Walmart’s $4 generic list finally catching up with them?

    Even the Goliath of retailers, Walmart, can cut prices too far sometimes in the attempt to lure new customers in their stores.  It seems that the large retailer is finally feeling the ill effects of their five year old $4 generic drugs promotion.  I’ll explain why I think this below with a new study to prove my point. 

    I came across this article from Reuters last night while doing some research for potential blog topics.  Apparently there was a study done by a doctor from New York that looked at the prices of some brand name diabetes medications.   Dr. Ronald Tamler looked at the increases in price for some common brand name diabetes medications over a two year period (2008-2010) and found that some retailers like K-Mart and Walmart had raised their prices proportionally higher than other pharmacies. 

    So while the net effect of the $4 generic revolution by Walmart starting in 2006 caused generic medications to drop in average price there was also a noticable increase in the price of brand named medications during this same time period.  The price difference between brand and generic drugs increased as average generic prices fell by over half while brand name medications more than doubled during the same period. 

     And those price increases might not be fully explained by increases in drug cost either.  While the average increase in price for certain brand name drugs according to this study went up some 21% at pharmacies including chain drugstores Walmart increased their prices by 32% and Kmart raised theirs by 35% during the same time period.  It seems that the old advice for patients to shop around for the best deal for prescription drugs has never been more true than it is right now in the aftermath of this study that puts some hard numbers to the price increases of brand name prescriptions over the two year study period. 

     But what do all these numbers really mean for community pharmacies and for Walmart specifically?  I think this is the first clear sign that Walmart’s $4 generic experiment is finally catching up with them.  Even if you dismiss this pricing structure as a “loss leader” tactic by Walmart there must still be some questions about the long term sustainability of a promotional program such as the $4 generic prescriptions list. 

    Walmart advertised the plan as demonstration that they were leading the way to more affordable healthcare by pricing generics so low that more people could afford care.  Many consumer advocacy groups praised the retailer for addressing a major healthcare issue: prescription drug prices.  But the long term effects of that promotion can already be seen in the form of staffing cuts almost across the board among the community pharmacies that tried to compete with Walmart on price.   And while the under insured or the uninsured may be grateful for such prescription bargains at what price are those rock bottom prices really achieved?

    And if Walmart offsets their bottom of the barrel generic drug prices with higher brand name drug prices how much does the average consumer really save during a typical trip to their local pharmacy?   Those numbers now are in question thanks to this study by Dr. Tamler.  And if they are raising other prices to make up the difference in revenue lost from their $4 list are patients really getting the best deal at their local Walmart pharmacy? 

    I think it is a shame that retail pharmacy has been reduced to simply selling a commodity as if we were a specialty coffee shop or an ice cream parlor.  The $4 generic list did nothing but devalue the profession and undercut the price of generics at competitors of Walmart.  And by following suit all the other chains fell for the Walmart trap.  Thus resulting in an unsustainable pricing structure that is now starting to really affect the bottom line at the average pharmacy. 

    I’d like to see a study that shows the average staffing hours at a retail pharmacy since the implementation of their $4 generic list.  Or how about the average wait time for a prescription after companies cut staff to make up for revenue that wasn’t coming in anymore because “Walmart does it” and for some reason we all had to follow suit?  Better yet, how about an honest count of the significant prescription errors and pharmaceutical misadventures since this pricing war started in America?  I’d love to review a study with those numbers. 

     It is time we all faced a hard fact.  It is time we all admit that we can’t simply give away drugs and survive long term.  This “loss leader” concept might work for clothing or food or hardware or electronics but using a business model like this for something that impacts public health can be downright reckless and dangerous.  When quality of care decreases to a point that same day pharmacy service isn’t possible or when pharmacists are so over worked they start committing more errors is this really worth getting that HCTZ for $4? 

    And if a company is simply raising the price of other medications to offset the “value menu” of community pharmacy is the average patient really saving that much money by shopping at a pharmacy like Walmart?  Certainly a study like this one gives some numbers that might put a patient’s potential savings in question. 

    I’m not saying that saving patients money and making medications more affordable for more patients is a bad thing.  But at some point the potential dangers offset any gains you might realize by lowering the price of drugs to attract pharmacy customers.  It is like making cars increasingly fuel efficient and then finding out they are also increasingly dangerous due to lower net curb weights. 

