A Healthy Dose of Skepticism on NY’s Pharmacy Bill

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.