CONSAD Research Corporation

Health Care

ECONOMIC IMPACTS OF RHODE ISLAND'S PROPOSED PHARMACY FREEDOM-OF-CHOICE LEGISLATION

Walgreen Company

Legislation proposed in Rhode Island provided that all people covered by health insurance policies or employee benefit plans in the state should be free to obtain prescription drugs or other pharmaceutical services from the pharmacies or pharmacists of their choice. The proposed legislation therefore declared that any pharmacy that was not in an established pharmacy network would be permitted to enter the network if it accepted the network's contractual reimbursement arrangements. In this assignment, CONSAD prepared and presented written and oral testimony analyzing the probable economic impacts of the proposed legislation.

The analysis included, first, a critical technical review of several existing cost studies that had been cited in opposition to the proposed legislation. The review demonstrated that the studies were seriously outdated in relation to the current structure and operation of the pharmacy business and the use of information technology in community pharmacies.

The analysis then evaluated the likely impacts of enacting pharmacy freedom-of choice. The results from the analysis indicated that the increased competition stimulated by pharmacy freedom-of choice would reduce prescription drug prices in both the short term and the long term. In addition, because of the proliferation of electronic transaction processing and claims adjudication software throughout the pharmacy industry, network administration costs would increase negligibly, and the amounts of rebates collected from pharmaceutical manufacturers for shifting purchases of prescribed medications toward their products would not decline. Finally, any termination of the provision of pharmacy benefits in Medicare health maintenance organizations (HMOs) would be attributable to inadequate federal reimbursement, and not to pharmacy freedom-of-choice.