House Report 110-898 - COMMUNITY PHARMACY FAIRNESS ACT OF 2007

[House Report 110-898]
[From the U.S. Government Publishing Office]

110th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 110-898

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COMMUNITY PHARMACY FAIRNESS ACT OF 2007

_______

September 28, 2008.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed

_______

Mr. Conyers, from the Committee on the Judiciary, submitted the
following

R E P O R T

[To accompany H.R. 971]

[Including cost estimate of the Congressional Budget Office]

The Committee on the Judiciary, to whom was referred the bill
(H.R. 971) to ensure and foster continued patient safety and
quality of care by making the antitrust laws apply to
negotiations between groups of independent pharmacies and
health plans and health insurance issuers (including health
plans under parts C and D of the Medicare Program) in the same
manner as such laws apply to protected activities under the
National Labor Relations Act, having considered the same,
reports favorably thereon with an amendment and recommends that
the bill as amended do pass.

CONTENTS

Page
The Amendment.................................................... 1
Purpose and Summary.............................................. 3
Background and Need for the Legislation.......................... 3
Hearings......................................................... 6
Committee Consideration.......................................... 7
Committee Votes.................................................. 7
Committee Oversight Findings..................................... 7
New Budget Authority and Tax Expenditures........................ 7
Congressional Budget Office Cost Estimate........................ 7
Performance Goals and Objectives................................. 12
Constitutional Authority Statement............................... 12
Advisory on Earmarks............................................. 12
Section-by-Section Analysis...................................... 12

The Amendment

The amendment is as follows:
Strike all after the enacting clause and insert the
following:

SECTION 1. SHORT TITLE.

This Act may be cited as the ``Community Pharmacy Fairness Act of
2007''.

SEC. 2. APPLICATION OF THE ANTITRUST LAWS TO INDEPENDENT PHARMACIES
NEGOTIATING WITH HEALTH PLANS.

