A health plan for workers at Caterpillar will steer them towards pharmacies operated by two leading retail chains, in a cost reduction effort that could be followed by other large US employers.
The plan is being implemented from January 1 with Walmart, the largest US retailer, and Walgreens, one of the largest drugstore chains, affecting 120,000 employees, dependants and pensioners covered by the US heavy equipment maker’s health benefits.
The move will lower payments for Caterpillar employees who opt to fill their drug prescriptions at the two retailers, rather than at rival pharmacies.
Caterpillar said that the new direct scheme used “transparent cost-plus pricing . . . to eliminate unnecessary and hidden costs in the prescription drug supply chain, in turn lowering Caterpillar’s cost to purchase prescription drugs”.
The two retailers will charge Caterpillar based on the wholesale price they pay for each individual drug, introducing more transparent pricing than the systems used by most large US employers.
They are also likely to benefit from additional traffic to their stores from the arrangement, challenging the traditional system handling the $300bn annual US prescription drug market.
Conventionally, large US employers employ a prescription benefit manager (PBM), such as Medco or Express Scripts, to negotiate discounts from manufacturers on their bulk prescription drug needs.
The PBM then charges the employer a price that is different, usually higher, than the price charged by the pharmacy that fills the prescription, creating an opaque system that offers no incentive for the retailer, or the employee, to opt for lower prices.
PBMs have also begun to compete with retailers by operating their own mail order pharmacies, increasing the attractiveness of the new model to stores.
Caterpillar, which spends about $150m annually on prescription drugs for its employees, tested a pilot scheme for the programme with Walmart in 2008, with Walgreens announcing its participation this summer.
Walmart said the “cost-plus” model could save employers 30-35 per cent of the cost of non-branded drugs with some savings also possible on branded drugs.
Members of the Caterpillar health plan will be able to obtain basic prescriptions for free at Walmart and Walgreens, in place of the previous $15 co-payment previously required. The plans’ co-payments on more expensive prescriptions of $20 and $35 will be half the cost of going elsewhere.
Walgreens said it would also offer Caterpillar health plan members discounts on non-prescription purchases at its stores.
The two retailers together operate more than 10,000 pharmacies across the US and 85 per cent of Caterpillar’s plan members live within 10 miles of a branch.