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PRESERVING OUR HOMETOWN INDEPENDENT 

PHARMACIES ACT OF 2011 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

INTELLECTUAL PROPERTY, 

COMPETITION, AND THE INTERNET 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

ON

H.R. 1946 

MARCH 29, 2012 

Serial No. 112–130 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

LAMAR SMITH, Texas, Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

DENNIS ROSS, Florida 

SANDY ADAMS, Florida 

BEN QUAYLE, Arizona 

MARK AMODEI, Nevada 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO R. PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

JUDY CHU, California 

TED DEUTCH, Florida 

LINDA T. SA ́ NCHEZ, California 

JARED POLIS, Colorado 

RICHARD HERTLING, Staff Director and Chief Counsel 

PERRY APELBAUM, Minority Staff Director and Chief Counsel 

SUBCOMMITTEE ON INTELLECTUAL PROPERTY, COMPETITION, AND THE INTERNET

BOB GOODLATTE, Virginia, Chairman 

BEN QUAYLE, Arizona, Vice-Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

MIKE PENCE, Indiana 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

SANDY ADAMS, Florida 

MARK AMODEI, Nevada 

MELVIN L. WATT, North Carolina 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

JUDY CHU, California 

TED DEUTCH, Florida 

LINDA T. SA ́ NCHEZ, California 

JERROLD NADLER, New York 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

BLAINE MERRITT, Chief Counsel 

STEPHANIE MOORE, Minority Counsel 

(III) 

C O N T E N T S 

MARCH 29, 2012 

Page 

THE BILL 

H.R. 1946, the ‘‘Preserving Our Hometown Independent Pharmacies Act of 

2011’’ ..................................................................................................................... 4 

OPENING STATEMENTS 

The Honorable Bob Goodlatte, a Representative in Congress from the State 

of Virginia, and Chairman, Subcommittee on Intellectual Property, Competition, and the Internet .................................................................................... 1 

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, Ranking Member, Committee on the Judiciary, and 

Member, Subcommittee on Intellectual Property, Competition, and the 

Internet ................................................................................................................. 12 

WITNESSES 

Mike James, Pharmacist and Owner, Person Street Pharmacy, and Vice 

President, Association of Community Pharmacists Congressional Network 

(ACPCN) 

Oral Testimony ..................................................................................................... 14 

Prepared Statement ............................................................................................. 16 

Response to Questions for the Record ................................................................ 114 

Joshua D. Wright, Professor, George Mason University School of Law 

Oral Testimony ..................................................................................................... 20 

Prepared Statement ............................................................................................. 22 

Renardo Gray, Owner and Pharmacist, Westside Pharmacy of Detroit, Inc. 

Oral Testimony ..................................................................................................... 33 

Prepared Statement ............................................................................................. 34 

Response to Questions for the Record ................................................................ 117 

Richard Feinstein, Director of the Bureau of Competition, Federal Trade 

Commission 

Oral Testimony ..................................................................................................... 36 

Prepared Statement ............................................................................................. 38 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, Ranking Member, Committee 

on the Judiciary, and Member, Subcommittee on Intellectual Property, 

Competition, and the Internet ............................................................................ 12 

Material submitted by the Honorable Tim Griffin, a Representative in Congress from the State of Arkansas, and Member, Subcommittee on Intellectual Property, Competition, and the Internet .................................................... 57 

Material submitted by the Honorable Tom Marino, a Representative in Congress from the State of Pennsylvania, and Member, Subcommittee on Intellectual Property, Competition, and the Internet ............................................... 86 

Material submitted by the Honorable Melvin L. Watt, a Representative in 

Congress from the State of North Carolina, and Ranking Member, Subcommittee on Intellectual Property, Competition, and the Internet ............... 106 

Page

IV 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of Adam J. Fein, President, Pembroke Consulting, Inc. ... 119 

Cost of Independent Pharmacy Antitrust Exemptions, 2013–2017 ..................... 130 

Letter from the Academy of Managed Care Pharmacy® (AMCP) ....................... 154 

Letter from the American Benefits Council .......................................................... 156 

(1) 

PRESERVING OUR HOMETOWN INDEPENDENT 

PHARMACIES ACT OF 2011 

THURSDAY, MARCH 29, 2012 

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON INTELLECTUAL PROPERTY,

COMPETITION, AND THE INTERNET, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 9:44 a.m., in room 

2141, Rayburn Office Building, the Honorable Tom Marino (acting 

Chairman of the Subcommittee) presiding. 

Present: Representatives Goodlatte, Coble, Chabot, Issa, Griffin, 

Marino, Watt, Conyers, Chu, Jackson Lee, and Johnson. 

Staff present: (Majority) Holt Lackey, Counsel; Olivia Lee, Clerk; 

and (Minority) Stephanie Moore, Subcommittee Chief Counsel. 

Mr. MARINO. Good morning. I would like to call this hearing to 

order. The Subcommittee will come to order. Without objections, 

the Chairman is authorized to declare the Subcommittee in recess 

at any time for votes on the House floor, which will be coming very 

shortly. 

Chairman Goodlatte is stuck in traffic, I understand, behind a 

traffic accident. So, I would just ask that his statement be entered. 

Here he is. I have to relinquish this now. [Laughter.] 

Mr. GOODLATTE [presiding]. Good morning. Everything that the 

gentleman from Pennsylvania stated is entirely accurate. And we 

will begin with an opening statement. 

I want to welcome everyone to this hearing of the Intellectual 

Property, Competition and the Internet Subcommittee. This legislative hearing will consider H.R. 1946, the ‘‘Preserving Our Hometown Independent Pharmacies Act of 2011,’’ which was introduced 

by Representative Marino, and is cosponsored by Representatives 

Coble and Gohmert of this Committee, as well as 28 other Members of the House. 

The bill would create a limited antitrust exemption for small and 

independent pharmacies to allow them to collectively bargain with 

health plans and Pharmacy Benefits Managers, or PBMs, to negotiate the contracts under which health insurers reimburse pharmacies for their services. Many pharmacists, particularly small and 

independent pharmacists, claim that health plans, and particularly 

PBMs, have significant market power over them, and that collective bargaining rights are necessary to allow them to level the playing field, reduce costs, and stay in business. 

2 

Like many Members of this Committee, I am sympathetic to the 

challenges faced by small pharmacists who want to profitably practice their profession in a healthcare market that is increasingly 

dominated by a handful of large powerful companies and Washington bureaucracies. The past few decades have seen rapid consolidation and concentration of power in the healthcare market. 

This trend has accelerated since the passage of Obamacare and can 

be expected to accelerate even more rapidly if that law becomes 

fully effective 2 years from now. 

I have spoken to pharmacists in my district who tell me that 

their negotiations with PBMs are too often take-it-or- leave-it affairs in which the PBMs offer them barely enough to stay afloat. 

When a pharmacist fills a prescription, they are paid for that service by the patient’s health plan, which is generally administered by 

a PBM. In practice, this means that the only way pharmacists can 

get paid is through an agreement with the PBM that administers 

the patient’s health plan. So, pharmacists are dependent on PBMs 

for their livelihood and need to enter agreements with them. 

But, independent pharmacists are small, disperse, and at the 

PBM’s mercy, while PBMs are large, concentrated, and able to play 

pharmacies against one another. As a result, these negotiations are 

often one-sided. Pharmacists tell me that they feel compelled to accept contracts that barely compensate them enough to stay in business. 

Independent pharmacies provide an important service and give 

customers a worthwhile alternative to large chain drugstores or 

mail-order pharmacies. There is much to be said for the personal 

pharmacist-patient relationship offered by these small businesses. 

Like many of my colleagues, I believe that independent community 

pharmacies should be preserved. 

The question presented by this hearing is whether an antitrust 

exemption is the right solution to the problems faced by independent community pharmacists. In general, antitrust exemptions 

should be disfavored. The antitrust laws are a cornerstone of our 

competition-based free-market economy. The antitrust laws guarantee that businesses compete with one another to offer better 

services, quality, and prices to consumers, rather than conspiring 

with one another to increase their own profits at consumers’ expense. 

With few exceptions, every business in America must abide by 

these laws. As the Antitrust Modernization Commission reported in 

2007, vigorous competition protected by the antitrust laws does the 

best job of promoting consumer welfare and a vibrant growing 

economy, and exemption from the antitrust laws means firms can 

avoid tough discipline of competition, at least to some extent. 

That commission helpfully recommended procedural steps that 

Congress should take in considering antitrust exemptions and the 

standards that Congress should consider in weighing the propriety 

of a proposed antitrust exemption. 

Procedurally, the Commission recommended that Congress 

should create a full public record on any proposed exemption, 

should consult with the Federal Trade Commission and Department of Justice about the proposal, and should require proponents 

of the exemption to submit evidence showing that the immunity is 

3 

justified. This public hearing, at which both community pharmacist 

proponents of H.R. 1946 and the Federal Trade Commission will 

testify, is intended to fulfill these procedural recommendations. The 

Commission also helpfully framed the issues that Congress should 

consider with respect to a proposed antitrust exemption. The Commission recommended that the burden of proving the need for an 

exemption should rest with the proponents of the exemption. 

At a minimum, the Commission suggested that the proponents 

should have to show that the antitrust laws would prohibit the conduct they want to engage in, that the exemption supports a particular societal need that outweighs consumers’ interest in the competitive market protected by the antitrust laws, and that there is 

no less restrictive way to achieve that societal goal. 

I look forward to hearing the testimony of the witnesses today 

on this important matter. 

[The bill, H.R. 1946, follows:] 

4 


HR1946-1.eps
5 


HR1946-2.eps
6 


HR1946-3.eps
7 


HR1946-4.eps
8 


HR1946-5.eps
9 


HR1946-6.eps
10 


HR1946-7.eps
11 


HR1946-8.eps
12 

Mr. GOODLATTE. And it is now my pleasure to recognize the 

Ranking Member of the full Committee, the gentleman from Michigan, Mr. Conyers. 

Mr. CONYERS. Thank you, Chairman Goodlatte. I am happy to be 

here again today. This is the subject of a bill that I introduced and 

had reported out of the Judiciary Committee in 2007. And I am so 

glad that Tom Marino has picked it up and is moving it forward. 

And like you, Mr. Chairman, I am reluctant to create exemptions 

in antitrust law, as a rule. 

But unlike you, I am going to present evidence that Obamacare, 

which I happen to like, the buttons that we passed out say, ‘‘I Love 

Obamacare,’’ but I like Obamacare, and I want to prove that it does 

not further complicate the issue with PBMs that you suggested 

that it might. 

Now, my major concern here today is whether or not the savings 

created by the exemptions—and by the way, Mr. James was here 

before. I think you were a witness before in this matter. Maybe you 

weren’t. But, at any rate, I was hoping that there would be some 

way we could ensure that the savings from the measure that is before us could be passed on to the customer-patient, but I understand that that may not be possible. 

But, what I would like to get in today, and I hope we can during 

the course of the hearing, is the incredible power that the Pharmacy Benefit Manager exerts on the independent pharmacist. It is 

unfair. As a matter of fact, the pharmacist really isn’t even setting 

the price of the prescription, because that is all being sent back to 

him as to what the cost should ultimately be. And so, I still support 

the idea of carving out an antitrust exception for pharmacists, and 

I am hoping that we can get this measure through the Judiciary 

Committee and send it on its way. 

I will put the rest of my statement in the record. I thank the 

Chairman. 

[The prepared statement of Mr. Conyers follows:] 

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, Ranking Member, Committee on 

the Judiciary, and Member, Subcommittee on Intellectual Property, Competition, and the Internet 

Pharmaceutical care is one of the most important parts of our healthcare system. 

Pharmacies serve as a direct interface between consumers and their medications, 

and pharmacists play a critical role in advising and caring for patients all over the 

country. Pharmacists provide particularly critical and easy-access to health care information in under-served communities, including residents in inner-city and rural 

areas. 

During the past several decades, the cost of medical care in the United States has 

skyrocketed. And while President Obama and healthcare reform have made 

progress in reining in these costs to individuals, more clearly needs to be done. 

The prescription drug and drug benefits market is one of the least transparent 

and least competitive in healthcare industry. Some studies estimate that the profits 

of Pharmaceutical Benefit Managers, or PBMs, increased between 2003 and 2010 

by over 600%, and more than 30 states have brought cases against PBMs for fraudulent and deceptive practices since 2007. 

And yet, the business model of PBMs pivot around reducing drug costs and negotiating cheaper rates. Large employers and large health plans, the federal government’s health plans included, intensely scrutinize which PBMs will keep their premiums low and move between Benefit Managers at will. 

Today we discuss a bill authored by Mr. Marino that would grant independent 

community pharmacies an antitrust exemption that would allow them to band toVerDate Aug 31 2005 16:50 Sep 19, 2012 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6621 H:\WORK\IP\032912\73544.000 HJUD1 PsN: DOUGA
13 

*The Subcommittee had not received this material as of September 18, 2012. 

gether to negotiate collectively to obtain more favorable terms from health care 

plans and Pharmacy Benefit Managers, or PBMs. 

In 2000, the House passed the Quality Healthcare Act which contained an amendment I sponsored with similar aims, and in 2007, this Committee reported out a 

measure similar to Mr. Marino’s bill favorably to the House Floor. 

I am generally skeptical of antitrust exemptions. The antitrust laws protect our 

economic freedom against private restraints of trade, and Congress should not take 

any effort to curtail their reach lightly. 

Exemptions may be appropriate, however, when markets have become so dysfunctional that an exemption becomes the only means of restoring effective competition. 

The independent pharmacists make a compelling case in this regard. 

On the other hand, there is no guarantee that if independent pharmacies are 

granted an antitrust exemption that they will pass these savings on to consumers. 

Many, and by some accounts most, independent pharmacies already contract with 

Pharmacy Services Administration Organizations, or PSAOs, to bargain collectively 

on their behalf for some transactions. There is no guarantee that independent pharmacies, like any business, wouldn’t use the savings they gleaned in this area to defray losses in other areas. While they may save money with an exemption, the cost 

of drugs to consumers may go unchanged. 

During the course of today’s hearing, I hope that our witnesses will make a clear 

case on how the proposed antitrust exemption would affect consumers and drug 

prices for individuals. While the profit margins and business practices of PBMs are 

certainly relevant, we are here today to discuss those of independent pharmacies, 

and the burden should be on them to prove how they would use a carve-out from 

antitrust law to guarantee consumers lower drug prices. 

