So the fact that there may be more marketplace pull there only presents for me a sense of urgency for our team to do what we’ve already done and accelerate additional value creation that we can a) be paid for and b) that our payors can go out and win with. Rick, do you want to?
Rick Gates: Yes, Charles, this is Rick.
Tim Wentworth: Rick add some color.
Rick Gates: Yes. Sorry, Eric. The one thing I’ll add is that we’ve been very successful at making sure that we are negotiating straight and core dispensing as one rate and anything else, value add, is a separate rate. So when you think about pay-for-performance contracts or you think about any of our services like vaccinations or test, test and treat, those are completely separate reimbursements that we’re getting. So we’ve been very specific on how we contract so that we can be laser sharp on how we look at the unit economics of our scripts dispensing.
Eric Percher: That’s where I was going. Thank you.
Operator: Your next question comes from the line of Ann Hynes from Mizuho Securities. Please go ahead. Your line is open.
Ann Hynes: Hi. Good morning. Thanks for the question. So just Tim, a follow-up on the reimbursement model because, obviously, it’s a big focus for investors. I think you mentioned in Lisa’s question that you think it would take some time. Do you have a guesstimate on how long you would take it to implement? And maybe putting your payor hat on since that was the majority of your career, why do you think payors would be open to such a change? What would be the main drivers for them? And maybe what would be the benefit for them longer term. And what would be the benefit for Walgreen longer term?
Tim Wentworth: So how long to implement, as you know, PBM and health plan selling cycles are not short. And so what I would expect is to see material potential change within a year or two. And probably — but you’d also see for new sales midyear for small groups and stuff that churns more regularly, I think you could see a fairly quick uptake to the extent that the market is looking for this. And again, I say that cautiously because we’ve seen before with transparent, I remember in 2005, I think, as a PBM, I wrote the — we joined the Towers Watson collaborative and it was — we were doing traditional deals within six months alongside of the transparent because the market actually didn’t want the risk shifted to them. They wanted the risk being held by the PBM.
So in this case though, I think that the plan designs that the market have largely evolved to are creating this underlying demand to give patients the pass-through of the cost plus experience so that they don’t have an odd surprise when they go to the pharmacy counter of paying more for the drug than actually they would if they were a cash payor. So I do think that the employers don’t like the employees coming into their benefits office asking questions about how good are my benefits, if, in fact — this is my experience at the pharmacy counter. And that’s causing some demand. Again, I’d let the PBM speak for themselves as to why they’ve launched these programs. But I would suspect that, that’s a piece of it. I think as well, the regulatory environment continues to evolve.
And I think that it is very appropriately responsive to some of the concerns that exist there. So I don’t think it’s going to be — this is not a six-month implementation. We are prepared and already have sat down and had conversations to support these models, and we could convert to a cost plus model overnight. So we are a willing player in terms of what we would need to do to compete and win patients on a cost-plus basis. Why payers would do it? Again, I think I’ve just — I’ve answered that for you in terms of it comes down to providing a benefit in a labor market that’s fairly tough competitive-wise to folks that are valued. And so they want the benefit, the pharmacy benefits, the most used benefit, they want it to be valued. And they want it to be understood and they don’t want it to be confusing.
And so I think these models offer a pathway to achieve that. What’s in it for us is being paid fairly for the services we’re providing at the back of the store, and not subsidizing in a large-scale way the products that the patients are getting in a way that’s not economic for us. And I think the big change there, if you go back, there was an appropriate amount of incentive being created in the system to dispense generics, for lots of obvious and good reasons. If you go back 25 years ago, the generic wave was — people didn’t believe would happen. We had to do generic sampling in the PBM industry to even convince physicians that they were okay to dispense and easy to dispense. And so that’s different now. You’ve got 90-plus percent generic dispensing rates in most places.
And the need to cross-subsidize and force essentially the profit on to the generic side in exchange for a subsidy on the brand, particularly with the new brands that are coming out, just doesn’t work anymore for the pharmacies or, frankly, for the patients in high deductible plans. And so I think those powers will align to force this time a set of changes around reimbursement that may well stick.
