Friday, March 27, 2009

Wal-Mart's Next Move

Yup, I told you so.

According to a Bloomberg article, Wal-Mart is now planning to expand its direct-to-payer (my term) pharmacy business to U.S. employers that fund their own health-insurance plans. Wal-Mart estimates that there are 75 million Americans in these plans.

It's a good article, so I suggest reading it for yourself: Wal-Mart’s Retail Muscle Helps Expand Drug Sales.

Wal-Mart first launched a direct-to-payer arrangement with Caterpillar (CAT) last September. The model can best be described as a “preferred network” versus an explicitly “restricted network.” Members have a zero-dollar co-pay for generics at Wal-Mart, but can choose to fill their prescriptions at other retail pharmacies for the normal $5 generic copay.

Here are my two published analyses of the WMT-CAT deal:

My comments in these two articles remain valid, so here are a few additional thoughts:
  • In the article, Wal-Mart confirms that it does not plan to compete with Pharmacy Benefit Managers (PBMs) for claims administration and benefit management. Long-time readers will recall that I predicted this approach in my January 2008 article Wal-Mart's PBM Game Plan.

  • Tom Ryan, CEO of CVS Caremark, alluded to “people experimenting with limited networks” on the company's last earnings call. CVS has only dipped its toe into the preferred network model with Maintenance Choice and Bridge Supply. If Wal-Mart gets traction, then I expect a stronger push by CVS Caremark, especially if the revenue synergies between retail and PBM don’t start showing up soon. See my analysis in CVS Caremark: No Visible Revenue Synergy.

  • Wal-Mart appears to be shifting retail market share away from wholesaler-supplied dispensing channels, especially independents, small chains, and other non-self-warehousing retailers. Thus, Wal-Mart’s strategy will continue to put indirect pressure drug wholesalers like AmerisourceBergen (ABC), Cardinal Health (CAH), and McKesson Corporation (MCK).
Michael Struhs, Wal-Mart’s director of health and wellness business development, and Todd Bisping, Caterpillar’s pharmacy-benefit manager, plan to discuss the test results from their program on PBMI webcast later today (Friday) called Innovation in the Marketplace. However, the webcast costs $279 and they only have 30 minutes out of the 90-minute program.

The real earthquake will occur when Wal-Mart announces its next direct-to-payer arrangement, which I expect will occur fairly soon.


For the uninitiated, the photo above shows Risk, a board game with the goal of world domination through the elimination of the other players.

'nuff said.

1 comment:

  1. Having played Risk for years you have to be patient, have a plan and do things "in order" to be successful. Rather a good comparison to WMT's actions. Given that WMT still gets most of their drugs from wholesalers this can only provide leverage for more discounts or pressure on manufacturers if they want to go direct, as they have in the past.
    Thanks for keeping us in the loop.