Matt Evans: I've Changed My Mind On Measure 7

I changed my mind about Measure 7

I’ve been in favor of Measure 7 – the ballot initiative that would repeal North Dakota’s pharmacy protection law — for a long time.  I can’t quite recall for sure, but I think it has come up in past elections, and if it did, I surely voted to do away with the pharmacy protectionism.  I’ve argued for getting rid of it for years – even with pharmacists I’d like to stay on good terms with.

See, I’m a pretty stringent proponent of minimal government, minimal regulation, and maximum freedom.  So a bill like Measure 7 is right up my alley.  It’s the sort of thing I just support as a matter of principle.  In fact, as a matter of principle, I still support it.

Except, I plan on voting against it next week.

Why?

Free markets are only effective and moral when they are actually free.  What proponents of freedom must always look out for are changes that have the appearance of increasing freedom, but in fact are simply moving freedom around.

So here is what changed my mind.

Basically, if Measure 7 passes as-is, senior citizens in our state are probably going to have the tablecloth pulled out from under them – at least in terms of how they buy medicine.

It turns out that much of the prescription drug business in North Dakota is related to something called Medicare Part D.  Medicare Part D is an optional prescription drug coverage insurance plan.  The state of North Dakota regulates who can and cannot sell insurance in this state.  In effect, if you are already selling insurance in ND, the state government insulates you from free market competition by making it relatively difficult and expensive for new companies to start selling insurance here.  If you would like to start selling insurance in North Dakota, the state government is going to impose certain costs before you are allowed to do so.

So, point #1 is that the current set of companies providing prescription drug coverage in North Dakota is controlled by the government.  You can see those plans here, for Cass County.

Each different Medicare Part D plan will define one or more networks of participating pharmacies.  The insurance companies make deals with certain pharmacies and not others.  The bottom line is that, depending on the plan you have, some medicines might cost $10 at pharmacy A, $20 at pharmacy B, and $100 at pharmacy C.  Each insurance company has a website that tells you which pharmacies are in their “network”, and what kind of drug price discounts you get for using pharmacies that are in network vs. out of network.

So, point #2 is that your health insurance plan will dictate something about where you end up filling your prescriptions from – at least if you want to save money.

Now here things get interesting.  It turns out that many of the companies selling Medicare Part D plans in North Dakota have unique business relationships with some of the big-box pharmacy companies.  For instance, AARP Medicare Part D plans are provided by UnitedHealth.  If you go to AARPs website and look for In Network Pharmacies in Cass County, you’ll see a checkbox to show “Pharmacies where you could save money”.  If you click that, you’ll see that there is a small list of preferred pharmacies in Moorhead.  They are Walgreens, Sam’s Club, Target, and Wal-Mart.

They are entirely big-box national chains.

What about Humana?  Well, Humana has a Part D plan with Walmart right in the plan name.  WalMart owns a small share of Humana, and they have a joint agreement about WalMart being the preferred pharmacy for Humana Prescription drug plans.

This link from Humana’s site shows their covered drug pricing at WalMart vs. any other Pharmacy.

You can see that your drug cost as a Humana plan member is between 8 and 10x higher if you don’t fill your prescription at WalMart.

Aetna has a medicare Part D plan with CVS pharmacy right in the name.  You can probably figure out what big box pharmacy they expect you to go to.

So, point #3 is this – it seems that most of the big Medicare Part D providers in North Dakota would charge you an arm and a leg to fill your prescriptions anywhere besides a big-box retail store — if they were allowed to do so.

Current state law prevents them from doing that.  Measure 7 will repeal the state law that stops them.

So here’s the conclusion I’ve come to: 60 days after Measure 7 passes, the companies that currently provide most of North Dakota’s senior citizens with medicine are going to make it financially difficult to buy medicine from anywhere besides a Walmart, Target, CVS, or Walgreens.  The state health insurance website says that companies providing drug plans in ND may change the prices and coverages anytime they want with 60 days advance notice, so I expect that the day after election day, “advance notices” are going to start hitting the mailboxes.

This will certainly hurt pharmacies in North Dakota that aren’t “in network”, and thus, aren’t one of a handful of big-box stores.  That, in and of itself, doesn’t bother me.  After all, a free market outcome that I whole heartedly support is that more efficient businesses should out-compete less efficient businesses, meaning lower prices for customers and more efficient allocation of society’s resources.

