Judge Rejects Deal to End Drug-Price Suit
A federal judge in Chicago on Thursday rejected a $408.9-million settlement of a major price-fixing conspiracy lawsuit brought by 40,000 pharmacies against the nation’s biggest drug manufacturers.
In turning down a tentative settlement reached in February, U.S. District Judge Charles Kocoras said the accord failed to address the central allegation in the pharmacists’ suit: that drug makers have engaged in “two-tier pricing” that gives discounts of up to 50% to HMOs and mail-order firms while denying such discounts to chain drugstores and neighborhood pharmacies.
“The absence of any statement as to how the defendants’ behavior must be reevaluated renders the proposed settlement unacceptable,” Kocoras wrote in his decision.
The agreement would have been one of the largest antitrust settlements ever. Rejection of the agreement means that more than a dozen big drug companies--including Eli Lilly & Co., Merck & Co. and Pfizer Inc.--will have to work out another settlement or face the prospect of going to trial.
“It’s a whole new ballgame in which manufacturers now will have to demonstrate in court they don’t have unfair, anticompetitive pricing practices. . ,” said Phil Schneider, spokesman for the National Assn. of Chain Drug Stores.
The drug companies would be better off trying to settle out of court, industry analyst Hemant Shah told Bloomberg Business News.
“The last thing you want is to discuss pricing issues in public,” he said.
At the same time, the drug industry is facing a pricing conspiracy investigation by the Federal Trade Commission, which announced in late March that it would investigate the practices of 22 major drug companies.
Drug makers have denied conspiring to fix prices. They have argued that the discounts are justified because managed- care and mail order firms are able to better predict which drugs they need, helping them to adjust sales.
They also contend that the discounts are necessary to guarantee placement of their products on HMOs’ approved lists of drugs, known as formularies.
Drug companies have argued that the discounts benefit tens of millions of consumers in managed-care plans, who are able to get medicines cheaper than retail.
But pharmacists say they and their customers--including many elderly people and those lacking insurance and those who pay in cash--are in effect subsidizing the discounts given to HMOs.
Though faulting the settlement for not addressing the pricing issue, Kocoras warned: “What many plaintiffs really seek--a one-price policy for themselves and managed care--is not legally attainable in this or any other court.”
The February tentative accord would have provided a small cash payment--roughly $5,000 to $10,000 each--to thousands of mostly mom-and-pop pharmacies. The accord drew strong protests from several retail drug store chains, including Rite-Aid Corp. and Safeway Inc., which refused to participate in the settlement. They criticized the agreement for not solving the problem of unfair pricing.
The judge’s action, combined with the FTC inquiry, “emphasizes the validity of community pharmacies’ contentions that unfair pricing practices are anti-competitive,” Schneider contended.
Joseph L. Alioto, a San Francisco lawyer who brought the first suit on behalf of pharmacies in 1993, declined to comment on the court’s action Thursday.
