Regulators scrutinize arcane realm of pet drug distribution

Federal Trade Commission workshop examines market competition

October 3, 2012 (published)
By Jennifer Fiala

Photo by Jennifer Fiala
Players from the veterinary community and animal health industry gathered in Washington, D.C., Tuesday for a workshop on consumer choice and competition in the pet medications market.

The markup on pet medications sold in Dr. Link Welborn’s Tampa-area veterinary practices is half of what it was three years ago due to price cuts compelled by competition for drug sales.

Still, Welborn writes prescriptions daily in hopes that owners who save money on medications might spend more on needed medical care. He’d rather run blood work to help identify the cause of a patient’s illness than merely sell an antibiotic to treat some mystery infection.

“Virtually every veterinary visit includes two conversations: one about care and one about costs,” Welborn said Tuesday at Federal Trade Commission (FTC) offices in Washington, D.C. “Veterinarians help pet-owning consumers spend their money wisely every day.”

Welborn’s insight culminated eight hours of panel talks to explore whether government action is needed to ensure that consumers can price shop for pet medications. Traditionally, veterinarians both prescribe and sell drugs — a system that some consider a conflict of interest. With online pharmacies and retailers seeking a slice of the pet medications market, competitors want to require veterinarians to provide prescriptions automatically to pet owners, whether requested or not.

In response, FTC officials are eyeing the pet product distribution landscape, anticipating that the passage of a bill in Congress will require the agency to promulgate rules related to veterinary prescriptions.

The Fairness to Pet Owners Act of 2011, or HR 1406, is buried in a House subcommittee where it’s unlikely to emerge for a vote this year. Nevertheless, the FTC is paying attention. Charged with protecting consumers, agency officials called for Tuesday’s workshop to determine how pet owners are impacted by a convoluted distribution system characterized by exclusionary sales policies and clandestine transactions.

Drug company officials, antitrust lawyers, online pharmacy representatives, leaders with the American Veterinary Medical Association (AVMA) and a former Wal-Mart insider are among those who gathered to debate the issues. While some accused veterinarians of engaging in anticompetitive behavior by discouraging clients from shopping outside their practices, many pointed the finger at manufacturers that have policies to limit product sales to practicing veterinarians.

Traditionally, veterinary practice owners rely on sales of medications to augment practice revenues and offset medical care expenses. At the same time, many manufacturers openly promise to sell only through veterinary practices, saying that practitioners are best equipped to direct owners on how to safely and effectively administer pet medications.

But with a growing number of online and bricks-and-mortar pharmacies wishing to take part in the pet medications market, critics question whether the exclusive sales policies illegally restrain trade. In front of 100 or more audience members, FTC Chairman Jon Leibowitz kicked off the Workshop on Pet Medications Issues by waiving a box of Frontline purchased from a local Costco.  

“I have personally been looking forward to this workshop because, like the majority of Americans, I own a pet,” he said. “We don’t exactly know how Costco acquires Frontline. This Frontline was priced 20 percent or more below the prices of some (area) veterinarians.”

The supply line of many drugs, especially over-the-counter pet parasiticides, is somewhat of a mystery because manufacturers such as Pfizer, Merial and Novartis claim to only sell their animal health products to veterinary practices. It’s widely believed that the open market is fed by diversion — a system whereby veterinarians buy pet medications in bulk from manufacturers and resell them at a profit to wholesalers that, in turn, supply retailers.

That’s the reason Frontline — an over-the-counter antiparasitic that manufacturers say should be sold only by veterinarians — can be found on the shelves of supermarket chains from New Jersey to California.

Many suspect that drug manufacturers look the other way as their products are diverted, reaping the benefits of greater market share after veterinarians have spent years marketing their brands. The notion is a sore spot for veterinarians who believe drug companies are dishonest, trying to maintain a good relationship with the profession while allowing their products to flood retail and e-commerce channels.

As for the motives of big-box pharmacies and grocery chains flocking to the pet medications market, one panelist suggested it was all about money.

“There’s a great fear that (retailers) are coming to this market truly for financial reasons" and not out of concern for pets, said Dr. Paul Pion, co-founder of the Veterinary Information Network (VIN). The VIN News Service is a VIN subsidiary.  

