Because better compliance reduces the need for more-expensive treatment, like surgery?
Yes. When people with chronic conditions go off their medicines, that’s when you get into the very big dollars. For example, average compliance in diabetes medications is only in the 40th percentile. But if you could have compliance at a much higher level, over the life of a [patient] you could reduce the medical cost per year by thousands of dollars.
This summer there was a dispute between Walgreen and the state of Delaware over Medicaid reimbursements. Walgreen complained that what the state wanted to pay for branded drugs wouldn’t cover the company’s costs. Have you reached a compromise?
I don’t know if it’s a compromise, but we’ve reached a point where we’re working together. If we’re going to buy a drug from a brand manufacturer for $60, how can we sell it to a Medicaid patient for $50? We just can’t. What we have suggested is that if they make generic substitutions in their formulary in certain cases, we can save them more money in total.
Do you see this kind of dispute happening with other Medicaid programs as the states struggle to make ends meet?
We’ve always had this issue, but I think the states realize that the gross profit margins for pharmacy are not big. That penny-to-a-penny-and-a-half I mentioned? If you squeeze that by even a tenth of a penny, you’d put many pharmacies out of business.
Walgreen has plenty of competition these days: other drugstore chains, Wal-Mart, groceries, mail order, Internet sales. How are you responding?
If we offer the best customer experience, we can continue to build share. We’re channel agnostic, so we have a mail business; we’re happy to do mail. We have a strong, growing online business. We run lots of hospital pharmacies, lots of work-site pharmacies. It’s like [when we started] our drive-thru pharmacies: people said that was heresy — how could you not have someone come into the store and get the script and maybe buy something else, too? But at the end of the day, it was another channel that the consumer wanted.
You’re also making a big push into health care by opening retail and corporate clinics.
We have about 720 clinics. CVS has slightly more retail clinics, but in terms of total clinics we’re the largest by far. We’re on 400 corporate work sites; a lot them are Fortune 500 companies. I think this is the model of the future, given all of the stress on health care and the need to cut costs. You shouldn’t have a child with pink-eye going to the emergency room. [The clinic is] convenient; you can walk in off the street. It’s affordable; most insurance covers it. Most clinic services range in cost from $59 to $74. And if our nurse practitioner isn’t qualified to treat a patient, we do referrals very quickly, to a doctor, emergency room, or whatever is required.
Would universal health care affect this strategy?
I don’t think so, because what we have in the United States is not only an affordability issue but an access issue. We have 68,000 health-care professionals in the company — pharmacists and pharmacy technicians, nurse practitioners and doctors — at 7,000 points of care. We have them in pharmacies, hospitals, corporate campuses, home environments. Using this very affordable network to help people manage outcomes could really help transform how we think about that first layer of health care in America.