Markets Wired

Providing Federal Trade Commission testimony today before the Antitrust Task Force of the U.S. House of Representatives’ Committee on the Judiciary, Deputy Bureau of Competition Director David P. Wales, Jr., presented the Commission’s views on H.R. 971, the Community Pharmacy Fairness Act of 2007, which would create an exemption from the antitrust laws to allow pharmacies to engage in collective bargaining to secure higher fees and more favorable contract terms from health plans.

Wales testified that, “[A]lthough the Commission is sympathetic to the difficulties independent and family pharmacies face, the exemption threatens to raise prices to consumers, especially seniors, for much-needed medicine. It also threatens to increase costs to private employers who provide health care insurance to employees . . . all without any assurance of higher quality care. For these reasons, the Commission opposes the legislation.”

The testimony continued by providing an overview of historical attempts by health care providers to seek an exemption to the antitrust law, with the FTC testifying before Congress in both 1998 and 1999 opposing similar bills that would have applied to all health care professionals. It cited a Congressional Budget Office report that concluded that enactment of the 1999 bill would significantly increase direct spending on pharmaceuticals both by private payers and under a variety of government programs. “Recognizing that many American consumers already face difficult health care choices in the market,” the testimony stated, “Congress wisely has declined to adopt such exemption proposals.”

The testimony also presented recommendations by the Antitrust Modernization Commission (AMC) – a body created by Congress to evaluate the application of the nation’s antitrust laws – which concluded that antitrust 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.” Accordingly, the AMC recommended that such exemptions be granted only “rarely.”

“Is the proposed exemption for pharmacies in H.R. 971 one of those rare instances in which the societal benefits from dispensing with antitrust rules and the normal competitive process exceeds the costs?” the testimony asked. “In the Federal Trade Commission’s view, it is not.”

Further, the testimony noted that although the stated purpose of H.R. 971 is “[to] ensure and foster continued patient safety and quality of care,” the Commission believes that the proposed exemption would not further these goals. Instead, it “not only would grant competing sellers a powerful weapon to obstruct innovative arrangements for the delivery and financing of pharmaceuticals, but also would dull competitive pressures that drive pharmacies to improve quality and efficiency in order to compete more effectively.” In addition, nothing in the bill requires that the collective bargaining it authorizes be directed at improving patient safety or quality, “rather than merely increasing pharmacies’ revenues from payers.”

If Congress concludes that the difficulties facing small pharmacies require a legislative solution, according to the testimony, then “one tailored to the specific problem is called for, not a sweeping antitrust exemption that may bring with it greater harm.”

The testimony concluded, “Although health care markets have changed dramatically over time, and continue to evolve, collective action by health care providers to obstruct new models for providing or paying for care, or to interfere with cost-conscious purchasing, remains a significant threat to consumers. . . . Giving heath 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.”

The Commission vote to approve the testimony and place a copy on the public record was 5-0. The written statement presented at the hearing represents the views of the FTC.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/competitioncounts.