Healthcare Intermediaries: Competition and Healthcare Policy at Loggerheads (original) (raw)

Abstract

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Competitive concerns in the U.S. healthcare industry have shifted from traditional providers to intermediaries, particularly Pharmacy Benefit Managers (PBMs) and buying groups. While such intermediaries can enhance efficiency and reduce transaction costs through aggregated demand, recent market consolidations suggest a risk of anticompetitive practices that may undermine consumer benefits and competition. This paper explores regulatory challenges and the influence of antitrust policies on the behavior of healthcare intermediaries, arguing for a reevaluation of current approaches to ensuring fair competition in the healthcare supply chain.

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References (35)

  1. Professor Elhauge argues that the rebate structure in the GPO industry is actually far worse than a mere exclusive dealing contract, due to the large amounts of the rebates at stake and the ease of enforcement. See Einer Elhauge, Exclusion of Competition for Hospital Sales Through Group Pruchasing Organizations 7 (2002), available at www.law.harvard.edu/faculty/elhauge/pdf/gpo\_report\_june\_02.pdf.
  2. See, e.g. Intel, note 35, Administrative Complaint at ΒΆ53; Eaton, supra note 35. But see Allied Orthopedic Alliances Inc. v. Tyco Health Care Group, 592 F.3d 991 (9th Cir. 2010) (rejecting such a theory in the context of a particular GPO's exclusive agreement).
  3. Contracts referencing rivals (CRRs) are currently a primary concern of the DOJ because of their potential "horizontal effects" in the form of softening price competition and leading to higher equilibrium prices. See e.g., Fiona Scott-Morton, Contracts That Reference Rivals, speech at the Georgetown University Law Center (April 5, 2012), available at http://www.justice.gov/atr/public/speeches/281965.pdf
  4. Kevin W. Caves and Hal J. Singer, Bundling in the Pharmaceutical Industry: A Case Study of Pediatric Vaccines 14 (August 11, 2011), available at http://papers.ssrn.com/sol3/papers.cfm?abstract\_id=1908306\. The study was funded by Novartis.
  5. Gary L. Freed, Anne E. Cowan and Sarah J. Clark, Primary Care Physician Perspectives on Reimbursement for Childhood Immunizations, 124 PEDIATRICS S470 (2009).
  6. Vaccines are excluded from the Abbreviated New Drug Application process in the Drug Patent Term Restoration and Price Competition Act (Hatch-Waxman Act). Vaccines are complex biological drugs and generic "equivalence" is difficult to demonstrate by simple tests. Rather, full clinical safety and efficacy testing of a generic copy would be required.
  7. Stephen Berman, Is Our Vaccine System at Risk for a Future Financial "Meltdown? 122 PEDIATRICS 1373 (2008).
  8. See, e.g., American Antitrust Institute, Letter to the Federal Trade Commission, in "Re: Potentially Exclusionary Bundled Discounts for Pediatric Vaccines" (November 22, 2011), available at http://www.antitrustinstitute.org/\~antitrust/sites/default/files/AAI\_vaccines%20bundling%20ltr%20to%20 FTC.pdf. See also Citizens for Responsibility and Ethics in Washington, letter to the Federal Trade Commission (March 19, 2012), available at http://www.citizensforethics.org/page/-/PDFs/Legal/Investigation/3-19- 12%20FTC%20Vaccine%20Bundling.pdf.
  9. See e.g., Cheryl Armstrong, Doctor Alleges Monopoly on Vaccine, Courthouse News Service, December 13, 2011, http://www.courthousenews.com/2011/12/13/42191.htm.
  10. The vaccines are: hepatitis B, rotavirus; diphtheria, tetanus, and pertussis (collectively TDaP or DTaP);
  11. haemophilus influenza type b (Hib); pneumococcal; inactivate poliovirus; measles, mumps, rubella and varicella (collectively MMRV); hepatitis A; human papillomavirus (HPV); and meningococcal.
  12. Caves and Singer, supra note 39 at 5.
  13. Id. at 10 (Table 1).
  14. Id. at 13-15.
  15. FDA, supra note 55 at 3. See also, Office of the Assistant Secretary for Planning and Evaluation, Office of Science and Data Policy, U.S. Department of Health and Human Services (HHS), Economic Analysis of the Causes of Drug Shortages 1 (October 2011), available at http://aspe.hhs.gov/sp/reports/2011/drugshortages/ib.pdf.HHS.
  16. Id. at 16.
  17. HHS, supra note 57, at 13.
  18. HHS also reports 47 percent of shortages due to unknown causes based on data from American Society of Health-System Pharmacists. Id. at 16.
