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A Drug Deal That’s Bad for Consumers

The opinions expressed by columnists are their own and do not necessarily represent the views of

As drug coverage has become more common, special interests (mainly pharmacy trade groups) are pressuring lawmakers to impose self-serving regulations on health insurance drug plans.

Under the guise of protecting consumers, proposals in more than half a dozen states would likely benefit local drugstores at the expense of consumers. For instance, health plan members are often rewarded with lower cost-sharing if they use mail-order pharmacies for regular medications. Yet, proposals in Hawaii, Indiana, Kansas, New Hampshire, New Jersey, New York, Oregon, South Carolina and Texas could make it more difficult to offer you big discounts for ordering prescriptions from the drug plan’s mail order pharmacy – or even punish you if you don’t.

One industry insider compared this to your local book store lobbying the state legislature to make it illegal for you to buy a book cheaper on Amazon than at your local bookstore.

Another pharmacy trade association initiative urges lawmakers to move regulation of drug plans from the state insurance commissioners to the state boards of pharmacy. These pharmacy boards are staffed to a considerable degree by pharmacists and identify more closely with pharmacy interests. This is like letting the fox guard the henhouse. When Mississippi transferred regulatory authority over drug plans from the state’s insurance commissioner to the Board of Pharmacy in 2011, the Federal Trade Commission warned state lawmakers that doing so could undermine drug plans’ ability to negotiate lower prices with pharmacy networks (that was probably supporters’ intent). Although a similar initiative failed in Oregon in 2012, the issue is back again this year. Hawaii and Oklahoma are also considering this.

Insurers and drug plans need some way to ensure that the prescriptions they reimburse drug stores for are legitimate charges. Hawaii, Oregon and Texas are debating making it harder for drug plans to audit the drugstores that that bill them. Imagine being forced to pay credit card bills without the ability to easily verify whether the charges are actually for purchases you’ve made.

Drug benefits are nothing new. About three-fourths of the time when you go to the drug store to fill a prescription, a health plan is paying your bill. Long before you walk into your local pharmacy, your health plan has already negotiated prices with drug companies, dispensing fees with pharmacy networks, and contracted with a mail-order pharmacy to provide maintenance medications for chronic conditions. Regardless of how your drug plan is structured, health plan members –that’s you and me – get most of our prescriptions at local pharmacies, which are reimbursed by a health plan in ways similar to how doctors are reimbursed for office visits. Increasingly, our choice of drug stores is being narrowed to extract price concessions from pharmacies bidding to be among the smaller number of exclusive network pharmacies. Drugstores at risk of being excluded are lobbying to prevent this.

There’s a lot of money at stake. Americans see doctors more than a billion times each year. About two-thirds of the time when we walk out of our doctors’ offices, we leave with a prescription in hand.

Drugs are a bargain compared to doctors and hospitals. As a nation, we spend three times the amount on hospital services and twice as much on physician care as we spend on drugs. Drugs keep people out of the hospital, delay the need for surgery and often keep us alive years longer than we would have lived. The bottom line is: Drug therapy is the cheapest way to treat most medical conditions. Congress and state legislatures should avoid the well-meaning, but ill-conceived regulations intended to protect consumers, but which often have the opposite result.

More details are outlined in the newly published study, Unnecessary Regulations that Increase Prescription Drug Costs.

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