Rather than telling you which scenario I think is most likely, let’s try a new experiment in interactivity with an anonymous poll. (Don't worry, I can’t identify individual responses, either.) There were more than 1,000 visitors to this blog in the past month, so I'm personally curious to see how many will vote.
SCENARIO 1: MUCH ADO ABOUT NOTHING
- Wal-Mart’s program is much more limited than initial media reports led people to believe.
- Generic blockbusters, such as Zocor, are not included. Most of the drugs are older, low volume generic drugs that are already inexpensive. Consumers will become disillusioned and disappointed as they realize the program’s limitations.
- The actual hard-dollar savings versus current generic co-payments are minimal for consumers with third-party coverage, creating very limited incentives for prescription switching. This strategy will only pick up a relatively small number of cash-pay customers.
- Adding blockbuster generics at $4 per script would be self-defeating because the gain in volume will not offset the loss to Wal-Mart’s earnings.
- Wal-Mart will never be as convenient as the large, well-run chains with premium locations (CVS and Walgreens).
SCENARIO 2: THE EMPIRE STRIKES BACK
- Wal-Mart’s announcement is only the first step of a much larger plan to take pharmacy share away from supermarkets and independents. Evidence includes the national “Pharmacy at Wal-Mart” campaign, adding drive-through service, intriguing experiments that place pharmacy at the center of the store, and back-office software upgrades.
- Wal-Mart’s pharmacies are underutilized based on productivity metrics such as “number of prescriptions filled per pharmacy per week.” Most pharmacies can add incremental volume with minimal additional costs.
- Wal-Mart can build on its new position as the country’s large grocery retailer, placing pharmacy adjacent to food along the “main track” of the store. (Read about the Plano store in New, Upscale Wal-Mart Prototype Moves Pharmacy Centerstage.)
- The list will be broadened to include blockbuster generics as soon as the drugs pass the 180-day exclusivity period. While the PR boost will not match the initial September 22 announcement, Wal-Mart will price new generics to make them less expensive than co-payments.
- More seniors will begin paying out-of-pocket for prescriptions as they hit the donut hole. They will be price-sensitive cash-paying customers who will shift business to Wal-Mart.
Here's a final thought to keep us all humble: Confidence is the feeling you have before you fully understand the situation!
The assumptions of your two scenarios seem to differ in two basic related ways: timeframe and Wal-mart’s intentions.
Scenario 1 presents the current limited program only. Any possible expansion of the program over a longer time-frame is absent. Consumers react only to the current program.
Scenario 2, as indicated by the first bullet, is different. Wal-mart’s program is not static, but evolves over time. Consumers, and Wal-mart, change their behavior as the demand and supply dynamics change.
So, the question for your readers behind the scenarios is whether they think Wal-mart intends to go after this market in a significant way (Scenario 2) or if this is just an incremental addition to their offerings (Scenario 1).
The history of what happens to incumbent firms and market characteristics when Wal-mart makes a serious push into a new market is fairly clear. Depending on your audience, this may affect your poll results.
I like the blog. My best to Paula and the kids,
Good observation! The difference in time frame accurately reflects the 2 perspectives that I've been hearing -- "it's a short term blip" vs. "it's the start of a long term change."
My initial post on 9/22 ( Wal-Mart's Generic Pricing...) implied Scenario 2 was more likely. I've backed off a bit as details of the program have become clearer.
P.S. Curious readers may be interested to know that James was an analyst at Pembroke Consulting before going back to grad school. He is one of the smartest guys that I know.
If more insurers switched from flat dollar co-pays to percentage of cost, it should, in theory, create more price sensitivity on the part of consumers and, therefore, more willingness to fill scrips at Wal-Mart if they are among those that now list for $4.00. As I understand it, however, most insurance plans are sticking with flat dollar (often tiered) co-pays because employees prefer them and find them easier to understand.ReplyDelete
One issue with the new heavily discounted prescription programs that I haven't seen mentioned is that all of the third party contracts I've ever seen have essentially said: we (PBM) will pay you (pharmacy) this contracted price OR the price you charge your customers, whichever is lower. I've got to figure that WalMart, Target and now Meijer have to be smart enough to realize they'll have to charge ESI, Caremark, Medco and so on $4.00 or nothing or whatever their discounted price is as well as the customers they're trying to attract into their stores.ReplyDelete
I guess I'm having trouble getting my independent retail pharmacy owner head around how much the big guys are willing to give up in order to bring more customers into their stores. I know what it costs to dispense a prescription and I don't think my cost is that far off from what WalMart, etc. are paying. Can they really be willing to "pay" upwards of $8.00 per prescription just to try to sell someone something else?
Rising Sun, MD