Westchester County Pharmaceutical Society, Inc

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IN THE MATTER OF WESTCHESTER COUNTY PHARMACEUTICAL SOCIETY, INC. CONSENT ORDER, ETC. , IN REGARD TO ALLEGED VIOLATION OF SEC. 5 OF THE FEDERAL TRADE COMMISSION ACT Docket C-3293. Complaint, July 1990-Decision, July 1990 This consent order prohibits, among other things, the pharmaceutical society from organizing or entering into any agreement among pharmacy firms to withdraw from or refuse to enter into a third-party payer prescription drug plan; for ten years, from continuing any meeting of representatives of pharmacy firms at which any person makes any statement concerning whether any firm wil enter into or refuse to enter into any third-party payer prescription drug plan; and for eight years, from providing comments or advice to any pharmacist or pharmacy firm on the desirability or appropriateness of entering into or refusing to enter into any third-party payer prescription drug plan. Appearances For the Commission; Karen G. Bo/cat and Michael D. McNeely. For the respondent; Marvin Lange, Roesnman Colin New York COMPLAINT Pursuant to the provisions of the Federal Trade Commission Act and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe that the Westchester County Pharmaceutical Society, Inc. has violated the provisions of said Act, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint stating its charges in that respect as follows; PARAGRAPH 1. Respondent Westchester County Pharmaceutical Society is a corporation organized, existing and doing business under and by virtue of the laws of the State of New York, with its principal office located at III Main Street, Dobbs Ferry, New York. Respondent is an association of pharmacists who practice or reside in Westchester County, New York, or adjacent areas. In 1986, respondent was affiliated with the Pharmaceutical Society of the State of New York, Inc. ("PSSNY"

, Complaint - 113 F.

PAR. 2. Members of respondent hold ownership interests in pharmacy firms that, except to the extent that competition has been restrained as alleged herein, have been and now are in competition with each other and with other pharmacy firms and other health care providers in the State of New York.

PAR. 3. Respondent's general business or activities, and the acts %nd practices described below, are in or affect commerce, as "commerce is defined in the Federal Trade Commission Act. PAR. 4. Respondent is and has been, at all times relevant to this complaint, a corporation organized for the profit of its members within the meaning of Section 4 of the Federal Trade Commission Act as amended, 15 U . C. 44.

PAR. 5. Customers often receive prescriptions through health benefit programs under which a third-party payer compensates the pharmacy for the prescription according to a predetermined formula. The New York State Employees Prescription Program is a prescription drug benefit plan made available by the State of New York to its employees, its retirees, certain other persons, and their dependents. There were approximately 500 000 beneficiaries covered by the Employees Prescription Program in 1986. Since July I , 1986, The Equitable Life Assurance Society of the United States has insured the Employees Prescription Program, and PAID Prescriptions, Inc. , a wholly-owned subsidiary of Medco Containment Services, Inc. , has administered it.

PAR. 6. Pharmacies are solicited to participate in the Employees Prescription Program. Pharmacies that participate in the Employees Prescription Program accept as payment in full a reimbursement of the ingredient cost of the drug and a professional fee for dispensing the drug. The Employees Prescription Program provides a formula for determining the reimbursement of the ingredient cost of drugs dispensed.

PAR. 7. Absent collusion between or among pharmacy firms, each pharmacy firm would decide independently whether to participate in the Employees Prescription Program and the State of New York would enjoy the benefits of competition among pharmacy firms. PAR. 8. In May 1986 , PAID Prescriptions, Inc. formally solicited pharmacy participation in the Employees Prescription Program under terms to become effective on July 1 , 1986. Among the proposed terms were changes in the reimbursement level for ingredient costs, an increase in the professional fee, and the offer of additional reimburse- WESTCHESTER COUNTY PHARMACEUTICAL SOCIETY . I:-C. 655 653 Complaint ment for the use of generic drugs. The proposed terms were intended to reduce the price the State paid for the Employees Prescription Program, and thus minimize costs, and yet to offer reimbursement high enough to attract a sufficient number of participating pharmacies to ensure that Employees Prescription Program beneficiaries would have adequate access to medication. PAR. 9. In 1986, members of respondent held ownership interests in pharmacy firms that participated in many prescription drug benefit plans offered by third-party payers, including the Employees Prescription Program as it existed prior to July 1. Such pharmacy firms would have suffered a significant loss of customers had their competitors participated in the Employees Prescription Program at a time when they were not participating.

