A suit has been filed by Arizona’s Attorney General accusing 42 drug manufacturers of inflating Average Wholesale Prices on drugs sold to physicians. According to an article in the Arizona Republic, at least 14 other states are also pursuing action against foreign and domestic pharmaceutical firms.
The pharmas are accused of artificially inflating the AWP reported to payers and data aggregators, setting prices that are many times higher than what they “actually charge some doctors and pharmacies.” As Medicare, Medicaid, group health plans, and group health and workers comp pharmacy benefit managers often base their reimbursement on AWP, the effect of the alleged price inflation is to generate enormous profits for the retailers and physicians paying the real wholesale prices.
In one example, the Republic noted:
“Abbott Laboratories Inc. lists a price of $382.14 for a 1-gram vial of the antibiotic vancomycin, which is used for severe infections. But the providers, the doctors and pharmacies, are charged only $4.98 for the drug, leaving a profit of $377.16, or 7,547 percent. Some drug firms sell the salt solution sodium chloride to pharmacies and physicians for about $4, with the average wholesale price listed at about $670.
The complaint also says that drug manufacturers provide financial incentives to physicians and suppliers to stimulate drug sales, such as volume discounts, rebates and free goods, at the expense of Medicaid and Medicare. The incentives were not offered to government or consumers.”
AWP is universally derided as “Ain’t What’s Paid”, and this is yet more proof that the pejorative definition of the acronym is more realistic than the industry definition. Transparency is a critical issue in the industry, and this shows why.
Not mentioned in the article is the growing trend in dispensing of drugs by physicians for workers comp patients in many states, particularly California. According to some of our clients, almost half of all drugs dispensed to WC claimants are through physician offices. I’ll comment in depth about this in a future post.
What does this mean for you?
Yet more evidence that the “discount” is meaningless. Too many payers assess their program based not on total drug costs but on the discount received. This is proof that the system is ripe for manipulation.
If you aren’t measuring your drug costs based on total expenditures, you are not doing your job.
It will come as no surprise that the war over the Medicare Part D program (free subscription required) is continuing to heat up, with Republicans touting the benefits for seniors while Democrats describe the program as a giveaway to the large pharmaceutical firms on the backs of the taxpayers.
As I have noted before, the entire Medicare Part D program, from the original budget estimates (remember the Medicare Chief Actuary was threatened with dismissal by the Administration (subscription required) if he revealed the true cost of the program before the Congressional vote) to the hold-harmless provisions protecting private companies from losses to the failure of the legislation to allow the Feds to negotiate drug prices to the cumbersome, complex, confusing program itself to the likelihood for adverse selection due to the benefit design is enough to make your head spin. And that’s exactly what is happening amongst potential beneficiaries.
An article in the New York Times on Part D describes the problems politicians of all stripes are facing when attempting to educate their constituents about this program
I had a very interesting conversation yesterday with an executive at a large workers compensation third party biller. For those unaware, third party billers (TPBs) are entities that buy WC scripts from retail pharmacies and then try to collect from the insurance companies. Think of them as factoring agents; the retail pharmacy gets their cash fast, and the TPB gets to make a margin on the difference between what they pay the retail pharmacy and what the insurer pays the TPB.
By the end of the conversation, it was abundantly clear that the TPBs are out to take over the WC PBM (pharmacy benefit management) business. This TPB claims to have spent several years trying to collect what they believe they are owed from numerous payers, wtih very limited success. As a result, they are now pursuing aggressive legal action to try to force the payers to pay them the full amount for each script.
Many payers have been reducing their reimbursement to the TPB based on the rate that the retail pharmacy has agreed to. The TPB claims that since they bought the script, they now own it, and therefore the payer has to reimburse them at fee schedule.
The payers believe that since the script was filled by a retail pharmacy that is in their pharmacy network, they only have to pay the contracted amount.
Woven throughout the conversation was the statement that the TPBs exist to improve the injured workers’ life; by getting access to the drugs, they are helping to speed healing and reduce lost work time. A noble goal to be sure.
What does this mean for you?
The PBM-payer-TPB mix is going to have a huge impact on WC medical expenses, systems, and workflows.
The State of Mississippi has filed lawsuits alleging 86 pharmaceutical companies have defrauded the state’s Medicaid program of hundreds of millions of dollars through deceptive and fraudulent pricing and marketing of drugs.
