Congressman Looks into Caterpillar’s Deal with Walgreen’s, Wal-Mart

By Douglas Hoey, R.Ph., MBA

Everyone’s feeling the pinch of rising health care costs and trying new strategies to grapple with them. To that end, Caterpillar, Inc. (CAT), makers of those familiar yellow bulldozers and other construction equipment, recently began implementing an exclusive deal with Walgreen’s and Wal-Mart to provide prescription drugs to employees, retirees and dependents.

In doing so, plan beneficiaries were cut off from a network of 706 pharmacies dispensing nearly 44 million prescriptions annually in the Land of Lincoln alone (employing 7,000+, by the way). That’s the footprint of independent community pharmacies in Illinois. Many of these independent pharmacies are also full-line health care centers providing durable medical equipment like crutches, canes, lift chairs, and oxygen or compounded medications for specific patient needs.

The CAT arrangement is destined to compromise patient care. One local county has two pharmacies—both independent. The closest “W” is at least 17 miles away. Sub-zero temperatures were expected this week and below freezing temperatures are forecast for the next week. Forcing a patient or their caregiver to make a trek like that through winter conditions is far from good corporate citizenship and, ultimately, hurts employees and retirees.

Thousands of patients protested the changes, signing petitions, calling CAT and calling their U.S. Representative about this misguided approach. In November, as it became clear that the proposed network could not adequately meet patient needs, it was reported that the company began reinstating selected independents for 2010.

Congressman Aaron Schock (R) represents Peoria, Ill., where CAT is headquartered, and he serves on the U.S. House Small Business Committee. He held a meeting late Tuesday with stakeholders to examine the fallout from the Caterpillar deal.

NCPA commends Representative Schock for holding the meeting. I appreciated the opportunity to attend and stand up for independent pharmacies alongside the Illinois Pharmacists Association and Illinois pharmacy owner leaders to meet with Rep Schock and the CAT representatives.

It was important for everyone involved to appreciate several facts.

  • Independent pharmacies have considerable reach in Illinois and other areas where the company’s beneficiaries live.
  • Separating patients, many of whom have chronic conditions requiring multiple drugs, from the community pharmacists they’ve trusted for years is not just inconvenient; it can negatively affect health outcomes by undermining medication adherence.
  • Independent pharmacies are ready and willing to be part of the CAT network and can help hold down health costs.
  • Shutting independents out will also likely eliminate good jobs at the worst possible time. In Rep. Schock’s Peoria-based district alone, there are 63 independent community pharmacies, employing 662 Illinoisans, filling nearly 4 million prescriptions per year.

More broadly, the picking and choosing of favorites to the exclusion of other competitors is a slippery slope for CAT and other employers who choose that rocky path. Competition is good. Choosing two companies at the exclusion of the rest of the marketplace could lead to fewer competitors and higher prices for CAT.

This case also calls to mind two often-overlooked aspects of independent community pharmacy.

First, these pharmacies are disproportionately located in areas large, national chains don’t serve. Sometimes they are the only health care provider for miles around.

Second, that independently owned pharmacies are price competitive with large chains. Independent pharmacies provide unmatched service and high-quality care. In addition, a 2008 Consumer Reports study advised consumers to shop around for their prescription drugs. It even found some large chains, including Walgreen’s, to be among the most expensive vendors of the drugs studied.

3 Responses to “Congressman Looks into Caterpillar’s Deal with Walgreen’s, Wal-Mart”

  1. 1 Jim Fields January 12, 2010 at 5:15 pm

    The CAT situation in Illinois is an opportunity not a road block.

    ApproRx offers this solution to the independents of Illinois

    Present to CAT as a network of 24,000 independent pharmacies offering a direct to consumer business model, a network larger than W & W combined.

    What is a direct-to-consumer business model? ApproRx goes direct to State, County and City Governments, plus private employers to create Rx contracts that greatly reduce or eliminate PBM profits. We will do this without reducing services to our clients; we eliminate mail order, and create an economic stimulus to local communities and their small businesses, ie the pharmacist.

    How much money is saved when PBMs are by-passed by the direct to consumer model ApproRx offers to independents?
    A PBM owned by United Healthcare recently made this clear when it shared industry data with labor unions in New York. According to UHC, PBMs keep $7 to $9 in profit on average for every brand prescription filled and $22 to $28 for every generic prescription filled.

    ApproRx has further simplified the Rx distribution process for employers and pharmacists by using an Acquisition Plus (AqP) pricing program that replaces the old complicated systems of AWP, AMP, WAC, and MAC.

    In addition to the elimination of Mail Order, ApproRx has progressively addressed the huge problems that restricted network impose on the patient.

    Eliminate Mail Order and restricted networks…. Join ApproRx and we will sit at CAT table as network that is more competitive than W&W to CATs benefit and more profitable to the independents.

    Jim Fields RPh
    CFO ApproRx

  2. 2 RockChalkJayhawk January 14, 2010 at 9:57 pm

    From what I’ve heard, the agreements between CAT and the two chains are NOT necessarily a closed network. Patients can still utilize other pharmacies. However, if they choose to do so, they still have pay their copays, which are waved at either Walmart or Walgreens.

    In addition, the PBM that CAT is using supposedly skims no money off the top of these prescriptions. Rather, it’s only being used in a “pass through” type of manner to adjudicate claims. There is also no mail order component.

    The main draw for CAT is that both of these chains are offering “cost plus” pricing . . . basically adding a predetermined dispensing fee to their acquisition cost for a total prescription price. I’m very skeptical that Walmart and Walgreens are showing the true, actual costs of the drugs they’re purchasing. And if independents could somehow utilize a similar model, I would bet they’d have an equal or lower cost than either chain (because they’d be more honest). Of course, I think it’s all but impossible for a group of independent pharmacies to collectively offer a “cost plus” plan . . . because each store has different acquisition costs.

  3. 3 Jim Fields January 14, 2010 at 10:25 pm

    ApproRx defines AqP’s specific value as the price the average pharmacy, 62,000 Rxs per year, pays for a drug from our average wholesaler, ApproRx defines average wholesaler as the average price from ABC, Cardinal, and McKesson for a particular drug.

    This defintion makes the network possible and profiable for both CAT and independent pharmacists

    ApproRx also would not skim just adjudicate.

    And yes as a network we would be aprox $5 per Rx cheaper than W&W.

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