Wal-Mart Stores (WMT) announced an expansion of its (mostly) $4 generic drug program this morning. The 8 AM call was hosted by Dr. John Agwunobi, senior vice president and president for the Professional Services Division, and Bill Simon, executive vice president, chief operating officer, both from Wal-Mart Stores, Inc. The company also published a 4-page fact sheet.
I listened to the call (and even got to ask the final question). There was not much new news here, but here are my initial reactions:
Old news in a new pill bottle
This announcement is much less significant than the September 2006 announcement. Wal-Mart has expanded the list of drugs on their $4/$9 (a new tier) generics list, but is not fundamentally changing the program. Contrary to my earlier expectations, some of the blockbuster generics of brands such as Zocor and Zoloft are still not on the expanded list. No real explanation. They will probably still get some good press, especially because health care is becoming part of the Presidential election.
The program has generated profitable growth for Wal-Mart’s pharmacies.
Wal-Mart confirmed that they have increased pharmacist staffing more slowly than script count growth. In other words, my December 2006 analysis was correct in concluding that the program is generating incremental prescription volume to a typical Wal-Mart pharmacy by leveraging a relatively fixed pharmacy overhead. They stated that this profitable growth is "fully loaded" pharmacy profit, not just gross profit (revenues minus cost of goods).
Loads of of data, but little information
The company claims to have saved consumers $613,581,398.70 (!) as of September 24, 2007. The math was “simple” according to the speakers: They computed the difference between the old sell price and the new price ($4 or $9), and then multiplied it by the number of scripts filled. But this simple math doesn’t really tell us some key numbers, such as incremental script volume or where the scripts came from. They did note that dollar growth comps have been mid-teens for pharmacy, but “script counts are a multiple of that.”
Wal-Mart can still hurt independents where it counts
Last year, NCPA issued a series of blistering press releases, the first of which claimed that Wal-Mart was using a classic bait-and-switch. On this morning’s call, one of the speakers contrasted Wal-Mart’s generics program approach with the strategies of companies that have a “profitable, vested interest in the status quo.” Hmmm, wonder who they are talking about? Don’t forget that generics are much, much more profitable for pharmacies than brands.
What’s up with third-party payers and PBMS?
Chains such as CVS Corp (CVS) or Walgreens (WAG) are presumably not very vulnerable to Wal-Mart’s program because customers with third-party insurance do not save much versus standard co-pays. So I asked the speakers how Wal-Mart’s generic plan is working for patients with third-party coverage. Surprisingly, one of the speakers stated that Wal-Mart always files a claim on behalf of patients, but will often choose not to seek reimbursement. They even mentioned waiving dispensing fees offered by Medicaid. Presumably, Wal-Mart’s total reimbursement (dispensing fee plus their share of the co-pay) is less than a $4 cash payment, plus Wal-Mart gets the payment immediately instead of waiting a few weeks. I'd like to know more, but didn’t get a chance to ask a follow-up question.
Pharmacists had a generally negative view of Wal-Mart’s program in an October 2006 Drug Topics survey. Any pharmacists care to comment (anonymously, if you want) on Wal-Mart’s latest announcement?