     We must not sacrifice patient care or safety simply to chase a bargain.  Prescription medications are a major expense and a large component of the healthcare expenditures but at some point a reasonable selling price must be maintained simply to prevent the distribution system we now have from breaking down.  And matching a company that thinks pharmacy is nothing but a “loss leader” devalues what we due to the point of creating the mindset that pharmacists are glorified counters. 

     We can’t keep doing the “loss leader” game simply because Walmart is willing to give drugs away to get people to shop at their stores.  It is time to get a reasonable price for the goods and services we provide at the pharmacy.  We can’t continue to lose money on each $4 generic prescription we sell.  It isn’t financially feasible and it will lead to more staffing cuts, longer lines and waits, and potentially more prescription errors going forward.  All of those negative trends are doomed to continue as long as we keep prices at unsustainable levels.

    So Walmart I have a little message for you.   I can’t help but say I told you so.  I knew it was only a matter of time before this ill conceived promotion would catch up with you. And if you charge more for some brand name medications to offset this “loss leader” strategy are you really saving patients money in the end anyway?  I think it is time for “Operation Devalue Pharmacy” to come to an end.  I’ll give you one thing.  It was a good run while it lasted. 

The Redheaded Pharmacist

14 Comments to “Walmart’s $4 generic list finally catching up with them?”

  1. By Cphtsupreme, June 30, 2011 @ 8:14 am

    Our hours have dropped by 30 a week and script count has risen, at most by 200 a week since 2006. Our gross margin has dropped significantly since then, too, about $2000 a day. There are other factors, like the proliferation of mail order and not being able to accept some third party contracts.

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  2. By ApothecaryTales, June 30, 2011 @ 8:21 am

    At least someone writes about real issues around here!

    Great read Red!

    -The Highlander

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  3. By RPh in NC, June 30, 2011 @ 9:44 am

    I spoke with a lady the other day who waited 45 minutes just to PICK UP prescriptions at WalMart that were already ready to go. She waited 45 minutes in line at the CASHIER! If this had happened at my pharmacy, I’m confident the patients wouldn’t come back. However, since they’re often “going to WalMart for other things anyway,” I’m sure they’ll go back…

    Also, what are your thoughts on the new WalMart Expresses that are popping up next to every Dollar General in rural America? 15,000 square feet and a pharmacy. Could my distaste be any worse? I don’t think so.

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  4. By Magic8ballrph, June 30, 2011 @ 10:58 am

    Didnt we all assume that they were making the money back through front end and increased rx prices? Walmart has doomed us in more than one way. Biggest of course is the fact that people see us more like a candy store with high school educations. second is the crap reimbursements that insurances ram us with while laughing. Not to forget the PBMs that cherry pick us for super minor infractions that cost us time and money.

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  5. By jaden, June 30, 2011 @ 1:02 pm

    It’s been a big public perception game all along, between that of direct to consumer advertising, the politicians ploy to support elderly citizen bus trips to Canada while decrying the reforms of health insurance industry. As mentioned above, in my state one of the bigger payors of prescription drug costs is Medicaid according to the governor, so it’s always about reducing payments to Medicaid or decreasing pharmacy reimbursement.

    If Wal-march can charge those with insurance (or those without) $4.00, then why should state-funded (actually state taxpayer-funded with support from the Federal government) Medicaid pay pharmacists any more than $3.00 for dispensing a prescription.

    This was from the Indiana Pharmacists Association: “Office of Medicaid Policy and Planning (OMPP) and the Governor’s office met last Thursday June 23 to protest the impending cut in the pharmacy dispensing fee. Senator Ron Grooms called the meeting and Representative Steve Davisson also attended.

    Secretary Gargano stated that the rule cutting the dispensing fee would take effect on July 1 as scheduled. IPA/CPI representative Bill Keown expressed his disappointment at how shabbily community pharmacy had been treated by the OMPP during the process of developing a new rule for the dispensing fee. Mr. Keown told the Secretary that never in his 20 plus years of representing pharmacy and pharmacists had any administration been so cavalier in its treatment of the profession. OMPP claimed in the State Plan Amendment for the $1.90 cut that they had consulted with the providers before submitting it to CMS. But their last contact with us was in late 2010, when they met with several pharmacy representatives and proposed a fee reduction to $4.20, not to $3.

