TARGETED NEWS SERVICE (founded in 2004) provides nonpartisan news and information on “edited journalism” for news organizations, public policy groups and individuals; as well as “collected” public policy information, including press releases, reports, speeches. For more information, contact
Here are excerpts:
* * *
To: The Honorable
the honorable
SUBJECT: Request for public comment on the business practices of pharmacy benefit managers and their impact on independent pharmacies and consumers
the
The NCPA represents America’s community pharmacists, including 19,400 independent community pharmacies. Nearly half of all community pharmacies provide long-term care services and play a critical role in ensuring that patients have immediate access to medications in community and long-term care facilities. Our members represent a
NCPA members continue to suffer from the anti-competitive effects of multiple horizontal and vertical mergers in the healthcare industry over the past 20 years. These mergers have resulted in a highly concentrated market structure that allows pharmacy benefit managers to “exercise undue market power.”/1
Three vertically integrated companies/2 now control access to over 80%3 of all prescriptions filled
The harm caused by consolidation affects not only competitors squeezed out by exclusionary practices made possible by vertical integration, but also competition and consumers.
The Agencies have not challenged any transactions in this market with anything more substantial than targeted divestments. Many have not even received a second request. Something is wrong with merger review.
Broaden the scope of the guidelines
The guidelines need a large sample of actual mergers that serve as evidence of competitive harm and are based on structural presumptions and historical comparisons. Like
1
2
3 Fein, Adam. “The Best Pharmacy Benefit Managers of 2021: The Big Ones Get Even Bigger.” Drug channels.
4 Competition in
5 Supra fn. 1.
* * *
Currently being developed and implemented, the Guidelines identify a very narrow type of mergers for which there is overwhelming and irrefutable evidence of harm to competition – for example, monopoly mergers, or which are susceptible to econometric analysis. Transactions that do not fit into the obvious category or the narrow model are permitted despite appearing to the general public as a substantial lessening of competition, higher prices for consumers, and a decrease in access and convenience. innovation. In short, the Guidelines as they are currently developed and applied subvert the intent of the law as enacted by
The application of the Guiding Principles relies too heavily on complex economic modeling rather than on actual behaviors and structural assumptions. This overreliance on economic analysis has created a “CSI” effect in courtrooms, with judges mistakenly believing, and thus demanding, that judges can and should accurately predict the effects of the merger in each case. In turn, econometric analysis takes over, with each party spending millions to develop complicated modeling that often turns out to be wrong just a few years after the deal closes. This “CSI” effect could be improved by the reintroduction of structural presumptions based on what really happened on the market.
the
Apply the guidelines as they are written
Challenge vertical mergers that create or reinforce barriers to entry and stop focusing on price as the only indicator of when to act. Short of rewriting the Guidelines, the Agencies’ application of the Guidelines as written would result in a much more robust application. For example, the 2020 Vertical Guidelines identify conditions that may raise significant competition concerns. Yet challenges to vertical transactions are rare – once every 40 years – despite the growing number of vertically integrated entities, especially in healthcare and technology.
In the technology space, the creation of these closed-loop barriers to entry is referred to as “walled gardens”. The concept is the same in healthcare: establishing a market, controlling access to customers and constructing rules to disadvantage competitors. Vertical transactions that create or reinforce barriers to entry and allow the exclusion of rivals are essentially ignored due to the Principles’ focus on price./7
These exclusionary behaviors directly affect prices and harm the competitive process, ultimately causing further harm to consumers./8
The recent
6 For example, the retrospective undertaken by the
[seven footnote is omitted]
8 In our market, we have seen how a walled garden directly leads to higher prices for consumers. For example, the three largest PBMs which account for 80% of all prescriptions filled in the
Complaint filed by the
[Text omitted]
Conclusion
Over the past 40 years, the soft policy towards mergers found in the current structure and application of the Guidelines has resulted in a substantial lessening of competition throughout the economy. Even the simple step of applying the Guidelines more faithfully as currently drafted would have a positive impact. Greater attention to exclusion effects, non-price effects, and vertical foreclosure does not require much more. As things stand, the market dynamism that enabled and spurred innovation has been replaced by many of the same market characteristics that spawned the Sherman Act and the Clayton Act. Law professors teach students that antitrust laws level the playing field, fostering a competitive market that produces higher quality goods, consumer choice, and lower prices. Agencies should ensure that merger guidelines consider all of these benefits of competition – quality, choice, cost savings – when assessing the competitive effects of a transaction.
Sincerely,
B. Douglas Hoey RPh, MBA
CEO,
TARGETED NEWS SERVICE (founded in 2004) provides nonpartisan news and information on “edited journalism” for news organizations, public policy groups and individuals; as well as “collected” public policy information, including press releases, reports, speeches. For more information, contact
