House Judiciary Committee Approves Antitrust Exemption for Independent Pharmacies

On November 7, 2007, the House Judiciary Committee approved H.R. 971, the “Community Pharmacy Fairness Act of 2007,” (the Act) sponsored by Anthony Weiner (D-NY) and Jerry Moran (R-KS). In March of 2007, Sen. Johnny Isakson (R-GA) introduced a companion bill S. 885, also titled the “Community Pharmacy Fairness Act of 2007.” At present, the Senate bill, which is cosponsored by Sens. Tim Johnson (D-SD) and Lindsey Graham (R-SC), is not scheduled for a markup. These bills would enable independent pharmacies to collectively negotiate contract terms with health plans without facing antitrust liability. Such joint negotiations would otherwise raise significant antitrust issues.

Specifically, the Act provides that independent pharmacies are entitled to “the same treatment under the antitrust laws as the treatment to which bargaining units which are recognized under the National Labor Relations Act (NLRA) are entitled….” The NLRA provides for a statutory exemption from the antitrust laws for employees and their labor unions, allowing workers to organize to eliminate competition among themselves, in pursuit of their legitimate labor interests. Consistent with this, the proposed legislation provides that pharmacists negotiating in good faith would not be subject to criminal liability or treble damages.

The bills define independent pharmacies as those not owned or operated by a publicly traded company. The House Judiciary agreed to add an amendment that would limit the exemption to independent pharmacies that have a market share of less than ten percent in any Medicare Part D prescription drug plan region and less than one percent in the United States. They also agreed to an amendment that would provide for a five-year sunset provision on the exemption, and near the conclusion of this term, a GAO study of and report on the impact of the law. The report would include recommendations on whether to extend the Act.

Those supporting the bill, such as the National Community Pharmacists Association (NCPA) and the Association of Community Pharmacists * Congressional Network (ACP*CN), argue that the exemption is necessary to “level the playing field” with respect to large pharmacy benefit managers (PBMs). According to the bill’s advocates, without this legislation, the existence of the independent pharmacy is threatened. For example, Mike James, vice-president of government affairs for ACP*CN, argued:

The PBMs have held all the cards in the prescription drug delivery system for a very long time. PBMs offer take it or leave it contracts to pharmacies and severely under reimburse them for drugs and patient counseling ….This has resulted in an acute decline of independent pharmacies across the country. By passing HR 971 out of committee, the House Judiciary Committee understands the free market playing field needs to be leveled between hometown pharmacists and the monopolistic PBMs or patients will suffer.

The Pharmaceutical Care Management Association (PCMA), which represents PBMs, expressed a strongly opposing view. This group disputed that independent pharmacies are at a huge bargaining disadvantage vis-à-vis PBMs, noting that most independent pharmacies hire Pharmacy Service Administrative Organizations (PSAOs) that collectively bargain on their behalf. The PCMA further argued that the bill will dramatically increase costs for consumers, citing a report by economist Peter J. Rankin of Charles River Associates International that it had commissioned. Dr. Rankin concluded that the proposed exemptions would increase prescription drug costs for Medicare and commercial payors by up to 11.8 percent, or $29.6 billion over five years. The study also concluded that the cost increases would be passed on to consumers, employers and health insurers with an ultimate reduction health care coverage.

The PCMA has a strong ally in this debate – the Federal Trade Commission (FTC). In a prepared statement before the House Judiciary Committee, David Wales, deputy director of the FTC’s Bureau of Competition, stated that although sympathetic to the difficulties that independent and family pharmacies face, the FTC believes that the proposed exemption would lead to higher prices for consumers for much needed medicine, and also threatens to increase costs to the federal government and to private employers who provide health care insurance to employees “all without any assurance of higher quality care.” According to Wales, “[g]iving health care providers … 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 urged Congress to significantly narrow the exemption if it “concludes that the difficulties facing small pharmacies require a legislative solution.”

H.R. 971 is similar to legislation that Congress considered a few years ago that would have given an antitrust labor exemption to physicians (as well as to community pharmacies) in their negotiations with health plans. That legislation was considered for several years, and in 2000 was passed by a 276-136 vote in the House of Representatives. The bill did not receive substantial support in the Senate, however, and since 2000 further efforts to obtain passage received less support. Given this lack of success on similar legislation, the likelihood that this new proposal will be enacted, notwithstanding the favorable House Judiciary Committee vote, may be small