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Wal-Mart, other discounters facing predatory-pricing concerns

John Rector
When is $4 not $4? Apparently when it's the cost of a Wal-Mart generic in a state where the retail giant and its competitors may be violating predatory-pricing laws. Those laws ban selling products below cost in order to kill off competitors and may apply to prescription drug sales in 21 states, according to the National Conference of State Legislatures (NCSL) and the National Community Pharmacists Association.

It may be the reason that Wal-Mart raised its price on several generic drugs to $9 for a 30-day supply in some states. "We don't know for certain whether it can make a profit on the $4 drugs so they don't violate these [predatory pricing] laws," said John Rector, NCPA senior VP and general counsel. "But we strongly doubt it, and the fact it is [raising some prices] gives us insight into what its business practices are."

Rector said he believes attorneys general in some states that have bans on predatory pricing are considering action against Wal-Mart and other discounters on the generic pricing issue. "But even if the question isn't looked at there, there's still federal law to consider," he said, referring to the Clayton Act, an antitrust law passed in 1914 as an amendment to the Sherman Antitrust Act of 1890. The act lists four illegal practices in restraint of competition. Section 2 states: "It shall be unlawful ... to discriminate in price between different purchasers of commodities ... where the effect of such discrimination may be to substantially lessen competition or tend to create a monopoly."

The applicable federal law and state laws "were originally written to fight predatory gasoline pricing," said Rector. "The idea was that competitors would be driven away and then prices would go sky high." But whether the Clayton Act and state laws apply to Wal-Mart and its competitors on this issue is problematic, according to Carl E. Person, an attorney in New York City who specializes in antitrust law.

Person points to the fact that in October 1993 several Arkansas pharmacies argued in Chancery Court that Wal-Mart's pharmacy pricing was driving them out of business and, therefore, violated the state's 1937 Unfair Practices Act, which forbids selling or advertising for sale items below cost "for the purpose of injuring competitors and destroying competition."

The pharmacists won in the lower court and were awarded about $300,000. But the Arkansas Supreme Court overturned the decision. The higher court agreed with Wal-Mart that the company's pricing policy was designed to make a profit, not to injure competitors. That was in spite of the fact that Wal-Mart admitted it had priced certain items below cost, as "loss leaders" designed to bring customers through the door. The company said it was a strategy to draw customers, not to drive local pharmacists out of the market, according to Person.

Wal-Mart officials have insisted publicly that they do make a profit, albeit small, on the $4 pricing, but the company offers no hard data about the program, which began in September in Tampa, Fla. The $4 generic co-pay is now in place in more than 3,800 Wal-Mart and Sam's Club pharmacies in 49 states (not North Dakota, where state law prohibits Wal-Mart from operating pharmacies).

Very soon after it first announced its program, Wal-Mart was joined by Target, Kmart, Meijer, and Wegmans.

Wal-Mart announced in November, however, that in nine states it removed 55 drugs from the $4 list and was charging $9 for them. When it published its updated list of its generic discounts that month, asterisks were placed next to the $9 drugs and this notation was added: "Certain generic drugs are priced higher in California, Colorado, Hawaii, Minnesota, Montana, Pennsylvania, Tennessee, Wisconsin, and Wyoming due to state laws." Again, Wal-Mart's announcement was soon followed by Target.

The terms being used to describe these generics—biogenerics, generic biologics, biological follow-on products, biosimilar drugs, generic biopharmaceuticals—are interchangeable, but the question of how to determine whether these generics are safely interchangeable with the branded products is only now starting to be answered.

At the Generic Pharmaceutical Association meeting in Phoenix last month, Drug Topics' Managing Editor of Projects, Anthony Vecchione, spoke with Gary Buehler, R. Ph., Director, Office of Generic Drugs.

The Deficit Reduction Act is the federal government's attempt to slow the pace of spending growth in Medicare and Medicaid. Under the act's provisions, the basis for state Medicaid programs' prescription reimbursement to pharmacists changes from average wholesale price (AWP) to average manufacturer price (AMP).

Brand-name drugmakers must have seen January as the 100 Hours from Hell. Generic drugmakers, on the other hand, probably heard angelic choirs. "It's safe to say that you can expect different outcomes in Congress under the Democrats," said Anna Schwamlein Howard, senior legislative representative for AARP. "You will see a lot of things being taken up and moving during this Congress that were never addressed under the last Congress."

Brand pharmaceuticals that will lose their patents through 2009.