Mr. GOODLATTE. I thank the gentleman. The Chair would note 

that the Ranking Member of the Subcommittee, Mr. Watt, of North 

Carolina, is unable to be with us, and his statement will be submitted for the record.* 

And the Chair would now recognize the gentleman from Pennsylvania to inquire if he has an opening statement he would like to 

make. 

Mr. MARINO. I do not have an opening statement, Chairman, but 

thank you. 

Mr. GOODLATTE. You do not? Okay. Well then, we will proceed 

expeditiously. He has made up for almost half of the time that we 

lost, because of my delay in getting here. We will proceed to introduce our very distinguished panel of witnesses. 

Each of the witnesses’ written statements will be entered into 

the record in its entirety. I ask each witness to summarize his testimony in 5 minutes or less. To help you stay within that time, 

there is a timing light on your table to help. When the light switches from green to yellow, you have 1 minute to conclude your testimony. When the light turns red, it signals that the witness’s 5 minutes have expired. 

Before I introduce our witnesses, I would like them to stand and 

be sworn, as is the custom of this Committee. 

[Witnesses sworn.] 

Mr. GOODLATTE. Thank you very much. And please be seated. 

I understand that one of the witnesses today, Renardo Gray, is 

a constituent of the distinguished Ranking Member of the full 

Committee, Mr. Conyers. Mr. Conyers has asked for the opportunity to introduce Mr. Gray, and I will now yield to him for that 

purpose. 

14 

Mr. CONYERS. Thank you. We have just met, unfortunately, 

though, he is a native of Detroit, and so am I, and we live in the 

same and work in the same part of the city in northwest Detroit. 

But Renardo Gray is a pharmacist, the owner of his own business, 

the Westside Pharmacy, a graduate of the University of Michigan 

College of Pharmacy, and has been in practice on his own since 

1985, where he is still working and serving patients today. 

He has a thriving small business, and is doing great service to 

those citizens and patients that have a cause to use his services. 

And I am glad that this is a great occasion for us to meet today, 

and I look forward to your testimony. And I thank you, Chairman 

Goodlatte. 

Mr. GOODLATTE. I thank you, Mr. Conyers. 

Our first witness today is Mr. Mike James, a community pharmacist and owner of Person Street Pharmacy, in Raleigh, North 

Carolina. Mr. James served as Vice President and Director of Governmental Affairs for the Association of Community Pharmacies 

Congressional Network. 

Mr. James attended Samford University College of Pharmacy in 

Birmingham, Alabama, and has worked closely with the State of 

North Carolina on pharmacy and pharmacy governmental issues 

for many years. Mr. James was named National Pharmacist of the 

Year in 2004 and North Carolina Pharmacist of the Year in 2003. 

I look forward to hearing his perspective on this issue as a hometown independent pharmacist. 

Our second witness, Professor Joshua Wright, of George Mason 

School of Law, focuses his academic work on antitrust law, and 

holds a J.D. and a Ph.D. in Economics from UCLA. Professor 

Wright was appointed as the inaugural Scholar in Residence at the 

Federal Trade Commission Bureau of Competition, where he 

served until fall of 2008. 

Our third witness is Mr. Gray, who was ably introduced by the 

former Chairman, Mr. Conyers. 

And our fourth and final witness is Mr. Richard Feinstein, Director of the Federal Trade Commission’s Bureau of Competition. Previous to his appointment—is it Feinstein or steen? 

Mr. FEINSTEIN. Fein-steen. 

Mr. GOODLATTE. Fein-steen. Mr. Feinstein was partner at Boies, 

Schiller & Flexner, where he focused on antitrust litigation. Mr. 

Feinstein is a graduate of Yale University and Boston College Law 

School. 

I welcome all the witnesses, and we will begin with you, Mr. 

James. 

TESTIMONY OF MIKE JAMES, PHARMACIST AND OWNER, PERSON STREET PHARMACY, AND VICE PRESIDENT, ASSOCIATION OF COMMUNITY PHARMACISTS CONGRESSIONAL NETWORK (ACPCN) 

Mr. JAMES. Thank you, Mr. Chairman. Chairman Goodlatte, 

Ranking Member Watt, Members of the Subcommittee, good morning, and thank you for inviting me to testify for the need of the 

passage of H.R. 1946. My name is Mike James. I am speaking on 

behalf of the Association of Community Pharmacy Congressional 

Network, and I am also a pharmacy owner of a practicing pharVerDate Aug 31 2005 16:50 Sep 19, 2012 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6601 H:\WORK\IP\032912\73544.000 HJUD1 PsN: DOUGA
15 

macy and a practicing pharmacist in Raleigh, North Carolina. I 

have one purpose here today, to help 22,000 independent pharmacies across the country get your attention before they are wiped 

out. Here is what you need to know. 

There are about 50 independent pharmacies in every congressional district. That is 50 small businesses in your districts that 

are owned, managed, and staffed by the most trusted professionals 

in your communities. Every one of these small businesses are facing anticompetitive abuses by PBM corporations that are forcing 

them out of business. They are being forced to lay off employees, 

close their pharmacy, and turn patients away. Imagine the impact 

in your congressional district of just one more pharmacy closing. It 

will mean several lost high-paying jobs, many thousands of dollars 

in revenues and taxes lost to the community, and redirection of patient care out of your towns into mail-order pharmacies in another 

State. 

The abuses your hometown pharmacies are facing are the result 

of Congress and the FTC losing sight of what having a competitive 

market really means. Virtually every single prescription a pharmacist in your district handles is controlled by one of three PBMs. 

I encourage every Member of Congress to reach out to at least one 

independent pharmacy at home. You will be told many interesting 

things. 

For example, every pharmacy will tell you that the PBMs use the 

patient data that they are required to provide to steal their customers by either forcing the patients to drop their local pharmacy 

or coercing them with discounts. The PBM will not allow the local 

pharmacies to use these same discounts. 

Now, let’s look at a real-world fact. Park West Pharmacy, in Little Rock, Arkansas, so far this year has lost money on 218 prescriptions, because PBMs simply refuse to pay them back in full the actual cost of the drugs. In total, they have lost, to this point, about 

$3,000. 

Here is something else you should know. Park West Pharmacy 

and every other independent pharmacy in the country are prohibited by contract from telling anyone how much they pay for prescriptions or how much the PBMs pays them back. Why does this 

matter? Because it prevents planned providers, and Congress, and 

the FTC from knowing how much these same PBMs charge their 

customer for the drugs. I don’t care what you hear from the PBM 

industry today, you will not hear them give you this information. 

Do you think this is fair? Do Members of Congress think this is 

anything other than a systematic anti-competitive manipulation of 

the market? And what about the FTC? Do our Federal regulators, 

who are supposed to consider the impact of competition and abusive behavior on Main Street think that their so-called analysis of 

this issue engenders anything but mistrust? 

The pharmacists in your district know that the goal of the PBM 

contract is to undermine the solvency of the independent pharmacies. I challenge the FTC to convince the Committee here today 

what this will do in showing their outdated studies how it will 

show any evidence of what they contend. The FTC will tell us that 

empowering pharmacists to negotiate together will increase drug 

prices. Based on what facts? 

16 

Look closely at the FTC testimony. Do they reference anywhere 

in their testimony actual drug pricing data? Not that I can find. 

The agency has opinions, but not facts. Why should Congress bother with these opinions when the agency cannot even comment on 

how PBMs are manipulating prices right now to destroy competition? How does the FTC explain why PBMs handle 10 percent of 

prescriptions just a few years ago, and now they handle over 85 

percent of all prescriptions? 

Is it superior pricing? Certainly not. A survey conducted by ‘‘Consumer Reports’’ in 2011 on popular brand name drugs found that 

independent pharmacies offered lower prices than traditional and 

national pharmacies, including those owned by PBMs. And when it 

comes to lower-cost generic drugs, independent pharmacies are 

generics to fill over 70 percent of prescriptions compared to less 

than 60 percent by the PBMs. The FTC offers opinions with that 

data. The pharmacies in your district can provide you with real 

data. 

Finally, on behalf of the pharmacy owners in your districts who 

want to compete head to head with the PBMs, we will hope you 

will ask Mr. Wright to do more in this hearing than simply throw 

around data that cannot be evaluated. Instead, how about asking 

him to obtain why they are systematically under paying Park West 

Pharmacy in Representative Griffin’s district. 

Then let’s ask this question: If the FTC and PBM representatives 

here today see nothing wrong with allowing the largest PBMs to 

consolidate into a national conglomerate that put a stranglehold on 

their retail competition, how can they argue that efforts by the 

independent pharmacies to fight back together will have a worst effect on the marketplace? As long as the FTC fails to grasp the 

micro-effects of the PBM industry’s clearly anti-competitive practices, there is only one way Congress can address this problem. 

That is to empower pharmacies to fight back on their own. The 

PBMs may tell you that a few pharmacies negotiating against them 

in your districts can manipulate drug prices against your constituents. Do you really believe this? 

Mr. GOODLATTE. You need to summarize. 

Mr. JAMES. I will. Thank you very much. 

Mr. GOODLATTE. Your time has expired. 

Mr. JAMES. The reason I am here today is to encourage you to 

task the independent pharmacists in your district who is manipulating whom. 

Mr. Chairman, H.R. 1946 is a key to restoring pharmacy competition. I encourage the Subcommittee to pass it right away. 

Mr. GOODLATTE. Thank you, Mr. James. 

Mr. JAMES. Thank you. And thank you for your time. 

[The prepared statement of Mr. James follows:] 

Prepared Statement of Mike James, Vice President, ACP Congressional 

Network and Pharmacist/Owner, Person Street Pharmacy, Raleigh, NC 

Chairman Goodlatte, Ranking Member Watt, and members of the subcommittee, 

good morning and thank you for inviting me to testify on the need for passage of 

HR 1946, a bill to let independent pharmacies negotiate together against large, 

multi-state pharmacy benefit management (PBM) corporations. 

My name is Mike James. I am Vice President and Director of Government Affairs 

for the Association of Community Pharmacies Congressional Network. I am also a 

17 

practicing pharmacist and the owner of an independent, community pharmacy in 

Raleigh, North Carolina. 

I have one purpose here today: To help 22,000 independent pharmacies across the 

country get your attention before they are wiped out. Here is what you need to 

know: 

1. There are on average 50 independent pharmacies in every congressional district—that’s 50 small businesses in your districts that are owned, managed, 

and staffed by (according to annual surveys for the past decade) the most 

trusted professionals in your communities. 

2. Every one of these small business owners is facing anti-competitive abuses 

by PBM corporations that are forcing them out of business, and every one 

of them that fails to beat these abuses will be forced to lay off employees, 

close up shops, and turn patients away. Imagine the impact in your congressional district of just one more pharmacy closure this month: It will mean 

several lost high-paying jobs, thousands upon thousands of dollars in revenues and taxes lost to the community, and redirection of patient care out of 

your towns and into mail-order programs that are managed by automated 

systems in another state. 

3. The abuses your home town pharmacies are facing are a result of the erosion 

of a competitive market that has been enabled by Congress and ignored by 

the Federal Trade Commission. 

Let me explain exactly what I mean. 

THE PRESCRIPTION DRUG MARKET IS NOW OWNED BY PBMS

First, let me point out that I testified before the Judiciary Committee on similar 

legislation that passed the committee in 2007. Since then, the problems the bill was 

drafted to address have grown worse because PBMs have consolidated their market 

power. 

Specifically, Express Scripts acquired Wellpoint, CVS acquired Caremark, and 

now Express Scripts is about to acquire Medco. This last deal alone will empower 

a single PBM to dictate to 150 million consumers what medications they can take, 

how much they will pay for each prescription, and where they can get their prescriptions filled. In fact, that single PBM will control 40% of the entire prescription drug 

market in the U.S. The three largest PBMs will control more than 85% of every prescription in America. 

Here is what that means: Virtually every single prescription a pharmacist in your 

district handles is controlled by one of three PBMs. The PBMs tell your pharmacists 

whether they can fill a prescription at their pharmacies, whether they can use a 

lower-cost generic or must use a more profitable brand preferred by the PBM, and 

what profit margin the pharmacy is allowed to keep. Keep in mind that these PBMs 

are in direct competition with every pharmacy in every one of your districts. 

WANT PROOF? ASK YOUR PHARMACY CONSTITUENTS

Let’s look closely at the ridiculous system that has been created—I encourage 

every member of Congress to reach out to at least one independent pharmacy at 

home. Here is what you will find: 

• Every pharmacy will have a contract with one or more PBM. The contract will 

prohibit any disclosure by the pharmacy—including to patients—of how much 

the pharmacy paid for the prescriptions they fill, how much the PBM pays the 

pharmacy for the prescriptions, and how much profit the PBM keeps. 

• The contracts will tell every pharmacy they may not under any circumstances 

fill prescriptions for any patient beyond 30 days. 

• The contracts will require every pharmacy to turn over all of its data about 

every patient in a plan, including his or her mailing information. 

Here is what else you will find: 

• Every pharmacy in your district will be able to provide you with specific examples of how the PBMs reimburse them for prescriptions at less than their 

actual cost to acquire the drugs. 

• Every pharmacy will tell you that the PBMs routinely offer more convenient 

60- and 90-day prescriptions to any patient who will agree to leave the pharmacy and register for the PBM’s proprietary mail service. 

18 

• Every pharmacy will tell you that the PBMs use the patient data they are 

required to provide to steal their customers by either forcing the patient to 

drop their local pharmacy or coercing them with discounts the pharmacy is 

barred by contract from offering. 

Now, let’s look at real-world data—facts—to see exactly how this works. I have 

in my hand a copy of a report from Park West Pharmacy in Little Rock, Arkansas, 

which is located in Representative Griffin’s district. They sent me a copy of their 

letter to you this week, Congressman, in which they requested that this information 

be entered into the hearing record. It provides a detailed list of every prescription 

the pharmacy filled from January of this year to Monday of this week in which they 

lost money because PBMs under-reimbursed them. Here is exactly what the report 

shows: 

• Park West Pharmacy so far this year has lost money on 218 prescriptions because PBMs simply refused to pay them back in full for the actual cost of the 

drugs. 

