Is More Information Always Better? Mandatory Disclosure Regulations in the Prescription Drug Market
By Joanna Shepherd, Ph.D.
Emory University School of Law
Cornell Law Review Online, Vol. 99, 2013 (March 1, 2013)
Pharmacy benefit managers (PBMs) save Americans billions of dollars each year by lowering the prices of prescription drugs and the costs of prescription drug coverage. However mandatory disclosure regulations recently enacted in several states and under the Affordable Care Act threaten to disrupt the cost savings PBMs currently produce for consumers. These regulations require PBMs to disclose competitively-sensitive financial information to various participants in the prescription drug market. The regulations foster tacit collusion and reduce PBMs’ ability to negotiate discounts with pharmacies and rebates with drug manufacturers. By disrupting competition in the prescription drug market, mandatory disclosure regulations will ultimately increase the prices that consumers pay for prescription drugs.
The Fox Guarding the Henhouse: The Regulation of Pharmacy Benefit Managers by a Market Adversary
By Joanna Shepherd, Ph.D.
Emory University School of Law
Northwestern Journal of Law and Social Policy, 2013 (March 1, 2013)
Pharmacy benefit managers (PBMs) save Americans billions of dollars each year by lowering the prices that consumers pay for prescription drugs and health plans pay for drug coverage. However, new regulatory developments in some states threaten to undercut competition in the PBM industry and disrupt the cost-savings PBMs currently generate. The regulatory scheme that was adopted by Mississippi in 2011, and is currently under legislative consideration in several other states, shifts regulatory control of PBMs from the neutral Insurance Commissions to the states’ Boards of Pharmacy. The fundamental problem with this structure is that the Boards of Pharmacy are made up of pharmacists, the direct market adversaries of PBMs.
How Pharmacy Networks Could Save Medicare, Medicaid, and Commercial Payers $115 Billion
Pharmaceutical Care Management Association Report prepared by Visante (January, 2013).
This study examines the potential cost savings from using pharmacy networks. While pharmacy networks have generated significant savings over the past twenty years, the study concludes there are even greater potential savings available through preferred and limited pharmacy network options. The study finds that greater use of preferred and limited pharmacy networks could save payers an additional $115 billion over the next ten years.
FTC response to the state of Rhode Island’s “Any willing provider” Legislative Proposals
Federal Trade Commission, “Letter to Patrick Lynch and Juan Pichardo on ‘Any Willing Provider Provisions’ in State Law,” (April 8, 2004).
The FTC’s response letter to the state of Rhode Islands’ “Any Willing Provider” legislative proposals stresses that the result of such regulation is basically anti-competitive and anti-consumer. The letter also raises the concern that limiting access to pharmacy providers (including PBMs’ mail order pharmacies) may have unintended ramifications such as “limiting competition, limiting freedom of choice, and increasing the cost of pharmaceutical services”. Indeed, one study found that health care costs increased approximately 2% in states that have enacted such polices when compared to states without them.
Federal Employees’ Health Benefits: Effects of Using Pharmacy Benefit Managers on Health Plans, Enrollees, and Pharmacies
General Accounting Office, (January 2003)
A 2003 U.S. General Accounting Office study evaluated the impact PBMs had on the Federal Employees Health Benefits Program (FEHBP). The study found that prescription drug costs decreased substantially as a result of increased PBM utilization. PBMs are shown to have generated an average price savings of 18% overall when comparing the prices of 14 brand name drug with and without PBM negotiations. The average prescription cost fell between 27% and 53% when it was filled through mail order. PBMs were also able to reduce prices by passing on rebates to the plans they cover, which resulted in annual savings of between 3% and 9% from 1998 to 2001.
Other Reports and White Papers
- “An Overview of Pharmacy Benefit Managers: Focus on the Consumer” →
Edward C. Lawrence, PhD, Jane QingJiang Qu, MBA, MA, and Ellen N. Briskin, PhD, 2012
- “The Economic Benefits of Pharmacy Benefit Managers” →
Jonathan Orszag & Kevin Green, Compass Lexicon, LLC, 2011
- “Testimony on The Proposed Merger Between Express Scripts and Medco” →
Stephanie Kanwit, Esq., before the House Judiciary Committee, 2011
- “Pharmacy Benefit Managers: Ownership of Mail-Order Pharmacies” →
Federal Trade Commission, 2005
- “Improving Health Care: A Dose of Competition” →
a joint report from the Federal Trade Commission and the Department of Justice, 2004
News Articles
- “PBMs save us billions of dollars” →
Jonathan Orszag, Senior Managing Director at Compass Lexecon, LLC, The Hill