On Tuesday, Walgreen Co. (NYSE: WAG) announced that it would not accept new or renewal business from prescription drug plans administered by CVS Caremark Corp. (NYSE:CVS).

It didn’t take CVS long to respond. Yesterday, CVS kicked Walgreen out of its network completely, saying that Walgreen’s move “violated the terms of its existing agreements and that Walgreens has failed to respond to efforts by CVS Caremark to continue business negotiations.”

When Walgreen made its move, the company surely had a longer-term plan in mind, and now CVS has taken the bait. Walgreen said, among other things, that CVS’s reimbursement rates were too low. CVS responded by saying that Walgreen gets “comparable reimbursement rates” with every other pharmacy, including CVS’s own stores.

It doesn’t matter who you believe, because reimbursement rates are not what’s at stake here. CVS gets half its revenues from its services business, which includes pharmacy benefits management, known as PBM. Walgreen has no such operation and has decided that it no longer wants to contribute to the CVS topline unless CVS will contribute to the Walgreen topline.

So, which company just shot itself in the foot? Walgreen got about 7% of its 2009 revenues from its now-dead deal with CVS, about $4.4 billion. That’s nothing to sneeze at.

But CVS doesn’t have the only PBM game in town. Express Scripts Inc. (NASDAQ: ESRX) and MedcoHealth Solutions Inc. (NYSE: MHS) are both large-cap companies that offer PBM services.

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Walgreen management would have been negligent if they fired the first shot at CVS without having an alternative at hand. It’s unlikely that Walgreen would start its own PBM business or that it would try to acquire one of the big players. However, it could team up with a PBM supplier and compete harder for more employer-sponsored plans.

That’s the pain point for CVS. If benefit managers at large companies insist that Walgreen be a choice available to their employees, then either CVS will have to cave in or it faces losing those companies to another PBM provider.

For now, it looks like Walgreen is in the better position, but that’s not what investors think. Walgreen shares are down more than 4% on very heavy volume this morning. CVS shares are up more than 3%, while Express Scripts and MedcoHealth are up about 2%.