The Perils of State-Sanctioned Private Regulation: A Case Study from the Healthcare Marketplace
By Professor Joanna M. Shepherd, Emory University School of Law (May 23, 2014)
Washington Legal Foundation
In this piece, Professor Joanna M. Shepherd looks at the conflicts of interest inherent in state transfers of regulatory power to self-interested market participants, and uses as a case study the Mississippi Board of Pharmacy’s regulation of PBMs.
Challenging Government-Sponsored Private Regulation of Competitors
By Professor Alexander Volokh, Emory University School of Law (May 2014)
Reason Foundation Policy Brief
In this policy brief, Professor Alexander Volokh cautions state legislators and regulators that they need to be aware that recent state and federal court decisions show increasing skepticism of private regulatory delegations where conflicts of interest may exist – such as the Mississippi Board of Pharmacy’s regulation of pharmacy benefit managers. He says courts might invalidate an entire agency, prevent it from regulating in certain ways, and/or hold individual regulators liable for damages.
Letter from Federal Trade Commission (March 7, 2014)
In this letter, the FTC staff warns the Centers for Medicare and Medicaid Services that proposed any willing pharmacy provisions threaten the effectiveness of selective contracting with pharmacies as a tool for lowering Medicare Part D costs.
Report of the Alabama Medicaid Pharmacy Study Commission
Produced by Optumas for Donald E. Williamson, M.D., Chair
Alabama Medicaid Pharmacy Study Commission (December, 2013)
This report by the Alabama Governor’s Medicaid Pharmacy Study Commission concludes that if Alabama were to reform its Medicaid pharmacy program by contracting with a pharmacy benefit manager, the program could save as much as $35 million, or 6% of total pharmacy spending, in just a one-year period.
The Impact of Preferred Pharmacy Networks on Federal Medicare Part D Costs, 2014-2023
By Stephen J. Kaczmarek, Andrea Sheldon, and David M. Liner of Milliman
Prepared for the Pharmaceutical Care Management Association (October 2013)
This actuarial report by Milliman finds Medicare Part D savings of as much as $9.3 billion over the next ten years from using preferred pharmacy networks.
Selective Contracting in Prescription Drugs: The Benefits of Pharmacy Networks
By Joanna Shepherd, Ph.D., Emory University School of Law
Minnesota Journal of Law, Science, & Technology (forthcoming)
In the article, which draws on economic theory, prior empirical studies, and data supplied by pharmacy benefit manager Express Scripts, Professor Shepherd finds that “pharmacy networks significantly lower the cost of prescription drugs for drug plans and consumers” while having “almost no effect on most consumers’ access to pharmacies.”
The New Private-Regulation Skepticism: Nondelegation, Due Process, and Antitrust Challenges
Harvard Journal of Law & Public Policy
By Alexander Volokh, Emory School of Law (October 4, 2013)
Mississippi has moved regulation of pharmacy benefit managers (PBMs) to the state pharmacy board. Giving state pharmacy boards (typically comprised of practicing pharmacists) regulatory power over PBMs creates a significant conflict of interest because PBMs are market adversaries of pharmacists. In this article Professor Volokh reviews the potential legal exposures of state pharmacy boards and their members resulting from anti-competitive regulation of PBMs.
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
- “PBMs save us billions of dollars” →
Jonathan Orszag, Senior Managing Director at Compass Lexecon, LLC, The Hill