Lean Prescriptions at Caterpillar: Excavating Waste

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Caterpillar Corporation, the global manufacturer of heavy equipment for construction and agriculture, has championed Lean thinking for many years, applying Lean and Six Sigma with great success throughout its production, product development and distribution organizations. Today The Wall Street Journal reported that Caterpillar has taken another great Lean leap forward – this time in the procurement of prescription drugs for its employees and retirees.

Beginning in January, 70,000 Caterpillar employees and retirees will have their prescriptions filled directly by Walgreen Company, the large pharmacy chain, bypassing entirely the pharmacy benefits managers (PBMs) which typically coordinate and administer prescriptions for large, employer-based health plans. In recent years the PBMs, originally developed to hold down drug costs, have been criticized for adding an unnecessary layer of non value-adding cost to the dispensing of prescriptions. An article in The American Journal of Health-System Pharmacy recently stated that “The system for processing prescription drug claims is reminiscent of the highly bureaucratic organizations of the mid-twentieth century.” Even worse, a striking chart in the same article shows that over the last decade the annual percentage cost increase in prescription drugs has been more than double the already breathtaking rises for hospital care and physician services.

In a separate interview with aishealth.com, Todd Bisping, Caterpillar’s corporate pharmacy-benefits manager, remarked on the complexity of the prescription supply chain: “There’s a whole plethora of organizations and people who have a touch point on a prescription drug from the time it’s manufactured to the time it ends up in one of our employees’ hands to take it. This results in an estimated 10% to 20% premium on drug costs with little additional value.”

Commenting on Caterpillar’s decision to cut out the PBMs, Mr. Bisping put it in perfect, Lean terms: “We learned we could take a complex and confusing process and simplify it to save significant amounts of money.” His comment shows that the Lean management principles applied so successfully elsewhere at Caterpillar have now made their way to HR and benefits administration. We at Leonardo Group Americas are convinced that administrative processes contain some of the greatest improvement opportunities in American Health Care. Let’s follow Mr. Bisping’s lead at Caterpillar and go after them!

References:

“Walgreen to Provide Drugs to Caterpillar”, Karen Talley and Kelly Nolan, The Wall Street Journal, August 27, 2009. 

“Examining the Value of Pharmacy Benefit Management Companies”, Robert I. Garis et. al., American Journal of Health-System Pharmacy, 2004; 61:81-5.

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