(a) In General.--Any independent pharmacies who are engaged in
negotiations with a health plan regarding the terms of any contract
under which the pharmacies provide health care items or services for
which benefits are provided under such plan shall, in connection with
such negotiations, be entitled to the same treatment under the
antitrust laws as the treatment to which bargaining units which are
recognized under the National Labor Relations Act are entitled in
connection with activities described in section 7 of such Act. Such a
pharmacy shall, only in connection with such negotiations, be treated
as an employee engaged in concerted activities and shall not be
regarded as having the status of an employer, independent contractor,
managerial employee, or supervisor.
(b) Protection for Good Faith Actions.--Actions taken in good faith
reliance on subsection (a) shall not be the subject under the antitrust
laws of criminal sanctions nor of any civil damages, fees, or penalties
beyond actual damages incurred.
(c) No Change in National Labor Relations Act.--This section
applies only to independent pharmacies excluded from the National Labor
Relations Act. Nothing in this section shall be construed as changing
or amending any provision of the National Labor Relations Act, or as
affecting the status of any group of persons under that Act.
(d) Effective Date.--The exemption provided in subsection (a) shall
apply to conduct occurring beginning on the date of the enactment of
this Act.
(e) Limitations on Exemption.--Nothing in this section shall exempt
from the application of the antitrust laws any agreement or otherwise
unlawful conspiracy that--
(1) would have the effect of boycotting any independent
pharmacy or group of independent pharmacies, or would exclude,
limit the participation or reimbursement of, or otherwise limit
the scope of services to be provided by, any independent
pharmacy or group of independent pharmacies with respect to the
performance of services that are within the scope of practice
as defined or permitted by relevant law or regulation;
(2) allocates a market among competitors;
(3) unlawfully ties the sale or purchase of one product or
service to the sale or purchase of another product or service;
or
(4) monopolizes or attempts to monopolize a market.
(f) Limitation Based on Market Share of Group.--This section shall
not apply with respect to the negotiations of any group of independent
pharmacies with a health plan regarding the terms of any contract under
which such pharmacies provide health care items or services for which
benefits are provided under such plan in a PDP region (as defined in
subsection (j)(4)) if the number of pharmacy licenses of such
pharmacies within such group in such region exceeds 25 percent of the
total number of pharmacy licenses issued to all retail pharmacies
(including both independent and other pharmacies) in such region.
(g) No Effect on Title VI of Civil Rights Act of 1964.--Nothing in
this section shall be construed to affect the application of title VI
of the Civil Rights Act of 1964.
(h) No Application to Specified Federal Programs.--Nothing in this
section shall apply to negotiations between independent pharmacies and
health plans pertaining to benefits provided under any of the
following:
(1) The Medicaid Program under title XIX of the Social
Security Act (42 U.S.C. 1396 et seq.).
(2) The State Children's Health Insurance Program (SHIP)
under title XXI of the Social Security Act (42 U.S.C. 1397aa et
seq.).
(3) Chapter 55 of title 10, United States Code (relating to
medical and dental care for members of the uniformed services).
(4) Chapter 17 of title 38, United States Code (relating to
Veterans' medical care).
(5) Chapter 89 of title 5, United States Code (relating to
the Federal employees' health benefits program).
(6) The Indian Health Care Improvement Act (25 U.S.C. 1601
et seq.).
(i) Definitions.--For purposes of this section:
(1) Antitrust laws.--The term ``antitrust laws''--
(A) has the meaning given it in subsection (a) of
the first section of the Clayton Act (15 U.S.C. 12(a)),
except that such term includes section 5 of the Federal
Trade Commission Act (15 U.S.C. 45) to the extent such
section 5 applies to unfair methods of competition; and
(B) includes any State law similar to the laws
referred to in subparagraph (A).
(2) Health plan and related terms.--
(A) In general.--The term ``health plan''--
(i) means a group health plan or a health
insurance issuer that is offering health
insurance coverage;
(ii) includes any entity that contracts
with such a plan or issuer for the
administering of services under the plan or
coverage; and
(iii) includes a prescription drug plan
offered under part D of title XVIII of the
Social Security Act and a Medicare Advantage
plan offered under part C of such title.
(B) Health insurance coverage; health insurance
issuer.--The terms ``health insurance coverage'' and
``health insurance issuer'' have the meanings given
such terms under paragraphs (1) and (2), respectively,
of section 733(b) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1191b(b)).
(C) Group health plan.--The term ``group health
plan'' has the meaning given that term in section
733(a)(1) of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1191b(a)(1)).
(3) Independent pharmacy.--The term ``independent
pharmacy'' means a pharmacy that has a market share of--
(A) less than 10 percent in any PDP region; and
(B) less than 1 percent in the United States.
For purposes of the preceding sentence, all pharmacies that are
members of the same controlled group of corporations (within
the meaning of section 267(f) of the Internal Revenue Code of
1986) and all pharmacies under common control (within the
meaning of section 52(b) of such Code but determined by
treating an interest of more than 50 percent as a controlling
interest) shall be treated as 1 pharmacy.
(4) PDP region.--The term ``PDP region'' has the meaning
given such term in section 1860D-11(a)(2) of the Social
Security Act (42 U.S.C. 1395w-111(a)(2)).
(j) 5-Year Sunset.--The exemption provided in subsection (a) shall
only apply to conduct occurring during the 5-year period beginning on
the date of the enactment of this Act and shall continue to apply for 1
year after the end of such period to contracts entered into before the
end of such period.
(k) General Accounting Office Study and Report.--The Comptroller
General of the United States shall conduct a study on the impact of
enactment of this section during the 6-month period beginning with the
5th year of the 5-year period described in subsection (j). Not later
than the end of such 6-month period, the Comptroller General shall
submit to Congress a report on such study and shall include in the
report such recommendations on the extension of this section (and
changes that should be made in making such extension) as the
Comptroller General deems appropriate.
(l) Oversight.--Nothing in this section shall preclude the Federal
Trade Commission or the Department of Justice from overseeing the
conduct of independent pharmacies covered under this section.

