Wal-Mart plans to begin selling nearly 300 generic prescription drugs for a sharply reduced price, offering a big lure for bargain-seeking customers and presenting a challenge to competing pharmacy chains.
The world’s biggest retailer said Thursday that it will test its sales program, in which 291 generic drugs will be sold at $4 for a month’s supply, in Florida. The drugs involved provide treatments for conditions ranging from allergies to high-blood pressure.
Selling generic drugs at prices that don’t offer much if any margin for profit could serve two purposes for Wal-Mart: It could draw customers away from big pharmacy chains to Wal-Mart stores that offer a much wider array of products, and it could help Wal-Mart with an image problem stemming from its policies on health insurance for employees.
“We’re able to do this by using one of our greatest strengths as a company — our business model and our ability to drive costs out of the system, and the model that passes those costs savings to our customers,” Bill Simon, executive vice president of the company’s professional services division, said in announcing the plan at a Tampa, Fla., store. “In this case were applying that business model to health care.”
Wal-Mart Stores Inc. officials said the reduced price represents a savings to the customer of up to 70 percent on some drugs. The average monthly cost for a generic drug prescription is $28.74, according to the National Association of Chain Drug Stores. For branded drugs, that figure is $96.01.
Richard Hastings, a retail analyst at Bernard Sands, told CNBC Thursday that slashing the cost of generic drugs at Wal-Mart would have a broader economic impact and hurt the retailer’s competitors.
“The Wal-Mart effect continues,” Hastings said. “The magnitude of Wal-Mart is still so gigantic that even incremental moves like this one will have a profound effect on [its] competition and on the economy in general,” he said. He said it is “very likely there will be price competition” as a result of Wal-Mart’s move.
David Maris, an analyst who covers generic companies at Banc of America Securities, agreed the plan could force down the price of generic drugs if rolled out nationally.
Shares of pharmacy chains Walgreens and CVS fell on the news.
Rival discount retailer Target said Thursday it would match Wal-Mart’s new drug program and lower prices on generic drugs in its stores in the Tampa Bay, Fla., area. Target said the price reductions would take effect immediately.
Critics said the plan was a cover for Wal-Mart’s failure to provide its employees adequate health care. They contend that the company’s benefits are too stingy, forcing taxpayers to absorb more of the cost as the workers lacking coverage turn to state-funded health care programs.
The program will be launched on Friday at 65 Wal-Mart, Neighborhood Market and Sams’ Club pharmacies in the Tampa Bay area and will be expanded to the entire state in January.
Simon wouldn’t be specific about why Florida and specifically the Tampa Bay area was chosen for the rollout of the initiative, saying only that there was a need for it here.
The company said it plans to expand the program to as many states as possible next year.
Simon said the 291 generic drugs include “the most commonly prescribed drugs for the some of the most common illnesses that face Americans today, including cardiac disease, asthma, diabetes, glaucoma, Parkinson’s (disease) and thyroid conditions.”
Simon wouldn’t give details on how much the plan is expected to cost Wal-Mart or the company’s dealings with the drug companies involved.
The $4 prescriptions are not available by mail order and are being offered online only if picked up in person in the Tampa Bay area.
In a conference call with reporters, Simon said that the generic drugs would not be sold at a loss to entice customers into the stores, a strategy that has been used in Wal-Mart’s toy business.
He said Wal-Mart is working with drugmakers to help them be more efficient, but added, “We are working with them as partners. We are not pressuring them to reduce prices.”
Tampa Wal-Mart pharmacy customer Pat Sullivan praised the company’s initiative. The retired Massachusetts police officer said $4 generic prescriptions are a tremendous help.
“I’m on disability and my benefits run out by the end of the month,” he said. “It comes down to where do I go for a $100 prescription? I have no outlet other than to break a pill in half and take half today and half tomorrow.”
The initiative — the fourth since last October that Wal-Mart has moved to improve health benefits — drew criticism from one of its most vocal critics, union-backed Wake Up Wal-Mart.
“While lowering prescription drug costs is a good thing, Wal-Mart cruelly ignores the fact that it fails to provide company health care to over half of its employees which leaves 46 percent of its workers children uninsured or on public health care,” said Chris Kofinis, spokesman for Wake Up Wal-Mart, in a statement. “Wal-Mart needs to answer one very simple, but serious question — why not just improve the health care coverage of its employees?
Wal-Mart’s recent moves to improve its health care included relaxing eligibility requirements for its part-time employees who want health insurance, and extending coverage for the first time to the children of those employees. Part-time employees, who had to work for Wal-Mart for two years to qualify, now have to work at the company for one year. This year, Wal-Mart also expanded a trial run of in-store clinics, aimed at providing lower cost non-emergency health care to the public.
Last October, Wal-Mart offered a new lower-premium insurance aimed at getting more of its work force on company plans.
But critics argue that Wal-Mart’s coverage calls for a deductible that requires workers to pick up the first $1,000 in medical expenses, and the deductible rises to a maximum of $3,000 for families.
Wake Up Wal-Mart has called upon Bentonville, Ark.-based Wal-Mart to offer better health care coverage and higher pay to employees.
This past summer, Wal-Mart won a successful fight against a first-of-its-kind state law that would have required the retailer to spend more on employee health care in Maryland. A federal judge ruled in July that it was invalid under federal law. But other states are considering similar legislation aimed at the company.