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What’s wrong with the US health care system

is exemplified by drug manufacturer Cephalon’s drug pricing strategy. The company’s narcolepsy drug Provigil is coming off patent in 2012. So, like any good corporation seeking to maximize shareholder wealth, it has developed a replacement drug – Nuvigil, that is a longer-acting version of the same medication.
But Cephalon is not content with just doing what other pharma companies do – patenting a long-acting version of an old standby, and releasing that LA version just as the older drug goes off patent. Instead, the fine folks at Cephalon are jacking up the price of Provigil now, to make it even more expensive. Then, when Nuvigil comes out, it will be priced less than Provigil, encouraging patients to switch.
And because there won’t be a generic for Nuvigil for years, Cephalon holds on to a nice revenue stream.
Cephalon is the poster child for sleazy pharma marketing practices. Just a couple months ago Cephalon pled guilty to illegally marketing Provigil and pain drug Actiq, and paid a $444 million fine for their criminal behavior. The company has been shoving Actiq down the throats of workers comp patients for years, despite the drug not being FDA approved for anything but breakthrough cancer pain.
No matter to the profit-at-any-cost execs at Cephalon. In their dedicated, unending quest for more shareholder wealth, they have proven they will do anything to gain more revenue.
Realists will understand that Cephalon’s strategy is short-sighted at best. With national health reform coming, one of the earliest items on the agenda is likely to be legislation encouraging/allowing the Feds to negotiate prices with big pharma. Although few industries are as adept at marketing as big pharma, there’s a new sheriff in town.
House Energy and Commerce chair Henry Waxman’s record on pharma is mixed. Co-author of the landmark 1984 Hatch-Waxman Act in 1984, which has had the effect of speeding up the introduction of generics while offering some protections for branded drugs, Waxman has more recently taken a more aggressive stance, putting drug development firms on notice that their attempts to circumvent patent expiration terms is unacceptable.
In a speech in 2005, Waxman stated:
“Current law does not strike the right balance. We cannot continue to have a system that
effectively enshrines permanent monopoly status for some of our most important medicines. Of course, some intellectual property protections are needed to encourage innovation by brand-name manufacturers. But permanent monopolies are neither needed nor wise.”
Waxman has been a loud and consistent critic of pharma’s reaction to Part D. Here’s an excerpt from the Congressman’s letter to the GAO in January 2006:
“A report I released in November showed that prices for brand-name drugs under the new Medicare drug benefit are 84% higher than the prices that the Department of Veterans Affairs negotiates for the federal government.[13] An analysis that GAO did for me in October 2000 showed that on average, Medicaid’s prices for brand-name drugs were 43% higher than the prices negotiated by the VA.”
What does this mean?
Cephalon’s shareholder-wealth-maximization strategy is short-sighted. There will be a major push in the next Congress to find the money to do something big in health care reform, and pharma profits may be a very attractive source. Cephalon’s blatantly greedy practices make it even more likely the Feds will negotiate price.

3 thoughts on “What’s wrong with the US health care system”

  1. Joe,
    You say realist will understand that Cephalon’s strategy is short-sighted, it has no bearing. Cephalon will do quite well with this strategy because of the MD’s. To this day I cannot understand how MD’s believe EVERY word that comes out of some drug reps mouth. The same strategy was used with Prilosec and Nexium. I remember reading how a doctor stood in front of a huge conference of doctors and explained this strategy. He concluded with ” Any doctor that prescribes Nexium should be ashamed”. We all know that Nexium went on to become one of the biggest blockbuster drugs ever. You watch and see. The same doctors that prescribe Provigil now, will NEVER prescribe Provigil when it is available in a generic form. It will be ALL Nuvigil. In fact, the doctor will turn around and ask “how dare he switch to Provigil, it is no where near as good as Nuvigil”. Two things have to continue to happen. Pharmacists must continue to educate doctors about the high cost of “me-too” drugs, and the impact they have on our health care system, and PBM’s must remove these me-too drugs from their formularies, no matter how high the rebate is. Maybe someone like yourself could write a biting article in some publication such as JAMA or New England, letting doctors know how much of a hurt they have put on our Health Care System with their poor choices in prescribing. A wake up call is needed.

  2. Joe,
    What is the VA payment rate/policy for this ? (Relevance: I believe that what the VA has done will become the template for the formulary/prices Medicare will be negotiating and if/how Medicare pays for meds will influence physicians’ scripts to non-Medicare patients to some extent.)

  3. Nice Post, and though I agree with your general point I don’t know if I would get too worked up about this one. Having seen many drug roll out fiascos over the years, I suspect this may be another one of these crash and burn roll outs and I might suggest reserving judgement on this until the dust finally settles.
    For it just so happens I know many people that take Provigil- it is commonly used by shift workers such as paramedics, police officers, nurses and emergency physicians (I am one and have tried it), etc… and is obviously commonly prescribed by a host of physicians to their patients for other ‘off label’ uses such as chronic fatigue, depression, etc…
    I would be very surprised that a longer acting version of Provigil will actually be accepted by patients- the 1/2 life of Provigil is already too long in my experience and it is not at all uncommon for patients to discontinuation the drug for this very reason. Lengthening the 1/2 life would help only the intractable narcoleptic patient and it is a simple reality that narcolepsy represents a very % of this drug’s market.

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Joe Paduda is the principal of Health Strategy Associates




A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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