Delaware, Walgreen in 30-day Medicaid compromise

* Walgreen to keep filling Delaware Medicaid prescriptions

* Walgreen was set to stop filling prescriptions Monday

* Chain will now remain in program until at least Aug. 5

CHICAGO, July 6 (Reuters) - Walgreen Co (WAG.N) will keep filling Medicaid prescriptions in Delaware until at least early August as the drugstore chain tries to reach a compromise with the state over reimbursement rates.

Walgreen, the largest drugstore operator in Delaware with 62 stores, planned to stop filling Delaware Medicaid prescriptions on Monday in protest of the state's decision to reduce the amount it reimburses pharmacies.

Under an agreement reached late last week, Walgreen will remain a Medicaid provider until at least Aug. 5 as it continues talks with Delaware's Department of Health and Social Services, the state and Walgreen said in a statement on Monday.

Delaware cut its reimbursement level to 84 percent from 86 percent of the average wholesale price back in April. After discussions with Walgreen, Delaware agreed to cut only to 85 percent as of July 1. Walgreen has agreed to fill Medicaid prescriptions at that 85 percent rate as discussions continue.

The truce comes after a heated battle, including a lawsuit filed by pharmacy industry groups, who claim that the state violated federal law by ignoring the impact the reimbursement cuts will have on patient access to quality care. They also wanted the rate cuts halted while a judge considers the suit.

Walgreen has argued that it would lose money on most branded drug prescriptions it fills for Medicaid patients under the lower reimbursement rate and made suggestions such as filling more prescriptions with lower cost generic drugs.

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

Medicaid provides health insurance to low income people and is jointly funded by states and the federal government. One in five people in Delaware, or about 160,000, get Medicaid benefits. (Reporting by Jessica Wohl; Editing by Derek Caney)