Wal-Mart Signals Its Move Into the PBM Industry; Analysts Have Mixed Reactions to Its Impact

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Express Scripts, Medco and other industry players react to Wal-Mart's entry into the PBM industry.

AIS's Drug Benefit News - Wal-Mart Stores, Inc.'s plan to start offering pharmacy benefit services to employers has provoked mixed reactions from PBM industry stakeholders. While some observers contend that any move by the retail behemoth has the potential to be an industry "game changer," two of the largest PBMs appeared unfazed by the prospect of a giant new competitor. An industry consultant tells Drug Benefit News that Wal-Mart could challenge PBMs' deep discounts at mail order, but that any impact would likely be focused on employers located outside of large metropolitan areas.

News that Wal-Mart is eyeing the pharmacy benefit arena surfaced in a Jan. 23 speech by Wal-Mart CEO Lee Scott to 7,000 store managers. Scott told his audience that what the U.S. heath care system needs most is affordability, accessibility, and efficiency.

"We think we can do even more with prescription costs," Scott said. "This year, we will be contracting with select employers in the U.S. to help them manage how they process and pay for prescriptions claims," he continued. "Our approach will be based on taking out unnecessary costs, while providing high health care quality products and services. With this effort, we believe we can save employers more than $100 million this year alone."

Wal-Mart has not disclosed details of its plan, but two of the largest PBMs moved quickly to downplay any potential threat.

In a prepared statement, Express Scripts, Inc. said that Wal-Mart wants to channel traffic into its stores, and not manage drug costs for plans. "It's a conflicted model that won't work," Express Scripts asserted. "Our clients and patients value working with Express Scripts because we are aligned with their interests and independent of retail pharmacies and drug manufacturers."

Medco Health Solutions, Inc. said in a prepared statement that Scott's speech focused on social responsibility -- ranging from installing windmills and solar panels on stores to working with the Chinese government on supplier certification. There was a passing reference to improving health care for Wal-Mart employees "and the suggestion of a pilot program to work with a small number of employers on processing prescription claims," Medco said, adding that no details were offered and that the PBM couldn't speculate on Wal-Mart's moves.

Joshua Golden, a senior pharmacy consultant at Hewitt Associates, says he believes that Wal-Mart's play is intended to capture as much retail pharmacy utilization as possible. The move also could challenge PBMs' mail-order pharmacy model, he tells Drug Benefit News. "With the way they price their products, I think they are positioning themselves as a potential threat to the deeply discounted mail-order philosophy," he says.

Susan A. Hayes, principal of Pharmacy Outcomes Specialists, says Wal-Mart's announcement was not unexpected, particularly given recent moves by other drugstore retailers to acquire or develop their own PBMs. CVS Corp., for example, made major headlines last year after it acquired Caremark Rx, Inc. And both Walgreen Co. and Rite Aid Corp. have substantial PBM divisions, she notes. "I think they said 'if CVS can do it, we can do it.'"

This article has been excerpted from AIS's Drug Benefit News. To read the story in its entirety, go to http://www.aishealth.com/Bnow/hbd020708.html.

About Atlantic Information Services:
AIS develops highly targeted news, data and strategic information for managers in hospitals, health plans, medical group practices, pharmaceutical companies and other health care organizations. Free resources found at AISHealth.com include: AIS's Health Business Daily, Government News of the Week, Upcoming Health Business Meetings, Health Business Job Openings and AIS's Free Health Industry Reports. For more information, visit http://www.AISHealth.com.


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