69–006 

110TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 110–898 

COMMUNITY PHARMACY FAIRNESS ACT OF 2007 

SEPTEMBER 28, 2008.—Committed to the Committee of the Whole House on the 

State of the Union and ordered to be printed 

Mr. CONYERS, from the Committee on the Judiciary, 

submitted the following 

R E P O R T 

[To accompany H.R. 971] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on the Judiciary, to whom was referred the bill 

(H.R. 971) to ensure and foster continued patient safety and quality of care by making the antitrust laws apply to negotiations between groups of independent pharmacies and health plans and 

health insurance issuers (including health plans under parts C and 

D of the Medicare Program) in the same manner as such laws 

apply to protected activities under the National Labor Relations 

Act, having considered the same, reports favorably thereon with an 

amendment and recommends that the bill as amended do pass. 

CONTENTS 

Page 

The Amendment ...................................................................................................... 1 

Purpose and Summary ............................................................................................ 3 

Background and Need for the Legislation ............................................................. 3 

Hearings ................................................................................................................... 6 

Committee Consideration ........................................................................................ 7 

Committee Votes ...................................................................................................... 7 

Committee Oversight Findings ............................................................................... 7 

New Budget Authority and Tax Expenditures ...................................................... 7 

Congressional Budget Office Cost Estimate .......................................................... 7 

Performance Goals and Objectives ......................................................................... 12 

Constitutional Authority Statement ...................................................................... 12 

Advisory on Earmarks ............................................................................................. 12 

Section-by-Section Analysis .................................................................................... 12 

THE AMENDMENT

The amendment is as follows: 


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Strike all after the enacting clause and insert the following: 

SECTION 1. SHORT TITLE. 

This Act may be cited as the ‘‘Community Pharmacy Fairness Act of 2007’’. 

SEC. 2. APPLICATION OF THE ANTITRUST LAWS TO INDEPENDENT PHARMACIES NEGOTIATING WITH HEALTH PLANS. 

(a) IN GENERAL.—Any independent pharmacies who are engaged in negotiations 

with a health plan regarding the terms of any contract under which the pharmacies 

provide health care items or services for which benefits are provided under such 

plan shall, in connection with such negotiations, be entitled to the same treatment 

under the antitrust laws as the treatment to which bargaining units which are recognized under the National Labor Relations Act are entitled in connection with activities described in section 7 of such Act. Such a pharmacy shall, only in connection 

with such negotiations, be treated as an employee engaged in concerted activities 

and shall not be regarded as having the status of an employer, independent contractor, managerial employee, or supervisor. 

(b) PROTECTION FOR GOOD FAITH ACTIONS.—Actions taken in good faith reliance 

on subsection (a) shall not be the subject under the antitrust laws of criminal sanctions nor of any civil damages, fees, or penalties beyond actual damages incurred. 

(c) NO CHANGE IN NATIONAL LABOR RELATIONS ACT.—This section applies only 

to independent pharmacies excluded from the National Labor Relations Act. Nothing in this section shall be construed as changing or amending any provision of the 

National Labor Relations Act, or as affecting the status of any group of persons 

under that Act. 

(d) EFFECTIVE DATE.—The exemption provided in subsection (a) shall apply to 

conduct occurring beginning on the date of the enactment of this Act. 

(e) LIMITATIONS ON EXEMPTION.—Nothing in this section shall exempt from the 

application of the antitrust laws any agreement or otherwise unlawful conspiracy 

that— 

(1) would have the effect of boycotting any independent pharmacy or group 

of independent pharmacies, or would exclude, limit the participation or reimbursement of, or otherwise limit the scope of services to be provided by, any 

independent pharmacy or group of independent pharmacies with respect to the 

performance of services that are within the scope of practice as defined or permitted by relevant law or regulation; 

(2) allocates a market among competitors; 

(3) unlawfully ties the sale or purchase of one product or service to the sale 

or purchase of another product or service; or 

(4) monopolizes or attempts to monopolize a market. 

(f) LIMITATION BASED ON MARKET SHARE OF GROUP.—This section shall not 

apply with respect to the negotiations of any group of independent pharmacies with 

a health plan regarding the terms of any contract under which such pharmacies provide health care items or services for which benefits are provided under such plan 

in a PDP region (as defined in subsection (j)(4)) if the number of pharmacy licenses 

of such pharmacies within such group in such region exceeds 25 percent of the total 

number of pharmacy licenses issued to all retail pharmacies (including both independent and other pharmacies) in such region. 

