Wal-Mart Expands Low-Price Drug Program
Last updated Wednesday, May 7, 2008 4:46 PM CDT in Business
By Kimberly Morrison
THE MORNING NEWS
Wal-Mart Stores Inc. expanded its discount prescription drug program to include certain 90-day generic prescriptions for $10 and added 1,000 over-the-counter medications to the $4 offerings.
The Bentonville-based retailer said Monday its 4,000 Wal-Mart, Neighborhood Market and Sam's Club pharmacies now will fill up to 350 generic medications for $10 for a 90-day supply.
The retailer also added more $9 women's health medications to the program, which includes drugs for osteoporosis, breast cancer, menopause and hormone deficiency.
The new offering of certain $4 over-the-counter drugs includes Equate-brand versions of popular drugs like Zantac, Pepcid and Claritin, as well as some brand-name medications.
The retailer's low-price drug program began in 2006 and was expanded in September with more medications. Yesterday's announcement marks the third phase of the program's expansion.
The company cited the success of the program in an increase in health and wellness sales to 9 percent last year from 8 percent the prior year.
Wal-Mart claims to have saved consumers more than $1.1 billion at the pharmacy by cutting medications like generic Claritin, previously priced at $8, to $4.
"In some products, we've rolled back as much as $7," said Dr. John Agwunobi, Wal-Mart's president of health and wellness, in a conference call with analysts and media.
Wal-Mart has increasingly focused its price leveraging strengths to drive out costs in the health care system, lowering the price of prescriptions, adding vision centers and in-store clinics to its U.S. operations.
The retailer said 90-day prescriptions are another way to reduce cost, removing the expense from filling single prescriptions and shipping charges for consumers who purchase mail-order medications.
Wal-Mart said it remains committed to reducing "excessive" health care costs, and began earlier this year opening the first of 200 in-store clinics to be introduced this year. The retailer plans to house 400 clinics by 2010.
Several major retailers including Walgreen Co., CVS Caremark Corp. and Kmart, owned by Sears Holding Group, lowered prescription drug prices following the introduction of Wal-Mart's $4 drug program. Regional grocer, Springdale-based Harps, also followed suit, advertising that it will match any pharmacy prescription prices.
But certain pharmacy trade groups have argued that $4 prescriptions are a "loss leader" - meaning the company is selling drugs at steep discounts to drive traffic to more profitable departments - and misrepresent the cost to fill a prescription.
The average cost of dispensing a Medicaid prescription is $10.50, according to a widely-cited 2006 research study by Grant Thornton funded by the Community Pharmacy Foundation.
Nine states have "sales below cost" laws that prohibit Wal-Mart from selling $4 prescriptions because the retail price is lower than the purchase price, said Deisha Galberth, a Wal-Mart spokeswoman.
Bill Simon, Wal-Mart chief operating officer and architect of the $4 drug program, said that low-priced drugs are not a loss leader.
"We're in business to make money," Simon said.
That sentiment has sparked criticism from the National Community Pharmacists Association, which has disapproved of what they call the devaluation of pharmacies as a heath care service.
"We do view it as a marketing ploy," said John Norton, spokesman with the National Community Pharmacists Association. "The impact has not been that substantial, but we remain concerned about the commoditization of prescription drugs."
Following the announcement, Wal-Mart shares (NYSE: WMT) fell in early morning trading to $57.34 from $56.81 at market open. The share price closed Monday at $56.97, down 53 cents.
The news was a win with at least one analyst.
"Wal-Mart's $4 generic program has proved to be a winning twofold strategy with clear public relations benefit as well as real cost savings for the customer," Adrianne Shapira, an analyst with New York-based Goldman Sachs, wrote in a note to investors following the announcement.
Shapira said the retailer's announcement signals an "evolution in its offering" as it seeks to gain potential share from the mail-order and over-the-counter channels, as well as win critical share with its female primary shoppers.
September 2006 - Wal-Mart launches $4 prescription program in Tampa, Fla. and quickly expanded to 49 states.
September 2007 - A second phase of the $4 generics program is introduced, adding 24 additional medications, bringing to 361 the total number of drugs under the program.
February 2008 - Wal-Mart announced it would open its first in-store medical clinics under its own brand name, which would total 200 by the end of the year.
May 2008 - Phase three of the low-priced prescription drug program adds 1,000 over-the-counter medications and more $9 women's health medications. The retailer also announced plans to house 400 in-store medical clinics by 2010.
Source: Wire and staff reports
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