  19. F. M. Scherer, THE ECONOMICS OF MULTI-PLANT OPERATION 49-62 (1975).
  20. A number of studies in the early 2000s concluded that GPOs are largely pro-competitive. See, e.g., Herbert Hovemcamp, Competitive Effects Of Group Purchasing Organizations' (GPO) Purchasing And Product Selection Practices In The Health Care Industry, report prepared for the Health Industry Group Purchasing Organization (April 2002). See also Kolasky, supra note 3.
  21. Litan and Singer, supra note 9 at 42. 68 For drugs in shortage since 2008. HHS, supra note 57 at 12.
  22. FDA, supra note 55 at 31.
  23. Of the total shortages, 50 percent were generic and 43 percent were innovator drugs. FDA, supra note 55 at 14.
  24. FDA, supra note 55. at 30. 77 National Community Pharmacists Association, National Pharmacy Today (undated), http://www.ncpanet.org/index.php/independent-pharmacy-today
  25. Balto, supra note 16 at 10.
  26. New Rules Project, Pharmacy Equity Laws, Newrules.org, March 20, 2008, http://www.ilsr.org/rule/pharmacy-equity-laws/. A number of states, including Arkansas, Illinois, Mississippi, Missouri, and Tennessee, have enacted legislation designed to level the playing field for consumers, regardless of what type of pharmacy they purchase from.
  27. The National Community Pharmacists Association estimates such costs associated to be $290 billion per year. See National Community Pharmacists Association, Mail Order is Not for Everyone (undated), http://www.ncpanet.org/pdf/leg/jan12/mail\_order\_is\_not\_for\_everyone.pdf. See also, Carole W. Cranor, Barry A. Bunting, and Dale B. Christensen, The Asheville Project: Long-Term Clinical and Economic Outcomes of a Community Pharmacy Diabetes Care Program, 43 JOURNAL OF AMERICAN PHARMACEUTICAL ASSOCIATION 183-84 (March/April 2003).
  28. See, e.g., American Antitrust Institute, Letter to Chairman Jon Leibowitz re: Proposed Merger of Express Scripts, Inc. and Medco Health Solutions (November 30, 2011), available at http://www.antitrustinstitute.org/\~antitrust/sites/default/files/FTC%20Letter%20ExpressScriptsMedco.11.3
  29. 11.pdf. See also Dissenting Statement of Commission Julie Brill concerning the Proposed Acquisition of Medco Health Solutions Inc. by Express Scripts, Inc. 2 (April 2, 2012), available at http://www.ftc.gov/speeches/brill/120402medcobrillstatement.pdf.
  30. AAI, id. at 4.
  31. Federal Trade Commission, Statement of the Federal Trade Commission Concerning the Proposed Acquisition of Medco Health Solutions by Express Scripts, Inc. 2 FTC File No. 111-0210 (April 2, 2012), available at http://www.ftc.gov/os/2012/04/120402expressmedcostatement.pdf. Post-merger concentration is almost 3,000 HHI, with change in HHI of almost 1,000 HHI. Brill, supra note 81 at 2.
  32. Federal Trade Commission, FTC Staff Comment Says New York Bill to Regulate Pharmacy Benefit Managers May Increase Pharmaceutical Prices for New York Consumers; (April 3, 2009), available at http://www.ftc.gov/opa/2009/04/nyrohmhaas.shtm. See also Federal Trade Commission, FTC Staff: Mississippi Bill That Would Give State Pharmacy Board Authority Over PBMs Likely to Increase Prescription Drug Costs and Reduce Competition (March 20, 2011), available at http://www.ftc.gov/opa/2011/03/pbm.shtm. 85 Federal Trade Commission, Pharmacy Benefit Managers: Ownership of Mail-Order Pharmacies ii (August 2005), available at http://www.ftc.gov/reports/pharmbenefit05/050906pharmbenefitrpt.pdf. The study notes that the data considered were highly aggregated, and the study does not draw any conclusions regarding individual PBMs and plan sponsors. 86 Independent pharmacy cooperatives currently do not have immunity from the antitrust laws.
  33. Karen E. Klein, End of Days for Independent Pharmacies? Bloomberg Business Week, March 8, 2012, http://www.businessweek.com/articles/2012-03-08/end-of-days-for-independent-pharmacies.
  34. David A. Balto, Federal and State Litigation Involving Pharmacy Benefit Managers 22 (updated January 2011), available at http://www.ncpanet.org/pdf/leg/aug11/fed\_state\_litigation\_pbms.pdf, citing Alameda Drug Co., Inc, et al., v. Medco Health Solutions, Inc., et al., No. CGC-04-428109 (Cal. Super. Ct. Jan. 20, 2004). See also Balto, id. at 47, citing Bellevue Drug Co., et al. v. Advance PCS, No. 2:03-cv-04731; and Brady Enterprises, Inc., et al. v. Medco Health Care Solutions, Inc., et al., No. 2:03-cv-04730 (E.D. Pa. Aug. 15, 2003).
  35. FTC, supra note 83, at 7-8.