(g) NO EFFECT ON TITLE VI OF CIVIL RIGHTS ACT OF 1964.—Nothing in this section shall be construed to affect the application of title VI of the Civil Rights Act 

of 1964. 

(h) NO APPLICATION TO SPECIFIED FEDERAL PROGRAMS.—Nothing in this section 

shall apply to negotiations between independent pharmacies and health plans pertaining to benefits provided under any of the following: 

(1) The Medicaid Program under title XIX of the Social Security Act (42 

U.S.C. 1396 et seq.). 

(2) The State Children’s Health Insurance Program (SHIP) under title XXI 

of the Social Security Act (42 U.S.C. 1397aa et seq.). 

(3) Chapter 55 of title 10, United States Code (relating to medical and dental care for members of the uniformed services). 

(4) Chapter 17 of title 38, United States Code (relating to Veterans’ medical 

care). 

(5) Chapter 89 of title 5, United States Code (relating to the Federal employees’ health benefits program). 

(6) The Indian Health Care Improvement Act (25 U.S.C. 1601 et seq.). 

(i) DEFINITIONS.—For purposes of this section: 

(1) ANTITRUST LAWS.—The term ‘‘antitrust laws’’— 

(A) has the meaning given it in subsection (a) of the first section of the 

Clayton Act (15 U.S.C. 12(a)), except that such term includes section 5 of 


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the Federal Trade Commission Act (15 U.S.C. 45) to the extent such section 

5 applies to unfair methods of competition; and 

(B) includes any State law similar to the laws referred to in subparagraph (A). 

(2) HEALTH PLAN AND RELATED TERMS.— (A) IN GENERAL.—The term ‘‘health plan’’— 

(i) means a group health plan or a health insurance issuer that is 

offering health insurance coverage; 

(ii) includes any entity that contracts with such a plan or issuer 

for the administering of services under the plan or coverage; and 

(iii) includes a prescription drug plan offered under part D of title 

XVIII of the Social Security Act and a Medicare Advantage plan offered 

under part C of such title. 

(B) HEALTH INSURANCE COVERAGE; HEALTH INSURANCE ISSUER.—The 

terms ‘‘health insurance coverage’’ and ‘‘health insurance issuer’’ have the 

meanings given such terms under paragraphs (1) and (2), respectively, of 

section 733(b) of the Employee Retirement Income Security Act of 1974 (29 

U.S.C. 1191b(b)). 

(C) GROUP HEALTH PLAN.—The term ‘‘group health plan’’ has the meaning given that term in section 733(a)(1) of the Employee Retirement Income 

Security Act of 1974 (29 U.S.C. 1191b(a)(1)). 

(3) INDEPENDENT PHARMACY.—The term ‘‘independent pharmacy’’ means a 

pharmacy that has a market share of— 

(A) less than 10 percent in any PDP region; and 

(B) less than 1 percent in the United States. 

For purposes of the preceding sentence, all pharmacies that are members of the 

same controlled group of corporations (within the meaning of section 267(f) of 

the Internal Revenue Code of 1986) and all pharmacies under common control 

(within the meaning of section 52(b) of such Code but determined by treating 

an interest of more than 50 percent as a controlling interest) shall be treated 

as 1 pharmacy. 

(4) PDP REGION.—The term ‘‘PDP region’’ has the meaning given such term 

in section 1860D-11(a)(2) of the Social Security Act (42 U.S.C. 1395w-111(a)(2)). 

(j) 5-YEAR SUNSET.—The exemption provided in subsection (a) shall only apply 

to conduct occurring during the 5-year period beginning on the date of the enactment of this Act and shall continue to apply for 1 year after the end of such period 

to contracts entered into before the end of such period. 

(k) GENERAL ACCOUNTING OFFICE STUDY AND REPORT.—The Comptroller General of the United States shall conduct a study on the impact of enactment of this 

section during the 6-month period beginning with the 5th year of the 5-year period 

described in subsection (j). Not later than the end of such 6-month period, the 

Comptroller General shall submit to Congress a report on such study and shall include in the report such recommendations on the extension of this section (and 

changes that should be made in making such extension) as the Comptroller General 

deems appropriate. 

