[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
IMPACT OF OUR ANTITRUST LAWS ON COMMUNITY PHARMACIES AND THEIR PATIENTS
=======================================================================
HEARING
BEFORE THE
TASK FORCE ON ANTITRUST
AND COMPETITION POLICY
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
OCTOBER 18, 2007
__________
Serial No. 110-85
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
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COMMITTEE ON THE JUDICIARY
JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California LAMAR SMITH, Texas
RICK BOUCHER, Virginia F. JAMES SENSENBRENNER, Jr.,
JERROLD NADLER, New York Wisconsin
ROBERT C. (BOBBY) SCOTT, Virginia HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina ELTON GALLEGLY, California
ZOE LOFGREN, California BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas STEVE CHABOT, Ohio
MAXINE WATERS, California DANIEL E. LUNGREN, California
WILLIAM D. DELAHUNT, Massachusetts CHRIS CANNON, Utah
ROBERT WEXLER, Florida RIC KELLER, Florida
LINDA T. SANCHEZ, California DARRELL ISSA, California
STEVE COHEN, Tennessee MIKE PENCE, Indiana
HANK JOHNSON, Georgia J. RANDY FORBES, Virginia
BETTY SUTTON, Ohio0 STEVE KING, Iowa
LUIS V. GUTIERREZ, Illinois TOM FEENEY, Florida
BRAD SHERMAN, California TRENT FRANKS, Arizona
TAMMY BALDWIN, Wisconsin LOUIE GOHMERT, Texas
ANTHONY D. WEINER, New York JIM JORDAN, Ohio
ADAM B. SCHIFF, California
ARTUR DAVIS, Alabama
DEBBIE WASSERMAN SCHULTZ, Florida
KEITH ELLISON, Minnesota
Perry Apelbaum, Staff Director and Chief Counsel
Joseph Gibson, Minority Chief Counsel
------
Task Force on Antitrust and Competition Policy
JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California RIC KELLER, Florida
RICK BOUCHER, Virginia STEVE CHABOT, Ohio
ZOE LOFGREN, California BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas DANIEL E. LUNGREN, California
MAXINE WATERS, California CHRIS CANNON, Utah
STEVE COHEN, Tennessee DARRELL ISSA, California
BETTY SUTTON, Ohio MIKE PENCE, Indiana
ANTHONY D. WEINER, New York J. RANDY FORBES, Virginia
DEBBIE WASSERMAN SCHULTZ, Florida LAMAR SMITH, Texas, Ex Officio
Perry Apelbaum, Staff Director and Chief Counsel
Joseph Gibson, Minority Chief Counsel
C O N T E N T S
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OCTOBER 18, 2007
Page
OPENING STATEMENTS
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, and Chairman, Task Force on
Antitrust and Competition Policy............................... 1
The Honorable Ric Keller, a Representative in Congress from the
State of Florida, and Ranking Member, Task Force on Antitrust
and Competition Policy......................................... 9
The Honorable Anthony D. Weiner, a Representative in Congress
from the State of New York, and Member, Task Force on Antitrust
and Competition Policy......................................... 10
The Honorable Steve Chabot, a Representative in Congress from the
State of Ohio, and Member, Task Force on Antitrust and
Competition Policy............................................. 12
The Honorable Darrell Issa, a Representative in Congress from the
State of California, and Member, Task Force on Antitrust and
Competition Policy............................................. 13
WITNESSES
Mr. Mike James, Vice President, Association of Community
Pharmacies Congressional Network, and Pharmacist/Owner, Person
Street Pharmacy, Raleigh, NC
Oral Testimony................................................. 14
Prepared Statement............................................. 16
Dr. Peter J. Rankin, Principal, CRA International
Oral Testimony................................................. 18
Prepared Statement............................................. 21
Mr. David Wales, Deputy Director, Bureau of Competition, Federal
Trade Commission
Oral Testimony................................................. 53
Prepared Statement............................................. 56
Mr. David A. Balto, Antitrust Attorney, on behalf of the National
Community Pharmacists Association
Oral Testimony................................................. 77
Prepared Statement............................................. 79
Mr. Robert Dozier, Executive Director, Mississippi Independent
Pharmacists Association
Oral Testimony................................................. 115
Prepared Statement............................................. 117
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
H.R. 971, the ``Community Pharmacy Fairness Act of 2007''........ 2
IMPACT OF OUR ANTITRUST LAWS ON COMMUNITY PHARMACIES AND THEIR PATIENTS
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THURSDAY, OCTOBER 18, 2007
House of Representatives,
Task Force on Antitrust
and Competition Policy
Committee on the Judiciary,
Washington, DC.
The Task Force met, pursuant to notice, at 9:40 a.m., in
Room 2141, Rayburn House Office Building, the Honorable John
Conyers (Chairman of the Task Force) presiding.
Present: Representatives Conyers, Lofgren, Jackson Lee,
Waters, Sutton, Sherman, Weiner, Chabot, Keller, Issa, and
Feeney.
Staff Present: Stacey Dansky, Majority; Stewart Jeffries,
Minority Counsel; and Benjamin Staub, Professional Staff
Member.
Mr. Conyers. Good morning, ladies and gentlemen.
The Committee has joined me here, the Antitrust Task Force
hearing, to examine the impact of our antitrust laws on
community pharmacies and their patients. I don't think anyone
in the Congress has not been visited by their constituents on
this matter.
And today we delve into an aspect of the health care
industry that is frequently overlooked but, in my mind, may be
one of the most important parts of the whole system, because
pharmacies serve as the interface between consumers and their
medication, a vital link. And independent pharmacies provide
necessary and important services to patients all over the
country and in places where, without them, there might not be
any service for those consumers that might need it.
Now, there is a common agreement that the health care
system is in trouble. It has become so expensive that almost 50
million Americans don't have coverage of any kind, and some 20
million or more that do aren't covered for the right thing that
they unfortunately find out when they go into their doctor or
hospital.
According to the Institute of Medicine, some 18,000 people
die in this country each year because of lack of health care.
What I am saying really is they don't have the insurance that
would allow them to be served by a doctor, clinic or a
hospital. And we pay, in this country, on a per capita basis,
more for health care, receive less from health care, and
experience less satisfactory outcomes than many other countries
in the world that have a universal health care system.
Independent pharmacies are also suffering in today's health
care marketplace. We are told, and we will hear here today, how
they are being driven out of business because they can't
compete with large retail pharmacies and cannot survive with
the low reimbursement rates that are given to them now.
So, given the importance of the human interaction between
the patient, the doctor and the pharmacist, the ability to ask
questions about drugs and get prescriptions filled immediately
is a very important consideration. A substantial part of the
crisis in our health care is the cost of prescription drugs and
the prescription drug program currently in place.
According to a report issued by the premiere Oversight
Committee in the House, it said that privatizing the delivery
of the drug benefit has enriched the drug companies and
insurance industry at the expense of seniors and taxpayers. The
report concluded that insurers participating in Medicare Part D
do not cover prescription drugs as efficiently as other
programs do, and that Medicare Part D beneficiaries and
taxpayers could be saving billions of dollars per year if
seniors got their Part D benefits directly from Medicare
instead of through insurance companies.
The report went on to conclude that administrative costs
sometimes run six times higher in private health insurance
companies than in Medicare's traditional fee-for-service
program. Approximately $4.6 billion went into administrative
costs and other expenses in fiscal year 2007, and a billion
dollars of that amount was steered toward insurance company
profits.
The Chairman of the Oversight Committee, the gentleman from
California, Henry Waxman, stated further that the program
inflated administrative costs and meager drug rebates, and that
that will cost taxpayers and seniors $15 billion in this year
alone. So, based on that report, it seems clear that, because
of Medicare Part D, small pharmacies have suffered because of
higher administrative costs, approximately some $15 billion a
year. And that has prevented the reimbursement of pharmacies at
a higher rate than the traditional PBMs do now. A proposed
solution is to allow independent pharmacies to collectively
negotiate for a better reimbursement rate.
One of the Members of this Committee, and present here
today, Anthony Weiner of New York, has put forward a proposal
to alleviate some of the problems facing independent pharmacies
and has a measure, H.R. 971, which we will hear more about.
[The bill, H.R. 971, follows:]
Mr. Conyers. But such an arrangement would require a
special exemption to our antitrust laws in that regard. And so,
while I am generally disinclined toward exemptions to antitrust
laws, there could be particular circumstances where a carefully
crafted exemption could be warranted.
And so, today, we hear from witnesses to discuss whether
such an exemption in the case of independent pharmacies is
warranted. And these are a few of the crucial questions that we
have gathered here today to discuss with our friends in the
pharmacy industry. They waited a long time for this hearing,
and I am glad that we are here to oblige you in that request
this morning.
And I'd like now to ask Ric Keller, who is our acting
Ranking minority Member, to begin his discussion of this matter
before us. The gentleman from Florida is recognized.
Mr. Keller. Thank you very much, Mr. Chairman. And I want
to especially want to thank you for convening this hearing on
the Task Force on Antitrust and Competition Policy.
One thing I have to correct that you said that I have a
little disagreement with, you referred to the Government Reform
Committee as the premiere oversight Committee in Congress
with----
Mr. Issa. And rightfully so.
Mr. Keller. With you at our leadership, we kind of think
the Judiciary Committee is the premiere oversight Committee in
Congress here. But that will probably earn me a subpoena from
Mr. Waxman shortly.
I want to thank all of you for being here today.
Today's hearing on the impact of the antitrust laws on
community pharmacists reflect a familiar theme in the Antitrust
Task Force hearings, namely, how did the antitrust laws balance
the needs of large companies on one hand with the needs of
smaller companies on the other?
In today's hearing, the smaller companies are the
independent pharmacies. For many years, they felt that the
actions of the large companies--in this case, the larger chain
stores, the HMOs and now pharmacy benefit managers, or PBMs--
have been making it difficult for them to compete. They feel
that the PBMs, which they claim cover almost 95 percent of all
prescription drug purchases in this country, exercise market
power of the independent pharmacies.
They say that market power, in turn, allows the PBMs to
dictate ``take it or leave it'' reimbursement contracts with
the independent pharmacies, and that those low reimbursement
rates are driving many of the independent pharmacies out of
business. To combat this perceived market power, the
independent pharmacies claim that they need an antitrust
exception to allow them to negotiate effectively with the PBMs.
In contrast, the PBMs feel that they are lowering prices
for the American consumer. Specifically, they argue that volume
discounts help seniors get lower prices for their prescription
drugs. They claim that independent pharmacies can negotiate
some terms of the reimbursement contracts already. And they,
along with the Federal Trade Commission, have expressed concern
that allowing independent pharmacies to have an antitrust
exemption would allow the pharmacies to engage in price-fixing
arrangements or boycotts that could hurt consumers.
To that end, PBMs commissioned a study by Charles River
Associates that shows that an antitrust exemption can cost
consumers as much as $29.6 billion over 5 years. That number
includes 6.4 billion under the Medicare Part D prescription
drug plan.
The Supreme Court has observed that the antitrust laws
exist to protect competition, not competitors. It is therefore
incumbent upon us to examine this issue to see whether a
legislative fix is absolutely necessary. Certainly, Congress
should be mindful of the role that small business plays in our
communities and in our economy, and should do everything it can
to promote those businesses. At the same time, Congress must
also be aware of the cost of its actions on the American
consumer and the critical need for senior to have access to
low-cost prescription drugs.
I look forward to hearing from all of our witnesses on this
topic today. Let me just explain that I am personally very
interested in what each and every one of you have to say and
will read your statement. I have a markup at the exact same
time, which I will have to go to and fro. And if I am not here,
it is not that I am not interested, but just required to be
elsewhere temporarily. But thank you very much for being here
today.
And, Mr. Chairman, I yield back the balance of my time.
Mr. Conyers. Thank you, Mr. Ric Keller.
The Chair is going to recognize Mr. Weiner, Mr. Darrell
Issa and, just briefly, the gentleman from Ohio, Mr. Chabot.
