Federal Register, Volume 89 Issue 178 (Friday, September 13, 2024)

[Federal Register Volume 89, Number 178 (Friday, September 13, 2024)]
[Notices]
[Pages 74950-74960]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-20811]

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FEDERAL TRADE COMMISSION

[Docket No. C-4374]

Petition of Coopharma To Reopen and Set Aside or Modify Order

AGENCY: Federal Trade Commission.

ACTION: Announcement of petition; request for comment.

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SUMMARY: Cooperativa de Farmacias Puertorrique[ntilde]as (``Coopharma''
or ``the company'') has requested that the Federal Trade Commission
(``FTC'' or ``Commission'') reopen and set aside or modify the
Commission's Decision and Order entered on November 6, 2012 (the
``Order''), concerning allegations of agreements among Coopharma's
member pharmacies to fix prices with insurers and PBMs. The company
requests that the FTC either modify or rescind the order given changes
in both the applicable law as well as competitive conditions in the
relevant marketplace. Publication of the petition from Coopharma is not
intended to affect the legal status of the petition or its final
disposition.

DATES: Comments must be received on or before October 15, 2024.

ADDRESSES: Interested parties may file comments online or on paper, by
following the instructions in the Request for Comment part of the
SUPPLEMENTARY INFORMATION section below. Please write: ``Coopharma
Petition to Reopen; Docket No. C-4374'' on your comment and file your
comment online at www.regulations.gov by following the instructions on
the web-based form. If you prefer to file your comment on paper, please
mail your comment to the following address: Federal Trade Commission,
Office of the Secretary, 600 Pennsylvania Avenue NW, Mail Stop H-144
(Annex P), Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Maribeth Petrizzi (202-326-2564),
Bureau of Competition, Federal Trade Commission, 600 Pennsylvania
Avenue NW, Washington, DC 20580.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(g) of the Federal
Trade Commission Act, 15 U.S.C. 46(g), and FTC Rule 2.51, 16 CFR 2.51,
notice is hereby given that the above-captioned petition has been filed
with the Secretary of the Commission and is being placed on the public
record for a period of 30 days. After the period for public comments
has expired and no later than one hundred and twenty (120) days after
the date of the filing of the request, the Commission shall determine
whether to reopen the proceeding and modify or set aside the

[[Page 74951]]

Order as requested. In making its determination, the Commission will
consider, among other information, all timely and responsive comments
submitted in connection with this notice.
The text of petition is provided below. An electronic copy of the
filed petition and the exhibits attached to it can be obtained from the
FTC website at this web address: https://www.ftc.gov/system/files/ftc_gov/pdf/c4374petitiontoreopenmodify.pdf.
You can file a comment online or on paper. For the Commission to
consider your comment, we must receive it on or before October 15,
2024. Write ``Coopharma Petition to Reopen; Docket No. C-4374'' on your
comment. Your comment--including your name and your State--will be
placed on the public record of this proceeding, including, to the
extent practicable, on the www.regulations.gov website.
Because of the agency's heightened security screening, postal mail
addressed to the Commission will be subject to delay. We strongly
encourage you to submit your comments online through the
www.regulations.gov website. If you prefer to file your comment on
paper, write ``Coopharma Petition to Reopen; Docket No. C-4374'' on
your comment and on the envelope, and mail your comment to the
following address: Federal Trade Commission, Office of the Secretary,
600 Pennsylvania Avenue NW, Mail Stop H-144 (Annex P), Washington, DC
20580. If possible, submit your paper comment to the Commission by
overnight service.
Because your comment will be placed on the publicly accessible
website at www.regulations.gov, you are solely responsible for making
sure that your comment does not include any sensitive or confidential
information. In particular, your comment should not include any
sensitive personal information, such as your or anyone else's Social
Security number; date of birth; driver's license number or other State
identification number, or foreign country equivalent; passport number;
financial account number; or credit or debit card number. You are also
solely responsible for making sure your comment does not include any
sensitive health information, such as medical records or other
individually identifiable health information. In addition, your comment
should not include any ``trade secret or any commercial or financial
information which . . . is privileged or confidential''--as provided by
section 6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2),
16 CFR 4.10(a)(2)--including in particular competitively sensitive
information such as costs, sales statistics, inventories, formulas,
patterns, devices, manufacturing processes, or customer names.
Comments containing material for which confidential treatment is
requested must be filed in paper form, must be clearly labeled
``Confidential,'' and must comply with FTC Rule 4.9(c). In particular,
the written request for confidential treatment that accompanies the
comment must include the factual and legal basis for the request and
must identify the specific portions of the comment to be withheld from
the public record. See FTC Rule 4.9(c). Your comment will be kept
confidential only if the General Counsel grants your request in
accordance with the law and the public interest. Once your comment has
been posted on www.regulations.gov--as legally required by FTC Rule
4.9(b)--we cannot redact or remove your comment from that website,
unless you submit a confidentiality request that meets the requirements
for such treatment under FTC Rule 4.9(c), and the General Counsel
grants that request.
Visit the FTC website at https://www.ftc.gov to read this document
and the news release describing this matter. The FTC Act and other laws
that the Commission administers permit the collection of public
comments to consider and use in this proceeding, as appropriate. The
Commission will consider all timely and responsive public comments that
it receives on or before October 15, 2024. For information on the
Commission's privacy policy, including routine uses permitted by the
Privacy Act, see https://www.ftc.gov/site-information/privacy-policy.
Authority: 15 U.S.C. 46, 5 U.S.C. 552.

April J. Tabor,
Secretary.

Text of Petition of Coopharma To Reopen and Set Aside or Modify the
Decision and Order

Concise Statement of the Case

I. Introduction

Cooperativa de Farmacias Puertorrique[ntilde]as (``Coopharma'') is
currently a party to a Decision and Order, dated November 6, 2012 (the
``Order''). We write to petition the Commission to reopen and set aside
or modify the Order. As set forth below, there has been a significant
change in the law. The Puerto Rico Legislature passed Act 228, which
was signed into law by the Governor on December 15, 2015. Act 228
directly impacts the underlying conduct on which the Federal Trade
Commission (``the Commission'') based its Complaint against, and Order
directed to, Coopharma. The Commission has previously recognized that
Act 228 is the appropriate vehicle pursuant to which health care
provider cooperatives can conduct collective negotiations with third
party payors, and there is now State oversight of such negotiations in
place by a designated government body that has issued relevant
regulations. Accordingly, in light of the change of law, factual and
market changes and their impact on the public interest, and the
Commission's own rescission of prior guidance as to Pharmacy Benefit
Managers (``PBMs''), the Order is unnecessary and inequitable. We, thus
hereby, request that the Commission grant this Petition and reopen and
set aside the Coopharma Order.

II. Statement of Facts

A. Cooperatives in Puerto Rico and the Legal Framework

It is important to understand the backdrop in which Coopharma
operates, which is unique from other pharmacy groups or associations in
the United States. Because Puerto Rico is a small economy, the
Commonwealth encourages the development of non-profit business
cooperatives. The Puerto Rican Cooperative Movement is a
``socioeconomic system which pursues the enfranchisement of human
beings and their integrated betterment through economic justice and
social cooperation. A cooperative is an autonomous association of
persons who have united voluntarily to address their common economic,
social and cultural needs and aspirations through a jointly-owned and
democratically controlled enterprise.'' \1\ Cooperatives are vital to
fostering economic opportunity and the availability of services to
consumers.\2\ Since the first adoption of legislation governing the
cooperative movement in 1946 in Puerto Rico, there have been hundreds
of cooperatives created across the Island in almost every sector of the
economy.\3\ And more recently, ``[b]etween 2018 and 2022, the number of
members in the Puerto Rican cooperative system increased by roughly 12
percent to more than 1.1 million individuals, and total assets,
capital, deposits, and loans have risen by an even greater pace during
that same period.'' \4\
Puerto Rico has a rich history of creating small business
cooperatives and the government has taken numerous actions to foster
their development. In 1994, Puerto Rico enacted Act No. 50

[[Page 74952]]

(``Act 50'') known as the ``General Cooperative Associations Act,''
which the Legislature promulgated ``to stimulate activities such as
production and services through the cooperative structure and to govern
. . . cooperatives.'' \5\ Subsequently, in 2004, the Legislature
enacted the 2004 General Cooperative Associations Act of Puerto Rico, 5
L.P.R.A. Sec. 4381 et seq. (``Act 239'') repealing and replacing Act
50.
Act 239 articulates an unambiguous legislative intent to create and
improve the legal framework in support of continued development of
Puerto Rican cooperatives: ``the Cooperative Movement constitutes an
integral piece and a stronghold for the economic and social development
of the Island, for which reason, the growth and the strengthening of
the cooperative movement in Puerto Rico is highly invested with public
interest.'' \6\ In its efforts to further the growth of cooperative
businesses, Act 239 allows for substantial contracting freedom and
provides immunity from business conduct being viewed as restraints of
trade.\7\
Puerto Rican law also provides a comprehensive framework for the
regulation and oversight of cooperatives in Puerto Rico. Act 239, as
amended by Act 247,\8\ provides the Corporaci[oacute]n para la
Supervisi[oacute]n y Seguro de Cooperativas de Puerto Rico
(``COSSEC''),\9\ a regulatory body, with the authority to oversee,
supervise and otherwise regulate the creation and operations of
cooperatives. COSSEC is the main governmental entity created by the
Legislature to regulate Puerto Rican cooperatives. COSSEC's mission is
to ensure ``the integrity and financial strength of the Cooperative
Movement of Puerto Rico, through monitoring and oversight . . . of all
Cooperatives'' \10\ and to ``promote the safety, soundness and global
competitiveness addressed to the socio-economic development of [Puerto
Rico], through . . . ensuring balance and fairness . . . [in] the
development of cooperation.'' \11\