(l) OVERSIGHT.—Nothing in this section shall preclude the Federal Trade Commission or the Department of Justice from overseeing the conduct of independent 

pharmacies covered under this section. 

PURPOSE AND SUMMARY

H.R. 971 allows independent pharmacists to negotiate collectively 

on the terms and conditions of their reimbursement from Pharmacy 

Benefit Managers (PBMs). It does this by granting groups of pharmacists a waiver from Federal antitrust laws and treats them as 

employees, able to bargain collectively, under the National Labor 

Relations Act. This exemption will allow small pharmacies to compete with large retail pharmacies, and will allow them to negotiate 

better reimbursement rates and terms. 

BACKGROUND AND NEED FOR THE LEGISLATION

Pharmaceutical care is one of the most important parts of the entire health care system. Pharmacies serve as the interface between 

consumers and their medications. Independent pharmacies provide 

necessary and important services to patients all over the country, 


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1Duane Reade, Inc provides one well-known example of such a pharmacy. 

2Formularies are drug lists that PBMs develop and use to manage drug spending. By charging less for certain brands of drugs, PBM formularies steer health care consumers and their 

physicians into using particular drugs for particular therapeutic needs. The consumer pays a 

but they are struggling to find ways to compete and make a profit 

in today’s marketplace. 

Independent pharmacies report that they cannot compete effectively with massive pharmacy chains. While the chains can negotiate profitable reimbursement rates with Pharmacy Benefit Managers (PBMs) for prescription drugs, the independent pharmacies 

have no leverage over the PBMs and are often left with ‘‘take-itor-leave-it’’ offers. They also report that the lag-time between dispensing the drug and receiving the payment can upend their business’ fiscal solvency. The pharmacies must make difficult financial 

decisions in order to remain open, sometimes taking on debt or limiting their services. In communities dominated by particular insurers (if, for example, more than half of a pharmacy’s patrons have 

insurance through their work at a local factory), the independent 

pharmacies can have little choice but to accept the PBMs’ negotiated payment offers without question. 

This legislation will allow independent pharmacies to collectively 

bargain so that they can negotiate with the insurance companies 

on the reimbursement rates and terms. H.R. 971 allows pharmacies 

negotiating contracts with health insurers to receive the same 

treatment under the antitrust laws as bargaining units recognized 

under the National Labor Relations Act (NLRA). This would permit 

pharmacies to be considered employees under the NLRA for purposes of the Act and not subject to treble damages under the antitrust laws. The Act defines independent pharmacies as those that 

are neither owned nor operated by a publically traded company.1

How the system works 

Pharmacies purchase their pharmaceutical products from drug 

wholesalers and manufacturers. The pharmacies purchase the 

pharmaceutical at a price known as the wholesale acquisition cost 

(or WAC). The pharmacy sells the medication to consumers, and 

when the consumer is the beneficiary of a prescription drug plan, 

the pharmacy receives funds from the consumer in the form of a 

co-payment, and from a Pharmacy Benefit Manager (PBM) in the 

form of a reimbursement. The reimbursement price, or the ‘‘negotiated payment,’’ constitutes the drug’s average wholesale price (or 

AWP) less the discount that the PBM will offer on the particular 

drug (and plus, usually, an administrative fee for the process). A 

PBM might reimburse a pharmacy with a rate, for example, of negotiated payment = [AWP – 15%] + $2. This transaction, however, 

can become protracted over several months as funds flow from the 

health insurer (be it the Federal Government or a private insurance company) to the PBM and then to the pharmacy. 

What are Pharmacy Benefit Managers? 

Pharmacy Benefit Managers (PBMs) are the middlemen that administer the prescription drug benefit portion of health insurance 

plans for private companies, unions, and governments. PBMs are 

responsible for processing and paying prescription drug claims, for 

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higher co-pay (and the health plan pays the PBM more) for drugs that are not in the ‘‘preferred’’ 

category on the PBM’s formulary. The health plan may provide no coverage for drugs that are 

not on the list. 3 Because of their large purchasing pool for prescription drugs, PBMs can negotiate rebates 

and discounts on behalf of their clients. 

ating discounts and rebates with drug manufacturers.3 PBMs manage 95% of all prescriptions sold in the United States. 