And we begin with the distinguished gentleman from New York.
Mr. Weiner. Thank you, Mr. Chairman, and I appreciate your
calling this hearing and, frankly, organizing the Committee as
it is, that you, as the Chairman, will be looking seriously at
antitrust issues, because I think there are myriad issues that
we need to understand a lot better around here.
You know, with all of the complicated things that are going
on in health care and all of the debates that we're having--do
we want larger government solutions or more private-sector
solutions; do we want a business-based structure or a single-
payer system, like Mr. Conyers and I have proposed--of all of
the things we have disagreement on, very rarely, if ever, does
anyone ever stop any of us in our communities and say, ``Boy,
you have got to do something to wipe out those neighborhood
pharmacists.'' Very rarely do we hear people complain about
that man or woman behind the counter in our neighborhood
shopping strips, in our towns and villages, because, frankly,
with more and more of the challenges facing consumers with
health care, more and more of the responsibility that should be
perhaps placed elsewhere is being laid on the counter of our
neighborhood pharmacists. They are being asked to wrestle with
Part C and now Part D.
I would argue that when Medicare Part D was initiated and
started to roll out that pharmacists should have been paid as
if they were civil servants for all the questions that they had
to answer, all the details they had to explain, all of the
combinations and permutations. It was not uncommon for someone
to call up my office, ask a question about Part D, still have a
little bit of concern and say to one of my staffers, ``That's
okay. I'll just ask my pharmacist the rest.''
And so, we have to realize that it is imperative on the
part of us in Congress to make sure that that element of our
health care system survives. Not only are we failing at that,
but we are making it, every single day, more and more difficult
for community pharmacists. You know, the changes that we made
in reimbursements, the changes that we made in regulations have
made it more and more difficult for neighborhood pharmacists to
survive.
I did a study of New York City in 2003, and I looked at
from 1990 to 2003--the data is a little bit dated by now--1990
to 2003. And we found out that, of the 1,600 community
pharmacists, we had a 30 percent drop in that period, from 1990
to 2003, while the chain pharmacies had had a 263 percent
increase. Now, what is happening is the chain pharmacies, as
they grew stronger and stronger and their ability to compete
was more and more consolidated, the neighborhood pharmacists
disappeared.
So what is it that can we do? Well, there are some things
that we can do. We can obviously go back and revisit the
reimbursement rates, and I think we are going to in the guise
of another Committee. But one of the easiest things that we can
do is allow our common sense, meaning common among Democrats
and Republicans alike, that competition has a way of helping
solve these problems in the benefit of the consumer.
If we allow individual neighborhood pharmacies not just to
operate as islands, but to be able to work together to
negotiate with the big PBMs--and you can argue both ways that
PBMs might save money, it might cost service, but that's the
reality of the system that we have now, that the PBMs hold a
lot of cards; the HMOs hold a lot of cards. And the chain
stores do this every day. The chain stores, whether they're
Rite Aid or Walgreens or Wal-Mart, they get together and they
say to the PBMs, ``Look, because we have 200, 300, 400 stores,
we're going to negotiate for lower prices.''
What my legislation does--and it is sponsored by Democrats
and Republicans, like Mr. Coble was a sponsor in the last
Congress and in this one; the bipartisan Small Pharmacy
Coalition that we formed here in the Congress supports it--what
we're saying is, listen, let's let these neighborhood guys band
together and do their best to compete.
Now, are 20 or 30 in central Florida going to be able to
band together and have the heft of a Wal-Mart? Probably not.
But it would give them a little bit more advantage that they
are not going and negotiating for prices for one person, they
are going for five or six or seven.
Now, I have seen a study--and Mr. Keller, who laid out the
issues here quite well that we have to confront--that said,
well, this might mean added costs. Well, if that is the
argument, then you have got to tell me why we allow competition
anywhere. Maybe we should just allow the benevolence of the
PBMs to just look out for us all and hope that it's in our best
interests.
We are not seeing saying who should win or lose. What we
are saying is that the playing field should do the best we can
to allow people to compete.
Now, where are those costs going to go? I don't know if
there will be any higher costs. I think what will probably wind
up happening is PBMs are going to have people driving a harder
bargain on behalf of whom? The consumer. The consumer is
ultimately who these neighborhood pharmacies represent. When
they go back and say, ``I want a lower price for this drug'' to
the PBM and I've got, now, 50 of my buddies with me, rather
than just little old me, what winds up happening? Now, does the
PBM say, ``Okay, we'll give you a $5 discount.''
But that is what we are supposed to be trying to encourage
here. There are a lot of deeply partisan issues about how you
deal with health care. I think competition is the abiding thing
that we all agree that, if we had, everyone would benefit from.
So the chain stores, they already have this. We're not
asking--they're not going to lose a single right. If you are
someone who is advocating on behalf of letting the chains
stores prosper, so be it; they don't lose a single right. H.R.
971 doesn't not touch them one wit, unless you think that
allowing a chain pharmacy to be able to better compete harms
them. If you don't want competition, I don't think you should
come here to the Judiciary Committee and say it.
So this is a case that we can do something that has no cost
to the Government, has little administrative costs, if any, to
the Government, because it will be individuals who are going to
be able to negotiate. And it allows us to do something now,
quickly and immediately, to try to save the one last remaining
noncontroversial element of our national health care system,
and that is the neighborhood community pharmacist who is there
every single day, answering questions large and small, dealing
with a much more complicated, complex world of pharmaceuticals
than we've ever had before.
Before I yield back, think for a moment whether or not we
would be better off or worse off if we continue this decline of
community pharmacies closing. And I think you will realize,
almost by any measure, we'd be worse off.
And I thank you, Mr. Chairman, for holding this hearing.
Mr. Conyers. Well, I appreciate that analysis.
And I now turn to my friend from California, Darrell Issa,
who has never been shy--I had to cross out some adjectives.
``Shy,'' ``retiring'' and ``unassuming'' were never phrases
used to describe the gentleman from California. And yet we
recognize him now for 5 minutes.
Mr. Issa. Well, thank you, Mr. Chairman. My wife often says
``seldom mistaken, never in doubt,'' when describing me.
Perhaps you could use that in the future. That sounds like a
good one.
Mr. Conyers. Would the gentleman----
Mr. Issa. I would yield to the gentleman from Ohio.
Mr. Chabot. I'll be very brief. I'm the Ranking Member of
the Small Business Committee, and we have a markup at 10
o'clock. So we are definitely going to review the testimony of
all the folks.
This is a very important issue. I want to thank the
Chairman and the Ranking Member for holding this. Unfortunately
a bunch of us have things at the same time.
So I want to thank the gentleman for yielding. I intend to
come back. Thank you.
Mr. Conyers. I support the notion that the gentleman from
Ohio has been working on this issue for quite a long time.
And I thank the gentleman for allowing the interruption.
Mr. Issa. Thank you, Chairman. And thank you for holding
this important hearing.
I think, sometimes in these hearings, there is a
preconception that we have already made our mind up. Nothing
could be further from the truth, because the nature of
legislation that rebalances antitrust is a delicate one. I
think we all understand that somewhere between ``antitrust''
meaning no monopolies and ``antitrust'' meaning you can't talk
to your wife about what is happening in her part of the
business versus yours is where is the balance we want to
achieve.
Having been a small-business man for many, many years in
the electronics industry, I dealt with buying groups. I
understand both, as a manufacturer, the negative that buying
groups demand better, sharper prices, or, as they like to say,
``sharpen your pencil.'' I also understand that you make one
call, you negotiate one contract, and then you're able to sell
in to a much larger network.
I think here today that we're balancing the fact that
individual, family-owned and nonpublic drugstores are, in fact,
inefficient to deal with. We, in fact, realize that to call on
one store and negotiate one contract is, by definition, more
expensive than going down to Walgreens or CVS or Wal-Mart, if
you can get to Arkansas with a couple of flights, and
negotiating contracts. So there's a tradeoff.
At the same time, we also understand that small businesses
have been the innovators, small businesses have provided great
service. And we want to make sure that they are allowed, under
our antitrust law, to survive.
So, as we look at Mr. Weiner's legislation, either in whole
or in part, or as is or with changes, I believe that what we're
going to find is a lot of the testimony here today serves an
understanding of why you can have a buyer's group to buy drugs;
what you can't do is have a group that agreed to be under a
common contract that is, in fact, perhaps less competitive,
less sharpened-pencil than CVS or Walgreens, and yet better for
the companies who negotiate one contract for perhaps 200 or 300
small businesses, where the tradeoff for them also is a common
contract.
In preparation for this, I discovered that there is no
question that large companies, such as Wal-Mart and CVS--all of
whom I applaud their ability to deliver good products at a good
price--they also start off with a comparative blank sheet of
paper when negotiating these contracts. If, in fact, what you
have is one store on the corner near my home, you were sent a
contract which you will sign or you will not participate. That
cannot be allowed to continue.
So when we're looking at balancing antitrust, Mr. Chairman,
I believe what we're going to see is we're going to see that if
you have 10 percent market share with Wal-Mart and 4 percent
market share with another chain and 6 percent with another
chain, that if, in fact, independents come together and have no
greater market power than, let's say, either the average of the
top three or certainly no greater than the greatest in an area,
that, by definition, the rebalancing could do no harm to the
intent of the antitrust laws, which is to ensure that there is
competition.
The fact is that the independents today represent perhaps
too much of small and not enough to compete against big. And I
look forward to hearing it in detail. I look forward to working
with Mr. Weiner and this Committee on legislation that really
could provide a narrow but meaningful exemption.
And, with that, I yield back.
Mr. Conyers. I thank the gentleman very much for his
presentation.
Mr. Weiner and myself, right now, so far, we are the
witnesses and you are the Committee. Because you've heard some
fascinating analysis that could be the basis of a discussion on
these views alone.
But now it's your turn. And what a wonderful set of five
witnesses: Dr. Robert Dozier, attorney David Balto, David
Wales, and Peter Rankin, and finally Mike James. What a great
way to begin or, really, more accurately, continue this
discussion that has been started.
And so, I want to begin with Mike James, the vice president
of government relations at the Association of Community
Pharmacists Congressional Network. He is an owner of
independent pharmacies in North Carolina and Florida. He has
chaired the North Carolina Retail Merchants Association and was
named North Carolina pharmacist of the year.
We've got all your testimony; it will go into the record.
And we invite you to begin, sir.
TESTIMONY OF MIKE JAMES, VICE PRESIDENT, ASSOCIATION OF
COMMUNITY PHARMACIES CONGRESSIONAL NETWORK, AND PHARMACIST/
OWNER, PERSON STREET PHARMACY, RALEIGH, NC
Mr. James. Thank you very much, Mr. Chairman----
Mr. Conyers. Try to press the button again.
Mr. James. Is it working now?
Mr. Conyers. It doesn't seem to be working now. We've been
having a lot of technical difficulties in this hearing room,
and I apologize for that.
Mr. James. How about this one?
Mr. Conyers. Excellent.
Mr. James. Chairman Conyers, Ranking Member Keller, Members
of Antitrust Task Force, good morning. And thank you for
allowing me to testify this morning on behalf of the
Association of Community Pharmacy Congressional Network and the
independent hometown pharmacies they represent across the
country. I would also like to thank you for holding this
hearing to address a crucial problem in the health care system.
My name is Mike James. I am vice president and director of
government affairs for the Association of Community Pharmacy
Congressional Network and a practicing pharmacist at an
independent community pharmacy in Raleigh, North Carolina.
As managed care became the norm in the health care
industry, pharmacy benefit managers began to realize they could
become a bigger player in the business of health care. Their
business model was to manage prescription programs and promise
huge savings, but these so-called savings came with a high
price for consumers and pharmacies.
Today, about 95 percent of all prescriptions filled in the
United States are handled by PBMs. As a result of this power,
the PBM industry now dictates, without negotiation,
reimbursement rates and terms of contracts to independent
pharmacies. In order to continue serving your patients,
pharmacies are required to fill prescriptions under PBM
arrangements at prices that do not cover cost. This has
resulted in the closing of 1,152 independent hometown
pharmacies in 2006.
