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Wal-Mart's $4 Generic Drug Program Has Had Little, if Any, Impact on Health Plans

 

02-Oct-2007: When Wal-Mart Stores, Inc. launched its headline-grabbing $4 generic drug program a year ago, some industry observers predicted the retail Goliath would shake up the $230 billion prescription-drug industry. One theory held that as pharmaceutical payers came to realize just how cheap generics were, they would demand that PBMs and pharmacies squeeze out the hefty margins they earn on the sales of generic products. One year later, most industry analysts agree Wal-Mart's program has had little, if any, effect on third-party payers - other than to boost awareness of the value of generics.

"What ultimately became evident is that this is really targeted to the cash-paying world," says Kemp Dolliver, managing director at securities firm Cowen and Company, LLC.

Among other things, the program has not drawn people away from health plans that already offer low copayments on generic drugs, Dolliver says. "In many cases, if you have a $5 generic copay, it is unlikely you're going to shift for a buck," he tells DBN. "If you had $4 for a group of drugs where everyone was paying $15 or $20 out of pocket? Yeah, by all means, but that just wasn't the case."

Wal-Mart launched its program Sept. 21, 2006, in the Tampa Bay, Fla., area. The program offered $4 generics for a 30-day supply of more than 290 drugs, including those in common therapeutic categories such as allergies, cholesterol, high blood pressure and diabetes. The program quickly expanded nationwide, and now includes 331 generic drugs comprised of 143 compounds in 26 therapeutic categories.

Program Benefits Uninsured

Wal-Mart estimates that the list of $4 generics represents more than 25% of prescriptions now dispensed in its pharmacies nationwide. The company also said that its customers have saved roughly $350 million on the generic drugs since September 2006, according to the Orlando Sentinel. Furthermore, almost 30% of the prescriptions are purchased by customers without health insurance, the paper reported.

Lisa Gill, a securities analyst at JP Morgan Chase & Co., says the Wal-Mart program was never a competitive threat to PBMs. "At the end of the day, 93% of prescriptions that are filled are paid by a third party. That really only leaves the other 7% not paid by a third party. It is really the cash-paying customer that is the most concerned with this."

Gill and Dolliver also agree that the Wal-Mart generics program has had a particularly limited impact in large metropolitan areas, such as New York City and Boston, where Wal-Mart stores often are not convenient to many people. "It is going to cost money," Dolliver says of the need for many urbanites to drive to the suburbs to get a prescription filled at Wal-Mart.

Program Raised Awareness of Generics

While the program initially generated excitement among pharmaceutical payers, Dolliver says that by the turn of the year, benefit consultants "were not looking at this as the world's greatest opportunity to beat up people over rates."

Still, that's not to say the program hasn't had any effect on plans. Sean Brandle, vice president at benefits consulting firm Segal Co., says the impact was primarily an increased awareness on the part of plan sponsors and members regarding the actual costs of these medications. "Plan sponsors have realized that their copayments for generic drugs may be set at too high a level ($5 to $15) and are beginning to look closely at plan data in order to determine the ideal amount," he tells DBN.

And plans themselves see the publicity on generics as a positive. "I think the $4 programs are great for the industry," says Eric Culley, Pharm.D., manager of clinical pharmacy services at Highmark Blue Shield. "Overall, these programs have helped to lower the cost of drug therapy, while advocating the tremendous value of generics."

One of the country's largest PBMs, Medco Health Solutions, Inc., also welcomed the Wal-Mart program for similar reasons. "The Wal-Mart generics program instantly raised national awareness about the benefits of low-cost generics, and provided Medco the opportunity to reinforce with its clients and members the efficacy, safety and savings of generic medication, especially through its mail-order pharmacy network," says Medco spokeswoman Jennifer Luddy.

Other retailers, including Target Corp., have matched the $4 prescriptions. Some chains, however, have backed off of their $4 commitments recently. For example, Publix Super Markets, a chain of grocery stores in the Southeast, last month discontinued its $4 generics program, according to the Orlando Sentinel.

Adam J. Fein, Ph.D., founder and president of Pembroke Consulting, Inc., says the Wal-Mart strategy was never designed to restructure the entire health care system. "Wal-Mart really was trying to improve the utilization and efficiency of its in-store pharmacies," he tells DBN. "The biggest impact of this program has been on Wal-Mart itself. The first four months of the program last year increased total prescriptions per pharmacy by about 15%," Fein says, based on Wal-Mart's own figures.

Source: Atlantic Information Services, Inc.