• Park West Pharmacy spent $20,716 for the drugs, but received only $15,489 

from the PBMs. When patient co-payments were added, the pharmacy recovered just $18,886. 

That means Park West Pharmacy lost $1,830, or 9% of their total expenditures. 

It also means that the PBMs made a profit on these drugs by literally using Park 

West Pharmacy as a form of lending agent—and then stiffing the lender. Every 

other independent pharmacy in America faces the same situation on dozens and 

even hundreds of transactions every day. Here is something else you should know: 

Park West Pharmacy and every other independent pharmacy in the country are prohibited by contract from telling anyone how much they pay for prescriptions, or how 

much the PBMs pay them back. Why does this matter? Because it prevents plan 

providers—and Congress and the FTC—from knowing how much those same PBMs 

charged their customers for the drugs. I don’t care what you hear from the PBM 

industry today—you will not hear them give you this information. 

WHO IS LOOKING OUT FOR PHARMACIES IN YOUR DISTRICTS?

You think this is fair? Do members of Congress think this is anything other than 

a systematic, anti-competitive manipulation of the market? And what about the 

FTC? Do our federal regulators—who are supposed to consider the impact of competition and abusive monopolistic behavior on main street Americans—think their 

so-called ‘‘analysis’’ of this issue engenders anything but mistrust and disgust from 

22,000 pharmacy owners and the millions of patients they serve? 

Since we have the FTC with us today, let’s get real. The pharmacies in your districts know that the goal of PBM contracts is to systematically undermine the solvency of the independent pharmacies that compete with them, and to force patients 

covered under PBM agreements into their highly profitable proprietary mail-order 

programs. I challenge the FTC to convince the committee members—and the thousands of small business owners in their districts who are being driven under while 

you tell us about your outdated studies—otherwise. 

THE FTC RELIES ON THEORY, NOT DATA

The FTC will tell us that empowering pharmacies to negotiate together will increase drug prices. Based on what facts? Look closely at the FTC testimony. Do they 

anywhere reference actual pharmacy pricing data? No. The agency cites 2007 opinions by the Antitrust Modernization Commission, refers to its 2009 study of competition for biologic drugs, two general studies from 2004 and 2005, and staff comments presented to a few state legislatures. The agency has opinions, but not facts. 

Why should Congress bother with these opinions when the agency cannot even 

comment on how PBMs are manipulating prices right now to destroy competition? 

How does the FTC explain why PBMs handled 10% of prescriptions just a few years 

ago, and now handle 85% of prescriptions? A significant part of this market expansion is attributed to passage by Congress of provisions in the new Medicare Part 

D law that handed whole markets over to the PBMs. What attributes for the rest 

of their aggressive growth? 

Is it superior pricing? Certainly not. A survey conducted by Consumer Reports in 

2011 of popular brand-name drug prices found independent pharmacies offered 

lower prices than traditional, national pharmacies, including those owned by the 

PBMs. And when it comes to lower-cost generic drugs, independent pharmacies use 

generics to fill over 70% of prescriptions compared to less than 60% by PBMs (since 

they make more in rebates and secret ‘‘spread pricing’’ from brands). What if we 

19 

factor in PBM claims that their mail-order programs can’t be beat? Consider this 

statement from American Health & Drug Benefits, a peer-reviewed forum for pharmacy benefit program designs: 

More controversial, however, is the validity of claims by PBMs that mailorder programs offer significant cost savings to plan sponsors. Very limited 

research has been conducted to definitively establish a significant economic 

value of mail order pharmacy service. The limited study data published 

show mixed results, raising questions about the cost impact to the plan sponsor. 

The FTC offers opinions without data. The pharmacies in your districts can provide you with data, and it will change your views about the real threat to lower 

drug prices. 

KEY QUESTIONS WE HOPE YOU WILL ASK

Here are questions the FTC and PBM representatives who are with us today 

should be asked to answer: 

1. What other industries are allowed to use confidential patient data that is 

compelled by contract or federal law to steer consumers into proprietary programs? 

2. Why should PBM corporations be allowed to maintain confidentiality provisions in their contracts—even on a supposedly ‘‘volunteer’’ basis—to prevent 

public disclosure of costs that are borne by state and federal governments? 

3. Under what reasonable standard should pharmacies be locked out of the 

markets for services customers want, like 90-day prescriptions when appropriate? 

MISINFORMATION WE KNOW PBMS WILL GIVE YOU

Finally, on behalf of the pharmacy owners in your districts who want to compete 

head-to-head with PBMs, we hope you will make the PBM industry’s representative 

do more at this hearing than simply throw around aggregate data that cannot be 

validated, claim that lack of transparency in prescription drug transactions is somehow ‘‘good’’ for keeping prices low, and ask you to look the other way when they 

steer as many people as possible out of your local pharmacies and into their extremely profitable proprietary programs. Instead, how about asking him to explain 

why they are systematically under-paying Park West Pharmacy in Representative 

Griffin’s district? Perhaps the PBM representative here today can go through this 

list of transactions with us to explain what policy guides this behavior. At minimum, let’s ask him to tell us how much of the money they took from Park West 

Pharmacy went to the PBMs’ insurance customers, and how much the PBMs simply 

put in their pockets without telling anyone. 

Then let’s ask this question: If the FTC and PBM representatives here today see 

nothing wrong with allowing the largest PBMs to consolidate into national conglomerates that put a stranglehold on their retail competitors, how can they argue that 

efforts by independent pharmacies to fight back together will have a worse affect 

on the market? 

Finally, as long as the FTC fails to grasp the micro-effects of the PBM industry’s 

clearly anti-competitive practices—micro-effects I might add that sum up to an obvious macro-strategy of restraining trade and manipulating competition—there is only 

one way Congress can address this problem. That is to empower pharmacies to fight 

back on their own. 

Now let’s all sit back and listen to the PBM representative, who will argue that 

HR 1946 provides a ‘‘license to engage in price fixing and boycotts’’ that will lead 

to higher drug prices. The FTC may think my small pharmacy in North Carolina 

has the power to undermine the multi-billion dollar PBM corporations that fight me 

every day, and the PBMs may tell you that a few pharmacies negotiating against 

them in your districts can manipulate drug prices against your constituents. But the 

reason I am here today is to encourage you to go ask the independent pharmacies 

in your district: ‘‘Who is manipulating whom?’’ 

Mr. Chairman, HR 1946 is the key to restoring pharmacy competition. I encourage the subcommittee to pass it right away. 

Thank you. 

Mr. GOODLATTE. Professor Wright, welcome. 

20 

TESTIMONY OF JOSHUA D. WRIGHT, PROFESSOR, 

GEORGE MASON UNIVERSITY SCHOOL OF LAW 

Mr. WRIGHT. Chairman Goodlatte, Members of the Subcommittee, thank you for the opportunity to testify today. My name 

is Joshua Wright. I am a professor at the George Mason University 

School of Law, where I teach antitrust law and economics. I also 

hold a courtesy appointment in the Department of Economics. I 

was the inaugural Scholar in Residence at the FTC from 2007 to 

2008. 

I am here today to discuss H.R. 1946, a proposed exemption from 

the antitrust laws that would allow independent pharmacies to collectively negotiate with health plans on pricing provisions and 

other contract terms. 

It is my view that the proposed legislation is ultimately likely to 

harm consumers and should be opposed on those grounds. Local 

pharmacists striving to provide quality care for patients undoubtedly face significant economic pressures from both changes in the 

healthcare market and from vigorous competition. While identifying ways to reduce costs in complex and dynamic healthcare markets is a critical policy objective, an antitrust exemption for independent pharmacies is likely to undermine that goal. 

The purpose of H.R. 1946 is to ensure safety, quality of care, and 

a competitive marketplace. The overarching goal of the antitrust 

laws is to foster competition, and thereby maximize consumer welfare. This goal of maximizing consumer welfare is rarely, if ever, 

served by antitrust exemptions. Indeed, the consensus view is that 

such exemptions are much more likely to reduce consumer welfare 

than to enhance it. 

The bipartisan Antitrust Modernization Commission has explained that, ‘‘A proposed exemption should be recognized as a decision to sacrifice competition and consumer welfare.’’ It is widely 

recognized that antitrust exemptions benefit small concentrated interest groups while imposing costs broadly upon consumers at 

large. These costs generally take the form of, to quote the Antitrust 

Modernization Commission again, ‘‘Higher prices, reduced output, 

lower quality, and reduced innovation.’’ 

The Antitrust Modernization Commission concluded that exemptions should rarely be granted and only when proponents have successfully demonstrated that permitting unlawful and anti-competitive conduct is necessary to satisfy a specific societal goal that 

trumps the benefit of a free market to consumers and the U.S. 

economy, in general. This burden should not be taken lightly. The 

Sherman Act has been described as the Magna Carta of free enterprise, precisely because it was designed to enhance economic liberties promoted by competition. 

Antitrust exemptions not only pose a risk to consumers, they are 

also generally unnecessary to achieve legitimate pro-competitive 

ends. The antitrust laws permit cooperation achieving pro-competitive objectives, rendering an exemption for such activities unnecessary. 

The increased incorporation of economic thinking into antitrust 

analysis over the past several decades has endowed the antitrust 

laws with sufficient flexibility to permit such pro-competitive collaboration while condemning horizontal arrangements likely to reVerDate Aug 31 2005 16:50 Sep 19, 2012 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6601 H:\WORK\IP\032912\73544.000 HJUD1 PsN: DOUGA
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duce competition. Exemptions, in light of existing antitrust law, are 

simply unnecessary to protect parties from pro-competitive coordination. 

Exemptions are equally unnecessary in the healthcare context. 

There, the antitrust agencies have actively provided guidance to 

pharmacies and other healthcare providers and folks outside of the 

healthcare industry, distinguishing lawful from unlawful conduct 

under the antitrust laws. The FTC issues advisory opinions to market participants seeking to compete more aggressively by means of 

limited coordination. 

Healthcare providers can and do engage in such lawful coordination through the use of pharmacy service administrative organizations and other collaborations. The agencies advise many of those 

market participants that it will not challenge their coordinated efforts. The antitrust division at the DoJ also actively and in concert 

with the FTC provides similar guidance to healthcare providers. 

Most recently, the FTC and DoJ issued a joint policy statement explaining how those agencies would apply existing antitrust laws to 

accountable care organizations. 

The proposed exemption will likely increase healthcare costs. The 

exemption is designed to allow coordinated activities among pharmacies that both basic economic theory and experience indicate will 

result in higher prices faced by health plans. Economic theory unequivocally predicts that at least in some of the collective negotiations exempted will raise costs that will in turn be passed on in the 

form of higher prices paid by consumers. 

One obvious implication of the antitrust exemption will be higher 

reimbursements. One recent study, for example, estimates the increased healthcare costs ranging from $9 to $29 billion over a 5- 

year period. Would such an exemption provide any offsetting benefits for consumers? The answer provided by existing law and economic analysis, I believe, is no. The most critical point is that the 

current Federal law permits collective activity by pharmacies and 

other healthcare providers to the extent that it is pro-competitive 

and benefits consumers. 

Thank you. 

[The prepared statement of Mr. Wright follows:] 

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Mr. GOODLATTE. Thank you, Professor Wright. We have enough 

time, I think, for one more witness to get their testimony in before 

we have to recess to vote. And so we will now recognize Mr. Gray. 


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TESTIMONY OF RENARDO GRAY, OWNER AND PHARMACIST, 

WESTSIDE PHARMACY OF DETROIT, INC. 

Mr. GRAY. Thank you. 

Chairman Goodlatte, Ranking Member Watt, Mr. John Conyers, 

we thank you for the opportunity to come represent my views and 

the views of pharmacists across the United States, we who serve 

the patients among the most vulnerable in the country. I have been 

serving my patients for 27 years. I have had to compete with the 

chains, deal with the healthcare plans. You have CVS as a chain, 

and you have CVS Caremark, which is a PBM and they have a 

mail-order outlet. Then you have CVS Caremark Medicare Part D 

Plan, which is a plan that gets money from the government that 

then pays everybody else. In a fair market, you would think that 

CVS Caremark Drug Plan would pay CVS, their stores, you would 

see them pay their mail-order, and you would see them pay me all 

the fair price. 

I don’t get a fee for filling certain prescriptions. If it is a brandname drug, I get no fee. Just the cost of the medication. Since it 

is a take-it-or-leave-it contract, I can’t even complain. I have to 

take it or leave it. This bill would allow us to be able to go back 

and say, ‘‘Wait a minute. We need to be treated fairly. We need to 

have an opportunity, if you pay yourself a fee, you pay the other 

part of your company a fee, why can’t we get a fee?’’ They will come 

to us and say they overpaid us and take money back from us, but 

they don’t do anything to address the fact they never paid us a fee 

in the first place. 

We come to the Committee, because we need assistance in getting this bill passed so we can at least compete. We can’t even go 

and complain. It is either you take it or you leave it. There is nothing there. 

When the customers, who should be represented here, Medicare 

Part D is to provide drug care for Medicare D members. The members come to us when the chains or the mail-orders don’t get them 

their prescriptions. They come back to us. We are not paid to handle the service, but we have to make sure that they get the care 

that they need. If you eliminate us, who is going to be there to buffer or to represent them? It is about their needs. We need this bill 

to be able to compete. There is not going to be any increase in 

money. The money is already set. All they have to do is pay us the 

part that we are supposed to get. If we are allowed to at least compete fairly, there is no problem. But, we at least need a fair chance. 

Take the example of a henhouse. If you take a fox, you try to 

keep the fox out of the henhouse. In this case, we have given the 

fox charge of the henhouse. He can suck the eggs. He can eat some 

of the chickens. But, now you tell him you have to share with 

somebody else. Is he going to do it fairly? He is a fox. But, it has 

been that way for far too long. It is time now to come back and address the issues. It is about getting the right medicine, at the right 

time, to the right patient. 

Just the other day, a gentleman came to me. He is 83 years old. 

I have to advocate for him. He is on a medication for Alzheimer’s. 

While he is remembering to take his medication, he comes to me 

and says, ‘‘I have no medicine.’’ So, I go on the computer and find 

out his prescription was filled by his mail-order plan and mailed 

34 

out on the 6th of March. It is the 26th of March. He has no medicine. I called the plan. They say, ‘‘Well, we have to call the mailorder side to find out what happened.’’ This man needs medicine 

while he can remember to take it. He needs his medication. 

