Walgreen, which was founded in Chicago, has dropped its bid for a lucrative contract with the city and several of its agencies.
José Moré/Chicago News Cooperative
A Walgreen Co. executive improperly took a competitor’s confidential financial data, forcing the drugstore giant to withdraw from the bidding for a lucrative contract to provide pharmacy services for the City of Chicago and most local government agencies, the Chicago News Cooperative has learned.
Walgreens is out of the bidding for the contract, most likely worth hundreds of millions of dollars, after a company executive in January obtained bid materials from CVS Caremark as the two companies competed for the contract to manage the drug plans for employees at City Hall and other local government agencies, said a high-ranking City Hall official who was granted anonymity because of the sensitivity of the issue.
The Walgreens executive is no longer with the company, and Walgreens promptly hired the law firm of a prominent former federal prosecutor, Patrick M. Collins, to conduct an internal investigation.
In a statement sent to the Chicago News Cooperative, Walgreens officials on Friday characterized the incident as the action of a sole employee who did not have authorization from superiors.
Public documents show that CVS, which is based in Woonsocket, R.I., and acquired Caremark, a pharmacy benefits manager, in 2007, has provided the service for at least the past six years for the city government, Cook County, Chicago’s school system and the Chicago Transit Authority.
A spokeswoman for CVS Caremark declined comment on the incident involving the documents the company had created for its current bid.
Walgreens, which is based in Deerfield, was one of five companies that responded in November to a request for proposals to manage drug benefit programs, for at least three years, for employees of the City of Chicago, the county, the Chicago Board of Education, the City Colleges of Chicago, the transit agency and the agency’s retirees.
While the ultimate dollar amount of the contract will not be determined until the bid process is finished, City Hall has paid Caremark more than $492 million since entering into a contract in 2004. The Chicago Public Schools cut checks to Caremark for almost $150 million in the last three years, and the transit authority’s Web site shows that Caremark’s work for the C.T.A. has been worth almost $100 million since 2007.
The government agencies involved in the bidding employ tens of thousands of people, virtually all of whom are covered by a health plan with drug benefits. The documents provided to bidders request price quotes for filling 350,000 to three million prescriptions a month. The winning bidder will hold the contract for three years, with two one-year options.
Walgreens’ withdrawal leaves four bidders: CVS Caremark, Medco Health Solutions, BlueCross BlueShield of Illinois and Sav-RX Prescription. An evaluation committee with representatives from each of the government agencies is expected to choose a winning bidder within a few months, said Monique Bond, a spokeswoman for the Chicago Public Schools, which is conducting the bid process.
Walgreens is currently a minor player in the lucrative business of managing health benefits for government agencies and corporations, and so the withdrawal is a significant blow. The contract represented a chance for the company, founded in Chicago, to win a high-profile contract in a nationally competitive bid process.
The company’s Walgreens Health Initiatives processes prescriptions and provides other services for more than 9.2 million people nationwide, and sends their business to more than 7,000 Walgreens pharmacies.
CVS Caremark, in contrast, operates one of the largest pharmacy benefits management businesses in the United States, which serves an estimated 210 million Americans through a variety of health care plans.
The CVS Caremark documents were taken as final bids were being prepared. CVS Caremark executives had mistakenly left the materials in a room where bidders took turns meeting with an evaluation panel, the City Hall official said.
A Walgreens spokesman said the company responded “appropriately and responsibly,” quickly informing public officials in Chicago and executives at the other bidding companies.
“In January 2010, the company discovered that an employee improperly obtained bid information during a pharmacy benefit management bidding process,” Michael Polzin, a Walgreens spokesman, said. “We immediately retained outside counsel to lead an internal investigation into the matter.
“As a result of the internal investigation, we voluntarily withdrew our bid and notified the responsible city officials regarding the circumstances of our withdrawal.”
The company’s investigation has been completed, Mr. Polzin said, and “the employee who took the information is no longer with the company.” He would not say whether the executive had been fired.
Mr. Collins, who led the inquiry for Walgreens, declined comment.
In hiring Mr. Collins to conduct the internal investigation, Walgreens engaged a high-profile former assistant United States attorney who played a significant role in obtaining public corruption convictions during his 12 years as a federal prosecutor in Chicago. Among the officials Mr. Collins helped send to jail were George H. Ryan, the former governor, and Robert A. Sorich, the longtime patronage chief for Mayor Richard M. Daley.
Since leaving the United States attorney’s office three years ago to go into private practice with the downtown firm of Perkins Coie, Mr. Collins has frequently conducted internal corporate investigations like the one for Walgreens. He has remained in the public eye as a leading voice for cleaning up corruption in the state. Last year, Gov. Patrick J. Quinn appointed him to lead the Illinois Reform Commission, and Mr. Collins makes frequent appearances in local news media.
The City Hall official said that in the investigation on behalf of Walgreens, Mr. Collins had contacted lawyers for the city and for the Chicago Public Schools. Local government officials declined comment.
Asked what Mr. Collins or Walgreens had disclosed to city officials about the executive’s misconduct, Melissa Stratton, a spokeswoman for the city’s Law Department, said, “The investigation is being conducted by Walgreens on their own behalf, so it would inappropriate for the city to comment.”
Ms. Bond, the school district spokeswoman, also referred questions about the matter to Walgreens.
Other instances of corporate cheating have shown that such behavior can have negative consequences that far outweigh the value of any competitive advantage that could be gained. In 2003, the Boeing Company was forced to give up $1 billion of contracts to launch rockets for the United States Air Force and was barred from competing for future business after it admitted that a former employee had stolen thousands of documents from rival Lockheed.
At a time when state and local government budgets are shrinking, contracts to manage drug benefits for public employees are particularly prized. Unlike many other government budget items at a time of forceful cost cutting by local governments, health care benefits are relatively secure because they often are awarded as a result of union bargaining.
Companies that manage drug benefits have increasingly engaged in pitched battles over the highly lucrative contracts to dispense medicine to government employees.
In a notable case last year, Express Scripts Inc., based in St. Louis, contested the State of Michigan’s plan to award an $879 million, three-year contract to BlueCross BlueShield of Michigan to manage pharmacy benefits for the state’s 144,000 employees, dependents and retirees. Express Scripts argued that Blue Cross inflated the number of Michigan jobs it planned to create if it got the contract. Express Scripts also moved to block the award of a $1.3 billion contract to Catalyst RX for managing benefits to retirees from the state’s public school system.
CVS Caremark and Walgreens have moved aggressively into the nation’s $300 billion prescription drug market, where prices are expected to rise about 5 percent this year. CVS paid $26.5 billion to buy Caremark RX in 2007.
David Greising, Crystal Yednak and Katie Fretland contributed to this article.
So the CVS executive who left the files behind still has his/her job?