A healthy competition over drugs

November 22, 2006|By Peter J. Pitts

What can you get for four bucks these days? Cheese in a spray can? Cinnamon dental floss? How about a month's supply of life-saving prescription drugs?

Thanks to Wal-Mart, that's now possible.

Late last month, the company announced the expansion of its recently launched $4 generic drug program to cover 27 states, or 2,507 pharmacies across the nation.

Contrary to popular wisdom, it would seem that markets are, in fact, capable of providing medicines at affordable prices.

Even in Vermont, where the boldest socialized health care dreams take wing, the Rutland Herald lauded Wal-Mart's initiative, editorializing that it "will make available drugs for all customers, including people without insurance," and that it "shows that even the pharmaceutical industry is susceptible to the market power of the major players."

So why is everyone surprised?

Americans demand affordable drugs, and companies compete to supply them at a profit. The demand is so strong that within four days of announcing its initial program in Florida, Wal-Mart had filled more than 152,000 prescriptions for 314 different drugs.

Wal-Mart's customers, the company reports, are enjoying extraordinary discounts on medications ranging from antibiotics to anti-psychotics. Vitamins, too.

Just as predictably, Wal-Mart's competitors aren't allowing it to corner the market. Two days before Wal-Mart widened its $4 generics push, Medco Health Solutions, headquartered in Franklin Lakes, N.J., announced a new partnership with Nationwide, a Columbus, Ohio-based entity, to launch a competing service called Generics First.

For $10, Generics First provides a 90-day supply of any of 2,000 generic drugs to small businesses in 31 states and the District of Columbia. By nature, these businesses lack the numbers of employees necessary to pool risks and lower their insurance costs, so by making its purchasing power theirs, Medco has enabled them to buy medicines at drastically discounted prices.

Target and Wegmans are also on course to lower their prices.

Generic drugs, which anyone can produce once the patents and intellectual property rights held by a drug's creators expire, generally cost one-third to two-thirds less than name-brand products.

What makes generics so inexpensive is that companies compete to provide them ever more cheaply. And thanks to the absence of price regulation in America, they're allowed to.

Generics are cheaper in the United States than almost anywhere else in the developed world, including Canada. It doesn't make for exciting headlines, but many Canadians actually cross the border to buy our prescription drugs.

Wal-Mart estimates that under the $4 generics program, its customers will save $15.5 million a year on the antibiotic Amoxicillin and $23.2 million per year on Fluoxetine, the generic form of the anti-depressant Prozac. If that doesn't make you smile, what will?

Wal-Mart has also anticipated the need to coordinate customer payments with Medicare's Part D prescription drug benefit, so it has designated an employee in each of its pharmacies to ensure that customers receive the maximum benefit to which they are legally entitled.

The genius of competitive markets, for medicine and everything else, is that they allow individuals to decide what they need. And they operate on the assumption that one size doesn't fit all.

Everyone needs different kinds of medical coverage, different kinds of care and different kinds of drugs. So different models spring up to satisfy the demand:

At Wal-Mart, $4 generics for individual customers. At Generics First, $10 drugs for small businesses seeking to lower their medical costs. Elsewhere? Who knows what's next.

In a country with enough disposable income to pay for a double soy peppermint frappuccino, we're right to expect a medicine for every malady. The market can satisfy the demand for affordable drugs.

Wal-Mart and its competitors are proving it.

Peter J. Pitts is director of the Center for Medicine in the Public Interest and a former associate commissioner at the Food and Drug Administration. His e-mail is peter.pitts@cmpi.org.

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