Purpose and Summary

H.R. 971 allows independent pharmacists to negotiate
collectively on the terms and conditions of their reimbursement
from Pharmacy Benefit Managers (PBMs). It does this by granting
groups of pharmacists a waiver from Federal antitrust laws and
treats them as employees, able to bargain collectively, under
the National Labor Relations Act. This exemption will allow
small pharmacies to compete with large retail pharmacies, and
will allow them to negotiate better reimbursement rates and
terms.

Background and Need for the Legislation

Pharmaceutical care is one of the most important parts of
the entire health care system. Pharmacies serve as the
interface between consumers and their medications. Independent
pharmacies provide necessary and important services to patients
all over the country, but they are struggling to find ways to
compete and make a profit in today's marketplace.
Independent pharmacies report that they cannot compete
effectively with massive pharmacy chains. While the chains can
negotiate profitable reimbursement rates with Pharmacy Benefit
Managers (PBMs) for prescription drugs, the independent
pharmacies have no leverage over the PBMs and are often left
with ``take-it-or-leave-it'' offers. They also report that the
lag-time between dispensing the drug and receiving the payment
can upend their business' fiscal solvency. The pharmacies must
make difficult financial decisions in order to remain open,
sometimes taking on debt or limiting their services. In
communities dominated by particular insurers (if, for example,
more than half of a pharmacy's patrons have insurance through
their work at a local factory), the independent pharmacies can
have little choice but to accept the PBMs' negotiated payment
offers without question.
This legislation will allow independent pharmacies to
collectively bargain so that they can negotiate with the
insurance companies on the reimbursement rates and terms. H.R.
971 allows pharmacies negotiating contracts with health
insurers to receive the same treatment under the antitrust laws
as bargaining units recognized under the National Labor
Relations Act (NLRA). This would permit pharmacies to be
considered employees under the NLRA for purposes of the Act and
not subject to treble damages under the antitrust laws. The Act
defines independent pharmacies as those that are neither owned
nor operated by a publically traded company.\1\
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\1\Duane Reade, Inc provides one well-known example of such a
pharmacy.
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How the system works
Pharmacies purchase their pharmaceutical products from drug
wholesalers and manufacturers. The pharmacies purchase the
pharmaceutical at a price known as the wholesale acquisition
cost (or WAC). The pharmacy sells the medication to consumers,
and when the consumer is the beneficiary of a prescription drug
plan, the pharmacy receives funds from the consumer in the form
of a co-payment, and from a Pharmacy Benefit Manager (PBM) in
the form of a reimbursement. The reimbursement price, or the
``negotiated payment,'' constitutes the drug's average
wholesale price (or AWP) less the discount that the PBM will
offer on the particular drug (and plus, usually, an
administrative fee for the process). A PBM might reimburse a
pharmacy with a rate, for example, of negotiated payment = [AWP
- 15%] + $2. This transaction, however, can become protracted
over several months as funds flow from the health insurer (be
it the Federal Government or a private insurance company) to
the PBM and then to the pharmacy.
What are Pharmacy Benefit Managers?
Pharmacy Benefit Managers (PBMs) are the middlemen that
administer the prescription drug benefit portion of health
insurance plans for private companies, unions, and governments.
PBMs are responsible for processing and paying prescription
drug claims, for developing formularies,\2\ contracting with
pharmacies, and negotiating discounts and rebates with drug
manufacturers.\3\ PBMs manage 95% of all prescriptions sold in
the United States.
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\2\Formularies are drug lists that PBMs develop and use to manage
drug spending. By charging less for certain brands of drugs, PBM
formularies steer health care consumers and their physicians into using
particular drugs for particular therapeutic needs. The consumer pays a
higher co-pay (and the health plan pays the PBM more) for drugs that
are not in the ``preferred'' category on the PBM's formulary. The
health plan may provide no coverage for drugs that are not on the list.
\3\Because of their large purchasing pool for prescription drugs,
PBMs can negotiate rebates and discounts on behalf of their clients.
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PBMs operate on different business models. Most implement
``spread pricing,'' where PBMs execute contracts with their
clients (employers) that allow the PBMs to purchase drugs at
lower prices but to invoice the clients at higher prices, thus
profiting from a ``spread'' in the pricing. Another business
