The rising tide of drug expenditures has fallen out of the limelight in the past several months as other more dramatic issues, such as Merck's (NYSE:MRK) withdrawal of Vioxx, have taken center stage. Nevertheless, consumers and businesses alike can rest assured, or alarmed, that drug spending continues its inexorable climb. Prescription benefit management (PBM) company Express Scripts (NASDAQ:ESRX) released a report earlier this month indicating that its clients' drug bills rose 10.6% in 2004 versus 2003.
Containing this expansion has become a major business for Express Scripts and its competitors such as MedcoHealth Solutions (NYSE:MHS). These firms' major weapon in combating drug expenses has been mail-order pharmacies, which cut brick-and-mortar pharmacies out of the drug-dispensing picture through the use of highly automated facilities. This approach has earned the favor of many corporations with hefty drug bills.
All of this has not escaped the notice of traditional pharmacy operator Walgreen (NYSE:WAG). Earlier this year, General Motors (NYSE:GM) announced that it would drop Walgreenas a pharmaceuticals provider for GM employees in connection with the automaker's campaign to mandate mail-order programs. Walgreen is now responding aggressively, according to TheChicago Sun-Times. The Deerfield, Ill.-based firm wants to quadruple the size of Walgreens Health Initiatives, which currently focuses on mail order. The unit generates roughly $1.4 billion in annual sales.
Walgreen's expansion of its mail-order presence should be a welcome sign to investors. Certainly, Medco, Express Scripts, and other PBMs are well entrenched, and competition for clients will be intense. But Walgreen could have something of an edge. PBMs are largely invisible to benefit plan participants. Still, consumers are generally more comfortable with a name they know and trust, especially when it comes to their health. This is a fact corporate customers also are likely to recognize. With a strong brand and a brick-and-mortar presence, Walgreen's potential in mail order looks good.
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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