If you move us from the thing, he would not have any medication. I made sure he had his medication. And I do this on a daily 

basis. I am not paid to do this, but I cannot let these people, who 

are ‘‘Customers,’’ these are friends and family. 

I have had the unique opportunity to perform a wedding in my 

pharmacy. And when patients die, they sometimes call on me to 

come and preach the funeral. These are the things we have to do 

that we are not paid to do. But, the other companies receive the 

money, and we ask them to give us a fair share that we can compete. How do we compete with somebody when they hold the whole 

purse, and they can tell us what they will give us? They set a price. 

We have to take it or leave it. There are no options here. If they 

underpay us, what do we do? What are we supposed to do? 

We come here, looking for redress. We need a methodology to 

compete, a methodology to go to them and say, ‘‘Make if fair.’’ We 

are there to take care of the patients, and we do this on a daily 

basis. Without us, there is going to be problems. Because if a patient doesn’t get medication, they are going to end up, number one, 

either in the hospital, in a rehab facility, if they have a stroke, in 

a nursing home, if they can’t go beyond that, or a funeral home. 

If you take us out of the equation, it is a big problem. 

We need this bill passed for this exemption so that we can compete. All we ask for is a fair chance, an opportunity. We are not 

here asking for more money. We are asking for an opportunity to 

do what we are supposed to do. We go to them, and they have to 

pay us fairly. 

Right now, they ignore us, because they have the thing. They 

don’t have to talk to us. No PBM has to come and say, ‘‘Well, you 

asked for more money, we can give it to you. We don’t have to.’’ 

They have no desire to talk to us, not even to come to us. 

When the patients need service, and mail-order doesn’t arrive, 

what do they do? They have to go the local pharmacist. And we 

have been there. We have been bearing the brunt of this for now 

almost 10 years. This program started 2003. It fell on us. All we 

can do is keep doing it. We have come before and tried to get it 

addressed, and the ball got dropped. We are here again. We have 

to get this done. 

As healthcare reform goes forth, they need us in the middle to 

take care of this. We haven’t got paid for it so far, but we deserve 

to be paid for it. A workman is worthy of his hire. If nothing else, 

we should be allowed to have this bill passed. So, we ask you to 

consider it and pass it for us. 

[The prepared statement of Mr. Gray follows:] 

Prepared Statement of Renardo Gray, Owner and Pharmacist, 

Westside Pharmacy of Detroit, Inc., Detroit, MI 

Chairman Goodlatte, ranking member Watt and members of the Subcommittee, 

thank you for the opportunity to present my views and the views of pharmacists 

across this country, who serve patients who are among the most vulnerable in this 

country. I am Renardo Gray, pharmacist and owner of Westside Pharmacy in Detroit, Michigan. In 1979, I graduated from the University Of Michigan College Of 

35 

Pharmacy and became a registered pharmacist. In 1985, I realized the American 

Dream by opening my own independent pharmacy which I still own and from which 

I have the privilege of serving my patients today. 

Unfortunately, successful and well-run local community pharmacies are being 

forced out of business by the unfair business practices of major Pharmacy Benefits 

Managers (PBMs) and Medicare Part D Plans. The congressionally-sanctioned PBMrigged market for prescription drugs must be made more competitive if my small 

business and thousands of others like it across the nation are to survive. 

I would like to commend you for convening this important hearing. As someone 

who strongly supports parity and justice in medicine and the elimination of disparities in healthcare, I support HR 1946, the Preserving Our Hometown Independent 

Pharmacies Act of 2011 which was introduced by Congressman Tom Marino (R–PA) 

and has the support of many members of this Committee including my Congressman, The Honorable John Conyers (D–MI). 

Independent pharmacies are often in under-served inner city and rural markets. 

The local pharmacist is typically the most accessible health care professional in the 

community. No patient prefers dealing with a pharmacist at a faraway telecenter 

rather than dealing with the trusted local pharmacist in their community. 

Without the backing of a large corporation, my small business and all small independent community pharmacies in today’s marketplace have become easy prey for 

large-corporate Pharmacy Benefit Managers (PBMs) whose primary motivation is to 

turn a profit in order to impress their board of directors every quarter. That, and 

the fact that Congress has expanded the market for PBMs through the creation of 

Medicare Part D, is why their profits have skyrocketed over the past five years. 

PBMs have been found guilty of switching patients to more expensive and sometimes less safe drugs in order to secure higher rebates. PBMs often manipulate reimbursement policies in order to deny patients access to the drugs they deserve. 

Independent pharmacies such as Westside Pharmacy spend hours helping patients 

deal with all of these PBM schemes, making sure they are taking the appropriate 

drug, helping patients deal with complicated reimbursement issues and assuring the 

patient is able to get the right drug. Independent pharmacists spend countless hours 

helping our patients who have become our friends and extended family when problems arise with their mail-order prescriptions. We are not reimbursed for these services. We will not allow our patients (friends and extended family members) to go 

without the medications. 

If we are forced out who will be there the help the patients in their time of need? 

PBMs coerce patients to use their mail order or limit their access to pharmacies 

that they own or control. PBMs often force patients to pay full price if they try to 

use their local independent pharmacy. Patients should and must have the right to 

choose their pharmacy provider. 

The last time the House Judiciary Committee held a hearing on this issue, the 

PBM market was more competitive with three or four significant competitors. Since 

2007, there have been several PBM acquisitions including Express Scripts’ acquisition of Wellpoint, CVS’ acquisition of Caremark and the proposed Express Scripts’ 

acquisition of Medco. Both the ESI/Wellpoint and CVS/Caremark deals were cleared 

by the FTC without an extensive investigation. It appears that the FTC is poised 

to approve the Express Scripts acquisition of Medco which will create a PBM monopoly with over 150 million covered lives that will process over 40% of all prescriptions. Approving this merger would be a big mistake and enable Express Scripts to 

harm patients by denying access, reducing service and reducing reimbursement 

rates. But Congress, praise God, has the power to fix this problem and make sure 

high-quality pharmacy care will continue well into the future by passing HR 1946. 

I as an independent pharmacist feel like David going up against Goliath and his 

brothers at one time. Thank God for this hearing. We need your help. This legislation will allow a limited number of non-publicly traded independent (family owned) 

pharmacies to work together to negotiate fair, reasonable fees and many other nonpayment terms in their contracts with the PBMs. Since local, independent, hometown pharmacies are the only pharmacy entities that are prevented under the antitrust laws from full participation in the pharmacy market, passage would restore 

an equal playing field for every drug store in your communities. Our survival is critical to maximizing patient access to affordable healthcare and to the ability of patients to buy their medicines and receive sometimes critical one-on-one advice from 

the professionally trained and locally-licensed pharmacists. 

Independent pharmacists are one of the most trusted professionals in this country 

and are the only healthcare providers who provide free and trusted care. Pharmacists pride themselves on being able to serve their patients and communities with 

the highest service. You simply cannot receive that kind of treatment and patient 

care from a mail-order, automated telephone service. 

36 

Without the ability to truly negotiate with the PBMs from a position of parity, 

independent pharmacies that are otherwise able to compete on price and service will 

be driven to extinction. This would be acceptable if our demise was a matter of the 

free market coming to the determination that independent pharmacies add too little 

value, or that independent pharmacies simply cannot operate as efficiently or effectively as PBMs or other pharmacy innovators. In fact, these factors have nothing 

to do with why my pharmacy and every pharmacy in your congressional districts 

require your immediate action. 

In this down economy, we hear a lot of talk from Washington, DC about how important it is to create the right environment for small businesses to thrive, and how 

important it is that we create more small business employment opportunities. There 

is nothing harder for a small business owner than to terminate an employee. Small 

independent pharmacy jobs are local jobs, jobs that, in my case, are either lost or 

created in Detroit. Thanks to ‘‘take-it-or-leave-it’’ PBM contracts, below-cost PBM 

reimbursement, PBM patient steering and the constant drum-beat of PBMs moving 

my patients out of my store and into their own PBM mail-order warehouse, I know 

that it will be extremely difficult to continue to provide local jobs and provide the 

finest care available to my patients. 

I have spent years competing successfully against the PBMs. What has changed 

is that PBMs are using their massive market power to impose distorted market conditions on my small business: and no one in Washington—not the FTC, not the Justice Department, not Congress—is paying attention! 

This country will never be able to replace the value of face-to-face patient counseling that community pharmacists provide on a daily basis to all of their patients. 

And there will never be the same level of high-quality personal care provided by 

mail-order companies run by PBMs. 

Mr. Chairman, this legislation is the cornerstone for the future of healthcare reform because without the independent pharmacy network, high quality healthcare 

will be compromised. I ask you and this committee to pass HR 1946 as soon as possible. 

Thank you for this opportunity. 

Mr. GOODLATTE. Thank you, Mr. Gray. There is approximately 4 

minutes remaining in the vote on the Floor. 

When we return from the vote—and I ask Members to return 

promptly, so we can resume and give Mr. Feinstein the floor. 

[Recess.] 

Mr. GOODLATTE. The Subcommittee will reconvene, and at this 

time it is my pleasure to recognize Mr. Feinstein. 

TESTIMONY OF RICHARD FEINSTEIN, DIRECTOR OF THE 

BUREAU OF COMPETITION, FEDERAL TRADE COMMISSION 

Mr. FEINSTEIN. Thank you, Chairman Goodlatte, and Members of 

the Subcommittee. I am Richard Feinstein, Director of the Bureau 

of Competition at the FTC. 

Mr. GOODLATTE. Yes. Just pull it closer to you. 

Mr. FEINSTEIN. Okay. Sorry. Is that better? All I had gotten 

through was my name, so I will just continue. 

I appreciate the opportunity to testify today regarding H.R. 1946, 

a bill to grant antitrust immunity to independent pharmacies. 

The written statement submitted for this hearing constitutes the 

view of the Federal Trade Commission. My statement and my answers to any questions represent my own views. 

As you know well, healthcare markets continue to change and 

rapidly. Many small providers, such as independent pharmacists 

and solo practitioners are struggling to adapt to these changes. As 

we have seen in other industries, the transition to new business 

models is not easy. While I am quite sympathetic to the economic 

challenges faced by independent pharmacies as a result of these 

37 

changes, the escalating costs of healthcare products and services 

demand attention as well. 

Competition among healthcare providers is a vital tool to keep 

costs in check and provide incentives to improve the quality of care, 

both of which benefit consumers. That is why the FTC devotes significant resources to protect competition and healthcare markets. 

Under current law, pharmacies do not need an antitrust exemption in order to provide patients with lower-cost drugs or better 

service. The antitrust laws already permit pharmacies to work together in ways that benefit patients. For instance, pharmacies can 

and do take advantage of joint buying programs to obtain volume 

discounts. They can and do collaborate with one another to provide 

new products or services to consumers, such as monitoring or education for patients with chronic illnesses. 

In short, the antitrust exemption contained in H.R. 1946 would 

result in higher prices for prescription drugs. The FTC’s experience 

with boycotts among pharmacies demonstrates that collective fee 

demands can raise fees substantially. The impact of those higher 

drug costs will be felt by many, by employers and employees in 

higher healthcare premiums and co-pays, by State and local governments, both in drug benefits for their employees, and in public 

assistance programs, and by consumers who pay out-of-pocket for 

some or all of their drug costs. And even with carve-outs for Federal programs, the conduct permitted by this bill will raise direct 

costs to the Federal Government. 

Moreover, once a group of competitors is allowed to band together to collectively demand higher fees, it will be hard to prevent 

those negotiations from having a much broader impact than intended. After independent pharmacies share competitively sensitive 

information and come to agreements while negotiating with private 

drug benefit plans, they will have information they could use to 

more easily coordinate their prices and competitive behavior outside the scope of the authorized collective action. This spillover effect could further reduce competition among the pharmacies. 

Some say that a law to permit price fixing and boycotts is needed 

so that independent pharmacies can stay in business, that an antitrust exemption will help them cover their costs and continue to 

provide needed high-quality services to patients, particularly in 

areas with few options for obtaining prescription drugs. But, an 

antitrust exemption will not solve these problems. It does not directly address underserved markets or ensure that independent 

pharmacies will cover their costs. It also does not ensure the survival of independent pharmacies or adequate services in remote or 

underserved areas of the country. It merely promises that some 

pharmacies can bargain together to demand higher fees and refuse 

to deal with health plans that do not accept the group’s demands. 

In sum, the conduct authorized by this bill will raise healthcare 

costs and those higher costs will be imposed on others, some of 

whom are also struggling to make ends meet. For these reasons, 

I very respectfully submit that H.R. 1946 would not further its intended purposes of promoting quality of care in a more competitive 

marketplace. 

Thank you for the opportunity to share my views on these important issues. 

38 

[The prepared statement of Mr. Feinstein follows:] 

Prepared Statement of Richard Feinstein, Director, Bureau of Competition, 

Federal Trade Commission 


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Mr. GOODLATTE. Thank you, Mr. Feinstein. I will start the questions, and start with you. 

Professor Wright testifies that the antitrust agencies are willing 

to offer guidance to pharmacies that want to enter into pre-competitive collaborative arrangements, without running afoul of the 

antitrust law. Is there any realistic chance that the FTC applying 


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current law would consider requests by a group of independent 

pharmacies to collectively bargain reimbursement rates with a 

health plan or a PBM? 

Mr. FEINSTEIN. I think it would depend entirely upon the reason 

that the collective bargaining was necessary. There certainly have 

been many instances where otherwise competing healthcare providers have been permitted to form networks where they collaborate to improve the quality of the service or deliver their products 

and services more efficiently, and where joint selling of their service is necessary or reasonably necessary for them to achieve the 

benefit to consumers, then those kinds of arrangements can be approved. 

Mr. GOODLATTE. Have any been submitted for approval? 

Mr. FEINSTEIN. None have been submitted for approval by pharmacies on that specific question. We have produced, or we have in 

the last decade issued letters authorizing collaborations among 

pharmacies. They have not requested authorization for joint pricing. They have involved other things. 

Mr. GOODLATTE. Do you agree that the PBM market is significantly more concentrated now than it was 5 years ago when this 

Committee last held a hearing on this issue? 

