Policymakers
H.R. 1204 Will Harm Consumers
H.R. 1204 creates an exemption to 100-year old federal and state antitrust laws for certain independent pharmacies. The legislation would allow pharmacies to engage in collusion, boycotts, and price fixing all in the name of extracting higher prices without a promise of increased consumer or economic quality.
Background on Antitrust Laws:
The prime objective of our nation’s antitrust laws is to promote consumer welfare by preserving and promoting competition. First enacted 100 years ago, the federal antitrust laws are based on sound economic principles. Increased competition is good for consumers because it results in more products and services produced at lower prices and better quality.
The federal antitrust laws include the Sherman Act, the Clayton Act and the Federal Trade Commission Act. These laws prohibit price fixing, boycotts and similar agreements among competitors that produce anti-competitive effects. They also prohibit mergers, acquisitions or joint ventures that would lessen competition or create monopolies. The Department of Justice (DOJ) and Federal Trade Commission (FTC) are responsible for enforcing the federal antitrust laws. These agencies work closely with state attorneys general in their efforts to enforce state antitrust laws.
Existing federal and state antitrust laws permit healthcare providers to communicate with health plans, the public and other healthcare providers about quality of care and other patient care issues. They also allow the development of integrated delivery systems to provide consumers with choice, quality and cost-effective healthcare. Weakening the antitrust laws would deny consumers choice, quality and affordability.
Questions & Answers for Policymakers:
Q. How does enforcement of existing antitrust laws benefit consumers?
A. Antitrust enforcement increases consumer choice by (1) ensuring that providers do not collude to restrict the range of prices and available services; and (2) ensuring that providers compete for patients by offering a range of desirable services at reasonable prices.
Q. What would H.R. 1204 do?
A. H.R. 1204 would allow some independent pharmacies to be treated as if they were a labor organization under Section 7 of the National Labor Relations Act, thus exempting them from antitrust laws. There have been several historical attempts by health care providers to seek an exemption to the antitrust law that would have applied to all health care providers but the FTC opposed them because they found that enactment would significantly increase direct spending on pharmaceuticals both by private payers and under a variety of government programs.
Q. Is the proposed exemption for independent pharmacies in H.R. 1204 one of those rare instances in which the societal benefits from dispensing with antitrust rules and the competitive processes exceeds the costs?
A. No. The primary purpose of the bill is to allow independent pharmacies to price fix. The FTC has stated while sympathetic to the difficulties faced by some independent pharmacies, the Commission believes that any erosion of antitrust laws threatens to raise prices for consumers - particularly seniors-for vital prescription medications.
Q. How would the proposed change in antitrust laws impact small businesses who struggle to offer health insurance coverage to employees?
A. H.R. 1204 would increase costs to private employers who offer insurance to their employees…all without any assurance of quality care.
Q. Why is it wrong to give certain independent pharmacies the ability to coordinate with each other to set price?
A. Independent pharmacies already have the ability under current law to join together to negotiate prices for prescription medications. In fact, there are more than a dozen purchasing cooperatives among independent pharmacies currently in operation. What these cooperatives cannot do, however, is engage in price fixing, boycotts and other activities prohibited by the antitrust laws. This is what makes H.R. 1204 so troubling. It would give a select group of pharmacies the authority to operate outside of the law no matter how anti-competitive or anti-consumer their conduct.
Q. What are the probable outcomes of giving certain independent pharmacies the ability to collude, engage in price fixing and boycotts as proposed in H.R. 1204?
A. David Wales Jr., Deputy Bureau of Competition Director of the FTC, states that amending antitrust laws in this manner would raise prices for consumers but would not have a measurable, positive impact on consumer safety or quality.
Q.How do antitrust laws encourage innovation in health care?
A.The antitrust laws promote innovation and flexibility by encouraging providers to distinguish themselves in ways that will attract consumers, for example, by providing the best services at reasonable prices. The antitrust laws prohibit collusion that would suppress the innovation needed for success in a competitive market. The antitrust laws do not allow providers to conspire to fix prices or decrease services, or to limit the options available to consumers.
Q. Don’t health insurance plans have the same antitrust exemptions that H.R. 1204 would give to independent pharmacies?
A. No. The insurance industry has a very limited exemption from the antitrust laws. Provisions of the Mccarran-Ferguson Act allow for certain joint rating, underwriting and form development activities but only when conducted under the auspices and strict regulation of the states. But unlike H.R. 1204, this insurance exemption from federal law is valid only when the activity is strictly monitored by state insurance commissioners and regulators. Furthermore, the insurance industry cannot engage in price fixing, boycotts or other anti-competitive activity that H.R.1204 would extend to independent pharmacies. These are “per se” violations of federal law and are not protected by the insurance exemption. And, unlike the insurance industry, these independent pharmacies would not be subject to governmental monitoring or review.
Q. If independent pharmacies supporting H.R. 1204 are “in trouble” is eroding antitrust laws the right solution?
A. No. There have been numerous changes in the healthcare market place that are impacting independent pharmacies: Medicare Part D, decreasing the number of seniors paying out of pocket for prescriptions, Medicaid changes as a result of the Deficit Reduction Act of 2005 ( DRA), shortages in the workforce, and the growth of retail pharmacies are just a few. An antitrust exemption is not a silver bullet to problems that result from the myriad issues described above. Congress should study this issue further and propose a solution that will positively impact pharmacies, patients and providers without weakening long standing laws, which would have serious and unintended consequences. Price fixing never benefits consumers.
For more information, please contact the MATCH Coalition.