Wal-Mart takes aim at Walgreens, CVS Caremark

Wal-Mart Stores Inc., the world's largest retailer, is using its heft to offer lower-cost prescription drugs and stepping up competition with pharmacies at CVS Caremark Corp. and Walgreen Co.

Wal-Mart plans to expand a program with Caterpillar Inc. to other U.S. companies, executives said in interviews this month. Under the partnership, Caterpillar bypasses a third-party provider and gets pricing on drugs directly from the retailer. Caterpillar then passes some of those savings on to employees by waiving a $5 co-payment on generic drugs bought at Wal-Mart.

"We know from our test that it will drive volume through our stores, which is our goal behind this," said Michael Struhs, Wal-Mart's director of health and wellness business development. "We hope this is our next big thing."

The program would target roughly 75 million Americans whose employers fund their own health-insurance plans, said Struhs, 46. The Bentonville, Arkansas-based retailer is pursuing the strategy after demand for its $4 medicines helped spur growth of its U.S. comparable-stores sales by 3.3 percent in 2008.

Struhs and Todd Bisping, Caterpillar's pharmacy-benefit manager, plan to discuss their companies' test results so far during a Webcast tomorrow by the Pharmacy Benefit Management Institute, a trade group based in Scottsdale, Arizona.

Caterpillar Test

The number of Caterpillar employees and retirees who took advantage of the waived co-payment at Wal-Mart pharmacies exceeded the equipment maker's goal, Bisping said in a telephone interview March 24. He wouldn't disclose the shift of market share of prescriptions filled to Wal-Mart from other outlets.

"We definitely thought we'd see some movement, and we did," said Bisping, 42. "We've gotten a lot of feedback from employees saying, 'Hey, thank you in these economic times for coming up for a way for us to save some money.'"

More than 70,000 Caterpillar employees and retirees are eligible to participate in the Wal-Mart test that started in September and will run through 2009, Bisping said.

The rollout is "a logical next step" for Wal-Mart after it introduced $4 pricing for generic drugs more than two years ago, Struhs said. That program spurred CVS Caremark, Walgreen, Target Corp., Kroger Co. and other prescription-drug sellers to offer similar prices.

Increasing Sales

Wal-Mart's sales at U.S. stores increased 6.8 percent in the year through Jan. 31. The company posted net sales of $401.2 billion last year, more than double the combined revenue of CVS, Walgreen and Rite Aid Corp.

Retail drug sales also helped Wal-Mart's shares gain 18 percent last year, making it the best performer among the 30 companies of the Dow Jones Industrial Average. The stock advanced 60 cents, or 1.2 percent, to $51.68 yesterday in New York Stock Exchange composite trading.

Wal-Mart's sales staff is contacting companies with self- insured health plans as well as insurance companies and managed- care organizations, Struhs said. The company is receiving calls from companies who've heard about the Caterpillar test.

"We analyze their claims data to help them identify exactly how much they can save," Struhs said. He declined to disclose Wal-Mart's projections for sales or market-share gains from the prescription pricing initiative.

Walgreen Competition

Wal-Mart's efforts may spur Walgreen, the second-largest U.S. drugstore chain, to highlight its services, such as pharmacist consultations, said Wade Miquelon, chief financial officer of the Deerfield-based company.

"We have to be able to show why we're doing more things than a Wal-Mart in the overall value proposition," Miquelon said in a March 23 telephone interview. "I give Wal-Mart credit. Both the $4 drugs and the Caterpillar agreement have started a movement toward greater transparency."

Representatives for CVS Caremark, based in Woonsocket, Rhode Island, weren't available to comment yesterday.

Wal-Mart doesn't plan to expand into administering prescription claims, even though it has the infrastructure in place to compete with so-called pharmacy-benefit managers, known as PBMs, Struhs said. He cites the relationship with Caterpillar as a model.

"We are basically providing our pricing directly to Caterpillar as opposed to having that pricing aggregated through a PBM," Struhs said. "Their PBM continues to process and adjudicate those claims. We leave the decision up to the employer in terms of which PBM to use."

Caterpillar previously worked out its retail-drug pricing with Wal-Mart through Restat LLC, a pharmacy-benefit manager that still handles the company's claims, according to Bisping.

Direct Sales

Wal-Mart has 4,100 pharmacies in the U.S., including in 3,600 stores, supercenters and supermarkets, and in 500 Sam's Clubs.

"Every big company is interested, because they are all trying to figure out how to contain health-care costs," Walgreen's Miquelon said. "With an intermediary, it's difficult for the companies to understand."

Caterpillar views Wal-Mart as a pharmacy that negotiates lower prices for medicines with suppliers in the same way it buys other goods for its stores, Bisping said.

"What Wal-Mart is trying to do is sell prescription drugs like they sell bananas," Bisping said. "Any pharmacies that choose not to move to this model will eventually lose market share to the pharmacies that choose to go to this direct contracting."