Predatory Pricing - Collusion Between Insurers and Drug Companies

Collusion between insurers and drug companies Insurance companies and drug manufacturers can give consumers a headache when they join together. They may also be violating the law. The recently-proposed federal health care plans spark fear and apprehension in most areas of the health care industry. Many physicians, hospitals, and corporations are scrambling to predict the path of legislation and protect themselves from the industry turmoil. The application of the Sherman Antitrust Act to the health care field has also created controversy and anxiety. Implementing the Sherman Act within the health care field is a relatively new concept, compared to administering the Act in other areas of commerce. Until recently, most economists and health care industry analysts considered the Sherman Act incongruent with the medical care field.' The health care industry differs substantially from most other industries to which the Sherman Act generally applies. 2 In concert with these attitudes, the health care industry only recently began to conform with the Sherman Act's requirements.' Members of the health care field must not only accept the impending changes in legislation, but also apply these changes within the contours of the Sherman Antitrust Act. Thus, the health care field is ripe with controversy regarding the role of the Sherman Act and its various exceptions pertaining to the health care industry. This article describes and discusses a hypothetical situation exploring the application of the Sherman Act to the health care indus-Ms. Gordon i. try. Specifically, this hypothetical in-Walker, P.C. volves an exclusionary agreement be-sity School of tween a health insurance company and a pharmaceutical company. 4 The agreement precludes the pharmaceutical company from supplying other insurance companies' insureds with prescription drugs. In return for the promise of exclusive dealing, the insurance company agrees to provide exclusive customers for the pharmaceutical company. The pharmaceutical company will receive a guarantee of customers, and will thus enjoy a captive supply of purchasers. 5 On the surface, this agreement appears to benefit both parties; however, the effects on the market may foreclose these initial benefits. This article analyzes the behavior of the two parties and determines whether the collusive activity violates sections 1 or 2 of the Sherman Antitrust Act. 6 The details of the agreement provide a simplistic look at a collusive arrangement; however, this accord provides a good tool to analyze the ramifications of a vertical alliance 7 in two particular markets. The insurance company in …