One of the biggest healthcare companies in America fired a warning shot at Valeant

Express Scripts, the largest pharmacy benefit management company in America, just kicked Glumetza, a diabetes drug owned by Valeant Pharmaceuticals, off the list of drugs it will reimburse.

That means that if you try to buy the drug at a pharmacy that uses Express Scripts to process claims, Express Scripts will tell you it’s a no-go.

In a post on its website, Express Scripts said it is dropping Glumetza from its formulary ― the list of drugs it will reimburse ―
because Valeant increased the price of the drug by 800% in 2015.

“On Monday, February 1, a more affordable generic equivalent to Glumetza will be available in the US. But recent agreements Valeant has signed with retail pharmacies now potentially encourage the pharmacies to bypass the more affordable generic metformin and instead dispense branded Glumetza at a higher cost to American payers,” it said.

Valeant has been under fire for price increases since last fall, and its interim CEO will appear before Congress next week to testify about his company’s pricing policies.

In October, Valeant became the bane of Wall Street when accusations of fraudulent activity from a short seller started a fire-sale that sent the stock plummeting. The accusations were related to Philidor, a til-then secret specialty pharmacy Valeant was using to distribute its products and bypass insurers which wanted customers to purchase cheaper generic drugs. All of this turmoil hit the company over a matter of weeks.

New strategy

In order to pick itself back off the ground, in December Valeant introduced a new strategy and a new partnership. The company signed a deal with Walgreens to offer Valeant products at discounted prices at its 8,000 stores. Then-CEO Mike Pearson said that instead of depending on price, Valeant would make money based on the volume of drugs sold.

“What we want is strong growth and volume growth but the sceptics have said it’s all price,” he said in an interview with CNBC.

This Walgreens deal is what is upsetting Express Scripts. Usually, it will still process a more expensive version of a drug, but encourage customers to go for the generic. Kicking a drug out of its formulary entirely is really rare, as Bloomberg points out.

There are two clear reasons why Express Scripts would do this. First, because it sees the Walgreens deal as a way for Valeant to bypass its practice of pushing customers toward cheaper options. That raises cost for payers.

“By excluding Glumetza from these formularies, Express Scripts clients are ensuring that their patients be dispensed the more affordable generic formulation of metformin. Branded Glumetza will not be allowed to process, even at retail pharmacies that have signed agreements with Valeant to prioritise the dispensing of Glumetza,” Express Scripts said.

That means you, Walgreens.

Another reason Express Scripts might want to stop reimbursing Glumetza is because it’s feeling pressure from insurers to lower costs. Specifically, Anthem, which manages plans for a bunch of insurers like Blue Cross Blue Shield, wants to renegotiate its 10-year contract with Express Scripts, according to Reuters. Anthem’s CEO thinks it could save his company $3 billion.

That news, which was delivered at a JPMorgan Healthcare conference earlier this month, sent Express Script’s stock down almost 20%.

So everyone’s going to have to downsize.

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