Pills + Politics

When Erika Reinhardt, a 55-year-old saleswoman, rode into Saarbrücken one morning last month, she didn’t think she was taking part in a revolution; she simply wanted to save a few euros on her medication. When she saw the long line snaking out of the DocMorris pharmacy, however, she knew something new was happening. She had arrived at the first cut-price drug retailer to open in Germany. “It’s about time they changed their old ways,” she says of Germany’s pharmacists as she leaves the store, clutching a tube of Voltaren, an ointment for sore joints and muscles. “I just saved €4. I’ll be back often. More pharmacies like this should open.”

Even as European countries over the past two decades have deregulated everything from telephone calls to car dealerships, lawmakers in most countries dared not attack the regulatory fortress that keeps drug prices high and protects pharmacies against unwelcome competition. On the grounds that public safety requires it, the sale of everything from common-cold tablets to the most powerful prescription medication has been reserved in most countries for a registered pharmacist in his or her own pharmacy. The concept of chain drugstores, familiar to anyone who has been in the U.S., offering cheap over-the-counter medications as well as prescription medicines dispensed by a pharmacist, is largely unknown outside the U.K. — and the lack of robust competition has meant prices stay high.

But recently, the formidable walls around Europe’s $169.5 billion retail pharmacy business have begun to crack. Lawmakers eager to rein in health-care costs are eyeing the industry as an untapped reservoir for savings. The purchase of the pharmacy Reinhardt visited in Saarbrücken by DocMorris, a mail-order medicine business based in the Netherlands and run by former software engineer Ralf Däinghaus, has plunged Germany into a fierce debate over whether to allow retail drug chains. (This controversy is one reason why the coalition government talks on major health-care reforms have hit a snag.)

In Italy, one of the first things Romano Prodi’s new government has done is to allow grocery chains like Coop Italia to sell nonprescription drugs, a move welcomed by consumers. In June, the E.U. launched proceedings against Italy, Spain and Austria contending that their pharmacy protections violate E.U. law. “In Europe, half the countries are liberalized and the other half are still overly regulated,” Däinghaus of DocMorris told Time. “In Germany, there are just too many pharmacies and the system is totally inefficient. There is a huge potential to cut costs through competition. The pharmacy lobby is fighting a losing battle,” he argues.

Even though DocMorris appears to violate German laws barring corporations from owning a pharmacy, Saarland Health Minister Josef Hecken says those laws breach the E.U’s guarantee entitling any European citizen to set up business anywhere in the union. The German pharmacy federation is trying to shut down DocMorris in the courts, but Hecken believes he’s standing on political and moral high ground. “In Germany, we basically have three alternatives: raise taxes, cut services or make the system more efficient by introducing competition.

I chose the latter,” he told Time.

A draft bill under discussion in Berlin would establish a price cap on prescription drugs, allowing pharmacies to set prices lower but not higher. That, says Hecken, could create more competition. Retail chains like DocMorris would gain clout and be able to undercut individual pharmacies. “This is all about money,” says Hecken. “We could save around €2 billion just by allowing prices to be freely negotiated.”

The evidence from other European countries shows that savings are there for the taking. After Italy allowed grocery cooperatives to sell nonprescription drugs such as aspirin and antibiotic ointment in August, Coop Italia started offering them at 20-30% below list price. Davide Romano, 37, a lawyer in Bari, loves the change and says the service is just as good as in a small pharmacy. “I wanted to know about the product and what it would do, and the pharmacist answered my questions completely,” he says.

In the U.K., large retail chains have been gaining on independent pharmacies for years. As of March of this year, 57% of English pharmacies operating outside public hospitals and doctors’ clinics were part of a retail chain, up from 39% in 1997. In July, Boots Group, the Nottingham-based pharmacy giant, completed a $13 billion merger with Alliance UniChem to create Europe’s leading drugstore company, with almost 2,700 retail outlets. Because of new rules, English supermarkets are stepping up the fight with Boots for market share; the Wal-Mart-owned grocery chain ASDA plans to expand its current empire of 97 in-store pharmacies by three each week until the end of the year, says John Evans, the retailer’s chief pharmacist.

Getting big is Däinghaus’ goal, too. He has already opened a 4,000-sq-m distribution center in Saarbrücken. “A company like Boots is the role model for us,” Däinghaus tells Time. “The German pharmacy market is worth around €35 billion. Our strategy is to make the most of this market.”

But not if the German pharmacy lobby gets its way. “We’ll take this as far as we have to,” says Heinz-Günter Wolf, president of the Federation of German Pharmacies. Most likely a final decision in their court battle won’t come from the European Court of Justice for years. The lobby scored a minor victory last month when a court upheld its request for an injunction forcing DocMorris to close its Saarbrücken pharmacy. But closure is unlikely, as both the state of Saarland and DocMorris have filed countersuits. “This is far from over,” says Däinghaus. “We won’t be forced to close.”

Still, both sides agree that allowing big retail chains will put neighborhood pharmacies out of business. Will that hurt consumers? The pharmacy lobby says fewer pharmacies will result in poorer service for patients, which could be especially significant in sparsely populated rural areas. Although in the U.K., while the market share of retail chains has grown, the overall number of pharmacies has remained remarkably stable over the past few years — 12,482 today compared to 12,258 in 2000 — and they stay open for longer. Thus, the industry maintains that patient choice has improved, not suffered. A spokeswoman for abda, the German pharmacy lobby group, says that in countries where aspirin is sold over the counter, stomach illnesses related to aspirin abuse are more frequent. But to some, these sound simply like excuses to preserve high prices. Gerd Glaeske, an adviser to the German government on health policy, says “there are too many pharmacies in Germany.”

Back in Saarbrücken, Fritz Trennheuser, 42, senses that trying to stop change is a losing battle. He sees the lines winding around DocMorris from the window of his depopulated store. If the laws are changed, he and other pharmacists are planning to join together and negotiate with drug companies for lower prices, just like DocMorris. “If politicians allow this to go on, then the same rules have to apply to everyone,” he says glumly. The wave of change hitting him may lead to lower health-care costs for everyone. But like other pharmacists, he is finding it a bitter pill.