Thursday, December 2, 2010

Taking On Walmart: Lawsuit Style

Over the top post title? Perhaps, but hear me out.

Every one within the pharmacy world agrees that Walmart pharmacies are the cancer of the profession. They are mostly detrimental to the profession, to the point that something needs to be done about it.

In the Walmart I recently worked at, my store manager told me the pharmacy is responsible for 4% of the yearly revenue of the store. Think about that, just 4% of the entire store. In the great scheme of things, the total profit brought in by the pharmacy does not have a high priority. What a pharmacy does accomplish, though, is to drive more people into the store. And that's where the problems arise.

It's not difficult to imagine that twenty years from now we will see the final death blow for true small town, rural, independent pharmacies as the four dollar generic program that Walmart began a few years ago. The effects from this program will begin to become more evident as the years wear on (I personally believe it will, or maybe already has, trickle over to the reimbursement side of things). It's a program which is great for consumers, but utterly terrible for pharmacies and pharmacists.

Previously I have covered how we are routinely underpaid by insurers for the services we provide. Here is how Walmart, in its revenue based mindset, gouges the profession using poor, and unethical, business practices.

In the state I am in at the moment, the average cost of a prescription, prior to the addition of the cost of drug, was $10.28 as of 2006. This is the most recent data we have and does not take into effect the legal changes since then which have significantly increased overhead labor costs. If you consider that the most of the drugs listed under the $4 generic program actually cost roughly $1 per 30-day refill, we're looking at a total cost (in this state) of $11.28 per 30-day supply.

Using a bit of simple math, we can see that Walmart is selling these $4 generics at 64.6% below true cost. Sure they're making a "300%" return on the cost of the drug, but we're a service based profession and you cannot quantify cost in that manner.

Here is where the lawsuit would come into effect; there are laws in place to prevent businesses from undercutting competition by ensuring that they cannot price their products and/or services below a price floor, namely the cost of the product/service. It a byproduct of the monopolistic tendencies of big business at the turn of the 20th century and the anti-trust laws that followed.

This is called predatory pricing, and it is usually intended to drive competition out of business. In Walmart's case, they are doing so to drive more consumers into their store and not so much to rid them of competition.

However, one of the key components of predatory pricing is a high market entry barrier. By pricing their prescriptions so low, and under cost, they are in effect presenting a high market entry barrier. It is one thing for a new, or small, pharmacy to be unable to offer all of the insurance plans offered. It is a completely different problem when they cannot come close matching the cash-pricing policy of Walmart.

Under the Sherman Antitrust Act, this is considered monopolistic business practices and is unhealthy for both the market and the consumer. And, at least legally, you could file a class action lawsuit claiming as such.

The thing is, you would lose the lawsuit. Walmart is far too big, far too powerful and with far too many attorneys. Also, it has proven difficult to adequately argue for monopolistic business practices, although I concede we could develop at least a moderately successful argument.

But here's the best part... we wouldn't have to win the lawsuit.

Really what we need is consumer awareness of what is happening within our profession. It's been shown time and time again, especially when it comes to Walmart, that when the public is presented with an injustice they will move on their own to attempt to right it. People like a good deal, but only to a point.

We have the data, we have the facts, we have the manpower, so why not? What's stopping a group of us from standing up and actually doing this? It isn't about increasing pharmacy profits, about maintaining the integrity of one of the most important health care professions in existence. We an argue convincingly that we have been put on a dangerous path and, if it is not righted, in a few years we will be presented with a very serious problem.

Cost/revenue cannot be the sole driving force for the profession, yet Walmart, and to a lesser extent the other large corporations, have decided to take that route. It will continue to harm us, the market and, ultimately, the patients. The last part of that statement is what we have to proclaim most loudly.

Let's rile up the consumers, let them see how big business is harming one of the essential health care services in this country. It can only go up from here, right?


Anonymous said...

Consumer go where they can spend the least amount of money. Otherwise, the indies will not be dropping like flies.

We might be able to start a campaign to have pharmacists and future pharmacist boycott WMT. I think it has a chance of success. One, Rx school are pro-clinical and anti-retail. Two, WMT is known for poor working conditions. Let's give WMT the 1, 2 punch!

Anonymous said...

WMT started the $4 generic juggernaut, and it does drive customers into their stores, who end up buying a bunch of other crap because they have to wait so long (filling or picking up, wait time is about the same at my local WMT). However, they jack up prices on other meds to make up the difference - Costco is usually much cheaper on generics that aren't on the $4 list. If independent pharmacies could buy in bulk on a cooperative basis, perhaps they could launch a campaign that customers could reduce their total prescription cost by avoiding the not-so-great Wal by filling their Rxs at the friendly neighborhood pharmacy with good service and good prices.

Anonymous said...

You'll never get very far in this business if you keep confusing "average cost per Rx" with "actual cost per Rx".

This ship is sailed, and it's not coming back to port. Learn to make money by other means, because this is now the status quo. Bitching that Walmart has better buying and pricing power than an independent retailer is energy wasted that could be better applied elsewhere. People who can save money by shopping at Walmart are not going to act in their own worst interest by not shopping at Walmart unless you can offer them something better. Figure out what your better offer is going to be, and stop whining about the things you can't change.