Caterpillar aims to curtail drug costs

In a move that outlines the growing influence of employers and insurers on drug-buying, heavy equipment maker Caterpillar has instituted a new health plan that will steer workers toward Wal-Mart and Walgreens stores as a ploy to reduce costs. The new plan affects 120,000 Caterpillar employees, pensioners, and their dependants.

So how does Caterpillar save money on this deal? It's based on "transparent cost-plus pricing," the Financial Times reports, "to eliminate unnecessary and hidden costs in the prescription drug supply chain, in turn lowering Caterpillar's cost." Wal-Mart and Walgreens will charge Caterpillar based on the wholesale prices they pay for every drug.

In the process, Caterpillar will cut the pharmacy benefits manager out of the equation as long as their workers use the two preferred pharmacies. That eliminates the PBM markup for those scrips, and it reduces the influence PBMs can have over patients' drug choices. It also reduces drugmakers' influence as well; pharma companies often wheel and deal with PBMs as a way to promote new meds, switch patients to newer drugs from older products soon to go off patent, and so on.

As Caterpillar goes, so too might other big U.S. employers. So you can be sure that Big Pharma and Corporate America both are going to be watching this particular healthcare deal very closely.

- read the FT story

Related Stories:
Generics depress profits at Walgreen's
Wal-Mart cuts branded formulary in half
Safeway jumps on $4 generic bandwagon