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New Wal-Mart generics program shakes up Rx pricing.

BENTONVILLE, Ark. -- In a move with uncertain implications for chain drug retailers, Wal-Mart Stores Inc. has cut the prices of 291 generic drugs to a flat $4 at its stores in the Tampa, Fla., market. The program will be extended statewide in January 2007 and rolled out thereafter in as many states as possible, according to the company.

The program is being launched at a time when Americans' discontent with high prescription drug prices is running high. In August a Wall Street Journal Online/Harris Interactive Health Care poll indicated that 80% of those polled favor importation of drugs from Canada if they are less expensive. A higher proportion--84%--strongly or somewhat agreed that the law banning drug imports is intended to protect the profits of drug manufacturers.

In the initial test phase the program will be available to customers and associates of Wal-Mart's 65 outlets, including Neighborhood Markets and Sam's Club units, in the Tampa market, which was selected because of its manageable size, according to Bill Simon, executive vice president of Wal-Mart's professional services division. It is available to both the insured and the uninsured.

The program initially covers generic medications in several of the most common therapeutic categories, including allergies, cholesterol, high blood pressure and diabetes. Some antibiotics, antidepressants, antipsychotics and prescription vitamins are also included.

However, the initial list of drugs--which is available at different versions of the same medication, such as 12 variants of the antibiotic amoxicillin. The count of actual different medicines in different dosages is 124. The $4 price applies to a 30-day supply at typical dosages and is good for successive refills as well as initial scripts.

"Each day in our pharmacies we see customers struggle with the cost of prescription drugs," said president and chief executive officer Lee Scott in a statement. "By cutting the cost of many generics to $4 we are helping to ensure that our customers and associates get the medicines they need at a price they can afford. That's a real solution for our nation's working families."

As examples of the savings the program delivers, a 30-day supply of the blood pressure medication lisinopril, 10 mg, typically sells at retail for $11.98, so patients will achieve a savings of 67%. A 30-day supply of metformin, a diabetes drug, can be purchased at a 49% discount from its common price of $7.85.

Wal-Mart will not be underselling all of its competitors on every drug, however. As The Waft Street Journal noted, the high blood pressure drug tenormin can be purchased online for $3.69 from Costco Wholesale Corp. But the same 25-mg dosage carries a $10.99 pace tag at (see accompanying story on page 1 for responses of chain drug and other retailers).

"For Americans who lack coverage or are struggling to the point that they can't afford their medicines and then don't get the health care they need, this program gives them options and access," said Simon during a news conference. "It will also help alleviate a major challenge for seniors who've fallen in the coverage gap of their Medicare Part D prescription drug plans, known as the doughnut hole. The fact is, this will help all of our customers and all of our associates from all walks of life."

Under the program insured customers who are responsible for co-pays will pay the flat $4 fee. In cases where the co-pay is $4 or more, Wal-Mart will not bill the insurer or other payer (e.g., Medicare or Medicaid) but will file the transaction information with them so it can be used in drug-utilization reviews. If a co-pay is less than $4, the retailer will charge the difference.

During the news conference Simon denied that Wal-Mart was using the plan as a loss leader, asserting that the company can operate it profitably by relying on its vaunted logistics and systems capabilities to take costs out of the supply chain and its pharmacy operations. And while executives emphasize the program's benefits to customers and associates, they clearly expect to achieve increased pharmacy market share and perhaps increase store traffic as well.

According to Simon, marketing of the program will be "purely informational."

"We want to get the news into the hands of every customer who may need help with prescription medication," he said. "So we're going to be running radio and newspaper advertisements with the list of drugs, and making sure that doctors in the area have the list of drugs so they know what we're doing and can provide prescriptions for these drugs, if appropriate, for their patients. We'll roll it out nationwide the same way we're doing it in Tampa."

Analysts by and large did not expect the price cuts to have a dramatic effect on Wal-Mart's overall business. In a research note, ThinkEquity analyst Edward Weller considered both the short-term and long-term implications of the program, which he described as a "very slick way to drive traffic."

"These price cuts will affect margins, of course, and perhaps materially, but only on 1%-plus of Wal-Mart's U.S. sales (half the pharmacy business)," he wrote. "How much the company gets back in the form of increased traffic is open to question, but we think Wal-Mart would probably not do such a thing without the expectation of some significant offsets and, we think, a positive return on investment."

Broader response to the initiative was predictably mixed, with some critics focusing on Wal-Mart's failure to extend health coverage to all of its associates. Others, including Sen. Bill Nelson (D., Fla.), credited the company with making a significant effort to make at least one aspect of health care more affordable.

"We continue to believe that Wal-Mart's attempts to be a better corporate citizen, a better store to shop in, a better company to work for, and a better company to invest in will lead to an improvement in the company's returns, over time, and that those improving returns will allow Wal-Mart's shares to break out of their nearly seven-year trading range," Weller concluded.
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Title Annotation:Wal-Mart Stores Inc. cuts generic drugs prices in Florida
Comment:New Wal-Mart generics program shakes up Rx pricing.(Wal-Mart Stores Inc. cuts generic drugs prices in Florida)
Publication:Chain Drug Review
Geographic Code:1U5FL
Date:Oct 9, 2006
Previous Article:FDA warns of imported medications' dangers.
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