Mr. FEINSTEIN. I would agree that there has been additional consolidation in the PBM market. The term ‘‘significantly’’ is one that 

is ambiguous, and it would be difficult to, you know, necessarily 

agree with that, but certainly there has been more concentration 

in the PBM market over the last 5 years. 

Mr. GOODLATTE. Let me direct a similar question to Mr. Gray 

and Mr. James. 

Independent pharmacies can currently collect collective bargaining through Pharmacy Service Administration Organizations, 

or PSAOs. What does H.R. 1946 give to independent pharmacies 

that they did not already have the ability to do through PSAOs? 

Mr. JAMES. Mr. Chairman, I think there is a misconception about 

PSAOs. I think that PBMs will try to convince you that these 

PSAOs sit down with my pharmacies and sit down with pharmacies across this country and negotiate contracts and prices with 

PBMs. That is not true. 

The PSAO’s prime purpose is to review a contract and make a 

recommendation to a pharmacy that is a member of that PSAO 

whether or not that should be taken or not. Economically, from a 

business standpoint should it be taken. I don’t think you are going 

to find anybody that would say to you from a PSAO’s side that they 

sit down and negotiate contractual dollars and cents for reimbursement purposes. As a matter of fact, I know some of the bigger 

PBMs who will refuse to talk to some of the PSAOs where they attempt to work out those details. 

So, I think that is probably what needs to be understood, is what 

the real purpose of a PSAO is, as opposed to being a negotiating 

entity from the standpoint of pricing. 

Mr. GOODLATTE. Professor Wright, do you have a view on that? 

Mr. WRIGHT. The only thing I would like to add with respect to 

the advisory letter process that Mr. Feinstein raised is that there 

is something that should be understood about existing antitrust 

law with respect to distinguishing pro-competitive from anti-comVerDate Aug 31 2005 16:50 Sep 19, 2012 Jkt 000000 PO 00000 Frm 00053 Fmt 6633 Sfmt 6601 H:\WORK\IP\032912\73544.000 HJUD1 PsN: DOUGA
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petitive collaboration. That is, indeed, the existing law that runs 

through the agency guidelines. And the FTC faces a challenge, as 

do courts and the DoJ, in distinguishing pro-competitive forms of 

collaboration that help competition from those that harm consumers. This is the job of those agencies. It is the job of those 

courts. They have developed significant expertise in making that 

distinction over time, and I would imagine well-suited if such a request comes in to be able to distinguish between the two. 

Mr. GOODLATTE. You testified that basic economic theory and experience indicate that coordinated activity among pharmacies will 

likely result in higher prices faced by health plans. But, to the extent that health plans currently contract out the administration of 

their prescription drug benefits to PBMs and PBMs compete with 

each other for each health plan’s contract, is it possible that any 

additional prescription reimbursement costs will come only out of 

PBM’s margins without the health plans incurring additional costs? 

Mr. WRIGHT. As a matter of economic principles, no. 

Mr. GOODLATTE. That would depend, wouldn’t it, on how competitive the PBM market is for dealing with those—— 

Mr. WRIGHT. How much pass-through you get will depend on the 

demand, the elasticity of demand in the market. It will depend on 

the intensity of competition. But, you will not get zero passthrough, essentially, under any economic assumptions you would 

like to make about any of those pertinent variables. But, certainly, 

the amount of pass-through to consumers will depend upon a variety of factors. That number is going to be positive. 

Mr. GOODLATTE. I think Mr. James wanted to respond as well. 

Mr. JAMES. I would just like to comment on the fact that what 

we see in the marketplace today is just as you stated, it is competition between PBMs for the plan’s sponsor’s business. What we see 

in the pharmacy, when that patient comes in, we adjudicate that 

claim, and that PBM does, in fact, tell us directly what to charge 

the consumer. We do not set the price, nor does anyone in that 

pharmacy have anything to do with the price. It is charged to the 

consumer. That is dictated to us by the PBM. 

Now, if, in fact, there are negotiations allowable, and the PBM 

feels like they are going to have to wind up paying more money to 

the pharmacy, the question is: What do they do? It is their decision, and it is their plan’s sponsor’s decision. Instead of making $6 

billion this year, do they make $5.8 billion and pay the pharmacy 

a little bit more money, or do they charge the plan’s sponsor more, 

which entail causes them to charge more. That is not in our habitat. We don’t have anything to do with that. 

As you see today, when that patient is charged, it is a charge 

that is dictated to by the PBM. 

Mr. GOODLATTE. Thank you. My time is expired. The gentleman 

from North Carolina, Mr. Watt, is recognized. 

Mr. WATT. Thank you, Mr. Chairman. And let me start by apologizing to the Chairman, and the Committee Members, and our witnesses for being late. My community pharmacist will be happy to 

know that I was out doing something that was to their benefit, 

which was going to my allergist to get another prescription, so that 

I could go to my community pharmacy to get it filled. So, you are 

the beneficiaries of my not being here. 

51 

I am not sure as you are as much the beneficiaries of my being 

here, because I have some reservations about the bill that has been 

introduced. It is obviously a very difficult question. So difficult, in 

fact, that I am told that I was a sponsor of a similar bill in a prior 

term of Congress, and so, obviously, it continues to be a difficult 

issue. So, let me ask a few questions that might help me clarify or 

refine my own position, if we consider this bill. 

There has obviously been an attrition of independent community 

pharmacies. I am looking for evidence that that is as a result of 

what this bill addresses. I am not sure I have seen that evidence. 

Perhaps somebody can provide it to me after this hearing. Or 

whether it is a function of larger conglomerates like the CVSs of 

the world, I presume they don’t call themselves independent pharmacies, providing more and more competition to community pharmacies. 

Just this morning, or this afternoon, or tomorrow, when I go 

home, I will have to make a choice between whether I go to a community pharmacy or to the CVS that happens to be right down the 

street from my house. I am not sure that that choice will be made 

based on whether it was a community pharmacy or, you know, a 

chain, or whether it was a PBM involved in it, or not involved in 

it. There are some other things that are driving this. 

So, at some point, if somebody has evidence that this attrition 

that is taking place is as a result of what this bill deals with, I 

would dearly like to have that in writing. 

Second, there seems to be an ongoing consolidation of PBMs, obviously. One is under consideration right now. One potential consolidation about to be ruled on. And if there are antitrust implications, one would think that those implications would be thoroughly 

evaluated and considered, and that application would be denied. 

From everything I am hearing the application is likely to be granted. I am not involved in that process, and have tried to keep the 

Committee out of it, to some extent. But, we had a hearing on the 

question, and it is not our decision to make, but the criteria involve 

whether there are antitrust implications of that merger. And while 

independent pharmacies may not be at the table making that decision, there is a set of rules by which that decision gets made. So, 

that is troubling me. 

I guess the basic thing that is troubling me, and I guess I haven’t 

asked a question yet, but I am putting some issues on the table, 

I guess the basic thing that is troubling me is the thing that I have 

said in some other context about providing antitrust exemptions to 

anybody. My mama, who always gave me good advice when I was 

growing up, one of the pieces of advice she gave me was that two 

wrongs don’t make a right. And if somebody is violating the antitrust laws over here, and antitrust laws are good, I think there are 

remedies to deal with that. I am not sure that I think the appropriate remedy to deal with that is to give somebody else the right 

to violate the antitrust laws. 

So, I put all these things on the table, my concerns. Professor 

Wright, maybe you could, if you would just give me 1 minute to ask 

one question. 

Mr. GOODLATTE. Without objection. 

52 

Mr. WATT. Is there some evidence to demonstrate that anti-competitive practices of PBMs is the cause of the attrition of independent pharmacies nationwide? Or what is your take on that? 

Mr. WRIGHT. If there is, not that I am aware of. There is significant evidence, on the other hand, that as, I think your intuition 

suggested, and also with respect to your skepticism about antitrust 

exemptions, there is ample evidence that one might expect, if one 

gives an antitrust exemption, to violate the antitrust laws, folks 

take advantage of that exemption in order to engage in anti-competitive activity. In other words, there is ample evidence that 

where exemptions lie, losses to consumers follow. 

Mr. WATT. Well, I won’t get you into speculating about that. 

Mr. WRIGHT. That is not speculating. That is a body of evidence. 

Mr. WATT. A body of evidence. Okay. All right. Well, you are not 

speculating then. Okay. All right. 

Well, I guess I am beyond my time, so in fairness to the other 

Members of the Committee, if we have a second round, I will go 

into some of these issues more thoroughly. I have kind of put my 

cards on the table. They say I have been on all sides of this issue 

at some point or another, but, you know, that is the way politicians 

are. We try to be on all sides of an issue. But, at some point we 

have to vote on these things, and that is why we have these hearings, so that we can inform ourselves and make an educated good 

vote, not just a political decision about it. So, I will yield back for 

the time being. 

Mr. GOODLATTE. Thank you, gentlemen. And the Chair recognizes the gentleman from Pennsylvania, Mr. Marino, for 5 minutes. 

Mr. MARINO. Thank you, Chairman. 

Gentlemen, thank you for being here. And I first want to thank 

Chairman Conyers, because a great portion of why I am doing 

what I am doing was when I read his legislation. So Chairman, 

thank you for the guidance. 

Mr. Feinstein, I think it is publically time that we state that the 

emperor has no clothes on, and I think the emperor right now is 

the PBMs and the large chains. And you stated that pharmacies 

are requesting special treatment, at least in your testimony and 

your written testimony, by being allowed to negotiate with much 

larger PBMs. 

I find it deeply concerning that this is called special treatment 

for the independent pharmacists, but there seems to be no limits 

for PBMs to continue to combine and merge together with no action 

by the FTC. Why is the FTC so aggressively opposed to small independent pharmacies getting on a level playing field, decentralized 

groups of independent pharmacies joining together, while permitting massive consolidation in the PBM market, particularly when 

it comes to mail-order and no negotiation of the prices? 

Mr. FEINSTEIN. Microphone on? 

Mr. MARINO. Yes. 

Mr. FEINSTEIN. First, let me make very clear that the FTC is not 

aggressively opposed to independent pharmacies. That was how 

you began your question. We are not aggressively opposed to independent pharmacies. 

Mr. MARINO. Well, that is my take. 

53 

Mr. FEINSTEIN. I understand, but I want to make it clear, speaking for myself, at least, that is not my view, that is not the FTC’s 

view. 

What we are concerned about, and I also, as I indicated in my 

opening statement, we recognize that times are tough for some 

independent pharmacies. We recognize that. I think the question 

that was raised about whether this is the primary cause of that is 

an important question. 

Also, it is not my understanding that there has, in fact, been substantial attrition among independent pharmacies. It is my understanding that the number of independent pharmacies has remained 

relatively flat over the last decade. And I am sure others will correct me if that is incorrect. But, leaving that aside, I take it, as a 

given, that times are tough for some independent pharmacies. 

The problem that we have is that this solution is a very blunt 

instrument that will have a lot of problematic effects throughout 

our healthcare system in the form of increased costs. And that is 

true often with antitrust exemptions, regardless of the industry, 

and it is true in this setting as well. 

It is also our perception that, you know, while it is certainly the 

case that there are some circumstances, maybe many circumstances, when a PBM or a health plan that is negotiating with 

a single pharmacy has much more leverage in that negotiation. No 

one disputes that. 

There is also great variation. This is not sort of a one-size-fitsall problem. For example, when PBMs are putting together networks of pharmacies, which they do to make sure that they are 

serving the needs of the employees of the sponsors of the health 

plans, in other words, the corporations that provide the healthcare 

benefits for their employees, and they contract with the PBM to administer the pharmacy. 

Mr. MARINO. Sir, I only have a couple of minutes. 

Mr. FEINSTEIN. Sure. I just want to make the point that there 

are places in those networks where they have to deal with independent pharmacies, because there are rural locations, for example, 

where the independent pharmacies may be the only one in a town. 

Mr. MARINO. I understand that, sir, but if you look behind you 

there are pharmacy students from the prestigious Howard University. I don’t know if they have any plans on going independently 

or where they may be going to work. But, they are sitting here listening to a very unlevel playing field, particularly when you are 

dealing with PBMs, when the PBMs aren’t even telling people who 

need their prescription drugs that there are various ways of getting 

that. So, they are cornering the market on there. And I think it is 

the responsibility of the FTC to look into those matters, not wait 

till we bring it to your attention. That is my basic problem with 

the bureaucracy. But, we will leave that for another day. 

Professor Wright, you made a statement that there will be no 

benefits to consumers. And I am hearing from my colleagues, my 

constituents in my district, pharmacists, and around the country 

that the PBMs are just basically killing them, as far as no negotiation on the prices. Yet, independent pharmacists across my district 

today are repeatedly struggling, and I think we can produce some 

numbers as to how many pharmacists, Mr. Feinstein, have gone 

54 

out of business, because they can’t compete any more with the 

PBMs, and that some pharmacies have closed their doors as a result. 

How could you say that giving pharmacies the limited ability to 

better compete and keep their doors open would not benefit consumers? Doesn’t competition breed good pricing, especially given 

that nothing in the world beats a face-to-face interaction with pharmacists and patients? And I know, because I have a daughter who 

has cystic fibrosis, and I am dealing with my independent pharmacist on a weekly basis, three or four times a week. 

Mr. WRIGHT. There are in the antitrust laws an economics. Collaborative efforts that enhance the competition make it more intense and have benefits for consumers. And there are types of collaboration that do not. The bill would, by exempting independent 

pharmacies from the antitrust laws, allow all forms of collaboration, but in particular would allow independent pharmacies to avail 

themselves of anti-competitive forms of coordination. 

The basis for my statement that I suspect the likely effects will 

be to reduce consumer welfare is a body of evidence that suggests 

that when competitors are allowed to collude on price, consumer 

welfare goes down. 

Mr. MARINO. Thank you. But, you know, we are talking about, 

and your credentials—— 

Mr. GOODLATTE. Without objection, the gentleman is recognized 

for one additional minute. 

Mr. MARINO. Thank you. Thank you. But, we are talking in theory here. You say ‘‘likely.’’ You say ‘‘theory.’’ Mr. Feinstein says 

‘‘probably,’’ ‘‘could have.’’ I talked to the pharmacists. I know what 

they are going through. So, I would like to ask quickly, gentlemen, 

Mr. James and Mr. Gray, can you briefly describe your interaction 

with PBMs and how they treat your pharmacy during negotiations, 

if there are negotiations. 