PBMs operate on different business models. Most implement 

‘‘spread pricing,’’ where PBMs execute contracts with their clients 

(employers) that allow the PBMs to purchase drugs at lower prices 

but to invoice the clients at higher prices, thus profiting from a 

‘‘spread’’ in the pricing. Another business model is the ‘‘pass 

through’’ model, where PBMs execute contracts that require the 

PBMs to pass through to the clients the precise purchase or reimbursement cost. In this situation, PBMs generate profits by charging a flat, per claim or per member, administrative fee. 

Concerns about PBM Business Practices 

PBMs do not sell drugs directly to pharmacies, but their monolithic role in negotiating with HMOs (Health Maintenance Organizations), employers, unions, preferred providers, pharmaceutical 

companies, and their own mail-order companies has raised several 

questions about the transparency and openness of the pharmaceutical marketplace. PBMs also operate mail-order pharmacies, 

and due to the companies’ involvement in price and formulary negotiations, concerns have also arisen over drug-price inflation and 

anti-competitive drug distribution schemes. 

Several calculations and actors come into play in valuing a pharmaceutical product’s average wholesale price, or AWP, as the 

amount is set by both the drug manufacturer/labeler and wholesalers. Because the AWP is neither standard nor immune to market fluctuations, drug pricing becomes vulnerable to potential manipulation on several fronts by the PBMs. One possible source for 

manipulation comes from their mail-order pharmacies, as PBMs 

can effect the market value of a drug when they become involved 

in the marketing of drugs. Through the course of their mail-order 

operations, PBMs can obtain ‘‘repackager’’ licensing from the Food 

and Drug Administration. Repackaging licenses allow an entity to 

repackage drugs (when a licensee purchases10,000 tablets from a 

manufacturer, for example, they can redistribute the order among 

50-tablet bottles), and the repackaged product’s price will contribute to the drug’s overall AWP. If a PBM artifically inflates an 

AWP through its repackaging and pricing practices, it can then increase its market share by offering artificially large discounts on 

the inflated drug price. 

The PBMs can further increase their market share by compelling 

consumers to use their mail-order service by way of their relationships with managed care providers. In negotiating their contracts, 

PBMs can develop co-pay plans with insurers under which consumers pay a lower co-pay for prescriptions when they use the 

PBMs’ mail-order services versus filling prescriptions at a community pharmacy. 

In addition to unease over PBMs’ alleged mail-order and pricebargaining practices, significant concerns have surfaced over PBMs’ 

role in the management of drug formularies. Formularies, in esVerDate Aug 31 2005 23:34 Sep 28, 2008 Jkt 069006 PO 00000 Frm 00005 Fmt 6659 Sfmt 6601 E:\HR\OC\HR898.XXX HR898

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sence, consist of lists that outline and set drug spending patterns. 

When a PBM develops its formulary—or its ‘‘menu’’ of drug 

prices—and charges less for a particular product, the PBM naturally guides consumers and physicians to purchase particular products. The health plan managing the prescription benefit, in turn, 

uses its PBM’s formulary to create ‘‘preferred’’ lists of drug therapies, and can levy higher co-pays on or deny coverage to consumers 

for drugs that to do not appear on these lists. 

It is argued that control over formularies endows PBMs with considerable influence over pharmaceutical companies. Drug manufacturers seek to secure favorable placements on the PBMs’ 

formularies, for a favorable placement can determine a product’s 

commercial success. Manufacturers compete with each other 

through a combination of rebates and administrative fee structures. 

Need for the Legislation 

Supporters of H.R. 971 expect that allowing pharmacists to bargain collectively will enable the newly formed alliances to more equitably compete with national chains and mail-order pharmacies. 

Because the purchase power of an independent community pharmacy pales in comparison to that of a chain pharmacy, the independent community pharmacies are often forced to accept the rates 

that a PBM offers, with no negotiation. If, for example, over half 

of a pharmacy’s patrons have their prescription coverage administered by one PBM, the pharmacy is left with little choice but to accept the contract that the PBM offers. 

With an antitrust exemption to negotiate collectively, independent pharmacies could pool their combined purchasing power to 

negotiate lower drug purchasing plans with the PBMs. Because 

PBMs would broker with a wider range of pharmacies, the marketplace would become more competitive and pro-consumer. 

Independent pharmacists believe their situation is quite different 

from a normal competitive marketplace: here, small independent 

businesses must compete directly with much larger companies at 

the retail level, with all retailers reimbursed by a few large middlemen instead of the consumer. 

