When WalMart introduced the $4 prescription program, my commentary headline was “much ado about not much”. In retrospect, too strong a statement that early on.
The initial program covered less than 1% of the scripts filled at WalMart, and was widely seen as a more of a marketing ploy than major new program. To WalMart’s credit, they quickly increased the number of drugs covered and participating stores; before the latest news fully one-fifth of scripts filled at wallyworld were for $4 drugs.
With the benefit of hindsight, it looks like the program has had two rather significant effects – dramatically reducing drug costs for some individuals, and (possibly) driving down drug costs nation-wide.
Now I’m thinking this may just be the start of a major expansion of WalMart into the health care sector.
Last week the huge retailer enlarged the program yet again, this time adding enough medications to cover fully 40% of the scripts filled at their pharmacies (over 2400 scripts are involved).
There’s no doubt WalMart can impact health care. Drug cost inflation has moderated of late, down to a rather stunning 1% over the last year. Contributors to this happy event include the demise of the COX2s, the loss of patent protection by other branded drugs, and, according to some, a “WalMart effect”. This ‘effect’ looks to be a combination of WalMart’s market power, consumer awareness, and the downstream impact of their emphasis on generics.
WalMart’s price cuts have been matched (or at least addressed) by other big retailers including Target, KMart, Publix, and regional pharmacies. In turn, these big buyers likely exerted their buying power to drive down wholesale prices, and when necessary to shift vendors to suppliers in India and China. These two countries accounted for one-quarter of worldwide generic sales last year.
There is no question that WalMart is big enough to change buyer behavior, and certainly powerful enough to drive down supplier costs. (The retailer is the fifth-largest importer from China) It is also carefully watched, with every move studied and analyzed by competitors terrified by the economic power of the world’s largest retailer. With the success of the $4 drug program appearing assured, don’t be surprised if WalMart looks for other ways to flex its market power muscles in the health care sector.
Diagnostics, supplies, imaging, and perhaps even primary care look to be potential opportunities for expansion. With WalMart running out of other categories to enter, the health care sector, with its notorious inefficiencies, craft-type economic structure, and notable lack of branding may just be the engine that drives the smiley face’s continued growth.
Lest we think this is all for the good of the many, note that the program has also increased Walmart’s traffic, which has seen a double-digit jump in one of the original pilot areas (Tampa).
In retail the name of the game is traffic, and if WalMart thinks it can increase traffic by offering more health care services, consider it done.
Healthcare and Walmart? You get what you pay for, really got to keep that in mind.
I say good for the retailers (here in Florida, Publix supermarkets offers some common antibotics FREE for children)and shame on our legislators. It appears to me that they have abdicated their responsiblity in this area (i.e. protecting citizens form price-gouging by drug manufacturers) to WalMart, Target, K-Mart and Publix. Maybe WalMart could take on our Property Tax crisis next? :)
Hmm … free market competition benefits the consumer and holds down health care inflation … imagine that.
It must be working because the pharmacy industry keeps criticizing Wal-Mart!
See my analysis of their latest announcement on the Drug Channels blog:
http://www.drugchannels.net/2007/09/wal-mart-adds-some-4-generics-yawn.html
My calculations on store traffic reported in the New York Times come from my December 2006 posting:
http://www.drugchannels.net/2006/12/sloppy-reporting-about-wal-mart.html
Regards,
Adam
Its terrific to see retail forces meeting the health industry. While I may not think that WalMart style healthcare will be the right fit for everyone, it will create a much lower floor in the market and cause existing players to beef up (and make very clear) their value proposition.
When neighborhood pharmacists again start helping patients understand their medicines, when pharmaceutical companies begin innovating into new categories, and when healthcare purchasing makes sense to the average individual (rational economics on both supply and demand side), then maybe healthcare revenue growth will be a cause for celebration, rather than despair.
I like what Walmart is doing with generic medications. The Prescription Benefit Managers have been charging health plans excessive amounts of up to 3x the retail price for generic drugs. The PBMs promote the usage of generic drugs through co-pay incentives and promotional marketing. This is good, but their motivation is not just for lower costs for employee benefit plans, but for the profit margins they are getting on generics. The Walmart program will give employer plans an alternative to high priced generics currently being charges by PBMs.
My concern about Walmart is what they are charging for brand drugs. Are they taking back the generic savings with higher priced brand drugs?
This is likely just the beginning. Any middle-man in any industry sector better look in the mirror for the W on their head. Consumers will benefit most from their providers when they are able to treat their patients and not the comp plans created by insurance companies. Add to this an infrastructure to measure provider performance like Walmart measures their retail vendors and you will see free market metrics in healthcare like never before. But like all things, there are going to be trade-offs and if you take away profit incentives for health care manufacturers/innovators they will pursue richer emarging and growth markets. What impact will this have on the quality of care over time? Likely that drugs will become commodities and physicians will be compensated well for quality outcomes and not negotiated fees regardless of quality. This isn’t all bad. But then you have the largest % of population entering Medicare…if Walmart can figure it out, the government too needs to look in the mirror and welcome the W.