NEW YORK, Sept 24 (Reuters) - Wal-Mart Stores Inc (WMT.N) will fill certain generic drugs for free as part of a pilot program being offered to more than 70,000 Caterpillar Inc (CAT.N) employees, retirees and their spouses and dependents.
The agreement, which a Caterpillar official said was the first of its kind, is the latest step in Wal-Mart’s efforts to extend its reach into the prescription drug business.
“What we’ve done with Wal-Mart is we’ve negotiated a direct (prescription drug) pricing contract with them, and that pricing contract overrides any other contract that we have through our pharmacy benefits manager,” said Todd Bisping, Caterpillar’s pharmacy manager, said on Wednesday.
Many companies, including Caterpillar, contract with pharmacy benefits managers that negotiate prescription drug prices with vendors.
But by bargaining directly with Wal-Mart, Caterpillar saved enough money that eligible employees who sign up for the program will not have to pay a co-payment to fill prescriptions for roughly 2,500 generic drugs, Bisping said.
Earlier this year, Wal-Mart Chief Executive Officer Lee Scott signaled his interest in working with U.S. employers to help them manage how they process and pay prescription claims.
Wall Street analysts said they intend to watch the Caterpillar pilot closely to see if it adds pressure to competing drug store chains or pharmacy benefits managers, including CVS Caremark Corp (CVS.N) and Walgreen CoWAG.N.
“Given the current size and scope of the pilot project, we do not expect any impact in the near-term to PBMs or drug retailers, but longer term it bears watching,” Credit Suisse analyst Edward Kelly wrote in a note.
Caterpillar said that from Sept. 2 until Dec. 31, 2009, eligible employees can obtain roughly 2,500 so-called “Tier 1” generic drugs, like drugs for blood pressure or depression, for a $0 co-pay at Walmart and Sam’s Club warehouse stores.
“It’s one of the ways that we are responding to increased prescription drug costs,” said Caterpillar spokeswoman Rachel Potts.
She said the program is voluntary and participants may choose to use other drugstores for the regular $5 co-pay.
“While this is very early days and should have no material impact on medium term earnings in the drug retail sector, we think that sentiment for CVS Caremark and Walgreen could come under pressure as this could be seen by many as another example of Wal-Mart’s determination to get a foothold in the pharmacy/PBM industry,” wrote UBS analyst Neil Currie.
He has “buy” ratings on both CVS and Walgreen.
In 2006, Wal-Mart began selling some generic drugs for $4 per monthly prescription in Florida, and it quickly extended the program to all its U.S. pharmacies.
It has continued to add more medicines to the program, and in May said it was offering more than 1,000 over-the-counter items for $4 or less, and was also selling some 90-day generic prescriptions for $10. (Editing by Brad Dorfman)