Wednesday, April 25, 2007

Wal-Mart, The Next Big Healthcare Player

For all the heat that Wal-Mart has suffered over the years for its employee health benefits, I wonder how much play this story will get.
Wal-Mart announced today that it is planning to open as many as 400 health clinics in its stores over the next two to three years. The retail giant says that if demand remains high, it could open as many as two-thousand of the clinics within seven years.

The company says it will contract with local hospitals and other health organizations to get the clinics up and running.
In a speech to the 2007 World Health Care Conference, Scott notes:
The fact is the time for politics in our nation’s debate on health care is long past. The
time for real and meaningful change has come.

We think the country agrees that health care needs to be affordable. It needs to be
accessible. And it needs to be high quality.
Scott also took the opportunity to talk about the last big healthcare initiative undertaken by Wal-Mart, the $4 generic drug program:
I think the American people want to make better health care decisions. But most importantly, I think Americans -- with the help of their doctors and the right tools and information -- are ready to make better health care decisions.

Our company saw this with our $4 prescription drug program. It was one of the most
exciting things we have done in a long time -- for a lot of reasons.
It reaffirmed that Wal-Mart is the unbeatable price leader. It energized our associates.

They saw yet again the power of our company’s purpose -- to save people money so they
can live better.

There were a lot of great stories about seniors not having to cut their pills in half, or parents being able to do something extra for their families. The $4 program made -- and continues to make -- a difference in the lives and the health of the American people.

We also saw pharmacists and doctors working together in new ways on behalf of their
patients. When patients had prescriptions that might cost hundreds of dollars, our
pharmacists reached out and worked with their doctors to determine if a generic might be a better alternative.

But you know what else it did -- on a more systemic level? It empowered consumers.

We educated consumers about the efficacy of generics. We gave them complete price
transparency. We posted the list of prescriptions and the price -- $4. We encouraged
them to talk to their doctors and learn about generics. And you know what happened?
They acted like consumers. They started making more informed and better decisions.

The response has been nothing short of spectacular. Since we launched the program, our customers have saved about $290 million dollars on their prescription drugs -- that is $290 million removed from the cost of health care in this country. $4 prescriptions now account for more than 35 percent of all the orders we fill -- and that percentage is growing. And listen to this: nearly 30 percent of the $4 prescriptions are filled without insurance.

Within days of announcing our $4 program, countless other discounters, drug stores and supermarkets dropped their prices on generic prescriptions. That has surely saved our health care system millions more.

So let there be no doubt that the private sector can lead. The private sector can make a difference.
The cost savings for consumers cannot be overstated, Wal-Mart, by itself, saved American consumers $290 million dollars on drugs since September 2006, a span of 8 months, that comes to $36.25 million a month or over $1 million dollars a day. If there is any doubt as to whether private market forces can effect real change in a short time, take this lesson to heart. One company saves American consumers over $1 million a day on one of the most expensive health care costs around--prescription drugs. That does not count how much money is being saved by consumers at other pharmacies and companies. I would be suprised if Wal-Mart's leadership on this matter was saving consumers some $2 to $3 million a day through market competetion. At $3 million a day, this market drive approach saves American consumers nearly $1.1 billion a year. That is Billion with a great big fat B.

Now with teh announcement of health clinics, my suspicion is that this too will server to drive down the costs of health care while providing transparency about costs. But the clinics provide a way to deliver healthcare without the hassles of an emergency room and for the uninsured this can be literally a life saver. Will Wal-Mart make some money off this program--you bet, they are after all in the business of making money. But the difference is that Wal-Mart makes its money not on individual transactions, but on the power of volume. If a visit in a Wal-Mart clinc costs $5 dollars, they might lose money on that transaction, but they make money on other transactions or on the fact that they might have thousands of such transactions per day and that volume is what drives their business model.

3 comments:

TurbineGuy said...

I get the feeling that you are pro private health care, but I don't think this program supports your idea.

1. A large number of the customers of Wal-marts clinics will be on medicade/medicare so in effect wal-mart is supporting government funded health care.

2. Wal-mart is able to negotiate large discounts because of there huge size and buying power. The government is even larger and if allowed could apply probably negotiate even larger discounts.

3. I believe Wal-mart is starting to advocate for national healthcare, since they don't want to subsidize it anymore.

Unknown said...

Parentalcation,

As to comment 1, Wal-Mart already does that since they fulfill prescriptions for Medicaid and Medicare patients. These government health care programs are not going to go away and I don't think they should. However, they can be run for a great deal cheaper than they currently are and if Wal-Mart can make a buck or a billion in the process, they yeah, I do support a private health care system.

As for comment 2, yes, the government is bigger than Wal-Mart, but they don't have a profit incentive to keep costs down. In effect, they don't really care if the program saves the taxpayers any money. Wal-Mart has a profit incentive and given that shortly after announcing their $4 generic plan, many other companies did the same and the federal government can't get off the starting line indicates to me that private health care is always going to be more responsive to consumer needs.

On comment 3, I don't think this to be the case, or at least I have seen no evidence. Wal-Mart, like most other companies probably wishes they didn't have to pay such a heft premium for the health insurance of its employees and I don't blame them. The problem that I think Wal-Mart is trying to address is that costs of health care are hidden. (see for example the explanation in Scott's speech on walking into a Wal-Mart and not knowing how much things cost).

I have a related question to you and anyone else? Do you know how much your routine visit to your doctor costs? Not how much you pay, but how much the doctor charges? Do you know how much a blood test costs? A cholestrol test? What about something more involved, like an x-ray of your foot? What about an appendectomy?

The point I believe Wal-Mart is trying to make is that health care costs money and most consumers don't know how much. But if you walk into a Wal-Mart store, you will know exactly how much something costs and you can find out how much it costs at a competitor's store. Is it perfect information? No, but it is enough information for a consumer to make a decision.

I think Wal-Mart is arguing for transparency in health care pricing and that is very different from wanting the govenrment to subsidize health care.

TurbineGuy said...

Good points.

Having lived in Europe for 12 years and travelled quite extensively, I have some serious issues with the American Health Care system, but your point on price visibility is a good one.

I am actually more ignorant than most people on health care costs since I am in the Air Force. If I get sick... I see a doctor. If I needed a heart transplant, the military would pay for it.

Recently I have been dealing with the private health care system with my two soon to be step-daughters and my fiancee. I seriously can't understand why it has survived so long. It's such a big bureaucracy, confusing, and inefficient.

In the end, I am fully supportive of transparency though. Whether through the private sector or a one payer system, transparency is the biggest motivator for change.