Marginal Revolution: Why Can't We Have a Better Press Corps?

July
S	M	T	W	Th	F	St
		1	2	3	4	5
6	7	8	9	10	11	12
13	14	15	16	17	18	19
20	21	22	23	24	25	26
27	28	29	30	31

« Making school choice work | Main | Tim Harford's Dear Economist »

Why Can't We Have a Better Press Corps?

Kathleen Day's article in the Washington Post on Wal-Mart's plan to offer a $4 price for many generic pharmaceuticals is a classic example, practically a caricature, of anti-market, anti-big-business bias. Here with emphases added are some choice quotes from the front page article:

Retailing giant Wal-Mart Stores Inc., known for forcing prices down to dominate nearly every market it enters, said yesterday that it would sell nearly 300 generic drugs for $4 per prescription...

Using its might as the nation's largest retailer and its legendary ability to force suppliers to cut prices to the bone, the company will begin the $4 price program in its 65 stores in the Tampa area today...

...the program has the potential to transform the $230 billion prescription-drug business the way Wal-Mart has transformed other industries, including groceries and toys, where its aggressive pricing has forced some competitors out of business and allowed it to dominate entire categories of merchandise.

In the entire article there is not a single positive mention from the reporter of consumer benefits or Wal-Mart productivity. It's not until inside the fold that you even get a hint of consumer benefits and then it's in the context of an absurdly biased attack on Wal-Mart.

Wal-Mart executives, criticized by labor unions and consumer groups that say the company shortchanges its employees on pay and health care, said they started the program to help families and retirees, especially those on Medicare.

The only thing missing is how Wal-Mart executives achieve their legendary efficiencies by eating small children for breakfast.

For comparison the AP story, written by Mitch Stacy, covers the same angles but without bias or rancor and it's better written. Here's the first sentence:

Wal-Mart, the world's largest retailer, plans to slash the prices of almost 300 generic prescription drugs, offering a big lure for bargain-seeking customers and presenting a challenge to competing pharmacy chains and makers of generic drugs.

Posted by Alex Tabarrok on September 22, 2006 at 09:38 AM in Economics, Education | Permalink

Comments

This is news that should really be celebrated, not criticized, by the press. We're not infequently bombarded by news about the high cost of health care, both in absolute terms and in regard to our health spending relative to that of other countries. This will decrease inflationary pressures in this industry. It should also create a virtuous economic cycle by having a slight decreasing effect on overall inflation (lower interest rates, lower COLA adjustments for Social Security, etc.), and slight improvement in the current account deficit(Fewer people buying their medicine from Canada). We should be dancing in the streets. In fact, I'm taking the rest of the day off!

Posted by: Bill at Sep 22, 2006 10:11:22 AM

All I can say is good for Walmart. They are selling generic drugs, ones that the pharma firms have long ago captured their deserved patent profits off of, and now are available from any certified production company. These drugs should sell just above the marginal cost of producing and distributing them, just like "regular" products that have been in the market for a long time.

Posted by: Murphy at Sep 22, 2006 10:12:15 AM

Nice post. Ms. Day is a disgrace.

Posted by: Daniel Klein at Sep 22, 2006 10:43:53 AM

I suspect that instruction in the misuse of "force" is part of standard jounalistic training, sandwiched between time spent at Cliche College and the Institute of Inaccuracy.

Posted by: dearieme at Sep 22, 2006 11:23:43 AM

I explained to my EC101 class that the benefit from reduced prices by Walmart dwarfs any benefits from the government: earned income tax credit, food stamps. You name it.

I wonder why that slipped this journalists mind.

Thanks

Matt

Posted by: Matt Festa at Sep 22, 2006 11:38:50 AM

Alex, thanks for the productivity tip! Anyone know were I can get small children-Os?

Posted by: bluto at Sep 22, 2006 11:57:57 AM

The AP article isn't exactly true neutral either, I can see someone picking it apart for being relentlessly competition-assuming and price-focused (as in, "this costs less, so it must be better, no matter how it was achieved").

Posted by: Noumenon at Sep 22, 2006 12:18:32 PM

I heard recently that Now Foods, a producer of vitamins and health supplements,
doesn't sell to Wal-Mart because it wants to keep its margins higher than it
could if it "gave in" to the giant retailers "pricing power."
Now is doing just fine; it sells to many health food stores all over the
world. So much for Wal-Mart's "power."

