Buying the Pharmacy
Independent pharmacists, concerned that they will be run out of business after a consolidation of big drug wholesalers, have asked the Federal Trade Commission to block two mega-mergers in the industry.
In letters last month to the agency, the pharmacists allege that the mergers involving the nation’s four largest wholesalers would leave 80% of the nation’s market for prescription drugs in the hands of two giant companies.
Orange-based Bergen Brunswig is planning to merge with Cardinal Health of Ohio, and San Francisco-based McKesson Corp., the largest distributor of pharmaceuticals and medical products, is planning to buy AmeriSource Health Corp. of Pennsylvania.
The independents claim that the mergers would give greater market clout to companies that have been accused in numerous antitrust lawsuits of forcing retailers to pay inflated prices for wholesale drugs while favoring managed care providers with low-ball prices.
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Pharmacy Planning Service, a Sausalito-based organization of 3,800 independent pharmacies, sent petitions urging the FTC to halt the mergers until there’s proof that the combinations will help reduce drug costs to pharmacists and patients.
It also asked the agency to delay any decision until long-running price-fixing litigation against the industry is resolved--a delay that could prevent the mergers from proceeding for months, even years.
“We want the FTC to look over these mergers to be sure that this isn’t another case of the big getting bigger and gouging the public,” said Fred Mayer, the organization’s president.
The group supports multiple legal actions brought against drug makers and wholesalers in state and federal courts in recent years, most of which have been consolidated in federal court in Chicago.
The group’s members include corner druggists, such as Gary Dreyfus, who owns Moulton Plaza Pharmacy in Laguna Hills. Dreyfus said he worries about being shut out of pricing deals on drugs. He recalls discovering several years ago how a manufacturer was charging him nearly 15 times more for birth-control pills than it charged a big pharmacy with managed care connections.
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Traditionally, FTC officials have relied on independent pharmacists for information on industry pricing and welcome their opinions. The agency wouldn’t comment on the group’s recent petitions.
In numerous lawsuits, thousands of retail pharmacies have accused drug wholesalers and manufacturers of conspiring since 1989 to fix prices. They also claim large as well as small retailers have paid high, anti-competitive prices for prescription drugs from manufacturers and wholesalers.
The pharmacies claim they’ve generally been forced to pay three to five times more for drugs than the pharmacies controlled by managed care plans have paid.
They allege that even major chains, such as Walgreen Co. and Rite Aid, purchase billions of dollars a year in prescription drugs--much more than the largest HMO--yet have paid much higher prices than hospitals, nursing homes, clinics and other pharmacies controlled by managed care plans.
Defendants include a Who’s Who among the world’s giant drug makers. Wholesalers, including Bergen Brunswig, Cardinal Health, McKesson and AmeriSource, were originally named as defendants. They were removed, then added again after an appeal.
Appellate Judge Richard Posner wrote that drug wholesalers appeared to comprise an “integral component” of a price-fixing conspiracy by drug makers to favor certain customers at the expense of others.
Defendants have denied all allegations in the complaints, but nine drug companies have agreed to pay $351 million to settle price-fixing claims.
A class-action lawsuit against those who haven’t settled is scheduled for jury trial next year.
Lawyers also are seeking to add the big four wholesalers, including Bergen Brunswig, as defendants in hundreds of related cases that accuse individual drug makers of discriminating against retailers in setting drug prices. A judge is still considering that motion.
Donald Roden, Bergen Brunswig’s chief executive, said he wouldn’t comment on the lawsuits, the FTC’s review of the mergers or the company’s pricing practices.
He said Bergen’s proposed merger with Cardinal should enable the combined company to cut costs, improve efficiency, give more independent drug stores the ability to benefit from group purchasing and lower drug costs for the consumer.
The independent pharmacists say, however, that unless they’re permitted to join together in buying groups that can claim discounts like managed-care providers, they won’t be able to compete.
Mayer said that, in California, home to about 5,600 independent pharmacies, hundreds are going out of business every year.
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Drugstore Dilemma
Independent pharmacies, finding it difficult to compete with the buying power of large retail chains and mail-order pharmacies, especially those with managed-care contracts, have decreased in number by about 25% since 1990:
1996: 27,000
Mega-Mergers
Recent pharmaceutical company mergers:
1995
* Glaxo Holdings acquires Britain’s Wellcome for $14.3 billion to form Glaxo-Wellcome.
* Hoeshst purchases Marion Merrell Dow for $7.1 billion
* Pharmacia acquires Upjohn Co. for $6.3 billion
1996
* Sandoz and Ciba-Geigy, two Swiss pharmaceutical giants, combine to form Novartis.
1997
* Bergen Brunswig Corp. agrees to merge with rival Cardinal Health Inc.. The deal, valued at $2.8 billion, is still pending.
* McKesson Corp. proposes an acquisition of AmeriSource Health Corp. for $1.7 billion in stock, plus debt; deal pending.
Sources: National Community Pharmacy Assn., Times reports; Researched by JANICE L. JONES / Los Angeles Times
