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Editor's Correspondence
Sep 26, 2011

Needed Assumptions for Potential Savings From Greater Use of $4 Generic Drugs

Author Affiliations

Author Affiliations: Health Sector Management Program, The Fuqua School of Business, Duke University, and Department of Community & Family Medicine, Duke School of Medicine, Durham, North Carolina; and Department of Health Policy & Management, Gillings School of Global Public Health, University of North Carolina, Chapel Hill.

Arch Intern Med. 2011;171(17):1594-1595. doi:10.1001/archinternmed.2011.410

The study by Zhang and colleagues1 suggests patient and societal savings of $6 billion from more widespread use of $4 discounted generic medication programs. While possible, such savings depend on a number of unstated assumptions on marginal profitability, scalability, and absence of negative societal costs.

First, for each additional script sold under such a program, gross margin has to be positive. If not, the store must recoup the loss from increased prices on other goods sold. This would mean some patient savings are others' costs, reducing societal savings. WalMart initially sacrificed margin but made some up on increased foot traffic and on branded medications.2 At current enrollments, they likely earn positive gross margin on $4 generics as a stand-alone product,3 but other pharmacy chains may not.

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