Walgreen stays in Delaware's Medicaid program

A customer drives away from the Walgreens in Westminster, Colorado October 30, 2008.

CHICAGO (Reuters) - Walgreen Co will continue filling Medicaid prescriptions in Delaware under better terms than the state had proposed.

After more than three months of discussions, Delaware and Walgreen, its largest drugstore chain, reached an agreement in principle on Monday. The state wants two pharmacy industry groups to drop a related lawsuit they had brought before it will call the deal official.

Walgreen, which operates stores in Delaware under the Happy Harry's name, was the only company to publicly fight against the state's original plan.

Walgreen threatened to walk away from the state's Medicaid prescription program if changes were not made, but twice delayed its departure as discussions continued.

The company agreed on Monday, the day before its latest deadline, to accept Delaware's new reimbursement rate of 85.5 percent of the average wholesale price, versus the 85 percent the state had agreed to after earlier talks with Walgreen.

Delaware said it should save $250,000 this year with the reimbursement rate at 85.5 percent, down from the $500,000 it expected to save with the rate at 85 percent.

Delaware in April cut its reimbursement level to 84 percent from 86 percent as it tried to chip away at an $800 million budget gap.

Walgreen had argued that it would lose money on most branded drug prescriptions it fills for Medicaid patients under the lower reimbursement rate. During the tense negotiations, it made suggestions such as saying that Delaware could save millions of dollars by getting more pharmacies to fill a larger number of Medicaid prescriptions with generic drugs.

Delaware said on Tuesday that it would give pharmacies a larger reimbursement for filling certain prescriptions with generic drugs. That move will help the state save $250,000, bringing its total savings back up to $500,000.

That change also gives additional incentives for dispensing generic drugs to Medicaid patients, a Walgreen spokesman said.

Medicaid, which provides health insurance to low-income people, is jointly funded by states and the federal government. One in five people in Delaware, or about 160,000, gets Medicaid benefits.

Delaware wants the two groups that sued its governor Jack Markell, the state's department of health and social services and its secretary, Rita Landgraf, to drop the suit.

The industry said that the state had violated federal law by ignoring the impact the reimbursement cuts would have on patient access to quality care.

The National Association of Chain Drug Stores, which filed the suit along with the National Community Pharmacists Association, said it is reviewing the proposal, will discuss it with its members and make a determination about next steps.

Representatives for the National Community Pharmacists Association could not be immediately reached for comment.

Walgreen said it would no longer support the lawsuit.

Earlier this year, Walgreen threatened to bow out of filling Medicaid prescriptions at 44 Washington state pharmacies in protest against a similar move, and succeeded in getting a smaller cut in that reimbursement rate.

(Reporting by Jessica Wohl; Editing by Lisa Von Ahn and Robert MacMillan)