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Oct. 19, 2006


Wal-Mart's Bait-and-Switch on Generic Drugs

by Jeff Milchen and Stacy Mitchell


Even with its massive marketing and PR budget, Wal-Mart could not buy advertising as powerful as these headlines. Over the last few weeks, hundreds of newspapers have run stories on the chain's new generic drug pricing initiative under sweeping titles like this one from the Chicago Tribune: "Wal-Mart to sell generic drugs for $4 a month."


Consumers appear to have gotten the message. Only 13 percent currently get their prescriptions at a mass merchandiser. But, according to a new Wall Street Journal Online/Harris Interactive poll, 50 percent of consumers now say they are likely to turn to Wal-Mart and Target, which has announced a similar program, for medications.


But the media coverage has been grossly misleading. Few journalists have closely examined Wal-Mart's initiative, which is far more limited than most news accounts have led people to believe. Here are the facts:


Although the program has been touted in newspapers nationwide, for now the special pricing is available only at Wal-Mart stores in Tampa, Florida. The chain has said it will expand some of the pricing to some stores in other regions later this year.

There are thousands of generic drugs, but Wal-Mart has said it will offer the $4 per month pricing on only about 300 of them.


This list actually includes fewer than 150 different drugs. That's because Wal-Mart counted different dosages of the same drug separately, including four versions of ibuprofen and a dozen of the antibiotic amoxicillin.

Quite a few of these drugs, like the ibuprofen, are already widely available for $4 or less.


Many older medications are on the list, while newer replacement medications that work better or have fewer side effects are not included. For example, Wal-Mart includes only one of the generic statins used to treat high cholesterol. It's the oldest one and the one with the worst side effects.


Wal-Mart's program is a classic bait-and-switch, according to the National Community Pharmacists Association. People will go to Wal-Mart expecting to save money on their prescriptions, only to end up paying full price in most cases and probably also leaving the store with other merchandise that carries an even higher profit margin.


Meanwhile, a robust body of research has found that consumers receive far superior health care and even save money if they opt for a locally owned pharmacy. A national study conducted by Consumer Reports in 2003 found that on a variety of measures—from the amount of personal attention provided by the pharmacist to the store's ability to obtain out-of-stock medications quickly—independent pharmacies outscored Wal-Mart, Walgreens, and other big chains by "an eye-popping margin."


Several studies have compared prescription drug prices in states like Maine, New York, and Utah, and have found that independent pharmacies have lower prices than both drugstore chains, like Walgreens and CVS, and mass merchandisers, like Target and Wal-Mart.


How are independents able to beat these global giants on price? Most belong to buying cooperatives, enabling them to marry the efficiencies of scale with the benefits of local ownership, including personal relationships with customers and often a deep involvement in their local communities.


Now that's the kind of good news on health care affordability that ought to run in newspapers nationwide.

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