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Rx law dispute
Industry group sues to block disclosures
(Published July 12, 2004)

By STEPHANIE BRINSON
Staff Writer

A pharmaceutical industry group is suing to block part of a new D.C. law that was intended to reduce prescription drug prices for low-income, elderly and uninsured city residents.

"We applaud the intentions of AccessRx, but we think the legislation is misguided and not well thought out and will hurt the people it intends to help," said Mark Merritt, president and chief executive officer of the Pharmaceutical Care Management Association (PCMA), which filed the lawsuit June 28 in U.S. District Court.

The AccessRx Act was approved unanimously March 2 by D.C. City Council and went into effect on May 18. The lawsuit involves the act's Title II, which focuses on establishing "transparent businesses practices" between pharmacy benefits managers and the health coverage providers for whom they work. Pharmacy benefits managers are the middleman companies that negotiate deals with drugmakers for health insurance providers to administer drug benefit programs.

PCMA is a national association representing pharmacy benefit managers, whose membership includes the nation's three largest of these companies: Medco Health Solutions Inc., Caremark Inc. and Express Scripts Inc. Together, these companies control about 80 percent of the pharmaceutical drug market, managing drug benefits for about 200 million people nationwide.

The provision designates benefits managers as fiduciaries, instructing them to act with loyalty and honesty, keeping the best interests of health insurance providers at stake. In keeping with this relationship, benefits managers must present health insurance providers with details of their transactions with drug manufacturers, such as how much they paid for drugs and the quantity they purchased.

The contested provision is a response to critics' claims that the confidential deals that benefits managers make with drug manufacturers are profit-driven, serving the interests of those parties instead of the interests of health insurance providers and individuals.

"It's a mainly unregulated industry where a few companies use their market power" to exhort influence and generate results in their own interests, said Councilman David Catania, R-At-Large, who introduced the D.C. bill.

Critics of benefits managers say the companies' secret deals with drug manufacturers have frequently pitched the selling of new, brand-name drugs in place of similar, lower-priced generic versions in the quest to turn a profit. Benefits managers have also been reported to negotiate discounts with drug manufacturers but fail to inform insurance providers of those discounts when providers reimburse them, in order to generate a profit.

"I am committed to transparency and competition within the pharmaceutical industry," Catania said. "We will not be turned back from this goal."

Benefits managers say they need the confidentiality in their transactions in order to increase competition and obtain lower prices for drugs.

Removing confidentiality tips the scale in favor of drug manufacturers, said PCMA spokesman Phil Blando, so that when benefits managers negotiate with drug manufacturers, manufacturers will know what their competition is charging, allowing them to set an artificial price point.

Using secret negotiations, benefits managers save an average 25 percent on drug costs, Merritt said. He added it is only speculation that the provision would actually save money.

An analysis by Pricewaterhouse Coopers that was authorized by PCMA showed Title II would actually increase drug costs by 10 percent or $600 million over 10 years.

Most of that money would in turn go to drug makers, said Merritt, who called the act's component "a sweet deal for drug manufacturers."

PCMA representatives also say that benefits managers' newly designated duties as fiduciaries expose them to new lawsuits, arguing the law favors trial lawyers.

The Title II statute is broad and may re-write private contracts because everything will be open to second guessing with the courts and "there's no predictability there," Blando said.

"We regret that Title II was enacted here with little debate" and little consideration of its consequences, Merritt said.

PCMA seeks an injunction against Title II in an effort to maintain the status quo. Representatives of the organization reiterate it is not attacking the Title I or Title III provisions of the act, which focus on providing low-cost medications to low-income elderly and uninsured residents, and direct drug manufacturers to report annually the marketing costs for prescription drugs sold in the District.

The District is the second jurisdiction in the United States after Maine to pass legislation strictly regulating pharmacy benefits managers. The Maine law was blocked with a PCMA lawsuit after a federal judge ruled in favor of benefits managers' use of confidentiality in their transactions.

Catania compared benefits managers to tobacco companies, claiming that they use lawsuits to maintain their market share and hide negative effects of their practices from their consumers.

"PCMA's lawsuit to prevent the implementation of AccessRx comes as no surprise," Catania said in a press release issued a day after the lawsuit was filed. "PCMA's constituent members have a long tradition of using lawsuits to protect their ability to price gouge and continue their oligopolistic practices. Like the tobacco industry before them, their use of lawsuits will not protect them from being held accountable for their anti-consumer actions."