National Association of Community Pharmacists Issues Public Comments to FTC and Department of Justice Antitrust Division – InsuranceNewsNet

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WASHINGTON, April 30 — The National Association of Community PharmacistsNew Alexandria, Virginiamade a public comment to Federal Trade Commission and the United States Department of Justice Antitrust Division. The comment was written on April 21, 2022and posted on April 28, 2022.

Here are excerpts:

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To: The Honorable Lina KhanChair, Federal Trade Commission, 600 Pennsylvania Avenue, N.W., washington d.c. 20580

The honorable Jonathan Canterdeputy attorney general, US Department of Justice, 950 Pennsylvania Avenue, N.W., washington d.c. 20530-0001

SUBJECT: Request for public comment on the business practices of pharmacy benefit managers and their impact on independent pharmacies and consumers

Dear President Khan and Deputy Attorney General Kanter:

the National Association of Community Pharmacists (NCPA) welcomes the opportunity to provide feedback to the Federal Trade Commission and the Antitrust Division of justice department on “Merger Guidelines” — the 2010 Horizontal Merger Guidelines and the 2020 Vertical Merger Guidelines. The NCPA is well placed to comment on the need for the guidelines, as the NCPA can provide information that both reflects the realities of the modern market and that will guide agencies in identifying and proscribing illegal and anti-competitive practices.

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 $67 billion healthcare market, employ 215,000 Americans and provide a growing range of healthcare services to millions of patients every day. Our members are small business owners who are among the most accessible healthcare providers in the United States.

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 United States. They also have access to sensitive competitive information about their competitors. Each of these three companies has market power in one or more product markets and in several relevant geographic markets./4

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 White House Council of Economic Advisers reports that “[p]Competition in the pharmaceutical drug market suffers from high market concentration in the pharmaceutical distribution system and a lack of transparency.”/5

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 Council of Economic Advisersreform the pricing of biopharmaceuticals at home and abroad (February 2018) to 10.

2 Etna-CVS-Caremark; UHG-Optum; Cigna-ESI; Humana-Primark.

3 Fein, Adam. “The Best Pharmacy Benefit Managers of 2021: The Big Ones Get Even Bigger.” Drug channels. April 5, 2022. https://www.drugchannels.net/2022/04/the-top-pharmacy-benefit-managers-of.html?m=1.

4 Competition in Health insurance: An In-Depth Study of US Markets (Updated 2017).

5 Supra fn. 1.

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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 Congress.

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 FTC Economics office and the DOJ‘s economic analysis group has access to data and information that it can use to compare the actual outcome to the expected outcome described by the parties. For example, an entity with 35% market share acquires a downstream entity with a significantly lower market share. The parties assert – in accordance with the 1987 and 2020 vertical guidelines – that because the transaction will eliminate double marginalization (contractual friction), the combined entity will be more efficient and the end prices for consumers will decrease. After several years, the market share of the downstream entity increases and matches the market share of the upstream entity. During this time, the competitors of the downstream entity leave the market and the price of production paid by consumers increases. Studying the actual effects of consummated transactions/6 would be instructive in assessing the competitive effects of the next transaction in the industry involving an upstream and downstream entity in this market or a similarly structured entity.

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 FTC in the early 2000s, which reviewed its application of hospital mergers; or HOW ACQUISITIONS AFFECT BUSINESS BEHAVIOR AND PERFORMANCE: EVIDENCE FROM THE DIALYSIS INDUSTRY, Paul J. Eliason, Benjamin Hebsh, Ryan C. McDevitt and James W. Roberts (June 18, 2018) https://faculty.fuqua.duke.edu/~rcm26/ESRD_mergers.pdf

[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 WEare each vertically integrated with a health insurer (Cigna, Etna, and UnitedHealth) upstream and a pharmacy downstream. Each of the upstream insurers has market power in several geographic areas of the WE Affiliate PBM leverages this market power

Complaint filed by the DOJ difficult UnitedHealth Group the acquisition of Changing healthcare is the rare example of an enforcement action that addresses the foreclosure concerns identified in the Guidelines and highlights the data implications of the merger.

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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, National Association of Community Pharmacists

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 MYRON STRIPPEDeditor, [email protected], Springfield, Virginia; 703/304-1897; https://targetednews.com