Monday, October 22, 2007

FTC Opposes Antitrust Exemption for Pharmacies

This posting was written by John Scorza, CCH Washington Correspondent.

A bill that would allow family pharmacies to band together to negotiate the price of prescription drugs with health plans likely would raise prices for consumers, private employers, and the government, a Federal Trade Commission (FTC) official testified at a recent congressional hearing.

Under a bill introduced in the House (H.R. 971), independent pharmacies would be granted an antitrust exemption that would allow them to bargain collectively with health plans to set fees and contract terms. The pharmacies would be treated as bargaining units, akin to employees engaged in negotiations with employers under the National Labor Relations Act. Companion legislation has been introduced in the Senate (S. 885).

License to Engage in Price Fixing, Boycotts?

David Wales, deputy director of the FTC’s Bureau of Competition, clearly stated the Commission’s opposition to the legislation.

“Giving health care providers – whether pharmacies, physicians, or others – a license to engage in price fixing and boycotts in order to extract higher payments from third-party payers would be a costly step backward, not forward, on the path to a better health care system,” Wales said in testimony to the House Judiciary Committee’s Antitrust Task Force on October 18.

Caution in Considering Exemptions

Wales cited the work of the Antitrust Modernization Commission (AMC), which earlier this year urged Congress to exercise caution when considering antitrust exemptions. The AMC concluded that exemptions typically “create economic benefits that flow to small, concentrated interest groups, while the costs of the exemption are widely dispersed, usually passed on to a large population of consumers through higher prices, reduced output, lower quality, and reduced innovation.”

The AMC recommended that such statutory immunities be granted “rarely” and only when proponents have made a “clear case” that exempting otherwise unlawful conduct is “necessary to satisfy a specific societal goal that trumps the benefit of a free market to consumers and the U.S. economy in general,” Wales noted.

The proposed exemption for pharmacies is one of those instances in which an exemption would satisfy an important societal goal, in the FTC’s view. “The bill would immunize price-fixing and boycotts to enforce fee and other contract demands, conduct that would otherwise amount to blatant antitrust violations,” the deputy director observed.

The Commission voted 5-0 to approve the testimony. Text of the written testimony appears on the FTC website.

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