CVS Corp. and other pharmacy chains also are pursuing Medicare Part D customers, but Walgreen has taken the early lead largely because of its deal with UnitedHealth. Some say Walgreen and other chains are flirting with the limits of the new program's antisteering guidelines in some of their marketing relationships with insurance plans. The Deerfield, Ill., company also enjoys advantages the Medicare plan gives large chains over discounters, such as Wal-Mart Stores Inc.

Through Medicare Part D, which took effect Jan. 1, the federal government pays a portion of seniors' prescription drug costs. To use the benefit, customers enroll in one of the dozens of insurance plans that have contracted with Medicare and are available in their area. Walgreen and other pharmacies are reimbursed by the insurance companies for the drugs they dispense.

Part D reimbursement rates -- which are set by insurance companies but reviewed by the government -- vary widely but are usually so low that many independent pharmacies worry they will be put out of business. Before Part D, many seniors either paid cash or used the federal Medicaid program, which gave pharmacies higher reimbursements. Some small pharmacies, unable to pay their employees, already have closed their doors. Others are refusing to honor insurance plans with the lowest reimbursement rates.

But that is less of a problem for Walgreen and other chain pharmacies that handle higher prescription volumes. CVS, the second-largest drugstore chain by revenue, has said the new benefit has been "slightly positive" for the company this year, and should further add to profit next year. Wal-Mart declined to give details about its Part D experience, but a spokesman said the retailer is "filling lots of prescriptions" for enrolled seniors.

Whereas the average independent pharmacy fills about 100 prescriptions a day, and the average chain about 180, the average Walgreen store fills 256 prescriptions. Walgreen has a 15% market share of all retail prescriptions filled in the U.S.

Several features of the Medicare drug benefit are driving more customers to Walgreen, the company believes. In the past, many senior citizens were uninsured and paid cash for prescriptions, so they went to discounters such as Wal-Mart or Costco Wholesale Corp. But under Part D, customers pay the same price no matter where they shop -- so Walgreen is no longer at a price disadvantage, allowing the company to capitalize on the convenience of having so many locations. There are about 1,700 more Walgreen nationwide than pharmacies operated by Wal-Mart.

Despite the thin profit margins, big volumes spell big dollars for Walgreen's bottom line. Mark Miller, an analyst at William Blair & Co., projects Part D will give Walgreen an added $6 billion in annual revenue over the next six or seven years. In total, Mr. Miller expects the drug benefit to add $70 million to Walgreen's annual pretax profit.

The program, along with other changes in the industry, is such a potential boon to the drugstore chain that it has shifted its longtime philosophy of expanding almost solely by opening new stores rather than by acquisition. Lately the company has been sending a letter to independent pharmacies welcoming "the opportunity to discuss the purchase of your business..." Earlier this month Walgreen said it is acquiring Happy Harry's, a chain of 76 drugstores based in Delaware. Financial terms weren't disclosed, but Walgreen said it hadn't made a purchase of comparable size since 1986.

Walgreen's aggressiveness has raised the ire of some smaller independent pharmacies. For example, customers who sign up at a Walgreen store for drug coverage through WellCare Health Plans Inc., the Tampa, Fla., insurer, do so on a form with a Walgreen logo and receive a prescription card also showing that logo. Other chain pharmacy logos also appear on prescription cards; some Cigna Corp. cards have Eckerd or Kmart logos, and some Humana Inc. cards bristle with store logos, including Wal-Mart.

The National Community Pharmacists Association, a group representing more than 24,000 independent pharmacies, says the "co-branding" logos are stealing business from small drugstores and shouldn't be allowed on the cards, because they mislead users into thinking they have to go to the pharmacy represented. Charles Sewell, the association's vice president of government affairs, says such logos "clearly violated" Part D's antisteering provision banning pharmacies from recommending a particular insurance plan. The logos on the cards, the association argues, implicitly endorse a plan.

"Some of my patients believed they could only patronize these pharmacies," Pam Grisnik, an independent pharmacist in Pennsylvania, testified at a congressional hearing last month.

In a recent draft of new marketing guidelines that would take effect Oct. 1, the federal Centers for Medicare and Medicaid Services said pharmacy logos would no longer be allowed on prescription cards. Walgreen believes it has complied with the law but "we have no problem with the rule change taking logos out of the equation," said Michael Polzin, a company spokesman. "We think it creates a very level playing field, and we're more than happy to compete under those circumstances." Other Walgreen officials declined to be interviewed.

Mr. Sewell's group is supporting legislation that would remove logos from all explanatory materials, including letters to beneficiaries and enrollment forms. While he is in favor of the proposed rule changes, he said, "The problem is, an entire year will have transpired, and the confusion in the marketplace has been allowed to go on for way too long."

Write to Amy Merrick at amy.merrick@wsj.com²