Four-dollar pricing considered boon and bust

August 11, 2008

Are $4 generics the future of pharmacy? Perhaps so, as the consumption of generic drugs soars and their costs drop. Wal-Mart, which beat a thorny path to what many pharmacists believe is loss-leader pricing, says $4 was a great move. It is very popular-and good for business.

Are $4 generics the future of pharmacy? Perhaps so, as the consumption of generic drugs soars and their costs drop. Wal-Mart, which beat a thorny path to what many pharmacists believe is loss-leader pricing, says $4 was a great move. It is very popular-and good for business.

"Our $4 prescription program has had a positive impact on our business," Christi Davis Gallagher, senior communications manager for the retail giant, said. "It's been more successful than we even anticipated it would be. Since its launch in September 2006, the program has saved Americans more than $1 billion. To give you some perspective of how this impacts the total business, health and wellness, which includes pharmacy (both Rx and OTC), was 9% of our sales for fiscal year 2008."

So the Wal-Mart smiley face has a wider grin. But not all community pharmacists are smiling. Some say the pricing is predatory and is killing their businesses. "It's been just terrible for us and, I think, for all rural pharmacies," said Kevin Currans, Pharm.D., a staff pharmacist at Randy's Family Drug and Gift in Sleepy Eye, Minn., population 4,000. Last year Wal-Mart opened a store, replete with $4 generics, in New Ulm, a town of 12,000 people 13 miles east of Sleepy Eye.

Gallagher said Wal-Mart does not share specific numbers on transferred prescriptions, "but we know that when some customers transfer scripts because of the generic program, they bring branded scripts with them as well."

No doubt Wal-Mart's move, followed by K-Mart, Target, and several large chain drugstores, has been hard on some pharmacies, John Rector, senior vice president and general counsel for the National Community Pharmacists Association (NCPA), said. But what the overall effect of the pricing will be on the industry is uncertain. "No one has definitively determined what the effect of all this will be," he said. "So far only a small percentage of [retail] generics pricing has dropped. The actual impact on overall pricing-not a lot is known about that yet."

Perhaps, but the Wal-Mart move is spreading fast-and its own program is expanding. It now covers as many as 350 generics in nearly 4,000 stores in 49 states (North Dakota prohibits most retail discount programs). The list of covered drugs is increasingly extensive, covering 14 of the top 20 prescribed medications. The company also now sells many generics at $10 for a 90-day supply. In May Wal-Mart announced it would also begin selling one-third of its OTC medications at $4. (Wal-Mart's list is available at http://i.walmart.com/i/if/hmp/fusion/four_dollar_drug_list.pdf).

There are caveats to Wal-Mart's program: The list varies by state, and many drugs are priced higher in California, Hawaii, Minnesota, Montana, Pennsylvania, Tennessee, Wisconsin, and Wyoming.