Wal-Mart to PBMs: You’re going down!

As readers of this blog know, we’ve been following the battle between Wal-Mart and pharmacy benefit managers (PBMs) with interest over the past couple of months. To me, it’s a superb business story that just isn’t getting the coverage it deserves. Already, we’ve seen lots of intrigue and strategy on display; it’s like a great chess match.

Not only that, but all of those who receive prescription drug benefits through their employers will be affected by the outcome of this fight.

Here’s a quick overview of what’s happened so far:

1. Wal-Mart introduced its $4 generic drug program and has hyped it heavily, increasing the retailer’s power to influence the retail drug market.

2. PBMs like Express Scripts and MedCo Health Services, which manage employer-based drug coverage for the major health insurers, have been pushing the mail-order option on employers. This gives the PBM control over the drug distribution process — including what pharmacy fills the prescription, the price it charges, and the profit the PBM collects. The retailer is cut out of the loop.

3. Express Scripts upped in ante in the brewing battle in March by unveiling Select Home Delivery, an employer plan that automatically enrolls employees in the mail-order program unless they specifically opt out of it. This makes mail order the default option.

4. Wal-Mart, realizing that PBMs are threatening to cut it out of the market with this mail-order end-around, responded with the bold move of approaching major employers directly. Under a pilot program being tried out by Caterpillar and other employers, Wal-Mart waives the $5 co-payment for generic drugs for employees when they buy their medication at Wal-Mart or Sam’s Club pharmacies.

Which brings us to where we currently are in the story. As you might expect, the PBMs have not responded pleasantly to Wal-Mart’s invasion of their turf. As one PBM rep, Maria C. Palumbo of Express Scripts, told the Wall Street Journal:

While our business model focuses on improving health outcomes while reducing wasteful spending, Wal-Mart’s program appears to be designed to build store traffic.

Ouch.

That was in the Journal yesterday.

You know what happened today? The AP reported that Wal-Mart will test a mail-order version of its drug program — a direct alternative to the PBMs. According to the report:

Wal-Mart says it is expanding its discount prescription drug program, testing a program that will allow customers to get 90-day supplies of generic prescription drugs through the mail for as little as $10…

Wal-Mart said its program will have no membership or enrollment fees. Customers will be able to get any of 300 common prescriptions for $10 per 90-day order, and will be able to get more than 3,000 other prescriptions, both brand-name and generic, for higher prices.

Do you see where this is going? Let me spell out what I think will come next:

Wal-Mart will offer its drug program to employers nationwide, delivering lower prices than PBMs and giving employees more choices — by allowing them to buy their drugs either in store or by mail.

The PBMs will say, “Crap, Wal-Mart just kicked out butts!”

Then, they will scramble to save themselves by cutting some kind of partnership or preferred distribution deal with Wal-Mart.

Lesson: Don’t mess with Wal-Mart.

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