A whole new world?: Pharmaceutical responses to the managed care revolution

Food and Drug Law Journal

Volumn 52, Issue 1, 1997, Pages 83-98

  Balto, David A ^a  

^a NONE

Author keywords

[No Author keywords available]

Indexed keywords

DRUG INDUSTRY; HEALTH CARE COST; MANAGED CARE; MANAGER; MARKET; PHARMACY; REVIEW;

ADMINISTRATIVE PERSONNEL; ANTITRUST LAWS; COST CONTROL; DRUG INDUSTRY; HEALTH CARE REFORM; HUMANS; INSURANCE, PHARMACEUTICAL SERVICES; LEGISLATION, DRUG; MANAGED CARE PROGRAMS; PHARMACIES; UNITED STATES;

EID: 0030966050     PISSN: 1064590X     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (62)

1. See Lucinda Miller & Alan Blum, Physician Awareness of Prescription Drug Costs, 36 J. FAMILY PRACTICE 33 (1993).
2. ALISON MASSON & ROBERT STEINER, GENERIC SUBSTITUTION AND PRESCRIPTION DRUG PRICES (Fed. Trade Comm'n 1985).
3. An FTC Bureau of Economics study found that generics accounted for 23.3% of prescriptions in the study's 1980 sample. MASSON & STEINER, supra note 2, at 111. More recent studies have found that the share of generics increased to 27% in 1988, and to 37% in 1993. Greg Muirhead, There's Room for Managed Care to Cut Drug Costs, DRUG TOPICS, June 24, 1996, at 19 (reporting that in managed care organizations, 42.4% of the prescriptions were generic).
4. HEALTH INDUSTRIES RESEARCH CENTER, NATIONAL ACCOUNTS: MARKETING CHALLENGES AND OPPORTUNITIES FOR THE 1990s, at II-7 (1996).
5. See Drug Industry Finds New Partners in Cost-Containment Quest, J. AM. HEALTH POL'Y, July-Aug. 1994, at 6 (reporting Congressman Wyden's request that the Government Accounting Office (GAO) investigate the acquisition of PBMs by pharmaceutical manufacturers).
6. Eli Lilly, No. C-3594 (July 28, 1995) (Azcuenaga, Comm'r, dissenting); 59 Fed. Reg. 60,815 (Nov. 28, 1994) (proposed consent agreement and analysis to aid public comment); 61 Fed. Reg. 31,117 (July 31, 1996) (final consent order and Commission statement). There were two additional acquisitions of PBMs that occurred during this period: the acquisition of DPS by SmithKline Beecham PLC and the acquisition of Medco Containment Services by Merck.
7. See supra, note 4.
8. Lilly, No. C-3594, complaint ¶ 13.
9. Lilly, No. C-3594, consent order ¶ II.
10. Id. ¶ III.
11. See Note, HMO Regulation - Arkansas Requires HMOs to Accept Any Provider Willing to Join Their Network, 109 HARV. L. REV. 2122 (1996).
12. Statement of the Commission, Dkt. No. C-3594 (July 31, 1995).
13. Other commentators have identified similar concerns. See Christine Dodd, The Merck-Medco Merger: An Isolated Incident or a Catalyst for the Transformation of an Industry?, 63 U. CIN. L. REV. 1767 (1995) (suggesting that PBM acquisitions may diminish the incentives for research and development).
14. See GENERAL ACCOUNTING OFFICE, PHARMACY BENEFIT MANAGERS - EARLY RESULTS ON VENTURES WITH DRUG MANUFACTURERS (1995) [hereinafter GAO REPORT]; see also Hearing before the Committee on Insurance of the California State Senate (Feb. 7, 1996) (statement of John C. Hansen, Ass't Dir. Health Financing & Public Health Issues, Health, Educ., and Human Servs. Div., GAO).
15. See GENERAL ACCOUNTING OFFICE, PHARMACY BENEFIT MANAGERS - EARLY RESULTS ON VENTURES WITH DRUG MANUFACTURERS (1995) [hereinafter GAO REPORT]; see also Hearing before the Committee on Insurance of the California State Senate (Feb. 7, 1996) (statement of John C. Hansen, Ass't Dir. Health Financing & Public Health Issues, Health, Educ., and Human Servs. Div., GAO).
