Prescription sought for pricing of pharmaceuticals

January 31, 1994|By Sara Fritz | Sara Fritz,Los Angeles Times

MIDDLETOWN, Conn. -- From his office in the rear of Pelton's Pharmacy, one of the nation's oldest drugstores, owner Gerard H. Weitzman has a clear view of the pharmaceutical industry's current pricing scheme. What he sees is a system that discriminates against his customers, particularly the elderly and the poor.

When Pelton's Pharmacy purchases prescription medicine from drug manufacturers, Mr. Weitzman pays a standard wholesale price. But when he buys the very same drugs in his role as purchasing agent for a nearby hospital, he can negotiate deep discounts.

The price differential can be gigantic. For an inhaler used to treat asthma patients, for example, Pelton's pays $18.84 while the hospital pays $1.55.

"It's simply not fair," Mr. Weitzman said. His customers, he said, must pay higher prices for most of their prescriptions so that the pharmaceutical industry can afford to compete for high-volume business at hospitals, nursing homes, mail order houses and health maintenance organizations.

Mr. Weitzman's lament, shared by most pharmacists around the country, recently has become the central issue in a series of lawsuits filed by drugstore chains against the pharmaceutical industry. Moreover, it is certain to be a major point of contention in the coming congressional debate over President Clinton's proposal for health care reform.

While customers at Pelton's and other pharmacies across the country frequently complain about the high cost of prescription drugs, few realize that they are not all paying the same price. The highest prices are charged to those who have no insurance coverage for drugs, including most low-wage workers and the majority of elderly people on Medicare.

Charles M. West, executive vice president of the National Association of Retail Druggists, contended that the higher pharmacy prices are "causing alarming numbers of seniors and others to go without much-needed prescription medication simply because they cannot afford it."

Patients get no breaks

Nor are patients at hospitals and HMOs getting much -- if any -- advantage from lower wholesale prices. While pharmacies normally mark up drug prices about 30 percent, hospitals and HMOs routinely add at least 70 percent, and some hospitals have been known to charge Medicare or the insurance companies as much as two or three times the retail price paid by customers at a drugstore.

This system hurts community druggists almost as much as consumers. Although 90 percent of Americans get their prescriptions filled at drugstores, the retail druggists' group estimates that pricing problems have forced about 1,000 stores out of business in the last two years.

Net drugstore profits have fallen 32 percent in the last two decades, according to a survey in the Lilly Digest, published by the Eli Lilly pharmaceutical company. Pharmacies now earn an estimated 50 cents on the average $26 prescription price, which West called "barely enough to stay in business."

"We can't continue like this," said Rick Carbray, an executive of Pelton's, which was founded in 1800. "It's so outrageous and so threatening to our industry."

The Pharmaceutical Manufacturers' Association, which represents the nation's leading drug manufacturers, has declined to discuss the issue because of pending lawsuits. The association is known to strongly oppose efforts by the Clinton administration to level the price differential for pharmacies.

The current wholesale price differential began many years ago when pharmaceutical companies decided to sell infant formula to hospitals at a loss, presuming that mothers would keep buying the same brand after they took the baby home. Under federal law, drug companies have long been permitted to offer lower prices to nonprofit institutions such as charitable hospitals.

Over time, the discounts spread to most brand names purchased by hospitals and then to a variety of other institutions, including HMOs. Because these institutions buy large volumes of drugs, they have more leverage than the corner drugstore to negotiate lower prices.

Suits offer documentation

In lawsuits against the manufacturers, attorneys for community pharmacies have documented stunning disparities between the average wholesale price paid by retail drugstores and discounts to institutions: for example, $43.50 compared to $1.65 for Dupont-Merck's Coumadin, an anti-coagulant for heart attack victims.

Joseph L. Alioto, the former San Francisco mayor who is now a lawyer representing the California Pharmacy Defense Fund in one of several antitrust suits pending in the courts, called the manufacturers' pricing practices "a Persian bazaar."

As Mr. Alioto explained it, the same product can be shipped on the same day from the same manufacturer with "16 different prices," the highest of which goes to the community pharmacy.

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