Mr. JAMES. Well, I think the problem is that the word ‘‘negotiation’’ is used incorrectly. There are no negotiations. There is a contract that comes to your pharmacy. It states the terms. It states 

the conditions. And it gives you one or two choices. You sign that 

contract, or all your patients are moved to another pharmacy, because they will not allow them to come to your pharmacy to get 

their prescriptions filled. 

Mr. MARINO. Mr. Gray, quickly, please. 

Mr. GRAY. There is no negotiation. You either take it or leave it. 

We don’t go to the table and say, ‘‘Well, this is what we want, and 

this is what we need. This is what we have got to have.’’ It is either 

you take this or leave it. There is no negotiation. 

Mr. MARINO. But, there is with the large chains. 

Mr. GRAY. With the large chains, they do well. 

Mr. MARINO. Thank you, Chairman. Thank you so much. 

Mr. GOODLATTE. Thank you, gentlemen. 

The gentleman from Michigan is recognized. 

Mr. CONYERS. Thank you, Chairman Goodlatte. Well, I think we 

are beginning to reveal several things here that are important. 

One, the need for the legislation is based on the expectation that 

the pharmacist will be able to bargain collectively, which they can’t 

do now, and that is why the antitrust exemption is being sought. 

55 

And so, I feel that that is one of the rare reasons to exempt any 

company from antitrust control. As a matter of fact, this is the only 

instance that I think that there is some possibility for this being 

salutary. 

Now, what is being asserted here is that there is no choice when 

you are dealing with a PBM, and now it turns out that CVS owns 

one of the largest PBMs itself. Caremark. So, the concentration, 

and the power, and the less negotiating ability on the part of the 

independent pharmacies, let’s face it, this is a classic capitalist case 

of the little guys versus the big guys. And it seems to me that fairness dictates that this exemption be given very good consideration. 

Mr. James, do you think that I am putting this in a fair description? 

Mr. JAMES. I think that is a very good interpretation of what is 

going on, and I would say in addition to that, that what we have 

to look at here is, if you look at the world of pharmacy, I submit 

to you that independent pharmacies are the only people that are 

being hammered by this antitrust law. If you think about the bigger pharmacies, you think about the CVSs you mentioned, the RiteAids, all the major pharmacies, for example, CVS has about 7,000 

pharmacies across the country. You have to understand that that 

pharmacy, CVS, is, in fact, negotiating with a PBM. But, they are 

able to negotiate, because all of their stores are in one corporation. 

So, they can sit down with them and say, ‘‘You want us in or you 

want us out. Take your choice. If so, here is the deal.’’ 

What the PBMs realize, which has been stated here earlier, is 

that independent pharmacies are separate corporations unto themselves, which are now falling under this antitrust law, so there is 

no way to negotiate. That is why you get take-it-or-leave-it contracts. 

So, as I said earlier, I submit to you that independent pharmacies are the only pharmacies being affected by this antitrust 

law. 

Mr. CONYERS. Thank you. 

Could I ask that the second-year pharmacy students from Howard University just stand for one moment, please? There is only 

one man in this seven-person group. Is there some explanation for 

this imbalance? I won’t ask Professor Stolp to explain that, but look 

ladies, we want to bring more fellows into this. Normally, we are 

arguing just the reverse, so we have to get more women into a situation. 

Mr. WATT. Mr. Ranking Member, we might ask the Chair to have 

a hearing about that. [Laughter.] 

Mr. CONYERS. That is right. Look, we have a long list of possible 

hearings, and this will go on the list, but at the bottom. 

Anyway, welcome, and don’t be discouraged by the power plays 

that are going on in your future profession. I congratulate you all. 

Mr. MARINO. Mr. Conyers, would you yield for 1 second? I am 

going to argue on behalf of the gentleman. He is in an ideal situation. All right? [Laughter.] 

I am with you. 

Mr. WATT. All he needs to do is move to the middle there, it 

would be great. [Laughter.] 

Mr. WATT. He is not quite ideal yet, but he is getting there. 

56 

Mr. JOHNSON. Well, I am going to tell you, if any of the young 

ladies has a dad like Tom Marino, then you are in trouble, young 

man. [Laughter.] 

Mr. CONYERS. All right. You may sit down, please. And we are 

very proud of all of you in your work. And we hope that we can 

continue to get the issue of fairness in this matter. But, it seems 

a little bit one-sided. Not only does PBM control, but some of the 

biggest pharmacies create their own PBM. So, look, the more we 

dig into this, the deeper the problem becomes. 

I thank the Chairman for his generosity with the time, and yield 

back. 

Mr. GOODLATTE. I thank the gentleman. The Chair recognizes 

the gentlewoman from California, Ms. Chu, for 5 minutes. 

Oh. I’m sorry. He slipped in on me. I am glad to be joined by another one on my side of the aisle. 

Mr. GRIFFIN. I am glad I am making it. 

Mr. GOODLATTE. And we will recognize Mr. Griffin for 5 minutes. 

Mr. GRIFFIN. Mr. Chair, I am glad I am making such an impact 

on you. [Laughter.] 

Mr. Chairman, I am concerned about Park West Pharmacy in my 

district, in Little Rock, and you referred to in your testimony. And 

at the request of Park West Pharmacy, which is a community pharmacy in Little Rock, I ask unanimous consent to submit for the 

record some documents that they gave to me, indicating marginal 

losses on prescriptions associated with transactions between the 

pharmacies and the PBMs. And I have those documents here. 

Mr. GOODLATTE. Without objection, so ordered. 

[The information referred to follows:] 

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Mr. GRIFFIN. Thank you, Mr. Chairman, I appreciate that. 

I have not decided what I am going to do on H.R. 1946 at this 

point, but I am concerned about our community pharmacies, and 

I have expressed those concerns about the merger that is being 

considered right now. I know we are expecting a decision on that 

soon, but I registered my concerns about that, and the implications 

of that on community pharmacies. 

I wanted to ask you, Mr. James, a couple of questions. First of 

all, can you talk a little bit about the limitations of PSAOs and 

their ability to negotiate and bargain with the PBMs? What 

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Mr. JAMES. I think it boils down to the fundamental fact that 

each pharmacy is its own corporation, its own entity. It is a private 

entity. They can represent them in advice, when we all come together, because I belong to one. It is 500 or 600 stores. And they 

can come together, look at contracts, which that normal pharmacist 

usually is not an attorney. He doesn’t have all the expertise he 

needs to have to address that contract and what it says. He knows 

what they are saying they are going pay him. He knows what they 

are going to do about audits, things of that nature, but he doesn’t 

know all the other legalities of the contract. 

So PSAOs formed several years ago to bring stores together and 

say, ‘‘We could advise you on this program.’’ They can talk to the 

PBM about things they don’t like in that contract, things that are 

onerous type things, things that have to do with audit processing, 

and things of that nature. They can turn to me, as a member of 

that PSAO and say, ‘‘We don’t think this is a good contract for you. 

We would advise you not to take this, or we would advise you to 

take this.’’ 

The difference here is that once they give me that advice, I am 

still my own entity, and I have the right to join that contract, if 

I choose, no matter what they say. So, they can be as strong as possible, recommended you to turn it around, and then anybody that 

chooses to can go ahead and join the program. But, they don’t have 

any legal standing to negotiate for my pharmacy. 

Mr. GRIFFIN. Do you have anything to add to that, Mr. Gray? 

Mr. GRAY. No. He told it just like it is. They are there, but they 

don’t negotiate. They just give us advice. 

Mr. GRIFFIN. I want to ask you, Mr. James, since you referenced 

the Park West Pharmacy in my district, can you give me a little 

background on these documents that you discussed in your testimony? Well, at least your prepared testimony. You might have 

changed it for today after talking with my staff and learning that 

I was going to introduce these into the record. But, can you tell us 

a little bit about what these documents that I have put into the 

record, what they represent, what they tell us, and why the folks 

at Park West Pharmacy in Little Rock were so keen on having 

these entered into the record? 

Mr. JAMES. What you have is a listing from Park West Pharmacy 

that shows the actual prescription medication they used in filling 

a prescription, the actual amount that was billed, and the actual 

amount the PBM paid them for that product. 

So, for example, if you had a prescription you were filling, your 

actual acquisition cost for the product was $100. You transmit that 

to the PBM. They trans back to you what they are paying you for 

that product, what your fee is on that product, and how much you 

should charge the patient as a co-pay. 

What this document shows are 218 prescriptions, if I remember 

correctly, that they were paid just for the product, less than the 

product actually cost. 

Mr. GRIFFIN. Just to clarify. I see the yellow light is on. I am 

running out of time. What Park West receives for that prescription 

is not a surprise to them. They are not saying that they are owed 

money that they can’t get. They are just saying that the price they 

74 

have to agree to is less than they would prefer. It is not a surprise 

to them. I am just trying to—— 

Mr. JAMES. The interesting part of this is that they do not know 

what that PBM is going to pay them today or tomorrow for the 

same drug. It may change. 

Mr. GRIFFIN. Gotcha. 

Mr. JAMES. So what we are looking at in your examples there is maybe that $100 came back to them at $95. 

Mr. GRIFFIN. Gotcha. 

Mr. JAMES. So they were down $5 as soon as they fill the prescription from the acquisition costs. 

Mr. GRIFFIN. Gotcha. I see I am out of time. Thank you, Mr. 

Chairman. 

Mr. GOODLATTE. I thank the gentleman. And the Chair recognizes the gentlewoman from California, Ms. Chu, for 5 minutes. 

Ms. CHU. Thank you, Mr. Chair. I am concerned about the proposed merger of Express Scripts and Medco, which would then 

cover more than 135 million lives. Should this merger be approved, 

there would be even more of a limit in the ability of community 

pharmacists to be able to negotiate in a manner that enables them 

to continue to serve their patients. And one of those examples of 

the growing power of the PBMs is the mail-order business, and I 

would like to ask Mr. Gray and Mr. James about this. 

I have heard from constituents and from pharmacies about how 

PBMs use data from the community pharmacists’ patients to try to 

push these patients to use the PBM’s own mail-order business. And 

the PBMs are in a position to force the plan beneficiaries to use 

the PBM-owned mail-order pharmacy, and that they even are allowed to use the pharmacy’s patient data. 

Is this your experience, and how do the PBMs pressure the customers to use their mail-order services? 

Mr. JAMES. Yes, it is my experience, and it happens everyday. I 

mean we have had instances in which a patient would fill a prescription under a new plan they have just gone on and literally had 

a call from the PBM mail-order house that afternoon saying, ‘‘I see 

that you received such-and-such drug. We can save you a lot of 

money if you will buy this through the mail-order program. We will 

give you a discount on your co-pay.’’ 

So, what we are seeing happen is, we are seeing the data that 

we transmit, which consists of all their information, including the 

medication, going to the PBM, and immediately be transferred to 

their marketing department, so that they can call and write letters. 

We see people on a regular basis get two or three letters a month 

from a PBM trying to coerce them. And these letters are written 

in such a way that it almost convinces that patient that if you don’t 

do this, you are going to lose your benefit. And so then they come 

to the pharmacy saying, ‘‘I have got to go mail-order, because here 

is what they are saying.’’ Bring me your letter and when you read 

the letter, that is not exactly what they said. They insinuated that, 

but obviously, the patient thinks that is the case. 

The major fear among patients in cases like this is losing their 

benefit. They are afraid they are going to lose their healthcare coverage, and because of that, they are going to do anything that they 

think they have to do to retain that. 

75 

Mr. CHU. Mr. Gray. 

Mr. GRAY. Many times, the letter comes and says that they don’t 

have a choice now. They are forced to go mandatory mail-order. 

And that is the ones we see the most, where they actually have no 

choice. They have to get it mail-order or pay cash. And there 

should be a choice in this. The patient should be able to choose 

their own doctor, their own pharmacy, where they get their car 

fixed. They should be able to have choices, but now they are not 

given a choice. And the PBM doesn’t allow us to do anything about 

it. They even tell us that we have to advertise for them. ‘‘Oh. I am 

sorry. I can no longer fill your prescription, Ms. Chu. You have to 

get yours through mail-order.’’ So I am actually forced to tell them 

where they have to go, who they have to call. And that is really 

not fair. 

Ms. CHU. Mr. Wright, if pharmacies are not allowed an antitrust 

exemption, even as limited as the one as in H.R. 1946, why should 

PBMs be allowed to engage in these kind of practices? 

Mr. WRIGHT. To begin with, I am not sure that the exemption in 

the existing bill is limited. It depends what you mean by ‘‘limited.’’ 

From my perspective, part of what would clearly be allowed as conduct that would be prescribed under Section 1 of the Sherman Act, 

and always has been on the grounds that it will result in higher 

prices and reduced welfare for consumers. And in that sense, I 

would not describe the exemption as particularly limited from an 

antitrust perspective. 

With respect to antitrust analysis of what the PBMs have done 

with respect to mail-order, that is not a question that I have studied or have any particular view, based on analysis. 

Ms. CHU. Okay. I would like to ask a question to Mr. Feinstein 

about special treatment. You stated that pharmacies are requesting 

special treatment by allowing them to negotiate with the much 

larger PBMs, especially given the limits that would be placed 

under H.R. 1946. I find it of great concern that this is called ‘‘special treatment’’ for pharmacies, but there seems to be little concern 

given to the special treatment that is given to the PBMs and their 

ability to conceal information regarding pricing and audit standards. 

If we were to oppose special treatment for any party, why are 

PBMs allowed to withhold this information from pharmacies during contract negotiations? Because, in effect, that sounds like special treatment for the PBMs. 

Mr. FEINSTEIN. Just to make sure that my position is clear, the 

‘‘special treatment’’ that I was referring to was special treatment 

under the antitrust laws. And antitrust exemptions, whoever may 

be seeking them, it is an exception from the antitrust laws that 

otherwise apply generally. 

With respect to the provisions that you are speaking of, which 

are not provisions that really are sound in antitrust law, my understanding is that that arises primarily from the relationship between the PBM and the sponsor of the health plan, which very 

often is an employer, as I mentioned earlier. And the employers 

want the PBMs to deliver the services that they are delivering 

under competitive conditions, in terms of both price and quality. 