The core of the issue appears to be that old pretense for pricing, Average Wholesale Pricing, or AWP. According to Insurance Journal,
“From fiscal 1999 to 2002, Mississippi’s prescription drug costs for its Medicaid beneficiaries shot up an average of 26 percent a year, (Attorney General Jim) Hood’s lawsuit said.
So the state first limited the number of prescriptions that its Medicaid enrollees could get each month to 7 from 10 — and then cut the number to 5, Hood added.
Mississippi charged the drug companies set so-called average wholesale prices artificially high. The state uses the prices to calculate reimbursement rates for physicians, pharmacies and other providers, the suit said.
“The Defendants have reinforced this tactic with other deceptive tactics such as covert discounts, kickbacks and rebates to providers, and the use of other devices,” the suit said.”
Mississippi has a well-deserved reputation as a litigation happy state but that is not to say Mr. Hood does not have a point about AWP, which has long been recognized as a meaningless basis for estimating drug pricing.
Firms involved in the dispute include Abbot Labs, Novartis, GlaxoSmithKline, and Pfizer.
What does this mean for you?
Watch closely, as Mississippi’s discovery process may uncover some interesting aspects of the whole drug pricing methodology.
A fascinating article about the role of genetics, race, and societal interactions is in today’s New York Times. Before you blow this off, consider the following points.
1. so-called “personalized medicine” is touted by some as the next big breakthrough in medicine, using genomics to customize therapies for individuals
2. there has been a considerable increase in the investment in and marketing of drugs that are targeted to distinct “racial groups”.
3. there is some evidence that this makes sense, and other evidence that it makes no sense whatsoever.
4. the push to unravel the human genome is both supporting and detracting from the “race-based drug development” effort.
5. billions will be invested in research in these areas
Sen Wyden (D-OR) claims he has enough votes in the Senate to pass legislation authorizing the Secretary of Health and Human Services to negotiate for Medicare drug prices with pharmaceutical companies. Critics were quick to decry the move, with the pharma industry claiming such a move would not reduce prices, would be counter-productive, and unfair.
Which begs the question, if it would not reduce prices, why are they so concerned?
In any event, despite the present budget crunch and moves by the HHS Secretary to reject providing access to Medicaid for victims of Katrina and Rita due to the increased expense, pundits claim the measure is not likely to pass because “it faces strong opposition from the Bush administration, Republican leaders and the pharmaceutical industry” (Las Vegas Sun)
In a related development, a study was released that compared pricing under the Veteran’s Administration’s negotiated pharma arrangement to the new Medicare Part D card. The net –
– prices for 49 out of the 50 most common drugs were higher under the Medicare program than the VA; and
– the average annual cost of drugs would be $220 higher under Medicare than the VA.
The VA is the only Federal governmental unit that is permitted to negotiate directly wtih pharma firms. The study was conducted by Families USA.
What does this mean for you?
Higher taxes to pay higher prices for drugs, but perhaps that is better than the cost-shifting that would occur if the Feds got tough with pharma and squeexed them for lower prices.
Medicare’s Part D program is gaining momentum with several large for-profit health plans expanding on their plans to offer the program to seniors. Among the plans, Aetna, United Health Group, and Cigna are launching programs nationally, with Humana doing so in over 40 states.
According to the Detroit Free Press,
“Goldman Sachs projects that nearly 17.5 million seniors — about 41% of those eligible to participate — will enroll in the drug plan in 2006….Participating seniors will spend an average $792 for prescription drugs in 2006, excluding premiums, or 37% less than the $1,257 cost without the benefit, according to a July 2004 report by the Congressional Budget Office.”
That begs the question – why won’t the other 59% enroll? The reason is simple – their premiums will be higher than the anticipated costs. Thus, the seniors that will join up will be those who will financially benefit, and the ones who won’t see savings won’t enroll.
Doesn’t sound like a money maker for the PBMs, unless their losses are subsidized by Uncle Sam.
I still can’t figure out what makes this so attractive to private health plans.
The Medicare Part D marketing wagon train has hit the road, with CMS Director Mark McClellan leading the effort to convince skeptical seniors to enroll in the program. By all accounts, the effort has yet to hit its stride (free subscription required), as some seniors are confused about the coverage, while healthy seniors appear uninterested in the benefit, and the chronically ill are concerned that the benefits will not be rich enough.