Of further concern is that one of the largest retail competitors 

(CVS) also owns one of the largest PBMs (Caremark). The vertical 

nature of this arrangement within the market creates concern at 

several layers of the industry. There is great concern that a single, 

dominant corporation has an exclusive role in determining a drug 

formulary, the AWP for those drugs in the greater market, and the 

delivery of those drugs to consumers. 

HEARINGS

The Committee on the Judiciary, Antitrust Task Force held one 

hearing on the ‘‘Impact of Our Antitrust Laws on Community Pharmacies and Their Patients’’ on October 18, 2007. Testimony was received from Mr. Mike James, President, Association of Community 

Pharmacies Congressional Network, and Pharmacist and Owner, 

Person Street Pharmacy, Raleigh, NC; Dr. Peter J. Rankin, Principal, CRA International; Mr. David Wales, Deputy Director, Bureau of Competition, Federal Trade Commission; Mr. David Balto, 

on behalf of the National Community Pharmacists Association; and 


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Mr. Robert Dozier, Executive Director, Mississippi Independent 

Pharmacies Association. 

COMMITTEE CONSIDERATION

On November 7, 2007 Committee met in open session and ordered the bill H.R. 971 favorably reported with an amendment, by 

voice vote, a quorum being present. 

COMMITTEE VOTES

In compliance with clause 3(b) of rule XIII of the Rules of the 

House of Representatives, the Committee advises that there were 

no recorded votes during the Committee’s consideration of H.R. 

971. 

COMMITTEE OVERSIGHT FINDINGS

In compliance with clause 3(c)(1) of rule XIII of the Rules of the 

House of Representatives, the Committee advises that the findings 

and recommendations of the Committee, based on oversight activities under clause 2(b)(1) of rule X of the Rules of the House of Representatives, are incorporated in the descriptive portions of this report. 

NEW BUDGET AUTHORITY AND TAX EXPENDITURES

Clause 3(c)(2) of rule XIII of the Rules of the House of Representatives is inapplicable because this legislation does not provide new 

budgetary authority or increased tax expenditures. 

CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

In compliance with clause 3(c)(3) of rule XIII of the Rules of the 

House of Representatives, the Committee sets forth, with respect to 

the bill, H.R. 971, the following estimate and comparison prepared 

by the Director of the Congressional Budget Office under section 

402 of the Congressional Budget Act of 1974: 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, September 26, 2008. 

Hon. JOHN CONYERS, Jr., Chairman, 

Committee on the Judiciary, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 971, the Community 

Pharmacy Fairness Act of 2007. This estimate updates and supersedes a previous CBO cost estimate transmitted on January 11, 

2008. The updated estimate reflects changes in baseline projections 

(underlying the current budget resolution), and results in an estimated 10-year deficit impact that is $87 million lower than estimated under CBO’s previous baseline. 


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If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Andrea Noda, who can 

be reached at 226–9010. 

Sincerely, 

PETER R. ORSZAG, 

DIRECTOR. 

Enclosure 

cc: Honorable Lamar S. Smith. 

Ranking Member 

H.R. 971—Community Pharmacy Fairness Act of 2007. 

SUMMARY

H.R. 971 would create an exemption to antitrust laws for five 

years to permit independent pharmacies to negotiate collectively 

with health plans and issuers of health insurance over payment 

rates and other contract terms. That exemption would apply to negotiations between independent pharmacies and operators of prescription drug plans offered under part D of Medicare. However, 

the exemption would not apply to most other Federal health insurance programs. 

Enacting the bill would affect Federal revenues and direct spending for Medicare Part D, Medicaid, and the Federal Employees 

Health Benefits (FEHB) program, beginning in 2009. CBO estimates that enacting the bill would reduce Federal tax revenues by 

$105 million over the 2008–2013 period and by $120 million over 

the 2008–2018 period. Social Security payroll taxes, which are offbudget, would account for about a third of those totals. 

CBO estimates that enacting the bill would increase Federal direct spending for health benefits by $488 million over the 2008– 

2013 period and by $520 million over the 2008–2018 period. The 

combined effect of the estimated changes in revenues and direct 

spending would reduce surpluses or increase deficits by $640 million over the 2008–2018 period. 

