Vestigial Thoughts

Sunday, September 24, 2006

Mom and Pop Pharacists

So it appears that Wal-Mart has been testing a program out with it's employees to provide generic drugs inexpensively. How are they doing this? Well Wal-Mart is doing exactly what they've done in the past to drive prices down: A combination of hard negotiating and streamlining of the supply chain. Because of their buying power, Wal-Mart is capable of dictating, to some degree, the prices they are willing to pay. This is obviously still profitable to the drug companies, though I think few people would shed crocodile tears for big pharma. I get the impression that some people would vascillate between whether Novartis or Wal-Mart are the bigger evil. However, there is concern for the Mom and Pop Pharmacists as discussed in the linked article:
He [Scott Pace, associate executive vice president of the Arkansas Pharmacists Association] said the program could hurt pharmacies, especially in rural parts of the state where most of them are independently owned or are in small grocery stores.

“If the market falls to that level [$ 4 ], those pharmacies rely on generic medications, just like the brand-name medications, to sustain profitability. And I don’t believe the pharmacies in those areas can afford to make generic drugs loss leaders.”

Of course there are a couple solutions to this problem. There is the stateist option of passing legislation to enshrine the inefficiencies of the current distribution system to protect the little guys. This may be the first impulse of some, and I would hope they fight it. While Wal-Mart may put certain businesses out of business because of their purchasing power, I tend to side on the camp that suggests that by providing inexpensive products cheaply they are doing a service to people in the lower income. Many would call this a "race to the bottom" and say we are "selling our souls for cheap Chinese imports". That may be the case, but I think that pharmaceuticals are one instance where cheaper is better. Sure, if I cannot afford my egg beater and Wal-Mart doesn't make it possible for me to get one cheaper, I'm not going to die. However the drugs under consideration here "include standard drugs for treatment of diabetes, heart disease, asthma, glaucoma and thyroid conditions."

So what to do? Well, I do not think it is a good idea for a business to be built on enefficincies. These small town pharmacies provided a valuble service in the past, but in changing times, they must remain competative. So my suggestion? Individually, they have no buying power, and this is the delima. However, collectively I would imagine they have a significant amount of buying power --- probably not as much as walmart, but enough to significantly reduce their operating costs:

One option would be for the pharmacists trade groups, like the Arkansas Pharmacists Association mentioned in the article, to start working together to get bulk pricing deals for their constituents. They could also work out the logistics involved in shipping and storage to supply their members. Is this going to happen over night? Heck no, it took Wal-Mart years to dominate these aspects of business. On the positive side, Wal-Mart has spent a lot of money perfecting the issues of logistics, but I would imagine many of these secrets are obtainable from industrial engineers, MBAs, etc. My suggestion will of course involve large capital costs, but it costs money to run a business. If it's not worth money to stay in business, then it's time to find another business. It's the harsh reality of our economy.

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