Drug market revolution

September 25, 2006

Wal-Mart's decision to sell a wide range of generic drugs for $4 per prescription calls the bluff of pharmaceutical industry claims that it can't function without a huge profit cushion. Further, Wal-Mart's bold new tactic may illustrate the hollowness of federal government fears that Medicare could not adopt a similar policy for fear of harmfully distorting the market through price-fixing.

This experiment has months to play out before its full impact is known, but competitors are rushing to match the low prices. Wal-Mart's record of shrewd business success suggests it may be on to something.

The huge rise in pharmaceutical costs over the past two decades that has put health insurance beyond the reach of many employers and employees might well have been brought under control if public and private agencies had driven a harder bargain.

At a time when the best Congress can do for its constituents is wangle a few U.S.-made, price-controlled drugs from Canada, Wal-Mart's experiment could provide a lesson in how to make cheaper drugs available in this country.

Wal-Mart officials announced Thursday they can offer generic drugs for a cost lower than many insurance co-pays by wielding their leverage as the nation's largest retailer, which has allowed them to sharply reduce suppliers' charges for other products.

The program does not include brand-name drugs - which are the most expensive - and it began Friday just at stores in the vicinity of Tampa, Fla., with a goal of reaching as many states as possible by the end of 2007.

Yet it's a step, a part of the patchwork progress toward bringing pharmaceutical prices in this country in line with their cost of development and production. Americans are underwriting these costs and making pharmaceutical companies among the most profitable in the world, while Canada and other nations get a better deal by negotiating. Medicare should also be allowed to negotiate with drug companies instead of paying private middlemen to do it.

Wal-Mart's business tactics often leave much to be desired. But when it comes to offering customers needed products at the lowest cost, Wal-Mart's experience is worth watching.

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