Every pharmacy owner I have spoken with who has closed
indicated that their reason for closing was low third-party PBM
reimbursements. The PBM strategy is working well, and I believe
we will see a larger number of closings this year and next if
nothing is done.
The takeover by PBMs is also resulting in movement on a
large scale of senior patients to mail-order prescription
programs. They have no say in how their pharmacy benefits will
be delivered and are afraid to complain in fear of losing their
benefit. These patients are denied their traditional right to
seek personal and confidential professional assistance from
local hometown pharmacy professionals.
Today the goal of PBM contracts is not to support critical
pharmacy-patient relationship. Rather, the goal is to
systematically undermine the solvency of independent pharmacies
and force patients covered under these agreements into highly
profitable proprietary mail-order programs. This is a conflict
of interest. The PBMs run their own mail-order programs in
direct competition with retail pharmacies. There is a distinct
inequity by forcing patients to pay a higher co-pay in the
pharmacy than they pay through mail-order. And it is putting
patients at a disadvantage by not allowing a local retail
pharmacy to fill a 90-day supply which is offered through mail-
order.
You will be told that allowing negotiations will increase
costs by $29 billion. This is strictly a decision of the PBM.
PBMs have great flexibility in determining how much they shift
over to patients and taxpayers.
CMS handed over all power and authority to PBMs to run
Medicare Part D, but rather than be good stewards of the
payers' interests, the $29 billion indicates that Charles River
Associates and the Congressional Budget Office understand well
that PBMs will continue to put their profits above the interest
of the patient. If the cost goes up, it will be because the PBM
raised cost, not because the pharmacies were allowed to
negotiate.
You will also be told that surveys show a huge majority of
Medicare Part D patients are happy with the program. I would
contend this survey didn't include those patients who have
entered no coverage zone or the donut hole, as it is called. I
own a pharmacy, and I do surveys every day. And every day, I
counsel patients who have hit the donut hole and have no idea
how they're going to buy their medication.
The patient is paying a monthly premium; the Federal
Government is paying a monthly allowance to the PBM. The
patient is paying the total cost of the medication and is
trapped in the donut hole until the new year begins. All this
time, the PBM is collecting money and paying nothing to help
the patient receive their medication.
I can assure you, these patients are not happy with the
program.
In many communities, pharmacies are the primary or only
health care resource for American families. The human
interaction with a patient is a vital part of the entire
process of the delivery of care to the public. This is a
fulcrum of the integration of standard of care for the patient.
Independent pharmacies must have the right to negotiate to
keep these PBMs from taking over the prescription-delivery
system, but antitrust law prohibits this right. With pharmacies
closing every day and patients being forced into the mail-order
program, I believe Congress must act. I believe Congress must
give independent hometown pharmacies a way to help the patient,
a way for pharmacies to negotiate a fair contract, and a way
for these local pharmacies to continue to serve their
communities and keep America healthy.
Mr. Chairman, this legislation is a cornerstone for the
future of health care reform, because, without the independent
pharmacy network, reform will not work. As you know, Mr.
Chairman, this association, the Association of Community
Pharmacy Congressional Network, has worked for months on this
legislation. And I ask for you, the Committee, to move this
legislation forward to markup to enable passage of this
important bill.
Thank you for your time, Mr. Chairman. I appreciate the
opportunity to speak with you.
[The prepared statement of Mr. James follows:]
Prepared Statement of Mike James
Chairman Conyers, Ranking Members Smith and Keller, and Members of
the Antitrust Taskforce, good morning and thank you for allowing me to
testify this morning on behalf of the Association of Community
Pharmacies Congressional Network and the independent pharmacies they
represent across the country. I would also like to thank you for
holding this hearing to address a crucial problem in the health care
system.
My name is Mike James; I am Vice President and Director of
Government Affairs for the Association of Community Pharmacies
Congressional Network, a practicing pharmacist and the owner of an
independent, community pharmacy in Raleigh, North Carolina.
Years ago, as managed care began to invade health care in this
country, insurance companies began to hire Pharmacy Benefit
Administrators (known as PBAs) to become electronic claims clearing
houses between the insurance company and the pharmacies. This was done
in an effort to centralize all claims from the thousands of pharmacies
to a central switch, to then be routed to the correct insurance
company. This is a transaction much like a credit card transaction--a
central switch, an electronic transfer.
But as managed care became the norm, these PBAs began to realize
they could become a bigger player in the business of health care and
convinced insurance companies, large corporations, and government
entities that they were the experts in the prescription delivery
process. These PBAs sold this idea as a cost-savings mechanism. The
Pharmacy Benefit Administrators then became known as Pharmacy Benefit
Managers (PBMs) and their business model was to manage the entire
prescription program and promised as much as 30 to 40% off prescription
prices to the insurance companies. But these so-called ``savings'' came
at a high price for consumers and pharmacies.
Back when the Pharmacy Benefit Administrators were used, they
handled about 10% of the prescriptions filled in the US. By 2005, the
number of prescriptions being handled by PBMs was over 60%. Today,
after the implementation of Medicare Part D, about 95% of all
prescriptions filled in the United States are handled by PBMs.
As a result of this near-monopolistic power, the PBM industry now
dictates, without negotiation, reimbursement rates and terms of
contracts to independent pharmacies. In order to continue serving their
patients, pharmacies are required to fill prescriptions under PBM
agreements at prices that do not cover costs. This has resulted in the
closing of 1,152 independent pharmacies in 2006. Every one of the
pharmacy owners I have spoken with who has closed their pharmacy since
January 2006 indicated that their reason for closing is low third-party
PBM reimbursement. The PBM strategy of putting independent pharmacy out
of business is working well and I believe we will see a larger number
of closings in 2007 and 2008 if nothing is done.
The take-over by PBMs is also resulting in movement on a large-
scale of senior patients--particularly those in rural areas--to mail-
order prescription programs. This has provided a perverse outcome for
patients, who have no say in how their pharmacy benefits will be
delivered, and are afraid to complain in fear of losing their benefit.
These patients are denied their traditional right to seek personal and
confidential professional assistance from local, hometown pharmacy
professionals.
Today, the goal of PBM contracts is not to support critical
pharmacy-patient relationships. Rather, the goal of PBM contracts is to
systematically undermine the solvency of independent pharmacies and
force patients covered under the agreements into highly profitable
proprietary mail-order programs. PBMs promote mail-order as a cheaper
alternative to visiting your local pharmacy. However, this is a
conflict of interest--the PBMs run their own mail-order programs in
direct competition with retail pharmacies. The argument of cost-savings
is completely false--mail order programs won't necessarily offer a less
expensive generic alternative to a medication because the PBM has
rebate agreements with the brand drug makers. And the mail-order
programs can't possibly fill a script the day it is written--there must
still be a local pharmacy to fill that script written for antibiotics
to cure an infection or a painkiller after a broken bone is set. Can
those patients mail off the prescription and wait another two weeks
before it arrives in the mail?
The mail-order programs run by PBMs are truly a conflict of
interest. For example, there is a distinct inequity of forcing patients
to pay a higher co-pay in the pharmacy for the same prescription than
they pay through mail-order. And it is putting patients at a
disadvantage by not allowing a local retail pharmacy to fill a 90-day
supply when that same benefit is offered through mail-order. But the
PBMs do this because they run the mail-order programs and these are
effective methods of putting retail pharmacy out of business.
You will be told that allowing negotiation will increase cost by
$29 billion dollars. This is strictly a decision of the PBM. PBMs have
great flexibility in determining how much they shift over to patients
and taxpayers. CMS handed over all power and authority to PBMs to run
Medicare Part D, but rather than be good stewards of the taxpayers'
interest, the $29 billion indicates that Charles River Associates and
the Congressional Budget Office understand well that PBMs will continue
to put their profits above the interest of the taxpayer. If the cost
goes up, it will be because the PBMs raised cost, not because the
pharmacies were allowed to negotiate.
You will also be told that surveys show a huge majority of Medicare
Part D patients are happy with the program. I would contend this survey
didn't include those patients who had entered the ``no coverage zone''
or ``doughnut hole'' as it is called. I own a pharmacy and I do surveys
everyday and everyday I council patients who have hit the doughnut hole
and have no idea how they are going to buy their medication. They are
still paying a monthly premium, the Federal government is still paying
their monthly allowance to the PMB for that patient and the patient is
paying the total cost of the medication and will not escape the
doughnut hole before the program begins again in January. All this
time, the PBM is collecting money and paying nothing to help the
patient receive their medication. I can assure you these patients are
not happy with the program.
Independent pharmacies provide invaluable health care services on a
daily basis to millions of patients nationwide. They know their
patients and their health care history. This is especially important
for patients who have multiple doctors and prescriptions. The
pharmacist is the only health care professional who knows all of the
patient's medications, their interactions, and whether there are lower
cost generics available to address the patient's needs.
Hometown pharmacies are the only health care providers who do not
require appointments and in many communities, pharmacists are the
primary or only health care resource for American families. The role of
the hometown pharmacist as part of the health care team cannot be
duplicated through the PBM mail-order process. The human interaction
with the patient is a vital part of the entire process of the delivery
of care to the public--this is the fulcrum of the integration of
standard of care for the patient. Patients can't ask their postman
about their medication--not everyone can call a 1-800 number and
navigate through a directory of options only to be put on hold or speak
with an operator nor will everyone remember to order each of their
prescriptions two weeks before they run out--many patients take
multiple drugs, especially seniors and those who have serious
illnesses. Shouldn't we be taking extra care with them rather than
forcing them into faceless mail-order programs?
There is only one way to combat the takeover of your constituents'
health care by these huge companies whose only interest is the bottom
line, not the health of patients. Independent pharmacies must have the
right to negotiate to keep these PBMs from taking over the prescription
delivery system. But antitrust law prohibits these small pharmacies
from banding together to discuss terms of a contract. If Main Street
Pharmacy talks to Elm Street Pharmacy about reimbursement rates or
dispensing fees and agree to turn down the contract from a PBM unless
they offer a reasonable contract, they are in violation of the law.
Currently, these pharmacies tend to accept contracts that will put them
at a loss because they lead with their hearts, not with their business
sense. But with pharmacies shutting down every day, and the alternative
being patients forced into mail order or going to the next town to get
their prescription filled, I believe Congress must act. When Medicare
Part D was signed into law, PBMs were given more power, more lives to
control--now almost every American with prescription drug coverage is
at the mercy of a PBM. I believe Congress must give independent
pharmacies the right to negotiate, a way to help the patient, a way for
pharmacies to negotiate a fair contract, a way for these local,
hometown pharmacies to continue to serve their communities and keep
America healthy.
Mr. Chairman, this legislation is the cornerstone for the future of
healthcare reform because without the independent pharmacy network,
reform will not work. I ask you and this committee to move this
legislation forward to mark-up to enable passage of this important
bill.
Thank you for this time.
Mr. Conyers. Thank you, Mr. James. It has been a long time
before you could get before the Committee to lay this problem
out from your perspective and experience. I am so glad that we
have your full statement to go through the position that you've
outlined.
We now turn to the senior associate at Charles River
Associates, Peter Rankin. Dr. Rankin earned his Ph.D. In
economics at Duke University. He's become a leading researcher
in health care and pharmaceutical industries. His most recent
research is focused on the influence of Medicare and managed
care on the marketplace.
I apologize for not having looked those articles up, so I
don't know what you said, but they certainly are important and
are not unrelated to what brings us here this morning.
Welcome, Dr. Rankin.
TESTIMONY OF PETER J. RANKIN, PRINCIPAL,
CRA INTERNATIONAL
Mr. Rankin. Thank you. Good morning, Chairman Conyers,
Ranking Member Keller and Members of the Task Force. My name is
Peter Rankin. I am a principal at CRA International, formerly
known as Charles River Associates, an economics and management
consulting firm.