B. Coopharma Background

Coopharma was formed in 2002 as a cooperative regulated under Act
239.\12\ Coopharma was created for the purpose of fostering the growth
of independent pharmacies.\13\ It enables small independent pharmacies
to compete more effectively by achieving economies of scale and scope
that the large chain pharmacies enjoy.\14\ Coopharma's collaborative
efforts provide for very efficient group purchasing, joint advertising,
negotiation for goods and services, and provision of education services
to members in order to improve pharmacy services to patients.\15\
Coopharma's membership consists of approximately 500 independent
pharmacies/independent pharmacy owners who typically employ
approximately 5-10 individuals in their stores.\16\ Coopharma members
are dispersed throughout 75 different towns across Puerto Rico. In most
of these towns, large or chain pharmacies are not present, thus, the
independent, local pharmacy is the only alternative for patients to be
able to obtain their prescription medication and receive proper and
timely counsel as to their medications.\17\
Coopharma is a cooperative in every sense of the word. It is a non-
profit organization whose membership is entirely composed of community
pharmacy owners.\18\ Unlike private entities in other Commission
enforcement actions, Coopharma's concern is for the collective good,
providing pharmacy access and lowering prices to patients.\19\
Coopharma was formed to address systemic problems in the Puerto Rican
health care system, including expanding ready access to pharmaceutical
care to thousands of individual across the Island, through
collaboration and collective commitment, and pronounces this stated
goal publically: ``This Cooperative is organized with the following
aims and purposes . . . Promote, use and maintain positive attitudes
conducive to resolving together adverse situations that may arise in
the purchase-sale of medicines, products, articles and services in the
market.'' \20\ Coopharma's activities have streamlined pharmacy
integration services and provided collective vendor purchasing
opportunities, thereby lowering operating and purchasing costs, which
translates to more choice, more services and lower prices for
consumers.\21\

C. Coopharma's Role in Helping To Alleviate Oppressive Conduct by
Pharmacy Benefit Managers

The Consent Order has limited the ability of many independent
pharmacies across the Island to obtain favorable contracting terms,
leading to many pharmacies being forced out of business.\22\ There are
only a few pharmacy providers left.\23\ As the Commission has recently
recognized, PBMs often employ an arsenal of unfair tactics toward
independent pharmacies.\24\ See also, U.S. Federal Trade Commission,
Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs
and Squeezing Main Street Pharmacies, Interim Staff Report at 1 (July
2024) (the ``Interim FTC Report'') (``PBMs also exert substantial
influence over independent pharmacies, who struggle to navigate
contractual terms imposed by PBMs that they find confusing, unfair,
arbitrary, and harmful to their businesses.''). PBMs are much larger,
more sophisticated business entities, which can overpower much smaller,
independent pharmacies.\25\ PBMs unfairly diminish reimbursement rates,
reimburse below agreed upon rates, steer patients to affiliated
pharmacies or mail order pharmacies located outside of Puerto Rico,
marginalize the impact of pharmacy services, and impose onerous terms
outside the context of negotiated contracts.\26\ The Puerto Rican
pharmacists who comprise Coopharma's membership are working pharmacists
and not sophisticated businessmen/women.\27\ Often their knowledge of
English is limited or rudimentary.\28\ PBM contracts are long--often
50-60 pages (with accompanying provider manuals continuing over 100
page of additional requirements for pharmacies to adhere to for
participation in the PBM's network)--and are presented on a take it or
leave it basis (as classic contracts of adhesion).\29\ PBMs also often
impose amendments on the same unilateral basis.\30\ See also, Interim
FTC Report at 3-4 (``Independent pharmacies generally lack the leverage
to negotiate terms and rates when enrolling in PBMs' pharmacy networks,
and subsequently may face effectively unilateral changes in contract
terms without meaningful choice and alternatives. The proliferation of
complex and opaque contract terms and adjustments has increased
uncertainty in pharmacy reimbursements, which can make it difficult for
smaller pharmacies to manage basic business operations. For instance,
the rates in PBM contracts with independent pharmacies often do not
clearly reflect the amount the pharmacy will ultimately be paid.'')
The majority of Puerto Rican pharmacies, including Coopharma
members, are set in rural locations with relatively unsophisticated
sole proprietors who lack the knowledge and time to decipher these
complex agreements.\31\ This makes Coopharma members, as independent
pharmacies primarily located in rural areas of Puerto Rico,
particularly vulnerable to PBMs' deceptive conduct and attempts to
drive reimbursement rates below competitive levels.\32\
Unfortunately, the Order has limited the ability of many of
Coopharma's independent pharmacy members across the Island to obtain
just contracting terms, leading to many pharmacies

[[Page 74953]]

being forced out of business and the artificial inflation of prices for
consumers.\33\ Between 2016 and 2022, the approximate number of
pharmacies in Puerto Rico decreased from 1,250 to approximately 900, a
decrease of 28%.\34\ As independent pharmacies located in rural areas
make up the majority of Coopharma members, this should be quite
alarming to the Commission, which recognizes that ``[c]losures of local
pharmacies affect not only small business owners and their employees,
but also their patients. In some rural and medically underserved areas,
local community pharmacies are the main healthcare option for
Americans, who depend on them to get a flu shot, an EpiPen, or other
lifesaving medicines.'' Interim FTC Report at 1. Setting aside the
Order would allow pro-competitive activity by Coopharma in the form of
negotiations with PBMs overseen by COSSEC, pursuant to regulations that
that body issues.\35\
Moreover, the Commission is very familiar with the tactics that
PBMs use to undermine the competitiveness of independent pharmacies.
The Commission's on-going 6(b) study of PBMs explicitly recognizes
that:

The largest PBMs are now vertically integrated with the largest
health insurance companies and wholly owned mail order and specialty
pharmacies. Those who own competing pharmacies have complained that
PBMs impose unfair fees and clawbacks, impose byzantine contracts
that often reimburse pharmacies less than their costs of
acquisition, and steer patients to PBM-owned pharmacies. PBMs have
also been accused of harming patients by extracting rebates and fees
in exchange for refusing to cover generic and biosimilar drug
products, ultimately raising the price that consumers pay for
medicines. Doctors have also complained that PBMs impose unnecessary
and burdensome prior authorization and other administrative
requirements.\36\

The Complaint in this matter was based on assertions that the
Commission believed to be true at the time that, because Coopharma
described itself as the ``biggest chain of pharmacies in all of Puerto
Rico,'' it therefore had significant market power to ``force Humana to
maintain rates.'' \37\ These market forces, whether true at the time of
the Complaint or not, have since shifted with the significant vertical
consolidation of the PBM industry. PBM's consolidation and increase in
market power has been very publicly noted by the Commission and is
described herein.
A 2023 health market study commissioned by the Office of the
Insurance Commissioner of Puerto Rico showed that the Herfindahl-
Hirschman index (HHI) \38\ for private insurance companies was deemed
highly concentrated in Puerto Rico and ranged from 6,207 to 9,201 based
on the different types of companies in that market.\39\ It is important
to note that over ninety percent (approximately 94.9%) \40\ of the
population of Puerto Rico is insured. The Island also has the highest
Medicare Advantage plan penetration of U.S. and its jurisdictions, with
60% of Puerto Rican Medicare beneficiaries enrolled in Medicare
Advantage plans.\41\
Since October 2022, only one PBM, Abarca Health (``Abarca''),
provides services to the majority of this vast insured population in
the Island under the Medicare health insurance plan called Plan Vital,
which is managed by the Puerto Rico Health Insurance Administration
((``PRHIA''), commonly referred to as Administraci[oacute]n de Seguros
de Salud (``ASES'') in Spanish).^{42 43} This means that Abarca
is the middleman between pharmacies, insurers, and customers/
beneficiaries for the entire Puerto Rican Medicaid market, which is
comprised of over 1.6 million of beneficiaries, or about 50% of the
insured population in the Island.\44\
Through Plan Vital, the same PBM provides management services for
the second largest Medicare Advantage Organization (``MAO'').\45\
Separately, Abarca has contracted with the largest private health
insurance company 46 47 and manages the commercial plans for
a third health insurer to the Island.\48\ The Office of Monopolistic
Affairs of the Puerto Rico Department of Justice is currently
investigating Abarca for deceptive practices in its contract
negotiations with independent pharmacies in Puerto Rico.\49\

