Penelope Lemov is a GOVERNING correspondent. She was GOVERNING's health columnist and was senior editor for several award-winning features.E-mail: firstname.lastname@example.org
Despite consumers' excitement over Wal-Mart's $4 generic drug sales, state Medicaid officials are wary.
Talk about impact. One day Wal-Mart is launching a small pilot program in Tampa to sell 314 generic drugs at $4 each for a 30-day supply. Two months later, the list is up to 331, the program is nationwide, and Target and several regional chain drugstores are matching the $4 promise.
Clearly, $4 drugs hit a nerve, especially for consumers. Patients report swapping their $124-a-month bills for a cholesterol-lowering drug for a $4 tab. Uninsured adults are finally able to buy their medications on a regular basis. That's a point most state and local health officials emphasize. "We've got 2.7 million uninsured in Florida," says Sybil Richard, assistant deputy secretary for Florida's Medicaid program. "That's where the real impact is. The program gives them access to affordable medications."
That's how Wal-Mart likes to see it, too. "When you've got a good business model intersecting with good public policy, you've got a winner," says Bill Simon, an executive vice president at Wal-Mart. That was one of the points he emphasized at a panel discussion on $4 generics at a recent meeting of the National Association of State Medicaid Directors. But what became clear at that gathering was that what's good for Wal-Mart and consumers raises some uncomfortable questions for Medicaid officials.
The most obvious one is whether $4 generics can bring down the Medicaid Rx bill. If Medicaid patients started filling their prescriptions at stores offering the $4 deal, state Medicaid programs would clearly benefit. By how much? Arkansas did a back-of-the-envelope estimate and figured that, in Arkansas, the federal-state program would save $2.5 million a year, with $300,000 of that redounding to the state's benefit.
But that's just the tip of the "savings" question. The deeper issue goes to whether Wal-Mart is making a profit, as the retailer says it is, on $4 generics. If it is -- if the $4 offer is not, as independent pharmacists charge, a loss leader to bring in customers -- should $4 become the "usual and customary price" Medicaid pays all pharmacies for the listed drugs? Since most studies put the overhead cost of filling a prescription at $9 to $11, the question is whether Wal-Mart is waiving those fees or, through its marketing muscle, shrinking them to make a profit at $4.
And if Wal-Mart is profiting at $4 a pop, does that make $4 "usual and customary," and is that the price Medicaid will pay all pharmacists? As David Parella, Connecticut's Medicaid director, told the NASMD audience, the $4 price "raises the issue of what dispensing fees are and why have we been paying higher prices all along if Wal-Mart can make a profit on these drugs at $4?"
While Wal-Mart claims it is making a profit at $4, there are some indications that this may not be so. A few weeks ago, as Wal-Mart expanded into states that have unfair-competition laws against selling products below cost, it began charging $9 for some prescriptions on its $4 list in those states.
If $4 were to become the "usual and customary price," it would bring deeper savings to Medicaid programs since several of the $4 generics are among the most prescribed drugs. But there are issues beyond savings, such as possible damage to Medicaid's provider infrastructure. Most state programs depend heavily on independent pharmacists to service rural and other underserved beneficiaries, to provide such personalized services as home delivery and the mixing of special compounds. Essentially, what Wal-Mart is saying is that its stores will do the routine chores -- counting out the 30 pills -- and leave the personalized pharmaceutical services to others. "Each group should do what they're best at," Simon told the Medicaid directors. "Wal-Mart is not capable of home delivery or specialty compounds, but we can serve massive numbers of people and offer low-cost options for people who need low-cost options."
Independent druggists say they can't survive the loss of the generic-medicine business, and that is a concern to some Medicaid directors. "We have a network of providers that serve our population," Parella told the conference. "I'm not sure I see moving to put $4 pricing in place as a good thing."
That doesn't mean state legislators will agree. Medicaid officials may feel pressure to take advantage of savings, regardless of the infrastructure issue. All in all, it leaves them in a tricky place.
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