model is the ``pass through'' model, where PBMs execute
contracts that require the PBMs to pass through to the clients
the precise purchase or reimbursement cost. In this situation,
PBMs generate profits by charging a flat, per claim or per
member, administrative fee.
Concerns about PBM Business Practices
PBMs do not sell drugs directly to pharmacies, but their
monolithic role in negotiating with HMOs (Health Maintenance
Organizations), employers, unions, preferred providers,
pharmaceutical companies, and their own mail-order companies
has raised several questions about the transparency and
openness of the pharmaceutical marketplace. PBMs also operate
mail-order pharmacies, and due to the companies' involvement in
price and formulary negotiations, concerns have also arisen
over drug-price inflation and anti-competitive drug
distribution schemes.
Several calculations and actors come into play in valuing a
pharmaceutical product's average wholesale price, or AWP, as
the amount is set by both the drug manufacturer/labeler and
wholesalers. Because the AWP is neither standard nor immune to
market fluctuations, drug pricing becomes vulnerable to
potential manipulation on several fronts by the PBMs. One
possible source for manipulation comes from their mail-order
pharmacies, as PBMs can effect the market value of a drug when
they become involved in the marketing of drugs. Through the
course of their mail-order operations, PBMs can obtain
``repackager'' licensing from the Food and Drug Administration.
Repackaging licenses allow an entity to repackage drugs (when a
licensee purchases10,000 tablets from a manufacturer, for
example, they can redistribute the order among 50-tablet
bottles), and the repackaged product's price will contribute to
the drug's overall AWP. If a PBM artifically inflates an AWP
through its repackaging and pricing practices, it can then
increase its market share by offering artificially large
discounts on the inflated drug price.
The PBMs can further increase their market share by
compelling consumers to use their mail-order service by way of
their relationships with managed care providers. In negotiating
their contracts, PBMs can develop co-pay plans with insurers
under which consumers pay a lower co-pay for prescriptions when
they use the PBMs' mail-order services versus filling
prescriptions at a community pharmacy.
In addition to unease over PBMs' alleged mail-order and
price-bargaining practices, significant concerns have surfaced
over PBMs' role in the management of drug formularies.
Formularies, in essence, consist of lists that outline and set
drug spending patterns. When a PBM develops its formulary--or
its ``menu'' of drug prices--and charges less for a particular
product, the PBM naturally guides consumers and physicians to
purchase particular products. The health plan managing the
prescription benefit, in turn, uses its PBM's formulary to
create ``preferred'' lists of drug therapies, and can levy
higher co-pays on or deny coverage to consumers for drugs that
to do not appear on these lists.
It is argued that control over formularies endows PBMs with
considerable influence over pharmaceutical companies. Drug
manufacturers seek to secure favorable placements on the PBMs'
formularies, for a favorable placement can determine a
product's commercial success. Manufacturers compete with each
other through a combination of rebates and administrative fee
structures.
Need for the Legislation
Supporters of H.R. 971 expect that allowing pharmacists to
bargain collectively will enable the newly formed alliances to
more equitably compete with national chains and mail-order
pharmacies. Because the purchase power of an independent
community pharmacy pales in comparison to that of a chain
pharmacy, the independent community pharmacies are often forced
to accept the rates that a PBM offers, with no negotiation. If,
for example, over half of a pharmacy's patrons have their
prescription coverage administered by one PBM, the pharmacy is
left with little choice but to accept the contract that the PBM
offers.
With an antitrust exemption to negotiate collectively,
independent pharmacies could pool their combined purchasing
power to negotiate lower drug purchasing plans with the PBMs.
Because PBMs would broker with a wider range of pharmacies, the
marketplace would become more competitive and pro-consumer.
Independent pharmacists believe their situation is quite
different from a normal competitive marketplace: here, small
independent businesses must compete directly with much larger
companies at the retail level, with all retailers reimbursed by
a few large middlemen instead of the consumer.
Of further concern is that one of the largest retail
competitors (CVS) also owns one of the largest PBMs (Caremark).
The vertical nature of this arrangement within the market
creates concern at several layers of the industry. There is
great concern that a single, dominant corporation has an
exclusive role in determining a drug formulary, the AWP for
those drugs in the greater market, and the delivery of those
drugs to consumers.