D. Consent Order

By way of brief background, in August 2012, the Commission, via a
Complaint against Coopharma, alleged a violation of section 5 of the
Federal Trade Commission Act, as amended 15 U.S.C. 45. More
specifically, the Commission alleged that Coopharma acted to fix prices
in negotiations with certain third-party payors, including collectively
negotiating contracts and contracting jointly. In order to save the
time, expense and burden of an Adjudicative Proceeding, Coopharma
elected to enter into the Order.\50\
The Order, in pertinent part, requires Coopharma to refrain from
engaging in the following activities:

A. Entering into, adhering to, participating in, maintaining,
organizing, implementing, enforcing, or otherwise facilitating any
combination, conspiracy, agreement, or understanding between or
among any Pharmacies with respect to the provision of Pharmacy
services:
1. To negotiate on behalf of any Pharmacy with any Payer;
2. To refuse to deal or threaten to refuse to deal with any
Payer, in furtherance of any conduct or agreement that is prohibited
by any other provision of Paragraph II of this Order;
3. Regarding any term, condition, or requirement upon which any
Pharmacy deals, or is willing to deal, with any Payer, including,
but not limited to, price terms; or
4. Not to deal individually with any Payer, or not to deal with
any Payer other than through Respondent;
B. Exchanging or facilitating in any manner the exchange or
transfer of information among Pharmacies concerning any Pharmacy's
willingness to deal with a Payer, or the terms or conditions,
including price terms, on which the Pharmacy is willing to deal with
a Payer;
C. Attempting to engage in any action prohibited by Paragraphs
II.A through II.B above; and
D. Encouraging, suggesting, advising, pressuring, inducing, or
attempting to induce any Person to engage in any action that would
be prohibited by Paragraphs II.A through II.C above.\51\

The provisions of this Order prevent the above-listed actions for
twenty (20) years, terminating on November 6, 2032.\52\

III. Overview

Relief Requested

For the reasons described below, Coopharma requests the following
relief:
1. That the Order be set aside in its entirety;
2. Or, in the alternative, that the Order be amended to permit
Coopharma to collectively negotiate contracts with PBMs and other third
party payors consistent with Act 228.
If the preceding relief is not granted, Coopharma requests in the
alternative such relief as the Commission may deem fitting and just.

Commission Standard of Review

According to the FTC Act section 5(b), 15 U.S.C. 45(b), the
Commission may at any time ``reopen and alter, modify, or set aside, in
whole or in part any report or order made or issued by it under this
section, whenever in the opinion of the Commission conditions of fact
or of law have so changed as to require such action or if the public
interest shall so require.'' Id. In other words, under the FTC Act, the
standard is that there must be a ``significant change in law or fact''
that makes the order ``unnecessary, inequitable, or harmful to the
competition.'' \53\ Upon a petition or by the Commission's own action,
an order can be reopened and modified or set aside for: (1) changes in
fact that matter

[[Page 74954]]

to competition; (2) changes in law; and (3) the public interest.\54\
Pursuant to FTC Rule 2.51(b), the necessary showing must include
affidavits or declarations setting forth admissible facts.\55\
To show that public interest requires a change to an existing
Order, ``the burden is on the petitioner to make a `satisfactory
showing' of a prima facie case that modification is in the public
interest.'' \56\ Like modifications based on changed conditions, ``this
showing must be supported by evidence that is credible and reliable.''
\57\

Argument

I. The Consent Order Should Be Set Aside

A. Change in the Law Warrants Reopening and Setting Aside the Order

1. Act 228--State Action Doctrine
In 2015, three (3) years after the entry of the Order, the Puerto
Rico Legislature passed Act 228, which became law on December 15, 2015,
and is codified at 26 P.R. Laws Sec. Sec. 3101-3108 (``Act 228''). The
Legislature's desire to pass Act 228 was heightened by its recognition
that it was becoming increasingly more difficult for Health Care
Provider Cooperatives across Puerto Rico, such as Coopharma, to obtain
fair contracting terms with, often much larger, and more sophisticated
payors.\58\ Prior to the enactment of Act 228, certain activity
conducted by Health Care Provider Cooperatives, such as Coopharma, was
interpreted to fall under the jurisdiction of the Puerto Rico Insurance
Code (``Act 203'').\59\ Act 203 prohibits groups of health care
competitors representing greater than 20% of said competitors across
Puerto Rico from jointly negotiating for health care service
contracts.\60\ It is important to stress that Coopharma believed that
it was acting under then-Article 20.5 of Act 239 when it engaged in
conduct that allegedly violated section 5 of the FTC Act and which
activity is subject to the Order.\61\ Act 228 was enacted to clarify
this and other issues of misinterpretation of existing laws regulating
both health care providers and Health Service Provider Cooperatives and
to set the record straight that the Puerto Rican Legislature intended
for Act 239 to control negotiations by Health Service Provider
Cooperatives.\62\
According to the Preamble of Act 228, Health Service Provider
Cooperatives, which include cooperatives of pharmacies, such as
Coopharma, were never meant to be ``considered as an organized
instrument to reduce competition of any kind, but rather to carry out
lawful activities for the benefit of customers and other entities in
the market.'' \63\ Thus, Act 228 explicitly called for such
cooperatives to no longer be interpreted to be ``included under the
term of person in [Law 203], so [Health Service Provider Cooperatives]
are specifically excluded from'' Act 203.\64\
Act 228 specifically recognized the need to amend Act 239 to
implement additional language to ``fully comply with the Doctrine of
State Immunity'' (also referred to as the State Action Doctrine),
established in Parker v. Brown, 317 US 341 (1943) and its progeny.\65\
Accordingly, Act 228 creates a specific State Action Doctrine framework
that: (1) ``allows health services providers to bargain collectively
with [third-party payors]'' by expressly articulating the antitrust
exemption for Health Service Provider Cooperatives to collectively
negotiate and (2) provides active supervision by Puerto Rico's
government agency in charge of cooperatives, COSSEC.\66\
2. The COSSEC Letter
As explained above, Act 239, as amended by Act 247, provides the
Corporaci[oacute]n para la Supervisi[oacute]n y Seguro de Cooperativas
de Puerto Rico (``COSSEC''), a regulatory body, with the authority to
oversee, supervise and otherwise regulate the creation and operations
of cooperatives.\67\ COSSEC is the main governmental entity created by
the Legislature to regulate Puerto Rican cooperatives.\68\ COSSEC's
mission is to ensure ``the integrity and financial strength of the
Cooperative Movement of Puerto Rico, through monitoring and oversight .
. . of all Cooperatives'' and to ``promote the safety, soundness and
global competitiveness addressed to the socio-economic development of
[Puerto Rico], through . . . ensuring balance and fairness . . . [in]
the development of cooperation.'' \69\
In support of its role in setting regulations and engaging in
oversight of Coopharma and all other cooperatives in Puerto Rico, in
particular after the change in law, COSSEC Executive President, Mabel
Jim[eacute]nez Miranda, signed an affidavit, dated April 4, 2024, which
explains the role of COSSEC (referred to internally as the
Corporation).\70\ It states in pertinent part:

For the purpose of complying with the public policy of the
Government of Puerto Rico, striking a balance in the negotiations
between the HPCs, TAs and HSOs, and improving access and the quality
of health care services to the patients of the Government of Puerto
Rico, as well as exercising the oversight and supervision powers
granted by Act No. 239, on February 5, 2020, the Board of Directors
of THE CORPORATION approved the Regulation for the Supervision and
Oversight of Collective Negotiations between Health Care Provider
Cooperatives (HPCs) Third-party Administrators (TAs) and Health Care
Services Organizations (HSOs), Regulation No. 9161, in order to
establish the supervision and oversight procedures of THE
CORPORATION on the activities and actions of HPCs during any
negotiation process with HSOs and TAs.\71\

As shown by this affidavit, COSSEC's oversight over Coopharma is
established and it has issued Regulation No. 9161 for the governance of
the cooperative's actions in negotiating with PBMs. This change in law
is a significant deviation from the legal scheme under which the Order
was issued, and warrants reopening and review of the Order.
3. Regulation No. 9161 Demonstrates That There Is a Regulatory Scheme
in Place for COSSEC's Active Oversight of Coopharma
The Order was based in part on the Commission's concerns that there
was a lack of oversight such that the State Action Doctrine could not
apply.\72\ The Order states that ``[u]nder Law \73\ 203, Puerto Rico
has not clearly articulated a policy to displace competition with
respect to Coopharma's challenged conduct. Moreover, Puerto Rico has
not actively supervised that conduct under the state action doctrine.''
\74\
The ``Purpose and Scope'' of Regulation 9161 now in place provides
that:

In the exercise of its functions, COSSEC will ensure that, in
and during the negotiation process, a balance permeates the
negotiations between the parties, in such a way as to improve access
and quality of health services to patients in the Government of
Puerto Rico. Specifically, that the [Cooperatives of Health Service
Providers] fully comply with all the requirements of the cooperative
order and that promote the public policy of the Government of Puerto
Rico for the benefit of the orderly development of cooperativism as
a business model.\75\

