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The Fox Guarding the Henhouse: The Regulation of Pharmacy Benefit Managers by a Market Adversary

Joanna Shepherd

Emory University School of Law

March 1, 2013

Northwestern Journal of Law and Social Policy, 2013
Emory Legal Studies Research Paper No. 13-244

Pharmacy benefit managers (PBMs) save Americans billions of dollars each year by lowering the prices that consumers pay for prescription drugs and health plans pay for drug coverage. However, as I explain in this Article, new regulatory developments in some states threaten to undercut competition in the PBM industry and disrupt the cost-savings PBMs currently generate. The regulatory scheme that was adopted by Mississippi in 2011, and is currently under legislative consideration in several other states, shifts regulatory control of PBMs from the neutral Insurance Commissions to the states’ Boards of Pharmacy. The fundamental problem with this structure is that the Boards of Pharmacy are made up of pharmacists, the direct market adversaries of PBMs. In several different areas of the prescription drug market, PBMs and pharmacists are in direct competition over profits. Thus, the pharmacist-controlled Boards of Pharmacy have both the incentive and the opportunity to exert their regulatory authority in ways that benefit pharmacies at the expense of PBMs; reductions in PBMs’ profits generally lead to more profits for pharmacists. Indeed, although the Mississippi Board of Pharmacy has only had regulatory authority over PBMs for a little over a year, I describe two important regulatory changes that the Board has already enacted that harm PBMs and benefit pharmacies. The power to regulate a market adversary gives pharmacists unprecedented power and will undercut competition in the prescription drug market. Unfortunately, I explain how this regulatory scheme will hurt more than just the PBM industry, it will also increase the prices that consumers and third parties must pay for prescription drugs.

Number of Pages in PDF File: 28

Keywords: prescription drug market, competition, pharmacy benefit managers

JEL Classification: I1

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Date posted: March 8, 2013 ; Last revised: July 3, 2013

Suggested Citation

Shepherd, Joanna, The Fox Guarding the Henhouse: The Regulation of Pharmacy Benefit Managers by a Market Adversary (March 1, 2013). Northwestern Journal of Law and Social Policy, 2013; Emory Legal Studies Research Paper No. 13-244. Available at SSRN: https://ssrn.com/abstract=2229216 or http://dx.doi.org/10.2139/ssrn.2229216

Contact Information

Joanna Shepherd (Contact Author)
Emory University School of Law ( email )
1301 Clifton Road
Atlanta, GA 30322
United States
404-727-8957 (Phone)

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