ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Friday, January 19, 1996 TAG: 9601190040
SECTION: BUSINESS PAGE: A-7 EDITION: METRO
DATELINE: NEW YORK
SOURCE: Associated Press
Independent pharmacies could collect roughly $600 million in a tentative settlement of a price-fixing lawsuit against 13 big drug makers.
The class-action suit, brought by about 40,000 pharmacy owners, challenges the drug manufacturers' practice of offering big discounts to health-maintenance organizations and hospitals while charging retail drug stores twice as much - or more.
If the settlement is reached and approved by the companies involved and by a federal court in Chicago where it is being heard, it would rank among the biggest antitrust settlements ever, according to a report published Thursday by The Wall Street Journal.
As part of the deal, the pharmacies would give up their demand for an end to discounts to HMOs and health care institutions in exchange for a cash payoff. If the $600 million figure holds, that could mean an average payment to each drugstore of about $15,000.
However, the settlement won't resolve the thorny issue of HMO discounts, which has divided druggists and manufacturers for several years.
A number of powerful plaintiffs, including major drug chains and supermarkets, are refusing to participate. Eight large manufacturers - including Johnson & Johnson and Pharmacia & Upjohn Inc. - also have decided not to join the settlement but to fight the antitrust charges in court, according to the Journal.
Even if this class action suit is settled, there are similar claims by 4,000 other pharmacies, including those belonging to the Kroger Co., alleging price-fixing and price discrimination by the brand-name prescription-drug manufacturers.
Pharmacist Tom Kennedy, owner of Sanco Drug in Southeast Roanoke, is a party to the second suit. He said Thursday that he couldn't imagine the pharmacies agreeing to the $15,000 settlement, and he certainly hoped they wouldn't.
"What we want is not money," Kennedy said. "People are walking out of my store every day to go to mail order because the manufacturers are selling to mail order much, much cheaper."
"If they would give me a $100,000 it would matter. I need a place to go to work," he said.
Drug discounting, which began in the late 1980s, has hurt the drugstore business.
Drug companies say the structure is a perfectly legal business practice. They say the discounts to HMOs and hospitals are justified because these groups can control which drugs patients use while retail pharmacies cannot.
Under the discounting system, HMOs first restrict the number of drugs they will cover for their members, placing the favored drugs on a list called a formulary.
Drug companies that want access to HMO patients must agree to sell at discounts in order to get their products on the HMOs' formulary.
Based on that discount, HMOs tell the drugstores in their area which drugs they will cover and how much they will reimburse the druggist for dispensing those drugs. That amount is always less then the druggist would charge a cash-paying customer.
The HMO member pays the drugstore a $5 or $10 co-payment and the HMO reimburses the druggist for the remainder.
However, the druggist gets no discount when buying the drug at wholesale and, to remain competitive, must carry all varieties of drugs.
In recent years, reimbursements by the HMOs have shrunk to the point that many pharmacists say they can't make any profit - unless the drug companies start charging them less at wholesale.
The preliminary agreement does nothing to change this structure.
Staff writer Sandra Brown Kelly contributed to this story.
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