Hearings

The Committee on the Judiciary, Antitrust Task Force held
one hearing on the ``Impact of Our Antitrust Laws on Community
Pharmacies and Their Patients'' on October 18, 2007. Testimony
was received from Mr. Mike James, President, Association of
Community Pharmacies Congressional Network, and Pharmacist and
Owner, Person Street Pharmacy, Raleigh, NC; Dr. Peter J.
Rankin, Principal, CRA International; Mr. David Wales, Deputy
Director, Bureau of Competition, Federal Trade Commission; Mr.
David Balto, on behalf of the National Community Pharmacists
Association; and Mr. Robert Dozier, Executive Director,
Mississippi Independent Pharmacies Association.

Committee Consideration

On November 7, 2007 Committee met in open session and
ordered the bill H.R. 971 favorably reported with an amendment,
by voice vote, a quorum being present.

Committee Votes

In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that there
were no recorded votes during the Committee's consideration of
H.R. 971.

Committee Oversight Findings

In compliance with clause 3(c)(1) of rule XIII of the Rules
of the House of Representatives, the Committee advises that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.

New Budget Authority and Tax Expenditures

Clause 3(c)(2) of rule XIII of the Rules of the House of
Representatives is inapplicable because this legislation does
not provide new budgetary authority or increased tax
expenditures.

Congressional Budget Office Cost Estimate

In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, the Committee sets forth, with
respect to the bill, H.R. 971, the following estimate and
comparison prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act of
1974:

U.S. Congress,
Congressional Budget Office,
Washington, DC, September 26, 2008.
Hon. John Conyers, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 971, the Community
Pharmacy Fairness Act of 2007. This estimate updates and
supersedes a previous CBO cost estimate transmitted on January
11, 2008. The updated estimate reflects changes in baseline
projections (underlying the current budget resolution), and
results in an estimated 10-year deficit impact that is $87
million lower than estimated under CBO's previous baseline.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Andrea Noda,
who can be reached at 226-9010.
Sincerely,
Peter R. Orszag,
Director.

Enclosure

cc:
Honorable Lamar S. Smith.
Ranking Member
H.R. 971--Community Pharmacy Fairness Act of 2007.

SUMMARY

H.R. 971 would create an exemption to antitrust laws for
five years to permit independent pharmacies to negotiate
collectively with health plans and issuers of health insurance
over payment rates and other contract terms. That exemption
would apply to negotiations between independent pharmacies and
operators of prescription drug plans offered under part D of
Medicare. However, the exemption would not apply to most other
Federal health insurance programs.
Enacting the bill would affect Federal revenues and direct
spending for Medicare Part D, Medicaid, and the Federal
Employees Health Benefits (FEHB) program, beginning in 2009.
CBO estimates that enacting the bill would reduce Federal tax
revenues by $105 million over the 2008-2013 period and by $120
million over the 2008-2018 period. Social Security payroll
taxes, which are off-budget, would account for about a third of
those totals.
CBO estimates that enacting the bill would increase Federal
direct spending for health benefits by $488 million over the
2008-2013 period and by $520 million over the 2008-2018 period.
The combined effect of the estimated changes in revenues and
direct spending would reduce surpluses or increase deficits by
$640 million over the 2008-2018 period.
In addition, CBO estimates that enacting the bill would
increase discretionary spending by Federal agencies for FEHB
premiums for current employees by $9 million over the 2009-2013
period, assuming appropriation of the necessary amounts.
H.R. 971 contains an intergovernmental mandate as defined
in the Unfunded Mandates Reform Act (UMRA) because it would
preempt State antitrust laws. CBO estimates that because the
preemption would only limit the application of State law, the
mandate would impose no costs on State, local, or tribal
governments.
As a result of this legislation, some State, local, and
tribal governments would incur higher expenses as purchasers of
health care for their employees and as providers of health care
under Medicaid. However, those costs would not result from
intergovernmental mandates.
This bill contains no private-sector mandates as defined by
UMRA.

