FOUR BIG CHAINS SUE DRUGMAKERS ON PRICE

MICHAEL SLEZAK

CINCINNATI -- Four of the country's largest supermarket retailers have filed a lawsuit alleging unfair price discrimination against 16 major pharmaceutical manufacturers and a large mail-order drug prescription company.

Kroger Co., Cincinnati; Albertson's, Boise, Idaho; Safeway, Oakland, Calif., and Vons Cos., Arcadia, Calif., filed their suit Feb. 14 in Federal District Court here in an action similar to one taken by major drug store chains on Oct. 14, 1993.

The supermarkets' suit contends the drug companies sell their brand-name prescription drugs to hospital pharmacies, health maintenance organizations and mail-order pharmacies at lower prices than they charge supermarket companies for the same products. These practices violate the Robinson-Patman Act, according to the supermarkets, and the suit seeks to end the pricing practices and to recover any past damages.

"We believe what's been done here is illegal," said Richard Arnold, an attorney with the law firm of Kenny Nachwalter Seymour Arnold Chritchlow & Spector, Miami, which represents the supermarkets. He also said he "expects the case to be litigated within two years."

The manufacturers named in the suit are Abbott Laboratories, American Home Products Corp., Bristol Myers-Squibb Co., Burroughs-Wellcome Co., Ciba-Geigy Corp., Du Pont-Merck Pharmaceutical Co., Glaxo Inc., Eli Lilly & Co., Merck & Co., Pfizer Inc., Rhone Poulenc Rorer, Schering-Plough Corp., G.D. Searle & Co., SmithKline Beecham Pharmaceuticals Co., Upjohn Co. and Zeneca Inc. The mail-order firm named in

the suit is Medco Containment Services and its two wholly owned subsidiaries, National Pharmacies Inc. and PAID Prescriptions Inc.

"The fact that there are numerous suits around the country clearly demonstrates that the discriminatory pricing practices are very pervasive throughout the retail pharmacy marketplace," said Phillip Schneider, director of public affairs for the National Association of Chain Drug Stores, which supports the supermarkets' position. Schneider said the alleged price discriminations began as "a marketing tool to capture a large share of the market." The manufacturers began slashing prices on name-brand prescription drugs and, in return, HMOs and hospital and mail-order pharmacies promised not to sell any competing products, a process called formulary pricing, he said. Community pharmacies, however, cannot participate in formulary pricing because they serve many different types of subscribers and doctors in their given store area, he said.

"They've got to carry a tremendous amount of inventory," said Schneider. But, he explained, in an HMO or hospital pharmacy, the organization can limit the number of products prescribed, thus it is easy for them to cut this type of deal and lure customers away from community pharmacies. The cost of these manufacturer price cuts to selected classes of trade, allege the supermarkets, is financed by customers who shop at community pharmacies.

"The retail pharmacy has no choice but to pass on those artificially higher prices they're forced to accept on to the consumer," Schneider said.

"As far as mail order goes," said Terry Cater, director of pharmacy for Save Mart Supermarkets in Modesto, Calif., "it's pretty clear they have formularies not necessarily based on volume. And, in essence, if the mail-order pharmacy didn't have the pricing advantage, it would have no advantage at all." But several of the manufacturers targeted in the suit have dismissed the food retailers' charges.

"We believe our pricing structures are fully within the law. The practice of offering different prices to different classes of customers is actually common. And it's not just in our industry, it's in American business in general," said Nancy Pekarek, manager of media relations for Glaxo Inc., Research Triangle Park, N.C. Pekarek cited a 1989 U.S. Federal Trade Commission report about the pharmaceutical industry's pricing practices requested by the House Judiciary Committee and said "as a part of that ruling they found [the practices] to be consistent with U.S. antitrust laws." Doug Arbesfeld, assistant director of public relations for Ciba-Geigy Corp., Summit, N.J., said he had not seen the suit, but if it resembled the Oct. 14 suit leveled by chain drug stores, "we feel that the suit is without merit and we're going to vigorously defend against it."

The other manufacturers named in the suit were unavailable for comment last week, had no comment or had not seen the suit and did not feel it was appropriate to comment.

Cater applauded the actions of the four supermarket chains and said they were "courageous.

"I think it's very significant. I think there's a strong message going out to these manufacturers and the Pharmaceutical Manufacturers Association in general. Here's one more strong base of customers that have stepped up and said this isn't good for us and you have got to examine this issue and do something about it," Cater said. "In a real sense, they represent our industry." Arnold said that, in addition to sending a message, he feels his clients have an excellent chance to win their case.

"We believe this lawsuit to be a viable, winnable lawsuit; it was brought for that purpose," he said. Arnold said his only problem with the case was that it "cuts so broadly across the pharmaceutical industry and the victims are so widespread" that the mechanics of the case have become very complicated.

But "there's clear evidence from the invoices available to demonstrate beyond doubt that drug manufacturers have engaged and continue to engage in discriminatory pricing practices," argued Schneider. "And I wouldn't be surprised to see additional suits being filed as additional evidence is identified." "It's a fact. You can get those prices through a wholesaler for closed facilities or different classes of trade," Cater concurred.

Cater said, however, not all manufacturers are the bad guys in this case.

"Some of them have already done away with the tier pricing," he said. "However, a lot of these guys [named in the suit] may be scratching their heads trying to figure out a way to stop it, and that's not an easy thing to figure out.

"Their other strategy may be that some of them have come to the conclusion that community pharmacy as we know it is dead in the future and therefore they're not motivated to stop the pricing discrimination," Cater continued.