Drug prices: Wal-Mart/Caterpillar plan
may drive
down employer health-care costs
Program with Caterpillar aims to reduce employer health-care costs while increasing traffic to stores
By Sandra M. Jones
Chicago Tribune reporter
March 28, 2009
Diapers. Barbies. Lettuce. Now medicine.
Wal-Mart Stores Inc., the world's largest retailer, is aiming its
economic might at the health-care industry with a program that
lowers prescription drug prices for employers. A pilot program
with Caterpillar Inc. to streamline the way drugs are purchased
has shown enough promise that Wal-Mart is in talks with several
other firms to do the same, the companies said Friday.
"We hope we will drive down costs for the entire health-care
industry," Michael Struhs, director of business development at
Wal-Mart, said during a Webcast hosted by the Pharmacy Benefits
Management Institute. "That is what we do. We operate efficiently
and that allows us to lower costs, and those savings are passed on
to our customers."
The discount chain has already shaken up the retailing landscape
in recent years, rising to become the biggest seller of apparel,
groceries and toys. But it is hungry for more growth and sees a
chance to bring its extraordinary size and clout to bear on rising
health-care costs.
The Wal-Mart contract waives the $5 co-payment for Caterpillar
employees on any generic drugs if they purchase them at a Wal-Mart
or Sam's Club pharmacy. By giving workers an incentive to fill
prescriptions at Wal-Mart rather than another pharmacy, the
retailer not only beefs up its pharmacy business, but also
attracts more shoppers into the store, where they might make other
purchases.
The most radical aspect of the test, however, is the threat of
unraveling how the health-care industry buys and sells
prescription drugs.
Under the initiative that began in October, Peoria-based
Caterpillar has a contract to buy prescription drugs for employees
directly from Wal-Mart and has a third-party audit system in place
to make sure that prices aren't inflated.
That process contrasts with the way most employers purchase drugs,
through a middleman, known as a pharmacy benefit manager, or PBM.
The pricing system is complicated and filled with opportunities
for handlers to inflate prices, experts say.
For example, the markup on prescription drugs starts with the
average wholesale price, a figure similar to a list price on a
car. Caterpillar was fed up with rising health-care costs, said
Todd Bisping, pharmacy benefits and informatics manager at the
construction- and mining-equipment manufacturer, which estimated
there was as much as 20 percent waste in the supply chain that was
"not adding value, but just higher prices," he said on the
Webcast.
"As I talk to other companies there's a lot of confusion and
complexity in this," he said. "And I just think a lot of people
don't understand it. The easiest thing to do is look at the number
the PBMs spit out. As more and more companies realize we just
can't blindly assume what's going on is best for us, they're going
to start digging into it and find the same thing."
He said others are examining Caterpillar's program with Wal-Mart.
"I have talked to multiple large companies who called me because
they are interested in learning more about this concept," Bisping
said.
What Wal-Mart is doing isn't the only way to lower prescription
drug prices, said Michael Polzin, spokesman for Deerfield-based
Walgreen Co.
"We're going down a similar path by going directly to employers,
but we have a more comprehensive offering," he said. Walgreens
started a program in January offering lower drug prices, health
and wellness clinics, and retail clinics on corporate campuses.
The price Wal-Mart charges Caterpillar for drugs is based on the
price it paid the drugmaker, plus a markup for overhead and
profit. Caterpillar doesn't know the price Wal-Mart paid the
drugmaker but relies on an independent auditor to make sure the
retailer begins with the actual price it paid, Bisping said.
Caterpillar declined to disclose how many of its 70,000 employees
and retirees are using the program, but the company said it is
more than expected. Caterpillar still has a contract with its PBM
for the business of handling claims, an arrangement it intends to
keep, Bisping said.
Wal-Mart set off a wave of price competition in 2006 when it began
offering a range of generic drugs for $4 a month.
