Walgreen Co is going through the worst part of not being in Express Scripts Inc's network and, while the transition is difficult now, the drugstore should rebound as the year progresses, its top pharmacy executive said on Monday.

Walgreen, the largest U.S. drugstore chain, has been at odds with pharmacy benefits manager Express Scripts since June, when the companies said they could not agree on a new contract that would have started on January 1, 2012. Now, after attempts to come to new terms were not fruitful, Walgreen no longer fills prescriptions for Express Scripts' members, unless they choose to pay another way.

Right now is the worst part for us of not being in Express Scripts' contract, Kermit Crawford, Walgreen's president of pharmacy, health and wellness solutions and services, said as he walked around the company's newest store in Chicago.

Walgreen asserts Express Scripts is focused only on drug spending and that's not how we think about healthcare, Crawford said.

Walgreen said it gave what was its best attempt at reaching an agreement back in mid-December.

As far as I'm concerned, the ball is in their court, Crawford added.

His chain says it wants to provide a more comprehensive approach to lowering the overall cost of healthcare. That plan includes filling prescriptions - what it is best known for - as well as services such as monitoring patients' adherence to drug regimens, checking conditions such as diabetics' glucose levels and offering in-store and workplace clinics.

The new Chicago store, in a spot that housed a Walgreens from 1926 until 2005, features an updated pharmacy where a pharmacist sits at a desk near patients rather than behind a high counter, along with two Take Care Health clinic rooms.

While Walgreen has not spelled out exactly what rates it would accept from Express Scripts, the chain is open to taking the rate is has with Medco Health Solutions Inc. It also feels that it reached a fair contract with CVS Caremark Corp back in 2010 after a brief dispute, Crawford said.

Express Scripts is in the process of trying to buy Medco, a deal that awaits regulatory clearance.

Early trends in 2012 validate Express Scripts' belief that 95 percent of prescription volume would continue without Walgreen, Chief Financial Officer Jeff Hall said on Monday during a JPMorgan healthcare conference in San Francisco.

Hall said that he does not want to negotiate the Walgreen dispute in the public.

We think cost has to go down. Walgreen thinks flat is good enough, he said.

Walgreen, for its part, said it offered to keep its rates flat for the next three years.

Walgreen still expects to retain 97 percent to 99 percent of its 2011 prescription volume this year, Crawford said.


Across its more than 7,800 stores, Walgreen is busy trying to keep Express Scripts' patients, including a January discount on its Prescription Savings Club card membership.

Nearly 125,000 customers signed up for the card during the first week of January, Walgreen said on Monday. Also, 122 payers have switched pharmacy benefits providers or tweaked their Express Scripts contracts to allow them to deal with Walgreen directly, said Crawford.

The new flagship store also shows how Walgreen is trying to become more of a one-stop shop outside the pharmacy area. It houses a coffee bar with a barista, a fruit and vegetable juice bar, desserts, including a frozen yogurt station and a variety of produce, frozen food and wine. Walgreen has had success with a similar Duane Reade store on Wall Street in New York that opened in 2011.

The chain replicated some of the features from that store, such as a sushi bar and small manicure salon, here on Chicago's State Street, just north of a large Macy's Inc department store and across the street from a now-closed Borders shop.

The new store, with 21,000 square feet of selling space, eclipses the size of a typical Walgreens, at 11,000 to 13,000 square feet, said Chief Merchandising Officer Bryan Pugh.

Upstairs, in the Look Boutique, people can test light up mirrors and turn on blow dryers to feel their power before they buy, Pugh said. Steps away, women can get $10 manicures.

Downstairs, in the wine section, patrons can choose from more than 450 different types of wine, with bottles priced from $6.99 up to $449.99 for a 2006 Penfolds Grange.

Freshly-baked breads and a barista serving Metropolis coffee drinks are unique to the store, Pugh said.

Shares of Walgreen, based near Chicago in Deerfield, Illinois, closed 1.27 percent higher at $33.50 on the New York Stock Exchange.

(Reporting by Jessica Wohl in Chicago; additional reporting by Jessica Hall in San Francisco and Lewis Krauskopf in New York; editing by Andre Grenon)