76 

I mentioned in my earlier statement that there are a lot of new 

business models that are emerging in healthcare generally. Certainly, this is no exception. And certainly, the phenomenon of mailorder is an example of that. And I am not pro or con mail-order, 

but it has emerged, and it is one of the features that is offered as 

a way of helping to contain costs in some circumstances. It doesn’t 

do that in every circumstance, necessarily. But, what is happening 

is that the provisions that I think are being described here are part 

of the financial arrangement and the contractual arrangement between the PBM and the provider of the health benefit, and it is intended to help control healthcare costs. 

So, I think we have to be careful in how we approach them. But, 

again, these are not fundamentally contractual provisions that teeup antitrust issues, unlike the antitrust exemption. 

Ms. CHU. I yield back. 

Mr. GOODLATTE. I thank the gentlewoman. The gentleman from 

California, Mr. Issa, is recognized for 5 minutes. 

Mr. ISSA. Thank you. I guess I will start with Professor Wright. 

As far as I know, the PBMs are not on trial here. We only have 

one narrow question, which is: Do we grant additional antitrust to 

a retail entity so they can work with other retail entities to do 

more than just have a buyers group? Is that really what we are 

talking about here today? I just want to make sure it is in simple 

language for the American people. 

Mr. WRIGHT. That is how I understand the issue. 

Mr. ISSA. I used to be a manufacturer. They already have an 

ability to form buyers groups, and buy in greater numbers, so they 

can compete with Wal-Mart or anybody else that has larger buying 

power. That is not a question here today, right? 

Mr. WRIGHT. My understanding is that under current antitrust 

laws, the independent pharmacies have the ability to engage in 

pro-competitive coordination. 

Mr. ISSA. Okay. So, I am kind of going through and saying, okay, 

it is not about price, because, essentially, all the independents 

could form a group that all by itself would essentially be as large 

as the top five or six, you know, non-small. So, the further cooperation antitrust is not necessitated based on something to do with the 

other side of the coin. 

Mr. Feinstein, I guess I will go to you, because you are sort of 

the regulator in the room. Where is the compelling need to do this 

that favors action toward these private businesses? And the reason 

I ask, before I go further, because you have a portfolio far greater 

than pharmacy. If we are looking at all of the buying, and I was 

in consumer electronics, the same could be said of trying to deal 

with my old company, or Sony, or Panasonic, any of these things, 

everybody would like to have the ability to get together and to compare not just prices for, you know, group buying, but they would 

like to be able to compare who got how much co-op, what the salesmen did for them for lunch, everything else. If we were to expand 

it here, wouldn’t we essentially open the floodgates for all small 

businesses to say they have a similar situation in which they would 

get a competitive advantage, if they were allowed to operate, if you 

will, as a cartel of storefronts? 

77 

Mr. FEINSTEIN. I think that is a legitimate concern, Congressman, and I think that is one of the reasons that the Antitrust Modernization Commision issued its views that these sorts of exemptions should occur very rarely and be thoroughly considered by 

Congress before they are authorized. 

Mr. ISSA. Now, it is not within this Committee’s jurisdiction, but 

if we looked at the other side of the coin probably over at Ways and 

Means or Energy and Commerce, the fact is you can reform the actions of the middle parties, you know, in other words, you can reform insurance law, you can reform any part of it, certainly, what 

now is probably called by the Administration, ‘‘Obamacare.’’ For a 

while, I was told not to say it. Now, they are using it. So, the 

healthcare reform law. The fact is it reforms a lot of that, doesn’t 

it? Aren’t there a lot of changes in the air in the case of, if you will, 

healthcare delivery and insurance? 

Mr. FEINSTEIN. Yes, there are. And I think that is an example 

of the point that shouldn’t be lost, which is that because this is 

such a blunt instrument, that is, authorization of price fixing, to 

put it bluntly, antitrust exemptions have widespread unintended 

consequences, although, they are foreseeable. 

If this concern needs to be addressed, I believe it should be addressed more directly and more surgically in a way that does not 

have all of those ripples throughout the economy. 

Mr. ISSA. Now, Professor Wright, I am going to—and I would like 

to open it up to the others quickly. We have a lack of transparency, 

generally, in this relationship. The pricing, and distribution, and 

sales of pharmaceuticals, it is pretty much voodoo magic. You can’t 

figure out what somebody’s really paying till you look at a series 

of discounts, and so on. Is that your understanding? And then I 

would like to go to the pharmacists. 

Mr. WRIGHT. Like many industries, I think they analyze price. 

Mr. ISSA. Okay. So, now I would like to go to, if you will, to the 

other side of the coin. Mr. Gray, Mr. James, if we cannot grant you 

antitrust, isn’t one of the alternatives a dramatic increase in the 

transparency of the actual pricing, purchase price, sales price, profit margins, which we could do? We could demand that there be effectively a fair price for a fair volume, and that that be transparent. 

And in the case of government-funded programs, Medicare, and 

the like, where we work off of a series of discounts, because everything is based on some hypothetical retail price, isn’t that reform 

the alternative that you might seek from Congress in order to get 

a fairer, easier to understand relationship? 

Mr. JAMES. I think that where we are at this moment in time, 

there are a couple of answers to that. Number one, we have to remember in this bill the Federal Government is not involved in this 

bill. This is strictly about a private situation. 

Number two, we have to remember in your example of electronics 

that when cost of electronics goes up from the manufacturer, that 

individual dealer has a right to raise his price, if he chooses to, to 

try to compensate for that. In our industry, that doesn’t exist. With 

PBMs, they set both ends of the equation. So, if the drug goes up, 

they don’t give us any additional—— 

78 

Mr. ISSA. Right. And for both of your answers, and my time is 

expired, I just wanted you to sort of say, if we fix that part of the 

equation, if you will, the bizarre pricing situations in which there 

really is not an honest, and fair, and open, and transparent delivery. I mean pharmaceuticals are the only things worse to try to figure out what they really cost, they’re the only things worst than 

a hotel room on Priceline. 

Mr. JAMES. I think what you have is a situation in which once 

you have transparency, you may know more about what is going 

on. I don’t think that is going to force the PBMs to do anything 

with us. 

Mr. GOODLATTE. The time for the gentleman has expired. 

We have 11 minutes remaining in a vote. I think that is sufficient time to be able to recognize the gentleman from Georgia, Mr. 

Johnson, for 5 minutes. 

Mr. JOHNSON. Thank you, Mr. Chairman. I remember Andy, of 

Mayberry, the Andy Griffin Show, and there was Floyd, the barber. 

I don’t know if you-all remember Floyd or not. But then, right next 

door to Floyd may have been John, the pharmacist. But, the landscape has changed since then, and we don’t have many John the 

pharmacists in business market- share. 

And I know you, Mr. Gray, and you, Mr. James, you are a little 

bigger than John, the pharmacist back then. You are a little bigger, 

but still the same community-minded pharmacists. But, you are 

kind of a vanishing breed. And I suppose a lot of folks are going 

to work for the PBMs and the drugstores, the major drugstore 

chains, and that kind of thing, and then the PBMs are even purchasing the drugstore chains now, to where they can be the retailer. They can be the retailer on the street, brick-and-mortar retailer, and control the mail-order market. And it is three, basically, 

PBMs that control about 60 percent, I am told, of the drug dispensation market in America. Anybody disagree so far? 

Mr. FEINSTEIN. I don’t necessarily disagree. I just need to know 

a little more about it specifically. 

Mr. JOHNSON. Okay. I am kind of spoon feeding now. 

Mr. FEINSTEIN. Understood. 

Mr. JOHNSON. The first bite was good. First spoonful was good. 

Now, it is the PBMs that negotiate the drug prices with the 

pharmaceutical manufacturers. And the pharmaceutical manufacturers don’t hear from John, the pharmacy type guys, because of 

the antitrust law, which is a relic from the past. Even though the 

business model has changed, we are still depending on those old 

traditions in the law insofar as antitrust exemptions are concerned. 

But, John, the pharmacist, has been losing market-share probably 

since Andy Griffin, since that time, and the trend continues to go 

down. And I think that you, Mr. Gray, and you, Mr. James, have 

made a good case for why we should have the option of either going 

to the small pharmacist, or going to the major drugstore chains, 

you know, to get our mail. Oh, we do it the modern way, through 

the mail, you know, that kind of thing. 

Choice is real important. Choice, by the way, is not a part of this 

bill, is it, in terms of PBMs having to tell folks that you have the 

right to go through your drugstore or through mail. They don’t 

have to do that, and you are not asking for that with this legislaVerDate Aug 31 2005 16:50 Sep 19, 2012 Jkt 000000 PO 00000 Frm 00082 Fmt 6633 Sfmt 6601 H:\WORK\IP\032912\73544.000 HJUD1 PsN: DOUGA
79 

tion. But, you just want a seat at the table when it comes to negotiating the price or the reimbursement for the drug. Is that correct? 

Mr. GRAY. That is correct. 

Mr. JOHNSON. Okay. Now, given the fact that the market has 

changed, and John, the Barber, is threatened now with extinction, 

due to the larger entities that have control over the drug dispensation market, what would be so wrong with allowing them for the 

limited purpose of coming together to negotiate price? How could 

they drive up prices being only 40 percent of the dispensation market and still declining? That is what I would like to know, Mr. 

Feinstein. 

Mr. FEINSTEIN. I think the simple answer, at least—— 

Mr. GOODLATTE. Given the shortness of time, without objection, 

the gentleman is recognized for an additional 30 seconds, and then 

you will have to recess. 

Mr. FEINSTEIN. I think that the price increases of some magnitude are inevitable, because that is whole purpose of the legislation. And I don’t mean to be pejorative about that. I am just trying 

to give you a direct answer. The idea is to immunize conduct which 

is intended to increase the reimbursement to the community pharmacist, and that will increase the costs to the system. 

Mr. JOHNSON. Well, now if the community pharmacist doesn’t 

know how much the PBMs are getting for reimbursement and the 

PBMs can just dictate to the independent pharmacist how much 

they will be able to receive. 

Mr. GOODLATTE. The time of the gentleman has expired. 

We have less then 5 minutes remaining in this vote. We are 

going to return, and when we return the gentleman from Pennsylvania will be in the Chair, and he will first recognize the gentlewoman from Texas, Ms. Jackson Lee. I, unfortunately, will not be 

able to return, but the gentleman from North Carolina and the 

gentleman from Pennsylvania may have some additional questions 

that they may wish to ask of the panel, too. 

So, we appreciate your forbearance, and the Committee will 

stand in recess. 

[Recess.] 

Mr. MARINO [presiding]. The Judiciary hearing will come to order 

again. I want to thank the witnesses for giving us their valuable 

time and waiting, and the people out there as well. 

Now, I am going to ask the distinguished Congresswoman from 

Texas. She has 5 minutes. 

Ms. JACKSON LEE. Mr. Chairman, thank you for your courtesies, 

and thank the witnesses for their patience for our schedule. 

Mr. Marino, I am delighted that you have revived this legislation. We had a vote on it in Committee in the last session under 

the gentleman from New York, Mr. Weiner, and I think that Members, I would like to see some further life in the bill. I think this 

was at the end of the term, and I think as you have listened to the 

questions in a Committee that is the protector of competition, it 

raises a concern on the issue of harm, when we give an exemption, 

who are we harming. So, I believe this is an important hearing 

that allows us to deal with this issue and be thoughtful, and see 

how we can come to a reasoned response. 

80 

And I think there is an enormous amount of right on the side 

of community and small pharmacies. It is a mountain of rightness 

on that. But as the protectors of the antitrust law, that it works 

so that the Federal Trade Commission and the Department of Justice Antitrust Division have the tools that they need to protect the 

consumer, we have to have a respectful balance. 

So, I am not asking you, Mr. Feinstein—should I say stine? I 

didn’t hear the pronunciation before. 

Mr. FEINSTEIN. Fein-steen. Yes. 

Ms. JACKSON LEE. Fein-steen. Thank you—to go overboard because you are a government regulator. You adhere to the law. 

So, my question to you, I am putting this word in front of it, 

what is the devastating harm of the potential of a bill like the one 

that we are addressing here today, 1946—and I heard Mr. Issa’s 

comments about if one gets it, the other gets it. But, let’s move 

past that. I have already heard that. Just give me what else. And 

I need to talk to other witnesses. So, if you could be precise, what 

would be the expanse of the harm? And, frankly, I would like you 

to just focus on this industry and this concept, which is an exemption for our smaller guys, giving some sort of equal playing field. 

But, go ahead, sir. 

Mr. FEINSTEIN. Thank you. In short, the harm that we are most 

concerned about is increases in costs to the healthcare system. Unambiguously, the purpose of this proposal, and they have been very 

direct about it, is a perceived need on the part of the community 

pharmacist to be paid more for the services they provide. And I understand that perception on their part. I totally understand how 

that would help them. Antitrust exemptions always help the people 

that are seeking them, and I don’t mean to be pejorative in saying 

that. It is just a fact. 

Ms. JACKSON LEE. That is all right. 

Mr. FEINSTEIN. But, our constituents, our consumers, as a whole, 

when I say ‘‘our,’’ I mean the FTC, the enforcement agencies, and 

our concern is that this will introduce additional costs, and Professor Wright has explained how, you know, it is an economic certainty that at least some of them will be pass-through. 

Ms. JACKSON LEE. And the costs will be on the ultimate product 

that the consumer is coming to the pharmacy for. 

Mr. FEINSTEIN. Yes. I mean one way to think about it is, you 

know, the PBMs contract with employers, employers are paying the 

PBMs to provide these services. Those costs, if they get passed 

through to the sponsors of the health plans, that is going to show 

up in some fashion. It is going to show up in reduced benefits in 

the health plans. It is going to show up in higher co-pays. There 

are lots of different ways. And it is just fact. 

And I guess I would also point out, you know, if it were clear 

that that wasn’t the case, and there weren’t going to be cost increases, why would the bill exempt the Federal Government from 

its provisions. I mean for other reasons, we think some of those 

costs will nonetheless be imposed on the government. I think that 

is a genuine question that hasn’t been answered. 

Ms. JACKSON LEE. Yes. Mr. Marino, I am already going to ask 

for additional time just to finish my line of reasoning. Because, Mr. 

James, I wanted to ask, the regulator, he has to follow the law. 

81 

How do you answer the question of higher costs? My concept of it 

is, allowing you-all to negotiate with the PBMs for lower costs, or 

to give you the ability to go out and get lower-cost prescription, 

now you are saying that your costs are higher, and, therefore, you 

need to be paid higher? 