ESTIMATED COST TO THE FEDERAL GOVERNMENT

The estimated budgetary impact of H.R. 971 is shown in the
following table. The costs of this legislation fall within
budget functions 550 (health) and 570 (Medicare).

BASIS OF ESTIMATE

H.R. 971 would allow independent pharmacies to negotiate
collectively with health plans and issuers of health insurance
over payment rates and other contract terms. Under the bill,
such negotiations would be entitled to the same treatment under
the antitrust laws as the treatment to which bargaining units
that are recognized under the National Labor Relations Act are
entitled. To qualify for the exemption, the pharmacies
participating in a collective negotiation could not constitute
more than 1 percent of the U.S. market or 10 percent of the
market in a region (as defined by the Medicare Part D program).
That exemption from the antitrust laws, however, would not
apply to negotiations between independent pharmacies and health
plans pertaining to most Federal health insurance benefits,
with the exception of prescription drug plans offered under
part D of Medicare. The exemption from antitrust law for
independent pharmacies would be effective for five years
beginning on the date of the enactment of this bill.

ESTIMATED BUDGETARY EFFECTS OF H.R. 971
--------------------------------------------------------------------------------------------------------------------------------------------------------
By Fiscal Year, in Millions of Dollars
----------------------------------------------------------------------------------------------------
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2008- 2013 2008- 2018
--------------------------------------------------------------------------------------------------------------------------------------------------------

CHANGES IN REVENUES
Income and HI Payroll Taxes (on-budget)............ 0 -5 -10 -15 -20 -20 -10 0 0 0 0 -70 -80

Social Security Payroll Taxes (off-budget)......... 0 0 -5 -10 -10 -10 -5 0 0 0 0 -35 -40

Total Changes.................................. 0 -5 -15 -25 -30 -30 -15 0 0 0 0 -105 -120

CHANGES IN DIRECT SPENDING
Medicare...........................................
Estimated Budget Authority....................... 0 20 70 120 110 140 30 0 0 0 0 460 490
Estimated Outlays................................ 0 20 70 120 110 140 30 0 0 0 0 460 490

Other Federal Programs.............................
Estimated Budget Authority....................... 0 1 4 7 8 9 2 0 0 0 0 28 30

Estimated Outlays................................ 0 1 4 7 8 9 2 0 0 0 0 28 30

Total Changes......................................
Estimated Budget Authority....................... 0 21 74 127 118 149 32 0 0 0 0 488 520
Estimated Outlays................................ 0 21 74 127 118 149 32 0 0 0 0 488 520
NET IMPACT ON THE FEDERAL BUDGET
Estimated Increase in Deficits or Decrease in 0 26 89 152 148 179 47 0 0 0 0 593 640
Surpluses.........................................
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Notes: HI = Hospital Insurance (Part A of Medicare).
Implementing H.R. 971 would increase discretionary spending by Federal agencies for health insurance premiums for current employees enrolled in the
Federal Employees Health Benefits program by an estimated $9 million over the 2009-2013 and $17 million over the 2009-2018 periods, assuming
appropriation of the necessary amounts.

