New Frontier: Competitive-Bidding in St. Louis

Not only is St. Louis home to the famed Gateway Arch, but it is also a frontier in cost-saving practices for the medical industry. As David Stokes of the Show-Me Institute reports for Reason’s Annual Privatization Report 2008, in bipartisan fashion, Saint Louis County government brought significant cost savings, more options, and better services for patients who use its pharmacy system through the direct results of competitive bidding and privatization. In 2003, the Saint Louis County, Missouri Department of Health was having serious financial problems. The health department operated three clinics with a shared pharmacy that maintained standard government hours and provided prescription drugs to increasingly large numbers of Saint Louis County residents. In 2002, the county pharmacy filled 295,000 prescriptions at the three clinics, compared to 178,250 in 1997, an increase in demand that quickly stretched thin the department’s budget and resources. If financial stability was to return to the department, the cost increases had to be brought under control. In a bold move, the Saint Louis County Executive’s office decided in the spring of 2003 to ask private companies to bid on providing pharmacy services to Saint Louis County citizens using the county’s three health clinics. The results of this competitive bidding process and subsequent privatization effort have lowered costs for taxpayers and improved health care services for patients. In February 2003, in an effort to control spiraling costs, Saint Louis County negotiated a contract with a local pharmacy company, RPh on the Go USA, Inc., to manage the county pharmacy at John C. Murphy Health Center. The contract was done on an emergency basis for a period of two months while Saint Louis County requested bids on providing pharmacy services to the three clinics. It received two proposals back. Walgreens, the nationwide pharmacy giant, and LDI, a local pharmacy benefits firm that contracts with a network of independent pharmacies, both bid for the clinic pharmacy work. Saint Louis County selected Walgreens’ bid of $5,923,000 per year to provide pharmacy services to residents needing assistance from the Department of Health clinics. The results have been significant. Before the pharmacy service was contracted out in mid-2003, the pharmacy budget had increased 180 percent between 1997 and 2002. After the pharmacy service was contracted out, first to Walgreens and later to LDI, the pharmacy budget declined sixteen percent from 2002 to 2007. Over the past 12 years, the overall pharmacy budget has increased 136 percent, with the bulk of that increase coming in 1999 and 2000. During that same period of time, the overall health department budget increased 55 percent. Clearly, the rampant spending growth in the pharmacy division before 2003 was having a significant effect on the budget throughout the health department, taking up resources that could have gone to many other worthwhile programs. How have the private companies fared in meeting the needs of Saint Louis County residents after taking over pharmacy operations? To answer that question and read more about this remarkable public-private partnership see the full report in APR 2008’s State and Local Update section. You can also read David Stokes complete study Saint Louis County, Drugs, and Competitive Bidding: A Privatization Success Story online. For more on competitive-bidding and other privatization measures around the country, see’s Privatization and Government Reform page.