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.
- more - 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.
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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