Pharmacy Pricing Suit Evidence of Conspiracy "Meager," Judge Finds

The pharmacy pricing suit plaintiffs' contention that wholesalers were the genesis of a conspiracy to deny discounts to retail pharmacy is undermined by the response of wholesalers in hospital and managed care buying groups, Chicago federal court Judge Charles Kocoras ruled.

The assertion that wholesalers conspired against pharmacies "based on their fear of retail buying groups" is undermined by the wholesalers' success in "accommodating the joint needs and desires of the manufacturers and the hospital and managed care entities" when those trade sectors formed buying groups, Kocoras said in dismissing the class action suit Nov. 30.

The plaintiffs' theory in the pharmacy class action trial, according to Kocoras, was that at "the first sign of possible competition from retail buying groups, the wholesalers quickly determined to start an illegal enterprise, enlisted the uniform and complete agreement of all the brand-name prescription drug makers...and, in this way, warded off any possible competition from these yet-to-be-established groups."

The plaintiffs argued that the wholesaler "chargeback" system was developed in the mid-1980s as a means of controlling who received discounts on drugs ("The Pink Sheet" Sept. 28, p. 3).

However, "the undisputed evidence shows that when hospital and managed care buying groups were formed" in the "years before the advent of retail pharmacy buying groups," the wholesalers "developed systems and efficiencies in the large-scale distribution of merchandise in addition to their warehouse capacity," the judge observed. "It was these same characteristics which have permitted them to continue to service the retail pharmacies in this country."

Kocoras called evidence of a conspiracy "meager" and "the evidence as to individual defendants paltry or non-existent." After a series of settlements totaling $723 mil., the remaining defendants in the trial were the manufacturers Ciba and Sandoz (now merged into Novartis), Johnson & Johnson, Searle and Forest, as well as the wholesalers AmeriSource, Bergen Brunswig, Bindley Western, Cardinal, and McKesson (which purchased FoxMeyer out of bankruptcy).

Another class action suit alleging price-fixing to pharmacies by the major manufacturers was settled Dec. 3 for $64.3 mil. by 10 states and the District of Columbia. That suit was filed on behalf of consumers; the proceeds will be made available through community health centers under the auspices of the National Association of Community Health Centers.

In dismissing the Chicago case, Kocoras focused on the plaintiffs' strategy of painting the wholesalers as the center of the alleged conspiracy.

Kocoras had dismissed the case against the wholesalers in April 1996, stating that "the manufacturer defendants exercised total control over the principal pricing decisions" ("The Pink Sheet" April 8, 1996, p. 5).

The decision was reversed by the Chicago federal appeals court in August 1997. Chicago appeals court Chief Judge Richard Posner called "plausible" a conspiracy between manufacturers and wholesalers. "Drug wholesalers appear to be an endangered commercial species," Posner said. Their "margins might be even thinner if the wholesalers had refused to play their appointed role as agents of a manufacturers' cartel" ("The Pink Sheet" Aug. 25, 1997, p. 6).

In his Nov. 30 ruling, Kocoras pointed to the difference in the theory presented by the plaintiffs for the trial and the theory presented to the appeals court. Before the appeals court, the plaintiffs asserted "a unitary conspiracy in which the manufacturers enlisted the wholesalers as tools or reluctant accomplices."

"Somewhere between the 27th floor of this building and the 25th floor, the plaintiffs' case changed complexion," Kocoras declared.

Kocoras said that a "fundamental weakness" of the case was the reliance on "speculation or conjecture" about a series of National Wholesale Druggists Association meetings.

"Notwithstanding the fact that the topics and discussions do not directly support illegal conduct, notwithstanding the fact that the discussions were just as or more likely to be lawful in nature, the plaintiffs urge that sinister inferences be drawn as to each meeting and then add it together to suggest a conspiratorial whole," Kocoras said.

