FTC Staff: Mississippi Bill That Would Give State Pharmacy Board Authority Over PBMs Likely to Increase Prescription Drug Costs and Reduce Competition

The staff of the Federal Trade Commission has sent comments to State Representative Mark Formby of the Mississippi House of Representatives stating that proposed legislation that would subject pharmacy benefits managers (PBMs) to regulation by the state’s Board of Pharmacy may increase prescription drug prices and reduce competition within the state.

PBMs contract with health plans to manage the cost and quality of the plans’ drug benefits. PBMs provide a variety of services, which include: 1) developing networks of local pharmacies; 2) providing access to mail order pharmacies; and 3) negotiating discounts and rebates from drug companies.

The legislation, Senate Bill 2445, would shift regulatory authority over PBMs from the Mississippi Insurance Commissioner to the Board of Pharmacy, give the board access to PBM financial and business information, and impose restrictions on out-of-state, mail-order pharmacies.

The FTC staff comments state that the bill likely will undermine PBMs’ ability to negotiate lower prices for prescription drugs, in turn raising those prices for both insurers and consumers covered by health insurance. Second, the FTC staff believes the bill appears to allow the Pharmacy Board to require PBMs to produce financial and other business information and to provide that information to third parties. This provision potentially could make collusion easier and increase prescription drug prices if the Pharmacy Board obtains and discloses PBMs’ competitively sensitive information to pharmaceutical manufacturers, pharmacists, and pharmacies.

Finally, the bill would change current law to require pharmacies outside the state that deliver prescription drugs to Mississippi residents to have a state-licensed pharmacist-in-charge. This pharmacist would be required to hold a Mississippi pharmacist license, be licensed to practice in both Mississippi and the state where the pharmacy is located, and be in good standing with the pharmacy boards of both states. The FTC staff comments state that these additional requirements could increase the costs of mail-order pharmacies that serve Mississippians and reduce the incentives or increase costs for health plans and PBMs to offer mail-order options to beneficiaries.

For these reasons, the comment concludes, “FTC staff recommends that the Mississippi legislature seriously consider whether there are benefits to consumers from the additional, more restrictive regulations in the bill that would outweigh the competitive harm and consumer costs.”

The Commission vote approving the staff comments was 5-0. The comments were sent to Mississippi State Representative Mark Formby on March 22, 2011. Copies of the comment can be found now on the FTC’s website and as a link to this press release. (FTC File No. V110005; the staff contact is Patricia Schultheiss, Office of Policy Planning, 202-326-2877.)

Copies of the document mentioned in this release are available from the FTC’s website at http://www.ftc.gov and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. Call toll-free: 1-877-FTC-HELP.