16. After the Medco acquisition, Merck's volume for its own drugs increased by 10% in the second quarter of 1994 and by 15% in the third quarter of 1994. See Kevin A. Schulman et al., The Effect of Pharmaceutical Benefit Managers: Is it Being Evaluated?, 124 ANNALS INTERNAL MED. 906, 911 (1996).
17. GAO REPORT, supra note 14, at 3.
18. PCS Ordered to Include Pfizer Products on Furmularies Thru 1998 by the New York Court, PCS Performance Drug Plan Violates 1994 Pfizer-PCS Rebate Agreement, F-D-C REP. ("The Pink Sheet"), June 10, 1996, at 15.
19. See Letter from the Nat'l Ass'n of Chain Drug Stores to the Federal Trade Comm'n (July 30,1996); Letter from the Consumer Federation of America et al. to the Federal Trade Comm'n (July 31, 1996).
20. See MARK GREEN (Public Advocate for the City of New York), COMPROMISING YOUR DRUG OF CHOICE: How HMOs ARE DICTATING YOUR NEXT PRESCRIPTION (1996); OFFICE OF THE INSPECTOR GENERAL, DHHS, EXPERIENCES OF HEALTH MAINTENANCE ORGANIZATIONS WITH PHARMACY BENEFIT MANAGEMENT COMPANIES (1996). There also have been private studies of the conflict-of-interest issues raised by manufacturer-owned PBMs. See Schulman et al., supra note 15, at 911.
21. See MARK GREEN (Public Advocate for the City of New York), COMPROMISING YOUR DRUG OF CHOICE: How HMOs ARE DICTATING YOUR NEXT PRESCRIPTION (1996); OFFICE OF THE INSPECTOR GENERAL, DHHS, EXPERIENCES OF HEALTH MAINTENANCE ORGANIZATIONS WITH PHARMACY BENEFIT MANAGEMENT COMPANIES (1996). There also have been private studies of the conflict-of-interest issues raised by manufacturer-owned PBMs. See Schulman et al., supra note 15, at 911.
22. Thus, for example, the Commission extensively discussed the competitive effects of vertical integration in B.F. Goodrich Co. et al., 110 F.T.C. 207, 329-38 (1988).
23. CHRISTINE A. VARNEY, WHY VERTICAL MERGER AND INNOVATION MARKET ENFORCEMENT CHALLENGES MAKE SENSE; Michael H. Riordan &: Steven C. Salop, Evaluating Vertical Mergers: A Post-Chicago Approach, 63 ANTITRUST L.J. 513 (1995).
24. CHRISTINE A. VARNEY, WHY VERTICAL MERGER AND INNOVATION MARKET ENFORCEMENT CHALLENGES MAKE SENSE; Michael H. Riordan &: Steven C. Salop, Evaluating Vertical Mergers: A Post-Chicago Approach, 63 ANTITRUST L.J. 513 (1995).
25. See John Helliwell, Networks Provide a Critical Competitive Edge for Airlines, PC WEEK, Jan. 19, 1988, at C1.
26. See generally Marj P. Learning, Enlightened Regulation of Computerized Reservations Systems Requires a Conscious Balance Between Consumer Protection and Profitable Airline Marketing, 21 TRANSP. L.J. 469 (1993) (describing history of regulation and litigation).
27. 14 C.F.R. pt. 255 (1996). The initial version of the regulations was upheld by the Seventh Circuit. See United Airlines v. CAB, 766 F.2d 1107 (7th Cir. 1985) (Posner, J.) (upholding regulations based in part on threat that CRS owners would be able to discriminate against nonowner airlines and reduce competition).
28. United States v. Airline Tariff Publishing Co., 1994-2 Trade Cas. (CCH) ¶ 70,687 (D.D.C. Aug. 10, 1994).
29. 472 U.S. 284, 295 (1985).
30. Id. at 295.
31. See Webster County Memorial Hosp. v. United Mine Workers, 536 F.2d 419, 420 (D.C. Cir. 1976) (per curiam); Sewell Plastics, Inc. v. Coca Cola Co., 720 F. Supp, 1186, 1219-20 n.6 (W.D.N.C. 1988); Medical Arts Pharmacy v. Blue Cross & Blue Shield, 518 F. Supp. 1100, 1108 n.9 (D. Conn. 1981), aff'd per curiam, 675 F.2d 502 (2d Cir. 1982).
32. See, e.g., Mandeville Island Farms v. American Crystal Sugar Co., 334 U.S. 219 (1948) (conspiracy among three sugar refiners, collectively controlling 100% of the market, to purchase sugar beets at agreed-upon prices).