    We never heard another word from them until they contacted us in late May to say essentially, “we are cutting the fee to $3 and we are doing it by emergency rule, so there will not be a public hearing, take it or leave it.” ”

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  6. By Pharmacist, June 30, 2011 @ 1:59 pm

    I work for a retailer that does not match those $4 generics. And I have had patients repeatedly come into my location and tell me that WalMart has always had higher prices than we do for drugs that are not one the $4 list. However, all of us, including those who have held out against matching those prices, have been forced by the third party payers to take reimbursements that do not even match our costs in dispensing prescriptions. Just look some at what is actually paid (co-pay + third party) for some of the prescriptions you dispensed. Now consider salary, benefit, and other costs to see how little is paid.

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  7. By Binkman, June 30, 2011 @ 6:36 pm

    Halla frickin looya!

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  8. By Binkman, June 30, 2011 @ 9:20 pm

    The poly-pharmacy that is rampant because of this $4 (and free) pricing models should make State Boards of Pharmacy shudder. I don’t know how many times customers come in with a handful of scripts only to fill the promo products and take the others elsewhere. State Boards are supposed to be all about protecting the public safety but yet they cave in when the public cries about not be able to use transfer incentives (Ohio). Who paid off who? Some day we will know that answer.

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  9. By Grizzle, June 30, 2011 @ 10:14 pm

    You just realized this? Maybe you have never owned a store or managed pricing but this is common practice. Offer and promote very competitive low prices on a number of low cost medications and then keep high prices on other products. You discount a certain beer in the bar but your other liquor prices are spendy. You offer a great happy hour of food but keep drink prices high. Discount milk, bread, egss but have expensive butter, bacon, and cereal. You just catch people’s eye on core items so they think you are “Cheap” all around. This is just business. Marketing baby! Pharmacy people in general seem to lack savvy business minds.

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  10. By Dr marc, July 1, 2011 @ 12:28 am

    The issue this brings to the table is what is the proper markup for medications. Walmart is its own drug distributor and supplies its pharmacies with 90% of the medication they need. Cutting out McKession or Cardinal makes it possible to actually make money on $4.00 medications. The real concern should be when we as pharmacists get a medication for $5.00 then charge the consumer over $100, ie topiramate, omeprazole, even azithromycin. That seems like the real issue we should be complaining about.

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  11. By jaden, July 2, 2011 @ 9:27 am

    Addressing Dr. Marc’s concern, hate to bring up the extenuating circumstances, but if this benefit to pharmacists in getting a drug for $5.00 is the real issue and then turning around and selling it for $100.00, then what are drug price contracts for? I know many hospitals and probably chain drugstores as well are involved in buying groups.

    From my understanding, this was a major reason that independents went out of business. They could not compete with large organizations which could purchase drugs at major discounts, AND sell the prescriptions to those benefiting from other funding programs i.e. big name private insurers, federal and state government contracts.

    And, if I am correct in this understanding then there’s the issue across-the-board for other medical professionals that run their business as sole ownership practices e.g. physicians, that can accept or reject patients who only can pay with Medicaid or Medicare. This is a widespread practice, I believe.

    As for pharmacists fighting back, yesterday, Indiana’s pharmacists sued the State of Indiana (under Mitch Daniels who was a big contender up to his declination for U.S. president in the upcoming election, by the way).

    If the State can get away with this, then my guess is that non-for-profit hospitals that ‘make payroll’ with these funds will be severely impacted. AS well as the same ‘Wal-mart effect’ on the profession. Last time the State drastically cut Medicaid benefits, health care in general was affected; whole hospitals, State Veterans Homes, and clinics. Last time there were hospital-wide budget cuts for lab staffing and equipment, physical therapy, housekeeping, as well as the hospital pharmacy dept. was pink-slipped and sold to a pharmacy management company. Now, with drug price reimbursement slashed, the impact is mainly on the pharmacy departments, instead of nursing budgets, physician staff, etc.

    Correct me if my perception is wrong about targeting the pharmacy departments specifically in light of the ‘Wal-mart effect’.

