Feds Promote Competition Among PBMs, Not Further Regulation

Drug Cost Management Report, July 30, 2004

A federal government report released July 23, provides PBMs with some much-needed validation, and also lays out some specific actions that policy-makers, payers and providers can take to enhance competition among PBMs and other health care sectors.

The 361-page report, by the Federal Trade Commission and the Antitrust Division of the Dept. of Justice, supports the industry's position that competition - not further government regulation - is the most effective way to ensure PBM disclosure and contracting transparency. FTC and DoJ conclude that the PBM industry drives cost savings and quality improvements for both consumers and payers.

Last year, the PBM industry got a shot in the arm from a January 2003 report by the General Accounting Office that came to similar conclusions. Since then, however, a continuing stream of whistleblower lawsuits and allegations of shady business practices have kept PBMs busy defending themselves to a wary public.

On July 14, the Pharmaceutical Care Management Association (PCMA), which represents PBMs, publicized a new PricewaterhouseCoopers study that highlights the potential cost savings that can be attained by PBM tools and techniques. Together, these studies form what PCMA President Mark Merritt calls a "growing body of evidence that PBMs are lowering prescription drug costs for consumers and employers."

FTC and DoJ say they released "Improving Health Care: A Dose of Competition," to address growing skepticism about competition in the health care marketplace. The report is based on 27 days of joint hearings on health care and competition held from February through October 2003, an FTC-sponsored workshop in September 2002, and independent research. (Both agencies contacted DCMR for PBM market-share data.)

Competition Could Lead to More Transparency

According to the report, the optimal level of transparency - or full disclosure - in PBM contracts is more likely to be attained through competition than through state regulations.

However, the report cautions that competition alone cannot solve all of the problems facing American health care. Some observations and recommendations from the report include:

  • "Empirical evidence suggests that consumers with prescription drug insurance administered by a PBM save substantially on their drug costs as compared to cash-paying customers," the report states. However, the document does not draw conclusions regarding potential conflict of interest in mail-order pharmacies owned by PBMs. FTC has been directed by Congress to report on this issue by June 2005.

Meanwhile, a new study released July 28, will likely provide significant input into the FTC's examination of mail-order pharmacies. An independent, peer-reviewed study by Harvard Business School economists has determined that generic drug dispensing rates at PBM-owned mail-order pharmacies are essentially the same as those at retail pharmacies. This examination of 670 million prescription drug claims "should serve to debunk-once and for all - the myth that PBM mail-service pharmacies favor brand-name prescription drugs more than retail pharmacies do," according to PCMA.

  • Private payers and governments should improve provider incentives, and should enhance consumer education efforts to further hold down health care spending.
  • Governments should be aware that mandating benefits reduces competition, restricts consumer choice, raises the cost of health insurance, and increases the number of uninsured.
  • The agencies also say the available evidence supports the argument that direct-to-consumer advertising - when truthful and nonmisleading - benefits consumers by educating them and increasing compliance with pharmaceutical regimens. But they noted an absence of evidence regarding whether the cost of advertising is passed on to payers and consumers.

The report is available at www.ftc.gov/reports/index.htm.

Article provided to Prescription Solutions by
Atlantic Information Services, Inc., Washington, D.C.

Copyright © 2004 Atlantic Information Services, Inc. All Rights Reserved.

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