By Karen Talley
Costco Wholesale Corp. (>> 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 Holding Co. (>> Express Scripts Holding Co) and CVS Caremark Corp. (>> CVS Caremark Corporation).
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.
"If you're a business owner, Costco has a program that can save your company and employees money on prescription drugs," an article in Costco's latest magazine says. Pharmaceutical industry consultant Adam J. Fein wrote about the retailer's plans on his blog Drug Channels earlier Thursday.
The program offers prescription medicines through Costco's in-warehouse pharmacies or a network of 64,000 independent pharmacies that have agreed to prenegotiated prices, the article says.
Companies that have already signed up include Nippon Paper Industries USA, of Port Angeles, Wash. Costco, which operates 448 warehouses in the U.S. and Puerto Rico, didn't respond to requests for comment.
Costco is providing incentives for clients to set up narrowed pharmacy networks that could drive customers through Costco stores, according to Dr. Fein.
CVS, which owns both the second-biggest drugstore and pharmacy-benefit businesses in the U.S., operates in a similar way. It offers clients--the health plans and businesses that hire PBMs--some incentives to set up networks that lead people either to the company's mail-order pharmacy business or its retail outlets.
Large retailers like Wal-Mart Stores Inc. (>> Wal-Mart Stores, Inc.) use their pharmacy businesses to help get customers in stores. While pharmacy businesses themselves can be low margin, customers pass other, higher-profit merchandise when headed to the pharmacy counter.
Costco is "leveraging [its] existing footprint to enter a new market and provide a more comprehensive suite of pharmacy benefits to small and medium-sized businesses," said Ross Muken, senior managing director at ISI Group LLC.
Mr. Muken 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.
The benefit for Costco is foot traffic. If you can contract with employers, the hope is their employees would become Costco members.
"This is a new and interesting strategy for Costco that fits in with how their business model works," Mr. Muken said. Costco is known for offering competitive prices and is willing to take a low margin.
As for the PBM market, ISI Group called the move "more noise than market moving news," but also evidence of an increasingly competitive landscape.
-Jon Kamp contributed to this article.
Write to Karen Talley at firstname.lastname@example.org
Corrections & Amplifications
This item was corrected at 9:55 a.m. EST to clarify that Adam Fein first reported on the incentives for clients on his blog Drug Channels. The original incorrectly attributed the information to ISI Group.
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