Wal-Mart, the largest US retailer, has over the past two decades reshaped both the US retail industry and the economy. Can it also reduce the more than $200bn (£100bn; €150bn) that Americans spend on prescription drugs every year?
Since September, the company has been pursuing a high-profile attempt to cut costs, announcing that its in-store pharmacies would sell a month's supply of 300 commonly prescribed generic drugs for $4, a 60 per cent cut in the cost of the most expensive drugs on the list.
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Wal-Mart says that low-cost generics – copies of brand name drugs whose patents have expired – now account for 35 per cent of the prescriptions issued in its instore pharmacies. Lee Scott, chief executive, declared in April that the cuts had so far saved his customers $290m, and that 30 per cent of the drugs were being issued without health insurance. Target, Wal-Mart's main discount rival, has followed up with its own $4 programme, while Kmart has extended an offer of three months' supply of generics for $15.
But as the programme continues, questions remain over whether the initiative can eventually achieve the more substantive, structural changes to the US drug pricing model, and by extension the US healthcare market, that Bill Simon, head of Wal-Mart's pharmacy operations, says he wants to achieve.
"Before we took what was given us. What we're doing now is trying to lead," he says. Mr Simon argues that the $4 generic programme could eventually bring down the price for the selected generics across the market – just as Wal-Mart contributed to last year's fall in the price of flatscreen TVs. That, he claims, would lead to a $10bn reduction in overall US healthcare costs.
But in an indication of the opaque world of US drug pricing, several of Wal-Mart's rivals haven't yet followed suit.the US's three largest drug store chains, CVS, Walgreens and Rite Aid, have refused to follow suit, arguing that customers covered by insurance only pay around $5 out of their own pocket for generics because of co-payment arrangements.
The arguments over the issue are an indication of the opaque world of US drug pricing. Wal-Mart and its allies say that, although the customer may pay only $5 up front in the drug store chains, the remaining costs, inlcuding the transaction processing costs, are borne by the healthcare system as a whole. "Standard industry practices had led to a place where price was relatively irrelevant," Mr Simon says.
In any case, Brian Sweet, chief clinical pharmacy officer at Wellpoint, one of the largest health insurers, says Wal-Mart's current programme is not extensive enough to impact overall pricing. "If it was broader, then you may have a big enough initiative . . . that covers enough of the utilisation patterns, that it would change pricing."
But Wal-Mart wants to expand its project. It says it is considering introducing a second price tier for generics, of around $9, and that it believes that eventually 40 to 50 per cent of all drugs prescribed in the US could be covered. Wal-Mart is now talking to the insurers about designing healthcare plans that take account of the availabilty of both tiers of low-cost generic drugs.
"They understand there's a role these products could play in a new look at the future," says Mr Simon. "They could redesign a programme that would offer to their clients extra value on the expensive drugs because they don't need to provide support on the inexpensive ones."
Wellpoint's Mr Sweet says the insurer is watching the unfolding dynamics of the programme. "It certainly is a bellwether to watch ... if these programmes are utilised heavily or expanded then we may have some change in the way we do business here."
Wal-Mart's interest in healthcare stems in part from its own healthcare issues; Wal-Mart is the largest private employer in the US, with around 1.3m workers. It has faced rising healthcare costs and a storm of political criticism over the level of healthcare support offered to its largely low-wage workforce.
Wal-Mart's strategies should also win the company new customers. Pharmacies and clinics encourage customers to stay in stores longer, meaning they are also good for sales.