Posted by: Bill Stepp at Sep 22, 2006 12:26:31 PM

I recall listening to a series of stories several years ago somewhat like this. The AMA was concerned that too many people were going into medicine and there was going to be a glut of doctors. I recall NPR giving this very favorable coverage.

I keep wanting to see more people do the trick of changing the situation around to people you're more/less sympathetic to, and seeing if the story still rings true. Like

"The federal government today declared that it would use its enormous bargaining power to get $4 generic drugs for all US citizens."

"GM, Ford, and Daimer-Chrysler are very concerned that there may soon be a glut of cars on the market. 'Something must be done to limit the number of new cars on the market,' said Ford CEO Fred Moneybags...."

I think this isn't done because fair or honest aren't nearly as important as interesting and readable for journalists.

Posted by: albatross at Sep 22, 2006 12:37:34 PM

Stipulating that the article isn't balanced, it makes me wonder, as someone who deals with working in healthcare finance, just how is Wal-Mart going to do this?

Is this a pure loss leader? Have they negotiated some incredible
discounts from suppliers? Done a deal with overseas suppliers
(who may not care much about patents)?

If Wal-Mart had set the price at $12 or so it would have made sense for the
company and consumers. But $4? Something is very weird here.

Posted by: save_the_rustbelt at Sep 22, 2006 1:45:53 PM

is wal-mart offering the $4 figure to customers or just to their employees? I believe that it is part of their health insurance--solely for employees.

Posted by: anonomoty at Sep 22, 2006 1:54:49 PM

Do you see how the word "article," above, looks blue and is underlined?

I suggest clicking on it, anonomoty, and answering your own question.

Posted by: Bob Dobalina at Sep 22, 2006 2:00:41 PM

STR- The price reductions mentioned are very large but they are not a quantum leap. The three medications mentioned in the article can already be gotten online for $8, $13 and $13 respectively. Generic drugs in the US are already the lowest prices in the world and the reductions WalMart is offering are probably the result of volume,logistics knowledge, and smaller margins.

Posted by: sourcreamus at Sep 22, 2006 2:06:02 PM

If this (selling cheap generics) becomes commonplace, I believe that the incentives to sell counterfeit generic compounds may be quite high. I don't know much about pharmacy, but I wonder how well they are trained to spot fake pills.

Posted by: Klug at Sep 22, 2006 2:42:10 PM

if generics are cheaper, there's less money in counterfeiting them, right? so why would this increase fraud? it's the other way round -- there's incentive to counterfeit very expensive prescription drugs. or am i misunderstanding what you're saying?

Posted by: dj superflat at Sep 22, 2006 2:50:00 PM

Newspaper circulation has been declining for years, this drop in demand
has forced papers to be more sensitive to the biases of their remaining
clients. The simple fact is that unbiased news is not in demand at this
time.

Posted by: Adam Kretschmann at Sep 22, 2006 3:08:51 PM

DJ: I suppose you're right, straight up.

Here's what I'm saying: WalMart lowers its prices quite a bit by selling low-cost goods made by foreign labor. The temptation to begin shipping in Chinese-made generics, for example, will be high. I know, for example, they're winning the vitamin market on price.

I don't know about the US, but I'm pretty sure that there's not a large counterfeiting problem in terms of pharmaceuticals. [Smiling Bob notwithstanding.] I believe in China, counterfeiting drugs is a real problem. What's to stop them from sending them to the US in their WalMart shipments?

I don't think there's anything that should be done to stop foreign generics; I'm just saying that the temptation to tablet flour and sell it as penicillin would be there and higher than it is now.

Posted by: Klug at Sep 22, 2006 3:52:56 PM

The liability issues in selling conterfiet drugs are huge. Not just anyone can sell a generic pharmaceutical. Companies still have to have their plant approved by the FDA. Wal-mart would be taking a huge litigation risk if they were not buying drugs from companies that they are 100% confident in.

Posted by: brent at Sep 22, 2006 4:27:16 PM

So ... It's unfair to say that Wal-Mart plays hardball?

Posted by: Michael Blowhard at Sep 22, 2006 4:46:11 PM

As I understand it, the $4 price applies to about 300 generics -- about a fifth of the generics Walmart carries. For example, the NYT reported that the plan does not include any of the cholesterol-lowering statins. It's still a good deal for consumers. Apparently it's not necessarily a loss leader, either, and some of the savings come from cutting out the middle man, in this case pharma distributors (Walmart now deals directly with manufacturers).

