Walmart’s $4 Generic Drug Pricing: Rx for $6 Billion in Savings?

Wal-Mart triggered an industry “race to the bottom” in terms of generic drug pricing when it introduced its program to charge $4 for a 30-day supply of a host of common generic medications, $10 for a 90-day supply. Other large retailers like Target soon followed. The average cost before Wal-Marts discount program was $10.50 for 30-days worth of drugs, $26 for 90-days. What would happen if the entire nation adopted this pricing scheme? For the first time a small study just published in the Archives of Internal Medicine asks this question.

The researchers, funded in part by RAND, the University of Pittsburgh and the NIH, reviewed data from some 31,000 participants in the 2007 Medical Expenditures Panel Survey (MEPS). These individuals were aged 18 or older, and used some generic or name-brand drug that was available as a $4 generic in 2007.

Extrapolating to the entire US population, the study found that around 80,500,000 American adults could potentially benefit from a $4 generic program, though only about 6% (or 4.4 million) actually did so in 2007. So what would happen if all eligible adults shopped at Wal-Mart, or at least benefited from Wal-Mart pricing?

Individual would only save an average of around $64 out of pocket per year, about half of them would only save about $22 per year. But overall societal health care system savings would be more significant:

-$5.78 billion in total savings

-$3.23 billion saved out of pocket

-$1.07 billion in Medicare savings

These savings may not seem like much in the scope of massive health care spending, but here are at least some questions about this idea:

-Economists make a big deal about the impact of rising gas costs based on the argument that every extra dollar put into your fuel tank is one less dollar you are spending on all those other things that stimulate the economy. So conversely, does that mean that consumers who are spending $3.23 billion less on meds would spend that money elsewhere?

-Could this shift towards generics represent a boon for the generic pharmaceutical industry, and generic manufacturers such as Watson, Teva, and Sun Pharmaceuticals ? Even if the over all dollar figures are small, relative to the size of the entire industry, wider acceptance of generics could help shift the entire spectrum of prescribing behaviors towards such drugs.

- Could an industry shift towards generics lead to an industry shift that lowers the financial profile of pharmaceutical production, leads to specialization, diversification, and more of a mission-driven industry looking to increase health more than profits?  Instead of an industry dominated by giants such as Pfizer, Merck, Novartis and Glaxo, would we see more smaller pharmaceutical companies such as the non-profit Institute for One World Health? And how might the branded industry respond?

-Most physicians and researchers take for granted that generics are bio-equivalents of branded drugs, the generic pharmaceutical industry certainly does. But some folks point out that generics may not be quite as equivalent as the yare made out to be. In fact some prescriptions come with explicit instructions to provide a brand-named drug and not a pharmacologically equivalent generic. Would this policy have any unintended consequences in these cases, especially if generics gained wider acceptance as the “go-to” option.

-Generics by their nature are older, have been on the market longer, have been used by more patients (generally speaking) than equivalent branded medications. Theoretically this means that their safety profile is better understood (if we assume that they are in fact pharmacologically equivalent to branded alternatives). Could a shift towards generics be a boon for patient safety?

What interests or concerns come to your mind when you hear of the idea of scaling Wal-Marts drug pricing innovations to a national level?

Photo credit: The author