Pion asserted that it’s rational for manufacturers to want their medications placed in the hands of veterinarians given that they’re better trained than most pharmacists on how to dispense and use them. On the retail side, pharmacists reportedly have made unauthorized changes to prescriptions written for animal patients. Anecdotal reports from veterinarians involve cases where pharmacists, often untrained in the physiology and pharmacological nuances of various animal species, make drug substitutions or dosing errors.

Appropriately educating pharmacists to work in animal health can lessen dosing and dispensing problems, Pion acknowledged. At the same time, he thinks it’s unfair to blame veterinarians for the policies implemented by drug manufacturers.     

“I think most veterinarians are good, honest, open people, and they’d just like the shenanigans to stop,” he said.    

John Powers, chief executive officer of Drs. Foster & Smith, agreed. He took aim at restricted distribution, calling it “both illogical and untenable.” The online pharmacy executive said Drs. Foster & Smith is uniquely suited to fill pet prescriptions given that both veterinarians and pharmacists work for the company. 

“Does it make any sense that our pharmacy can dispense a heart medication for you, but not a heart medication for your pet?” he asked audience members. When veterinary-only sales policies hamper widespread access to pet medications, the ability of owners to shop for drugs is limited, he added.  

“True prescription portability cannot exist within the context of restricted distribution,” Powers said. Without providing names, he revealed that some drug companies will supply the online pharmacy and suddenly “turn off the spigot.”  

“Some of the same manufacturers who have restricted distribution practices today … were selling to us a year ago. We have lots of prescriptions on file with customers needing refills,” he said.

Piggybacking on the theme of unreliable supplies, another panelist asked rhetorically, "Does the customer really have the right to choose?” 

Nate Smith, a former Wal-Mart retail strategist, posed the question to panel participants, relaying hurdles that the mega-chain encountered to secure a place in the pet medications market. He alluded to the notion that Wal-Mart buys veterinary-only pet products, particularly parasiticides, through diverted channels.

“We would prefer to source a product direct from the manufacturer,” said Smith, now vice president of business development with Nu Skin Enterprises. Diversion, he said, works to “inflate prices and discourage competition” given that costs rise each time a product changes hands. In this case, manufacturers sell to veterinarians who divert to wholesalers that supply the retail sector.

While pushing to streamline that process, Smith also voiced support for the HR 1406 stipulation that veterinarians must automatically provide clients with prescriptions, even if they don’t ask for them.

“The authority that comes from wearing a white coat puts the veterinarian in a unique position of power,” he said. “Consumers are put in an uncomfortable position of having to ask permission to shop elsewhere from their healthcare provider.”

It’s the same situation contact lens wearers once encountered with optometrists, said R. Joe Zeidner, chief legal officer and general counsel for 800 Contacts, a mail order and online contact lens store. Much like the policies of most veterinary pharmaceutical companies to restrict product sales to veterinary practices, contact lens makers once sold their goods exclusively to eye care providers.

“Twenty years ago, consumers had no right under federal law for a copy of their own contact lens prescription,” said Zeidner, a member of the FTC panel. “Contact lens manufactures and optometrists colluded to lock in consumers.”  

From 2001 to 2003, antitrust litigation and the passage of the Fairness to Contact Lens Consumers Act worked to eradicate the restrictive sales policies of contact lens makers. Eye doctors also became obligated to provide patients with prescriptions. 

Zeidner said: “Buyer request does not work. When a consumer has to ask for a prescription … it puts the consumer in the middle of a conflict of interest.”

Dr. Wendy Hauser of Centennial, Colo., another FTC panelist, doesn’t subscribe to the notion that pet owners are afraid to ask for prescriptions. In fact, she regularly offers them.

“If I’m aware of a significant cost saving, I will absolutely let my client know,” she said, referring to the fact that some antibiotics can be found in retail pharmacies for far less than she can sell them.
Smith, the former Wal-Mart insider, retorted: “There is a pile of veterinarians who don’t behave that way.”

Mark Cushing, a founding partner of the Animal Policy Group and an attorney concentrating in animal policy-related issues, said if there were any truth to the notion that owners couldn’t get their hands on pet medications outside of veterinary practices, “you would see consumers storming Congress.”  

HR 1406, he added, is “a classic solution in search of a problem.”

“It’s fair in our system to go to Congress or go to an agency (to ask for their involvement), but the fact that you have the conversation does not mean you have a problem that needs federal intervention,” Cushing said.  

“We have a vigorous, highly competitive pet medications marketplace. The notion that consumers are trapped … it’s just not true,” he added.

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