This morning's Wall Street Journal article about Wal-Mart's (WMT) pricing model with Caterpillar (CAT) drops a bombshell in the last paragraph. According to Wal-Mart Expands Drug Program:
"Walgreen has a growing relationship with Toyota, operating about a half dozen pharmacies at the auto maker's U.S. work sites. The car maker is discussing with Walgreen the possibility of setting up a program similar to Wal-Mart's project with Caterpillar, in which Walgreen would expand its drug program for Toyota employees."If I am interpreting this paragraph correctly, then Walgreens (WAG) is proposing a direct-to-payer model (my term) with Toyota. FYI, Walgreens picked up Toyota's work site pharmacies with its acquisition of I-Trax in 2008. (Press Release)
Like it or not, Wal-Mart appears to be setting the new low-cost rules for the pharmacy industry. Direct-to-Payer is more than just a promotional price – it's a whole new revenue and profit model for a retail pharmacy. Wal-Mart's reimbursement for generic drugs from Caterpillar is explicitly cost-plus and based on Wal-Mart's actual invoice prices. No AWP or MAC required.
While we don't have details (or even confirmation that a Toyota-Walgreens deal will happen), Walgreens would surely sacrifice generic drug margin in exchange for volume. I wonder if Walgreen will now concede that a generic drug price war is underway. See Walgreens vs. Reality for January's denial.
And for the record, my April Fool's post was supposed to be a joke!
There may be some new visitors today since Drug Channels is mentioned by name in the WSJ article. (Thanks, Ann!). Here are quick links to four popular articles from the blog about Wal-Mart's strategy: