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Let's give Wal-Mart its due

It drops drug prices, yet is criticized. What about those who keep them high?

By MARK ALBRIGHT
Published October 25, 2006

Who else but Wal-Mart Stores Inc. - the chain people either love or hate - could get a public drubbing for dropping generic drug prices?

Yet Wal-Mart's critics termed the chain cutting prices to $4 for a 30-day supply of 143 generics a publicity stunt. The list was loaded with older, cheaper generics. Despite ads listing every drug, critics whined the benefits were exaggerated.

Meanwhile, other generic drug sellers - from drugstores to mail-order pharmacies - got a free pass. Only a few, such as Publix, Costco and Target, even matched Wal-Mart's prices. Yet critics said zip about the drugstore chains trying to ignore the whole thing, gambling customers would not switch stores to save a dollar or two on insurance copayments.

Investors noticed. Walgreen's stock price slumped 12 percent since Wal-Mart launched the $4 offer. CVS Corp. is down 10 percent.

"It's really odd that even when Wal-Mart does things to be a responsible citizen - lower generic prices, add organic produce, build green stores - they don't get credit," said Bart Weitz, director of the University of Florida retailing program.

Contrary to critics' contention, Wal-Mart is not running a loss leader. It's rolled back prices, as it has on hundreds of other items, by cutting its own margins and squeezing suppliers.

President and chief executive Lee Scott said Tuesday that generic drug industry margins are high enough that "it wouldn't bother me" if his chain expanded discounting to 90 percent of all its generic sales volume, up from 25 percent.

Wal-Mart hardly stepped into virgin territory. Since May, Kmart has been touting its $15 for a 90-day supply of a shorter list of 184 generics. Costco offers similar, and in some cases lower, prices on the same drugs. And the warehouse club does not require prescription drug customers to buy a membership.

"I'm glad Wal-Mart finally brought attention to the markups drugstores put on generics," said Christine Kleynowski, a Costco pharmacy manager. "In some cases, it's up to 2,000 percent."

Drug prices are set differently from prices of toys or jeans. Government and insurance companies have a heavy hand in the process. Many people - the uninsured and people in the Medicare doughnut hole - rely on generics because they pay full price.

So the critics may get an argument from 36,000 new Wal-Mart customers who bought the cheaper generics the first two weeks after they were introduced in the Tampa Bay area, or the 88,000 who did the first 10 days after the test was expanded statewide.

Perhaps now the vitriol will be redirected to government loopholes that keep more high-priced drugs from becoming lower-priced generics in the first place. Jim Guest, president of Consumer Reports, offers suggestions:

- Brand-name pharmaceutical companies file frivolous appeals just to keep their most profitable drugs from going generic for up to a year. Of 43 petitions filed with the FDA between 2001 and 2005, only three were upheld.

- Some brand-name drugmakers pay generic manufacturers to stay out of their markets to preserve exclusivity. Big Pharma stopped the Federal Trade Commission from enforcing antitrust laws against such "sweetheart deals."

- The FTC, backlogged with applications to take hundreds more drugs generic, questions the competitive impact of branded drugmakers jumping into generics with little more than new packaging.

Wal-Mart's Scott told of a Tampa customer saving $180 a month by switching all 12 of his prescriptions - including four $4 generics - to Wal-Mart.

"He cried because we had changed his life," Scott said. "I think this is the coolest thing we've done in a long time."

Mark Albright can be reached at (727) 893-8252 or at albright@sptimes.com.

[Last modified October 25, 2006, 10:47:48]