Moreover, the regulation provides for ``controls and procedures to
avoid'' and provides COSSEC with the authority to ``investigate and
prosecute illicit practices under collective bargaining authorized by
the Subchapter 20A of Act No. 239-2004, as amended.'' \76\ This
language demonstrates the ways in which the promulgation of the
regulation has shifted the analysis of the Commission when it initially
brought the Complaint against Coopharma, and more recently, the
analysis in which the Commission engaged in regard to a previous
matter, In the Matter of Cooperativa de M[eacute]dicos
Oftalm[oacute]logos de Puerto Rico, File No. 141-014. In that

[[Page 74955]]

``Analysis of Agreement Containing Consent Order to Aid Public
Comment,'' the Commission acknowledged the passage of Act 228 in Puerto
Rico, but stated that ``Puerto Rico has neither issued any regulations
nor do we have any record to evaluate how Puerto Rico will supervise
negotiations. Therefore, the Commission is unable to assess to whether
Act 228 complies with state action requirements.'' \77\
Here, it is clear from the language of the regulation that, not
only is there a specific scheme and procedures in place for COSSEC to
actively monitor and be engaged in the process of collective
negotiations between Health Care Provider Cooperatives and third party
payors, but also that COSSEC is actively overseeing such negotiations--
namely, the type of negotiations in which Coopharma would engage with
PBMs and third party payors. This comports with the standard set forth
by the Supreme Court in Federal Trade Commission v. Ticor Title
Insurance Company, to meet the active supervision prong (and, indeed,
both prongs) of the Midcal test to qualify for State immunity from the
Antitrust Act under the State Action Doctrine.\78\ There is sufficient,
active oversight because ``a detailed structure governs the challenged
anticompetitive conduct here.'' \79\
That detailed structure of COSSEC's active oversight of all
negotiations by healthcare cooperatives is clear from the language of
Regulation No. 9161. Under the regulation, healthcare cooperatives must
follow strict procedures and notify COSSEC of their intention to
negotiate. See Reg. No. 9161 Sec. 8.04. There are certain criteria for
negotiations, including specific terms and conditions which may be
negotiated and those which may not. Id. Sec. 8.01. Just as in Morgan
v. Div. of Liquor Control, Dep't of Bus. Regul., State of Conn. and
Ports Auth. of Puerto Rico v. Compania Panamena de Aviacion (Copa),
S.A., see notes 77 and 78, supra, this mandatory fee is set between
$3000.00 and $10,000.00 and funds the State supervisory process,
thereby promoting State public policy goals. Id. Sec. 8.02.
In addition to laying out this formula for fees, which alone could
satisfy the active supervision prong of the Midcal test, the regulation
creates a seven-member Supervisory Committee, which is comprised of
representatives from the Department of Health, the Patient Ombudsman,
health insurance companies, third-party administrators, cooperatives,
an economist who is a certified actuary, and a COSSEC representative.
Id. Sec. 6.03. The committee is ``activated'' as soon as the
healthcare cooperative notifies it that it intends to collectively
negotiate. Id. The Supervisory Committee then oversees every single
negotiation by being present when any negotiation is held and requiring
the negotiating parties to write a detailed initial report, progress
reports, and a final report. Id. Sec. 8.07. The Supervisory Committee
must approve each report at all stages before the next meeting to
negotiate may be held. Id. Sec. 8.08.
The regulation also outlines how the Supervisory Committee must
evaluate the reports and how it should assess the final report to
accept, deny, or request amendments to it. Id. Sec. 8.08-8.09. The
parties may be referred to COSSEC or the Department of Justice's Office
of Monopolistic Affairs if they violate the regulation or engage in an
unreasonable restriction on trade, to be prosecuted under Puerto Rico's
Antitrust law, Act No. 77-1964. Id. Sec. 6.01, 9.01-9.02. The
regulation outlines the sanctions and penalties that a cooperative
which is prosecuted could suffer for violations of the regulation. Id.
Sec. 9.04.
It is clear from the foregoing that the change in the law has
altered the analysis of Coopharma's collective negotiation activity in
a substantial and legally significant way. Any concerns that the
Commission had about a lack of oversight are clearly addressed by Act
228 and Regulation No. 9161. Moreover, absent the relief requested,
Coopharma will be left in the proverbial ``competitive dust'' of other
similar entities across Puerto Rico. Those entities unaffiliated with
Coopharma and, therefore, unbound by the Commission Order, can take
advantage of the ability to collectively negotiate contracts with the
same payors that Coopharma cannot. This inequity should now be
rectified by further Commission action to set aside the Order.
4. Change to Commission Policy--Withdrawal of Previous Guidance on PBMs
In addition to the change in law described above, the market
dynamics concerning PBMs have shifted significantly since twelve (12)
years ago when the Order was imposed. In 2012, there was a host of
guidance, reports, studies and letters authored by the Commission in
support of the supposed ``procompetitive'' impact of PBMs. The policy
of such support for PBMs has since been overturned.\80\ In her
statement on the matter, Chair Khan said the following:

The FTC is now pursuing an inquiry into the PBM industry, one
that is designed to capture and detail the current realities on the
ground in this complex marketplace. While we finalize our market
study, we urge the public not to continue to cite or rely on these
outdated comments, reports, and studies. It is important that the
FTC's work reflect current market dynamics. I am pleased that the
FTC is alerting the public to the risks of relying on earlier work
based on outdated market conditions and assumptions.\81\

This inquiry into the PBM industry by the Commission is in
conjunction with increased State and Federal government investigation
into PBMs, spurred by independent reporting on the fact that there has
been a substantial change in the healthcare/pharmaceutical and health
insurance marketplace in the last 10 years.\82\ Such inquiries into the
role of PBMs focus on PBM price-fixing schemes and their domineering
position over independent pharmacies, which allow PBMs to force
independent pharmacies into take-it-or-leave it contracts designed to
depress the competitive ability of independent pharmacies in comparison
to PBM-affiliated pharmacies.^{83 84}

B. The Order Should Be Modified or Set Aside in the Public Interest

The ``public interest'' presumptively favors competition, and
restraints on competition harm the public interest by depriving
consumers of the benefits of competition including for example, lower
prices, better products and increased innovation. A Commission order
that restrains competition will be in the public interest only if, and
to the extent that, the benefits of preventing or deterring relevant
anticompetitive activity outweigh the losses to competition and
consumers cause by the restraint.\85\ The Commission will set aside
orders which ``unnecessarily inhibit[ ] respondent[s] from engaging in
conduct which, in and of itself . . . . may, in certain circumstances,
be procompetitive.'' \86\ For example, in Nestl[eacute] Holdings, the
Commission granted a petition to modify an order, explaining:

holding [the petitioner] to the [strict terms of the order, as
issued], with the resulting disruption to its operations and ability
to compete, would likely diminish [its] competitive effectiveness.
It is therefore in the public interest to make the change to enable
[the petitioner] to continue to compete in the market without
disruption of its operations.\87\

And in Readers' Digest Association, the Commission eliminated an
order provision when ``the costs that the [provision] imposes on
respondent appear to outweigh any consumer benefits [that it] may
confer.'' \88\ Similar logic compels modifying or setting aside the
Order in this matter.

[[Page 74956]]

