The Morning News

Local News for Northwest Arkansas

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Wal-Mart looks to expand direct-to-employer drug pilot

By Kimberly Morrison
THE MORNING NEW

Pharmacy benefit managers could soon find themselves contending with Wal-Mart Stores Inc. to broker prescription drug prices.

The Bentonville-based retailer is already looking to expand a two-month-old pilot with Peoria, Ill.-based Caterpillar to negotiate drug prices for its 70,000 U.S. employees, retirees, and their spouses and children.

"We are already in discussions with other companies to implement a direct-to-employer initiative," Christi Gallagher, Wal-Mart spokeswoman, said Wednesday.

It's an innovative application of the retailer's core competency of cutting costs in the supply chain while simultaneously expanding its low-cost prescription drug program.

Wal-Mart's legendary penny-pinching made the retailer an attractive candidate when Caterpillar went looking to weed out inefficiencies in its health care plan, said Todd Bisping, Caterpillar's pharmacy manager.

Bisping said the pricing system employed by pharmacy benefit mangers is based on average wholesale cost that his company considered a flawed system. Instead, Caterpillar was able to develop new methodology with Wal-Mart based on actual purchase price, overhead and margins.

Wal-Mart's pricing model saves Caterpillar enough money that it is able to waive the otherwise $5 co-pay for about 2,500 generics for employees who fill at Wal-Mart, Bisping said. He declined to specify savings to the company.

"If we are able to waive co-pays and still save money, we are pretty pleased at what we have been able to accomplish," Bisping said.

Caterpillar, like many companies, has typically relied upon pharmacy benefit managers like CVS Caremark Corp. or Express Scripts to negotiate drug prices due to their larger purchasing pool. Caterpillar continues to utilize pharmacy benefit manager Restat, based in West Bend, Wis., for administrative functions.

But Wal-Mart's buying power is formidable for even the largest drug brokers.

"Any time Wal-Mart is getting into your business, there is reason to be worried," said Scott Alaniz, analyst with Fayetteville-based Boston Mountain Money Management.

Wal-Mart executives Dr. John Agwunobi, a Wal-Mart senior vice president who oversees the company's health and wellness business, and Chief Executive Lee Scott told analysts about the program on Tuesday during its annual investor conference. They said it's part of the company's broader strategy to leverage its strengths in health care to lower costs.

"In this arrangement, it is about us selling pharmaceuticals directly to the employer rather than running through a third party," Agwunobi said. "We save money for Caterpillar in its employee benefits program by working directly with us and avoiding a middle man."

Scott said he thinks electronic health records are another way to cut costs in health care. Wal-Mart recently made the option available to its 1.4 million employees.

"We are working to eliminate more than $500 billion dollars in administrative costs in the U.S. just on health care," Scott said. "If we can get at the table, we can make a contribution in this."

Wal-Mart is also rolling out retail health clinics in stores across the country, but Scott said he thinks "the jury is still out" on their effectiveness.