I testify today to raise concerns regarding the economic
and potential unintended consequences of H.R. 971. The proposed
legislation would provide antitrust exemptions to pharmacies
not owned or operated by a publicly traded company. Supporters
of this bill believe that these independent pharmacies need an
antitrust exemption because they are at a competitive
disadvantage in negotiating contracts with health insurers or
pharmacy benefit managers.
My analysis and research leads me to conclude that such a
drastic policy change is not warranted. And I will focus on
three points.
First, patients and payers, including Medicare, would bear
the burden of higher costs. A conservative estimate is that the
bill would increase expenditures by nearly $30 billion over 5
years, nearly a quarter of which would be higher spending on
Medicare Part D.
Second, antitrust waivers for independent pharmacies are
not warranted.
Third, in general, antitrust waivers are inefficient and
threaten to raise additional competitive concerns.
I would like to submit for the record in my written
testimony CRA's report on this legislation.
Mr. Conyers. Without objection, so ordered.
Mr. Rankin. The first concern: Antitrust waivers are
expensive. Antitrust waivers would allow independent pharmacies
to collude on pricing and services in negotiations with health
insurers and PBMs. Considering only the direct cost effects of
increases and charges, independent pharmacy waivers will
increase spending by up to $29.6 billion over 5 years, or an
increase of up to 11.8 percent, with nearly one-quarter of that
amount accruing to Medicare Part D plans.
These costs are likely to be ultimately passed on to
Medicare, health insurers, employers and patients. As costs
increase, patients fill fewer prescriptions, and employers will
likely scale back, reduce or even eliminate health care
coverage for their employees. Including consideration of
reduced or eliminated access to health care, the total costs of
independent-pharmacy antitrust exemptions exceed the financial
costs estimated by the CRA report.
The second concern: Antitrust waivers for independent
pharmacies are not warranted. There are examples of independent
pharmacies with economic difficulties. However, antitrust laws
are not designed to protect individual pharmacies that may be
harmed by competition, but rather to insure that consumer
welfare is maintained with access to pharmacies with reasonable
prices and quality. Current antitrust laws provide legitimate
mechanisms for pharmacies to negotiate with PBMs when such
collaboration enhances the quality or efficiency of care to
patients. And independent pharmacies already have organizations
that can collectively represent their interests.
The third concern: Antitrust waivers are not effective. The
Federal Trade Commission and Department of Justice actively
enforce the antitrust laws in the health care industry. The
regulatory agencies and most economists have regularly
dismissed the concept of combating perceived competitive
imbalances in market power by creating countervailing market
power. The appropriate response, instead, is to determine if
there is a legitimate competitive imbalance and to address the
economic factors creating that imbalance directly.
Antitrust waivers legalize collusive behavior to create
market power. Relying on waivers to address perceived
competitive imbalances requires continuous adjustment and
interference in economic markets and runs the risk of spreading
competitive imbalance to related markets as the protected
entities engage in other lines of business.
In conclusion, antitrust exemptions are drastic and
expensive tools to address a perceived competitive imbalance
between independent pharmacies and PBMs. My analysis leads me
to conclude that no such competitive imbalance exists in this
area. To the extent that prices paid to pharmacies have been
reduced, these price reductions have benefited consumers.
Antitrust exemptions amount to a wealth transfer from payers
and patients to independent pharmacies of up to $29.6 billion
over 5 years.
I thank you for the opportunity to share some of these
concerns that I have with H.R. 971. Thank you.
[The prepared statement of Mr. Rankin follows:]
Prepared Statement of Peter J. Rankin
ATTACHMENT
Mr. Conyers. Thank you very much, Dr. Rankin.
We really have some wide-ranging testimony here this
morning.
We have a third witness who has a great deal of background.
Attorney David Wales is the Deputy Director of the Bureau of
Competition at the Federal Trade Commission. He has also served
as Counsel to the Assistant Attorney General in the Antitrust
Division of the Department of Justice. And he has also
privately practiced as an antitrust lawyer at Cadwalader,
Wickersham & Taft and Shearman & Sterling. In other words, he
has a long career in this area of antitrust.
And we're very pleased that you could join us this morning.
Welcome to the Committee.
TESTIMONY OF DAVID WALES, DEPUTY DIRECTOR, BUREAU OF
COMPETITION, FEDERAL TRADE COMMISSION
Mr. Wales. Thank you very much, Chairman. It's a pleasure
to be here today.
Chairman Conyers, Ranking Member Keller and Members of the
Task Force, I am David Wales, deputy director of the Federal
Trade Commission's Bureau of Competition. I appreciate the
opportunity to appear today to present the Commission's views
on H.R. 971, the Community Pharmacy Fairness Act of 2007.
Let me first start by saying that my oral presentation and
responses today are my own and do not necessarily reflect the
views of the Commission or any commissioner.
Health-care markets are complex and dynamic, and the market
for pharmacy services is no exception. The Commission is
mindful of the challenges and economic pressures faced by small
drug stores brought on by changes in the health care sector.
Caring pharmacists across the Nation work with dedication to
serve the needs of patients, and we do not question the
sincerity of those raising concerns about the quality of
patient care. But the solution to the concerns raised by
pharmacies is not to give them immunity from the antitrust
rules that guide our economy.
The Commission is charged with and takes very seriously its
obligation to enforce the antitrust laws. And it acts to
protect consumers by addressing anticompetitive action in each
of the markets it reviews, including the markets for pharmacy
and pharmacy benefit management services and other vital
products and services in the health care industry.
H.R. 971 would create an exemption from the antitrust laws
to allow to allow pharmacies to engage in collective bargaining
to secure higher fees and more favorable contract terms from
health plans.
Simply put, the Commission opposes legislation, because the
exemption threatens to raise prices to consumers, including for
seniors, for much-needed medicine. It also threatens to
increase costs to both private and employers who provide health
care insurance to employees, potentially reducing those
benefits, and also to the Federal Government, which is
projected to have paid over 30 percent of the cost of
prescription drugs in 2006 alone. Importantly, the proposed
bill threatens these harms without any assurance of higher-
quality care for consumers.
At various times since the advent of active antitrust
enforcement in health care in the 1970's, health care providers
have sought an antitrust exemption. In 1998 and 1999, then-
Chairman Robert Pitofsky testified on behalf of the FTC,
opposing similar bills that would have applied to all health
care professionals. Although those bills and others seeking
antitrust exemptions have differed in their scope or details,
they all have sought some form of antitrust immunity for
anticompetitive conduct that would tend to raise the prices of
health care services.
The Congressional Budget Office concluded, for example,
that, if enacted, the 1999 exemption bill would significantly
increase direct spending on pharmaceuticals both by private
payers and under various Government programs.
Just this year, the Antitrust Modernization Commission, the
body enacted by Congress to evaluate the application of our
antitrust laws, addressed the subject of antitrust exemptions.
The AMC urged that Congress exercise caution, pointing out that
antitrust exemptions typically create economic benefits that
flow to a small, concentrated group of interested groups, while
the costs of these exemptions are widely disbursed, usually
passed on to a large population of consumers through higher
prices, reduced output, lower quality and reduced innovation.
Accordingly, the AMC recommended such statutory immunities
be granted rarely and only where proponents have made a clear
case that exempting otherwise unlawful conduct is necessary to
satisfy a specific societal goal that trumps the benefit of
free-market competition to consumers and the U.S. Economy in
general.
Is the proposed exemption for pharmacies in H.R. 971 one of
those rare instances in which the societal benefits from
dispensing with antitrust rules in the normal competitive
process exceed the costs? In Federal Trade Commission's view,
it is not. The bill would immunize price-fixing and boycotts to
enforce fee and other contract demands, conduct that would
otherwise amount to clear antitrust violations.
Experience teaches that such conduct can be expected to
increase health care costs both directly through higher fees
paid to pharmacies and less directly by collective obstruction
of cost-containment strategies of purchasers. These higher
costs would fall on consumers, those employers who purchase
pharmaceuticals and other products on behalf of their
employees, and Government assistance programs. Importantly,
making prescription drug coverage more costly means some
Americans will actually have to do without important needed
drugs.
In addition, although H.R. 971 aims to ensure and foster
continued patient safety and quality of care, there is no
guarantee that the proposed exemption would further these
goals. Antitrust immunity not only would grant competing stores
a powerful weapon to obstruct innovative arrangements for the
delivery and financing of pharmaceuticals, but it also dull
competitive pressures that drive pharmacies to improve quality
and efficiency in order to compete more effectively.
Moreover, nothing in the bill requires that the collective
bargaining it authorizes be directed to improving patient
safety or quality, rather that merely increasing pharmacies'
revenues from payers.
If Congress concludes the difficulties facing small
pharmacies require legislative solution, then one tailored to
the specific problem is called for, not a sweeping antitrust
exemption that may bring with it greater harm.
Again, I appreciate the opportunity to testify before you
today. And I'd be happy to answer questions. Thank you.
[The prepared statement of Mr. Wales follows:]
Prepared Statement of David Wales
Mr. Conyers. Thank you very, very much, Mr. Wales. Is this
your personal testimony or----
Mr. Wales. The way I think it works is the written
testimony was the testimony of the Commission itself. My
remarks today, though, are my own.
Mr. Conyers. Okay.
Mr. Weiner. When we ask him questions, who is he speaking
for?
Mr. Conyers. Well, it would probably depend on the
question.
Mr. Wales. The questions and the answers I will give will
be my own.
Mr. Conyers. That's a little unusual arrangement, I just
wanted to observe, because I didn't think I was hearing
correctly. But your testimony is welcomed and appreciated.
Now we have another antitrust attorney, David Balto, and he
is testifying on behalf of the National Community Pharmacists
Association. He has practiced antitrust law for quite a while,
and he's spent a lot of time in the Department of Justice's
Antitrust Division, as well as the Federal Trade Commission.
And he currently chairs the American Bar Association's
Antitrust Section on Health Care Committee.
We have your testimony, and now we'd like to hear from you.
TESTIMONY OF DAVID A. BALTO, ANTITRUST ATTORNEY, ON BEHALF OF
THE NATIONAL COMMUNITY PHARMACISTS ASSOCIATION
Mr. Balto. Thank you, Chairman Conyers and Ranking Member
Keller. It's a privilege today for me to come before you and
testify on behalf of the independent pharmacists of the United
States and the National Community Pharmacists Association.
When you look at health care antitrust issues, you should
ask two questions: Who represents the consumer? And who
benefits?
Who represents the consumer in the pharmaceutical
distribution system? It's not the insurance companies. They're
there to serve the interest of their stockholders. It's not the
employers, for whom health care costs is just a line item. It's
the pharmacist: the pharmacist who wakes up the 5 o'clock in
the morning to go and deal with a claims problem; the
pharmacist who answers a question at 10 o'clock at night;
especially the community pharmacist, dedicated individuals,
many of whom serve underserved areas in the United States,
rural areas, low-income areas, which just simply aren't
profitable for chain pharmacies.
Who profits? Well, it's the PBMs and insurance companies
that are profiting. While they're making record profits,
they're doing it in part by squeezing independent pharmacists
to their last ounce of survival, driving them from business.
Now, you passed H.R. 1304, the Campbell-Conyers bill, back
7 years ago, because you saw it was important for the health
care provider to be able to voice for itself and for the
consumer to have a voice in this process. Seven years later,
that imbalance you sought to redress is far worse. Both the PBM
and insurance industries have become vastly more concentrated.
PBMs are a type of oligopoly of three firms that basically
control the market. They're making record, astronomical
profits.
They're also make a record in something far less glorious:
They're creating a record of consumer protection violations.
The Justice Department and the Coalition of State Attorneys
General have sued them over and over again to stop these
anticonsumer practices. That's another reason why you want to
give the independent pharmacists a voice at the bargaining
table.
But let's be clear about this. The independent pharmacist
is gagged. It's gagged by sound economic policy; it's gagged by
an antitrust rule, the per se rule against antitrust price
fixing, which says that if Mr. Dozier and Mr. James dare go and
voice things together, that conduct can be illegal under the
per se rule.
