Wal-Mart cuts prices on generic drugs

Patients will save money on some commonly prescribed medicines, but observers say the retailing behemoth's initiative won't impact drug costs overall.

By Tyler Chin — Posted Oct. 16, 2006

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Wal-Mart Stores Inc.'s decision to lower the price of about 300 generic drugs to $4 per prescription is garnering great attention, but some industry observers say the move will have minimal impact on overall costs, in part because many of the drugs under the price cut were relatively inexpensive to begin with.

Also, some experts say the move is more about trying to attract customers than it is about trying to save people money on drugs, especially because Wal-Mart is still making a profit at the $4 price.

On Sept. 21, Wal-Mart began selling 30-day supplies of 291 commonly prescribed generic prescriptions for $4 each at 65 Wal-Mart, Sam's Club and Neighborhood Market pharmacies in the Tampa, Fla., area. Wal-Mart says it will expand the program statewide in Florida in January 2007 and nationwide next year. The program will accept insurance and be available to the uninsured.

"The cheaper the better for the patient," said David Lubin, MD, a family physician in Tampa and treasurer of the Hillsborough County Medical Assn., which includes Tampa. "If patients are going to buy a generic ... there's nothing wrong with paying $4 for it."

Wal-Mart's initiative will benefit anyone who has a co-pay, the uninsured, health plans and employers because they will pay less for the drugs on the company's list, said Phillip Seligman, equity research analyst at Standard & Poor's. But even if competing retail pharmacies follow Wal-Mart's lead -- one, Target Corp., says it will -- the impact on overall drug prices or the bottom lines of publicly traded managed care companies will amount to "less than a drop in the bucket," Seligman said.

One reason why is that the number of drugs covered under Wal-Mart's lower price is limited. "Even though they list 291 drugs, many of the drugs on the list are just different versions of the same drug being sold at different [dosages]," Seligman said. According to published reports, the drugs on Wal-Mart's list cover only 124 separate medications in various dosages, which represent a small percentage of generic drugs available on the market.

Another reason he doesn't expect the initiative to have much impact is that the drugs it covers are older generics. Those generics are less frequently prescribed by physicians than newer generics and branded drugs that are more expensive but regarded by doctors as more efficacious than the older generics, Seligman said.

AMA policy states that doctors should be free to use either the generic or brand name in prescribing drugs for their patients and should supplement medical judgments with cost considerations in making those choices. The AMA also has policy supporting programs having the goal of containing rising costs of prescription drugs as long as those programs meet certain criteria. The programs, for example, must encourage optimal prescribing practices and quality of care.

So far, Target is the only pharmacy that has pledged to match Wal-Mart's price cut on generics in the Tampa area. However, Kmart took the opportunity of Wal-Mart's announcement to point out that in May it implemented a program to sell a 90-day supply of selected generics for $15 per prescription. "The $15 cost spread over three months ultimately means that customers are paying $5 a month for refills but saving money on gas and valuable time associated with frequent trips to the pharmacy," said Mark Doerr, vice president of Kmart Pharmacy in a prepared statement.

But another competitor, Walgreen Co., doesn't plan to change its pricing, said spokesman Michael Polzin. "The average co-pay that we receive from patients for those drugs [on Wal-Mart's list] is just over $5, so the price difference isn't enough to drive changes in patient behavior. We've seen over the years that our convenience and locations are a much bigger factor" in influencing a patient's choice of pharmacy, he said. Walgreen carries about 1,800 generics, he said.

Some analysts believe the initiative will help Wal-Mart boost its pharmacy business and drive sales of nonpharmacy items, though Bill Simon, the company's executive vice president of the professional services division, says that "isn't necessarily our aim."

Still, Wal-Mart expects to make money from higher prescription volume, said David Tovar, a company spokesman. The company will achieve cost savings through logistics and technology. Specifically, Wal-Mart will squeeze costs between the time the drugs leave the manufacturer and reach its pharmacies, Tovar said.

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Wal-Mart benefit changes draw criticism

Wal-Mart Stores Inc. says it will stop offering traditional, low-deductible health plans to new employees in favor of plans with low monthly premiums and high deductibles. That opened the company up to more criticism from groups that say the company is too tightfisted with its employees.

As of Jan. 1, 2007, new hires will be able to sign up for a "value plan" that has a monthly premium as low as $11 with a $1,000 deductible, said Dan Fogleman, a Wal-Mart spokesman.

New hires also will be able to choose HMO coverage if they reside in one of the 16 states where that coverage is offered, he said.

After employees have been enrolled in a plan for a year, they will become eligible for the "freedom plan," which has a health savings account enabling them to set aside part of their pay to cover medical expenses. Depending on the coverage they select, Wal-Mart could contribute up to $2,400 a year in seed and matching funds to workers' HSAs, Fogleman said.

Traditional low-deductible plans remain available to existing employees who renew their coverage, he said.

News of Wal-Mart's change in health coverage was first reported by the Washington Post, which based its report on internal Wal-Mart documents it obtained from, a union-funded organization. The group did not respond to AMNews' requests for comment.

Another union-funded group, Wal-Mart Watch, in early October sent a memo to the New York Times showing that Wal-Mart is trying to increase its part-time (and benefits-less) work force to 40% of employees, up from its current 20%. Critics say this is another sign Wal-Mart is trying to squeeze its employees, though the company told the Times it was only trying to get its part-time work force to the same level as its retail rivals.

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External links

Wal-Mart announcement and list of $4 generic prescriptions (link)

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