgreen, it gained an ability to secure steeper discounts from other pharmacies that stand to gain more Express Scripts business.

"Obviously we are very perplexed with this procurement process," Blair said, speaking during Wednesday's Public Works meeting, which was recorded.

Express Scripts has long argued that the people it covers maintain broad access to pharmacies even without Walgreen outlets in the network. The company in a statement said it looks forward to serving the state and saving Maryland taxpayers money.

-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com

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