The PBMs are smart, and they have expensive lawyers, and
they use that rule to threaten litigation against the
pharmacists to prevent them from acting collectively. Will they
win those cases? No. No sound court would find those as
violations. But the cost of that litigation prevents the PBM
pharmacies from actually being able to voice their concerns at
the bargaining table.
Is an exception warranted under the law? It's clearly
warranted under the facts. You want those independent
pharmacists to be able to speak for you. You want them to speak
for themselves. The antitrust laws are not perfect, and we
don't want the antitrust laws to become the enemy of the good.
Basically, what the antitrust laws have done is create a sword
of Damocles, so that if the independent pharmacist voices its
concerns, they can be threatened by costly antitrust
litigation.
If you look at past precedents of the Congress, you'll see
that they've acted to create exemptions when the antitrust law
prevents this type of pro-competitive conduct or creates the
need to create countervailing power, such as the Capper-
Volstead Act exemption.
Let me close with one last point. Will this be harmful? Not
on your life. Several months ago, the FTC investigated Rite
Aid's acquisition of records, which gave it more than a 40
percent market share in many metropolitan markets in upstate
New York. They inquired, could Rite Aid use that 40 percent
market power to get a better deal from PBMs? Could they extract
super-competitive profits? The answer was no, they didn't do a
thing in terms of protecting PBMs. Why? Because 40 percent
didn't matter when you were dealing with PBMs.
If Mr. James or Mr. Dozier or the 20 pharmacists in Florida
that Mr. Weiner talks about want to get together, they deserve
that opportunity to collaborate and innovate. They deserve to
have this sword of Damocles taken away from them.
Who speaks for the consumer, Mr. Chairman? The independent
pharmacist speaks for the consumer. And the independent
pharmacist needs this Committee and this Congress to come up
and speak for them by enacting H.R. 971.
Thank you.
[The prepared statement of Mr. Balto follows:]
Prepared Statement of David A. Balto
Mr. Conyers. Thank you so much.
We now have a pharmacist, the executive director of the
Mississippi Independent Pharmacies Association, Mr. Robert
Dozier--Jackson, Mississippi. And he's become one of the
State's leading advocates for independent pharmacists by
ushering in legislation through his State, ensuring that
pharmacies receive timely reimbursement.
And we'd like to hear from you now, as our final witness.
Welcome.
TESTIMONY OF ROBERT DOZIER, EXECUTIVE DIRECTOR, MISSISSIPPI
INDEPENDENT PHARMACISTS ASSOCIATION
Mr. Dozier. Good morning, Chairman Conyers, Ranking Member
Keller and Members of the Committee. My name is Robert Dozier,
and I am the Executive Director for the Mississippi Independent
Pharmacies Association.
The local community pharmacies I represent play a vital
role in our health care delivery system, but they are being
forced out every day by unfair business practices by the major
pharmacy benefit managers and the Medicare Part D plans. This
is the very reason why the Mississippi Independent Pharmacies
Association was formed and why I am before you today at this
hearing.
Independent pharmacists are one of the most trusted
professions of this country and are the only health care
provider that gives free, no-appointment-necessary, trusted
care. These pharmacists pride themselves on being able to serve
their patients and communities with the highest service. Most
independent pharmacies provide 24-hour emergency care, such as
helping a mother with a sick child in the middle of the night.
Nearly all independent pharmacies provide delivery services to
their patients, despite rising fuel costs in today's markets.
To give you an example about the service independent
pharmacies provide to the community, Ms. Jane Paschall from
Holly Springs, Mississippi, stated in February of 2006 that she
was sick and could not drive to town to pick up her medication,
so her local independent pharmacist, Bob Lomenick, delivered
her medication free of charge, placed her trash out by the
road, and when he arrived he even brought her a milkshake from
his local pharmacy.
Ms. Paschall stated later that she would've never received
that kind of service from anybody but an independent
pharmacist. I might add that Bob Lomenick performed all of
these services in the middle of an ice storm that was passing
through north Mississippi.
In the aftermath of Hurricane Katrina, we saw what
independent pharmacists were really made of, when the majority
of health care institutions and facilities had been destroyed
by the storm. The independent pharmacists of the Mississippi
Gulf Coast who had survived the storm opened their pharmacies
the day after the storm, despite having no electricity or
modern conveniences, so they could provide for their patients
and survivors of the worst natural disaster this Nation has
ever witnessed.
Independent pharmacist John McKinney in Moss Point,
Mississippi, worked alongside with Dr. Sid Ross, who was
working from the pharmacy because his office was destroyed,
providing care and medication to the people of the Gulf Coast.
Mr. McKinney made sure that anybody who could produce a
medication list or bottles with proper ID received their
medication, as long as the medication was not a controlled
drug. Mr. McKinney and other community pharmacists on the Gulf
Coast provided these survivors with their medication with
little or no hope of being reimbursed for the products or their
services. They provided these survivors with their medication
not for the payment or low reimbursement that all independent
pharmacists are seeing today, but they provided the medication
because it was the right thing to do.
If it were not for these independent pharmacists, the Gulf
Coast and the rest of Mississippi might have seen a major
health care disaster. When hospitals, local clinics, chain
pharmacies and even Kessler Air Force Base were closed, these
local pharmacists rose to the top to provide patient care and
service in the time of need of their local communities.
You simply cannot receive that kind of treatment and
patient care from a mail-order company. I know this from
personal experience, because my father had to evacuate his home
in New Orleans due to the storm and he is a mail-order patient.
My father is a mail-order patient not by choice, but because
his insurance company's PBM has forced him to receive his
diabetic medications through the mail. He is one of the many
refugees from the storm that had problems receiving their
medication, but Bill Mosby, a community pharmacist from Canton,
Mississippi, helped my father get his medication when he was
unable to get it from the mail-order company.
It only strengthens my belief in the role of our country's
independent pharmacists when I think of what could have
happened to my father and other patients if they were not able
to receive their medications.
I want to point out that the small business of independent
pharmacy is unique in that it has little control over the cost
paid for a product or control over the price set to sell the
product. Yet, when it comes to squeeze savings from the system
in this escalating-cost environment, both State and Federal
Government turn to pharmacy as if they had control over
pricing.
Almost all of the medications that pharmacies dispense are
paid by third parties, thanks in part to Medicare Part D
benefit that our Government approved a few years ago. But the
small, independent pharmacists have no voice in the agreements
for reimbursement for the Part D plans, and they are facing
smaller margins, low to no profit, and greater debt.
Members of Congress may believe pharmacies can absorb these
losses and go on. Many people do not understand business
operations or the term ``gross margin.'' It is very simple: If
a pharmacist buys a medication for $100 and gets reimbursed
$85, then has to wait 6 weeks to be paid, it is just a matter
of time before he will have to close his pharmacy. There's no
gross margin.
The PBMs have reduced payments in a severe fashion. This is
an inequity which needs your attention today. A small business
of any type cannot continue to operate if the revenue coming in
does not at least match the cost of the product being sold and
the overhead needed to serve the consumer.
[The prepared statement of Mr. Dozier follows:]
Prepared Statement of Robert Dozier
Good morning Chairman Conyers, Ranking Member Keller, and Members
of the Antitrust Taskforce. My name is Robert Dozier and I am the
Executive Director for the Mississippi Independent Pharmacies
Association. The local community pharmacies I represent play a vital
role in our healthcare delivery system--but they are being forced out
of business every day by unfair business practices by the major
Pharmacy Benefits Managers and Medicare Part D Plans. This is the very
reason why the Mississippi Independent Pharmacies Association was
formed and why I am before you today at this hearing.
Independent pharmacists are one of the most trusted professions of
this country and are the only health care provider that gives free, no
appointment necessary, trusted care. These pharmacists pride themselves
on being able to serve their patients and communities with the highest
service. Most independent pharmacies provide 24 hour emergency care,
such as helping a mother with a sick child in the middle of the night.
Nearly all independent pharmacies provide delivery services to their
patients despite rising fuel cost in today's markets. To give you an
example about the service the independent pharmacists provide to the
community, Ms. Jane Paschall from Holly Springs, MS, stated that in
February 2006 she was sick and could not drive to town to pick up her
medication, so her local independent pharmacist Bob Lomenick delivered
her medication free of charge, placed her trash out by the road when he
arrived and even brought her a milkshake from his local pharmacy. Ms.
Paschall stated later that she would have never received that kind of
service from anybody but an independent pharmacist. I might add that
Bob Lomenick preformed all of these services in the middle of an ice
storm that was passing through North Mississippi.
In the aftermath of Hurricane Katrina, we saw what independent
pharmacists were really made of when the majority of the healthcare
institutions and facilities had been destroyed by the storm. The
independent pharmacists of the Mississippi Gulf Coast who had survived
the storm opened their pharmacies the day after the storm despite
having no electricity or modern conveniences so they could provide for
their patients and the survivors of the worst natural disaster this
nation has ever witnessed. Independent pharmacist John McKinney of
Burnham-McKinney Pharmacy in Moss Point, MS, worked along side with Dr.
Sid Ross, who was working from the pharmacy because his office was
destroyed, provided care and medication to many of the people on the
Gulf Coast. Mr. McKinney made sure that anybody who could produce a
medication list or bottles with proper ID received their medication as
long as that medication was not a controlled drug. Mr. McKinney and
other community pharmacists on the Gulf Coast provided these survivors
with their medication with little or no hope of being reimbursed for
the products or their services. They provided these survivors with
their medication not for the payment or the low reimbursement that all
independent pharmacists are seeing today, but they provided the
medication because it was the right thing to do.
If it were not for these independent pharmacists, the Gulf Coast
and the rest of Mississippi might have seen a major healthcare
disaster. When the hospitals, local clinics, chain pharmacies, and even
Kessler Air Force Base were closed, these local pharmacists rose to the
top to provide patient care and service in the time of need for their
communities.
You simply can not receive that kind of treatment and patient care
from a mail-order company. I know this from personal experience because
my father had to evacuate his home in New Orleans due to the storm and
he is a mail-order patient. My father is a mail-order patient not by
choice but because his insurance company's PBM has forced him to
receive his diabetic medications through the mail. He was one of the
many refugees from the storm that had problems receiving his
medications, but Bill Mosby, a community pharmacist from Canton, MS,
helped my father get his medication when he was unable to get it from
the mail-order company. It only strengthens my belief in the role of
our country's independent pharmacists when I think of what could have
happened to my father and other patients if they were not able to
receive their medications.
I want to point out that the small business of independent pharmacy
is unique in that it has little control over the cost paid for a
product or control over the price set to sell the product. Yet, when it
comes time to squeeze savings from the system in this escalating cost
environment, both State and Federal government turn to pharmacy as if
they had full control over pricing. Almost all of the medications that
pharmacies dispense are paid by third parties--thanks in part to the
Medicare Part D benefit that our government approved a few years ago.
But the small, independent pharmacies have no voice in the agreements
for reimbursement for the Part D plans, and they are facing smaller
margins, low to no profits, and greater debt.
Members of Congress may believe pharmacies can absorb these losses
and go on. Many people do not understand business operations and or the
term ``gross margin.'' It is very simple: if a pharmacist buys a
medication for $100 and gets reimbursed $85, then has to wait 6 weeks
to be paid, it is just a matter of time before he will have to close
his pharmacy. There is no gross margin. The PBMs have reduced payments,
in a severe fashion. This is an inequity which needs your attention
today. A small business of any type cannot continue to operate if the
revenue coming in does not at least match the cost of the product being
sold and the overhead needed to serve the consumer.
This is a blow to small business, but devastating to those patients
served by these small businesses. Pharmacists across the nation are
agonizing over the thought of not being able to serve their patients.
And those patients will be distraught over the thought of losing their
pharmacies. Members of Congress may not believe access is a problem
because they see multiple pharmacies at the same intersection in larger
cities. Mississippi is a prime example of rural America, a state that
has eleven counties with only one pharmacy and one county that has NO
pharmacy at all. These patients understand what it will mean to their
health care if that pharmacy disappears--they could easily be 30-40
miles away form the next closest pharmacy.
