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DRUG CHAINS OWNED BY HOSPITALS REFLECT CHANGING Rx RETAIL MARKET, NACDS' BOLGER TELLS PMA; DIFFERENTIAL PRICING LEADS TO SOME ILLEGAL ACTIVITY -- NARD's WEST

Executive Summary

Drug chains owned by hospitals exemplify the types of non-traditional competitors who are changing the make-up of the retail drug industry, Natl. Assn. of Chain Drug Stores President Robert Bolger said during PMA's April 14-16 annual meeting in Boca Raton, Florida. Commenting on the topic of new competition and opportunity in the retail sector of the drug industry, a subject presented by PMA to a panel of four pharmacy leaders, Bolger said that "NACDS has recognized new competitors entering what we tend to call the traditional retail pharmacy market." For example, Bolger said that one current NACDS member is "Carle Rx Express, a retail chain operated by a hospital." The four assns. participating in PMA's pharmacy panel program at Boca Raton were represented by their chief execs: NARD Exec VP Charles West, APhA President Jack Schlegel, NACDS President Robert Bolger and American Society of Hospital Pharmacists (ASHP) Exec VP Joseph Oddis. The changing face of the drug retail industry is further reflected by other recent NACDS members. Bolger said that "we have . . . a deep discount store, Kroger Food Stores, and the Retired Persons Pharmacies at NACDS members." NACDS will accept as members "any of these institutions operating four or more retail pharmacies," Bolger noted. While Bolger said that "we as an industry are not afraid of competition from new sources," he noted that NACDS objects to the practices of some of the new drug retailers who use their institutional status to gain an unfair advantage in the market. NACDS is "concerned that hospitals are releasing patients from the institution, but are not 'discharging them,' continuing to treat the patients at home. Hospitals believe that this allows them to dispense drug products purchased at the institutional prices to patients who would otherwise be patients of retail pharmacies. The hospitals, by not discharging the patient, intend to use the 'for their own use' provisions of the non-profit exemption section of the Robinson-Patman Act." Two other potential retailing competitors could gain an unfair advantage in the marketplace, Bolger said: are HMOs (health maintenance organizations) and PPOs (preferred provider organizations). The HMOs could become significant forces in retail drugs if a recent Ninth Circuit Court opinion in the Kaiser Permanente case, which allows the Robinson-Patman exemption to be used by the HMO, becomes the law across the country, Bolger said. If the Kaiser ruling is overturned, however, Bolger said that "in most cases retail pharmacies, both chain and independent, can deliver pharmacy services more efficiently than in-house pharmacies of the HMOs, given the same starting line. If I am right, HMOs will, in the long term, turn to retail outlets for pharmacy services." It is "not certain how PPOs will affect the marketplace in the short and the long run," Bolger said, adding that "some chains are actively involved in PPOs in some areas of the country." While he said that "I do not believe that any of the PPOs are able to purchase drugs under the non-profit exemption, I suspect that if the preferential pricing by the pharmaceutical mfrs. continues, some will figure out how to use that provision to their advantage." Natl. Assn. of Retail Pharmacist Exec VP Charles West maintained that differential pricing to non-profit institutions has given rise to illegal conduct, "including the counterfeiting of Rx drugs." Some non-profits are also illegally diverting drugs purchased at low prices to "brokers," West said. Through brokers "touting-programs," he said, non-profit hospitals are asked to increase their pharmaceutical purchase orders under the special hospital prices and then ship the extra purchases to the broker. West continued: "The broker agrees to pay the hospital a percentage of the purchase price plus other methods of compensation. The hospital is warned not to increase its purchases too dramatically so as not to alert you, the mfr., to the diversion." While legislative action is NARD's top priority to address the issue of differential pricing, independent pharmacists are adopting other "survival responses" to the changing retail drug marketplace. Maintaining that "retail pharmacists, especially independents, are pharmaceutical mfrs.' best customers," West said they nevertheless "take it on the chin from the paying public for drug price increases. It's no wonder pharmacies as a direct result of cost shifts, must increasingly look to alternative buying opportunities such as coops, generics, and others." ASHP's Oddis asserted that hospital pharmacists "strongly support the development of new health-care delivery systems that are enabling increasing numbers of patients on chemotherapy, long-term antibiotic therapy, or parenteral nutrition to enter home-care programs. Such efforts are in the patient's best interest, they create new professional opportunities for pharmacists, they create new business for the industry and -- they're cost-effective."
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