Wal-Mart Sets $4 Price For Many Generic Drugs
By Kathleen Day Washington Post Staff Writer Friday, September 22, 2006; A01
Retailing giant Wal-Mart Stores Inc., known for forcing prices down to dominate nearly every market it enters, said yesterday that it would sell nearly 300 generic drugs for $4 per prescription, whether or not a customer has insurance.
Using its might as the nation's largest retailer and its legendary ability to force suppliers to cut prices to the bone, the company will begin the $4 price program in its 65 stores in the Tampa area today, in all of Florida in January, and in as many other states as possible by the end of 2007. The $4 is for a typical monthly supply of medicine, and included on the Wal-Mart list are generic versions of many popular prescription drugs, including the antibiotic amoxicillin and the heart and blood-pressure treatment lisinopril, sold under the brand names Prinivil and Zestril.
Health-care industry analysts said the program has the potential to transform the $230 billion prescription-drug business the way Wal-Mart has transformed other industries, including groceries and toys, where its aggressive pricing has forced some competitors out of business and allowed it to dominate entire categories of merchandise.
Health-care costs rose an average of 9.6 percent a year from 2000 to 2004, and a large component of the increase was the price of drugs, which rose an average of 11.4 percent a year in that time. Inflation during that period was around 2.6 percent a year. Though the increase in drug prices has been slowing in recent years, largely because of the wider use of generics, it has still outpaced inflation, health-care analysts and industry trade groups say.
Wal-Mart executives, criticized by labor unions and consumer groups that say the company shortchanges its employees on pay and health care, said they started the program to help families and retirees, especially those on Medicare. They said at news conferences and in telephone calls yesterday that they see these groups struggling daily at the company's pharmacies to pay for medicine.
"This $4 program represents real savings for working families," said William S. Simon, executive vice president for professional services at Wal-Mart. "Wal-Mart's taking this step so that our customers and associates can get the medicines they need at prices they can afford. . . . Customers tell us all the time that prescription-drug costs are forcing them to make tough decisions."
Generic drugs have the same active ingredients as their brand-name counterparts but are much cheaper. Last year, they accounted for 56 percent of all prescriptions filled in the United States but only about 10 percent of total prescription-drug sales.
Wal-Mart spokesman David Tovar said the company will make money on the sales but will not disclose whether it negotiated with drugmakers, wholesale suppliers or both to make the deal profitable. "It is not a loss leader. It is something we intend to make a profit on," he said. "The way we do that is through our logistics and our technology."
Some top-selling generics are not on the list of drugs Wal-Mart will offer for $4, including the painkiller hydrocodone -- whose trade name is Vicodin -- and generic forms of the painkiller Darvon and the anti-anxiety drug Xanax. But many are.
While Wal-Mart is likely to continue to profit from generic sales, the company would not say how much the $4-per-prescription program will reduce its earnings. Some of the reductions appear to be substantial. A Wal-Mart in Alexandria, for example, was selling 30 tablets of lisinopril for $20.72.
Analysts said the company was probably gambling that the lost revenue from lower-priced drugs will be offset by increased traffic in its stores.
Gary Claxton of the Henry J. Kaiser Family Foundation said pharmacies are always placed at the back of stores in the hope customers will pick up other merchandise along the way to get their prescriptions. Wal-Mart probably hopes to benefit in overall sales, but also in drug sales because customers bringing in generic prescriptions are likely to fill their brand-name prescriptions, too, he said.
Wal-Mart's announcement roiled the retail drug industry. Shares of Walgreen Co. and CVS Corp., two large drugstore companies, fell more than 7 percent and 8 percent, respectively.
According to the Generic Pharmaceutical Association, 8,400 of the 11,167 drugs listed by the Food and Drug Administration are sold generically. The average price of a 30-day supply of a generic prescription drug was $28.71 in 2004, compared with the average price of a brand-name version at $95.54. The Congressional Budget Office has estimated that generic drugs save consumers $8 billion to $10 billion a year.
Mark McClellan, administrator of the federal Centers for Medicare and Medicaid Services, said he did not think the Wal-Mart offer would siphon beneficiaries from the Medicare drug benefit, known as Part D. "Remember that the drug plans in Medicare already provide excellent coverage for generics," he said. "Many of the plans have generics for a dollar or two, or even free."
What the Wal-Mart plan does provide, he said, is a way for Medicare recipients to save more money after they reach the "doughnut hole." That's the point at which an individual's yearly drug cost reaches $2,250, and Medicare ends its subsidy. After that, a beneficiary has to pay $3,600 out of pocket before government subsidies kick in again.
In that interval, or gap, the Wal-Mart program could result in significant savings, given that the average Medicare beneficiary is expected to spend about $3,081 on prescription drugs this year, McClellan said.
Tovar, the Wal-Mart spokesman, said that the $4 price is available to anyone, but that Wal-Mart will try to collect insurance on prescriptions for people with prescription-drug coverage. However, some insurance contracts stipulate that pharmacies will not be paid the full cost of a drug unless customers pay the full co-payment the insurer requires.
Tovar said Wal-Mart will still allow insured customers to pay $4 per prescription, even if that is less than the co-payment required and even if that means Wal-Mart will not be paid any money by insurance companies.
Mohit Ghose, a spokesman for America's Health Insurance Plans, which represents providers of insurance of all types, including for prescription-drug coverage, said the typical co-payment for a generic prescription is $5 to $15. He said it is unclear how the Wal-Mart plan will affect insurance coverage.
Staff writers Ylan Q. Mui and Christopher Lee contributed to this report.
© 2006 The Washington Post Company