ICLE Nonresident Scholar Joanna Shepherd was a guest on WEKU’s Democracy Optimist podcast to discuss her research on elected judges and the role of money in judicial campaigns. Audio of the full episode is embedded below.

Abstract

Using a unique private dataset from one of the largest consumer litigation financing firms in the U.S., we are the first to explore the impact of states’ regulatory activity (statutory or judicial) on funders’ behavior and consumers’ welfare. Our comprehensive dataset includes data on over 105,000 third party funding agreements from 2000 throughout 2020 and data we compiled ourselves from court decisions, state legislation, and regulatory actions.

Read at SSRN.

ICLE Nonresident Scholar Joanna Shepherd and coauthor Michael Kang joined the American Constitution Society’s Broken Law Podcast to discuss their new book “Free to Judge: The Power of Campaign Money in Judicial Elections.” Audio of the full episode is embedded below.

Abstract

Pharmacy benefit managers (PBMs) manage the drug benefits for over 95 percent of Americans with prescription drug coverage. However, conflicts of interest inherent in the PBM business model create perverse incentives for drug price increases. The most significant conflict of interest arises from manufacturer rebates paid to PBMs. PBMs negotiate rebates from drug manufacturers in exchange for giving the manufacturers’ drugs preferred status on a health plan’s formulary. Because the rebates paid to PBMs are typically a percentage of a drug’s list price, drug makers are pressured to increase list prices in order to satisfy PBMs’ demands for higher rebates. Although a portion of the increasing rebate dollars may eventually find its way to patients in the form of lower co-pays, many patients still suffer from the list prices increases. This Article analyzes various proposals to rein in PBM rebates and asserts that, compared to the other proposals, a point-of-sale rebate system maintains many of the benefits of selective contracting while minimizing incentives to increase drug list prices.

Summary

“The court of appeals’ decision poses a grave risk to the innovation economy. The court condemned as per se violations of the antitrust laws practices that made competition possible in a nascent market through introduction of a new business model. And it did so in the absence of any precedent holding that the novel combination of practices at issue could be deemed per se illegal. The court of appeals’ decision thus sends a chill wind through industry sectors where entrepreneurs are contemplating the launch of innovative business models to fuel the modern economy.

This Court’s precedent on application of the per se rule is clear: “[I]t is only after considerable experience with certain business relationships that courts classify them as per se violations” of the antitrust laws. Broad. Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1, 9 (1979) (“BMI”). Per se condemnation is appropriate only when a practice lacks any plausible procompetitive rationale. Cal. Dental Ass’n v. FTC, 526 U.S. 756, 771 (1999). If there is no long track record of judicial experience establishing that a practice always or almost always lessens competition, then the practice should be subject to analysis under the rule of reason. BMI, 441 U.S. at 23-24. In that way, a finding that a novel practice (or an old practice in a new context) is anticompetitive may be made only after a rigorous analysis of all the facts and circumstances. Such a rule sensibly avoids unintentional condemnation of economically valuable activity where the full effects of that activity are simply unknown to the courts.

In disregard of these principles, the court of appeals applied the per se rule to a novel combination of competition-enabling practices in an emerging market. The negative consequences of the court’s ruling will be particularly acute for modern high technology sectors of the economy, where entrepreneurs planning to create entirely new markets or inject competition into existing ones through adoption of new business models will now face exactly the sort of artificial deterrents that this Court has strived to prevent. “Mistaken inferences and the resulting false condemnations ‘are especially costly, because they chill the very conduct the antitrust laws are designed to protect…’”

Abstract

This Article examines a relatively new business strategy in the pharmaceutical market — “product hopping” or “product replacement” — in which brand pharmaceutical companies shift their marketing efforts from a drug nearing the end of its patent period to a new, substitute drug with a longer patent life. In July 2015, the Second Circuit issued an opinion in the first appellate case addressing pharmaceutical product replacement, NY v. Actavis. This Article explains that product replacement is the predictable business response to the incentives created by patent law and state substitution laws, and withdrawing an obsolete product from market when there is a new and improved version is clearly within the patent rights of a patent holder. However, in NY v. Actavis, the Second Circuit ruled that such product replacement activities are exclusionary and produce anticompetitive effects. The Court’s decision creates a duty for brand drug companies to continue selling obsolete drugs after patent expiry in order to allow generic competitors to take advantage of automatic substitution laws. Although the court intended this new duty to benefit consumers, the actual effects of the ruling are likely to be the opposite. Requiring pharmaceutical companies to continue marketing obsolete drugs will reduce incentives for innovation and will likely increase health care spending in the long run.