Chains, independents scrutinize retail pricing; drug makers charged with unfair pricing practices

Drug Store News, Sept 6, 1993 by Allene Symons

Allegations by drug store operators of unfair pricing practices among pharmaceutical manufacturers and others are heating up on the eve of the Clinton Administration's expected presentation to Congress this month of a sweeping plan to overhaul the nation's health care delivery system. The allegations--borne out in court cases and pharmacy association initiatives--go to the heart of the controversial issue of cost shifting by drug manufacturers, and its implications for retail pharmacy.

* In California state and federal district courts, a total of five private or class-action complaints were filed in August against drug wholesalers and manufacturers, including one seeking to enjoin the Merck/Medco merger. (See story on page 3.)

* In Arkansas, three community pharmacists await a judge's decision on whether Wal-Mart Stores violated a state law against predatory pricing, in a case with far-reaching implications for retailers nationwide. (See accompanying story.)

* Across the nation, letters were sent to drug manufacturers in August by the Community Retail Pharmacy Health Care Reform Coalition, comprised of 43 state pharmacy associations including NARD and NACDS. The letters enlisted drug manufacturer support for a legislative proposal to end price discrimination practices in the industry.

In San Francisco, five related lawsuits alleging price discrimination and citing seven drug manufacturers and wholesalers as defendants were filed on behalf of community pharmacy plaintiffs in state and federal court last month. One, a federal class-action suit, seeks to enjoin the $6-billion merger of Merck & Co. with mail-order giant Medco Containment Services, Inc. on the grounds that the merger would "perpetuate price discrimination."

The lawsuits allege that community drug stores pay more for drugs than hospitals, HMOs and mail-order drug firms. That can create monopolies in the sale of drugs and raise consumer prices, plaintiffs argue.

Defendants named

Among defendants named in the suits are Medco, Bergen Brunswig, McKesson Drug Co., Bristol-Myers Squibb, Forest Labs, Rhone-Poulenc Rorer, and Schering-Plough.

Two of the suits were filed by pharmacy plaintiffs as class representatives of 30,000 community pharmacies. The suits charge violations of California's Cartwright Act and/or federal violations of the Robinson-Patman Act and Clayton Act. The plaintiffs in the several suits are all represented by attorney and former San Francisco Mayor Joseph Alioto in conjunction with the Pharmacy Defense Fund of Corte Madera, Calif.

As an example of the thrust of the suits, one state class action suit (Bacon-Normandi Corp. vs. McKesson et. al.) claims that the defendants are..."separately and in conspiracy with each other, engaged in massive schemes of price discrimination, secret rebates and kickbacks..."

The alleged practices, plaintiffs charge, "had the intended effect of substantially restraining and lessening competition...."

The complaint details prices of the 50 most common prescriptions to demonstrate the claimed spread of 30 percent to 50 percent in acquisition costs (up to 90 percent for mail-order firms) between that charged to community pharmacies and "favored buyers" like Medco. An example given was Forest Lab's Aerobid Inhaler at a mail order acquisition cost of $2.58 compared with independent pharmacy acquisition cost of $33.61.

Alioto told Drug Store News, "The price discriminations in the drug industry are simultaneously damaging to all community pharmacists and to consumers. We hope to stop the practices which cause this harm."

In response to the suits,, defendants said they planned a vigorous defense. James Cohune, director of public relations for McKesson, said, "The company believes that it has a meritorious defense to the allegations against it and intends to vigorously defend itself in this litigation." Bergen Brunswig also stated it "believes the lawsuits against it are without merit and the Company intends to defend them vigorously."

The several price-discrimination lawsuits recently filed in California coincide with other efforts to stop cost shifting in the pharmacy marketplace.

In August, the Community Retail Pharmacy Health Care Reform Coalition sent letters to over 140 drug manufacturers asking them to join with the coalition in support of a legislative proposal to eliminate discriminatory pricing practices in the pharmacy industry.

Phil Schneider, NACDS director of public affairs, told Drug Store News that he believes the timing of several price discrimination lawsuits at this time is coincidental but that the issues raised are consistent with those of the Coalition, namely the impact of pricing practices on the current annual volume of two billion outpatient (chain and independent) prescriptions.