Will Caterpillar’s Walgreens Deal Shrink Drug Costs?

The tractor maker's pharmacy-benefit arrangement seeks to cut out the middleman to gain transparent pricing.

For other reasons, Bisping does not want to reveal what specific incentives Caterpillar will offer its employees to buy their prescription drugs at Walgreens, although Walgreens has said the program will include decreases in drug copayments. The program will go into effect on January 1, 2010, which coincides with the start of Caterpillar’s benefit-plan year. “We’re in the process of trying to communicate with members. We can’t [publicly] share the incentive we’re offering because I don’t want them to read it in a newspaper before we can share it with them personally,” he says.

Will the model mark a sea change in how employers provide drug benefits to their employees? While the arrangement is Walgreens’s first, it’s in “active discussions” with 20 client companies and 25 noncustomers about such direct-buying deals, according to Rosenbluth, who notes that most are Fortune 100 companies and the rest are in the Fortune 1,000-size range.

Such arrangements “will be disruptive” to the current PBM business model, contends Bisping. “Now that we’ve developed a way for companies to be able to influence the price they pay for prescription drugs, that takes away the need of PBMs to do that.”

No one, however, will say that the middleman is completely on the way out. “I think [direct-purchasing] deals, in essence, are supplementing a PBM base,” says Michael Taggert, a senior vice president in Aon Consulting’s health and benefits practice. He notes that employees at plants in places where Walgreens doesn’t have stores must get their medications from local stores or regionally managed chains, which are unlikely to have the resources to strike direct-purchasing arrangements with employers. “There’s a place for PBMs,” he adds.

Not unexpectedly, Mark Merritt, president of the Pharmaceutical Care Management Assn., which represents PBMs, goes further, contending that such an arrangement is useful to an employer like Caterpillar that operates in largely rural settings, but not to many others. At companies with locations in big cities and other well-populated areas with many competing pharmacy chains, employees would resist driving 10 miles to find a Walgreens when there’s a Duane Reade or a CVS around the corner.

The Walgreens-Caterpillar deal, he adds, “is one of many niche plays and experiments. It’s not one that would be applicable for the vast majority of employers.”



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