In 1980 a new Universal Claims Form enabled all pharmacies with computers to fill all prescriptions
for all insurers. IBM released their PC in 1982 and every pharmacy quickly bought one.
Subsequently, all Medicaid Plans offered the voluntary prescription drug benefit.
Chain pharmacies always had the advantage of buying the largest sizes of the Top 200 drugs, at
“pill prices” (10% lower than the “normal 100 sizes”.) They used the NDC of the smaller sized
bottles. Independent pharmacies complained this was unfair, but the FTC simply told them they could
buy the large sizes too.
Additionally, Medicaid recipients needed to use the independent pharmacies as many could not travel
to chain locations in the suburbs.
Medicaid chains were not in favor of chains making more profit doing this. so, they wrote a
requirement stating that Medicaid prescriptions be processed using the NDC code on the bottle the
prescription was dispensed from.
Chains did the most business and wanted to keep the “volume discounts.” Manufacturers wanted to
reward them because they were their biggest customers. To “evade” the new Medicaid rules requiring
dispensing be based on the NDC’s on bottles, they mutually decided to open chain repackaging
facilities to “evade” the new Medicaid rules requiring dispensing be based on the NDC’s on bottles.
This technicality made them “manufacturers” who had to register for NDC’s they never used. At the
same time, brand manufacturers sold them “full batches” of Top 200 drugs: 20,000 or more pills in
non-standard containers, at 30% to 50% discounts and repackaged into bottles of 100. They also
applied the brand manufacturers highest profit NDC’s on labels that increased profits more.
With a 50% discount, even after the repackaging costs were deducted, the chains had effectively
doubled the “price spread profits” of the 500 and 1,000 sized bottles. The profits increased from
of 10% to 20% more on these drugs that were 80% of all sales.
At this time, the population was moving to the suburbs as “big box” stores and grocery stores added
prescription drugs. In addition, insurers started PBM’s with “mail order” prescriptions. They
bought in the same large batches at 50% discounts and kept much of the price differences, which
To make this large profit, the chains had to register a NDC with the FDA and did so using the trade
name and since prices were never maintained by the FDA, “rode on the brand’s highest retail prices”
for all customers including Medicaid. They kept the entire extra profits using brand named drugs
with the highest priced NDC’s. brands highest priced NDC’s. These were registered with the FDA.
When the Medicaid Drug Rebate Program was enacted by Congress in 1990, drug manufactures knew that
the chains and “mail order” selling their Top 200 drugs at 20% higher profits would require the
brands to pay 30% to Medicaid at “Best Price” rebates. They gave chains and PBM’s in addition to
the 50% discounts. So, they assisted the largest drug wholesalers to set up repackaging facilities,
to make these “Transparent Repackaged Drugs” available to independents
(while disputing all the Medicaid rebates on them.) As a result, 10% higher profits were paid t
retail pharmacies through all the wholesalers!
In 1993 two anti-trust cases were filed by two groups of independent pharmacists which were not
productive,. This caused chains to switch from running their own repackaging facilities to buy the
repackaged Top 200 drugs from the three biggest wholesalers. These
actions constituted retail drug fraud.