Mr. JAMES. No. What we are saying is that what we are doing, 

as we talked about earlier, is that in some cases in these programs 

that we are contracting with PBMs, we are actually being paid 

lower than the cost of the drug not to address fees to fill the prescriptions. Things of that nature. But what we are trying to do is, 

everybody has focused here today on cost. They talked about getting more dollars. 

If you look at one of these contracts, what you realize very quickly is there is a tremendous amount of onerous things in these contracts that affect pharmacy beyond the figure of cost. For example, 

their ability to go into a pharmacy 2 years after the fact and do 

an audit, and retrieve those dollars that were used to fill those prescriptions, even though the prescription was filled properly, the patient got the medication, and has taken the medication, but yet, 

they come in, because in their contract it gives them the right to 

handle that anyway they choose. 

So, this debate about negotiation is not just about dollars. It is 

about other things, also. 

Ms. JACKSON LEE. That burden you from surviving. Is that what 

you are saying? 

Mr. JAMES. I am sorry? Say it again. 

Ms. JACKSON LEE. That burden the small pharmacies from surviving. 

Mr. JAMES. Yes. 

Ms. JACKSON LEE. And you are giving quality care. Do you think 

you are giving quality care to individuals who, you may be in 

places where they don’t have access to the big guys or you may 

have a special relationship that is necessary, particularly the senior population? Do you believe that you have sort of a unique service as well? 

Mr. JAMES. Absolutely. Patient care is about face to face. It is not 

about the mailman. Once you leave, and what I believe as a pharmacist is, there should not be anyone between you and your physician. You go to the physician, they diagnose your problem, they select a drug of choice, and you should be able to get that drug. What 

we are finding with PBMs is, we fill a prescription, and they refuse 

to fill it. They refuse to pay for it. 

Ms. JACKSON LEE. Let me ask the Chairman, can I have an additional minute to inquire of Mr. Gray. 

Mr. MARINO. Without objection. 

Ms. JACKSON LEE. I appreciate it. I thank the Ranking Member 

for coming back, and the Chairman for coming back. 

There are a lot of people praying on the steps of the Supreme 

Court. I guess they were praying in the last 3 days. Today is 

Thursday. I am praying, too, for victory, because I believe that 

what we tried to do in the Affordable Care Act, close the doughnut 

hole, keep people alive who have preexisting diseases is a good 

thing. So, I am really interested in giving access to healthcare. 

82 

So, let me just try to probe. I understand the issue now, and I 

am called toward the fairness question, which I guess balances the 

competition. So, I think all of us are sort of grappling with that. 

I hope there is some life that we can deal with this issue. 

But, Mr. Gray, tell us a little bit about your business, because 

I understand you had an 83-year-old that had a problem. And so, 

talk about the service. And I want to acknowledge as well the Howard University pharmaceutical students, thank them for their presence here. But, tell us a little bit about that service, and when you 

deal with the PBMs, that you are the underdog. So, go ahead and 

tell us a little bit about that. 

Mr. GRAY. Well, a gentleman came in. Like I say, he was an 83- 

year-old gentleman, and he is suffering with Alzheimer’s. He remembers he needs his medicine. The mail-order plan said they 

mailed his prescription to him on March 6. On March 26, he came 

to me for medication. After making several phone calls, I was able 

to generate a 30-day supply of medication for him, so he can get 

his medication. We do these things every day, because they can’t 

call the PBMs. The PBMs have already ignored them. The mailorder plant said, ‘‘We mailed it out.’’ But, our objective is to get the 

medication into the people’s hands. 

Medicare Part D is to provide medications for Medicare Part D 

recipients, provide their medications. It has certain limitations. 

But, we talk about increasing costs. We are not asking for you to 

increase the costs. We just want the PBM to pay us as they are 

paying themselves. They pay themselves a fee when they fill the 

prescription for CVS, CVS Caremark, CVS Caremark Medicare 

Part D plan. They pay CVS a fee when they fill a brand-name 

drug. 

Ms. JACKSON LEE. So, the PBMs include these large companies. 

Mr. GRAY. Right. They own each other. 

Ms. JACKSON LEE. And you get no fee? 

Mr. GRAY. We get no fee for a brand-name drug. You get the cost 

only. But, they get a fee. They get one. In their mail-order option 

and in their stores, they get a fee. We don’t get a fee. Why can’t 

we have a fee if they get one? 

Ms. JACKSON LEE. All right. 

Mr. GRAY. We are looking for fairness. 

Ms. JACKSON LEE. Mr. Chairman, I thank you for your indulgence. I think I have sort of pierced the veil here, and I hear a cry 

for help. I am hoping the Judiciary Committee can help Mr. Feinstein on his regulator responsibilities, but I hope that we can find 

a way to help these small pharmacies, because I don’t want them 

to die. I think they have a valuable role, even as a small business, 

but as a familiar face to the community. 

This gentleman may not have known where the mail was coming 

from, but he could make his way over to this gentleman’s pharmacy. So, I really believe we should try and find some common 

ground. 

I thank the gentleman for yielding and extending the time. 

And I yield back my time. 

Mr. MARINO. Thank you. Ranking Member Watt has some additional questions. 

83 

Mr. WATT. I just have one additional question. I think we have 

heard a lot of talk about the abusive relationship between PBMs 

and pharmacies. And I am wondering why an antitrust case 

against the PBMs wouldn’t be a viable solution. I mean the pharmacies could band together without an antitrust exemption to 

bring such an action. Why would that not be viable? Maybe there 

is some reason that I am missing here. And if each one of you can 

just give me your spin on that, that would be my only question. 

Mr. JAMES. If I understood your question correctly, it is my understanding from the antitrust law that individual corporations are 

prevented from banding together to negotiate. 

Mr. WATT. To negotiate, but not to file a lawsuit. 

Mr. JAMES. Yes. We can do that. We can band together to not 

negotiate. If we file a lawsuit, the question is, how do independent 

pharmacies, with the source of revenue that we have, actually fight 

a lawsuit with companies that are making $60 billion a year? 

Mr. WATT. That is why I was suggesting you band together, because I assume that one response would be we are too small as individuals to fight the PBMs. But, if you banded together, and filed 

a lawsuit, if there were abusive practices taking place, why would 

that not be a viable option? I guess that is the question I am asking. 

Maybe there are some reasons. Maybe the professor can tell us 

whether there are some reasons why that would not be a viable option. 

Mr. WRIGHT. I certainly can’t speak to viability in terms of what 

the pharmacies would like to spend to fund such a lawsuit or not, 

but with respect to the antitrust law question, of course, there are 

exemptions, petitioning exemptions under the First Amendment 

that would allow groups to band together for the purpose of petitioning activity, including lawsuits. There would be no bar from the 

antitrust laws to such a suit. 

Mr. WATT. And there is nothing in the antitrust laws themselves 

that prevent such a suit. 

Mr. WRIGHT. No. The question of such a suit would be proof that 

the—— 

Mr. WATT. Mr. Gray? 

Mr. GRAY. My question is: Why haven’t the antitrust laws been 

applied to stop this in the first place? We have to go file a lawsuit? 

Mr. WATT. Well, that is a good question. I mean I have raised 

that question, too. If mergers are taking place, for example, that 

are abusive, then those get reviewed by the relevant government 

agencies, but it is kind of like this, I mean we pass laws that prevent things from happening, that prohibit things from happening. 

That does not prevent them from happening. 

When I was practicing law, clients, and now as a politician, constituents, who come to me all the time saying, ‘‘I have been discriminated against.’’ And I said, ‘‘There is a law on the books that 

prohibits discrimination based on race, or gender, or sex.’’ But, you 

have to go and file a personal action to enforce that law. 

And I guess the question I am asking here is: Why has somebody 

not filed a lawsuit to enforce the law that says you can’t collude 

and take abusive positions in the marketplace against us? Is there 

84 

some reason that that is not a viable option, as opposed to amending the antitrust laws and saying that that is the solution here? 

Maybe Mr. Feinstein can tell me. 

Mr. FEINSTEIN. I would—— 

Mr. WATT. Even got triple damages if you win, I think. 

Mr. FEINSTEIN. The only thing I would say, Congressman, is that 

I agree with Professor Wright that the antitrust laws absolutely 

would permit community pharmacists to come together to file an 

antitrust case. I don’t have a view on what the antitrust theory 

would be. 

Mr. WATT. Okay. 

Mr. FEINSTEIN. But, they certainly wouldn’t be precluded from 

doing that. 

Mr. WATT. And I mean this is not unlike, I made the analogy to 

employment discrimination. We have an EEOC, an Equal Employment Opportunity Commission, whose responsibility it is to investigate, but the ultimate remedy, we have the FTC and the Department of Justice in the antitrust arena that is there, but the ultimate remedy still is for individuals to enforce the law. 

And unless there is some reason that, and maybe there is, I don’t 

know. Okay. I have asked my question, and you-all have done the 

best you can. If you come up with any additional answers, please 

submit them. I will be happy to look at them. 

I yield back, Mr. Chairman. 

Mr. MARINO. Thank you. I believe the Congresswoman from 

Texas may have an additional question. 

Ms. JACKSON LEE. Mr. Chairman, thank you so very much. 

It may have been that I didn’t hear Mr. Watt clearly, so I am 

going to just quickly ask Mr. Feinstein, you are at FTC, and there 

are many levels of consumers. The pharmacies, these small ones, 

are consumers as well, as consumers of a product. They happen to 

be a business. And many times, you look at whether, you know, big 

bell, Ma Bell infringed upon little bells, and obviously, little bells 

now become gigantic bells, in the telephone industry. 

But, in terms of your actual evaluation of Express Scripts-Medco 

merger, but other actions by these companies, many of them we 

know their names, who are PBMs, can’t you initiate a review or an 

evaluation as to whether there is any antitrust ramifications in 

terms of the impact on smaller pharmacies? 

Mr. FEINSTEIN. Let me begin my answer by just making it clear 

that I can’t speak to the Express Scripts-Medco. 

Ms. JACKSON LEE. Go right ahead. Pass right on by that, and 

just generally speaking, can you make evaluation on the impact 

that the actions, what the PBMs, Mr. Watt said a lawsuit, and 

then I am saying can you initiate an evaluation, administrative review of this impact? 

Mr. FEINSTEIN. That is certainly something that the FTC has the 

authority to do. Yes. 

Ms. JACKSON LEE. What would move you to do it? 

Mr. FEINSTEIN. Pardon me? 

Ms. JACKSON LEE. Then what would we need to move you to do 

it? 

Mr. FEINSTEIN. Well, I think we would need, I think, to reach the 

preliminary view that the problem that is being described is the reVerDate Aug 31 2005 16:50 Sep 19, 2012 Jkt 000000 PO 00000 Frm 00088 Fmt 6633 Sfmt 6601 H:\WORK\IP\032912\73544.000 HJUD1 PsN: DOUGA
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sult of antitrust violations by someone else in the system. And that 

may or may not be the case. But that would be the threshold question. If there is reason to believe that this is a problem that reflects 

the absence of competition, as opposed to the presence of competition. 

Ms. JACKSON LEE. Well, let me just say that I would like to see 

an initiation of some review. I think as a Judiciary Committee, Mr. 

Marino, we need to see what role that we would be playing in that 

issue. 

And to Mr. Wright, just a quick question here. I am trying to see 

Mr. Wright. Where are you? Right here. Okay. Sorry. 

How does the proposed Express Scripts-Medco merger advance 

the notion of free enterprise, et cetera? 

Mr. WRIGHT. I don’t have any particular view of the Express 

Scripts-Medco merger. I don’t have access to the data and documents that the Federal Trade Commission has. 

Ms. JACKSON LEE. Just another element in the whole structure 

of antitrust review. That is okay if you don’t have one. 

I will just close, Mr. Marino, by just saying to Mr. James, if, for 

example, there was an evaluation of your situation, could your 

small pharmacies provide data to the Federal Trade Commission to 

indicate a bias or unfair practice, unfair competition practice? If we 

tried to glean all of the information, would you be able to provide 

data? 

Mr. JAMES. We could do that. 

Ms. JACKSON LEE. All right. Mr. Chairman, with that, I yield 

back my questions. I yield back my time. I am sorry. 

Mr. MARINO. Thank you. In closing, this is a rhetorical statement, but if anyone has any information pursuant to this, please 

let me know. The FTC has not moved in any way, whatsoever, on 

reviewing whether there is evidence to pursue an investigation in 

this, has it? So, with that little housekeeping, I need to enter into 

the record some testimony that was written and sent, and the individuals were not able to testify. 

I have testimony for the record from National Community Pharmacists Association, in support of the legislation, the National Association of Chain Drug Stores. A letter in support from antitrust 

Attorney David Balto, a former FTC official. And the Ranking 

Member Watt is giving me a document that he would like to put 

into the record from the Pharmaceutical Care Management Association, and the testimony of that association. 

[The material submitted by Mr. Marino follows:] 

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Mr. MARINO. Is there any other documentation? 

Ms. JACKSON LEE. Mr. Chairman, just an inquiry to the Chair 

and the proponent of the legislation, Mr. Marino. In the legislation, 

forgive me for not knowing the precise, do we define small pharmacies in that legislation? I mean the criteria. 

Mr. MARINO. Yes. It is very well defined in there. If anyone has 

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tions on, if I may use the simple word, tweaking this, I am certainly open to hear that. 

Ms. JACKSON LEE. That will be welcome. The only reason, I am 

continuing to speaking to the Chair, and there is some undercurrent that this will open it up to the world, and I think the more 

precise, if anyone is interested, those of us who are looking at this, 

are interested in being fair to the PBMs, being fair to these gentlemen, who are out in the community, to be able to look at and to 

make sure that it is not underlying open to the world. 

Mr. MARINO. All right. Thank you. 

I want to thank our witnesses for their testimony today and for 

your indulgence. Without objection, all Members will have 5 legislative days to submit to the Chair additional written questions for 

the witnesses, which we will forward and ask the witnesses to respond to as promptly as they can so do, that their answers may be 

part of the record. 

Without objection, all Members have 5 legislative days to submit 

any additional materials for inclusion in the record. 

Thank you again. The meeting is adjourned. 

[Whereupon, at 12:29 p.m., the Subcommittee was adjourned.] 

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