WellPoint Health Networks Inc., the state's second largest health care company and parent of Blue Cross of California, is getting into the mail-order and online pharmacy business.
The Thousand Oaks-based firm plans to finalize a deal this December to acquire a mail-order pharmacy facility in Fort Worth, Texas, from RxAmerica, a joint venture between Albertson's Inc. and Longs Drug Stores.
WellPoint executives would not reveal the purchase price, annual revenues or any other financial details of the Texas facility, which processes orders over the phone and the Internet. Once the deal is completed, WellPoint plans to rename the operation PrecisionRx.
Currently, the Texas operation fills about 1.6 million mail-order prescriptions a year. WellPoint hopes to double that output within the first year and grow it by 20 to 25 percent per year after that, said Mike Nameth, general manager of WellPoint Pharmacy Management, a subsidiary of WellPoint Health Networks.
"I think this is a minor transaction for WellPoint," said Banc of America Securities analyst Todd Richter. "But it is indicative that WellPoint, like the pharmacy benefit management business, continues to grow. It is a business that makes money for them."
Last year, WellPoint's prescription management benefits program accounted for about 5 percent of the company's $7.3 billion in revenues. But that percentage could increase.
"I think this is a trend for the future," said Prudential Securities analyst David Shove. "I think WellPoint is slightly ahead of the curve. Drugs are certainly conducive to online purchasing. I wouldn't be surprised if everybody starts doing it."
Going hand-in-hand with its acquisition of the Texas facility, WellPoint announced this summer that it is forming a strategic partnership with drugstore.com, an online pharmacy operation, to deliver over-the-counter drugs and drugstore services. Under that partnership deal, drugstore.com issued 750,000 shares of common stock valued at $5 million to WellPoint.
The partnership enables WellPoint, through its pharmacy benefits management subsidiary, to offer discounts on over-the-counter products, online processing of prescriptions, and access to drugstore.com's pharmacy services.
The venture into mail order and online pharmacy services is part of WellPoint's ongoing efforts to reduce costs and keep WellPoint Pharmacy Management, which serves 22 million consumers, competitive with other pharmacy benefits management programs.
"The reasons we decided to get into the mail-order business is that we didn't own or control any of our own mail-order facilities. This was one division we didn't have. We are the fourth largest PBM (pharmacy benefits manager) in the country, and we were the only one in the top 10 who did not have a mail-order pharmacy," Nameth said. WellPoint runs the nation's leading health plan-owned pharmacy benefits management program.
WellPoint has had the program since 1993. The subsidiary not only manages pharmacy benefits for WellPoint's health plans but for other health plans such as United Wisconsin Services.
While other health providers such as PacifiCare of California in Orange County and Cigna HealthCare offer prescription benefit management programs to their clients, WellPoint is the only health care company that provides its services to users outside its own health network, WellPoint officials said.
The management program covers a host of services, from electronic claims processing and developing pharmacy networks to monitoring the kinds of drugs that physicians prescribe to determine whether a less-expensive alternative is available.
Consumers using the mail-order pharmacy, which is an optional feature to WellPoint's health plans, can often get up to a 90-day supply of drugs at a reduced price. The savings are made possible because WellPoint can purchase drugs in larger quantities, realizing volume discounts.
Health plans are increasingly getting into the pharmacy benefit management end of health care because drug costs have skyrocketed in recent years. In California alone, pharmaceutical costs increased 19.4 percent between 1998 and 1999.
WellPoint has always been a bottom-line-oriented company. Its Blue Cross of California unit, a health maintenance organization, is considered by hospital administrators to be a tightwad. Several California hospitals threatened to drop their contracts with Blue Cross because the HMO's reimbursement fees were so meager that they didn't even keep pace with Medicare reimbursement rates.
WellPoint's diversification into pharmacy services comes at a time when Americans, particularly the elderly, are looking for ways to cut drug costs.
Many consumers are paying thousands of dollars out of their own pockets each year to cover the cost of their medications, making the issue important enough to be at the forefront of the presidential debates this year.
If Democratic candidate Al Gore wins the presidential race, a pharmacy benefits management program will be enlisted to help pay and administer his proposed Medicare prescription benefits program.
The California Medical Association is not opposed to prescription management programs if they are used to help consumers conveniently order drugs at great savings.
"But if they are used to monitor and intimidate doctors in what they are prescribing, then we think that is an unwise thing to do," said CMA spokesman Peter M. Warren.
For reprint and licensing requests for this article, CLICK HERE.
Stories You May Also Be Interested In
- Shopping Site Looks to Bottle Up Prescriptions
- Proposals Sought for Discounts on L.A. Prescriptions
- Containing the Escalating Costs of Prescription Drug Benefits: Why Self-Funded Plans May Be an Attractive Alternative for Employers
- Greater Good
- Big Fish Gets Away But WellPoint Is Still Set on Growing With Acquisitions
- WellPoint to Cut 3.6 Percent of Work Force