Independent pharmacies across the state of Mississippi and the
United States are a key component of the healthcare delivery system,
but they are facing extinction due to the unfair business practices of
the major Pharmacy Benefit Managers and Medicare Part D Plans. You can
see from my earlier statements how important these small businesses are
to our communities. Without the ability to truly negotiate with the
PBMs, independent pharmacy will become a thing of the past and our
healthcare system in this country will truly be broken beyond the point
of fixing. We will never be able to replace the face-to-face patient
counseling that community pharmacists provide on a daily basis to all
of their patients. There will not be the same care from a mail-order
company that we see from an Independent Pharmacist.
Once again, I would like to thank you for your time and I urge that
the committee schedule a markup of HR 971 and bring the bill to the
floor in order to keep this key component of our health care system in
place.
Mr. Conyers. I thank you, Mr. Dozier.
And I thank all of the witnesses. This has been
fascinating.
I've got to go back and find out what happened to Campbell-
Conyers over a half-dozen years ago.
Mr. Dozier, you've put a huge burden on my local
pharmacist, because I don't get that kind of service. And I'm
going to tell everybody, all the local guys in the Detroit
area, you know, what may be pretty extraordinary service here.
But, you know, you five have listened to myself, Mr.
Keller, Mr. Weiner, Darrell Issa. And each of you listened to
four other witnesses.
So I want to just ask you, if we were sitting around
whatever it would be in Mississippi, maybe the Cracker Barrel--
we're just talking about this now. Forget the fact that you're
in a Federal situation where your testimony is reviewed for its
accuracy.
But let me ask you, Mr. Dozier, of all the things you heard
here this morning from all the rest of us, what is on your
mind? What are you thinking about, in terms of the great
variety and scope of analysis that's happened here this morning
already on this subject?
Mr. Dozier. Well, my personal feeling is, listening to
everybody's testimony and some questions from you all, that
there is an urgency that we need to save independent pharmacy
in this country of ours.
The gentleman earlier testified that this would run the
program up; it would cost $29.6 billion. Personally, myself, I
have a hard time believing that. If we do not save independent
pharmacy, it will probably cost us $29 billion, because we will
see a problem with pharmacy provider access, and therefore you
will see hospitalization rates increase because the pharmacist
was not there to take care of those patients in those
communities.
For example, there have been already 18 to 20 pharmacies,
independent pharmacies, to close in the State of Mississippi,
from January 1st to the end of August, and that came from the
State Board of Pharmacy. There are 11 counties in the State of
Mississippi which only have one pharmacy, and that happens to
be an independent pharmacy. In the State of Mississippi, if
pharmacies continue to close, you will see a major health care
disaster because the accessibility to the pharmacy will not be
there.
And as we're going out of business, the PBMs and the
Medicare Part D plans are making huge profits, obscene profits.
And, ladies and gentlemen, Mr. Chairman, we have to remember
this: It's about the care of patient.
And the pharmacists are the ones who take care of the
patients. The PBMs and the Medicare Part D plans are only
concerned about one thing and one thing only: profit, profit
and profit.
Mr. Conyers. Thank you very much.
Dr. Rankin, could I ask you for your impression of the
various positions that have been put forward that you hear
among the members of the panel and your fellow witnesses?
Mr. Rankin. Certainly, Chairman.
I think it's certainly true that there is a remarkable
tension among the different testimony you've heard. And I think
one of the commonalities that you hear or at least one issue
that, perhaps, is not disputed is that there is a role, and
there is a value to independent pharmacies. The frustration is
that there are some pharmacies that are closing, and yet, the
economic factors or at least the cause for this points to,
according to advocates for the bill, to PBMs.
And so, on the other side of the tension, you have the
economic analysis of the PBM industry, which repeatedly shows
that it is considered to be a highly competitive industry. When
PBMs interact with plan sponsors--those are health insurers and
employer groups--there is quite an intricate bidding system
that has, over time, become incredibly efficient and has
allowed plan sponsors to define the terms and get very good
deals, at least in terms of the sharpened-pencil point, in
structuring deals with PBMs.
And so the tension, to me, seems really to be one of, if
having the services provided by independent pharmacies is one
of value and is one that Congress wants to value not
necessarily on economic grounds but because it values the
services offered by independent pharmacies, there is no role
for antitrust exemptions. The PBMs are competitive and have
repeatedly demonstrated to be so. And I worry, frankly, about
the after-effects of granting exemptions to independent
pharmacies.
Mr. Conyers. Thank you very much.
Mr. Mike James, in sorting out all of these varied opinions
and pronouncements, what is the major thing that is impressing
you this morning?
Mr. James. Mr. Chairman, as you and I have talked before,
as a pharmacist, my main concern in all of this is the health
care of the patient. We've always said that the personal
relationship of the independent pharmacist is the best cost-
containment program there is, because that pharmacist knows
what's going on with the patient. They know what their process
is, they know their health care, they know their history.
The problem that I have with what I'm seeing today is that
the health care, which is what we are here before the Judiciary
Committee today about, is the fact that we're seeing less and
less health care being administered to that patient.
I mean, I think about that patient who would walks into my
pharmacy who is on Medicare Part D. She has fallen into the
donut hole, and she has no way to buy her insulin. It is a true
fact. I can give you the lady's name. This is not a
hypothetical case.
The process we have here is a program that, when it was
first announced, seniors said, ``Oh, what a great program this
is going to be.'' They just, unfortunately, didn't know the
details of the program. They surely found those out as they
found themselves within the program.
The problem we have today is there are so many dollars
being taken out of this program that could be retained in the
program and eliminate the donut hole. There are ways to do
that. You know, I believe there are programs out there, there
are plans out there that we can put together to do that very
thing.
It's easy for us to sit in this room today and talk about
the patients who can't pay for their medication. I can assure
you, as you stand in your pharmacy and that patient is in front
of you trying to figure out how they are going to get their
medication, it is a whole different emotional level of what's
going on. And we face that as pharmacists every day, and we
work every day to try to help those patients find a way to get
their medications.
It is a very difficult situation. It's a situation that
exists that shouldn't exist, and that is what we are talking
about this morning.
Mr. Conyers. Thank you very much.
Mr. Wales, what impresses you most about the wide variety
of opinions you heard this morning?
Mr. Wales. I would be happy to answer that.
Let me start off by saying that I think we are sympathetic
to some of the issues that have been pointed out, in terms of
some of the shortcomings with respect to our health care policy
in the U.S.
I, personally, grew up in a pretty small community in
upstate New York. In fact, I've seen some of the challenges
that are faced by communities in terms of not only pharmacy
services but doctor services. And so I think--let me start by
saying that I think we realize that there are some real
challenges there.
I think the problem is that we really don't think a broad,
you know, kind of antitrust exemption that would apply across
markets and apply in different circumstances is the right
answer to some of those problems.
There are certain things we do know. We have seen
collective bargaining by health care professionals that has
really had a negative impact on American consumers. It has
driven the prices up of health care services. We've seen
pharmacists who, I think--you know, I really do think we do
appreciate them. There are a lot of great pharmacists out
there. Unfortunately, there are some bad apples who have been
out there, you know, with the goal of increasing compensation,
really, untied to quality-of-care issues. And so I think the
problem is that we really do believe in the benefits of
competition in those markets, and we have seen some of the real
downsides to consumers when that competition is taken away.
In essence, I think there are some, really, more narrow
quality-of-care issues that are raised by this panel. And I
think, you know, hopefully, the challenge is trying to focus on
those without a broader antitrust immunity that goes into areas
that we think have unintended consequences and will actually
harm consumers.
Mr. Conyers. Thank you.
Attorney Balto, your view?
Mr. Balto. Thank you, Mr. Chairman.
You know, let me start off with H.R. 1304.
By the way, last night, I got to talk to Congressman
Campbell, and he sends you and the Committee his regards. He is
having fun running the Haas School of Business.
He wanted me to say, look, the Congress had enacted the
Sherman Act. You know, go back to that sword of Damocles. They
saw the antitrust laws not as a sword for the PBMs to use, for
the big insurance companies, for the big intermediaries to use
to bully small producers, but, rather, as a shield to protect
those small producers from the anticompetitive activity of
those large intermediaries.
That's why you've acted prudently to pass exemptions, for
example, the Standards Development Organization Act or other
exemptions that have been passed that are mentioned in my
testimony, to go and clarify the law and protect small
producers.
Let's go back to H.R. 1304. There are people who said H.R.
1304 shouldn't be enacted. They said, ``Wait. Let the antitrust
laws work. If the problem is that the insurers and PBMs are too
big, we will go and stop them from becoming bigger.'' Well,
what's happened in the last 7 years, and with due deference to
my good friend Mr. Wales, the FTC and the Justice Department
haven't stepped up to the plate. They haven't challenged any
PBM mergers. They didn't issue a second request in the CVS-
Caremark merger. They only did a quick, brief look at the
Caremark-Advance PCS merger.
By the way, based on that, they issued a statement saying
the market is competitive. If you take just a quick look at
things, I don't think you can really assess whether or not it's
competitive. The result is there are three dominant PBMs, and
they use ``take it or leave it'' offers. You know, they just
basically impose ``take it or leave it'' offers.
It's important for you to realize when you consider these
issues, when Mr. Rankin mentions economic grounds or Mr. Wales
mentions economic grounds, we're not talking about the
production of ice cream, we're not talking about the production
of tires; we're talking about health care.
It is in the interest of somebody who has monopsony power
to underbuy, to undersupply the market. When you have that
power, you want to drive production down. And what that means
is that, when I, as an individual, want to go and have my
prescription filled, Mr. Dozier's out of business. There is no
place for me to go. It means that I can only get my service
under mail-order, and that's a cumbersome and often bad
process.
Now, we've spoken a lot about the profits of the PBM
industry, and I don't deny anybody the ability to secure
profits, but what do the profits tell you? They tell you the
same thing, Mr. Chairman, that they told you when you had the
oil companies in here. Those astronomical profits mean those
firms have market power. These independent pharmacists, they
don't have market power. Rite Aid is acquiring Eckerd's. They
don't have market power. But if somebody is making those
astronomical profits, that suggests they have market power.
And how do they use that market power? They use it to harm
consumers. They engage in a tremendous number of exploitative
practices, which my testimony has an appendix of all of the
cases that have been brought against the PBMs. They have had to
pay, so far, over $300 million in damages.
Let me stop with one final comment about mail-order. And I
do not want to get into a debate over here, but I spend 60
percent of my time representing consumer groups--Consumers
Union, Families USA and USPIRG--and they do not like mail-
order. We don't like mail-order. It may appear to save the
employer money. It may be a rich source of profits for PBMs.
But ultimately, it leads to worse patient care. Ultimately, it
leads to worse health outcomes.
The better system, the preferable system, is empowering the
community pharmacists, allowing them to do 90-day scripts,
allowing them to provide the high-quality service that
consumers need. Otherwise, you will wake up 5 years from now,
Mr. Chairman, having to fill a prescription, and you're going
to have to pick up a phone and call some pharmacist in
Thailand, who works for a PBM, who will be trying to answer
your questions about--you know, instead of being able to go to
your neighborhood community pharmacist. That's why this
legislation is necessary.
Mr. Conyers. Well, thank you for your measured predictions
of what is going to happen in the future.
I now turn to the author of the legislation which has
brought us together, the gentleman from New York, Mr. Anthony
Weiner.
Mr. Weiner. Thank you, Mr. Chairman.
And I thank the panel. It has been enlightening.
Mr. Rankin, who paid CRA International for this study?
Mr. Rankin. This study was commissioned by PCMA.
Mr. Weiner. What is PCMA?
Mr. Rankin. It is the trade organization representing PBMs.
Mr. Weiner. In your estimate of the cost of this $29.6
billion, according to your models, how much of that would be
absorbed by a PBM's bottom line?
