FOR YOUR INFORMATION...............................APRIL 20, 1993
Proposed Pennsylvania legislation designed to give consumers
greater freedom to select the pharmacies that fill prescriptions
covered by their health plans may actually end up raising health
care costs and restricting consumers' freedom to choose the
health plans that best meet their needs, staff members of the
Federal Trade Commission said in comments made public today. The
proposal, which would prevent health insurers in the state from
limiting the number of pharmacies that could fill prescriptions
for the consumers they insure, would discourage contracts wherein
pharmacies offer health insurers lower prices and more services
in exchange for a higher volume of the insurer's customers, the
staff staid.
The FTC staff offered their analysis in response to a
request from Pennsylvania state Senator Roger A. Madigan for
comments on Senate Bill 505. The FTC staff letter is signed by
Michael O. Wise, Acting Director of the FTC's Office of Consumer
and Competition Advocacy. The bill, introduced in the General
Assembly on Feb. 19, would require that any pharmacy willing to
meet a health insurer's program terms be allowed to provide
services to the consumers who subscribe to that health plan.
According to the staff comments, competition among third-
party payors to insure consumers, and among healthcare providers
-- such as doctors, hospitals and pharmacies -- to serve the
insured consumers, can enhance the range and accessibility of
services available to consumers and also reduce healthcare costs.
Moreover, the staff said, prepaid healthcare programs that use
limited panels of providers can help promote competition which
could benefit consumers. Thus, the staff added, providers,
insurers and consumers may prefer such programs.
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Pennsylvania Pharmacy Bill--04/20/93)
Providers, for instance, may be willing to offer insurers
lower prices and additional services in exchange for the benefits
of preferential or exclusive rights to serve an insurer's sub-
scribers, because they could see a drop in the transaction costs
associated with billing multiple payors and marketing costs to
attract new consumers. The administrative costs for third-party
payors also may go down as a result of exclusive or preferential
contracts, the staff said, and insurers may find it easier to
implement cost-control strategies. When competition leads to
lower prices in the form of lower premiums or deductibles for
their health insurance, consumers may find that these advantages
outweigh the disadvantages of the limited choice of providers and
reduced convenience.
In addition, the FTC staff said, competition can help ensure
that consumers' choices are not so limited as to be inadequate.
"To the extent that consumers can change programs or payors if
they are dissatisfied with service availability," according to
the comments, "payors have an incentive to assure that the
arrangements they make for delivery of covered health care
services satisfy consumers."
Without this ability to contract with a limited panel of
providers, on the other hand, the higher prices and adminis-
trative costs may lead third-party payors to opt not to cover
pharmacy services, the staff cautioned.
Thus, the FTC staff concluded, the bill may inhibit
competition among pharmacy providers, in turn raising prices to
consumers and unnecessarily restricting consumer choice, without
providing any substantial countervailing benefit.
These comments represent the views of the FTC's Office of
Consumer and Competition Advocacy, and not necessarily the views
of the Commission or any individual Commissioner. The Commission
vote to authorize release of the comments was 5-0.
Copies of the FTC staff comments are available from the
FTC's Public Reference Branch, Room 130, 6th Street and Pennsyl-
vania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for
the hearing impaired 1-866-653-4261.
# # #
MEDIA CONTACT: Bonnie Jansen, Office of Public Affairs
202-326-2161
STAFF CONTACT: Michael O. Wise, Office of Consumer and
Competition Advocacy, 202-326-3344
(PApharm)
(V930013)