    From the IPA (Indiana Pharmacists Alliance) news source: “Pharmacists Files Suit Against Medicaid. Today, Friday July 1, Community Pharmacies of Indiana (CPI) and Williams Brothers Healthcare Pharmacy filed a lawsuit seeking to enjoin the state Office of Medicaid Policy and Planning (OMPP) from implementing a huge cut in the pharmacy prescription-dispensing fee. With no warning or negotiation, the OMPP promulgated an emergency rule cutting the fee from $4.90 to $3.00. By using an emergency rule, the OMPP doesn’t have to hold a public hearing for comments. The rule took affect today, July 1.

    The case was assigned to Judge Tanya Walton Pratt, who set it for a hearing at 3:00 p.m. this afternoon. Judge Pratt heard from both the plaintiff’s attorneys and the Attorney General. Because the state did not have notice until today, the judge gave them until 4:00 pm next Wednesday to file a brief with the court. She will not issue a ruling on a Temporary Restraining Order until after the state has an opportunity to file. Judge Pratt is also handling the Planned Parenthood lawsuit against the state.

    CPI and IPA representatives met with OMPP Director Pat Casanova in November of 2010 at which time she said that they were considering a cut in the fee to $4.20, which would be about a 15% cut. Pharmacy representatives offered some alternative ideas and also had a brief presentation from Outcomes Inc. on their work with the Florida Medicaid program. By the time meeting concluded, there had never been any mention of a $1.90 cut. There was no further communication or contact with OMPP until May. On May 23, OMPP contacted the IPA office to tell us that they were cutting the Medicaid dispensing fee to $3.00 by emergency rule and it would take effect July 1. There was not going to be a public hearing or any opportunity to provide evidence as to why that cut might be unwise.

    Finally able to secure a meeting with FSSA Secretary Mike Gargano and others from OMPP on June 23. Senator Ron Grooms and Representative Steve Davisson both attended the meeting. Senator Grooms asked if the Secretary could put in place a moratorium for 30 to 90 days and hold off implementation of the rule while we discussed other options. The next day, the Secretary answered Senator Grooms and said no.

    Going to court is always a last resort. No one (except the lawyers) enjoys litigation, and at times the outcome can make difficult to tell if you won or lost. But in this instance, there is no other choice. Consequently, the firm of Krieg Devault has been retained and they began preparation of the court filings. The decision to implement this cut by emergency rule (where’s the emergency?) is wrong on many levels but it is not our intent to argue the case here. We believe that the pharmacy plaintiffs can prevail, and ask for the support of the all pharmacists in Indiana. This ultimately led to the filing today.

    CPI is accepting contributions to help offset the cost of the litigation and legal work. IPA will be making a contribution to the effort. We will keep you posted on progress.”

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  12. By KRay, July 2, 2011 @ 3:53 pm

    I don’t blame walmart or BOP’s for the horrible reimbursements from third party payers because this hole that we are in has been created by small independent owners many years before. This didn’t happen overnight, its you independents who wanted the “cheapest prices” in town to drive your competition out! Guess what, insurance/pbms weren’t stupid and caught on really quickly…if A can charge this price, than so should B,C,D so we will reimburse based on A’s “cost.” It was only a matter of time before bigger companies took on, but now we’ve dug ourselves (and by ourselves I mean future generations of RPH as well, like me) into such a massive hole I don’t know what we can do to ever get out! And another thing…who is working for walmart and dispensing? Oh yeah…PHARMACISTS! For 5 thousand dollars more? Seriously this level of greed is pathetic and will be the end of us…

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  13. By jaden, July 12, 2011 @ 4:49 pm

    “On Friday, July 8, Judge Tonya Walton Pratt issued a Temporary Restraining Order (TRO) enjoining the state Family and Social Services Administration (FSSA) from implementing a 38% cut in the dispensing fee paid to pharmacies for filling Medicaid prescriptions. In her decision, the judge noted that the state had not received the necessary approval from Health and Human Services. Her opinion states, “Specifically, the State’s attempt to enforce the Fee Reduction without prior HHS approval violates federal Medicaid law.”

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  14. By Snippy, August 9, 2013 @ 9:28 am

    I’m sure you hate Amazon too. The simple fact is the drug companies are putting the USA into bankruptcy with their overpriced drugs and our government is letting them (encouraging) them to do it.

    The merry-go-round will have to stop eventually when no one can afford to pay the piper.

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