AGO 1989-074.

• Case Date: June 14, 1989
• Court: Kansas

Kansas Attorney General Opinions 1989. AGO 1989-074. June 14, 1989ATTORNEY GENERAL OPINION NO. 89-74Winston Barton Secretary Social and Rehabilitation Services Docking State Office Bldg. 6th Floor Topeka, Kansas 66612 Re: Commerce and Trade--Monopolies and Combinations in Restraint of Trade--Discrimination in Price; Discrimination; State Drug Bidding Program; Participation by Other States Monopolies and Unfair Trade--Restraint of Trade; General Provisions--Unfair Trade Synopsis: Although the proposed drug bid program raises serious antitrust questions, it is our opinion that it does not represent a per se violation of antitrust laws. Under a rule of reason analysis the proposed bid program may survive an antitrust challenge. The proposed program should be conducted in a manner that renders the market more, rather than less, competitive and does not allow one manufacturer to unlawfully possess market power to the exclusion of its competitors. Cited herein: 15 U.S.C. § 1-27. * * * Dear Secretary Barton: You request our opinion concerning a proposed pharmaceutical bid program and extension of that bid program to other states wishing to participate. You specifically ask whether the bid process and the extension of the process to other states violates antitrust laws. Pursuant to conversations with and correspondence from the Department of Social and Rehabilitation Services (SRS) and its legal staff, we understand that the bid process works as follows: SRS solicits and accepts separate bids on each of certain specific drugs from any and all manufacturers of that drug; each drug is separately bid; bids will be accepted on the generic equivalent as well as the therapeutic version of each drug; the manufacturer who submits the winning bid on each drug will become the only manufacturer of that drug that SRS will reimburse (when that manufacturer's brand of the drug is used by Medicaid/MediKan recipients); only one manufacturer for each type of drug will be so designated and SRS will not reimburse for brands of the same drug manufactured by unsuccessful bidders; when a participating provider-pharmacist dispenses the designated drug to a Medicaid/MediKan recipient, that Medicaid/MediKan recipient must pay a flat co-payment fee to the pharmacist; the provider-pharmacist then submits a claim to SRS; SRS reimburses the participating provider-pharmacist for the costs of the designated drug that the co-payment fee did not cover; SRS then takes all the claims it has received from participating provider-pharmacists and submits those claims and amounts to the bid winner for each drug; the winning drug manufacturer then gives a rebate to SRS for the difference between the amount SRS paid to the provider-pharmacist and the amount of the winning bid price. For example: (1) the winning bid is accepted from a manufacturer at $1.00 per unit for drug Z; (2) drug Z is sold by the manufacturer to a participating provider-pharmacist for $2.50 per unit; (3) a Medicaid/MediKan recipient buys drug Z from that participating provider-pharmacist, who charges a retail price for the drug of $5.00 per unit; (4) the Medicaid/MediKan patient pays the required flat fee co-payment of .50 cents per unit; (5) the participating provider-pharmacist submits a claim for the unpaid cost of the drug, $4.50 or $2.00 (dependent upon whether SRS reimburses wholesale or retail costs); (6) SRS submits a claim to the winning manufacturer for the difference between the provider-pharmacist claim ($4.50 or $2.00) and the winning bid ($1.00), $3.50 or $1.00. The amount paid from the winning manufacturer to the state is characterized as a rebate. The rebate paid to SRS from the winning bid manufacturer will be paid to the state general fund. SRS believes this bid program will result in cost containment for the state and has used this drug bid procedure for almost two years. Approximately 95% of all Kansas pharmacies participate in supplying drugs to Medicaid/MediKan recipients. Certain unavailable information may have a significant impact upon the permissibility of the proposed bid program: details concerning geographic market; the relevant market share and market power; the intentions of the participating states or other entities; the exact nature of the interstate cooperation agreement; each participating state's enabling legislation; and the length of time the bid and the interstate agreement will be in effect. As we do not have specific information concerning these and other possible fact issues, this opinion is general in nature and is limited to a discussion of antitrust principles as they apply to the facts currently before us. It is hoped that the discussion contained herein will provide guidance and allow SRS to conduct the bid program procedure in accordance with and mindful of antitrust principles. You state that the details and terms of a multi-state program have not been established. Because many states are interested in participating and because the successful bid winner's brand could become the only brand that states will reimburse Medicaid recipients for, the successful bid winner could significantly increase or assure itself of a large market for each drug. The geographic market, market share and relevant market for each successful bidder cannot be ascertained at this point. Nevertheless, it is obvious that should a significant number of states participate nonsuccessful bidders could potentially lose or be precluded from obtaining a significant amount of business. Nonsuccessful bidders would be able to sell their product to...