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PMA’s VOLUNTARY PRICE LIMIT AGREEMENT WOULD PERMIT PRICE- SHIFTING

Executive Summary

PMA's VOLUNTARY PRICE LIMIT AGREEMENT WOULD PERMIT PRICE- SHIFTING and the increase of prices to certain customer classes above the target CPI level, Sen. Metzenbaum (D-Ohio) alleged at a March 23 Senate Judiciary/Antitrust Subcommittee hearing. Metzenbaum criticized the price restraint agreement suggested by the Pharmaceutical Manufacturer's Association for not addressing the issue of price increases to the private-pay retail customer. Under the PMA's proposed agreement, Metzenbaum declared: "Drug makers will reduce the price for a big buyer, like an HMO, while they boost it for an individual consumer who buys through a local pharmacy." Or else, Metzenbaum continued "they will reduce the price on competitive drugs, like aspirin, while they boost it for a lifesaving drug, like AZT." At a meeting with financial analysts March 25, Burroughs Wellcome USA President Philip Tracy pointed out that AZT (Retrovir) has declined substantially in price since launch. The firm has reduced the list price by 20% on two occasions, he said. Coupled with dose reductions, the "effective price" of AZT has declined 70% since launch, Tracy said. Turning up the rhetoric, Metzenbaum called the PMA proposal "a farce" and "an effort to flim-flam the American public into believing that pharmaceutical manufacturers are prepared to hold down prices." The hearing was convened to consider the role of antitrust laws in health care reform and to review the need for antitrust exemptions for doctors, hospitals and drug makers. In addition to PMA, witnesses appeared from the American Hospital Association, the American Medical Association, and the American Association of Retired Persons. Sen. William Cohen (R- Maine) and Federal Trade Commission Chairman Janet Steiger also presented testimony. The object of Metzenbaum's attach was the March 12 letter from PMA to Acting Assistant Attorney General John Clark of the Justice Department's Antitrust Division, requesting a "business review letter" to grant permission for the companies to act as a group in establishing a program for industry-wide price restraints ("The Pink Sheet" March 15, p. 4). PMA emphasized that it was not seeking clearance to exchange prices or price-related information among competitors and that member companies "will remain free to set their own prices on individual drugs" because the agreement would apply only to a company's entire line of products. PMA Senior VP Bruce Brennan defended the across-the-board nature of the price-restraints, arguing that there would "not be very many patients in the marketplace" who would experience price increases "much above the CPI." Brennan emphasized PMA's support for "the early enactment of managed competition and the inclusion of a standard drug benefit package." The suggestion for an across-the- board limitation on price increases, Brennan told the subcommittee, is intended "in the interim only" and will "have a significant impact immediately for a whole range of consumers." PMA feels that an agreement among manufacturers regarding price restraints is necessary in order to provide an enforcement mechanism as well as to establish agreement on basic issues, such as the method of calculating drug prices. In response to Metzenbaum's challenge to show "good faith" by modifying the proposal to agree to restrict individual drug prices, Brennan contended that, "that's essentially a price-fixing scheme." In her testimony before the subcommittee, FTC Chairman Steiger defended the role of antitrust enforcement and free-market competition in the health care market. She emphasized that current antitrust guidelines recognize pro-competitive collaboration and are "flexible enough" to accommodate health care reform. "Such antitrust action," Steiger argued, has preserved the availability of medical alternatives. AMA's House of Delegates Vice Speaker Richard Corlin, MD, told the subcommittee that antitrust law must be re-examined to permit physicians to negotiate with managed care plans without the threat of civil or criminal antitrust action. Corlin said the association "recommends enactment of legislative initiatives to provide clarification of the antitrust laws so that physicians are able to participate in the" evolving health care system. AHA General Counsel and Senior VP Fedrick Entin testified that antitrust laws should be flexible so that hospital networks can be formed. Hospital collaboration will eliminate excess capacity and duplication of equipment, Entin said.

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