1. Puerto Rico's Historical/Ubiquitous Use of Cooperatives Renders the
Setting Aside or Modifying of the Order a Matter of Public Interest
The public interest dictates that the Order be reopened and set
aside. The Preamble to Act 228 states that its purpose is to authorize
Health Service Provider Cooperatives to negotiate collectively with
[third-party payors] to prevent the current system of imbalanced
negotiations, resulting in contracts of adhesion. The Legislature
stated that this was intended to ``improve access and quality of health
services to patients in the Commonwealth of Puerto Rico.'' \89\
Puerto Rico suffers from poor health care infrastructure and a
rapidly declining health care workforce, rendering the delivery of
health care in Puerto Rico severely compromised.\90\ Between 2014 and
2015, approximately 900 physicians left the Island, reducing the number
of critical care providers by nearly 36%.\91\ And, as a result, Puerto
Ricans have fewer physicians than ever before and long wait-times when
access health care.\92\ In fact, the Health Resources and Services
Administration has deemed 72 of Puerto Rico's 78 municipalities as
medically underserved areas.\93\ Clearly, the ability to negotiate fair
contracts ``to improve access and quality of health services to''
Puerto Rico patients is vital to the Commonwealth of Puerto Rico. The
current Order prevents Coopharma from negotiating lower costs for
consumers with PBMs as well being able to provide improved quality
pharmacy services desperately needed by the residents of Puerto Rico,
which can only be gained through equitable reimbursement and fair
treatment under contracts with PBMs.
2. The Existence of Independent Pharmacies Is Threatened as PBMs Have
Become More Dominant in the Last 10 Years
Pharmacy advocacy groups such as the National Community Pharmacists
Association (``NCPA'') are sounding the alarm about the changing
pharmaceutical market and the market power associated with independent
pharmacists.\94\ NCPA conducted a survey of 10,000 independent pharmacy
owners and managers over 10 days in February 2024 and received 815
responses.\95\ The conclusion NCPA has drawn from this survey, which
was focused on negotiations with PBMs over rates for Medicare Part D,
is that ``[n]early a third of independent pharmacy owners may close
their stores this year under pressure from plunging prescription
reimbursements by big insurance plans and their pharmacy benefit
managers.'' \96\ The CEO of the organization, B. Douglas Hoey,
pharmacist, MBA, made clear that ``[t]his is an emergency.'' \97\
Moreover, his conclusion was that ``if Congress fails to act again,
thousands of local pharmacies could be closed within months and
millions of patients could be stranded without a pharmacy.'' \98\
In locations where there are very few providers, such as Puerto
Rico, the impact of the profit margin growth for PBMs and significantly
smaller profits for pharmacies is a dire issue indeed. Although Puerto
Rico has a unique infrastructure, as described above, it is also akin
to a rural location in the mainland United States. As early as 2016,
the then-President and Executive Director of the Puerto Rico Community
Pharmacies Association, Idalia Bonilla and Marylis Gavill[aacute]n
Cruz, respectively, drafted a letter to Senator Orrin Hatch, Member of
the United States Senate's Economic Development Task Force and Jose B.
Carri[oacute]n III, President of Puerto Rico's Financial Oversight and
Management Board, to express interest in providing assistance to the
Task Force in identifying ``ways and means of providing Puerto Rico
equitable access to federal health care programs.'' \99\ Bonilla and
Cruz stated that community pharmacies, which are ``characterized by
mainly and efficiently serving the beneficiaries of the public health
programs,'' have seen their ability to continue operations ``greatly
affected'' by, among other causes, ``the unjust practices'' of
PBMs.\100\ They articulated that ``PBMs' unjust practices have created
local and global concerns, as they directly and significantly increase
the cost of medications.'' \101\
An analysis by the Rural Policy Research Institute (``RUPRI'')
Center for Rural Health Policy analysis of data collected by the
National Council for Prescription Drug Programs on pharmacies in the
United States from 2003 to 2021 supports the conclusion that PBMs have
been harmful to independent, and particularly rural, pharmacies.\102\
RUPRI concluded that ``[b]etween 2003 and 2021, the number of
independently owned retail pharmacies declined in noncore areas by 16.1
percent, and in micropolitan areas by 9.1 percent, while the number in
metropolitan areas increased by 28.2 percent during the same period.''
\103\
Moreover, government entities at both the State and Federal levels,
including the Commission, the Centers for Medicare and Medicaid, and
Congress, have recognized the shift in market status/market share for
PBMs and the oversized impact and bargaining power they wield, as well
as recognizing the increases in consumer pricing resulting from
it.\104\ Absent the relief requested herein, the inability of Coopharma
to negotiate for fair and reasonable contract terms on behalf of its
small, independent pharmacy members will lead to the very real
possibility of more independent pharmacy closures. This will further
diminish the ability of Coopharma's customers to readily access needed
health care services.
3. The Commission Has Previously Recognized That Absent the Ability To
Negotiate, an Entity Without Market Power Cannot Compete
The Commission's own precedent supports taking action to reopen and
set aside the Order in this case. In In Re Toys `R Us, the Commission
amended an Order based on recognizing a shift in market circumstances
and bargaining power for the toy seller.\105\ In pertinent part, the
Commission found that:

TRU had market power as a buyer and distributor of toys. TRU has
demonstrated that it no longer has market power as a buyer of toys.
Walmart and Target have overtaken TRU in competitive strength and
market share. TRU has submitted data showing that TRU's loss of
competitive position is consistent across product categories.\106\

Moreover, it changed the record keeping requirements based on a
recognition of the ``changes in market conditions.'' \107\ As with that
matter, the prohibited conduct here ``unnecessarily inhibits respondent
from engaging in conduct which, in and of itself, is innocuous and may,
in certain circumstances, be procompetitive.'' \108\
Further, the Commission has granted petitions to set aside or
modify orders where such orders impose a competitive disadvantages on
firms that impairs their ability to offer full, vigorous competition.
For example, in the matter regarding Pendleton Woolen Mills, Inc., the
Commission reopened and modified an order that put the respondent at a
``at a substantial disadvantage'' with respect to its competitors who
were not subject to the prohibitions on otherwise lawful conduct that
was proscribed by the order.\109\ And, in the Onkyo U.S.A. Corp.
matter, the Commission modified an order when, as a result of the
objectionable provisions, the respondent was unable to operate its
business as effectively as its competitors and was ``thus competitively
disadvantaged in a manner that was not contemplated when the order was
issued by the Commission.'' \110\
Additionally, the Commission has modified and set aside orders
where the order imposes restrictions to that party

[[Page 74957]]

that are not imposed on other members of the industry, creating a
competitive disadvantage. For example, in the Nat'l Fire Hose Corp.
matter, the Commission recognized that ``an order should be modified or
vacated if changed circumstances of fact or law place a party to the
order under restrictions not applicable to other members of the
industry. Fairness and the public interest require that the Commission
apply its policies consistently and uniformly among all the members of
the industry.'' \111\ Where every other Health Care Provider
Cooperative in Puerto Rico can take advantage of collective negations
with third party payors pursuant to Act 228, including Cooperativa de
M[eacute]dicos Oftalm[oacute]logos de Puerto Rico, which is still under
a separate Commission Order, Coopharma's inability to do so is at a
competitive disadvantage, both in terms of its position with other
Health Care Provider Cooperatives and with its bargaining position with
third party payors. This is directly in line with Commission precedent
for reopening and setting aside an Order. Third party payors are
currently able to take advantage of Coopharma and its members through
low reimbursement rates and other conduct that Coopharma, at the
moment, is unable to renegotiate to establish fairer terms for its
independent pharmacy members. If allowed, these negotiations would, in
turn, translate to benefits to consumers. Thus, the Order should be set
aside.

Conclusion

The legal, factual, and market changes described herein are
sufficient to meet the Commission's standard to reopen and modify or
set aside the Order. First, as stated above, the significant change in
law with the enactment of Act 228, in and of itself warrants a
modification of the Order. While the Commission recognized, at the time
of the Complaint, the applicability of the State Action Doctrine, which
Coopharma whole-heartedly believed applied to its conduct given the
regulatory scheme of Act 239 and the oversight of cooperative
activities by COSSEC,\112\ the Commission ultimately concluded that
Coopharma's activities did not qualify for State Action immunity.\113\
However, the Commission cannot now deny the clear establishment of
State Action immunity imposed by Act 228, which allows Health Care
Provider Cooperatives the benefit of engaging in collective
negotiations with third-party payors, coupled with a specific
regulatory scheme and COSSEC's direct, active oversight over the exact
conduct which underlies the Order. The State Action Doctrine provides
that with this State oversight and the regulations that are currently
in place, Health Care Provider Cooperative negotiations in Puerto Rico
are State-sanctioned and, therefore, shielded from the Commission's
scrutiny that they are anticompetitive.
Second, the public interest also dictates that the Commission
reopen and set aside the Order as a result of the changes in the
pharmaceutical market and PBMs' increased market share, which has led
to multiple government investigations. Federal and State government
entities are currently investigating PBMs' vertical integration and
market share consolidation as well as their heavy handed policies and
contract terms, which have already forced many independent pharmacies
out of business entirely.
In the foregoing paragraphs, Coopharma has provided verified
information, which shows PBMs' and individual health insurance
companies' unprecedented and outsized accumulation and concentration of
market power. This market imbalance has placed Coopharma's members,
primarily small, rural businesses, in a unique and precarious position
given that the Order's restrictions on negotiations are still in place.
Without the ability to negotiate with PBMs due to the Order,
Coopharma also stands at a direct competitive disadvantage to all other
entities within Puerto Rico that can, and have, taken advantage of Act
228 to ``improve access and quality of health services to patients in
the Commonwealth of Puerto Rico. The ability of Puerto Rican
independent pharmacies to continue to provide life-sustaining care
depends on their ability to collectively negotiate as a cooperative--
negotiations which are now regulated and overseen by a State government
agency.
For the foregoing reasons, the Commission should reopen and set
aside the Consent Order and enter an order in the form attached
dismissing the Complaint with prejudice. In the alternative, to the
extent the Commission determines that only modification is required, it
should amend the order to permit Coopharma to engage in negotiations on
behalf of its members with third party payors consistent with Act 228.

Dated: August 7, 2024
Respectfully submitted,

s/Bradley A. Wasser

Bradley A. Wasser,
Eliese R. Herzl-Betz,
Duane Morris LLP,
30 S. 17th Street,
Philadelphia, PA 19103.

Counsel for Petitioner.

