Thursday, September 27, 2007

Wal-Mart adds some $4 generics (yawn)

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?


  1. The savings associated with the program are inflated because the amount is computed by taking the difference between the new $4 price (or as we know whatever the copay turns out to be) and the cost of the associated brand drug.

    The "real" savings should be computed by taking the difference between the new $4 price and the previous GENERIC drug price/cost to the patient

  2. Good point.

    I actually thought they compared their reimbursement (or perhaps AWP of generic?) to the total cash payments, i.e., $4. That didn't make sense to me, but they were vague on the call. (Does anyone now if there is a transcript available?)

    You are correct in that the total savings to patients is relative to out of pocket cost (co-pay or cash payment), in which case they are waaaay out of the ballpark.

    As I said in my blog post: lots of data, but little information!

    Thanks for the comment!


  3. Hello Dr. Fein

    As to the PBM issue--every contract I have says I must charge the PBM the contracted price or Usual and Customary price (UAC), whichever is less. If WalMart's contracted price for a generic is $7.50 and they're selling it to cash customers for $4.00, they're contractually obliged to charge the PBM $4.00 also.

    Several PBMs sent out notices earlier this year reminding all contracted pharmacies of this obligation--I'm sure WalMart is complying.

    As for Zoloft and Zocor generics--the MACs are still high enough that WalMart may not want to lose the margin they can still make on those drugs.

    Anecdotally, some of the WalMart pharmacists I've talked to aren't entirely pleased with the program because a minority of customers misunderstood the program to be EVERY generic for $4.00 and the time spent explaining the program to disgruntled customers is time the pharmacists could well use doing something more productive.

    What bugs me about this program, and others like it, is that it seems to be turning my profession into a loss-leader attraction for retailers who don't view pharmacy as their core business. It'll benefit that shrinking minority of patients who have no prescription coverage ONLY IF they have the discipline to pass up all the other merchandise they encounter on their way to the prescription counter.

    I'd really be interested in what WalMart's add-on sales are with the $4.00 generic program. My gut says they must be pretty good...

    Tom Connelly, RPh

  4. The contracts the independent pharmacies receive from PBM's are quite diffirent than the contracts the Chains get. This includes reimbursement rates. I am sure that Walmart dictates to the PBM's many of the finer details in their contracts. After all, Walmart was the same company that dictates rates to the credit card companies.

  5. This is typical Walmart. They are not really trying to save customers money or they would add generic zocor, norvasc, zoloft. They want their profit AND at the same time drve every other pharmacy out of business. There were no staff increases no matter what the tell you. I'm suprised state boards of pharmacy allow this nonsense. They should if they want their profession to exist.

  6. Whatever anyone thinks of this program, (And I have many mixed thoughts), when a patient is in tears due to their happiness about their savings..........What can anyone of us say negative about Walmart? Bottom line is that, MANY people can now afford their meds and have extra cash to spend on other necessities. Anyone vocally against this very idea is too concerned about themselves. I am a RPH for walmart and I applaud their actions----even though it has greatly increased my work load. If there is any doubt about this being a profitable mission---- think again.

  7. To those of you who believe Wal-Mart should sell generic Zocor, Norvasc, et al. at the $4 price: Why should they?

    What sense would it make for a business to sell its high-margin products for a loss? I can assure you that every drug currently on the list was picked very carefully and that Wal-Mart is making money on these drugs even at that low price. To ask them, no, to expect them to do the same when it wouldn't make them money is ridiculous and anyone who runs their business that way doesn't run it for very long.

    Wal-Mart has done a great thing by leading this trend against rising drug prices. They may have done it for selfish, profit-oriented reasons, maybe not. That doesn't change that it is a great thing and that it was Wal-Mart that will be known for leading the way.