Costco Has Rx for Business Owners’ High Drug Costs

Jan 18, 2013

Costco is moving in on the territory of Express Scripts and CVS Caremark with the launch of Costco Health Solutions, a pharmacy benefits manager offer designed to cut prescription drug costs for small and midsize businesses.

The program, as described in The Costco Connection, will make low price prescription drugs available at the chain’s in-warehouse pharmacies as well as 64,000 independent drugstores. Costco claims that its prices are typically between 10 and 15 percent lower than competitive plans.

"The Costco pharmacy adheres to the same Costco philosophy as other areas of our business; we keep a tight rein on expenses, take lower markups and pass discounts and rebates from manufacturers to our members at time of purchase," Chris Pierce, assistant vice president at the chain who oversees Costco Health Solutions, told the in-house publication.

Nippon Paper Industries is one of the early users of Costco’s PBM. The 200-employee company claims to have cut pharmacy costs by 43 percent since making the switch from another program.

"The savings have been phenomenal," Cathy Price, human resources manager for Nippon Paper, told The Costco Connection. "It’s proven very valuable to us in our benefits program. I’d recommend it to anybody."

Ross Muken, senior managing director at ISI Group LLC, told Dow Jones Newswires that the PBM will prove valuable as a traffic builder for Costco. It could also help attract employees of companies using the PBM program to purchase individual club memberships.

"This is a new and interesting strategy for Costco that fits in with how their business model works," Mr. Muken said.

What is your reaction to Costco getting into the pharmacy benefits manager business? Do you foresee a future where Costco could compete with the likes of CVS Caremark and Express Scripts?

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7 Comments on "Costco Has Rx for Business Owners’ High Drug Costs"

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Max Goldberg
9 years 4 months ago

Getting into the pharmacy business means lower prices for medications and more members for Costco. In Los Angeles, Costco usually beats pharmacy prices by 20-35%. They are priced competitively with Caremark.

This is a win/win situation for consumers and the retailer.

Joan Treistman
9 years 4 months ago

Costco solutions are probably still under the radar for many. I can see where PBM will create more business with existing customers and generate new and deep relationships with individuals…just as the article describes.

Once I started paying attention to their services, e.g. car rental discounts, I realized there was breadth beyond my expectations. When I explain to friends and colleagues how Costco’s car rental discounts can be superior to ZipCar they typically say, “I didn’t know you could rent a car through Costco.” The customer experience is different from others, and vastly superior to many. I expect their PBM to follow their approach of high quality, value, and excellent service.

Kevin Graff
9 years 4 months ago

I’m a big Costco fan … and this is just another reason to love them. For me, it’s not about them offering lower prices. It’s about them always finding a way to give great total value to their members. They really live the belief that customers and staff come first … not the shareholders.

Costco will see more frequent traffic into their stores (where everyone will fill up a cart or two while filling their Rx) and more members too (who each will spend about $350 every time they go to the store).

Ed Rosenbaum
9 years 4 months ago

Everyone wins if this becomes competitive in the marketplace. Costco may have hit another homerun with this. I hope so. Obviously there are big profits in the legal drug business. If not, how would there be both a CVS and Walgreens on nearly every corner in every city?

Ben Ball
9 years 4 months ago

I’m curious as to how successful the solution will be in servicing businesses with locations outside “Costco territory.” Presumably that’s what the independent pharmacies are for—but it’s hard to find one of those as well these days. Maybe mail-order?

Provided the fulfillment isn’t an issue; count me in as a fan along with others commenting. We used the Costco car buying service this summer and were favorably impressed. Like Walmart, who (once again) knows their place is “lowest prices on the brands you want everyday,” Costco knows their core benefit is superior price on superior services. That’s what their members demand and they deliver.

Lee Kent
9 years 4 months ago

Kudos, once again, to Costco! Of course they can compete with the likes of Caremark and Express Scripts. I use Express Scripts today and their service leaves a lot to be desired. Costco has service down pat!

M. Jericho Banks PhD
M. Jericho Banks PhD
9 years 4 months ago

Contrary to this administration’s goal, Obamacare may be forcing the U.S. healthcare industry toward free market sources instead of government entitlement sources.

That’s a good thing.

And in case no one else mentions it, the term is “scrips,” not “scripts.” Everyone even remotely connected to the pharmacy bidness knows it’s “scrips.” “Scripts” are for Hollywood.

That said (written), I see Costco’s Health Solutions as a quality, private sector solution to part of the weirdness of Obamacare.

I’d encourage free market suppliers to use the Costco model to provide comprehensive, private sector healthcare of all types. In these dark days of the many unfolding realizations about the extra costs of Obamacare, one or several entrepreneurs are going to step forward to offer helpful and realistic solutions – and care.

Most of all, care.


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