Endnotes

\1\ Statement of Motives, General Cooperative Associations Act
of 2004, Act No. 239 at 2 (Sept. 1, 2004) (``Act 239''). ``The
members of such cooperatives exercise the decision-making power in
equal standing, regardless of the amount of capital they have
contributed.'' Id. at 2.
\2\ Affidavit of Heriberto Ortiz (``Ortiz Affidavit''), ] 5.
\3\ Id. ] 6.
\4\ NCUA-COSSEC Partnership Will Strengthen Supervision of
Cooperativas, https://ncua.gov/newsroom/pressrelease/2023/ncua-cossec-partnership-will-strengthen-supervision-cooperativas (Apr.
2023).
\5\ Statement of Motives, Act No. 239 at 3 (Sept. 1, 2004).
\6\ Id.
\7\ 5 L.P.R.A. Sec. 4516.
\8\ COSSEC replaced the functions of the Inspector of
Cooperatives. See Puerto Rico Pharmacy Law, Act No. 247- 2004, as
amended.
\9\ For example, Act 239 requires regulation over the contents
of cooperatives' articles of incorporation and bylaw (Sec. Sec.
4403 and 4404); the CDA must forward bylaws and articles of
cooperatives to the Inspector of Cooperatives for review and
approval (Sec. Sec. 4415 and 4422); the Inspector of Cooperatives
retains the right to reject creation of a cooperative (Sec. 4422);
CDA has the right to dissolve cooperatives (Sec. 4555); the
Inspector of Cooperatives is required to ensure that all
cooperatives comply with the provisions of Act 239 (Sec. 4646);
and, the Inspector must annually audit the operations of all
cooperatives (Sec. 4647). Moreover, Act 239 allows for the direct
transfer of goods and services between the government and
Cooperatives, without a bidding process required for other third
parties (Sec. 4528); and cooperatives are not required to pay rent
for use of facilities in government offices or public corporations
(Sec. 4528). See generally Sec. Sec. 4645-4662, Office of the
Inspector of Cooperatives.
\10\ See ``About Us'' section of COSSEC's website, http://www.cossec.com/cossec/det_content.asp?cn_id=802 (as translated to
English).
\11\ Id.
\12\ Ortiz Affidavit ] 7.
\13\ Id. ] 8.
\14\ Id.
\15\ Id. ] 9.
\16\ Id. ] 10.
\17\ Ortiz Affidavit ] 10.
\18\ Id.
\19\ Id.
\20\ Id.] 12 (citing and appending Ex. 1, Coopharma Clauses of
Incorporation, Art. II, Sec. 3).
\21\ Id. ] 13.
\22\ Ortiz Affidavit ] 16.
\23\ Id. ] 17.
\24\ Id. ] 18.
\25\ Id.
\26\ Id.
\27\ Ortiz Affidavit ] 19.
\28\ Id.
\29\ Id. (citing Rumbin v. Utica Mutual Ins. Co., 254 Conn. 259,
264 n. 6, 757 A.2d 526

[[Page 74958]]

(2000) (``Standardized contracts of insurance continue to be prime
examples of contracts of adhesion, whose most salient feature is
that they are not subject to the normal bargaining processes of
ordinary contracts.'') (Internal quotation marks omitted)).
\30\ Id.
\31\ Id. ] 20.
\32\ Ortiz Affidavit ] 20.
\33\ Id. ] 21.
\34\ See Pharmacies--Puerto Rico, STATISTA, https://www.statista.com/outlook/hmo/pharmacies/puerto-rico#volume (last
accessed November 7, 2023).
\35\ Ortiz Affidavit ] 25.
\36\ Statement of Chair Lina M. Kahn Regarding 6(b) Study of
Pharmacy Benefit Managers, Commission File No. P221200 (June 8,
2022).
\37\ Complaint, Docket C-4374 ]] 22, 34.
\38\ DEP'T OF JUSTICE, Herfindahl-Hirschman Index, https://
www.justice.gov/atr/herfindahl-
hirschmanindex#:~:text=The%20term%20%E2%80%9CHHI%E2%80%9D%20means%20t
he,then%20summing%20the%20resulting%20numbers (last accessed June
20, 2024) (defining HHI as a commonly accepted measure of market
concentration).
\39\ See NOTICEL, Insurance Commissioner Favors Collective
Bargaining with Health Providers, https://www.noticel.com/ahora/gobierno/top-stories/20230307/comisionado-de-seguros-favorece-negociacioncolectiva-con-proveedores-de-salud/ (Mar. 7, 2023) (as
translated to English) (citing Ram[oacute]n J. Cao Garc[iacute]a,
Ph.D. & Jos[eacute] J. Cao Alvira, Ph.D., Un Estudio
Econ[oacute]mico de las Compa[ntilde][iacute]as de Seguros de Salud
y sus Proveedores de Servicios para Identificar Posibles Enmiendas a
la Regla N[uacute]m. 91 de la Oficina del Comisionado de Seguros de
Puerto Rico, Estudio Comisionado por la Oficina del Comisionado de
Seguros de Puerto Rico, at 16 (2023)).
\40\ UNITED STATES CENSUS BUREAU, Result: Without Health Care
Coverage in Puerto Rico (2022) is 5.1% (+/- 3%), https://data.census.gov/all?q=health+insurance+puerto+rico (last accessed
June 20, 2024).
\41\ See KFF, Nancy Ochieng et al., Medicare Advantage in 2023:
Enrollment Update and Key Trends, https://www.kff.org/medicare/issue-brief/medicare-advantage-in-2023-enrollment-update-and-key-trends/ (Aug. 9, 2023) (interpreting data from CMS Medicare
Advantage Enrollment Files and March Medicare Enrollment Dashboard,
2013 and 2023).
\42\ ABARCA, Abarca selected as PBM for Vital--an ASES Medicaid
program in Puerto Rico, https://www.abarcahealth.com/abarca-selected-as-pbm-for-vital-an-ases-medicaid-program-in-puerto-rico/
(Oct. 20, 2022). See also ASES, Vital Beneficiary Manual, https://www.sssvital.com/wp-content/uploads/beneficiarymanual.pdf (last
accessed June 20, 2024); CMS, Managed Care in Puerto Rico, https://www.medicaid.gov/medicaid-chip-program-information/by-topics/delivery-systems/managedcare/downloads/puerto-rico-mcp.pdf (last
accessed June 20, 2024).
\43\ Per its own admission, in an interview of Jason Borschow,
CEO of Abarca Health, the largest PBM in Puerto Rico, on the
HealthBiz Podcast with David E. Williams, dated March 17, 2022,
Abarca controls approximately 70% of the PBM market and 100% of the
State Medicaid Program market in Puerto Rico. See Interview of Jason
Borshow (March 17, 2022), available at https://www.youtube.com/watch?v=iQD1fER3QgA.
\44\ ASES, October 2023 Annual Report to Congress, https://www.asespr.org/wp-content/uploads/2023/12/PuertoRico-2023-Annual-Report-to-Congress_Final.pdf at 7 (Oct. 2023).
\45\ CMS, Managed Care in Puerto Rico at 2, https://www.medicaid.gov/medicaid-chip-program-information/bytopics/delivery-systems/managed-care/downloads/puerto-rico-mcp.pdf
(stating, as of 2021, Plan Vital includes insurers Triple S, First
Medical, MMM, and Plan de Salud Menonita). See also MMM, MMM
celebrates 20 years taking care of the health of more than 720,000
members, https://www.mmm-pr.com/mmm-celebra (stating that it is the
``leading health services plan in the Medicare Advantage sector in
Puerto Rico'' with 720,000 insureds) (last accessed June 20, 2024);
FAEGRE DRINKER, Anthem Acquires Puerto Rico-Based MMM Holdings and
Affiliates, https://www.faegredrinker.com/en/services/experience/2021/6/anthem-acquires-puerto-ricobased-mmm-holdingsand-affiliates
(June 2021) (``MMM is the largest MA plan and the second-largest
Medicaid plan in Puerto Rico, with a network that includes over a
dozen offices and more than 10,000 health care providers across the
island.'').
\46\ Insurance Commissioner Favors Collective Bargaining with
Health Providers, https://www.noticel.com/ahora/gobierno/top-stories/20230307/comisionado-de-seguros-favorece-negociacioncolectiva-con-proveedores-de-salud/ (as translated to
English). The Commissioner said: [The Study] found that the
concentration of the market in Puerto Rico--both from the point of
view of distribution of written premiums and distribution of
subscribers--is not only high, but has been increasing over the past
years. In the segment of medical plans in the commercial sector, it
was found that a single company currently has 49.2% of the
subscribers and two others make up 64.8% of the subscribers in
Puerto Rico. See also Garc[iacute]a & Alvira, Un Estudio
Econ[oacute]mico de las Compa[ntilde][iacute]as de Seguros de Salud
y sus Proveedores de Servicios.
\47\ TRIPLE-S MANAGEMENT, https://management.grupotriples.com/
en/ourcompanies/
#:~:text=With%20more%20than%2060%20years,%2C%20commercial%2C%20and%20
Medicaid%20markets (stating company has ``approximately 1,000,000
insured in their individual, commercial and Medicare markets'')
(last accessed June 20, 2024). See also ABARCA, Abarca renews,
expands partnerships for pharmacy benefit services with Triple-S,
CareFirst, https://www.abarcahealth.com/abarca-expands-two-bcbsa-plans/ (Sept. 30, 2021).
\48\ PR NEWSWIRE, First Medical Renews, Expands Partnership With
Abarca For Pharmacy Benefit Services, https://www.prnewswire.com/news-releases/first-medical-renews-expands-partnership-with-abarca-for-pharmacybenefit-services-301400686.html (Oct. 14, 2021).
\49\ See Department of Consumer Affairs Complaint No. SAN-2022-
0012881, Oficina de Asuntos Monopol[iacute]sticos del Dept. de
Justicia v. Abarca Health LLC, https://www.justicia.pr.gov/departamento-de-justicia-presenta-querella-porpracticas-enganosas-contra-administrador-de-beneficios-de-farmacia/ (Jan. 26, 2023). At
this time, the parties are litigating some procedural matters before
the Supreme Court of Puerto Rico and Coopharma is an Amici Curiae in
said matter, see Docket No. CC-2023-0773.
\50\ See In the Matter of Cooperativa de Farmacias
Puertorrique[ntilde]as (``Coopharma''), Docket No. C-4374 (Decision
and Order, November 6, 2012).
\51\ Id. at Section II.
\52\ Id. at 6.
\53\ FED. TRADE COMM'N, Putting the Mod in Order Modification,
https://www.ftc.gov/enforcement/competitionmatters/2014/07/putting-mod-order-modification (2014).
\54\ See In the Matter of: Toys R Us, Inc., 2014 WL 187460, at
*11-12 (F.T.C. Jan. 13, 2014).
\55\ 16 CFR 2.51(b).
\56\ Id. at *12.
\57\ Id. (citation omitted).
\58\ Statement of Motives, P. de la C. 2440 (``Act 228'') (as
translated) at 2 (stating the Legislature passed the law ``with the
purpose of authorizing [Health Service Provider Cooperatives] . . .
to negotiate collectively with Health Service Organizations (HSO)
and Third Party Administrators (AT), so that there is a balance in
the negotiations of these parties, since currently the contractual
terms between these parties are imposed through adhesion
contracts.'').
\59\ See id. at 1-2 (as translated) (stating that it was ``not
envisaged'' that Health Service Provider Cooperatives would be part
of Law 203 because all cooperatives ``were already regulated and
supervised by specialized cooperative laws, such as Law 239-2004, as
amended . . . .'').
\60\ See Analysis of Agreement Containing Consent Order To Aid
Public Comment to In the Matter of Coopharma, File No. 101-0079 at
3-4 (Aug. 21, 2012) (explaining Law 203).
\61\ See id. at 4 n.5 (August 21, 2012) (The Commission is aware
that Law 239, which regulates cooperatives generally, declared that
cooperatives ``shall not be considered conspiracies or cartels to
restrict business.'' 5 L.P.R.A. Sec. 4516 (Law 239, Sec. 20.5).
The Commission and the Puerto Rico Department of Justice interpret
Law 203 (which was passed after Law 239) to supersede Law 239.'').
\62\ See Statement of Motives, Act 228 (as translated) at 2.
\63\ Statement of Motives, Act 228 (as translated) at 2.
\64\ Id.
\65\ Id.
\66\ See id.; see also California Retail Liquor Dealers Ass'n v.
Midcal Aluminum, Inc., 445 US 97 (1980) (court established a two-
prong standard test for a party to satisfy the State Action
Doctrine: ``the challenged restraint must be one `clearly
articulated and

