Plan Could Make Generic Drugs Even Cheaper

http://www.clickondetroit.com/health/10070636/detail.html

Cost Breaks on Generic Drugs• TRENTON, N.J. -- Consumers are suddenly getting a

break on the cost of generic drugs as discount retailers and some prescription benefit managers start programs that provide a host of popular medications at very low costs.

• In the last month, Wal-Mart stores Inc. and Target Corp. have begun programs at pharmacies in their Florida stores, including Wal-Mart's Sam's Club, offering dozens of generic drugs for $4. Last May, Kmart Holding Corp.'s 1,100 stores began offering generics for $15 for a 90-day supply.

• On Thursday, Medco Health Solutions, one of the largest U.S. prescription benefit managers, announced a plan targeting consumers indirectly through small- and medium-sized businesses struggling to offer employees

Focusing on smaller employers• Medco will offer its Generics First plan through partner health

insurers for which it manages prescription claims and shipments from its mail order pharmacies. The plan kicks off this week through the first insurer to sign up, Nationwide Life Insurance Co., said John Driscoll, Medco's group president for new business development.

• "While many of the companies we're targeting have little or no insurance plan today, they want it or may have had it in the past," Driscoll said. "The biggest and fastest-growing need in the marketplace is for some sort of low-cost prescription plan."

• Medco's insurance partners will market the plan through their agents to companies with up to about 500 workers.

• Driscoll said the employers will get Generics First at about half the monthly premium cost for a traditional prescription plan, and their employees will get generic drugs for as little as $10 for a 90-day supply via mail order. The Medco plan covers 818 different medications, more than three times the number offered at Wal-Mart, and offers discounts on brand-name drugs and use of about 55,000 drug stores.

Economics – 1 – Pooling

• Insurance pooling – One of the reasons that large firms often get good health insurance benefits is because they have good experience ratings.

• Also, big firms allow the “Law of Large Numbers” to kick in. Small firms don’t have that.

• Question: How large is large?

Economics – 2 – Segmented Demand

• Brand name sellers get those customers who value the drug the “most”

Quantity

Price

D

MR

MC

PB

QB MR’QG

PG

• Those who would buy generics, have more elastic demand. Pay less.