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UNITEDSTATESOFAMERICA
FEDERALTRADECOMMISSION
WASHINGTON,D.C.20580OfficeofPolicyPlanningBureauofEconomicsBureauofCo~tion
August5,2011Hon.James
L.
SewardSenator,51
st
DistrictLegislativeOfficeBuildingAlbany,NY12247DearSenatorSeward:ThestaffsoftheFederalTradeCommission'sOfficeofPolicyPlanning,BureauofCompetition,andBureauofEconomics
I
arepleasedtorespondtoyourrequestforcommentsonthelikelycompetitiveeffectsofNewYorkAssemblyBill5502-B
("A-5S02-B"
or''theBill"),whichregulatestheuseofmailorderpharmaciesbyhealthplansofferingprescriptiondrug
coverage.i
FTCstaffrecognizethattheBillseekstoenhanceNewYorkconsumers'abilitytochoosehowandwheretheirprescriptionsarefilled.Weareconcerned,however,thattheBillwillhavetheunintendedconsequenceofharmingconsumers.Byreducingcompetitionbetweenpharmacies,thislegislationlikelywillraisepricesfor,andreduceaccessto,prescriptiondrugs,whichareanincreasinglyimportantcomponentofmedicalcare.TheBillwilllimitahealthplan'sabilitytosteerbeneficiariestoalowercostmailordervendorofmaintenance
drugs;'
viafinancialincentivesorothertermsofcoverage,wheneveracompetingretailpharmacyiswillingtofillprescriptionsat"comparable"prices.Byrestrictingahealthplan'sabilitytoofferfavorabletreatmenttoalowcostmailorderpharmacy,theBillundercutspharmacies'incentivestobidaggressivelyforashareofthathealthplan'sbusiness.Reducingthoseincentivesislikelytoraisethepricesthatconsumerspayfortheprescriptiondrugsthattheirhealthplanscover.Somecostincreasesmaybepassedontoplanbeneficiariesintheformofhigherout-of-pocketprices.
In
somecases,plansmayrespondtohighercostsbyreducingthescopeofprescriptiondrugcoverage,orbyeliminatingprescriptiondrugcoverageentirely.Forthosereasons,FTCstaffrecommendthattheBillnotbeenacted.
I.InterestandExperienceoftheFederalTradeCommission
CongresshaschargedtheFederalTradeCommission.("FTC"or"Commission")withenforcingtheFTCAct,whichprohibitsunfairmethodsofcompetitionandunfairordeceptiveactsorpracticesinoraffectingcommerce."Pursuanttoitsstatutorymandate,the
 
Page2of7FTCseekstoidentifybusinesspracticesandgovernmentregulationsthatmayimpedecompetitionwithoutofferingcountervailingbenefitstoconsumers.CompetitionisatthecoreofAmerica'seconomy.landvigorouscompetitionamongsellersinanopenmarketplacegivesconsumersthebenefitsoflowerprices,higherqualityproductsandservices,morechoices,andgreaterinnovation.Becauseoftheimportanceofhealthcarecompetitiontotheeconomyandconsumerwelfare,anticompetitiveconductinhealthcaremarketshaslongbeenakeytargetofFTClawenforcement,"
research,"
andadvocacy'OfparticularrelevancetoouranalysisofA-5502-BistheCommission's2005"ConflictofInterestStudy"regardingpharmacybenefitmanagers("PBMs").
In
responsetoa2003Congressionalrequest,theFTCanalyzeddataonPBMsand,inparticular,onpricecompetitionandotherissuesregardingtheuseofmailorderpharmaciesbyPBMsandothers.Inits2005reportbasedonthestudy,theFTCfound,amongotherthings,thatmailorderpharmaciestypicallyarelessexpensivethanretailpharmaciesforbothhealthplansandtheirmembers"
II.TheBilland
"Any
WillingProvider"or"FreedomofChoice"LawsA.A-5502-B'sRestrictionsonMailOrderPharmacies.
TheBillimposesparallelrestrictionsonanypolicyorinsurerthatprovidescoverageforprescriptiondrugs.1OSuchpoliciesandinsurersaresubjecttotwobasiclimitations,whichapplywheneveracompetingpharmacyiswillingtoacceptpricesthatare"comparable'ttothosechargedbyahealthplan'spreferredmailorderpharmacy.First,theplanmustpermiteachcoveredpersontofillanymailorderprescriptionatthepharmacyofhisorherchoice-atanyretail(non-mail)pharmacyintheplan'snetwork,oratanymailorderpharmacyatall,independentofnetworkparticipation.
II
Competingpharmaciesneedonlyoffertoacceptpricesthatare"comparable"tothosechargedby'ahealthplan'spreferredmailorderpharmacy.Second,planscannotimposehighercopaymentsordeductibleswhenacoveredindividualchoosestofillaprescriptionatanon-preferredpharmacy.
