Business

Generic drug cuts escalate price war

HealthMedicineCVS HealthWal-Mart Stores, Inc.Consumers

One of the nation's largest drugstore chains ratcheted up a price war Thursday, offering deep discounts on generic prescriptions amid national concern about the spiraling cost of healthcare.

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."

Nestor Perez, who is jobless and lives on a fixed income in Los Angeles, said he was anxious for the program to begin and figured that the generic pain reliever he takes would cost less for a 90-day supply than he currently pays for a month's worth.

"That'll be even better for me," Perez, 32, said while filling a prescription at a CVS near Echo Park on Thursday.

The deal is a "no-brainer" in the estimation of Los Angeles city planner Daryll Mackey. He figures he will save $5 over three months on the generic blood-pressure medication he takes.

"Who wants to spend money when they don't have to?" Mackey, 53, said while picking up a prescription at a CVS in downtown L.A. on Thursday. "I'm all about saving money."

Robert McNeill, a lawyer who lives in Pasadena, was less impressed, saying he prefers to stay with the brand-name prescriptions he spends $300 a month to get.

"Tell them to lower it on brand-name drugs, the stuff that people spend their money on," he said at the CVS near Echo Park.

Insurers and employers are pushing generic substitutes to save costs. And the economic downturn has changed the minds of many consumers who once preferred brand-name drugs at any price, said Greg Collins, a CVS pharmacy supervisor who oversees stores in the Inland Empire.

"We have actually seen patients who were adamant before these financial conditions started who wanted brand no matter what -- quite a few -- who say, 'I'd like to give generics a try,' " Collins said. "In the last few months, there's been significant financial pressures, and they are more likely to say, 'You know, I want to try that and see how it works.' "

The generic deals will help thrifty consumers, but they aren't a panacea, healthcare experts say. Many drugs are available only in expensive, patented formulations, and even where generic substitutes are available, they don't work for everybody.

"It's good news," said Anthony Wright, executive director of HealthAccess California. "But the thing that kills a budget is the brand-name drugs that are on patents that are significantly more. The issue that we're still very much focused on is why are some of these drugs so expensive?"

lisa.girion@latimes.com

andrea.chang@latimes.com

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