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Pharmacy Adversaries Do Battle … Again

For any industry, getting the government to commission a study can be a blessing or a curse. An ongoing flap between drug stores and pharmacy benefit managers is a case in point.

In late 2003, when Members, staff and lobbyists were furiously negotiating the Medicare Modernization Act in a conference committee, the drug store industry brought up an issue of possible conflicts of interest over PBMs securing contracts for their mail-order pharmacies under the new Medicare prescription drug benefit.

As the House and Senate huddled in conference on the Medicare bill, “we discovered they had exempted the PBMs from a conflict-of-interest self-referral,” said John Rector, senior vice president and general counsel for the National Community Pharmacists Association.

As a result, Rector’s group, and others such as Walgreens, pushed for a study of the issue by the Federal Trade Commission.

Last month, that study was finally released — but according to Rector, it didn’t address the problems the community pharmacists had expressed.

According to the report’s summary, the FTC examined whether “private-sector entities that offer prescription drug coverage pay more for such drugs when using a mail-order pharmacy owned by a Pharmacy Benefit Manager (PBM), as opposed to using a mail-order or retail pharmacy that the PBM does not own.”

The FTC report concluded that, “in 2002 and 2003, prescription drug plan sponsors generally paid lower prices for drugs purchased through PBM-owned mail-order pharmacies than for drugs purchased through mail-order or retail pharmacies not owned by PBMs.”

The problem, Rector said, is that the report didn’t answer his group’s charges.

The FTC’s study, he said, looked only at PBMs private-sector relationships. “While that might be fine and dandy for the private sector, Medicare has a strong tradition of rejecting self-referrals” — arrangements that he said amount to companies being “allowed to feather their nest.”

But unless a new report is ordered, or Congress takes other actions, the strategy of calling for a study essentially backfired.

Now, Rector’s group is looking at ways of fighting back.

“I think we’re going to file a FOIA request to find out what happened at the FTC, because they didn’t address the exact question that the Congress asked,” Rector said. “They sort of punted on the key question.”

But Mark Merritt, president of the Pharmaceutical Care Management Association, which represents PBMs, countered that the FTC study did answer the questions — it’s just that the pharmacies didn’t like the answers.

“We didn’t ask for this study, even though in the end it’s very helpful to us and our industry,” Merritt said.

“This is a classic case of ‘be careful what you ask for,’” Merritt added. “People get engaged in believing their own rhetoric and forget to look at the facts. The reality is the FTC looked very intently for a year and a half at what PBMs do.”

A spokesman for the FTC did not return a call seeking comment. An in-house lobbyist for Walgreens referred comment to the company’s trade group, the National Association of Chain Drug Stores.

Members of the NACDS aren’t focused on the FTC study, said Kelley Gannon, a vice president at the group. Instead, they are busy working on the plans to start marketing the Medicare prescription drug benefit program.

“We’re really, right now, focused on patient care,” she said.

This is hardly the first skirmish between traditional pharmacies and the PBMs. Indeed, it’s a microcosm of the much larger, and long-lasting, struggle between them.

Last year, PCMA reported spending more than $600,000 on lobbying in federal disclosures. The community pharmacists group reported spending $40,000, and the NACDS reported about $520,000.

But these figures don’t capture the magnitude of the fight.

Although the government picked up the tab for the FTC’s study, both groups have commissioned their own data. That makes it a costly lobbying battle — and many of the expenses aren’t the type to show up on lobbying disclosure reports because they involve footing the bill for statistical studies.

Rector said his organization had been in touch with Members who were supportive in 2003, but acknowledged “there’s so much going on right now” that this matter hasn’t taken a high profile.

Rector said his group’s top priority is a bill called the Community Pharmacy Fairness Act of 2005. That legislation would allow community pharmacies greater power when negotiating with PBMs.

PBMs are, not surprisingly, on the other side of that issue, too.

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