The plaintiffs' expert witness, Nobel laureate Robert Lucas, an economist from the University of Chicago, failed to provide evidence of conspiracy, according to Kocoras. "His conclusions about defendant collusion did not even approach the satisfaction of the test of the admissibility of expert opinion," Kocoras declared.

Even "giving the plaintiffs' evidence every appropriate inference and viewing it in the light most favorable to them," Kocoras determined that no "reasonable jury could predicate a finding of guilt to any or all of the defendants on trial."

The plaintiffs plan to appeal the Nov. 30 decision based on "various rulings of Judge Kocoras during the course of the trial that prohibited the admission into evidence of vast numbers of documents that allegedly would have demonstrated ongoing violations of the Sherman Antitrust Act by the defendant companies," the National Community Pharmacists Association said.

The appeal is likely to address exclusion of alleged evidence of wholesaler meetings, FoxMeyer's contention in its suit against McKesson that it was driven out of business because it was going to give retailers discounts, and subjects excluded by Judge Kocoras at an Aug. 24 preliminary hearing.

Kocoras ruled that plaintiffs would not be able to use post-1994 managed care pricing contracts. He also ruled that the plaintiffs would not be able to discuss manufacturer profits or the industry's series of voluntary pledges to keep price increases in line with the overall inflation rate.

The plaintiffs' trial brief had pointed to manufacturer profits during the period under consideration and argued that the price increase pledges resulted in "acceleration" of prices to retail pharmacy to maintain profitability ("The Pink Sheet" Sept. 21, p. 21).

Kocoras stressed adherence to his pretrial rulings in comments after the first day of testimony Sept. 29. His remarks also stressed that the case was "about precise legal issues and precise legal statutes."

"This trial is not about fairness," Kocoras said. "General notions of fairness and propriety are matters for social discussion, political discussion and other forums," he told the attorneys.

The judge returned to the theme of fairness and its inability to support claims of antitrust violations in his Nov. 30 explanation of the verdict. "Those who do not have an equivalent power to exclude will suffer at the hands of those who do," he said. "The power to exclude is a potent weapon, and decision making inspired by economic might is an age-old reality."

"When the class of trade known as retail pharmacy was denied discounts, the denials were based on the belief that they lacked the power to exclude the company's products, while others who received discounts were believed to have the power to exclude brand-name prescription drugs through formularies and other prescribing decision influences," the judge said.

"The plaintiffs' claim that they possessed the same market power as hospitals, HMOs and other managed care entities - the favored buyers - is not only not supported by the evidence the plaintiffs have presented, it is entirely belied by it," according to the judge.

Kocoras cited the testimony of Michael Berryman, a founder of the pharmacy buying group Pharmacists' Shared Services. PSS "never told any brand-name prescription drug manufacturer that it would create some type of formulary to potentially advantage or disadvantage any manufacturer's product," PSS "never refused to stock a manufacturer's product if the manufacturer did not discount" and "PSS was not interested in substitution," Kocoras said.

New Jersey Pharmacists Association CEO Thomas Ireland's testimony similarly showed that retail buying groups he had worked with did not encourage market share movement through therapeutic switching and did not exclude undiscounted products, Kocoras said.

PACE Alliance head Benji Wyatt told the court that "when PACE ran a market share shifting test with its members, only 257 out of 1,500 to 2,000 pharmacists bothered to participate," Kocoras summarized. The judge also noted that PACE market share contracts with Ortho Biotech, Warner Chilcott and DuPont Pharma were not successful.

Seattle pharmacy owner Holly Whitcomb's "own business practices are testament to the validity of the defendants' position in this case," Kocoras continued. Whitcomb agreed to discounts in order to be part of managed care networks, Kocoras noted.

The reason for the discounts "is the same reason central to the defendants' position in this case: the fear of being excluded from the market these managed care members represent," he said. "It would be an odd legal result to condemn a price discounting practice as illegal to one party while affording a legal sanctuary for the same practice when engaged in by a different party."