Wal-Mart, Your Friendly Drugstore

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Wal-Mart executives say their strategy is to tap into consumers who don't have health insurance. They say that nearly 30% of the $4 prescriptions are being filled without insurance, compared with the industry trend of 10%. "[The] $4 prescriptions now represent approximately 40% of all filled prescriptions at Wal-Mart," says John Agwunobi, Wal-Mart's senior vice-president and president of health and wellness. "People can now take the drugs that were prescribed to them. They no longer need to cut pills in half or not take the drugs at all."

Of course, the irony of Wal-Mart offering low-cost health care to those without insurance is not lost on its critics. Wal-Mart in recent years has come under heavy criticism for providing stingy health benefits for its own workers from various community and political leaders (BusinessWeek.com, 11/16/06) including Democratic Presidential candidate Senator Barack Obama.

Have-Nots on the Payroll

Just over three years ago, a few states singled out Wal-Mart as the employer whose employees were turning up most often on state Medicaid rolls and with children on taxpayer-funded public health-care plans. For instance, Georgia found that close to 10,000 children of Wal-Mart workers were enrolled in the state PeachCare program, nearly 14 times more than any other employer. In Florida, 12,300 Wal-Mart workers were enrolled in Medicaid.

Wal-Mart has since changed its health benefits plans. Last year, it offered lower deductibles in a range of choices and also reduced the number of years for a part-time worker to qualify for coverage to one year from two. At the start of this year, Wal-Mart said that 50.2% of its employees had signed up for coverage under the company's plan, compared with 48% in 2007 and 44% in 2003. In the latest enrollment period, more than 30,000 of the company's workers signed up for coverage who were uninsured before.

"Being the largest retail company in the world and such a market force, it just didn't look good to have so many employees with no insurance," says Rochdale's Abella. "Besides image, having better benefits makes it a more attractive place to work and reduces employee turnover."

Wal-Mart has proceeded cautiously so far on offering walk-in clinics, where people get treated for minor ailments like a cold or a cough for as little as $40. Currently, it has 79 clinics in 12 states, compared with 472 clinics in CVS (CVS) drug stores. In most cases, Wal-Mart leases out the space or has co-branded the clinics with companies like RediClinic. However, Wal-Mart has already committed to opening 400 clinics in the next three years, and could have 2,000 by 2015 by contracting with local hospitals.

Clinics Lead to Wider Sales

A report on industrywide walk-in clinics done for the nonprofit group California Healthcare Foundation by Mary Kate Scott, CEO of health-care consultant Scott & Co., found that they generally draw in young families on tight budgets or schedules, and that they lead to more sales elsewhere in the stores. "As many as 70% need a prescription or immunization, and 98% get their prescriptions filled right there," says Scott.

Patricia Edwards, a Wal-Mart shareholder and managing director at Seattle money manager Wentworth Hauser & Violich, says the clinics fall in the sweet spot of Wal-Mart's core low-income customer base. "So many of Wal-Mart's shopping population don't have health-care coverage, and here they can get their kids immunized for a low price. It's a good deal," she says. Indeed, Wal-Mart's own data show that 55% of its customers that go to these clinics are uninsured.

Investors are less enthusiastic, though, about Wal-Mart's moves into claims management. Earlier this year, CEO Scott revealed that Wal-Mart has also started dabbling in managing prescription drug claims for other companies. Scott believes he can leverage Wal-Mart's efficiencies of scale to better process and pay prescription claims from these employers. "Our approach will be based on taking out unnecessary costs while providing high-quality health-care products and services, and we believe we can save employers more than $100 million this year alone," he says. Wal-Mart spokesman David Tovar wouldn't identify which companies Wal-Mart is working with.

Says money manager Edwards: "I hope they are cautious in any further undertaking in health care and don't push this too far."

Gogoi is a contributing writer for BusinessWeek.com.