FTC: Pet-medications market could be more competitive

Consumers would benefit from broader prescription portability, report says

Published: May 27, 2015
By Edie Lau

The market for pet medications has become much more competitive during the past decade but consumers could benefit more from three things: broader access to portable prescriptions, a greater choice of generic drugs and wider access by non-veterinary retailers to supplies, according to a Federal Trade Commission staff report issued today.

The 121-page document stands as a polite rebuke to an established policy by many of the largest veterinary drug manufacturers to sell medications exclusively through veterinarians.

The report also largely rejects arguments by private practitioners and their membership organizations that pet owners have ample flexibility to buy their pets’ medications from somewhere other than a veterinary clinic.

American Veterinary Medical Association ethics principles support providing portable prescriptions where appropriate, and 31 states have statutes, rules or policy statements on the matter, the report acknowledges. “Yet complaints persist that some veterinarians do not always comply with requests for prescriptions, and the extent to which these requirements are enforced by state veterinary boards is unclear," it says.

“Furthermore, anecdotal evidence indicates that some consumers either are not aware that they can receive a portable prescription upon request from their veterinarian, or may be uncomfortable asking for one.”

The report does not explicitly advocate federal legislation to require prescription portability. But a bill first introduced several years ago, the Fairness to Pet Owners Act, helped prompt the FTC to examine competition in the pet-medications market.

Modeled after a 2003 law that opened the marketplace for contact lens sales, the pet-owners bill would require veterinarians prescribing medications automatically to provide written or electronic prescriptions to clients.

The Fairness to Pet Owners Act originally was introduced in 2011 by Rep. Jim Matheson, D-Utah. Matheson has since retired from Congress and is working at the law firm Squire Patton Boggs. Sen. Richard Blumenthal, D-Conn., reintroduced the legislation in the Senate on May 6. The bill was referred to the Committee on Commerce, Science and Transportation.

The AVMA opposes the measure, maintaining that it would be an unnecessary administrative burden to veterinary practices.

“We all want what is best for our animal patients and our clients. That is why the AVMA is supportive of giving clients the flexibility to fill prescriptions at a pharmacy of their choice,” Dr. Ashley Morgan, assistant director of the Governmental Relations Division, wrote in a May 7 blog post. “Nevertheless, we disagree with a sweeping federal mandate when we do not believe there is a problem that needs resolving.”

The FTC report on competition in the pet-medication industry marks the culmination of research by commission staff that included a workshop on Oct. 2, 2012, in Washington, D.C. Stephanie Wilkinson, a lawyer in the FTC Office of Policy Planning and principal author of the report, attributed the long interval between the workshop and the release of the report to time constraints.

“We’re a small office, with limited resources and a lot of competing priorities,” she explained.

The report, citing an estimate from the market-research company Packaged Facts, states that retail sales of prescriptions and non-prescription medications for dogs and cats in 2013 was $7.6 billion, a figure expected to grow to $10.2 billion by 2018.

The advent of online veterinary pharmacies in the 1990s, along with more recent trends by big-box pharmacies to carry veterinary drugs, has served to increase options for consumers, and compelled veterinarians to lower prices, particularly on parasiticides, the report observes.

Citing survey data from the American Animal Hospital Association, the report states that in 2012, the average veterinary markup was 78.5 percent for flea/tick products and 82.9 percent for heartworm preventives, compared with 121.6 percent for other drugs.

But the marketplace, while more competitive than in the past, is inefficient because pharmacies without a connection to a veterinarian don’t have direct, open access to drugs made by companies that have veterinarian-exclusive policies, the report says.

Instead, those retailers buy from brokers on the gray market, who obtain supplies at least partly from veterinarians willing to sell excess stock or who are willing to order stock on their behalf. Known in the profession as diversion, the practice is frowned upon in the veterinary community.

The FTC report delves into the complicated world of diversion, laying out the manufacturers’ rationale for selling only to veterinarians — so they can educate pet owners on the proper use of the drugs — and documenting widespread suspicion among veterinarians that manufacturers and distributors secretly supply non-veterinary retailers so they can play both sides of the game.

“To the extent that this is true, it may indicate that the benefits of exclusive distribution have been overstated … “ the report says.

FTC staff observe that although the availability of pet drugs in the secondary market seem to have pushed down prices overall, “some of these (non-veterinary) retailers have claimed that they could offer prices that are even lower if they could procure products through a more direct and efficient system …”

The report notes that the majority of consumers continue today to buy pet prescriptions directly from their veterinarians. Citing another estimate from Packaged Facts, it says that in 2014, veterinarians accounted for 58 percent of sales of pet medications, brick-and-mortar retailers for 28 percent and Internet/mail order retailers for 13 percent.

One argument against encouraging greater sales of pet medications through retail pharmacies is a lack of training by most pharmacists in veterinary pharmacology. The FTC report acknowledges the concern but states that allegations of dispensing errors and instances of pharmacists providing inaccurate information to pet owners are not well-documented. “It does not appear … that this information has resulted in any substantiated claims or formal actions taken by state pharmacy boards,” the report states.

(While there are many more anecdotes about retail pharmacy errors than formal complaints, the VIN News Service reported in 2013 on a case in Washington in which the state pharmacy board admonished a pharmacist at a Fred Meyer store for giving alarming and incorrect information and guidance to a dog owner. The dog was prescribed medication to keep it calm following surgery, and the bad advice may have contributed to the dog needing subsequent operations, according to its owner.)

Turning to another aspect of the pet-medications market, FTC staff observed that generic drugs, which usually cost much less than brand-name drugs, are far less available in veterinary medicine than in human medicine.

The report airs a claim by some generics manufacturers that makers of “pioneer,” or brand-name, drugs impede competition by cutting exclusive deals with distributors that prohibit the distributors from carrying generic substitutes for the branded products.

“The evidence at the FTC workshop on the existence and effect of such agreements, however, was contradictory,” the report states. “It was suggested by some that exclusive dealing agreements are not common within the pet medications industry. Yet others claimed that they are prevalent at least for the top brands. One explanation for this inconsistency may be that there are two types of exclusive dealing agreements that have been used in the pet medications industry — those preventing distributors from carrying competing pioneer products and those preventing distributors from carrying generic versions of pioneer products.”

Another factor possibly affecting the availability of generic drugs, the report says, is the absence of pressure for automatic substitutions of generic drugs. “In the human medications industry, all 50 states permit pharmacists to automatically substitute generic versions of branded drugs, if they are available, resulting in significant cost savings to consumers,” the report states.

Now that the report is released, Wilkinson, the report’s principal author, said in an interview that FTC Office of Policy Planning staff have no follow-up actions planned. However, she noted that the FTC has several other divisions that monitor activity in the pet-medications industry on an ongoing basis.

This story has been changed from the original to clarify the potential for future FTC action in the pet-medications realm.

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