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Employer savings seen in Wal-Mart drug move

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TAMPA, Fla.—Wal-Mart Stores Inc.'s high-profile decision to cut prices on nearly 300 prescription generic drugs should save money for employers with prescription drug plans and could stimulate greater use of generics, which are seen as vital in efforts to reduce employers' drug costs, experts say.

In addition, the move could put pressure on pharmacy benefit managers to cut the wholesale prices they charge employers for many drugs, some experts note.

Wal-Mart last week began offering nearly 300 generic drugs for $4 for a 30-day supply to customers--including its own employees--in the Tampa Bay, Fla., area. In a statement, the Bentonville, Ark.-based retail giant said that the program would be expanded to the entire state of Florida in January and then "to as many states as possible" later next year. Among the drugs included in the program are those used to treat high blood pressure and diabetes, as well as certain antibiotics and antidepressants, Wal-Mart said in its statement.

Wal-Mart rival Target Corp. responded almost immediately to the Wal-Mart announcement, saying that it would match the lower prices on generic drugs in the Tampa Bay area. Minneapolis-based Target did not say whether it would expand the program, though it noted in a statement that the move in Florida was "consistent with its long-standing practice to be price competitive" with Wal-Mart.

Representatives for other pharmacy chains could not be reached or would not comment on whether they plan to follow Wal-Mart's and Target's moves.

Boon for employers

Consultants and benefits managers hailed the effort.

Paul Wernick, a Minneapolis-based consultant at Watson Wyatt Worldwide, said employers could reap significant savings from the changes, depending on how much they are paying for generic drugs under their pharmacy benefit programs.

For example, with the average cost of generic drugs currently between $20 and $25 and average employee copayments at about $10, employers are paying an average of about $15 per 30-day prescription for these drugs under most PBM contracts, Mr. Wernick estimated. But if an employee pays just $4 for a prescription from a retailer, employers will pay nothing, he pointed out.

"I can't see a downside," said Mike McNabb, risk manager for the city of Tampa, who is also in charge of benefits. "We've always encouraged our people to use discount retailers because their cost is lower. One of our plans has a 25% coinsurance, so it pays to shop."

In addition, some employers with mandatory mail-order provisions--most of which charge twice the retail copayment for a three months' supply--may want to rethink that strategy, at least for the drugs on the Wal-Mart list, Mr. Wernick said. Such provisions usually only apply to maintenance drugs.

"There would be no reason to use mail-order," he said, "because it will cost the employer and the member more."

The Hillsborough County, Fla., government already began encouraging its employees to seek retail refills, rather than mail-order refills, when Kmart Corp. announced several months ago that it would begin filling 90-day supplies of 75 different generic drugs for just $15, according to Christina Swanson, the county's human resources division director. Normally employees would pay $20 for a 90-day supply through their prescription drug plan, which is administered by Louisville, Ky.-based Humana Inc., the same company that administers the county's self-funded health plan.

Ms. Swanson said when she heard Wal-Mart announce that it was slashing prices on 291 generic drugs to $4, and Target's subsequent declaration that it would match the pricing, "my response was, 'Yahoo! We're finally going to get some competition going in the drug world!"'

The moves may also put pressure on PBMs to lower the prices they charge employers, some experts say.

By creating greater transparency in generic drug pricing, the moves by both Wal-Mart and Target are "definitely going to push PBMs to lower prices," said Sean Brandle, a vp at the New York-based consultant Segal Co. who specializes in pharmacy management.

"Because it's out there that this prescription is available for four bucks, plan sponsors are going to ask their PBMs why they're paying more. There will be pressure on the pharmacy benefit manager to account for that."

Though shares of several pharmacy benefit managers fell in response to Wal-Mart's announcement, a spokeswoman for Franklin Lakes, N.J.-based Medco Health Solutions Inc. said that PBMs will also reap the benefits of the lower pricing, since most include Wal-Mart in their pharmacy networks.

She explained that Medco plan members either pay their regular generic copay or the usual and customary price, whichever is lower, when they have a prescription filled at a retail pharmacy.

Moreover, "we don't believe it will have a big impact, because many of the drugs (on the Wal-Mart list) are a carefully selected subset of acute care and maintenance medications," the Medco spokeswoman said.

Wal-Mart's plan, which is said to cover some 291 drugs, includes only about 124 separate medications in various dosages. For example, there are 12 versions of the antibiotic amoxicillin, several industry sources pointed out. It also leaves out some popular maintenance drugs, such as the generic version of the cholesterol-lowering Zocor. There currently are more than 3,500 generic equivalents on the market.

Boost for generics

Wal-Mart's move could give a boost to generics, whose use many PBMs and employers have been encouraging to lower health care costs, said a spokesman for St. Louis-based Express Scripts.

"We see this as a plus for our clients and our patients," because "when more people begin asking physicians about generic alternatives, more physicians are likely to begin considering generics for all of their patients," he said.

Leesburg, Va.-based Quest Diagnostics Inc., which has several facilities in the Tampa area, is hoping to save money as a result of the Wal-Mart and Target moves both through the discount pricing, but also by encouraging greater generic drug use.

"I hope it makes a difference just by elevating consciousness," said Fred R. Williams, Quest's director, benefits and strategic alliances.

"For every 1% increase we have in generic drug use, it reduces our overall drug costs by 1%," he said.

Quest is cutting copayments for generics under its drug plan next year. "We're actually reducing the cost of generics to as low as $5," Mr. Williams said.

But, if employees go to Wal-Mart or Target to get their prescriptions filled, they will be paying even less, he acknowledged.

Helen Darling, president of the National Business Group on Health in Washington, said Wal-Mart's generic pricing strategy will help stimulate the fledgling consumerism movement in health care, which seeks to make individuals more prudent buyers of services and products.

"Getting people to think more about prescription drugs as something to 'shop around for' is a good way to encourage consumerism," she said.