Wal-Mart's $4 Generic Drug Program Could Force Lower Prices
The recent rollout by Wal-Mart Stores Inc. of a discount generic prescription drug program appears to be placing pressure on drugstores and other retailers to lower generic drug prices. On the heels of Wal-Mart's announcement that it is expanding the program to stores in 27 states, drugstore operator CVS Corp. announced a merger with pharmacy benefits manager Caremark Rx Inc. The deal, CVS said, will enable employers and health plans to better manage costs, while still providing health plan participants with direct access to pharmacy services.
CVS operates the nation's largest retail pharmacy chain, with around 6,200 stores in 43 states. Caremark provides prescription benefit management services to more than 2,000 health plans, including seven mail service pharmacies supplying prescriptions to health plan members at discounted rates. According to CVS and Caremark executives, the new company will provide consumers with the option of filling prescriptions by mail, phone, the Internet, or store visits.
Commenting on the deal, Mac Crawford, chairman, CEO, and president of Caremark, said, "Combining Caremark's expertise in serving employers and health plans with CVS's expertise in serving consumers will create a powerful force for change in pharmacy services."
The anticipated benefits of the merger, according to CVS, include increased competitive strength, significant synergies, higher earnings, greater cash flow generation, and a platform from which growth can be accelerated. The merger is expected to produce $400 million in annual cost savings.
Industry analysts speculated that the deal was in part a response to the threat posed by Wal-Mart's low-cost generic drug line. Wal-Mart made headlines in October when it announced the expansion of its generic prescription drug plan, which charges $4 to fill a one-month prescription of certain generic drugs. Started in Florida, the expansion will make the prices available at 1,008 stores in 27 states. The 314 drugs currently offered make up more than a quarter of the prescriptions Wal-Mart dispenses nationwide, including medications commonly prescribed for conditions such as diabetes, high blood pressure, depression, and asthma.
Announcing the program, Wal-Mart President and CEO Lee Scott said, "No American should have to cut pills in half, decide between taking medicine and putting food on the table, or go without medicines altogether. We are very proud to be leading this effort to make sure our nation's seniors, working families, and uninsured get the medications they need at a price they can afford."
Other retailers, including Target Corp., have announced plans to lower some generic drug prices in response to the Wal-Mart discounts.
While the CVS/Caremark merger could result in lower prescription drug prices for consumers in certain cases, executives of the two companies have rejected the notion that the merger was formed to compete directly with Wal-Mart. According to news reports, CVS chief executive Thomas M. Ryan and Caremark's Crawford said in a conference call with analysts that the combined companies have no plans to match Wal-Mart's $4 generic drug program, dismissing the discounts as "pricing promotion."
