Will Wal-Mart make drug retailers sick?

Wal-Mart Stores Inc. (WMT) is poised to conquer the world of health care.

According to The Wall Street Journal, the world's largest retailer is entering the pharmacy benefits business, offering corporations access to cheap drugs through its in-store pharmacies. Given how badly health care costs are spiraling out of control, many companies should be tempted by Wal-Mart's new service.

"Expenditures in the United States on health care surpassed $2 trillion in 2006, almost three times the $714 billion spent in 1990, and over eight times the $253 billion spent in 1980," according to the Henry J. Kaiser Family Foundation.

AON Worldwide Consulting expects costs to jump 10 percent this year, which actually is an improvement, indicating that that things such as employee wellness programs are having an impact. Still, the issue of who will pay to keep Americans healthy continues to vex both private industry and the public sector. That's where Wal-Mart will flex its muscles.

The retailer already offers $4 prescriptions on generic drugs. A few months ago, I took advantage of the program when I needed to refill my medicine before my insurance would pay for it. Those pills were cheaper than many over-the-counter medications. I intend to return.

For drug retailers, this is bad news because they are not in the same league as Wal-Mart when it comes to being able to buy stuff low and selling it cheap. Investors, though, are starting to worry about the impact of the Bentonville, Ark.-based company on the industry.

CVS Caremark Corp. (CVS), which acquired the big pharmacy benefits manager Caremark for $27 billion in 2007, has slumped more than 20 percent over the past year, while Walgreen Co. (WAG), its rival, dropped about 11 percent. Shares of both companies have surged since the start of the year. Pharmacy benefits manager Express Scripts Inc. (ESRC), which reported better-than-expected earnings last week, has soared more than 30 percent over the past month. It is down nine percent over the past year.

Wal-Mart may face a renewed push to bolster the wages and benefits of its own employees --- which union activists claim are woefully inadequate -- as it enters the business of helping corporations control their health care costs. Meghan Scott, a spokeswoman for the union-backed WakeUpWalMart.com, estimates that 700,000 Wal-Mart employees do not have company health care coverage.

Pharmacy benefits will be a winning business for Wal-Mart. Odds are good that anyone who comes to the Wal-Mart pharmacy will also pick up a few items that they would have either acquired at a local grocery store or at a rival big-box store. I always wind up buying more than I planned at Wal-Mart.

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