Mr. Rankin. The model does not predict an exact number. If
you read the report, what it says is $29.6 billion over 5
years. And based upon the recognition of competition in the PBM
industry, the expectation is that most of that would be passed
through to plan sponsors.
Mr. Weiner. Well, I see cost-simulation scenarios that go
into great questions about elasticity, where it would lie, the
total incremental gross margin increases for TPP prescriptions.
Nowhere could you--no modeling could calculate, given that
there is a limit on how much is going to PBMs by the
Government--so you should be able to recognize that some of it
would be absorbed in different points along the consumer
stream. You can't in any way estimate how much of that would be
absorbed by PBMs?
Mr. Rankin. The estimate that you are looking for really
depends on how plan sponsors interact with their PBMs.
Mr. Weiner. I would agree with that.
Could it be that $29.6 billion in your study, since you
don't model it to see where that will be distributed--to
taxpayers in the form of Medicare payments, to pharmaceutical
companies themselves, or to consumers--could it be that PBMs
would absorb all of it?
Mr. Rankin. No.
Mr. Weiner. Tell me why.
Mr. Rankin. Because PBMs compete vigorously for services
provided to plan sponsors.
Mr. Weiner. PBMs, in their creation, were created in order
to take the amount of money that Government was allocating for
the drugs and to process all of the various people trying to
get the drugs, in a way, to save money.
Now, if we create this and there is increased competition
and PBMs are going to have to pay out or they're going to have
to pay more to pharmacists, why could it not just be, since
PBMs can't go to Government and say, ``Give us more money,''
that PBMs will have to absorb it?
Mr. Rankin. There's nothing to absorb, is the point. When
plan sponsors interact with PBMs, they provide very detailed
RFPs. These are specific categories of services that need to be
provided by the PBMs. They engage, typically, in at least two
rounds of bidding, in which PBMs provide full documentation.
And during this process, plan sponsors usually retain benefit
consultants who serve this role over a number of negotiations
and develop a familiarity with both the tools and the methods
employed by PBMs----
Mr. Weiner. Let me just interrupt you for a second. You
have calculated, under your contract with PBMs to do research,
you have calculated a number that is exquisite in its
precision, $29.6 billion. A classic tool of consultants, to
make it seem like it is a precise estimate. You make it $29.6
billion rather than $30 billion.
Hey, well, that gives it a certain intellectual heft, I
guess, but I have asked you whether you modeled to figure out
where in the consumer stream that you broadly say that it can
go to--consumers or it can be returned to Medicare. And nowhere
is there anywhere in the modeling as to what percentage of it
that just the PBMs will have to take since they're now facing
another organized group, competing together to negotiate for
lower prices, just like Rite Aid or Eckerd's or anyone else.
Nowhere is it characterized in here how much the PBMs would
absorb.
And I think the reason that it's not characterized that way
is because there's a chance that it can be $1 of it. I mean,
you say none of it. I find that hard to believe. It could be $1
of it.
Theoretically, let us assume for a moment independent
pharmacies are able to organize. By your own definition, they
are getting $29.6 billion of additional reimbursements for the
drugs that they're selling. Well, that cost could, absent any
other information to the contrary in your study, be absorbed by
PBMs.
Mr. Wales--certainly, go ahead, Mr. Rankin.
Mr. Rankin. Everything you say is contrary to economic
theory, to the statements of the FTC and to the economic
research we have done.
Mr. Weiner. Well, we're going to get to the FTC in a
moment. Mr. Rankin, you had an opportunity----
Mr. Rankin. Yes.
Mr. Weiner [continuing]. To model this. For example, if I
asked you now--assume for a moment that the Federal Government
wanted to model it so that all of it, all of the additional
costs, would be absorbed by the PBMs.
I can think not--you know, being a Member of the Energy and
Commerce Committee, I would probably take about 25 minutes to
how I would write that bill. I would say that the PBMs are
going to get X number of dollars for a drug. That is going to
be our reimbursement rate to the PBM. You then have to go out
and negotiate your prices with your Rite Aids, your Eckerds and
these independent pharmacies, and whatever price you get, if it
is not $10 like it was yesterday and if it turns out to be $9
because of tougher competition, it is $1 out of your employer's
hide.
So I can say 100 percent of it comes from the PBMs,
couldn't I?
Thank you, Mr. Rankin.
Mr. Wales, let me ask you a question on your testimony. You
are correct to point to the AMC, the Antitrust Modernization
Act. And you point to, I guess, the salient line, that
``Exemptions should be necessary''--this is quoting from your
testimony, which is from the Act--``necessary to satisfy a
specific societal goal that trumps the benefit of a free market
to consumers and the U.S. economy in general.''
And that is not only the statement of Congress, but it's
intuitive that you want to be able to make sure that a goal is
advanced. Obviously, the uncontested goal here--I don't see
anyone arguing that having fewer community pharmacists is a
societal goal. You want more competition by just about any
model. No matter who is paying the bills, you want to have
competition, you want to have employers and people to have a
choice. Your hometown does not benefit by having less
competition. It benefits by having more. So it's intuitive that
what we're trying to do here is to have more competition, which
is the societal goal we're trying to pursue.
The thing that the FTC doesn't realize--and, frankly, it
weaves in and out of this fact in its various actions--this is
not a free market, is it? I mean, for 90 percent of seniors,
they do not have the opportunity to go out and say, for
example, ``I do not want to get Lipitor. I don't like that--I
don't like that drug. My blood pressure is--I'm going to go to
something else. I'm going to go out, and instead of getting
Lipitor, I am going to go out and shop for five or six or seven
other drugs. I'm going to go compare notes, and I'm going to
decide for myself.''
This is not a classic free market because consumers don't
have the expertise, the experience or the choices. Elsewhere in
this Committee, we have decided that a pharmaceutical company
is going to have an uncontested right to sell that drug and
only that drug for a certain period of time. So this is not a
free market. We're not going in and deciding which car you're
going to buy. We're going in and taking a marketplace that is
hyperregulated and hypercontrolled--and extraordinary powers
are vested with the person who controls that drug, whether it
controls it at the manufacturer or it controls it at the PBM.
We consumers aren't going in and taking a free market and
making it an unfree market. We're taking a very, very
hyperregulated market and trying to broaden choice for people.
So you have to, in your analysis, look at the idea that
you're not looking at a classic free market, and you're
certainly not looking at a market as it relates to Medicare
Part D. With Medicare Part D, neither the PBMs nor anyone else
can go and say to the Government, ``We are going to say
whatever we want for this price.'' They agree that if you're
going to be in the program, that you're going to have to pay
for it.
And I would just point out one other thing. In your
testimony, you expressed concern that if my legislation is
passed that it takes away the incentive for greater service.
Well, I would say to you, my friend, even with the advantage of
being able to join together, the only way a neighborhood
pharmacist can compete against the Rite Aids is based on
service. And I think the record will show today--and you may
even want to stipulate to this--that neighborhood pharmacies
today survive based on the service of Mr. Dozier. You know,
that's the only edge that they have, is they've got to hustle
and hustle and hustle. But you can hustle all you want; if
you're paying $50 for a drug and the Eckerd down the street is
paying $25 for a drug, you aren't reaching that place.
And so, sometimes the antitrust laws are used, or the
ability for people to negotiate as a group is a way to do so in
a minimally invasive way, rather than going and manipulating
the economy. It's a minimally invasive way to say, ``Let's
figure out a way to try to let these different sides compete.''
I see no scenario where allowing this to happen reduces the
numbers of players in the marketplace. I just can't figure that
out. There's no way a handful of guys in Mississippi are going
to drive Wal-Mart out of business. I don't see any real way
that a bunch of guys in New York are going to drive Rite Aid
out of business.
So, if you game this out, you are going to have a
furtherance of the societal goal, more community pharmacists
surviving, a furtherance of the societal goal of having more
competition based on service--because nothing is going to make
Rite Aid improve their service if they're not going to have the
neighborhood community pharmacist to compete with--you'd have
more competition in this controlled marketplace, so you don't
have this pure free-market thing; you have more people that are
going to be competing.
And let me just say, finally--because I'm giving you a lot,
and I do want you to respond because you're not on any PBM's
payroll, so I am interested in your viewpoint as an economic
theorist in this case. In no way is it clear who it's going to
drive up the cost to. In my exchange with Mr. Rankin, he says,
absolutely, it's going to drive it up to everyone but to my
bosses. You know, you might have a different view. Tell me.
If I wanted to craft this and you said it should be limited
and we should try to figure out a way to craft it--if I wanted
to try to craft this in a way that the PBMs had to absorb the
cost, how would you recommend I do it?
Mr. Wales. Let me figure where to start.
Mr. Weiner. Go ahead. I have asked a lot of questions here.
Take your time.
Mr. Wales. I'll do my best, and I'm sure there will be ones
that I miss that you'll hopefully bring me back to.
Just to kind of start at the fundamental concept, I think
that, certainly, no one is going to argue that these markets
are operating in a perfectly competitive manner. I think there
are very few markets in the U.S. that do that.
I think there is also no question that there are some
legitimate concerns, in terms of some of the issues that some
of the independent pharmacies are facing in the market.
Certainly, all things being equal, more competition is better,
and certainly, more competition from independents is better.
I think this bill does something very different, in the
sense that it takes what we think is very important, in terms
of the competition that is existing--and it may not be perfect,
but there is no doubt, I think, that there is competition going
on between the independents, between the chains--CVS and Wal-
Mart and Walgreen's are all competing--and that consumers
benefit from that competition.
I think the issue we have with the bill is that it goes and
takes these issues, which, I think, are more narrow issues, and
it applies it across the board in situations where, you know,
there may not be inequities in bargaining power. Certainly,
there are examples where there are inequities.
I think the problem is that this bill applies across the
board in areas where doctors and pharmacists may have more
leverage, and there may be communities right now where
pharmacists really do have a lot of bargaining power against
the payers and the PBMs, because they are the only game in
town. Certainly, that is a possibility. You know, maybe that is
a minority of the markets, but certainly that is a
complication. I think it is a concern that this bill does not
take into consideration and, across the board, removes
competition, which we think is vitally important in terms of
protecting consumer interests and advancing the things----
Mr. Weiner. If I can stop you, explain to me that part.
Where would it remove competition? Tell me how. Can you just
kind of game it out for me?
Let's assume you have a community that has one community
pharmacist and no Eckerd's anywhere, and that guy forms into a
consortium. You're saying there, in that case, if it doesn't
end competition, you're still going to have--I mean, I
understand there is still competition that exists----
Mr. Wales. Maybe let me go through, and jump in, I guess,
if I'm not hitting the point.
I think the way you would look at it is that, when you
remove the protections of the antitrust laws, that allows
people to price, that allows them to collectively bargain
against PBMs and against the payers. I think what we find is
that, ultimately--and maybe that is the goal of the
legislation, is it raises the reimbursement rates for
pharmacists.
What happens is--and this gets into, kind of, what happens
after that point--what then happens is that, since this is such
a large input into the PBMs' product that they offer to their
customers and then that the payers offer to employers--and I
think we kind of agree with the idea that basic economics
suggests--and this came up in the 1998 and 1999 test by
Chairman Pitofsky--inevitably, you typically do see an increase
in the downstream product, and so people are going to pay more
for their medicines and for their drugs here. I think that's
the fundamental issue that we see here.
Beyond that, I mean, it's not like we're talking about a
theoretical exercise here. We have specific enforcement actions
we've taken where the exact same scenario that this bill is
going to create has happened, where people have violated the
law and have gotten together and have colluded in ways and have
price-fixed and have boycotted PBMs and payers. That has had a
really negative impact, increasing reimbursements by 22 percent
and up to 60 percent.
Mr. Weiner. Right. Maybe this will help us perfect the
bill. If the bill said, we will suspend antitrust only for the
purposes of forming into associations for the purpose of
negotiating with PBMs, that that is the sole purpose, would you
be satisfied that it would make it impossible to--that you
could not price-fix and that you'd still have to get the PBM to
agree? You're still a tiny--and I'm sure you know this from the
testimony--you're still a tiny percentage of the overall
marketplace, compared to the bigger chain stores.