REVENUES

CBO estimates that H.R. 971, if enacted, would increase
payments for prescription drugs distributed by independent
pharmacies by about 1 percent in 2010, when the majority of the
contracts affected by the policy would have been renegotiated.
CBO's estimate is based in part on data gathered through
interviews with industry experts and representatives of the
pharmacy and health plan industries. CBO's analysis took into
account both the market shares of independent pharmacies and
the desire of health plans to establish an attractive network
of retail pharmacies or to meet adequacy-of-network
requirements. CBO also took into account the duration of
typical contracts in estimating the effects of the bill.
The increased cost to plans for prescription drugs would
increase premiums for group health insurance by less than 0.1
percent in 2010, before accounting for the responses of health
plans, employers, and workers to the higher premiums that would
likely be charged under the bill. Those responses would include
reductions in the scope or generosity of health insurance
benefits, such as increased deductibles or higher copayments.
CBO expects that those behavioral responses would offset 60
percent of the potential impact of the bill on the total costs
of health plans.
The remaining 40 percent of the potential increase in costs
would occur in the form of higher spending for health
insurance. Those costs would be passed through to workers,
reducing both their taxable compensation and other fringe
benefits. For employees of private firms, CBO assumed that all
of that increase would ultimately be passed through to workers.
The estimate assumes that State, local, and tribal governments
would absorb 75 percent of the increase and that changes in
their workers' taxable income and other fringe benefits would
offset the remaining one-quarter of the increase.
Those reductions in workers' taxable compensation would
lead to lower Federal tax revenues. CBO estimates that Federal
tax revenues would fall by $5 million in 2009 and by $120
million over the 2008-2018 period if H.R. 971 were enacted.
Social Security payroll taxes, which are off-budget, would
account for about one-third of those totals.
Direct Spending
H.R. 971 would affect negotiations between independent
pharmacies and health plans that provide prescription drug
benefits under Part D of Medicare. CBO estimates that the bill,
if enacted, would increase payments for prescription drugs
distributed by independent pharmacies by about 1 percent by
2010, and would therefore increase Federal direct spending for
Part D of Medicare by $460 million over the 2008-2013 period
and by $490 million over the 2008-2018 period.
The bill would maintain antitrust liability for independent
pharmacies in negotiations with health plans that provide
prescription drug benefits for certain other Federal health
programs, such as Medicaid and the FEHB program. However, to
take advantage of that limitation on the ability of independent
pharmacies to bargain collectively, health plans would have to
conduct separate negotiations for their Medicaid or FEHB
populations and for their commercial business. CBO anticipates
that some plans would choose not to conduct such separate
negotiations because that could reduce their leverage for
obtaining discounts. CBO expects that the effect on Medicaid
and FEHB of enacting H.R. 971 would be about one-quarter of the
effect in the private sector. As a result, CBO estimates that
enacting H.R. 971 would increase Federal spending for Medicaid
and the FEHB program by $28 million over the 2008-2013 period
and $30 million over the 2008-2018 period.\1\
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\1\Only the government's share of premiums for Federal retirees
enrolled the FEHB program is classified as direct spending. CBO
estimates that implementing H.R. 971 would also increase discretionary
spending by Federal agencies for FEHB premium payments for current
employees by $9 million over the 2009-2013 and $17 million over the
2009-2018 periods. (Federal spending for active workers participating
in the FEHB program is included in the appropriations for Federal
agencies, and therefore is discretionary.)
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INTERGOVERNMENTAL AND PRIVATE-SECTOR IMPACT

Intergovernmental Mandates
H.R. 971 contains an intergovernmental mandate, but CBO
estimates that the mandate would impose no costs on State,
local, or tribal governments. By exempting certain pharmacies
from State antitrust laws, the bill would preempt State law,
and that preemption would be a mandate as defined in UMRA.
However, the bill would not require States to take action as
regulators in order to comply with the new exemption, and in
some cases it might reduce their oversight responsibilities.
Other Impacts
With certain pharmacies exempted from antitrust laws,
State, local, and tribal governments would experience an
increase in premiums for health insurance for their employees.
CBO estimates that those governments would face additional
costs of about $20 million over the 2008-2013 period. This
estimate reflects the assumption that governments would shift
roughly 25 percent of the additional costs to their employees.
The bill would maintain antitrust liability for pharmacies
that provide services for Federal health benefit programs,
including Medicaid. However, those programs would not be
completely shielded from the market changes precipitated by the
bill. Consequently, CBO estimates that State expenditures for
Medicaid would increase by about $15 million over the 2008-2013
period.
H.R. 971 contains no private-sector mandates as defined by
UMRA.

