Walmart will be introducing their discount program for selected generics to shoppers in California shortly, causing much gnashing of teeth and rending of clothes by pundits, independent pharmacies, and generic manufacturers.
What’s really going on here?
1. The list includes most of the most common drugs, or doesn’t depending on who you ask.
2. Of the 331 drugs on the list, there are 143 distinct compounds – for example, there are several versions of amoxcilin.
Here’s my take on the potential effects.
1. While the $4 price is great, it is immaterial if your card program copay is $5. And many plans still have that level of copay.
2. Independent pharmacies are running scared, but really shouldn’t be. If they lose customers for a buck or a few bucks per script, they are probably on their way to Chapter 11 anyway. Retail pharmacies provide significant value added services that many shoppers want. If the independents start cutting services to compete on price, they’re toast. If they concentrate on service, most will be fine.
3. Great PR for a company that has been in dire need of positive spin . Wal-mart’s savvy business move (use cheap drugs to get more consumers in its stores) has turned out to be a great PR plus as well, earning it points it desperately needed.
4. Wal-mart will demand, and get, cheaper wholesale drug prices, which will force generic manufacturers to get better faster cheaper.
5. The move is an effort to drive more consumers to its stores, and to brand itself as a health care provider. Nothing more and nothing less. And the giant’s recent same-store sales problems make the success of the cheap drug program really important to Wal-mart’s financial success.
There is clearly an argument to be made that Wal-Mart’s program will have little effect.
However, I see the addition of pravastatin (generic Pravachol)as a potentially significant challenge.
I agree that ahains appear less vulnerable because customers with third-party insurance may not save very much versus standard co-pays. However, chains are now in the awkward position of telling customer to ignore price, an argument that seems curiously at odds with the trend toward consumer-driven health care decision making.
For more, see my blog post from last Monday:
http://drugchannels.blogspot.com/2006/11/wal-mart-raises-stakes.html
Adam
Walmart is my favorite, cheaper than kmart :-)
Greetings from kansas
Until now, my employer has always had a stiff 50% co-pay for drugs purchased at retail. Starting in 2007, for first tier drugs, including generics, it is switching to a 20% co-pay with no minimum. So, if the choice is between a $10 script at Walgreens or CVS vs $4 at Wal-Mart, the co-pay is $2 vs $0.80. If I were the retail drug chains, I wouldn’t be too worried about Wal-Mart stealing my business.
It also seems a bit disingenuous for Wal-Mart to claim a 50% gross margin on the sale of generics for $4 for a 30 day supply. Even if their pharmacies are reasonably efficient, it is probably costing them $6-$10 to fill each prescription as compared to about $5 for Walgreens, the most efficient of the drug retailers. Thus, Wal-Mart seems willing to sell this product at a fully allocated loss to build business for the rest of the store and score some favorable PR points.