Leading the headlines on the affordable Medicare debate, Wal-Mart has been speeding up its roll-out of $4 generic drugs disrupting pharmacies across the country. Consumers whose
prescriptions are on the list of 331 drugs are now eligible to buy them for less than the cost of a Medicare co-pay at the worlds largest retailer (Target has also pledged to match Wal-Marts every move).
Historically, Wal-Mart has built its business by disrupting its industry leaving mom and pop retailers in its wake as it introduces low prices to communities across America. This recent price-cut not only benefits non-insured Americans, ever desperate to keep their rising medical costs low, but also insurers who have to shoulder less of their subscribers prescription drug costs. This low-end disruption is built on Wal-Marts strong suit: its ability to lower prices and make more products available to Americans who would otherwise be unable to afford them.Critics argue Wal-Marts recent $4 generic drug plan is nothing more than a superb high-level marketing blitz with no substance; they highlight that the promotion applies to older generics that amount to only 10% of a traditional pharmacys generic inventory.
Meanwhile, CVS and Walgreens, the nations largest pharmacy chains, are built on the premise that consumers want friendly local pharmacists in convenient locations. Over 90% of their pharmacy revenue is from insured patients and they choose not to compete withthe low cash prices offered by warehouse stores and large retailers such as Wal-Mart and Target.
CVS recently has made moves to sustain its core business by purchasing Caremark, a leading Pharmacy Benefits Manager (PBM), and developing ProCare, a specialty pharmacy for patients with difficult-to-treat conditions. With Caremark, CVS will now promote its convenience stores to insured consumers over Caremarks mail-order. Its specialty pharmacy, ProCare, with over forty locations nationwide, caters to Americans whose needs are underserved by the traditional pharmacy. These patients seek hard-to-find expensive drugs and over-the-counter supplements as well as specialized education for very serious medical conditions.
While Wal-Mart is serving nonconsumers by publicly forging a low-price path, CVS is moving to sustain its core business by developing convenient and specialized offerings to meet the underserved needs of the insured. Both firms may prove to be successful as there likely exists both a sizeable market of uninsured consumers who can not afford generic drugs and a group of underserved insured patients who need advanced care and improved convenience from their pharmacy.
See "CVS, Caremark Unite to Create a Giant", Wall Street Journal, November 2, 2006 and"Wal-Mart's generics price push fails to panic its competitors", Drug Store News, October 9, 2006