Wal-Mart Slashing Generic Prescription Drug Prices

Wal-Mart has announced a plan to charge $4 per prescription on 291 generic drugs. The company will start the program in Florida in January and move out from there, likely going nationwide before its all over. Wal-Mart will rely on its control of the supply-chain and its buying power to achieve this. Oddly, those are the very things that a national health care program could use to help every American live better and longer if only federal law allowed it.

Generics are already cheaper than name brand drugs. A 30-day prescription for drugs to cut cholesterol or lower blood pressure can cost $10-30 for a generic, while name brands are much more. Wal-Mart is reducing the price of the generics by more than 50%. Not that the company will lose money on the deal. Bill Simon, executive vice president of the Professional Services Division for Wal-Mart said, “We're in business to make money.”

Whether the company offers the drugs as a loss-leader to get folks into the store or whether it will sell them at a profit is open to debate. Wal-Mart has put a great many small toy stores out of business by selling toys at pitifully thin margins to get parents in to buy other stuff. Some believe that the drugs will serve the same purpose; folks will get their prescription filled and, while they’re waiting, buy more crap they don’t need.

However, Wal-Mart has leverage in buying that few others can even imagine. They can, in many instances, dictate to the producers what the price will be. It is as close to being a monopsonist as exists anywhere (“monopsony” is what economists call a market in which there is one dominant buyer, the reverse of a monopoly, with one seller). Volume discounts have made Wal-Mart shareholders rich. One may reasonably expect the drugs to make the company money, although the financials will never break that out. Monopolies and monopsonies, though, are not as efficient as competitive markets. In industries where they nautrally exist, it is best that they be heavily regulated or government controlled -- national defense is a good example.

Interestingly, Medicare and Medicaid are prevented by federal law for doing in public health what Wal-Mart is doing for profit. The poor in the US could receive cheaper drugs and medical treatment if the purchasing agencies could negotiate prices like Wal-Mart does. Ideologically, the medical industry doesn’t want that, which is a major failing of a “for-profit” healthcare system. The result is now 44 million or so Americans without any healthcare insurance, and a great many of them work at Wal-Mart.

© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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