Analysis: State Drug Regulations Could Harm Consumers

Published April 11, 2013

In preparation for the January 1, 2014 deadline mandating most Americans get health insurance, the U.S. Department of Health and Human Services recently released its ruling on the essential benefits health plans will have to cover. Prescription drug coverage is included as essential, which will raise the potential financial benefits for pharmacies to protect themselves from competition—something they are already attempting to do in several states.

Mandating drug coverage invites special interests to lobby legislatures to ensure their services are included as essential parts of these plans. Americans fill nearly 4 billion prescriptions a year—about a dozen per person in the United States, on average. More than half of us take a prescription drug in any given year, and virtually all seniors do. Yet as drug coverage has become more common, lobbyists for pharmacy trade groups are calling on lawmakers to “protect consumers” by passing regulations that benefit local drugstores, protecting them from competition, at the expense of consumers. 

Initiatives in multiple states would make it more difficult for insurers to reward or require health plan enrollees with chronic conditions to use a mail-order pharmacy for long-term maintenance medications. States debating some type of restriction on mail-order mandates include Hawaii, Indiana, Kansas, New Hampshire, New Jersey, New York, Oregon, South Carolina, and Texas.

Protecting Pharmacies from Competition

Express Scripts, one of the largest pharmaceutical benefit managers (PBMs) in the country, maintains home delivery of prescription drugs is safe, cost-effective, convenient, and drives better adherence. According to Brian Henry, a spokesman for Express Scripts, “Plan sponsors who want to save money and improve health outcomes should continue have home delivery as an important option to ensure a robust pharmacy benefit for plan members.”

Henry notes the Federal Trade Commission (FTC) has warned preventing drug plans from encouraging enrollees to use mail-order pharmacies for maintenance medications would also drive up costs for consumers.

Drug benefits consultant Adam Fein of Pembroke Consulting describes anti-mail-order drug legislation recently enacted in New York State and Pennsylvania as comparable to your local bookstore lobbying the legislature to prevent Amazon from selling you a book cheaper than a brick and mortar store.

He says retail pharmacy owners have long resented mail-order competition.

“Laws that restrict the use of mail pharmacies are nothing more than a self-interested and anti-competitive attempt by pharmacy owners to protect their profits at the expense of patients, taxpayers, and employers” Fein said.  

Letting Pharmacists Regulate Competition

One type of initiative under consideration is moving regulatory authority over drug benefits away from state insurance commissioners and giving authority over drug plans to state Boards of Pharmacy. State Pharmacy Boards are staffed by pharmacists, and therefore generally sympathetic to the pharmacy interests who contract with health plans. Oregon, Hawaii, Oklahoma and a few other states are debating this change.

When Mississippi proposed placing drug plans under the authority of the Mississippi state Board of Pharmacy in 2011, the FTC warned lawmakers it would likely cost consumers by giving pharmacy interests the upper hand in negotiations with drug plans. 

“FTC analyzed data on PBM pricing, generic substitution, therapeutic interchange, and repackaging practices. The study examined whether PBM ownership of mail-order pharmacies served to maximize competition and lower prescription drug prices for plan sponsors,” the FTC wrote, finding, “the prices for a common basket of prescription drugs dispensed by PBM-owned mail order pharmacies were typically lower than the prices charged by retail pharmacies.”

Mark Merritt, president and CEO of the Pharmaceutical Care Management Association (PCMA), a group representing the firms that manage drug plans for employers and insurers, said laws allowing pharmacists to regulate those who negotiate their payments create a conflict of interest that increases drug costs for consumers and employers.

“Policymakers shouldn’t let the fox guard the henhouse,” Merritt said.

Devon M. Herrick ([email protected]) is a health economist and senior fellow at the National Center for Policy Analysis.


Internet Resources:


National Center for Policy Analysis: “Unnecessary Regulations that Increase Prescription Drug Costs.”

Federal Trade Commission: “Letter responding to Rep. Mark Formby”