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Could a Pharmacy Monopoly Affect Your Healthcare?

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Teddy Roosevelt, our swashbuckling 26th U.S. President, is probably best-known for his love of the environment and post-presidential African hunting tours. But today, two of his lesser-known but lasting legacies -- antitrust law and ensuring that U.S. residents have access to safe medicines -- are about to intersect in ways he couldn't possibly have imagined.

Mention "antitrust" at a dinner party, and you'll likely be drinking alone soon. But every time you choose which product to buy based on price, delivery times or other factors, you are benefitting from antitrust principles that originated with Roosevelt's "trust-busting." As president, Roosevelt saw that corporate monopolists -- think Daddy Warbucks types -- could, once they controlled the market, set prices as high as they'd like, or even use their market leverage to deny the supply of the same products to competitors. The result: everyday citizens, deprived of choice, would (quite literally) pay the price.

Roosevelt also championed the fight against medical snake oil salesmen, urging Congress to pass the first federal Drug Safety Act -- the precursor to today's FDA and its regulatory structure. Today, thanks to Roosevelt's foresight, U.S. pharmacies set the global standard for prescription drug accessibility and safety.

But if you're on a regimen of prescription drugs, you already know how expensive prescription drugs can be -- and you may have found yourself comparing prices among pharmacies, looking for the cheapest deal, or trying to figure out which healthcare plan is least expensive for your needs. Here too, basic antitrust principles hold true: anti-monopolistic competition among America's diverse pharmacies and healthcare plans is a good thing, and serves to drive down prescription drug prices, making medicines more affordable -- and thus, available -- to millions nationwide.

But what would happen to this diversity, and to patients, if one company -- one pharmacy -- were to engage in monopolistic behavior?

That's the specter raised by a proposed merger of two behemoth pharmacy benefit management (PBM) mail-order companies, Express Scripts and Medco Health Solutions. PBMs are the "middlemen" between pharmacies, insurance companies and you, and heavily influence prescription medicine contract and reimbursement terms.

Some analysts estimate that the new entity would control 60 percent of the private sector mail order pharmacy market, and an estimated 30 percent of all prescription drug volume. (A well-settled principle of antitrust law is that you don't need 100 percent market share to engage in monopolistic behavior -- just a big enough chunk that, by throwing your weight around, you end up with an unfair advantage over legitimate competitors.)

That's what some fear would happen here: a super-PBM with unprecedented ability to dictate the terms of prescription drug prices and healthcare plans, potentially reducing the ability of Americans to choose a pharmacy that's affordable for them, and threatening the health of some Americans.

How might that happen? Both Express Scripts' and Medco's profitability relies heavily on their online pharmacy and mail order business -- but the merged company would also supply the local, community pharmacies that they already compete against. That could give the post-merger company the leverage to raise prices to the community pharmacies it supplies, while reducing the costs of their mail-order services. The result could lead to health care plans mandating use of the post-merger company's mail-order services instead of community pharmacies.

That's not to say that mail order pharmacies aren't a great solution for some people -- but that's precisely the point of antitrust laws: it denies people a choice due to artificial price constraints. And, it's critical to understand that mail-order pharmacies aren't right for everyone: the adolescent with type-two diabetes or senior with high blood pressure who benefits from continuing consults, in person, with a pharmacist who they know and trust may be better served by a community pharmacy.

Teddy Roosevelt, who famously said "speak softly but carry a big stick," reserved his heaviest clubs for the corporate interests who sought unfair advantages in the marketplace at the expense of everyday citizens. The Federal Trade Commission would be wise to keep that history in mind as they review the proposed merger and its potential effects on prescription drug prices.

Around the Web

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Express Scripts-Medco Merger Still Looks Like a Go | InvestorPlace

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