Oregon Group of Institutional Pharmacies To Settle FTC Charges that It Fixed Prices

Five institutional pharmacies have agreed to settle Federal Trade Commission charges that they unlawfully fixed prices, leading to higher reimbursement levels for serving Medicaid patients in Oregon long-term care institutions. The five pharmacies negotiated jointly through the Institutional Pharmacy Network ("IPN"), the FTC alleged. The settlement of the charges would prevent IPN or its member institutional pharmacies from engaging in any joint price negotiations or price agreements in the future.

"This case is part of the Commission's continuing effort to prevent anticompetitive conduct by health care providers who conspire to fix prices," said William J. Baer, Director of the FTC's Bureau of Competition. "This illegal activity deprived the state of Oregon of the benefits of competition among providers of institutional pharmacy services. The settlement will prohibit those who participated in this anticompetitive conduct from making agreements to fix prices in the future."

Institutional pharmacies are specialized pharmacies that provide prescription drugs to patients in long-term care institutions such as nursing homes, foster homes, and assisted living facilities, the FTC said. Institutional pharmacies provide specialized services, including providing medications in single dose packages, maintaining an "emergency box" at the client facility with drugs for use in emergency situations, and providing consulting and quality assurance services to institutional care facilities.

The FTC's complaint outlining the charges alleges that the pharmacies formed IPN, of which they are the only members, to offer their services jointly to managed care organizations that provide health care for Medicaid recipients and other needy Oregonians under the Oregon Health Plan. IPN neither provides new or efficient services, nor enables its members to provide new or efficient services, the agency said. In addition, IPN members do not share risk. The pharmacies named in the complaint are Evergreen Pharmaceuticals, Inc., NCS Healthcare of Oregon, Inc. (formerly IPAC Pharmacy), NCS Healthcare of Washington, Inc. (formerly Clinical Health Systems), United Professional Companies, Inc., and White, Mack & Wart (which does business as ProPac Pharmacy).

The complaint alleges that the five pharmacies together provide pharmacy services for approximately 80 percent of the patients who receive institutional pharmacy services in Oregon. According to the FTC, their purpose in negotiating collectively was to maximize their leverage in bargaining over reimbursement rates with the managed care organizations because they recognized that competition among them would drive down reimbursement rates.

The complaint further alleges that IPN negotiated on behalf of its members with four managed care plans and that each of these plans paid IPN members a higher rate than it paid to other institutional pharmacies. According to the agency's charges, IPN's members -- by agreeing to engage in collective negotiations over price and other terms and to fix the fees they charge -- violated federal law. The result, the agency said, was to increase the price of institutional pharmacy services and otherwise restrain competition among institutional pharmacies in Oregon.

The proposed agreement to settle the FTC's charges, announced today for public comment, would prevent the illegal activity as alleged in the complaint but would allow IPN and its institutional pharmacy members to engage in legitimate joint conduct. In particular, the order would prohibit the respondents from engaging in joint price negotiations or entering into joint price agreements.

The order would allow the pharmacies to engage in conduct that is reasonably necessary to operate (a) any "qualified risk-sharing joint arrangement," or (b) upon prior notice to the Commission, any "qualified clinically integrated joint arrangement." For purposes of the order, a "qualified risk-sharing joint arrangement" must satisfy two conditions: (a) participating pharmacies must share financial risk and (b) the arrangements must be non-exclusive, both in name and in fact. A "qualified clinically integrated joint arrangement" includes arrangements in which the pharmacies undertake cooperative activities to achieve efficiencies in the delivery of clinical services, without necessarily sharing substantial financial risk. These arrangements also must be non-exclusive. In accordance with the Statements of Antitrust Enforcement Policy in Health Care, issued jointly by the FTC and the Department of Justice, the provisions of the order would recognize that when there is real financial risk-sharing, efficiencies are generated. The provisions in the order also would make clear that clinical integration that does not involve risk-sharing also may be acceptable. The proposed order would require prior notice to the Commission for arrangements that are clinically integrated because, although these arrangements may generate efficiencies, there is a wide range of functional integration possible that also may raise the potential for anticompetitive effects.

The order also would allow certain business arrangements common in pharmacy markets.

The intent of these provisions is to ensure that the proposed settlement does not hamper respondents in their legitimate operations.

Under the order, the respondents would have to distribute the order to certain parties and file compliance reports, retain certain documents, and notify the Commission of certain changes in corporate structure.

The Commission vote to accept the proposed settlement for public comment was 5-0.

An analysis of the proposed agreement will appear in the Federal Register shortly. The agreement will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. 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 of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

Copies of the complaint, the proposed consent order and the analysis of the proposed consent order to aid public comment are available from the FTC's web site at: http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-3128; TDD for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. 961 0005)