[[Page 74959]]

affirmatively expressed as state policy''' and ``the policy must be
`actively supervised' by the State itself'') (internal citation
omitted).
\67\ COSSEC replaced the functions of the Inspector of
Cooperatives. See Puerto Rico Pharmacy Law, Act No. 247-2004 (``Act
247''), as amended.
\68\ See Ortiz Affidavit, ] 24, appending Ex. 2, Certification
of Mabel Jim[eacute]nez Miranda (explaining the role of COSSEC as
its Executive President).
\69\ See ``About Us'' section of COSSEC's website, http://www.cossec.com/cossec/det_content.asp?cn_id=802 (as translated).
\70\ See Ex. 2 to Ortiz Affidavit, Cert. of Mabel Jim[eacute]nez
Miranda, Executive President of COSSEC.
\71\ See Ex. 2 to Ortiz Affidavit at ] 5 (emphasis added).
\72\ Analysis of Agreement Containing Consent Order to Aid
Public Comment to In the Matter of Coopharma, File No. 101-0079 at
3-4 (Aug. 21, 2012).
\73\ Puerto Rican statutes may be referred to as Act or Law
interchangeably.
\74\ In the Matter of Coopharma, Docket C-4374, Complaint ] 47
(Nov. 7, 2012).
\75\ See ``Regulations for the Supervision and Supervision of
Collective Negotiations of the Cooperatives of Health Service
Providers (CPSS) with Third Party Administrators (AT) and Health
Service Organizations (HSO)''. No. 9161 at Art. IV (Feb. 13, 2020)
(as translated to English).
\76\ Id.
\77\ See Analysis of Agreement Containing Consent Order To Aid
Public Comment to In the Matter of Cooperativa de M[eacute]dicos
Oftalm[oacute]logos de Puerto Rico, File No. 141-0194 at 4 (Jan. 19,
2017).
\78\ See Federal Trade Commission v. Ticor Title Insurance
Company, 504 U.S. 621, 634 (1992) (stating that the active
supervision prong of the Midcal test is met if State officials
``have and exercise power to review particular anticompetitive acts
of private parties and disapprove those that fail to accord with
state policy'') (citation omitted). See also Morgan v. Div. of
Liquor Control, Dep't of Bus. Regul., State of Conn., 664 F.2d 353,
356 (2d Cir. 1981) (finding anticompetitive conduct immune from the
Antitrust Act under the State Action Doctrine because the State of
Connecticut structured ``a detailed mechanism for determining prices
for alcoholic beverages'' which satisfied the active supervision
requirement); Destec Energy, Inc. v. S. California Gas Co., 5 F.
Supp. 2d 433, 456 (S.D. Tex. 1997), aff'd sub nom. Destec Energy v.
S. California Gas Co., 172 F.3d 866 (5th Cir. 1999) (finding that a
State entity which ``agreed to modify long-term individually
negotiated EOR contracts only upon a finding that the modification
was necessitated by the `public interest' '' satisfied the active
supervision prong of the Midcal test because there is no requirement
that a regulatory agency ``must retain unfettered discretion'' in
order to meet the requirement). The court in Destec cited Ticor to
explain that ``the active supervision inquiry is intended to
determine whether `the State has exercised sufficient independent
judgment and control so that the details of the rates or prices have
been established as a product of deliberate state intervention, not
simply by agreement among private parties.' '' Destec, 5 F. Supp. 2d
at 457-58 (citing Ticor, 504 U.S. at 634-35). Here, COSSEC's broad
and explicit authority to monitor negotiations and, therefore,
pharmaceutical reimbursement prices and contracts, between
healthcare cooperatives, third party administrators, and health
service organizations and to identify illicit practices which do not
comply with the law and State policy, as laid out in Regulation No.
9161, satisfies the Midcal requirement for active supervision.
COSSEC explains that in order to promote the public policy of having
functional healthcare cooperatives, it will ensure balance by
overseeing negotiations between those cooperatives, third-party
administrators, and health care services organizations, to improve
the public's access to quality healthcare services. See Ex. 2 to
Ortiz Affidavit (COSSEC letter explaining its role as established by
Act 239 and Regulation No. 9161). Compliance with the active
supervision prong of the Midcal test is further shown because the
regulation allows COSSEC to ``investigate and prosecute illicit
practices under collective bargaining authorized by the Subchapter
20A of Act No. 239-2004, as amended.'' See Regulation No. 9161 at
Art. IV (as translated to English).
\79\ Ports Auth. of Puerto Rico v. Compania Panamena de Aviacion
(Copa), S.A., 77 F. Supp. 2d 227, 236 (D.P.R. 1999) (finding that a
``detailed formula for annually adjusting'' a Federal Inspection
Service Facility fee satisfied the active supervision prong of the
Midcal test). Here, Puerto Rico's Regulation No. 9161 provides for
direct oversight by COSSEC over negotiations between healthcare
players. This is arguably more stringent than issuing a formula
annually, as a court nonetheless found sufficient to satisfy the
active supervision prong under Compania Panamena.
\80\ Statement of Chair Lina M. Khan Regarding the Policy
Statement Concerning Reliance on Prior PBM-Related Advocacy
Statements and Reports, https://www.ftc.gov/legal-library/browse/cases-proceedings/publicstatements/statement-chair-lina-m-khan-regarding-policy-statement-concerning-reliance-prior-pbm-related
(July 20, 2023).
\81\ Id. at 2 (emphasis added).
\82\ See, e.g., NYS Committee on Investigations and Gov't
Operations, Final Investigative Report: Pharmacy Benefit Managers in
New York, https://www.nysenate.gov/sites/default/files/article/attachment/final_investigatory_report_pharmacy_benefit_managers_in_new_york.pdf
(May 31, 2019). The Committee determined that: PBMs often employ
controversial utilization and management tools to generate revenue
for themselves in a way that is detrimental to health plan sponsors,
patients, and pharmacies. Such practices include maximum allowable
cost lists, direct and indirect remuneration fees, rebates,
formularies, and most controversially, spread pricing. The Committee
also found evidence that PBMs are undermining patient choice by
forcing consumers to use their preferred distributors, which are
predominantly their own retail and mail order operations. Id. at 4-5
(internal citations omitted). See also Nat'l Assoc'n of Attys
General, A Bipartisan Coalition of 39 State Attorneys General Urge
Congressional Action on Pharmacy Benefit Manager Reform, https://www.naag.org/pressreleases/a-bipartisan-coalition-of-39-state-attorneys-general-urge-congressional-action-on-pharmacy-benefit-manager-reform/ (Feb. 21, 2024); Erin Trish, Ph.D., Karen Van Nuys,
Ph.D. & Robert Popovian, PharmD, U.S. Consumers Overpay for Generic
Drugs, https://healthpolicy.usc.edu/research/u-s-consumers-overpay-for-genericdrugs/ (White Paper abstract states that ``PBMs' current
practices--coupled with market distortions within the pharmaceutical
supply chain--have inflated retail generic prices''); JACOBIN, H.
Santoro, Middlemen Are Profiting off the Broken US Pharma System,
https://jacobin.com/2024/03/pharmacy-benefit-managers-drug-prices-congress (Mar. 10, 2024) (Title excerpt: ``Pharmacy benefit managers
push expensive medications and slash drug reimbursement rates,
pocketing the profits for themselves. Congress looked set to
regulate these shadowy middlemen--but $50 million in industry
lobbying later, the effort has stalled.'').
\83\ See, e.g., DEP'T OF JUSTICE, Assistant Attorney General
Jonathan Kanter Announces Task Force on Health Care Monopolies and
Collusion, https://www.justice.gov/opa/pr/assistant-attorney-general-jonathan-kanter-announcestask-force-health-care-monopolies-and (May 9, 2024); U.S. GOV'T ACCOUNTABILITY OFFICE REPORT TO
CONGRESSIONAL REQUESTERS, Selected States' Regulation of Pharmacy
Benefit Managers, https://www.gao.gov/assets/d24106898.pdf (Mar.
2024) (stating that GAO conducted the study to review the
legislation enacted by states in response to ``certain PBM
practices, such as PBMs retaining a share of the rebates and use of
spread pricing,'' because every U.S. State has ``enacted at least
one PBM-related law between 2017 and 2023''); NYS DEP'T OF FINANCIAL
SERVS., DFS Superintendent Adrienne A. Harris Proposes Pharmacy
Benefit Manager Regulations to Strengthen Consumer Protections and
Address Anti-Competitive Conduct, https://www.dfs.ny.gov/reports_and_publications/press_releases/pr202402061 (Feb. 6, 2024).
\84\ See also, Interim FTC Report at 53 (``our initial review of
documents received thus far reveals that PBMs can have the ability
and incentive to put downward pressure on reimbursement rates for
rival, unaffiliated pharmacies--including to a degree that may be
unsustainable for small, independent pharmacies.'').
\85\ FED. TRADE COMM'N, Putting the Mod in Order Modification,
https://www.ftc.gov/enforcement/competitionmatters/2014/07/putting-mod-order-modification (2014) (``The modification process helps keep
Commission orders from doing more harm than good when conditions
change, and as the public interest requires.'').
\86\ In the matter of Occidental Petroleum Corp., 101 F.T.C.
373, 1974 WL 175259, at *1. FTC Docket C-2492 (F.T.C. Mar, 9, 1983);
see also, e.g., In the matter of Removatron Int'l Corp., et al., 114
F.T.C. 715, 719, FTC Docket No. 9200 (F.T.C. 1991) (setting aside
order provision when ``continued application

