A Healthy Dose of Skepticism on NY’s Pharmacy Bill

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A bill waiting for Gov. Cuomo’s signature in New York would restrict insurers from mandating or incentivizing participants to use a mail-order pharmacy. The “Anti-Mandatory Mail Order Pharmacy Bill” (Assembly Bill 5502-B) is being pushed as a measure to enable consumer choice. In fact, it will raise health care costs and ultimately hurt consumers. The legislation requires that insurers allow individuals to fill a prescription at any mail-order or retail pharmacy as long as the retail pharmacy accepts a “price that is comparable to that of the mail-order pharmacy.” The legislation also prohibits insurers from charging participants a higher co-pay or deductible for filling a prescription at an in-network retail pharmacy.

At first blush, this might seem like a good deal for consumers. Consumers would seemingly have the ability to take their prescription to any retail pharmacy as long as the pharmacy had a price comparable to the lower mail-order price, and insurers would pay the same amount no matter where the prescriptions was filled . However, there are a number of problems with the legislation. First, the language in the bill is vague (never a good sign). The legislation does not say that the retail pharmacy has to offer the prescription at the same price, just a comparable price, which is likely to be higher. In 2003, the Government Accountability Office (GAO) found that “The average mail-order price was about 27 percent and 53 percent below the average cash price customers would pay at a retail pharmacy for the selected brand name and generic drugs, respectively.” Second, and more importantly, the concern is that this legislation will cause consumers to miss out on potential cost savings for their prescription benefit. Insurers can negotiate better rates with mail-order pharmacies if they can guarantee them a higher percentage of the business. This legislation would prevent insurers from negotiating better rates. As a result, the bill would limit choice for consumers by reducing the types of health insurance programs offered by insurers. Insurers would not be able to offer discounted plans that take advantage of these cost savings.

Supporters of the bill (namely the National Community Pharmacists Association) argue that the legislation will not only enable choice, but patients will receive better quality care because they can interact with their local pharmacist. Supporters also note that the legislation would help protect “local” jobs from becoming “out-of-state“ jobs and retain any related tax revenue. For good measure they add that “mandatory mail-order drug plans produce 3.3X more waste than prescription drug plans that allow patients to fill prescriptions at retail pharmacies” and some drugs may go bad from exposure to extreme temperatures.

Of course, if you have used a mail-order pharmacy you know that these are weak objections. (Indeed these objections are very similar to those that have been made by other intermediaries as they have been displaced by more efficient rivals.) Mail-order pharmacies offer consumers more convenience than retail pharmacies (such as providing 90 day prescriptions for chronic conditions and automatic renewals), and pharmacists are always available by phone. Moreover, companies like Amazon.com have proven that centralized warehousing and fulfillment for products, easily beats out retail locations like local bookstores in terms of efficiency. Furthermore, all of the purported benefits of the legislation come at a price—higher health insurance premiums, higher co-pays and lower deductibles for all in-state residents with health insurance—shared among all participants of a health insurance plan, not just those who want to pay a premium for in-person service.

Notably the Business Council of New York State sent a memo opposing the legislation. As the memo details, “Typically mail-order pharmacies are an option to employees, not a mandate, and the option usually is accompanied by passing along the savings to the insured in terms of lower out-of-pocket co-pays. If an insured prefers to use a non-mail-order pharmacy, it is the informed choice of that consumer to fill the prescription knowing that the co-pay will be higher. Consumer choice exists within the current system; employers and carriers are doing what they can to identify options to consumers to preserve the benefits while offering lower cost options.” The FTC’s Office of Policy Planning, Bureau of Competition, and Bureau of Economics also jumped into the fray and issued a letter expressing concern that “the legislation likely will raise prices for, and reduce access to, prescription drugs.” In short this is a bill designed, not to protect consumers, but to protect brick-and-mortar pharmacies from more efficient and convenient competitors.

The diagnosis is in—this bill needs to be euthanized.

Photo credit Flickr user: Charles Williams

 

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About the author

Daniel Castro is a Senior Analyst with ITIF specializing in information technology (IT) policy. His research interests include health IT, data privacy, e-commerce, e-government, electronic voting, information security and accessibility. Before joining ITIF, Mr. Castro worked as an IT analyst at the Government Accountability Office (GAO) where he audited IT security and management controls at various government agencies. He contributed to GAO reports on the state of information security at a variety of federal agencies. He has a B.S. in Foreign Service from Georgetown University and an M.S. in Information Security Technology and Management from Carnegie Mellon University.
  • james

    u sir are a idiot who needs to re-evaluate the FREEDOM OF CHOICE you now have!!!

  • Lauren J.

    Wow Daniel, you have clearly been “incentivized” to write this heinous article. Good luck to you and yours when mail order is the only option and insurance companies can raise copay prices to whatever they want.Actually forget it, just got word the bill was passed into law. You can go ahead and continue being a spineless, misinformed pawn for big business.

  • Rob Atkinson

    Always useful to have civil discourse and debates as opposed to name calling. Re substance what lauren J is saying is that without a surcharge on consumers using the low cost channel they will be hurt. If local pharmecies are so valued by consumers why do they need the government to protect them? Rob Atkinson President Information Technology and Innovation Foundation 1101 K. St. NW, Suite 610 Washington, DC 20005 (202) 626-5732 http://www.itif.org Twitter: twitter.com/robatkinsonitif Facebook: https://www.facebook.com/innovationpolicy For pro-technology, non-ideological ideas and analysis from leading thinkers, check out our Innovation Policy Blog (www.innovationpolicy.org)

  • james

    in response rob atkinson,Its not a matter of government protecting pharmacies, its a matter of consumers not being forced buy from a particular store if they do not want to. exp. a store clerk is rude or dismissive , your no happy,,,,,well u can now go and take YOUR business elsewhere. Mail order companies have terrible service, but u just can not take your business somewhere else. you are stuck. they make it mandatory YOU have to use THEIR wholly OWNED pharmacy thus increasing profits, You should get informed before making vague comments. Medcos own ceo testified that they fill 15 percent of all prescriptions through their mail order facility, BUT here is the kicker that 15 percent of business accounts for 50 thats right fifty percent of their profits. interesting how a company claims to be saving healthcare all this money while they are reimbursing themselves an incredible amount of money with NO oversight.