Walgreen's Transformation

Walgreen Co.'s Hal Rosenbluth wants to cut out the middleman, something he promises will save a big company tens of millions a year on health insurance costs.

After announcing a deal with Caterpillar Inc. in which the drug-store chain will sell medicines directly to the Peoria-based heavy-equipment maker, Rosenbluth says he's talking to at least 40 other large employers who are interested in similar pacts for their workers' health plans. What's unique about the arrangement? It cuts out the middleman, brokers known as pharmacy benefits managers.

"Corporations have been yearning for a new, transparent way of doing business," says Rosenbluth, senior vice president who heads Walgreen's health and wellness business. "They never had an alternative."

Rosenbluth is a key player trying to transform the company from a retailer that sells aspirin and develops film into more of a health care provider. The company is adding in-store clinics staffed with nurse practitioners and is setting up workplace health sites. Retail will still make up the bulk of the company's sales, but the health and wellness business is growing faster.

For years, analysts speculated Walgreen would need to buy a large pharmacy benefits manager, or PBM, to remain a player in the competitive business of retail drugs. CVS Caremark Corp., Walgreen's biggest rival, is itself the result of a transformational merger. But Rosenbluth doesn't think buying a PBM is the way to go. In fact, he refers to it as a "conflict" since these middlemen are supposed to negotiate good prices for the employers.

"We're getting rid of all the conflicts of interest in the industry," Rosenbluth says. "Health care is ripe for change."