12
B.
"Any
WillingProvider"and"FreedomofChoice"Regulations.
A-5502-Blimitsahealthplan'sabilitytorequireorencouragetheuseofanyparticularmailorderpharmacy.Theselimitsareakintothosefoundgenerallyin"anywillingprovider"("AWP")and"freedomof'choice"("FOC")laws.AWPlawsrequirehealthplanstoincludeintheirnetworksanyproviderthatiswillingtoparticipateinaccordancewiththeplan'sterms.
13
FOClawsaresimilar,butaredirectedathealthplansinsteadofproviders.FOClawsrequireplanstoreimburseforhealthcaregoodsorservicesobtainedfromanyqualifiedprovider,eveniftheproviderisnotoneoftheplan'spreferredproviders,orisnotamemberoftheplan'snetwork.
14
MorethanthirtystateshaveadoptedAWPorFOelawsinsomeform,andmorethanadozenhaveadoptedsuchlawsforpharmacyservices
in
particular,
15
 
Page3of7FTCstaffhaveexpressedconcernsaboutpotentialanticompetitiveeffectsandconsumerharmsassociatedwithAWPandFOClawsbefore.
16
TheselawscanmakeitmoredifficultforhealthinsurersorPBMstonegotiatediscountsfromproviders;ifplanscannotgiveprovidersanyassuranceoffavorabletreatmentorgreatervolumeinexchangeforlowerprices,thentheincentiveforproviderstobidaggressivelyfortheplan'sbusiness-toofferbetterrates-isundercut.
17
AWPandFOClawsalsocanlimitcompetitionbyrestrictingtheabilityofinsurancecompaniestoofferconsumersdifferentplans,withvaryinglevelsofchoice.Theserestrictionsoncompetitionmayresultininsurancecompaniespayinghigherfeestoproviders,which,in
turn,
generallyresultsinhigherpremiums,andmayincreasethenumberofpeoplewithoutcoverage.BotheconomictheoryandtheavailableempiricalevidencesuggestthatA
WPIFOC
provisionsarelikelytohavethesenegativeeffects.
IS
III.Likely
Effectsof
A-5502-B
Mailorderpharmaciescanoffersubstantialcostsavings,especiallywithrespecttopre~crifti~ns.for"maintenance".~gs,whicharetakenfo~longperiodsofti~~,onaregularbasis.
1
Limitsontheuseofmailordermay,therefore,raisethecostofproviding.prescriptiondrugbenefitstoNewYorkhealthcareconsumers.AlthoughtheBillattemptstoprovideconsumerswithachoiceamongavailablepharmacyproviders,itmayhavetheunintendedconsequencesofcurtailingprescriptiondrugcoverageandincreasingout-of-pocketpayments.FTCresearchhasfoundthatmailorderpharmaciestypicallyarelessexpensivethanretailpharmacies,
20
for'bothhealthplansandconsumers.
2I
Forthisreason,healthplans,insurers,andPBMsuseavarietyofincentivestoencouragetheuseofmailorderpharmacies,especiallyforbeneficiariestakingmaintenancemedications.r'Forexample,plansmayofferlowerco-paymentsformailorderdrugs,orchargedeductiblesforretailpurchases,orimwselimitationsonthenumberoftimesaprescriptionmayberefilledataretailpharmacy.
3
Somehealthplansevenhave"mandatorymailorder"programsthatreimbursebeneficiariesformaintenancemedicationsonlyifthebeneficiariesfillthoseprescriptionsbymai1.
24
Theserestrictionssometimeslimitchoices,buttheyhelpkeepcostsdownforconsumersbecausetheyhelpthehealthplansgetbetterpricesfromthepharmacies.Pharmaciesoftenofferlowerpricesforhighercustomervolume-inotherwords,theyofferbiggerdiscountstohealth'plansorPBMsthatgivetheirmembersanincentivetousethosepharmacies.fAlso,ifhealthplansareabletoexcludeapharmacyfromtheirnetworkorchannelcustomerselsewhere,thatcreatesastrongincentiveforpharmaciestobidaggressivelyandofferbetterdeals.i"Allofthesefactorshelpconsumersgetlowerprices.A-5502-BlimitstheabilitiesofhealthplansandPBMstoemploybothofthesestrategiesforreducingcosts.First,totheextentthattheBillrestrictsahealthplan'sabilitytocreateincentivesforcustomerstochooseonepharmacyratherthananother,"itundercutstheabilityoftheplantonegotiatefavorabletermswithanyparticularmailorderpharmacy:thereisnoincentiveforamailorderpharmacytobidaggressivelyforashareofahealthplan'sbusinessifthepharmacyhasnoreasontoexpectthatalowerbidwillresultinahigher
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