Editor's Corner


OK, maybe you're going to think I'm obsessed with Wal-Mart, but for a second time, it looks like retail giant deserves the spotlight. I think it isn't hard to argue that Wal-Mart's mushrooming $4 generic program, which as of yesterday expanded into 14 states, is producing shock waves well outside of the retail business. There are a few of industry changes that appear to be underway already:

* More demand for generics: It's beginning to look like Wal-Mart (and me-toos like Target and Kmart) are going to pull pull off a trick managed care plans have yet to accomplish--actually convincing consumers that it's in their interests to demand generic prescriptions. This is true consumer-driven healthcare consumption: Having consumers vote with their feet when they see a good price and a readily-understandable value proposition.

Too bad it's so complex to bundle a well-defined, cross-industry package of services, or we might see the same thing happen in on the provider side of the industry. Of course, attempts to create just such bundles are already going on, but everyone involved agrees that it's going to be quite some time before this approach is workable.

Greater market share for discount retail pharmacies: Watch out, CVS, Walgreens and RiteAid. Sure, some people will continue to get their scripts filled at neighborhood drugstores, out of habit if nothing else. But if the WSJ Online/Harris survey is any indication (see below), Wal-Mart et al. have a clear shot at their business. And I mean all of their pharmacy business, not just the generics. After all, Wal-Marts and Targets aren't as plentiful as neighborhood pharmacies, and may call for a bit of a drive--so if consumers travel the extra mile to fill a generic script, they're going to fill their brand-name drug scripts as well. And that will become a habit.

One important caveat, though: Wal-Mart isn't planning to sell drugs at a loss, so they're not including higher-priced generics like Zoloft in their generics effort. It's not yet clear how much that will dampen the market impact of their program.

Stepped-up pressure on prescribers: With consumers personally invested in getting the $4 bargain--rather than feeling pressured into doing so by health plans--expect to see them not only demand generics alternatives, but to get pretty upset when one isn't available.

It's funny...people will make a huge amount of effort when they feel they're doing it on their own, but balk at doing the same thing (for managed care companies) even if the financial exposure is similar.

* Pressure on brand-name drug pricing: Wal-Mart's initial success demonstrates that consumers are quite price-sensitive when it comes to their prescriptions--and Wal-Mart's initiative, in effect, is teaching consumers that drug prices may not be written in stone. If they begin feeling empowered, they'll turn up the heat on drug retailers of all stripes to lower prices across the board. And this might have some effect.

Someday, we hope, drug costs will normalize, and health purchasers will truly begin paying for clinical value rather than pharmaco marketing costs. In the mean time, it will be interesting to see whether the current generics shakeup can help bring that to pass. - Anne