I have been saying for some months now that Medicare Part D is a bad idea primarily because it does not take into account adverse selection. Simply put, the only people who will sign up are those who need the benefit. Others will not sign up until they get sick; while there is a financial penalty for delayed entry into the program, it is so small that it is unlikely to act as a deterrent. In fact, a study by Brandeis University of seniors using drug discount cards indicates the cards were purchased disproportionally by seniors who were already significant drug consumers.
It is therefore difficult to see how this program will be a financial success. Yes, the government will subsidize money losing plans (where those funds will come from is somewhat of a mystery), yes there will be some price concessions on individual drugs as pharmacy benefit managers negotiate better deals with manufacturers, yes some employers will save money by having the Feds pick up their retirees’ Rx costs. But the fundamental flaw is that seniors will only sign up if they get more out of it then they pay in premiums.
Unless and until someone figures out how to overturn human nature, Medicare Part D is a dead duck.
Jon Coppelman at Workers’ Comp Insider has a great post on the influence of lunches, meetings, and sales reps (detailers) on prescribing habits of physicians. The quick take – MDs who attended Vioxx lunches prescribed four times more than those who just met with detailers. Oh, they weren’t consuming vioxx at the lunches, just hearing about their wonders.
MDs were also paid $750 – $1000 to present at these educational gastronomic events. The presenters talked about related conditions, indications, etc. Jon notes:
“the participating doctors insisted that they are not flacks for the drug companies — they say that they answer questions at these sessions honestly and candidly. In the example of the migraine headaches above, the lead doctor mentioned the availability of generic medications, in addition to those made by the sponsoring company.”
These are pretty common events – almost a quarter million of these doctor presentations took place last year, compared to under 140,000 detailer sales calls. Figure 237,000 events x $750 honorarium per presenter, that’s $178 million.
While the investment was huge, “The return on investment for the presentations involving a doctor was twice that of the other sessions.”
What does this mean for you?
If you are seeking ways to “counter-detail”, you better have a big budget.
There are signs that drug marketing is beginning to change, as the FDA focuses on off-label use and some of the big pharmas cut back on their sales forces. This may well be as part of big pharma’s efforts to defuse some of the harsh criticism leveled at them by physicians, consumer groups, and health plans frustrated with pharma’s aggressive marketing tactics.
David Wilson’s Health Business blog notes that Wyeth and Pfizer have both announced plans to cut sales staff. The reasons are:
1. “Mirrored sales teams –the practice of sending multiple sales reps to the same doctor to talk about the same drug– are causing a backlash from doctors and also making it hard to measure the effectiveness of individual sales people
2. There is little new to talk about –because of fewer product launches and in the case of Wyeth the curtailment of uses for its hormone replacement therapy. (Could it be that the more a doctor knows about hormone replacement therapy the less they will prescribe?)
3. The availability of efficient, effective outsourced sales forces available from Ventiv, Innovex and PDI have enabled pharma companies to reduce fixed costs.”
The issue of pharmaceutical detailing has been extensively addressed in DB’s MedRants, a highly entertaining and informative blog authored by physician Robert Centor. Centor has also commented on the recent decision by Bristol-Myers-Squibb to impose “a ban on advertising its new drugs to consumers in their first year on the market, adopting voluntary restrictions that go further than what is anticipated in an industrywide advertising code to be announced next month.” Centor notes
“The optimist in me hopes that the outcries from physicians has influenced their policy. The skeptic in me believes that they understand the DTC drug advertising carries both risks and benefits. Big Pharma has a major image problem. TV drug ads generally hurt their image. ”
As to the issue of off-label use, this is a significant area of concern for many payers, including workers compensation insurers. In my firm’s “Second Annual Survey of Prescription Drug Management in Workers’ Compensation”, payer respondents noted off-label use as a significant concern. Typical was the use of Actiq as a pain med for musculoskeletal pain. Actiq is a brand drug used for break through pain associated with cancer; thus its use in workers comp is the very definition of “off-label”.
What does this mean for you?
If big pharma is finally getting the message, that bodes well for a “decrease in the rate of increase” in pharmaceutical inflation. However, these companies are the ultimate capitalist organizations (that is not intrinsically bad) so they will seek to maximize their returns. And we all know who pays for those “returns”.