If it were limited just for those purposes, just for the
purposes of negotiating deals on pharmaceutical drugs, would
that help allay some of your concerns?
Mr. Wales. I don't think it would. The problem is--and I
think for the bill, really, to have an impact--I mean, I think
that this is really not open to debate, that the plan of the
bill is to allow pharmacists to get larger reimbursements. So,
if you're getting together and collectively negotiating, you
have to have some market power to do that.
You know, Mr. Balto had suggested that there are a lot of
instances where independent pharmacists don't have that market
power. But if that's the case, then what does this bill do for
you? If you can't negotiate and have some leverage with the
PBMs, they can go to somebody else, right?
Mr. Weiner. Mr. Wales, you've asked an excellent question.
We sometimes have the tendency here, when we debate bills, to
wildly overstate and wildly understate the effect of the bill.
You know, it could well be that the influence might be more in
some places and less in some places. It might be nothing. PBMs
are so extraordinarily powerful in this, they might take a
group in Mississippi and say, ``Hey, guys, we're not going to
talk to you. You are now coming to us in association. We are
refusing to deal with you. Goodbye.'' Oxford Insurance, in my
district in New York, said to whole hospitals, ``You don't like
it? Tough. Take a hike.''
So it could well be that the PBMs will continue to act in
the way that PBMs have acted. And I would refer you to the
testimony of Mr. Balto's and to a list as long as my arm of
lawsuits brought by consumers against PBMs and by States like
my own against PBMs. So it could well be that this might not
have a great impact.
You see, this is the problem that I have. We can't say that
this is going to have this seismic shift when we know
intuitively these are still tiny players. Just to give them one
additional arrow in their quiver, this notion that they're
going to transcend from being David into Goliath overnight
because of this bill, I think, is overstating the case.
Mr. Balto, do you want to respond since Mr. Wales mentioned
your testimony?
Mr. Balto. Yes. You know, we're ready to--all three of us
are ready to give you an economic seminar, but let me explain.
Pharmacies are being reimbursed at a suboptimal level. What
they're trying to do is get it up to what it should be. What
we're all saying is they--well, what all of us are saying is
there is no chance these guys can have market power. They might
get power enough to get it up to something like the level where
it should be, but they're not going to be able to charge super-
competitive prices.
Again, the FTC's decision not to protect the poor, weak
PBMs of New York against Rite Aid's 40-percent-plus market
share in several metropolitan markets in New York City shows
you that getting independent pharmacies together is not going
to harm the PBMs. Ultimately, consumers aren't going to be
harmed.
You know, what we're talking about is a legal rule that you
have decided doesn't work in certain circumstances, and you've
enacted exemptions that prevent PBMs from going and doing
everything that a chain pharmacy does. That's all. And if the
chain pharmacies do it, nobody cares. But if the independent
pharmacists try to do it, they're saying that a sword of
Damocles should befall them.
Mr. Weiner. Let me pivot off of that, because I was
thinking the same thing when I was listening to Mr. Rankin's
testimony and Mr. Wales' as well.
By the logical extension of your argument, taxpayers, PBMs,
the Government and consumers would benefit a great deal if Rite
Aid had to negotiate as an individual store, right, that they
could not join together?
Mr. Rankin, do you want to take a stab at that?
Mr. Rankin. I am sorry. The question?
Mr. Weiner. By the logical extension, if this would have
such pernicious effects by allowing a small group to band
together, it seems to me that the inverse is true, that if we
said to Rite Aid tomorrow, ``Rite Aid on Avenue U,'' in my
district, ``and Rite Aid on Kings Highway, you can't band
together as one company and negotiate; you've got to do it as
individuals,'' that would reduce the cost to consumers,
wouldn't it?
Mr. Rankin. I guess I disagree with the premise of your
question. And I think one thing that we're losing track of here
is the fact that there are access requirements that provide
protection right now, and it is those same access requirements
that give market share when there is not necessarily 40 or 50
percent.
All you need, frankly, is a handful of independent
pharmacies that happen to be, say, the only pharmacy within 15
miles of a rural residence. The inclusion of that pharmacy is
absolutely necessary to comply with Federal access guidelines.
Mr. Weiner. Right, I understand.
If you can, just return to my question. You've made the
argument that allowing this small group of hardy souls to band
together is going to increase costs to consumers, increase
costs to taxpayers, increase costs, period.
Isn't the inverse true, that, if we were to say tomorrow,
``Rite Aid,'' which has hundreds of stores, ``you can't
negotiate your 600 stores together; you've got to go to the
PBMs as individual stores,'' which is the situation that
independents are in now, that that would, by definition, or by
your rationale, reduce costs to consumers? Because they
wouldn't have the bargaining power and the heft to join
together, would they not?
Mr. Rankin. I don't think that's true.
Mr. Weiner. Oh, okay.
Mr. Rankin. I think there's at least one aggregation issue
that you're overlooking, which is the simple fact that, when
PBMs or health plans approach pharmacies to construct a
network, pharmacies can say, ``No.'' When you secure Rite Aid,
you secure a certain number of pharmacies.
Mr. Weiner. Well, that's preposterous.
Mr. Dozier, explain to him why that's preposterous.
Mr. Dozier. When a PBM approaches a pharmacy, it's a ``take
it or leave it'' contract, plain and simple.
If I were going to enter into a business deal with you, Mr.
Weiner, there'd be some type of negotiating. When a PBM comes
to a pharmacy, there's no type of negotiating, none whatsoever.
The PBM says, ``Here is the contract. This is the
reimbursement. These are the terms. You either accept it or you
can't be a provider in this network.'' And if that pharmacist
doesn't accept that contract, they're not allowed to serve
their patient that they might have been serving for the past 20
or 30 years. That patient is going to have to go down the
street to another pharmacy that they don't want to.
Mr. Weiner. Mr. Dozier, thank you.
Mr. Balto, would you explain--because I'm not sure my
question put it right. The argument by Mr. Rankin and by Mr.
Wales is, if you allow these independent pharmacies of a
relatively tiny number to band together, it would raise prices.
I asked Mr. Rankin, does that not mean if you take the inverse,
that if we had Rite Aid disband and they could only negotiate
as individual Rite Aids, it would reduce prices as well, would
it not? I mean, by the logical extension, I'm not,you know----
Mr. Balto. Sure. You know, in the idyllic world of economic
theory, it might appear to be good to create unlimited
monopsony power. That would be great, you know, if we had
agricultural processors with monopsony power. That would mean
that we'd have, probably, relatively few farmers, and we would
go extraordinarily hungry, because the goal of a monopsonist is
to drive output down and to buy as little as possible. And
we're not talking about corn here; we're talking about health
care.
But let me--you know, the PBMs--by the way, I should say,
for full disclosure, I do, actually, do work for pharmaceutical
benefit managers. I appreciate both sides of the story here.
The PBMs are suggesting that they're competing on behalf of
the plan sponsors. If they were competing on behalf of the plan
sponsors, in that index of consumer protection and fraud cases
that I have appended to my testimony, you would not see so many
cases brought by plan sponsors against the PBMs. Why? Because
the PBMs refuse to disclose information to the plan sponsors so
that they can really assure a competitive market, so that, when
they undercharge the community pharmacist, they know the value
of that deal and they get the best price possible.
I want to be sure that I have a chance to respond to the
PCMA estimates. Could I have 2 minutes for that?
I really look forward to going and providing a critique of
the PCMA estimates, but, you know, these estimates are only as
good as the assumptions they make. And the assumptions they
make are terribly flawed.
They suggest that, basically, Mr. James is going to turn
the tables on the PBMs, he is going to gag and chain them at
the negotiating table. He's going to say, ``You know that cash
price I get? You have to give me that cash price.'' We're not
talking about 10 or 15 percent. We're talking about something
really substantially higher. They use this estimate from North
Dakota. Well, the bid that was submitted by the North Dakota
group was rejected, and they got far less than that.
Finally, you know, the question, to me, about the
additional costs I think are answered by the Rite Aid
nonenforcement action by the FTC. If there is a real threat of
market power here by your 20 independent pharmacies in Florida
getting together, I guarantee you the FTC would never have let
Rite Aid acquire Eckerd's.
Mr. Conyers. Thank you very much.
I am going to ask Mr. Weiner to allow the gentlelady from
California, Maxine Waters, a distinguished Member of the
Judiciary Committee and who is under some time pressures--we
would like to yield to her for any comments or opening
statement that she would like to make at this time.
Ms. Waters. Thank you very much, Mr. Chairman, for your
generosity.
I do have to get back to my office, but I wanted to stop
by, number one, because I am on the Antitrust Task Force,
appointed by you, and I do want to pay attention to these
issues. And, of course, I am extremely interested in the
subject that is before us today. This Task Force on Antitrust
and Competition Policy hearing that you're holding interests me
simply because, as a consumer that is involved with having to
purchase prescriptions, I had no idea that there was an
intermediary that managed all of this. I thought, when I went
to my pharmacist, that I was purchasing my medicine from
someone who bought it from the manufacturer and that there was
a cost, certainly, involved that was negotiated with the
manufacturer. I just had no idea that it was all this involved.
Let me just say, Mr. Weiner, that I don't know whether or
not your prescription for making it fair to the local
pharmacists is the right one, but I'm interested in hearing if,
in fact, an exemption, antitrust exemption, would allow them to
be able to negotiate with the intermediary--what is it, the
PBMs?--that I'm interested in that, because I don't like the
idea of moving toward more mail-order prescriptions. I like the
idea that I can talk with the pharmacist and ask him more
questions about how I should use the medicine and what my
experience has been. And I even like the idea of simply having
to check off--that they offer to talk to me if I want to talk,
because I am just an old-fashioned person who likes the local
pharmacist, the local bank, the local everything. I'm sick and
tired of being thrown into these systems where I have less and
less control.
So we've got to have a remedy. I don't know whether this is
it or not, but it sounds good to me, and I am going to pay
attention to it.
Thank you.
Mr. Weiner. Would the gentlelady yield?
Ms. Waters. Yes.
Mr. Weiner. This is a scenario where you have the Goliath
of PBMs, the Goliath of mail-order, the really big Goliath of
the Federal Government, and then the tiny, little, individual
people with their tiny, little, individual pharmacists. This
might not be the sum and substance, because, at some point, we
have to figure out a way to deal with this mail-order
explosion, as to whether it is good or bad for health care, but
this gives one additional little arrow in the quiver of the
community pharmacist to be able to try to deal with things on
behalf of their neighbors and their constituents.
So I thank you for keeping an open mind on it, but I think,
at the end of the day, we're going to have big health care
things we're going to have to do, but this is one way to help
community pharmacists survive. So, by the time we get there and
Mrs. Clinton is sworn in as President and she starts putting
her plans in place, that she has a community pharmacy
foundation of providers out there that are still around,
because they are precipitously dropping off.
I thank you.
Ms. Waters. Thank you very much.
Thank you, Mr. Chairman.
Mr. Conyers. Well, you see, this hearing has been excellent
because it raises some larger considerations in the delivery of
health care in the United States, and this Committee is poised
to make further inquiries.
I just want to congratulate everybody for being here and
for being patient. We know that a lot of our colleagues have
conflicts, and they will be studying the record carefully.
The gentleman from California, Brad Sherman, has come into
the room, and I would yield to him if he wanted to welcome
anybody or to make any comments.
Mr. Sherman. Thanks for coming here.
I've got a pain here. If you've got some good drugs, that
would be helpful. [Laughter.]
I apologize for not being here for the entire meeting, and
I'll look forward to studying this issue.
I join with everyone else here on the panel in thinking
that Americans need access to a local pharmacist that they can
actually talk to.
Thank you.
Mr. Conyers. And on that note, the Task Force on Antitrust
is adjourned. And I thank, again, all of the witnesses for
their excellent presentations.
[Whereupon, at 11:23 a.m., the Task Force was adjourned.]