PAR. 10. Kew York State informed respondent PSSNY of the proposed terms of the Employees Prescription Program and respondent PSSNY communicated this information to its affiliated societies including respondent. Respondent held meetings at which owners of pharmacy firms informed other owners of pharmacy firms that they would not participate in the proposed Employees Prescription Program. Respondent communicated to pharmacists and pharmacy owners information regarding the intentions of pharmacy firms located throughout the state concerning participation in the Employees Prescription Program. Respondents exhorted pharmacy owners to refuse to participate in the proposed Employees Prescription Program. Through these exchanges of information and other acts, and through the activities of respondent, pharmacy-owning members of respondent and other owners of pharmacy firms agreed to refuse to participate in the Employees Prescription Program at the proposed reimbursement level, for the purpose of increasing the level of reimbursement offered by the State of New York under the Employees Prescription Program. PAR. 11. Respondent has restrained competition among pharmacy firms by conspiring among its members and with others, and respondent has restrained competition by acting as a combination of its members, to increase the price paid- to participating pharmacies under the Employees Prescription Program and to deny to the State the benefits of competition.

PAR. 12. The combination or conspiracies and the acts and practices described above have unreasonably restrained and continue unreasonably to restrain competition among pharmacists and pharmacies in New York, and have injured consumers in the following ways, among others:

Decision and Order - 113 F. A. Price competition among pharmacy firms with respect to thirdparty prescription benefit plans has been and continues to be reduced; B. The State of New York was coerced into raising the prices paid to pharmacies under the Employees Prescription Program; and C. The State of New York has been and continues to be forced to pay substantial additional sums for prescription drugs provided to Employees Prescription Program beneficiaries, including approximately seven milion dollars for the eighteen-month period beginning on July I , 1986.

PAR. 13. The combination or conspiracies and the acts described above constitute unfair methods of competition in or affecting commerce in violation of Section 5 of the Federal Trade Commission Act. The combination of conspiracies, or the effects thereof, are continuing, wil continue, or will recur in the absence of the relief herein requested.

Commissioner Azcuenaga dissenting.

DECISIO AND ORDER The Federal Trade Commission having initiated an investigation of certain acts and practices of the respondent named in the caption hereof, and the respondent having been furnished thereafter with a copy of a draft of the complaint which the Bureau of Competition proposed to present to the Commission for its consideration and which, if issued by the Commission, would charge respondent with violation of the Federal Trade Commission Act; and The respondent, its attorney, and counsel for the Commission having thereafter executed an agreement containing a consent order an admission by the respondent of all jurisdictional facts set forth in the aforesaid draft complaint, a statement that the signing of said agreement is for settlement purposes only and does not constitute an admission by respondent that the law has been violated as alleged in such complaint, and waivers and other provisions as required by the Commission s Rules; and The Commission having thereafter considered the matter and having determined that it had reason to believe that the respondent has violated the said Act, and that complaint should issue stating its charges in that respect, and having thereupon accepted the executed consent agreement and placed such agreement on the public record for a period of sixty (60) days, now in further conformity with the ), WESTCHESTER COUNTY PHARMACEUTICAL SOCIETY, INC. 657 653 Decision and Order procedure prescribed in Section 2. 34 of its Rules, the Commission hereby issues its complaint, makes the following jurisdictional findings and enters the following order:

1. Respondent Westchester County Pharmaceutical Society, Inc. , is a corporation organized, existing, and doing business under and by virtue of the laws of the State of New York, with its office and principal place of business at 1I I Main Street, Dobbs Ferry, New York.

2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondent, and the proceeding is in the public interest.

ORDER For purposes of this order, the following definitions shall apply: A. WCPS" means the Westchester County Pharmaceutical Society and its directors, committees, officers, representatives, agents,. employees, successors and assigns;

B. Third-party payer means any person or entity that provides a program or plan pursuant to which such a person or entity agrees to pay for prescriptions dispensed by pharmacies to individuals described in such plan or program as eligible for such coverage Covered Persons and includes, but is not limited to, health insurance companies; prepaid hospital, medical, or other health service plans such as Blue Cross and Blue Shield plans; health maintenance organizations; preferred provider organizations; prescription service administrative organizations; and health benefits programs for government employees, retirees and dependents; C. Participation agreement" means any existing or proposed agreement, oral or written, in which a third-party payer agrees to reimburse a pharmacy for the dispensing of prescription drugs to Covered Persons, and the pharmacy agrees to accept such payment from the third-party payer for such prescriptions dispensed during the term of the agreement;

