Managed Care - April 2008 - (Page 38) But there’s more at stake here than a push to grab a slice of the PBM pie, he adds. An operator of Wal-Mart’s size and influence can change the way the entire industry — and particularly the biggest PBMs — prices drugs. And that’s where you hear the most excitement about the company’s potential impact. “They’ll want to show that they are approaching the market in a philosophically different way,” says the consultant. “Some of that may be flexibility, being more transparent in setting their prices. And there are many employers who would be very interested in seeing that happen. “Most PBMs make their money primarily through the spread of what they buy the drug for versus what they sell it for,” explains Dross. “WalMart could do something like buy the drug with its leverage and say to the client, ‘You pay the acquisition cost and we will charge a dispensing fee as our sole source of revenue.’ That fee would probably be higher than most PBMs charge, but it would also be the sole source of revenue on the drug.” No one should underestimate the effect on the market. Wal-Mart is likely to start off relatively large. “Just taking its own employees will give WalMart more clout than many regional HMOs,” says Hayes. “You can’t find a regional HMO that has a half a million lives.” Wal-Mart can also rely on leveraging relationships with the companies that sell goods at its stores. “A lot of Wal-Mart’s early impact is likely to depend on its ability to make high-profile sales,” says Hayes. “They may be cross-selling to their vendors like Calvin Klein. You sell to us, you buy from us.” After Wal-Mart corrals as many employees and partners as it can, much of its competitiveness will depend on pricing. And that’s where Wal-Mart’s fearsome reputation comes into play. The retailer, which is known for wreaking more havoc in smalltown economies than a force 5 tornado, is also known for squeezing every last dime out of suppliers and undercutting its retail competition. “We’ll just have to see what they discount the network at. It could be very, very deep. They could sell for less or even at a loss,” notes Hayes. Understanding Wal-Mart’s retail strategy is one key to calculating its impact. The new PBM push is coming at the same time that Wal-Mart is blueprinting plans for 400 walk-in health clinics in its Supercenter stores by 2010. The more the com- pany can do to persuade people to come in and buy drugs and see nurses and pharmacists, the more it can sell the same group clothes, televisions, and sporting goods. “The entities that need to respond to it won’t be PBMs so much as it will be retail chains,” says Dross. “PBMs are not making much money at retail. That’s not the case at a big retail pharmacy chain where their core business is dispensing prescriptions, and incidentals are sold just to get some extra margin. “Wal-Mart can use pharmaceuticals as a loss leader,” he adds. “People in a store waiting for their prescription can buy something else.” That’s not the same at a big drugstore chain. Bursting the PBM price bubble But not everyone is predicting that Wal-Mart will suddenly pole vault into a major position in the PBM industry. “I’d be surprised if they made any significant inroads,” says Mike Winkelman, president of Winkelman Management Consulting, which does PBM RFPs and audits for both private and governmental clients. “I’ve run a PBM. This is not something you do overnight. They would not be a suitable PBM for most health plans and employers because they have no track record.” Wal-Mart also doesn’t own a mail-order pharmacy. The company, despite its reputation, doesn’t have a whole lot to offer as a PBM, says Winkelman. “Wal-Marts are not convenient,” he says, pointing out the chain’s strength in rural and suburban areas and weakness inside city boundaries. `“When I evaluate a PBM’s network, I expect access to retail providers within 11⁄2 miles in urban areas. Wal-Mart can’t meet that goal with just its own stores.” But even if the retailer doesn’t grab many corporate clients, Winkelman expects a profound realignment of PBM pricing strategies, and WalMart’s retail weight could help tilt the balance in employers’ favor by forcing the price of generics down . “The dirty little secret for most of the PBMs is that they make most of their money on generics,” says Winkelman. “It is not unusual for a PBM to gross $50 on a mail order generic.” Two years ago, Wal-Mart pharmacies cut the price of a long list of generics to $4 for a 30-day supply. Would its PBM play the same game? MC 38 MANAGED CARE / APRIL 2008
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