In addition, CBO estimates that enacting the bill would increase 

discretionary spending by Federal agencies for FEHB premiums for 

current employees by $9 million over the 2009–2013 period, assuming appropriation of the necessary amounts. 

H.R. 971 contains an intergovernmental mandate as defined in 

the Unfunded Mandates Reform Act (UMRA) because it would preempt State antitrust laws. CBO estimates that because the preemption would only limit the application of State law, the mandate 

would impose no costs on State, local, or tribal governments. 

As a result of this legislation, some State, local, and tribal governments would incur higher expenses as purchasers of health care 

for their employees and as providers of health care under Medicaid. 

However, those costs would not result from intergovernmental 

mandates. 

This bill contains no private-sector mandates as defined by 

UMRA. 


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ESTIMATED COST TO THE FEDERAL GOVERNMENT

The estimated budgetary impact of H.R. 971 is shown in the following table. The costs of this legislation fall within budget functions 550 (health) and 570 (Medicare). 

BASIS OF ESTIMATE

H.R. 971 would allow independent pharmacies to negotiate collectively with health plans and issuers of health insurance over 

payment rates and other contract terms. Under the bill, such negotiations would be entitled to the same treatment under the antitrust laws as the treatment to which bargaining units that are recognized under the National Labor Relations Act are entitled. To 

qualify for the exemption, the pharmacies participating in a collective negotiation could not constitute more than 1 percent of the 

U.S. market or 10 percent of the market in a region (as defined by 

the Medicare Part D program). That exemption from the antitrust 

laws, however, would not apply to negotiations between independent pharmacies and health plans pertaining to most Federal 

health insurance benefits, with the exception of prescription drug 

plans offered under part D of Medicare. The exemption from antitrust law for independent pharmacies would be effective for five 

years beginning on the date of the enactment of this bill. 

ESTIMATED BUDGETARY EFFECTS OF H.R. 971 

By Fiscal Year, in Millions of Dollars 

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2008– 

2013 

2008– 

2018 

CHANGES IN REVENUES 

Income and HI 

Payroll Taxes 

(on-budget) ........ 0 –5 –10 –15 –20 –20 –10 0 0 0 0 –70 –80 

Social Security 

Payroll Taxes 

(off-budget) ....... 0 0 –5 –10 –10 –10 –5 0 0 0 0 –35 –40 

Total Changes 0 –5 –15 –25 –30 –30 –15 0 0 0 0 –105 –120 

CHANGES IN DIRECT SPENDING 

Medicare.

Estimated 

Budget Authority 0 20 70 120 110 140 30 0 0 0 0 460 490 

Estimated Outlays .................... 0 20 70 120 110 140 30 0 0 0 0 460 490 

Other Federal 

Programs.

Estimated 

Budget Authority 0 1 4 7 8 9 2 0 0 0 0 28 30 

Estimated 

Outlays ............... 0 1 4 7 8 9 2 0 0 0 0 28 30 

Total Changes.

Estimated 

Budget Authority 0 21 74 127 118 149 32 0 0 0 0 488 520 

Estimated 

Outlays ............... 0 21 74 127 118 149 32 0 0 0 0 488 520 


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ESTIMATED BUDGETARY EFFECTS OF H.R. 971—Continued 

By Fiscal Year, in Millions of Dollars 

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2008– 

2013 

2008– 

2018 

NET IMPACT ON THE FEDERAL BUDGET 

Estimated Increase 

in Deficits or 

Decrease in 

Surpluses ........... 0 26 89 152 148 179 47 0 0 0 0 593 640 

Notes: HI = Hospital Insurance (Part A of Medicare). 

Implementing H.R. 971 would increase discretionary spending by Federal agencies for health insurance premiums for 

current employees enrolled in the Federal Employees Health Benefits program by an estimated $9 million over the 2009– 

2013 and $17 million over the 2009–2018 periods, assuming appropriation of the necessary amounts. 

REVENUES

CBO estimates that H.R. 971, if enacted, would increase payments for prescription drugs distributed by independent pharmacies by about 1 percent in 2010, when the majority of the contracts affected by the policy would have been renegotiated. CBO’s 

estimate is based in part on data gathered through interviews with 

industry experts and representatives of the pharmacy and health 

plan industries. CBO’s analysis took into account both the market 

shares of independent pharmacies and the desire of health plans to 

establish an attractive network of retail pharmacies or to meet adequacy-of-network requirements. CBO also took into account the duration of typical contracts in estimating the effects of the bill. 

