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JUSTICE DEPARTMENT DENIES PMA REQUEST FOR ANTITRUST CLEARANCE FOR INDUSTRY-WIDE PRICE RESTRAINT PROGRAM OCT. 1; PMA NOTES PRICE "MODERATION" WITHOUT PLAN

Executive Summary

The voluntary price restraint program suggested by the Pharmaceutical Manufacturers Association "is not an acceptable alternative under the antitrust laws to governmental policies regulating economic activity," the Justice Department declared in an Oct. 1 letter denying PMA's request for an antitrust exemption. PMA's pre-emptive approach trying to establish its own price control mechanism to ward off potential government action violates basic Sherman Act antitrust provisions and is premature since "there is no certainty that, in the absence of PMA's program, mandatory price controls would be adopted," Justice argues. "After careful consideration" of the PMA proposal, Justice "believes that the proposed program would violate the antitrust laws," the department's Assistant Attorney General for Antitrust Anne Bingaman wrote to PMA Washington counsel John Ferguson (Swidler & Berlin). "An agreement among independent competitors that interferes with free and open price competition by restraining individual pricing decisions is a per se violation of the Sherman Act," the letter states. In addition, the Supreme Court has "made clear that agreements that set maximum prices are as equally illegal as agreements that set minimum prices" because "maximum price-fixing agreements create the risk that the maximum prices will be come minimum or uniform prices," Bingaman said. PMA requested the "business review letter" on March 12. Under the plan, the association would have collected price data from each company in a standardized format and referred it to HHS for review ("The Pink Sheet" March 15, p. 4). PMA would have used an independent accounting firm to establish the means for calculating the weighted average of changes in net drug prices. Senate Judiciary/Antitrust Subcommittee Chairman Metzenbaum (D-Ohio) and Sen. Pryor (D-Ark.) have criticized the proposal. While the proposed voluntary plan gave PMA an alternative to point to during the rhetorical war over drug prices at the beginning of the Clinton Administration, it failed to keep the debate centered on that question. In the six months from PMA's original proposal of the voluntary restraint program, the issue of pharmaceutical pricing has migrated from concern over the rate of price increases on existing products to increased attention to the introductory prices of new products. The most serious current political threats to the industry appear to be the suggestions in the Clinton health plan to allow the National Health Board the authority to review breakthrough product introductions as to the reasonableness of the pricing and to permit HHS to deny Medicare coverage to products with excessive prices. In an Oct. 1 response to the Justice decision, PMA noted that the issue of inflation on existing products has been muted. The association pointed out that drug price increases have continued to drop since it requested the waiver to an annualized rate of "less than 4% today." Three reasons for the "moderation" include individual price restraint pledges by "17 major" member companies whose sales "account for two-thirds of the U.S. prescription drug market"; the "explosive growth of managed care"; and increased generic drug use. The assistant deputy for antitrust "was indeed correct when she said that price competition in the pharmaceutical industry has been increasing rapidly and is expected to increase further as managed care assumes a larger role in providing health care," PMA commented. Because PMA's proposal would have limited "individual pricing decisions on its face," it would, in the words of the Supreme Court, "cripple the freedom of traders and restrain their ability to sell in accordance with their own judgment," Justice said. Also illegal is PMA's proposal for competitors to agree on the definitions of "new drug" and "the methodology to be used in calculating the average weighted price increases each year." Noting that individual companies are free to and have adopted "unilateral policies" to restrain price increases, Bingaman emphasized that "nothing in this letter should be construed as a statement with respect to unilateral action by individual members of PMA or others to control price increases in the future." PMA's business review letter request technically was an inquiry into the Justice Department's enforcement intentions regarding" the association's proposal for industry-wide price restraint. Bingaman's response states that "the department currently intends to bring suit to challenge the program if PMA and its members go forward with this proposal."
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