âCan you imagine if a Wal-Mart store operated like Americaâs health care system? You would walk into the store and there would be a huge array of merchandise. But you would not be able to tell the products apart. You would not know how much they cost. And in the end, you would not know the total bill — just a predetermined fraction of itâ?
This quotation is from a speech by Wal-Mart CEO Lee Scott at the World Health Care Congress (full text available here). In the speech Mr. Scott gave his vision of how to improve health care going forward.
Wal-Mart offers many generic drugs for $4. Mr. Scott has claimed that this pricing strategy has saved Wal-Mart customers millions of dollars. I myself was wondering how Wal-Mart could offer the pharmaceuticals at such low prices. Here’s how:
- Wal-Mart is a huge company and can use its buying power to reduce the price it pays for most of the pharmaceuticals.
- Having $4 prescription drugs is good public relations for Wal-Mart. It is possible that they would lose a small amount of money in exchange for the good PR.
- Most importantly, I believe, is that people with high drug costs will shop around to buy their prescriptions at the lowest cost. Wal-Mart may be using $4 generics as a ‘loss leader.’ The low price on pharmaceuticals will draw more people into the store, who will purchase more non-pharmaceutical products. Further, the low price of prescription drugs will also build customer brand loyalty. For instance, discounted toothpaste does not engender the same consumer loyalty as offering life-saving drugs at low prices.
According to the speech and a Reuters article, Wal-Mart will open 400 in-store clinics in the next 2-3 years. This news gives more evidence that the trend towards convenience clinics–which I documented earlier in the month–is here to stay. Mr. Scott gives some more details regarding the Wal-Mart in-store clinic model:
“The providers running the clinics will determine what services to offer, which will generally include preventive and routine care for conditions such as allergies and sinus infections, as well as basic services such as cholesterol screenings and school physicals at affordable prices. They will be staffed by either certified nurse practitioners or physicians.”