The assault on the pharmaceutical industry broadened Thursday as several of the nation's largest drugstore chains, including Los Angeles-based Thrifty Corp., sued seven leading drug makers in federal court for alleged price-fixing and antitrust violations.
The suit, filed in U.S. District Court in Harrisburg, Pa., accuses drug makers American Home Products Corp., Schering-Plough Corp. and others with charging retail pharmacies more for drugs than hospitals, health maintenance organizations and mail-order drug firms that buy in huge volumes.
The suit seeks unspecified damages, but a spokeswoman for the drugstore chains said the amount could run into "billions of dollars."
Representatives of Schering-Plough and Pfizer Inc., also named in the suit, denied the allegations, saying their selling practices do not violate federal law. Representatives of the other drug makers named in the suit--SmithKline Beecham, G.D. Searle & Co., Ciba-Geigy Corp. and Glaxo--either had no comment or could not be reached.
The suit is similar to one filed against drug makers by independent, mom-and-pop pharmacies in August. That suit, filed in federal court in San Francisco, also named as defendants wholesale distributors that buy drugs from the manufacturers and resell them to neighborhood drugstores.
The suit is the latest attack on pharmaceutical firms over drug prices. Under pressure from the Clinton Administration earlier this year, several drug makers agreed to voluntarily limit price increases to the rate of inflation. The Administration's proposed health reform package would put further limits on what drug makers may charge.
On Wall Street, prices of drug company stocks were unaffected by the lawsuit. Industry analysts said that manufacturers in many industries typically grant volume discounts to large buyers, and that the practice is not illegal.
"It's an old issue, and it is not credible," commented Paul Brooke, a drug industry analyst with Morgan Stanley in New York.
The discounts aren't based only on volume. Drug companies often want to get their products on the list of preferred drugs dispensed by hospitals, HMOs and mail-order firms. Retail drugstores, on the other hand, must keep a wide variety of brands on hand to fill individual prescriptions.
In their lawsuit, the retail drugstores claim that they must pay prices that are up to 1,200% higher than what drug makers charge mail-order houses and HMOs. The drugstore chains said that higher prices put them at a disadvantage when competing for business with prescription payment plans, such as MaxiCare and Blue Cross. The plans demand discounts from drugstores in return for sending members to them.
At a press conference in New York, Alex Grass, chairman and chief executive of Rite Aid, one of the plaintiffs in the suit, compared the prices paid by drugstores to what HMOs, hospitals and mail-order firms pay. He said drugstores pay $48.31 for 100 tablets of Inderal, a heart medication by American Home Products unit Wyeth, while competitors pay $4.12 for the same amount.
Grass said drugstores pay $183.71 for 500 tablets of the respiratory drug Ventolin, manufactured by Glaxo, while preferred buyers pay $63.84 for the same amount.
Grass declined to say how much business the chains have lost to competitors. Analysts said prescription sales at Rite Aid Corp., the nation's second-largest drug chain, are up about 5% this year, though most of that is attributable to increases in drug prices.
In Los Angeles, Thrifty Vice President Chris Bement refused to comment on the suit, saying the company didn't want "to litigate in the press." He also declined to say how the company, which has 492 stores in California, was hurt by HMO and mail-order competitors.
Other retail drug chains joining in the suit are Revco, Perry Drug Stores, K&B Inc., Kerr Drug Stores, Snyder's Drug Stores, the Bartell Drug Co. and Taylor Drug Stores. None have operations in California.
Besides suing the manufacturers, the drugstore chains are also suing Medco Containment Services Inc., a mail-order firm, charging that it "induced manufacturers to grant discounts."