PREVIOUS CBO ESTIMATE

On January 11, 2008, CBO transmitted a cost estimate of
H.R. 971 as ordered reported by the House Judiciary Committee
on November 7, 2007. The legislative language has not changed.
CBO's estimate has been updated to reflect the March 2008
baseline assumptions that underly the current budget
resolution. Under the updated baseline, we estimate the net
deficit impact of the bill would be $87 million lower over the
2008-2018 period than previously estimated. The decrease is a
result of lower projected Part D spending over that period.

ESTIMATE PREPARED BY:

Federal Costs: Andrea Noda and Julia Christensen (226-9010)
Impact on State, Local, and Tribal Governments: Lisa Ramirez-
Branum (225-3220)
Impact on the Private Sector: Anna Cook and Patrick Bernhardt
(226-2666)

ESTIMATE APPROVED BY:

Peter H. Fontaine
Assistant Director for Budget Analysis

Performance Goals and Objectives

The Committee states that pursuant to clause 3(c)(4) of
rule XIII of the Rules of the House of Representatives, H.R.
971 allow independent pharmacies to collectively negotiate
terms and conditions of their PBM reimbursement.

Constitutional Authority Statement

Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds the authority for
this legislation in article I, section 8, clause 3 of the
Constitution.

Advisory on Earmarks

In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 971 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as defined in clause 9(d), 9(e), or 9(f) of Rule XXI.

Section-by-Section Analysis

The following discussion describes the bill as reported by
the Committee.
Sec. 1. Short title. Section 1 sets forth the short title
of the bill as the ``Community Pharmacy Fairness Act of 2007.''
Sec. 2. Application of the Antitrust Laws to Independent
Pharmacies Negotiating with Health Plans. Section 2(a) entitles
independent pharmacies to the same antitrust law treatment as
bargaining units recognized under Section 7 of the National
Labor Relations Act (NRLA). Independent pharmacies would have
the right to act specifically as ``an employee'' under the
NRLA. Section 2(b) guarantees that pharmacies acting in good
faith reliance on subsection (a) would only be subject to
actual damages and would not be subject to criminal sanctions.
Section 2(c) specifies that this section does not affect any
provision of the National Labor Relations Act or the status of
any group of persons under that Act. Section 2(d) states that
subsection (a) becomes effective on the date of enactment.
Section 2(e) prohibits any other agreement or unlawful
conspiracy that: (1) would have the effect of boycotting any
independent pharmacy or group of pharmacies; (2) allocates a
market among competitors; (3) unlawfully ties the sale or
purchase of one product or service to the sale or purchase of
another product or service; or (4) monopolizes or attempts to
monopolize a market. Section 2(f) limits the negotiating groups
to no more than 25% of the number of licensed, retail
pharmacies within a Medicare Part D Prescription Drug Plan
region. Section 2(g) states that this act does not affect the
application of title VI of the Civil Rights Act of 1964.
Section 2(h) states that the act does not apply to negotiations
between independent pharmacies and health plans pertaining to
benefits under various other Federal programs, such as
Medicaid, SCHIP and others. Section 2(i) provides definitions
for ``antitrust laws,'' ``health plan,'' ``health insurance
coverage,'' ``health insurance issuer,'' ``group health plan,''
``independent pharmacy,'' and ``PDP region.'' Section 2(j)
provides for a 5 year sunset of the antitrust exemption.
Section 2(k) provides for a GAO study on the impact of
enactment of this section during the 6 month period beginning
with the 5th year of the 5 year period. The Comptroller General
must provide a report to Congress on the study and include
recommendations on the extension of this section. Section 2(l)
states that this section does not preclude the FTC or DOJ from
overseeing the conduct of independent pharmacies covered under
this section.