A proposed $350 million settlement of a case that accuses most major drug manufacturers of conspiring to charge high prices to retail pharmacies will:
(A) Have little effect.
(B) Raise drug prices, including those paid by hospitals.
(C) Save retail pharmacies from extinction.
The answer appears to be A, although a few healthcare industry groups support B and C.
Thousands of retail pharmacies say drug companies illegally charge them more than HMOs, mail-order pharmacies and hospitals. They have accused 22 manufacturers of conspiracy and price discrimination in two cases before the U.S. District Court in Chicago.
Last week, U.S. District Judge Charles Kocoras gave a preliminary OK to a proposal partially settling the conspiracy case. Under it, 11 manufacturers said they won't deny discounts to retail stores just because they are retailers. The companies also promised to give retailers "the opportunity to negotiate and earn comparable types of incentives" if they demonstrate "ability to affect market share in the same or similar manner" as managed-care organizations.
Kocoras rejected an earlier proposal as useless because it offered only money and contained no promises about future behavior (April 8, p. 4).
The amended proposal no longer involves Abbott Laboratories and Ciba-Geigy Corp. and doesn't apply to inpatient drugs. It also offers about $50 million less and expires in three years. A hearing on the proposal is set for June 11.
Many observers greeted the proposal with a shrug of indifference.
"That puts us where we are currently," said Don Searcy, director of pharmacy purchasing for BuyPower, Dallas, a group purchasing organization for hospitals and other providers.
"That is almost carte blanche for the manufacturers to do whatever they want," said Bill Larkin, vice president of pharmaceutical purchasing for GNYHA Services, a New York-based group purchasing organization.
"There's a lot of smoke and mirrors here," said Aubrey Calvin, a Houston attorney for retail pharmacies in the second lawsuit.
Existing law already bars price discrimination between competing buyers offering the same advantages, such as volume and market share.
HMOs, hospitals and mail-order firms say they win discounts mostly because they influence market share with their formularies. If drug companies don't offer competitive prices, hospitals and others will strike their products from formularies and encourage physicians to use other drugs.
Retail pharmacies say drug companies never really test ability to influence market share and just give discounts to managed-care organizations and hospitals because of who they are.
These competing views are at the heart of the current dispute. They also explain differing reactions to the proposed settlement.
The National Association of Retail Druggists considers the proposal a triumph because it believes discounts are granted for no good reason. "Drug companies can no longer price based on the status of the entity. That is the main event for us," said John Rector, NARD general counsel.
Phillip Schneider, spokesman for the National Association of Chain Drug Stores, calls the proposal "a positive development, but it is just one step forward." He pointed out that some companies aren't part of the proposal, a second lawsuit remains, and the Federal Trade Commission is conducting an investigation of the matter. Hearings haven't been set on the charges in either case.
As a matter of policy, the Health Industry Group Purchasing Association, a trade group for hospital group purchasing organizations, envisions the worst-case scenario. "If this is accepted, it could have severe consequences for providers," said Robert Betz, its executive director. Manufacturers could see the proposal "as a perfectly good reason not to offer discounts. They can't offer these willy-nilly."
Observers from the hospital industry said the settlement isn't likely to win retail pharmacies much lower prices. Even if it did, manufacturers can't end discounts unless everyone does.
"The minute one manufacturer balked, the deal (would collapse)," said Mary Wallace, director of government affairs at the American Society of Health-System Pharmacists, a Washington-based trade group. "Even if there is a temporary aberration in the market, it will all come out."