Generic drug cuts escalate price war
Drugstore giant CVS Caremark Corp. announced it would sell 90-day supplies of more than 400 medications for $9.99 and offer discounts for cash-paying patients at its in-store medical clinics.
The price war was unleashed by Wal-Mart Stores Inc., the country's largest retailer, a few years ago. Since then, many grocery stores have followed suit.
The price competition makes generic drugs just about the only healthcare bill that isn't escalating. The lower prices provide a measure of relief to consumers who are struggling with rising health insurance premiums and other out-of-pocket expenses or have lost coverage altogether.
Now savvy shoppers can buy many prescriptions for less than laundry detergent, face cream or a pound of deli meat.
Retailers can't make much, if any, profit off the cut-rate generics. But that doesn't mean they won't make money off the customers. The stores are using generic prescriptions as loss leaders to bring people in. And cheap drugs do drive other purchases.
"They are pulling us into the store," said Stephanie Nelson, an Atlanta resident who shares shopping tips on her website Couponmom.com.
"As soon as you go to the back of the CVS to pick up your prescription or wait for it to be filled, what are you going to do? You are going to shop," she said. "I'll get my diet Coke, shampoo, whatever I need. I'm not going to a different store."
Nearly every pharmacy -- from the small corner drugstore to the industry giants -- has been affected by the price war in much the same way that sales of everything from T-shirts to CDs have been transformed by Wal-Mart's low-price model.
Gone are the easy-money days when drugstores could sell a month's supply of a generic prescription for $8 and pocket the markup of 50% or more.
"Generics used to generate a significant amount of profit, and that's all been changed by Wal-Mart," said Joel W. Hay, an associate professor of pharmaceutical economics at USC. "That's really squeezed the rest of the retail pharmacy industry. And now they are getting the price down to where there is no profit left, or very little."
Still, competition for the prescription traffic is fierce. Millions of aging Americans are being treated for high blood pressure or cholesterol, allergies and other chronic conditions that send them in for refills.
Drugstores and groceries are fighting to tap the wallets of these reliable repeat customers. On top of price cuts, many big retailers are trying to steal one another's customers with coupons paying as much as $30 for each prescription transferred from another pharmacy.
CVS takes the idea one step further with its Rx Health Savings Pass program by tying prescription savings to its in-store medical services. The program, which begins Nov. 9, is aimed at the uninsured but open to anyone.
In order to get the $9.99 generic deal, customers must enroll in the program by paying an annual fee of $10. Members paying cash can save 10% on visits to the retailer's in-store MinuteClinics.
The $9.99 CVS offer is just a penny less than Wal-Mart's $10 charge for a 90-day supply.
CVS operates 554 such clinics, including 59 in Southern California, where patients can get quick and inexpensive treatment for common and minor medical problems, such as ear infections and sore throats. CVS operates more than 6,000 stores across the country, including 377 in California.
CVS said it was the right time for discounts on healthcare.
"We're in the middle of a difficult economic crisis, to say the least," CVS Chairman Tom Ryan told analysts Thursday. "People are struggling with healthcare costs, especially the under- and uninsured."