Buy Health Care in Bulk at Costco

Shopping for health care is going to look a lot different in the future, and it has nothing to do with Obamacare creating health care exchanges or requiring individuals to get insurance or be fined. Rather, big retailers are getting into the business in a big way -- and it will end up changing the face of health care as we know it.

Warehouse shopping club retailer Costco (NASDAQ: COST  ) quietly launched the latest salvo in the health care industry's makeover, opening up a pharmacy benefits manager service that challenges industry heavyweights Express Scripts (NASDAQ: ESRX  ) and CVS Caremark (NYSE: CVS  ) . Customers will be able to have their prescriptions filled through Costco's in-warehouse pharmacy or through a network of 64,000 independent pharmacies that have aligned themselves with the retailer and agreed to a prearranged price for drugs.

Take two and call me in the morning
The program follows Wal-Mart (NYSE: WMT  ) in challenging the national PBMs in determining how prescriptions are filled and at what cost. Years ago, the deep discounter created a row with its $4 generic prescription drug program and then expanded it to hundreds of generic drugs for just $10, which could be bought in store or through mail order.

While the launch of Costco's service is not likely to mean the end of the PBMs, just as Wal-Mart's didn't cause an industry collapse, it does point to the changing nature of the health care industry. The PBMs have been trying to edge out the use of retailers and local pharmacies by pushing the mail-order option because it allows them to determine what pharmacy fills the prescription, the price it charges, and how much it can collect in profit. There's a level of convenience for the patient too as I've found out since I converted over to Medco's mail-order service: The refill process is automated, so I'm notified by email when the next shipment is heading out.

Wal-Mart may launch a new advance in the industry with the creation of full primary care facilities right in its superstores. It's an idea that the retailer has toyed with a few times, though at each mention it continues to walk it back, perhaps trying to blunt the inevitable outrage from those who simply dislike Wal-Mart's way of doing business.

Checkup in Aisle 3!
Back in 2011, a request for information by Wal-Mart was leaked to the media showing it was seeking partner in launching a primary care platform that would focus on chronic care services like diabetes and asthma, as well as diagnostics, like hemoglobin and metabolic testing. The retailer was also looking at offering health and wellness, preventative care, and various acute care services. Wal-Mart's response at the time was the proposal was "overwritten and incorrect," but it surfaced again last week when the retailer's vice president of health and wellness payer relations was quoted as saying Wal-Mart will offer "full primary care services in five to seven years."

Although they backpedaled once again, it seems clear the big box discount store wants to truly make its stores a one-stop shopping experience. It already operates 140 primary care clinics, though that's far less than the 650 Minute Clinics operated by CVS -- which plans to open an additional 350 by 2016 -- and the more than 350 Take Care clinics run by Walgreen (NYSE: WAG  ) .

Bulking up on health
It's likely that Wal-Mart will be just one place we'll be able to go to see a doctor while filling up our shopping carts. According to retail clinic research and consulting firm Merchant Medicine, there are more than 1,400 clinics based in retail stores in 39 states. The big benefit, says the RAND Institute, is that they provide the same services as a visit to a doctor's office, but do so at a lower cost, about $110 for the clinic versus $166 at the office.

And that's where Costco is going with the launch of its pharmacy benefits manager program, where it says patients can save 10% to 15% over other prescription plans. Like the rest of its business, the warehouse club says they "keep a tight rein on expenses, take lower markups and pass discounts and rebates from manufacturers to our members." So along with that 30-pack of toilet paper, you can load up on your meds, too.

Costco Wholesale's low prices haven't just benefited customers -- shareholders have walloped the market, returning 11,000% over the past two decades. However, with prices near all-time highs, is the ride over for Costco investors? To answer that and more, we've compiled a premium research report with in-depth analysis on Costco. Simply click here now to gain instant access to this valuable investor's resource.


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