[[Page 74960]]

would be inequitable or harmful to competition'').
\87\ In the matter of Nestl[eacute] Holdings, Inc., et al., C-
4082, 2005 WL 1786402, at *3 (F.T.C. July 15, 2005).
\88\ In the matter of the Readers' Digest Ass'n. No. C-2075, 102
F.T.C. 1268, 1971 WL 128725, at *2 (Sept. 30, 1983).
\89\ Statement of Motives, P. de la C. 2440 (``Act 228'') (as
translated) at 2.
\90\ See Ximena Benavides, Disparate Health Care In Puerto Rico:
A Battle Beyond Statehood, 23 Univ. of Penn. J. of Law and Social
Change 163, 175 (2020).
\91\ Id.
\92\ Id.
\93\ Id.
\94\ NCPA, Local Pharmacies on the Brink, New Survey Reveals,
https://ncpa.org/newsroom/newsreleases/2024/02/27/local-pharmacies-brink-new-survey-reveals (Feb. 27, 2024).
\95\ NCPA, NCPA Report for February 2024 Survey of Independent
Pharmacy Owners/Managers, https://ncpa.org/sites/default/files/2024-02/Feb2024-DIRsurvey.Exec%20Summary.pdf (Feb. 2024).
\96\ NCPA, Local Pharmacies on the Brink, New Survey Reveals, at
1 https://ncpa.org/newsroom/newsreleases/2024/02/27/local-pharmacies-brink-new-survey-reveals (Feb. 27, 2024).
\97\ Id.
\98\ Id.
\99\ Oct. 24, 2016 Letter to Sen. Orrin Hatch and Jose B.
Carri[oacute]n III, https://www.finance.senate.gov/imo/media/doc/Puerto%20Rico%20Community%20Pharmacies%20Association%20(Late%20-
%20Submission%201).pdf (Oct. 24, 2016).
\100\ Id. at 2.
\101\ Id.
\102\ RURAL HEALTH RESEARCH GATEWAY, Research Alert: Sept. 1,
2022, https://www.ruralhealthresearch.org/alerts/
504#:~:text=Between%202003%20and%202021%2C%20the,percent%20during%20t
he%20same%20period (last accessed June 19, 2024).
\103\ RUPRI CENTER FOR RURAL HEALTH POLICY ANALYSIS, Update on
Rural Independently Owned Pharmacy Closures in the United States,
2003-2021, https://rupri.publichealth.uiowa.edu/publications/policybriefs/2022/Independent%20Pharmacy%20Closures.pdf (last
accessed June 19, 2024).
\104\ See notes 78 and 79, supra. See also ``Letter to Pharmacy
Benefit Managers, Medicare Part D Plans, Medicaid Managed Care
Plans, and Private Insurance Plans,'' https://www.cms.gov/newsroom/fact-sheets/cms-letter-plansand-pharmacy-benefit-managers (Dec. 13,
2023); see also, Sens. Wyden, Crapo Call for Swift Passage of
Bipartisan PBM Reforms, https://www.finance.senate.gov/chairmans-news/wyden-crapo-call-for-swift-passage-ofbipartisan-pbm-reforms
(Mar. 14, 2024).
\105\ In Re Toys `R Us, Petition to Modify Order, FTC File No.
131-0052, Docket C-4405, at 4, located at https://www.ftc.gov/sites/default/files/documents/cases/140109toysruspetition.pdf (Jan. 3,
2014).
\106\ In Re Toys `R Us, Modified Order, FTC File No. 131-0052,
Docket C-4405, at 4, located at https://www.ftc.gov/system/files/documents/cases/140415toysrusorder.pdf (Apr. 11, 2014).
\107\ Id. at 4.
\108\ See In the Matter of Occidental Petroleum Corp., 101
F.T.C. 373, 1974 WL 175259, at *1.
\109\ In the Matter of Pendleton Woolen Mills, Inc., 122 F.T.C.
267, 270, FTC Docket No. C-2985 (1996).
\110\ In the Matter of Onkyo U.S.A. Corp., 122 F.T.C. 325, 326.
FTC Docket No. C-3092 (1996).
\111\ In the Matter of Nat'l Fire Hose Corp., No. C-2935, 1978
WL 206076, at *10 (F.T.C. Nov. 1, 1978).
\112\ See n. 8, supra.
\113\ See Analysis of Agreement Containing Consent Order To Aid
Public Comment to In the Matter of Coopharma, File No. 101-0079 at 4
(August 21, 2012). It should also be noted that the Commission has
recognized the enactment of and applicable of Act 228 ``when
negotiating with any Payor in compliance with Act 228.'' See In the
Matter of Cooperativa de M[eacute]dicos Oftalm[oacute]logos de
Puerto Rico, No. C-4603 at 4 (Decision and Order, Mar. 3, 2017).
Moreover, Act 228 covers all of the conduct which is addressed in
the Order, and, in fact goes further than the Order in prohibiting
specific conduct. By way of specific example, 26 P.R. Laws Sec.
3107 explicitly states that any ``threats to boycott, go on strike
or other coordinated action by the providers shall be subject to
oversight by the Antitrust Affairs Office of the Department of
Justice, in order to determine whether the same is in violation of
the provisions of this chapter or the Antitrust Act.'' The section
further authorizes the imposition of civil and/or criminal liability
on any Health Care Cooperative engaged in such conduct.

[FR Doc. 2024-20811 Filed 9-12-24; 8:45 am]
BILLING CODE 6750-01-P