Drug prices can't depend on who's buying

November 04, 2009

As appeared in Drug Topics
Bruce T. Roberts, RPh
Executive Vice President and CEO
National Community Pharmacists Association

Imagine plunking down $20,000 for a new car and driving it off the lot, only to find your neighbor bought the same model for $2,000. And two doors down the street, someone else paid a mere $200 for the same vehicle. You'd probably have some choice words for the dealer's sales rep. 

Welcome to the world of discriminatory pricing. In the prescription drug market, price discrepancies of this magnitude are common for independent community pharmacies and their patients. They cost consumers a fortune and largely determine winners and losers in the retail pharmacy community, rather than letting the marketplace decide. This fall, a Federal District Court in New York will consider a critical case: Drug Mart Pharmacy Corp. et al. v. American Home Products Corp. et al. It's an opportunity to address this issue and allow patients and health-plan sponsors to enjoy the benefits of lower drug prices and fair competition. 

Some price volatility for goods and services is, of course, accepted and beneficial. And, certainly, bulk purchasers realize savings in economies of scale. But charging different prices to different purchasers to reduce competition or create a monopoly is wrong and anticompetitive. Congress outlawed it with the Robinson-Patman Act (1936 antitrust legislation), but for decades the practice has continued and become more common. 

Drug manufacturers charge independent pharmacies one price for drugs; large chains and mail-order operations another; universities, hospitals and other entities another. A congressional subcommittee investigation found that pricing has became so variable that for $1, hospitals could purchase items that cost retail pharmacies $10 or even $100 to acquire. Some products acquired for a fraction of what they would cost the retail marketplace were even resold later by unscrupulous employees for a profit. 

When independent community pharmacies pool some of their purchases to form buying groups, the economies of scale inexplicably vanish. The discounts afforded to comparably sized pharmacy or grocery chains remain out of reach. 

The advent of the pharmacy benefit manager (PBM) has made this practice even more insidious. PBMs have further distorted the marketplace by demanding huge kickbacks from drugmakers to promote one drug over another to health-plan sponsors and patients. In light of this practice, it's not surprising that PBM mail-order businesses are charged less for drugs than retail pharmacies. Sadly, those savings don't make their way to the health plan or the patients, but instead go directly to the PBM CEOs. 

The Robinson-Patman ban on discriminatory pricing was designed to be enforced by manufacturers who, presumably, would want to prevent anyone selling their product too far below prevailing market rates. However, those running pharmaceutical companies at the time decided to look the other way. Why? Two reasons. 

First, to build brand prestige and market share with physicians and patients. After all, the brand used in hospitals is usually the brand patients are prescribed when they leave the hospital. Second, to curry favor with PBMs - the lucrative gatekeepers to patients. Have you ever been told the drug prescribed by the doctor is not the "preferred drug"? That's the giant PBMs at work, manipulating co-payments to promote a drug and squeeze more rebate dollars from its maker. 

All this leads to an obvious conclusion: Retail consumers and independent community pharmacies are forced to subsidize discounts offered by manufacturers elsewhere in the pursuit of brand loyalty and market share. Manufacturers are caught in the vicious cycle of giving giant PBMs larger rebates in the hope that their drugs will gain preferred status. Meanwhile, PBMs use the rebates to help fuel their company profits. Discriminatory pricing means these medicines cost the average consumer and pharmacy far more than they should. 

In the mid-1990s, thousands of pharmacies said, "Enough!" and filed a large class action suit citing violations of the Robinson-Patman Act. In 1996, they won a $723 million settlement. 

But an important legal issue remains and will be considered in Federal District Court: Are these discriminatory pricing techniques illegal? 

If the court agrees that they are, then nearly everyone wins. Manufacturers, freed from the burdens of PBM-imposed tiered pricing, could focus more resources on discovering the next breakthroughs and cures. Consumers and health-plan sponsors (employers, governments, unions, etc.) would benefit from lower prices and greater competition in the retail prescription-drug market. And community pharmacists could spend more time counseling patients about their medication needs and choices.

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