Thursday, March 31, 2011

New Comments on PBMs from FTC Staffers

There is an interesting battle brewing down in Mississippi over Senate Bill 2445 (SB-2445), which would shift regulatory authority over Pharmacy Benefit Managers (PBMs) from the Insurance Commissioner to the Board of Pharmacy.

What’s unusual is that Mississippi State Representative Mark Formby asked the Federal Trade Commission (FTC) to opine on the likely competitive effects of SB-2445.

The FTC’s unambiguous conclusion? “We are concerned that SB-2445, if enacted as passed by the Mississippi State Senate, may increase pharmaceutical prices and reduce competition.” Read the complete letter.

There are at least two reasons why you should spend a few minutes reading the letter:
  • Here we have another prominent example of aggressive state-level lobbying to enact legislation that is anti-mail, anti-pharma, anti-PBM, and in my opinion, anti-competitive. See The Crazy Battle to Outlaw Mail Pharmacies for a related example from Pennsylvania.
  • While the letter to Rep. Formby isn’t an official FTC position, it offers useful insights into the current thinking on PBMs from certain key offices and bureaus of the FTC. I even saw some clues on how the FTC will think about CVS Caremark (NYSE:CVS) or further PBM consolidation.
See below for some choice excerpts from the new letter, along with a bonus trivia question.

THE ROYAL SCAM

Check out the “Background on PBMs” on pages 3-4. The letter expresses a clear-eyed view of the PBM/pharmacy relationship, noting:
“[P]harmacists, who negotiate retail prescription drug prices with PBMs and compete against PBM-owned mail-order pharmacies, would now be regulating PBMs.”
Walgreen (NYSE:WAG) cited “the inherent conflict of owning a PBM” as a rationale for selling Walgreen Health Initiatives to Catalyst Rx (NASDAQ:CHSI). The FTC authors might concur, as they write:
“Because pharmacists and PBMs have a competitive, and at times, adversarial relationship, we are concerned that giving the pharmacy board regulatory power over PBMs may create tensions and conflicts of interest for the pharmacy board.”
The letter points to a Drug Topics article with the insanely biased headline: Independent pharmacies must unify to fight PBM industry. So much for journalistic objectivity!

BTW, the PCMA is running ads on SB-2445 with the tagline “Don’t let the fox guard the henhouse” (complete with a cartoon for the kiddies).

RIKKI DON’T SHARE THAT NUMBER

Last year, I asked: Why do pharmacy owners care about PBM Transparency?

The FTC letter provides one answer: allowing the Pharmacy Board to demand and disclose confidential business information from PBMs could have anti-competitive effects.
“For example, pharmacies may compete with one another by offering deeper discounts or lower dispensing fees in order to be included in a PBM’s limited network or to become a preferred provider. Knowing that rivals will see, and can respond to, one’s prices can dilute incentives to bid aggressively. Thus, depending on the information the Board requires, the disclosure provisions may undercut the most efficient pharmacy network contracts, leading to higher prescription drug prices.”
The letter raises similar concerns about disclosure of manufacturer rebate arrangements with PBMs because “tacit collusion among the manufacturers may be more feasible.”

Translation: “Transparency” will increase pharmacy and manufacturer profits, but hurt consumers and payers.

TWO AGAINST NATURE

According to Congressional testimony from last May, the FTC is investigating whether certain CVS Caremark business practices may violate the FTC Act. This investigation is being structured as a joint effort of the Bureau of Consumer Protection and the Bureau of Competition so that “the investigation can address both antitrust and consumer protection issues.”

As far as I know, there’s been no public update on this investigation. But the sentiments expressed in the SB-2445 letter suggest that the FTC staff understands the good, the bad, and the ugly about PBMs. They also seem clear about potential conflicts between a PBM and a pharmacy.

But that’s not the same as concluding that the actions of a combined PBM/pharmacy entity are necessarily anticompetitive. As I wrote last May, I think business issues, not FTC actions, will lead CVS Caremark to split up.

BONUS TRIVIA QUESTION

Where did the band Steely Dan get their name? Click here for the NSFW answer.

Now, check out the latest Health Wonk Review, drink your big black cow, and get out of here.


6 comments:

  1. I will never think of Steely Dan the same way again. I had no idea!

    ReplyDelete
  2. I want to regulate all of my business partners, too! The key to a successful business is to legislate an obvious advantage over anyone who might be able to make you compete for margin.

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  3. Economists never cease to amaze me with their powers of myopia.

    ReplyDelete
  4. Hmmm, perhaps an explanation for why so many of us wear glasses?

    ReplyDelete
  5. “[P]harmacists, who negotiate retail prescription drug prices with PBMs and compete against PBM-owned mail-order pharmacies, would now be regulating PBMs.”

    What is this gibberish? It is always TAKE IT OR LEAVE IT from PBM's. They offer their contract rate and we either accept it or turn it down on the basis that it pays us less than the product costs us, etc. There is NO negotiating what so ever with PBM's.....

    ReplyDelete
  6. AnonymousJune 29, 2011

    “[P]harmacists, who negotiate retail prescription drug prices with PBMs and compete against PBM-owned mail-order pharmacies, would now be regulating PBMs.”

    What is this gibberish? It is always TAKE IT OR LEAVE IT from PBM's. They offer their contract rate and we either accept it or turn it down on the basis that it pays us less than the product costs us, etc. There is NO negotiating what so ever with PBM's.....

    ReplyDelete

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