The Federal Trade Commission today announced that RxCare of Tennessee, Inc., the leading provider of pharmacy network services in that state, has agreed to settle charges that RxCare's use of a "most favored nation" clause discourages the pharmacies from discounting and thereby limits price competition among the pharmacies in their dealings with pharmacy benefits managers (PBMs) and third-party payers. According to the FTC, because of the clause, combined with RxCare's market power, some pharmacies in the network have been unwilling to accept lower reimbursement rates for the prescriptions they fill for patients covered by other health plans. Also, some third-party health care payers pay higher pharmacy reimbursement rates in Tennessee than in other states, and other firms have not been able to establish lower-priced pharmacy networks in Tennessee, the FTC said.
The proposed settlement would bar RxCare from having the clause in its pharmacy participation agreements.
A pharmacy network is a group of pharmacies that fill prescriptions for patients covered by a third-party health benefit plan. The pharmacies are then reimbursed for the medications at agreed-upon rates. The "most favored nation" (MFN) clause at issue requires that, if a pharmacy in the RxCare network accepts a reimbursement rate from any other third-party payer that is lower than the RxCare rate, the pharmacy must accept that lower rate for all RxCare care business in which it participates.
RxCare's pharmacy network includes more than 95 percent of all chain and independent pharmacies in Tennessee, according to the FTC complaint detailing the charges in this case. RxCare pharmacies fill prescriptions for patients covered by BlueCross BlueShield of Tennessee and for several other managed care organizations under the state's TennCare program for Medicaid recipients and other uninsured consumers. RxCare was created by the Tennessee Pharmacists Association, the largest professional association of pharmacists in the state with approximately 2,500 members, and which also is named as a respondent in the FTC case. Both RxCare and the Tennessee Pharmacists Association are based in Nashville.
The FTC alleged in its complaint that RxCare required pharmacies to agree to the MFN clause in order to participate in its network, that it has enforced the clause, and that it has urged pharmacies to refrain from participating in networks that offer lower reimbursement rates. According to the FTC's complaint, RxCare represents such a large portion of their business that most pharmacies in Tennessee would incur an unacceptable revenue loss if the MFN forced them to accept rates below the RxCare reimbursement rate on all their RxCare business. According to William J. Baer, Director of the FTC's Bureau of Competition: "An MFN clause imposed by a dominant group of competing sellers can establish a price floor and restrict competition that otherwise would allow prices to go below that floor. We had evidence that this is exactly what happened here and that, as a result, managers of pharmacy benefit plans in Tennessee were forced to pay higher prices for prescription drugs."
Under the proposed consent agreement that RxCare and the Association have signed to settle the FTC charges, both would be prohibited from maintaining or enforcing an MFN clause and RxCare would be required to remove the clause from existing contracts.
The consent agreement also contains various reporting provisions that would assist the FTC in monitoring their compliance.
The Commission vote to announce the consent agreement was 5- 0, with Commissioners Mary L. Azcuenaga and Christine A. Varney issuing concurring statements. Commissioner Azcuenaga said she wrote separately "to emphasize that this order does not call into question the general lawfulness of most favored nation clauses. Although most favored nation clauses usually raise no competitive concerns, in this case, the clause was used in furtherance of a horizontal agreement to stabilize the reimbursement rates for retail pharmacy services . . .."
In her statement, Commissioner Varney said that she voted yes because the MFN clause, "in this case, may have lessened competition." She emphasized, however, that "joint ventures by retail pharmacists can be procompetitive by injecting new competition into the market for pharmacy benefit management services."
The consent agreement will be published in the Federal Register shortly for a 60-day comment period, after which the Commission will determine whether to issue it in final form as binding on the respondents. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.
NOTE: A consent agreement is for settlement purposes only and does not constitute an admission by the respondents of a law violation. When issued by the Commission as final, consent orders have the force of law with respect to future actions by the respondents. Each violation of such an order can result in a civil penalty of up to $10,000.
Copies of the complaint, proposed consent agreement, an analysis of the agreement to assist the public in commenting, and the Commissioners' full statements are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580: 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it happens, call the FTC's NewsPhone at 202-326-2710. FTC news releases and other documents also are available on the Internet at the FTC's World Wide Web Site at http://www.ftc.gov
(FTC File No. 951 0059)