However, that’s not the principle at play here.  Instead of big box pharmacies being more efficient than small ones, what’s going to happen is that the health insurance plans that people are already signed up for — that they can only change once per year during an enrollment period — and which are controlled and limited by the state government — are going to suddenly jerk them around and FORCE them to use big box pharmacies.  That’s not a free market.  That’s something called regulatory capture.  It’s using a near-monopoly in one space (health insurance) to acquire a near monopoly in another space (prescription drugs).  This kind of vertical monopoly is EXACTLY the kind of thing that the pharmacy law was written to combat, nearly 60 years ago.

One North Dakota pharmacist I spoke with had some interesting comments.  They said they didn’t mind competing against WalMart or Walgreens.  This pharmacist, like many in North Dakota, serves rural customers, and WalMart is never going to build a store that is convenient for the rural customer base.  This pharmacist said that the reason they are upset about M7 is because Part D subscribers will be forced to use Walmart, even though it is less convenient, and even though they’ll get worse service.

Less convenience and worse service?  That doesn’t sound like a free market outcome.  That sounds like corporatism – when corporate interests abuse the law and take away options from the citizens to protect their bottom line.

I spoke with two different pharmacists that told me something surprising:  A pharmacist at a WalMart is probably making considerably more money than a small town pharmacy owner.  The former is expected to interact with over 300 customers per day, and they get paid based on the volume of business they do.  The pharmacists I spoke with agreed that if they were in the pharmacy business for maximum money, they could move elsewhere and get a job at a chain pharmacy, and make much more money by churning through as many customers as possible.

Apparently, it’s not necessarily true that the ND pharmacy law protects the profits of North Dakota pharmacists.

It is reasonable to compare the pharmacy data between comparable states, like North Dakota and South Dakota.  My research indicated that North Dakota pharmacists and pharmacy technicians are paid slightly more than their counterparts in South Dakota, but are below the national average.  A visual comparison of pharmacy locations between North Dakota and South Dakota does indicate that North Dakotans may have more pharmacies in low population areas, but not dramatically so.

One difficulty in drawing conclusions based on existing pharmacy locations in South Dakota is that Medicare Part D is a relatively new program, and the alignment of insurance companies and big box chains into preferred networks is even more recent.  In other words, we may not have had time to see the projected closures of small pharmacies.  Another difficulty comparing across states is that the insurance organizations really govern what happens, and these are quite different from state to state.

I would say that the data suggests North Dakota’s pharmacists aren’t raking us over the coals, and that my quick research was  inconclusive regarding the relationship between the current law and rural pharmacy access.  The North Dakota Pharmacy Association has made the case over and over that North Dakotans – especially seniors — have tremendous advantages in terms of quality of care and access to care.  If that’s true, it’s apparently not costing North Dakotans any extra money.  I found no evidence that North Dakotans are worse off than their neighbors to the south.

Government is a twisted mess of regulation and market intervention.  While I want to get rid of much of that regulation, the order that we do it in really matters to the everyday lives of our citizens.

So what bothers me most about all this is the effect it is probably going to have on senior citizens.  I have vivid memories of my own grandparents battling insurance companies and paperwork related to their failing health, and I have no desire to dump more of that on North Dakota seniors.  I think the residents of this state who are entering the sunset years of their lives don’t care to have their health choices taken away from them to serve out of state interests like WalMart.  As it turns out, North Dakota has lots of senior citizens, and they often choose to live in less populated areas — areas far away from the big box stores they’ll soon be required to buy from.

I know that M7 supporters have said “if you like your pharmacist, you can keep your pharmacist”, but, I’ve heard something similar to that before, and as I recall, it didn’t work out quite the way it was promised.

I want to support a law like Measure 7 – one that reduces government regulation and protectionism.  But I don’t want to do that until I am convinced our seniors won’t be negatively impacted.  I’d like the insurance commissioner or our legislature to assure us that when we eventually remove the pharmacy protection law, that seniors won’t be effectively forced by their insurance company to start going to a new pharmacist – probably an hour away.  When that protection is explained to me, I’ll support the next effort to get rid of the pharmacy law.

Until then, I’m voting No.