The Increasingly Competitive PBM market

Costco Wholesale Corporation has quietly started a pharmacy-benefit program for small and midsize businesses, launching the retailer into the market for handling drug plans currently led by Express Scripts and CVS Caremark.

Costco Health Solutions, the pharmacy-benefit manager, or PBM, will fill prescriptions for business customers, much like programs at traditional pharmacies, and the large wholesaler expects its new program to increase foot traffic in stores.

A Pharmacy Benefit Manager (PBM) is a third party that insurance plans or other payers contract with to manage their formulary (deciding which drugs need prior authorization from the prescriber, setting copays, etc), process prescription drug claims, negotiates discounts and rebates with drug manufactures, and other activities relating to providing drug benefits.

Following the approval of the recent merger of Express Scripts and Medco Health Solutions, the new Express Scripts holds roughly 40% market share. The third of the largest PBMs is CVS Caremark.

The merger leaves approximately 10 significant competitors in the market.

Costco Health Solutions’ program offers prescription medicines through Costco’s in-warehouse pharmacies or a network of 64,000 independent pharmacies that have agreed to prenegotiated prices.

Companies that have already signed up include Nippon Paper Industries USA, of Port Angeles, Wash.

Costco, which operates 448 warehouses in the U.S., is providing incentives for clients to set up narrowed pharmacy networks that could drive customers through Costco stores, according to analysts at ISI Group LLC.

CVS Caremark operates much the same way. Large drugstore operators such as Walmart Stores use their pharmacy businesses to help get customers in stores.

ISI Group LLC. said Costco is looking at employers that are located close to Costco warehouses and is providing a benefit that the members would save money on pharmaceuticals by using the Costco stores.

It remains to be seen how much success Costco’s new PBM will have. Walmart, which introduced its PBM strategy in 2008, also has the size and resources to influence the market, and their success has been difficult to measure.

Knowledge Source’s Pharmacy Benefits Managers 2013 Market Overview identifies and profiles the 10 significant competitors in the market, as well as the local and regional companies that provide intense competition as clients are more willing to consider smaller competitors.

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