The increased cost to plans for prescription drugs would increase 

premiums for group health insurance by less than 0.1 percent in 

2010, before accounting for the responses of health plans, employers, and workers to the higher premiums that would likely be 

charged under the bill. Those responses would include reductions 

in the scope or generosity of health insurance benefits, such as increased deductibles or higher copayments. CBO expects that those 

behavioral responses would offset 60 percent of the potential impact of the bill on the total costs of health plans. 

The remaining 40 percent of the potential increase in costs would 

occur in the form of higher spending for health insurance. Those 

costs would be passed through to workers, reducing both their taxable compensation and other fringe benefits. For employees of private firms, CBO assumed that all of that increase would ultimately 

be passed through to workers. The estimate assumes that State, 

local, and tribal governments would absorb 75 percent of the increase and that changes in their workers’ taxable income and other 

fringe benefits would offset the remaining one-quarter of the increase. 

Those reductions in workers’ taxable compensation would lead to 

lower Federal tax revenues. CBO estimates that Federal tax revenues would fall by $5 million in 2009 and by $120 million over the 

2008–2018 period if H.R. 971 were enacted. Social Security payroll 

taxes, which are off-budget, would account for about one-third of 

those totals. 


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1Only the government’s share of premiums for Federal retirees enrolled the FEHB program 

is classified as direct spending. CBO estimates that implementing H.R. 971 would also increase 

discretionary spending by Federal agencies for FEHB premium payments for current employees 

by $9 million over the 2009–2013 and $17 million over the 2009–2018 periods. (Federal spending 

for active workers participating in the FEHB program is included in the appropriations for Federal agencies, and therefore is discretionary.) 

Direct Spending 

H.R. 971 would affect negotiations between independent pharmacies and health plans that provide prescription drug benefits 

under Part D of Medicare. CBO estimates that the bill, if enacted, 

would increase payments for prescription drugs distributed by independent pharmacies by about 1 percent by 2010, and would therefore increase Federal direct spending for Part D of Medicare by 

$460 million over the 2008–2013 period and by $490 million over 

the 2008–2018 period. 

The bill would maintain antitrust liability for independent pharmacies in negotiations with health plans that provide prescription 

drug benefits for certain other Federal health programs, such as 

Medicaid and the FEHB program. However, to take advantage of 

that limitation on the ability of independent pharmacies to bargain 

collectively, health plans would have to conduct separate negotiations for their Medicaid or FEHB populations and for their commercial business. CBO anticipates that some plans would choose 

not to conduct such separate negotiations because that could reduce their leverage for obtaining discounts. CBO expects that the 

effect on Medicaid and FEHB of enacting H.R. 971 would be about 

one-quarter of the effect in the private sector. As a result, CBO estimates that enacting H.R. 971 would increase Federal spending for 

Medicaid and the FEHB program by $28 million over the 2008– 

2013 period and $30 million over the 2008–2018 period.1

INTERGOVERNMENTAL AND PRIVATE-SECTOR IMPACT

Intergovernmental Mandates 

H.R. 971 contains an intergovernmental mandate, but CBO estimates that the mandate would impose no costs on State, local, or 

tribal governments. By exempting certain pharmacies from State 

antitrust laws, the bill would preempt State law, and that preemption would be a mandate as defined in UMRA. However, the bill 

would not require States to take action as regulators in order to 

comply with the new exemption, and in some cases it might reduce 

their oversight responsibilities. 

Other Impacts 

With certain pharmacies exempted from antitrust laws, State, 

local, and tribal governments would experience an increase in premiums for health insurance for their employees. CBO estimates 

that those governments would face additional costs of about $20 

million over the 2008–2013 period. This estimate reflects the assumption that governments would shift roughly 25 percent of the 

additional costs to their employees. 

The bill would maintain antitrust liability for pharmacies that 

provide services for Federal health benefit programs, including 

Medicaid. However, those programs would not be completely shielded from the market changes precipitated by the bill. Consequently, 


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CBO estimates that State expenditures for Medicaid would increase by about $15 million over the 2008–2013 period. 

H.R. 971 contains no private-sector mandates as defined by 

UMRA. 

PREVIOUS CBO ESTIMATE

On January 11, 2008, CBO transmitted a cost estimate of H.R. 

