Supporters of ownership law battle ethics charges, flip-flopping

by Jacqueline Dotzenrod

A law that has been on the North Dakota books for 46 years is being contested in the 2009 Legislative Session. The law requires that a licensed pharmacist must “hold the majority stock” (own at least 51 percent) of the pharmacy. There is an exception granted for hospital pharmacies, so long as they only serve the hospital’s patients.

Today, North Dakota is the only state to have such a law. The Legislature is currently debating House Bill 1440 which would roll back that law, giving residents access to cheaper prescription drugs. However, the North Dakota Pharmacists Association and the State Board of Pharmacy are fighting to preserve it.

This isn’t the first time the law has been debated, and it has yet to be repealed. However, times have changed in the world of prescription drugs, making this law seem obsolete and harmful to North Dakota consumers. The primary defenders of this law show a long history of protecting the interests of retail pharmacists, rather than the financial interests of consumers.

“Access is important. Quality of service is important. And certainly cost to the consumer is important,” Representative Rick Berg said. “I think cost should be a concern because it is such a big concern of the public. Their (the Board’s) concern is more the bottom-line income for pharmacies than the bottom-line cost to consumers.”

Berg was chairman of the interim Industry, Business and Labor Committee which studied the issues surrounding the pharmacist-ownership law. It was discussed in the Committee that unlike other health-regulating entities, there are no public members on the State Board of Pharmacy, which may have created a culture of unethical and illegal behavior. Past committee hearings revealed some telling information about the ethics of the State Board of Pharmacy and the state Pharmaceutical Association (also known as the North Dakota Pharmacists Association), two of the laws biggest defenders.

The Association is currently under investigation by the Federal Trade Commission (FTC). Former Association President Patty Hill sent a letter to all members ordering them not to enter into negotiations with Blue Cross Blue Shield for lower prices on prescription drugs. Attempts at price-fixing are illegal. In August 2008, the Board received a letter from the FTC notifying it of the investigation.

The Board also has had legal issues of its own. A licensed pharmacist was convicted by the U.S. Attorney in 1999 for bartering with drug samples – a felony offense. The pharmacist, working as a drug sales representative, traded drug samples for merchandise at pharmacies.

While the Board disciplined the drug representative by suspending his license, no disciplinary proceedings were brought against any of the pharmacists that traded for the samples.

“It wasn’t us (the Board) who prosecuted the pharmacist in the first place,” Board President Howard Anderson said. “It was the U.S. Attorney. We took action after he was convicted. None of the people who actually received those samples were prosecuted by the U.S. Attorney’s Office.”

The very purpose of a State Board is to ensure that all pharmacies are conducted in full compliance with the rules and regulations established. Rather than taking a proactive stance on the situation by launching an investigation, the Board only reacted when the legal problems arose.

“The Prescription Drug Marketing Act (of 1989) is what this fellow violated – that’s a federal law,” Anderson said. “The guy was prosecuted by the U.S. Attorney’s Office, under the federal law, not North Dakota law. Upon conviction of his felony, the Board took action. None of the other people who bought the samples were ever prosecuted by the U.S. Attorney. They (the U.S. Attorney’s Office) were interested in getting to the drug companies and the salesman who was selling samples. They were not interested in the pharmacists who received a few samples.”

North Dakota Century Code 43-15-10(1) states that the Board can discipline pharmacists that have engaged in “unprofessional” conduct. The State Board should be interested in upholding an ethical standard, which the purchasing pharmacists violated.

“There were no grounds for action by the Board of Pharmacy,” Anderson said. “I tried to get information about that from the U.S. Attorney’s Office and they would not give it to us.”

But with money in the bank, the Board was well situated to launch an investigation of its own. Today, with cash reserves totaling $1 million – enough to cover four years of its operating expenses – the Board possesses sufficient resources to conduct an investigation of its own, reported the State Auditor’s Office.

Other Opponents

Other opponents of the repeal include the North Dakota Retailers Association (NDRA) and the North Dakota Farmers Union (NDFU).