D. Pharmacy firm means any partnership, sole proprietorship or corporation, including all of its subsidiaries, affiliates, divisions and joint ventures, that owns, controls or operates one or more pharma- , Decision and Order - 113 F. cies, including the directors, officers, employees, and agents, of such partnership, sole proprietorship or corporation as well as the directors officers, employees, and agents of such partnership, sole proprietorship s or corporation s subsidiaries, affiliates, divisions and joint ventures. The words subsidiary affiliate and Joint venture refer to any firm in which there is partial (10% or more) or total ownership or control between corporations. II.

It is ordered That WCPS, directly, indirectly, or through any corporate or other device, in or in connection with its activities in or affecting commerce, as "commerce " is defined in Section 4 of the Federal Trade Commission Act, shall forthwith cease and desist from: A. Entering into, threatening or attempting to enter into, organizing, encouraging, continuing, cooperating in, or carrying out any agreement between or among pharmacy firms, either express or implied, to withdraw from, threaten to withdraw from, refuse to enter into, or threaten to refuse to enter into, any participation agreement; B. For a period of ten (10) years after the date this order becomes final, continuing a formal or informal meeting of representatives of pharmacy firms organized, sponsored or encouraged by WCPS after 1) any person makes a statement concerning one or more firms intentions or decisions with respect to entering into, refusing to enter into, threatening to refuse to enter into, participating in, threatening to withdraw from, or withdrawing from any existing or proposed participation agreement and WCPS fails to eject such person from the meeting, or 2) two persons make such statements; C. For a period of ten (10) years after the date this order becomes final, communicating to any pharmacist or pharmacy firm any information concerning any other pharmacy firm s intention or decision with respect to entering into, refusing to enter into threatening to refuse to enter into, participating in, threatening to withdraw from, or withdrawing from any existing or proposed participation agreement; and D. For a period of eight (8) years after the date this order becomes final, providing comments or advice to any pharmacist or pharmacy firm on the desirability or appropriateness of participating in any existing or proposed participation agreement. However, nothing in this paragraph shall prohibit WCPS from communicating purely WESTCHESTER COUNTY PHARMACEUTICAL SOCIETY, INC. 659 653 Decision and Order factual information describing the terms and conditions of any participation agreement or operations of any third-party payers. Provided that nothing in this order shall prevent WCPS from exercising rights protected under the First Amendment to the United States Constitution to petition any federal or state government executive agency or legislative body concerning legislation, rules procedures, plans or programs, or to participate in any federal or state administrative or judicial proceeding.

It is further ordered That WCPS:

A. Distribute by first-class mail a copy of this order and the accompanying complaint to each of its members within thirty (30) days after the date this order becomes final; B. Publish this order and the accompanying complaint in an issue of the WCPS newsletter or in any successor publication published no later than sixty (60) days after the date this order becomes final, in the same type size normally used for articles that are published in the WCPS newsletter or successor publication; C. For a period of five (5) years after the date this order becomes final, provide each new WCPS member with a copy of this order at the time the member is accepted into membership; D. File a verified, written report with the Commission within ninety (90) days after the date this order becomes final, and annually thereafter for five (5) years on the anniversary of the date this order becomes final, and at such other times as the Commission may, by written notice to WCPS , require, setting forth in detail the manner and form in which it has complied and is complying with the order; E. For a period of five (5) years after the date this order becomes final, maintain and make available to Commission staff for inspection and copying upon reasonable notice, records adequate to describe in detail any action taken in connection with the activities covered by Parts II and II of this order, including, but not limited to, all documents generated by WCPS or that come into WCPS' possession custody, or control regardless of source, that embody, discuss or refer to the terms or conditions of any participation agreement; and F. Notify the Commission at least thirty (30) days prior to any proposed change in WCPS such as, assignment or sale resulting in the emergence of a successor corporation or association; change of name Decision and Order . !I3 F. change of address, dissolution, or any other change that may affect compliance with this order.

Commissioner Azcuenaga dissenting.

PHARMACEUTICAL SOCIETY OF THE STATE OF NEW YORK, I:\C. 661 661 Complaint