33. Dep't of Justice & Fed. Trade Comm'n, Statements of Antitrust Enforcement Policy in the Health Care Area [Policy Statements], 4 Trade Reg. Rep. (CCH) ¶ 13,153 (Aug. 28, 1996); Business Review Letter from U.S. Dep't of Justice to Nickel Users' Purchasing Ass'n (June 2, 1993); Business Review Letter from U.S. Dep't of Justice to FRA Shippers' Ass'n (June 17, 1989).
34. Policy Statements, supra note 30, at 20,812-13 (Statement No. 7).
35. Id. at 20,813.
36. See Business Review Letter from U.S. Dep't of Justice to Bay Area Business Group on Health (Feb. 18, 1994); Business Review Letter from U.S. Dep't of Justice to Houston Health Care Coalition (Mar. 23, 1994); FTC Staff Opinion Letter to Elmore Community Hospital (June 20, 1995).
37. Maryland Pharmacists Association, No. D-9262 (Dec. 6, 1993); Southeast Colorado Pharmacal Association, C-3410 (Jan. 15, 1993); Peterson Drug Company of North Chili, New York, Inc., No. 9227 (Apr. 22, 1992).
38. See Policy Statements, supra note 30, at 20,831 (Statement No. 9).
39. Business Review Letter from U.S. Dep't of Justice to Robert Taylor, Antitrust Counsel, Pharmacy Care Network (Oct. 8, 1986).
40. A group of independent pharmacies recently formed a national prescription drug network known as "American Family Pharmacy." See DRUG STORE News, Dec. 9, 1996, at 33.
41. See, e.g., Business Review Letter from U.S. Dep't of Justice to Newspaper Ass'n of America (Dec. 10, 1993) (joint venture network for selling advertising space for national advertising campaigns); Business Review Letter from U.S. Dep't of Justice to Affiliated Distributor (May 5, 1992) (creation of joint venture to provide national accounts program); Business Review Letter from U.S. Dep't of Justice to Independent Drug Wholesalers Group (May 21, 1987) (creation of joint venture to provide national accounts program).
42. Business Review Letters from U.S. Dep't of Justice to Robert Taylor, antitrust counsel, Pharmacy Care Network, & Frank Sanchez, coordinator, Service For You (Oct. 8, 1986).
43. Policy Statements, supra note 30, at 20,814 (Statement No. 8).
44. Id. at 20,816.
45. Id.
46. Id.
47. Id.
48. See Robert McCarthy, Is It Risky to Ride with a Drug Company?, 14 BUS. & HEALTH 30 (1996); Anita R. McGahan, Industry Structure and Competitive Advantage, HARV. BUS. REV., Nov.-Dec. 1994, at 115; Capitation: However You View It, It's a Potent New Force, DRUG TOPICS, Jan. 23, 1995, at 40.
49. See Robert McCarthy, Is It Risky to Ride with a Drug Company?, 14 BUS. & HEALTH 30 (1996); Anita R. McGahan, Industry Structure and Competitive Advantage, HARV. BUS. REV., Nov.-Dec. 1994, at 115; Capitation: However You View It, It's a Potent New Force, DRUG TOPICS, Jan. 23, 1995, at 40.
50. See Robert McCarthy, Is It Risky to Ride with a Drug Company?, 14 BUS. & HEALTH 30 (1996); Anita R. McGahan, Industry Structure and Competitive Advantage, HARV. BUS. REV., Nov.-Dec. 1994, at 115; Capitation: However You View It, It's a Potent New Force, DRUG TOPICS, Jan. 23, 1995, at 40.
51. Policy Statements, supra note 30, at 20,815.