“Our groups agree with a new report released by the Institute for Local Self-Reliance that repealing the law will cost the state millions of dollars in annual economic activity, reduce the number of pharmacies in rural areas and lessen the overall quality of pharmacy services in the state,” NDRA President Mike Rud said in a press conference on Friday. “Rural access is important to our organizations. At a time when many rural citizens have to drive many miles to purchase basics for their families, the main street pharmacy has remained the heart of many communities.”

Dr. David Flynn, an economist at the University of North, produced a separate study showing the repeal would benefit North Dakota’s economy.

“I think that there are some questions about how much of that information can be correctly applied to the current North Dakota situation,” Flynn said. “I’ve looked at the study they based some of their numbers on and I think there are some good points that can be made and I think there are some questions to be raised.”

Flynn is providing further insight to the committee at the Tuesday’s hearing on HB 1440.

It should be noted that three pharmacists are directors at the North Dakota Retailer Association, David Olig (Southpointe Pharmacy), Bob Treitline (ND Pharmacy INC), and Gary Boehler (Thrifty White Drug).

NDFU’s position against allowing citizens access to cheaper prescription drugs runs contrary to a National Farmers Union’s policy position, which supports the ability of Americans to purchase prescription drugs from other countries. The North Dakota Farmers Union has also adopted a policy to exempt prescription drugs from sales taxes and a set of policies called Access Projectwhich seeks to help citizens with prescription drug benefits.

AARP’s position on the ownership law is unclear, but it is interesting to note that they have previously supported plans that would get cheaper prescription drugs to seniors. In fact, providing access to seniors for cheaper prescription drugs was one of the issues of importance for new North Dakota AARP President David Peterson when he took over that position in January.

It would seem as though they should support repealing the ownership law; yet, they seem to be sitting this battle out. Calls to AARP were not returned.

Competition Benefits Consumers

Why isn’t there room for both independent and chain pharmacies? In 2007, there were 22,029 chain pharmacies in the country, balanced against 16,888 independents.

“I think repeal of the law will bring more pharmacists and more competition,” Rep. Berg said. “In every other part of our economy, more competition improves service and reduces the cost to consumers.”

In his testimony to the interim Industry Business and Labor Committee, North Dakota Pharmacists Association Executive Vice President Michael Schwab asked “With North Dakota currently having more pharmacies per capita than surrounding states, aren’t the consumers already benefitting from greater competition within our current market compared to surrounding states?”

However, if that were true, North Dakotans would see lower prescription drug prices than the rest of the nation. After all, competition creates better services at lower prices. It is a standard economic principle that when companies truly compete, consumers win in the form of lower prices. Thrifty White’s lack of competition is becoming more evident.

Thrifty White, an employee-owned corporation, is sweeping across North Dakota. This Minnesota-based corporation owns 28 of 170 retail pharmacies in the state and is growing. The corporation has opened three new pharmacies in North Dakota over the last six years. As recently as December 2008, Thrifty White purchased a competing pharmacy in Williston, shutting down its competition.

While Thrifty White reaps the business benefits of being a corporation, such as having more stores to even out the highs and lows of local markets, it fails to pass on the savings to customers in the form of lower prices because of the competition restraints in North Dakota. In a list of the most commonly prescribed prescription drugs, Thrifty White often charges its North Dakota customers more than Minnesota customers, where they must compete with other chain pharmacies. For example, a prescription for 40mg of Fluoxetine can be filled at Walmart for four dollars. In Minnesota, Thrifty White will charge its customers $37.52. North Dakota customers are charged $72.09.

Thrifty White is not the only corporate pharmacy in North Dakota. CVS is a public corporation and operates six pharmacies in the state. The company was grandfathered in when the law was first passed. In 1977, Osco Drug and White Drug, now CVS and Thrifty White, respectively, challenged the law.

North Dakotans for Affordable Health Care has been the primary group supporting HB1440. The effort was kick-started with funding from Walmart and Walgreens, but its grassroots support has grown to more than 10,000 members. NDAH spokeswoman Tammy Ibach anticipates between 50 and 100 citizens to appear at Tuesday’s hearing to let their legislators know they want freedom of choice.

But before North Dakotans can decide whether to get their next refill at a chain pharmacy or an independent pharmacy, the Legislature will decide if its citizens even have the right to choose.

Read Study Shows North Dakotans Would Benefit from Lower Prescription Drug Prices.

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