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Finally, what everyone has always suspected proved to be true: One of the three pharmacies that control over 90 percent of the market in Chile admitted that the three had colluded to artificially raise the price of 222 medicines by as much as 200 percent between 2007 and 2008. The pharmacy said in a report that in some cases, they coordinated artificial price hikes of 300 percent.
Farmacias Ahumada (FASA), Salcobrand and Cruz Verde were sued last December for $15 million each by the National Economic Prosecutor’s Office (FNE), and were under investigation by the Tribunal for the Defense of Free Competition (TDLC), which can only apply fines, and has no criminal jurisdiction. The FNE accused the three pharmacies of acting like a cartel.
This week, we learned that FASA had struck a deal with the FNE, and admitted the collusion in exchange for a mere $1 million fine — a far cry from the approximately $45 million the three made in the first place by raising prices. The FNE then dropped the charges against that company.
FASA justifies what they did by saying that the price war between the three pharmacies in previous years had sent prices to the floor, and now they needed to compensate. It says that laboratory executives had suggested the three coordinate price increases.
Which medicines shot up in price? Contraceptives and drugs for diabetes, anemia, depression and tranquilizers, among dozens of others. Juicy earnings in this country, which has one of the most depressed and stressed out populations in the region, and where there is a pharmacy in just about every corner.
How have the pharmacies reacted? FASA fired several executives and is now trying to come up with a way to compensate consumers. The other two, however, still deny any wrongdoing.
Salcobrand placed all the blame on the laboratories, claiming they push their brand-name medicines on them and force them to coordinate their prices. To Salcobrand, the pharmacies are just victims of aggressive laboratory policies. Well, now the TDLC is investigating almost 10 national and foreign laboratories for their role in the collusion.
But what is most interesting is that this “drug scandal” sparked an awakening among the citizens of Chile, from their generally placid resignation to all bad things in life. It’s a topic of discussion at dinner tables and workplaces, and people have spontaneously scribbled on their walls, yelled and insulted the poor pharmacy employees who have no responsibility in the matter, and staged protests in front of their stores. In a few cities, some pharmacy installations have been partially destroyed, one by a stick of dynamite.
This awakening is also taking novel routes. The blog “Tomato Action” put out a call to citizens to gather Monday at 1 p.m. at a certain corner downtown to go throw tomatoes at the pharmacies.
“We citizens and consumers,” said the blog's authors, “faced with a pharmaceutical mafia, cannot remain with our arms folded. There are no solid consumer organizations to represent us, we won’t take the case to court (we know who makes the laws), and we won’t ask for explanations, because there aren’t any explanations … We are going to do something much more fun and symbolic: Throw tomatoes!!”
The protest organizers urged users to register online for the tomato throwing: “Or are you going to stay home and watch TV?”
But since tomatoes are not cheap these days, blog visitors are also offering tips on where to buy “protest price” tomatoes. Others want to make sure that pharmacy employees, who are equally victims of this “drug cartel,” are not hurt.
This week, a consumer group filed the first of what may be an avalanche of lawsuits against the pharmacies.
Meanwhile, the government supervisory body, the Public Health Institute, fined the pharmacies with $60,000 each after their own investigation found that in many pharmacies, employees were being paid less than minimum wage and had to complement their meager salaries with commissions for pushing, suggesting or directing the sale of medicines from certain laboratories or brands, even if they were different than the ones prescribed.
Many want pharmacy executives tried in court to face criminal charges for fraud. Fines are so low that it’s even more economic for them to pay the fines and keep doing whatever they were doing. Today, members of Congress and directors of the the Medical, Midwives and Health Workers associations filed a criminal lawsuit against the pharmacies for fraud and "illegal association", which may carry a five year prison term.
All of this has also scandalized the political establishment. Now that the engines are on for the presidential race this December, politicians of all sorts are also having their share of pharmacy-bashing. One left-wing candidate is suggesting state-owned pharmacies sell medicine at production cost (although in the 1960s, the state-owned Laboratorios Chile was created to diminish the dependence on foreign laboratories and produce generic medicines at a lower cost, but that ship somehow lost its course since then).
The most likely government candidate, Eduardo Frei, called the situation “unacceptable” and has been rejoicing with this opportunity to attack his most serious competitor on the right, Sebastian Pinera, for mixing politics and business.
It turns out that Pinera is actually a shareholder of FASA, but he says he didn’t know about it! It could be true: Pinera, number 701 in the Forbes list of billionaires 2009 and the fourth richest man in Chile, may not remember where he has placed all his money — his investments are spread all across the economy, and this includes ownership of Chile’s main airline. He said he wanted to “escape” from FASA and has just now announced that he sold most of his shares there.
To top all this off, guess who blew the whistle on the pharmacies? The online paper El Mostrador reports it was a young lawyer, the daughter of the manager of corporate affairs at D&S, the retailer recently bought out by Wal-Mart, and member of a legal firm whose main partner was the legal advisor to D&S during negotiations with Wal-Mart.
This young lady tracked the price of contraceptives in the three pharmacies, and took the case before the FNE.
Why so much concern? Wal-Mart, which now controls 73 percent of D&S, plans to sell generic medicine in its stores. A classic case of trying to sink the competition. She claims, however, that she filed the accusation because she felt her consumer rights had been violated. If that is so, good for her.