971 as ordered reported by the House Judiciary Committee on November 7, 2007. The legislative language has not changed. CBO’s 

estimate has been updated to reflect the March 2008 baseline assumptions that underly the current budget resolution. Under the 

updated baseline, we estimate the net deficit impact of the bill 

would be $87 million lower over the 2008–2018 period than previously estimated. The decrease is a result of lower projected Part 

D spending over that period. 

ESTIMATE PREPARED BY: 

Federal Costs: Andrea Noda and Julia Christensen (226–9010) 

Impact on State, Local, and Tribal Governments: Lisa RamirezBranum (225–3220) 

Impact on the Private Sector: Anna Cook and Patrick Bernhardt 

(226–2666) 

ESTIMATE APPROVED BY: 

Peter H. Fontaine 

Assistant Director for Budget Analysis 

PERFORMANCE GOALS AND OBJECTIVES

The Committee states that pursuant to clause 3(c)(4) of rule XIII 

of the Rules of the House of Representatives, H.R. 971 allow independent pharmacies to collectively negotiate terms and conditions 

of their PBM reimbursement. 

CONSTITUTIONAL AUTHORITY STATEMENT

Pursuant to clause 3(d)(1) of rule XIII of the Rules of the House 

of Representatives, the Committee finds the authority for this legislation in article I, section 8, clause 3 of the Constitution. 

ADVISORY ON EARMARKS

In accordance with clause 9 of rule XXI of the Rules of the House 

of Representatives, H.R. 971 does not contain any congressional 

earmarks, limited tax benefits, or limited tariff benefits as defined 

in clause 9(d), 9(e), or 9(f) of Rule XXI. 

SECTION-BY-SECTION ANALYSIS

The following discussion describes the bill as reported by the 

Committee. 

Sec. 1. Short title. Section 1 sets forth the short title of the bill 

as the ‘‘Community Pharmacy Fairness Act of 2007.’’ 

Sec. 2. Application of the Antitrust Laws to Independent Pharmacies Negotiating with Health Plans. Section 2(a) entitles independent pharmacies to the same antitrust law treatment as bargaining units recognized under Section 7 of the National Labor ReVerDate Aug 31 2005 23:34 Sep 28, 2008 Jkt 069006 PO 00000 Frm 00012 Fmt 6659 Sfmt 6601 E:\HR\OC\HR898.XXX HR898

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13 

lations Act (NRLA). Independent pharmacies would have the right 

to act specifically as ‘‘an employee’’ under the NRLA. Section 2(b) 

guarantees that pharmacies acting in good faith reliance on subsection (a) would only be subject to actual damages and would not 

be subject to criminal sanctions. Section 2(c) specifies that this section does not affect any provision of the National Labor Relations 

Act or the status of any group of persons under that Act. Section 

2(d) states that subsection (a) becomes effective on the date of enactment. Section 2(e) prohibits any other agreement or unlawful 

conspiracy that: (1) would have the effect of boycotting any independent pharmacy or group of pharmacies; (2) allocates a market 

among competitors; (3) unlawfully ties the sale or purchase of one 

product or service to the sale or purchase of another product or 

service; or (4) monopolizes or attempts to monopolize a market. 

Section 2(f) limits the negotiating groups to no more than 25% of 

the number of licensed, retail pharmacies within a Medicare Part 

D Prescription Drug Plan region. Section 2(g) states that this act 

does not affect the application of title VI of the Civil Rights Act of 

1964. Section 2(h) states that the act does not apply to negotiations 

between independent pharmacies and health plans pertaining to 

benefits under various other Federal programs, such as Medicaid, 

SCHIP and others. Section 2(i) provides definitions for ‘‘antitrust 

laws,’’ ‘‘health plan,’’ ‘‘health insurance coverage,’’ ‘‘health insurance issuer,’’ ‘‘group health plan,’’ ‘‘independent pharmacy,’’ and 

‘‘PDP region.’’ Section 2(j) provides for a 5 year sunset of the antitrust exemption. Section 2(k) provides for a GAO study on the impact of enactment of this section during the 6 month period beginning with the 5th year of the 5 year period. The Comptroller General must provide a report to Congress on the study and include 

recommendations on the extension of this section. Section 2(l) 

states that this section does not preclude the FTC or DOJ from 

overseeing the conduct of independent pharmacies covered under 

this section. 

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