Wal-Mart Drug Discounts Increase Competition and Lower Prices

Commentary by Devon Herrick

In September 2006, Wal-Mart rolled out a plan to sell 291 generic prescription medications at $4 for a 30-day supply at selected pharmacies in Florida. At the same time, it announced plans to expand the program to 14 additional states.

By late October, another 12 states had been added to the program, and the number of generic medications available had increased to 314, including multiple doses of the same drug. In mid-November the company announced it was adding 11 new states and 17 new prescriptions to the program, bringing 38 states under the $4 drug umbrella.

Excluding multiple doses, Wal-Mart now sells about 160 unique drugs at $4 per prescription.

Generic drugs are a bargain for Americans. In 2005, they rang up sales topping more than $28 billion in the United States, according to IMS Health, a market research firm that tracks the pharmaceutical industry.

The Generic Pharmaceutical Association estimates that although generic drugs represent only about 12 percent of drug spending, they comprise more than 53 percent of all drugs sold in the United States.

Discounting Popular Meds

RxList.com, an independent Web site, features a list of the most widely prescribed medications. Nearly one-third of the 30 most prescribed drugs are available at Wal-Mart for $4 (an additional one-third of the top 30 prescribed drugs are branded medications).

According to Wal-Mart, the list of discounted drugs represents about 25 percent of the drugs it sells.

Dr. Gerald Musgrave, president of Economics America, a consulting firm in Ann Arbor, Michigan, and coauthor of the book Patient Power, said that by announcing flat pricing and publishing a list of drugs offered at the discounted price, Wal-Mart has created greater competition in the generic market.

"Making its list of covered medications public is squaring off directly against its big-time competitors, as well as the dwindling fringe of local mom-and-pop pharmacies. Both are formidable adversaries," Musgrave said. "If Wal-Mart has its traditional success in raising the living standards of millions of customers, via lower drug prices, it may also generate new detractors who will seek political advantage to accomplish what they can't win in the marketplace."


Forcing Competition

Within a day of Wal-Mart's initial announcement, other retail stores followed suit.

Target announced it would match Wal-Mart's price, and K-Mart has begun selling 184 generic prescriptions at $15 for each 90-day supply. At press time, two chains, Giant Eagle and Meijer, had plans to give away seven different generic antibiotics at their locations.

Actions like this worry Dr. Stephen Schondelmeyer, director of the Prime Institute College of Pharmacy at the University of Minnesota, who cautions against using drugs for the wrong reasons.

"Getting the best value on a drug is a good thing. But it is not the best value if the drug is not needed or [not] used appropriately," Schondelmeyer explained. "[The antibiotic] Amoxicillin is a good drug. But we shouldn't be using this to treat a viral cold just because it only costs $4, or even if it is free."

Schondelmeyer urges caution. He says patients should not ask their doctor to prescribe drugs only from Wal-Mart's $4 list, because a few of the drugs on it are not the safest, best generic drug available for a particular condition. In other cases, some of Wal-Mart's $4 drugs are good but are already available over the counter.


Driving Prices Down

Dr. Robert Graboyes, a senior fellow at the National Center for Policy Analysis who teaches economics and health policy at three universities in Virginia, thinks Wal-Mart's move could affect the pharmaceutical industry.

"The real story here is not so much quantitative, but qualitative. The news is not how much they might drive down prices, but rather the fact that somebody is driving down prices at all," Graboyes said.

"Assuming the program works well for Wal-Mart, the effect on competitors could be profound," Graboyes continued. "That's been the case with so much of Wal-Mart's product line. They've demonstrably driven down consumer prices nationally."


Increasing Business

Wal-Mart will likely see its business increase. According to the National Association of Chain Drug Stores, in 2005 the average generic prescription drug sold for about $29.82 (compared to $101.71 for name-brand prescriptions) for a 30-day supply.

A Kaiser Family Foundation report released in October found the average co-pay for generic drugs on an employer-sponsored health plan is about $11. At that rate, paying retail at Wal-Mart is nearly two-thirds less expensive on some generic drugs than a standard drug plan co-payment.

Wal-Mart's standard pricing and published list will surely save consumers some of the effort of calling numerous locations, Graboyes said. The price of generic drugs varies widely from region to region and from one store to the next.

For instance, the Web site MyFloridaRx.com tracks retail drug prices across the state of Florida. A search made in November found prices for Fluoxetine (30 20mg capsules), the generic form of Prozac, ranging from $5.20 at Citrus Health Network Pharmacy to $142.30 at a pharmacy owned by Luper Corporation.

Once the Web site is updated, the lowest price on Fluoxetine in the state of Florida should be $4 at Wal-Mart.