Walgreen Co. to phase out Caremark business

NEW YORK - Drugstore chain Walgreen Co. said Monday it will no longer do business with CVS Caremark's pharmacy benefits management operation because it wants better prices and objects to policies designed to drive customers toward CVS stores.

The decision does not affect current Caremark contracts, but if Walgreen stands by the move, it won't handle any Caremark-managed prescriptions in about three years. Walgreen said it will not participate in new or renewed Caremark plans starting Monday.

Walgreen is the largest U.S. drugstore chain in terms of locations and revenue, slightly ahead of CVS Caremark Corp. It runs more than 7,500 stores across all states, along with Puerto Rico and Washington, D.C.

The company said it is giving up billions of dollars in revenue with the move, although the full effects won't be felt for a few years. The company said it gets about 7 percent of its annual sales from Caremark plans. That share amounted to about $4.5 billion in fiscal 2009.

Caremark, which CVS acquired in early 2007, is a pharmacy benefits manager. It contracts with employers to handle the drug benefit portion of their health plans. PBMs pay pharmacies to fill prescriptions, saving money by negotiating volume discounts.

CVS Caremark is the second-largest drugstore chain and the third-largest PBM. It has used Caremark to push customers to fill prescriptions at CVS stores, hoping to convert those patients into regular customers.

Critics say operating both a drugstore chain and PBM poses a conflict of interest and reduces customers' options.

CVS said it was "surprised and disappointed" by the decision and had recently discussed these subjects with Walgreen's management. It said it is open to additional talks but added that Walgreen is trying to squeeze Caremark into giving better reimbursement rates.