The world’s largest big-box retailer just announced plans to begin selling its own brand of analog insulin at significantly reduced prices. Conventional thinking suggests the move is about competing with Amazon, after they announced entry into the online pharmacy market. This is no minor development. In fact, anyone willing to be open-minded can learn some things from these recent developments. Below are two of the early lessons, but more are sure to follow.
Lesson #1: Competition Really Works The one thing free markets continually demonstrate is that competition works. If you give a handful of companies the ability to compete for a limited amount of business with as few regulations as possible, they will do what they can to win as many customers as possible. That includes keeping prices in check. The fact that Walmart is introducing a brand of analog insulin that is up to 75% less than branded products proves it can be done. It also proves that there is a lot of wiggle room for profit. Don’t assume that Walmart is getting into analog insulin because they want to lose money. There is no way they are losing on the deal. The big box pioneer was pulled into the insulin game by Amazon’s move. We all know that both retailers are trying to outdo the other for a larger share of the market. When Amazon moves, Walmart reacts. When Walmart does something revolutionary, Amazon responds. That is the way this works. Could it be that both Walmart and Amazon were pulled in by Canadian pharmacies? After all, consumers can buy Canadian drugs online from sites like Canada Pharmacy for a lot less. Perhaps Walmart and Amazon decided they wanted to compete for a piece of that pie.
Products Can Be Cheaper Part B of this lesson is that drug companies can manufacture cheaper products if they want to. Walmart will be relying on Novo Nordisk A/S to manufacture its analog insulin. But guess what? Novo Nordisk A/S brands sell for $300 or more per vial. If they can produce something Walmart can sell for 75% less, they can produce the same product for themselves. Free markets allow Big Pharma to charge what they want. But the Walmart deal proves that they can produce cheaper products if the market demands it. Novo Nordisk A/S would rather produce a cheaper white label analog insulin for Walmart than let somebody else get the contract.
Lesson #2: Pricing Is Rigged The second lesson is that prescription drug prices are rigged. We conclude this based on a Walmart-attributed quote published in a recent Crain’s Chicago Business story: “the medicine will cost between 58% and 75% less than the current cash price of branded insulin products for uninsured patients.” Walmart is essentially admitting that they charge different prices depending on whether or not a customer has health insurance. This is nothing new. And by the way, Walmart isn’t the only retailer to do this. The entire U.S. health system works this way. Insurance companies pay higher prices because doing so allows them to charge higher premiums. Moreover, prescription benefit managers negotiate deals between insurance companies and pharmaceutical manufacturers; deals that directly lead to higher prices. They get away with it because consumers don’t see the bottom-line price. All they see is the co-pay. They think they are getting away with a good deal when they are actually being robbed blind. Walmart’s decision to begin selling generic analog insulin is in direct competition with Amazon’s entry into the online pharmacy world. It provides opportunities to learn among those who are willing.