Friday, September 21, 2007

The Real Wal-Mart Effect

Inflation in drug prices has dropped to its lowest rate in three decades, as reported in Helped by Generics, Inflation of Drug Costs Slows from today’s New York Times. Bonus for fans of Drug Channels: I’m quoted in the article.

BLS economists cite the effect of Wal-Mart’s $4 generics program:
A Labor Department economist, Francisco Velez, said his office noted a drop in generic drug prices shortly after the large stores’ promotions began, particularly in the South, where Wal-Mart started its program.

To be honest, I’m not sure how much of the drop is attributable to Wal-Mart versus the overall market penetration of new generics and resulting shorter life cycle of brands. A 1998 CBO study found that the average market share of 21 generic drugs launched from 1991 to 1993 was 44% after one year. Today, blockbuster generics get 80%+ substitution within one month due to the efforts PBMs, wholesalers, and chains. Wal-Mart is a relatively small part of the overall pharmacy market, as I note in the article.

I suspect that the real Wal-Mart effect has been the negative impact of its $4 generic program on supermarkets, independents, and other discount chains.

Exactly one year ago, I correctly predicted that Wal-Mart’s $4 generics would shift generic market share away from independents, particularly in rural counties that have low chain pharmacy penetration. In the article, I discuss the increase in Wal-Mart’s pharmacy traffic due to its $4 generics program, which come from Sloppy reporting about Wal-Mart. (Ironically, my original post is highly critical of the Times!)

Perhaps NCPA should look at the companies competing with independents before blaming Part D and PBMs for the all of the marketplace challenges facing their members.

2 comments:

  1. Adam,

    Can you provide the sourcing on your comment: "Today, blockbuster generics get 80%+ substitution within one month due to the efforts PBMs, wholesalers, and chains."

    Not questioning the assertion necessarily, just trying to track down the relevant study/article.

    Thanks!

    ReplyDelete
  2. For a real-world example, see Medco's 2007 Drug Trend report.

    Page 9 shows the % of Zoloft (sertaline) prescriptions that were dispensed as generic within the first four months. Mail order substitution was ~95% after 7 days. Retail reached ~85% within 2 months.

    Adam

    ReplyDelete

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