November 17th, 2006 by David E. Williams of the Health business blog
Location, location, location or Price solves everything?
In $4 drug program imitated, criticized, the Boston Globe quotes experts downplaying the impact of Wal-Mart’s program to offer $4 generic drugs. To summarize the arguments:
- It doesn’t include brand name drugs
- It doesn’t include most generics
- It won’t help people who have insurance
- And this one from Harvard Business School Professor Regina Herzlinger, “Location, location, location. The footprint of Wal-Mart is nowhere near as large as the drugstores.”
But as I’ve argued before, it doesn’t make sense to look at Wal-Mart’s move so narrowly.
- By making people realize that powerful prescription drugs can be had at OTC prices, Wal-Mart will make it easier for people to forego prescription coverage. Why should routine expenses be covered by insurance anyway? It’s expensive and cumbersome to administer and dulls consumers’ shopping instincts. Do people with insurance really want to pay more just for their co-pay than the Wal-Mart cash price? I doubt it. Rather than being irrelevant for people with insurance, the program makes individuals (and employers) realize that a traditional pharmacy benefit isn’t indispensable
- The program covers a relatively small number of drugs, but even the current list isn’t insignificant. Even if the list doesn’t expand, doctors will start writing prescriptions for those medications because patients will ask them to do so. But I think the most likely path is for the low-cost drug list to expand, even if not everything ends up priced at $4
- Brand name medications have the most to lose. What would accelerate the erosion of branded statin Lipitor faster than really cheap generic statins? The value of newer, branded drugs over generics often isn’t as high as the current price ratio would suggest. Making that ratio even more dramatic by reducing the price of generics is going to make life tough on the branded players
Reggie Herzlinger plucked the “Location, location, location” saying from the real estate industry. But there’s another, even more powerful concept from real estate: “Price solves everything.”
I think Wal-Mart knows exactly what it’s doing.