3rd UPDATE:Pharmacy War Heats Up On Walgreen-Caterpillar Deal
27 August 2009 - 7:16AM
Dow Jones News
The battle among pharmacies to win big corporate accounts with
promises of lower costs and improved efficiency has entered a new
phase.
Walgreen Co. (WAG) announced Wednesday it will offer
prescription drugs directly to Caterpillar Inc. (CAT) for its
workers and retirees, launching a program that will parallel the
one Wal-Mart Stores Inc. (WMT) already has with the heavy equipment
manufacturer.
Meantime, Caterpillar announced it had signed a two-year
contract with Wal-Mart, in effect extending the pilot program on
prescription drugs that has been in place since September. Wal-Mart
also announced for the first time publicly that it has added other
companies to the prescription program it began solely with
Caterpillar, though it declined to provide details.
Once both programs are fully in effect, as of Jan. 1, 70,000
Caterpillar employees, retirees and dependents will have more
options to meet their prescription-drug needs. The Caterpillar
arrangement could also serve as a template for other large
corporations as retailers expand their efforts to provide employers
with simple, cost-effective and transparent ways to manage their
drug plans.
The move is seen as a competing pricing structure to that of
standalone pharmacy benefits managers. Usually, employers and
governments contract with PBMs to administer coverage, which
includes choosing what drugs are covered and how much they will
cost companies and patients.
"We're in the midst of a retail pharmacy war right now that
started about three years ago and in my opinion is only going to
get more intense," said Adam Fein, president of Pembroke
Consulting. A movement to this type of model is "one of the key
battlegrounds by which larger and more efficient pharmacies are
going to try to take market share" from other pharmacies.
The maneuvering also comes at a time of heightened uncertainty
over the future of health care in the U.S. President Barack Obama's
massive reform initiative has been mired in Washington amid outcry
over the costs and confusion about what the bill will entail.
With its agreements, Caterpillar will be negotiating its pricing
directly through Wal-Mart and Walgreen instead of paying a PBM to
handle that part of the business. Savings will come through lower
prescription drug costs for Caterpillar.
The pact with Caterpillar is the first time Walgreen has worked
directly with a company in supplying prescription medicines.
Walgreen already manages a network of onsite health-care centers
for major companies such as Walt Disney Co. (DIS) and Toyota Motor
Corp. (TM).
Caterpillar and Walgreen began discussing working together
shortly after the Wal-Mart pilot program began last fall. Wal-Mart
didn't know Caterpillar was talking with Walgreen, but the
arrangement with Wal-Mart had always been a nonexclusive one, said
Caterpillar pharmacy benefits manager Todd Bisping.
"We learned we could take a complex and confusing process and
simplify it to save significant amounts of money," Bisping
said.
The Peoria, Ill., manufacturer went with the Deerfield, Ill.,
pharmacy chain because it wants to expand its health-benefits
programs to more pharmacies, said Bisping, who added that the
company may sign on with additional pharmacy chains.
According to Walgreen, nearly 70% of all Americans live within
five miles of a Walgreen store and 50% live within two miles.
Walgreen operates about 6,950 pharmacies across the U.S., while
Wal-Mart has around 4,100.
"This is just Walgreen offering an even more holistic approach,"
said Andrew Wolf, an analyst at BB&T Capital Markets. "A lot of
this may have to do with convenience. Walgreen's are nearly on
every street corner, and people may also prefer to get their drugs
at a traditional drug store."
Wal-Mart spokeswoman Christi Gallagher said Wal-Mart feels the
success of its pilot effort "allowed Caterpillar to continue
seeking ways to drive out unnecessary costs from their health-care
spend."
Wal-Mart started the program as a way of trying to define itself
as a prescription supplier to businesses. The Bentonville, Ark.,
retailer has made clear it wants to expand the program.
As part of its arrangement with Caterpillar, Walgreen will offer
Caterpillar employees double-digit percentage discounts on
non-pharmacy goods. Walgreen and Caterpillar are also talking about
expanding the program to have health clinics onsite at certain
Caterpillar offices or near them, Bisping said.
Wal-Mart doesn't have either arrangement with Caterpillar. But
services, as well as prescription prices, could change once the
formal contract with Wal-Mart is announced. Right now, Caterpillar
is picking up the co-pay cost for employees on generics from
Wal-Mart. Employees pay full price, under their health plans, on
brand drugs.
Walgreen shares gained 2.7% to close Wednesday's session at
$33.41, while Wal-Mart shares rose 0.3% to $51.80. Caterpillar shed
1.2% to $47.25,
-By Karen Talley and Kelly Nolan, Dow Jones Newswires;
212-416-2196; karen.talley@wsj.com