Some Drug Makers to Drop Dual Pricing

Some of the nation’s biggest drug makers said Monday that they agreed to drop a dual-pricing strategy that thousands of retail pharmacies have complained puts them at a competitive disadvantage compared with managed-care firms.

Three drug makers said the strategy will be scrapped in an effort to revive a proposed $408.9-million settlement of a massive antitrust lawsuit brought by the pharmacies.

“As part of the agreement, we will not refuse to grant discounts with respect to brand-name prescription drugs to retail pharmacies solely on the basis of their status as retailers,” said Jim Kappel, spokesman for Eli Lilly & Co.

Kappel declined to give further details.

But some industry analysts said the agreement’s probable, unintended effect will be to reduce the overall level of discounting by drug makers.

In 1994, a group of independent pharmacies sued 24 drug makers and six wholesalers, alleging they conspired to deny price discounts on drugs sold to retail pharmacies, in violation of antitrust law.

The pharmacies alleged that the drug makers offered the discounts only to favored large customers, such as managed-care companies.

In February, a proposed settlement was reached in which the nearly 40,000 pharmacies would get $408.9 million from the drug makers, but it was thrown out last month by U.S. District Judge Charles Kocoras, who called the amount of the settlement fair but objected that it did nothing to address the pharmacies’ complaint of unfair pricing.

“We expect to present to the court an amendment to the settlement that addresses the court’s concerns” about the dual-pricing strategy, said Lowell Weiner, spokesman for American Home Products Corp.

Warner-Lambert Co. spokesman Steven Mock said the amendment will probably be filed this week.

“We’re committed to working toward a settlement that meets the needs of all parties,” Mock said.

Industry analysts were mixed about the agreement.

“We view the proposed new settlement as very good news for the pharmaceutical industry,” NatWest Securities analyst Jack Lamberton said in a report. He said he doesn’t think drug companies will start offering discounts to retail pharmacies, but rather will stop discounting to many managed-care organizations.

But Hemant Shah of HKS & Co. said he thinks large managed-care groups will still demand discounts, forcing drug companies to offer the same discounts to pharmacies.

“The drug companies have been giving discounts to managed care because they have had no choice,” Shah said. “If it were so easy to not to give discounts, they would have stopped a long time ago.”

Other defendants in the case filed in U.S. District Court for Northern Illinois declined to comment, including Merck & Co. and Schering-Plough Inc.

Lamberton said Merck and Eli Lilly would particularly benefit from the proposed deal because both own pharmacy-benefits management companies, which manage prescription benefits programs for health plans.

Several drug makers recently acknowledged that the Federal Trade Commission is investigating industry pricing practices.