52. For example, the enforcement agencies have approved a number of nonexclusive physician or provider networks in which the percentage of participating physicians or providers in the market exceeded the 30% criterion of the safety zone. See, e.g., Business Review Letter from U.S. Dep't of Justice to John F. Fischer, Oklahoma Physicians Network, Inc. (Jan 17, 1996) ("substantially more" than 30% of several specialties in a number of local markets, including more than 50% in one specialty); Business Review Letter from U.S. Dep't of Justice to Melissa J. Fields, Dermnet, Inc. (Dec. 5, 1995) (44% of board-certified dermatologists); Business Review Letter from U.S. Dep't of Justice to Dee Hartzog, Int'l Chiropractors' Ass'n of Cal. (Oct. 27, 1994) (up to 50% of chiropractors). See also Business Review Letter from U.S. Dep't of Justice to Frank Sanchez, coordinator, Service For You (Oct. 8, 1986) (approving PBM joint venture with market share between 30% and 50%).
53. See Calvin H. Knowlton, Amer. Pharmaceutical Ass'n, Testimony before FTC Hearings on the Changing Nature of Competition in a Global and Innovation-Driven Age (Nov. 8, 1995) (describing the efficiencies from pharmacy-sponsored PBMs).
54. RxCare of Tennessee, Inc., C-951 0059 (Jan. 18, 1996) (consent order).
55. JOSEPH KATTAN & SCOTT A. STEMPEL, ANTITRUST ENFORCEMENT AND MOST FAVORED NATION CLAUSES; Anthony J. Dennis, Most Favored Nation Contract Clauses Under the Antitrust Laws, 20 DAYTON L. REV. 821 (1995). There are judicial decisions upholding the use of MFN clauses against antitrust challenge. See, e.g., Blue Cross and Blue Shield United of Wisconsin v. Marshfield Clinic, 65 F.3d 1406, 1415 (7th Cir. 1995) (MFN clauses "are standard devices by which buyers try to bargain for low prices"); Ocean State Physicians Health Plan, Inc. v. Blue Cross and Blue Shield of Rhode Island, 883 F.2d 1101 (1st Cir. 1989), cert. denied, 494 U.S. 1027 (1990).
56. JOSEPH KATTAN & SCOTT A. STEMPEL, ANTITRUST ENFORCEMENT AND MOST FAVORED NATION CLAUSES; Anthony J. Dennis, Most Favored Nation Contract Clauses Under the Antitrust Laws, 20 DAYTON L. REV. 821 (1995). There are judicial decisions upholding the use of MFN clauses against antitrust challenge. See, e.g., Blue Cross and Blue Shield United of Wisconsin v. Marshfield Clinic, 65 F.3d 1406, 1415 (7th Cir. 1995) (MFN clauses "are standard devices by which buyers try to bargain for low prices"); Ocean State Physicians Health Plan, Inc. v. Blue Cross and Blue Shield of Rhode Island, 883 F.2d 1101 (1st Cir. 1989), cert. denied, 494 U.S. 1027 (1990).
57. RxCare Complaint ¶ 8.
58. RxCare of Tennessee, Inc. (statement of Christine A. Varney, Comm'r, FTC).
59. Baltimore Metropolitan Pharmaceutical Ass'n, Inc. et al., 59 Fed. Reg. 15,733 (Apr. 4, 1994) (consent order).
60. Peterson Drug Co. of North Chili, New York, Inc., Trade Reg. Rep. (CCH), Complaints and Orders 1987-93, at ¶ 23,189; Orange County Pharmaceutical Soc'y. Inc., No. C-3292 (July 9, 1990); Westchester County Pharmaceutical Soc'y, Inc., No. C-3293 (July 9, 1990); Pharmaceutical Soc'y of the State of New York, Inc., No, C-3294 (July 9, 1990); Long Island Pharmaceutical Soc'y, Inc., No. C-3295 (July 9, 1990); Empire State Pharmaceutical Soc'y, Inc., D. 9238 (Feb. 22, 1991); Capital Area Pharmaceutical Soc'y, Inc., D-9239 (Feb. 22, 1991).
61. Peterson Drug Company, Trade Reg. Rep. (CCH), Complaints and Orders 1987-93, at 22,883.
62. Eastern R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961); United Mine Workers v. Pennington, 381 U.S. 657 (1965). There is a sham exception to the Noerr-Pennington doctrine. The Supreme Court has stated that where one uses "the governmental process - as opposed to the outcome of that process - as an anticompetitive weapon," the protection of the Noerr-Pennington doctrine may not apply. Professional Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 46, 55 (1993) (quoting Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365, 380 (1991)).