Posted by: Kari at Sep 22, 2006 4:50:55 PM

There are a few things interesting about the Wal-Mart $4 generic announcement.
A look at the list of generics finds that netting out the different dosages (such as 12 dosages of amoxicillin), there are really only about 120 distinct drugs. And for the most part, those drugs are either low-volume, old, or OTC (for instance, generic forms of OTC drugs like advil and pepcid--not sure why you'd get a prescription for those). It appears the company effectively cherry-picked the cheapest or least used prescription generics to use for the program. While they might account for a fifth of generic scripts filled, they by no means account for a fifth of generic profits. So can they eventually extend this to all other generics? Probably not, the lack of profits would be way too inhibitive, particularly with potential profits from a massive wave of generics coming through the end of 2011. Management's assertion that this is not a loss leader may be true, but I'm willing to bet they will be pretty close to a loss. They already source most generics directly from manufacturers in countries like India, not through their distributor McKesson, so there's no change there. They will be able to maintain profits through better "logistics" and "technology" (words of management).
It seems to me they just want the good PR around election time.

Posted by: kydoh at Sep 22, 2006 7:40:09 PM

It's really amazing, Wal-Mart simply can't win with some people. I commented on it here.
http://amateureconblog.blogspot.com/2006/09/wal-mart-to-target-mom-pop-drug-stores.html

Posted by: Chris Meisenzahl at Sep 22, 2006 9:03:52 PM

It isn't biased to say that Wal-Mart plays hardball with suppliers and forces them to cut their prices to the bone. It's well-documented. And, depending on your point of view, that's either a good or bad thing.

This is another case of the biased accusing others of having bias. There's nothing perjorative about the word "forcing." That's what Wal-Mart does; it's known for being a touch negotiator, and nobody would deny it has the upper hand in dealing with suppliers.

There ought to be a moratorium on cries of bias in the media. It's tiresome, and it's almost always in the eyes of the beholder.

Posted by: BobH at Sep 22, 2006 9:28:44 PM

BobH, it's the libertarian form of political correctness. You're not supposed to say anything harsh about market practices.

Posted by: Mike Huben at Sep 23, 2006 7:29:15 AM

"Why can't we have a better press corps?"

Isn't it because indignation sells?

Posted by: Jeff Brown at Sep 23, 2006 10:59:37 AM

It must be that bad news sells. Remember the hullabaloo about prescription drug prices in Canada? Did you ever hear the other side of the story ? According to the PR Newswire in a story from Toronto and other sources. “Canadian seniors pay 64 percent more, on average, than American seniors for generic versions of drugs that are among the most recommended by physicians for patients aged 65 years and older.” Patent protected drugs cost 36% less in Canada. Now the ever villainous Wal-Mart threatens to make generics even more inexpensive, Curses! Also some of the big time patented drugs such as Lipitor , Prozac and 75 other drugs are set to expire soon. Don’t let out the good news.

Posted by: Dave at Sep 24, 2006 4:24:22 PM

"There's nothing perjorative about the word "forcing." That's what Wal-Mart does..."

It is most certainly not. Wal-mart offers terms and its supplies are free to accept or decline. There is violence or threat thereof involved.

Forcing people to do things is the business of government.

Posted by: Noah Yetter at Sep 25, 2006 11:20:25 AM

Face it, WalMart is bad. Who wants low prices? No one, that's who. I for one go out of my way to find the same product at being sold at the highest price possible before I buy it.

If we bought the item at a lower price, all we would get out of it is having more money or more products to make our lives more comfortable. Nobody wants the hassle of having extra money lying around, trust me.

Posted by: Kevin at Sep 25, 2006 11:20:39 AM

Nobody seems to have noticed that the $4 price for these generics is actually less than the copayments demanded ("forced on members?") by the big health insurers. So those without health insurance can now get drugs cheaper than those with health insurance, unless I'm missing something. I wonder how much of the massive health insurance premiums that are bankrupting employers are devoted to generic drugs? Or have health insurers - God forbid! - been overcharging for generics all along?

Posted by: Robert Speirs at Sep 25, 2006 1:22:07 PM

I'm pretty sure that most health insurance policies don't require you to pay the full co-pay when the drug price is lower. And if so, you can always just buy the medicine and not file an insurance claim for it.

