Establishing Pharmacy Network as Proposed Not Likely to Restrain Competition, FTC Staff Advises

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A plan to establish a network of independent pharmacies in Massachusetts and Connecticut that will market a package of medication-related patient care services provided by participating pharmacies to physician groups, self-insured employers, and managed care organizations is not likely to restrain competition in any market, according to the staff of the Federal Trade Commission. Responding to a request for an advisory opinion from counsel for Northeast Pharmacy Service Corporation, FTC staff advised that it has no present intention to recommend an enforcement action challenging implementation of Northeast's proposal.

The network will be composed initially of about 30 independent pharmacies throughout Massachusetts and Connecticut. Within three years, the number of participating pharmacies could increase to no more than 100. Northeast's plan involves having independent pharmacists play a more integral role in the medical management of patients with chronic or long-term illnesses. Northeast believes that its network pharmacists can improve the quality of care that these patients receive and reduce the overall costs of treating them by working directly with the patients to help them understand and comply with their prescribed medication treatment plans. Under its proposal, network pharmacies will monitor individual patients' medication programs, in consultation with the treating physicians, in order to avoid prescription errors and adverse drug interactions, to increase the patient's understanding of his or her disease and to improve compliance with the prescribed treatment plan, and to recommend treatment adjustments as appropriate. Northeast intends to develop standardized disease management programs, establish protocols for monitoring individual patients' adherence to their medication plans, implement methods to improve access to counseling and medication supplies by patients confined to their homes or to residential facilities, design in-store patient education and counseling programs, implement screening programs, and develop drug therapy management programs specifically aimed at seniors.

Network pharmacies would contract through Northeast to provide these services, and would submit bills through the network for services rendered pursuant to those contracts. A proposed two-pronged system of payment for these patient care services combines fee-for-service and risk-based payments. Pharmacies would be paid at a contract rate for each service performed. A portion of each payment would be retained by Northeast in a risk fund for later distribution to the pharmacies if the network achieved performance goals agreed to by Northeast and each health benefit plan. In addition, the network pharmacies would share in savings in the overall cost of treating the patients groups that resulted from the patient care management services. Distributions of the withheld payments and of the shared savings would be made to the individual network pharmacies in accordance with each pharmacy's performance relating to predetermined performance criteria.

The staff advisory, signed by Richard A. Feinstein, Assistant Director for Health Care Services and Products at the FTC, analyzed the proposed network under the rule of reason because it appears "to involve financial and service integration among network participants to provide a package of services that has the potential to provide significant benefits to consumers," and the price agreements among the participating pharmacies appear to be reasonably related to creation of those consumer benefits. According to the Department of Justice/Federal Trade Commission 1996 Statements of Antitrust Enforcement Policy and Analytical Principles Relating to Health Care and Antitrust ("Health Care Statements"), the staff letter noted, the rule of reason applies to price-related agreements among competitors, that otherwise might be deemed per se illegal, when the agreements are reasonably necessary to achieve the procompetitive benefits of a joint venture involving significant economic integration among competitors.

The staff concluded by stating that operation of the network would not appear to restrain competition among pharmacies. According to the letter, sufficient competitive alternatives exist to defeat any effort by Northeast and its members to raise prices or otherwise impair market competition.

NOTE: This letter sets out the views of the staff of the FTC's Bureau of Competition, as authorized by the Commission's Rules of Practice. It has not been reviewed or approved by the Commission. As the Commission's rules explain, the staff's advice is rendered "without prejudice to the right of the Commission later to rescind the advice and, where appropriate, to commence an enforcement proceeding."

Copies of the staff's advisory opinion letter are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

Howard Shapiro

Office of Public Affairs

202-326-2176

Richard A. Feinstein, or Judith A.

Moreland Bureau of Competition

202-326-3688 or 202-326-2776

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