Consequences of Undermining PBM Tools

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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.

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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.

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 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.

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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.

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Permissibility of Pharmaceutical Copayment Coupon Programs Under ACA
Bloomberg BNA’s Health Care Fraud Report by Kevin G. McAnaney (August, 2013).

In this article, Washington lawyer Kevin G. McAnaney, former chief of the Industry Guidance Branch, Office of Counsel to the HHS Inspector General, explains that the use of copay coupons in connection with federally-subsidized health insurance plans under the Accountable Care Act (ACA) would likely violate federal anti-kickback laws.

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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.

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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.

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The Effect of Any Willing Provider and Freedom of Choice Laws on Health Care Expenditures
U of Penn, Inst for Law & Econ Research Paper No. 12-39 by Jonathan Klick and Joshua D. Wright (November, 2012).

Any Willing Provider and Freedom of Choice laws restrict the ability of managed care entities, including pharmacy benefit managers, to selectively contract with providers. This paper examines the effect of state adoption of such laws on total state healthcare spending, finding that any willing provider/freedom of choice laws are associated with cost increases of at least 3 percent, and are therefore harmful from a spending perspective.

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The Anti-Competitive Effects of “Any Willing Provider” Laws
By Jonathan Klick and Joshua D. Wright

Washington Legal Foundation (March, 2012)

This analysis evaluates the antitrust law ramifications of proposals requiring pharmacy benefit managers (“PBMs”) to open up their networks to “any willing provider” meeting the same terms and conditions as other network members. The analysis concludes that AWP laws at the state and federal level likely lead to less competition and higher prices for consumers while providing no compensating benefits. Selective and exclusive network contracting is a fundamental part of the competitive process which leads to minimizing cost and maximizing consumer welfare. Advocates of AWP proposals understandably seek greater consumer choice and competition among health care providers; however, AWP laws amount to intervention in a competitive process by prohibiting efficient contracting and will ultimately be counterproductive to those goals.

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