Posted by: bob montgomery at Sep 25, 2006 3:38:13 PM

I really don’t understand why people insist on bashing Wal-Mart all the time. I guess because of its size Wal-Mart is an attractive target. But let’s not forget that it is a great American success story. Sam Walton began his business just as every other small business does through hard work and a vision. He expanded it through innovations in technology and organization.

Sure Wal-Mart does not pay its employees a lot, and has terrible benefits but what other business offers semi-skilled employees above average wages and great benefits? Most of the people that work at Wal-Mart are part time, unskilled laborers. (How many times have you had the cashier who just can’t figure out how the machine works?) If Wal-Mart were not in their area, they might not be employed at all. When Wal-Mart moves into an area it brings in hundreds of jobs that might not otherwise be there. Not all of the jobs are through the retail giant. Wal-Mart rarely opens a stand-alone store; most often it is an anchor to a shopping area, complete with restaurants and other supporting businesses. Many times these businesses are chains, but just as often they are locally owned and are guaranteed to have a steady supply of customers due to the traffic created by Wal-Mart. Lets not forget the hundreds of local skilled laborers and craftsmen that it took to build the shopping complex.

Another point that anti-Wal-Marters like to rail about is the amount of foreign produced goods they import and offer. Most of the items that Wal-Mart offers are cheap items that most people don’t even think about until they need it, and when you do, you don’t want to spend any more than you have to. Americans are not willing to work for the low wages that it takes to produce low price goods, but they enjoy the benefits of being able to purchase those low priced goods. Higher production costs mean higher cost of the product. Let’s face it: if you could buy Chinese produced paper plates for $.97 or US produced plates of the same quality for $2.50 which are you going to buy?
Most of the people that I hear talk down about Wal-Mart would have a heart attack if they were suddenly forced to pay a lot more on their grocery bill because cheaply produced foreign goods were no longer driving down the prices of goods produced here in the US.

Don’t get me wrong, I’m not saying Wal-Mart does not have any bad business practices but I am saying that the benefit that it serves to the vast majority of the American public overwhelmingly outweighs the evils. It has been my experience that people who decry the evils of Wal-Mart are doing so without thinking the whole issue through. I think they would be the same people who would scream the loudest if forced to suddenly live in a Wal-Mart-less world.

Posted by: Walter Lee Vandeberg at Sep 27, 2006 11:36:08 PM

From the replies posted here, I can agree with most ppl here that Wal-Mart's generic drug plan is a great thing, when it comes to the low price. Yeah who can beat $4? But there's more behind the cost of $4. When a pt goes to a pharmacy and pays $10-20 for a generic drug, you're not only paying for the cost of the drug, you're paying for the vial, the top, the label, the printing, the technicians who worked on it for you, the techs who counted out the right amount for you, the pharmacist who made sure you got the right drug with the right strength with the right instructions and the right doctor and it's all for YOU. And the pharmacist also makes sure that the drug you're buying isn't interacting with the all the OTHER drugs you're taking as well, and if there is an interaction then the pharmacist will correct it. If there is a wrong strength or wrong drug prescribed, it is the pharmacists responsibility to contact your doctor, who isn't the easiest to reach, and get it changed. So overall $4 doesn't cut it for paying the pharmacist, the tech, the clerk, and the drug you're buying. Basically if you're willing to pay $4 for a rx, then expect that the pharmacist isn't really gonna pay extra protection to your rx cuz you've basically cut her/him out of what you're paying. I'm a pharmacy student and I'm accruing around $100,000 for school. This Wal-Mart thing will only increase rx volume in their stores, discourage pharmacists who work there or would want to work there, end up with a shortage of staff which is associated with an increase in medication or rx errors, and will overall result in decreased customer service to the pt and worst of all HARM to YOU the patient bc you just want to pay $4 for drugs at Wal-Mart. It's easy to judge things at face-value, but if you really think about it OVERALL, you're the loser if you pay $4.

Posted by: Mai at Oct 2, 2006 2:04:40 AM

Posted by: JEROGatch at Oct 24, 2006 5:38:19 AM

Uw online verzekeringsmakelaar Eerst Europa Doelstellingen: De Ci2i Verzekering (Ci2i) zal
het nummer een gebrandmerkte pan Europese commoditized online verzekeringsmakelaar door 2010 zijn.

Posted by: webmaster at Oct 26, 2006 4:56:09 AM