Libratto

A few days back I ranted about why the Dem’s plan to negotiate Medicare drug prices directly wouldn’t make a big difference. Here are interesting and related thoughts from blogging colleagues: Adam Fein offers a compromise; Peter Pitts at Drug Wonks voices his concerns.

DEPARTMENT OF RANTS

In a previous post I noted that any effort for the Feds to negotiate directly with drug makers over pricing for Medicare was unlikely to generate significant savings. The reason is that drug makers pay for performance (i.e., shifts in market share), not volume. Moving share requires favoring some drugs over others (i.e., a formulary with some teeth) — something up with which Medicare beneficiaries will not put.

Bigger Savings Via Generics and Selected Retail Pharmacies

The single biggest opportunity for prescription drug savings is not better pricing, it’s improving the mix of drugs patients use. If medication mix was optimized, about 75% of prescriptions would be for generics — significantly higher than the current rate of about 55%. Moving the needle up 20 points on generic fill rate would mean about a 20% decrease in overall cost.

Another area for significant savings is a tighter retail network. Ten years ago, the number of stores in a retail network was a good surrogate for access: the more stores in the network, the lower the average distance from patient home to the nearest store. Today, however, many neighborhoods are saturated with pharmacies: nearly all grocery store and discount retailer chains have in-store pharmacies, and pharmacy chains have expanded rapidly as well. This explosion in the number of stores means 1) network size no longer serves as a meaningful surrogate for access, and 2) plan sponsors willing to tighten up their networks will be rewarded with deeper retail discounts.

POS vs POC Programs: Location, Location, Location

Plan sponsors aren’t availing themselves of these opportunities to the fullest possible extent because doing so means changing plan design or implementing new clinical programs. Such changes generate disruption to members, because they generally occur at the point of service (POS) rather than the point of care (POC). POS means in line at the pharmacy; POC means in the doctor’s office.

From the patient perspective, the difference in experience between POS and POC is significant. POS programs mean that you find out at the pharmacy counter that the prescription you got from your doctors isn’t covered, or will cost you more than you expected. On the other hand, POC programs go down much more smoothly: your doctor sees what’s covered, or that your plan requires that you try a less-costly generic before advancing to a more-expensive brand. In many cases, the patient would be completely unaware that a POC program was in use.

In short, POS = member disruption; POC = little/no disruption.

If the Fed mandated the use of electronic prescribing for Medicare beneficiaries, adoption of the technology — which has matured and works well today — would jump. Once e-prescribing gains enough penetration, plan sponsors (including plans that cover Medicare Part D beneficiaries) would be able to implement proven programs that drive to a more cost effective drug mix and lower-priced distribution channels.

These opinions are mine alone.

Yesterday, Wal-Mart announced that it had added 17 new drugs to its list of $4 generics.  What does that mean for you?

Recall that Wal-Mart counts each different strength, form (e.g., pill versus capsule) and package (e.g., blister pack vs. bottle) as a different “drug.”  Of the 17 “new drugs” all but two represent inclusions of additional strengths, forms or packages of drugs that were already on their list.  The two truly new drugs that were added are pravastatin (the generic version of Pravachol, a cholesterol-lowering drug) and Ceron, a cough/cold drug.  (Another addition is Guaifenex DM ER, a combination cough/cold product.)

In addition to the new drugs, strengths, forms and packages, the new list is a bit better organized.  The “miscellaneous” category has been eliminated, drugs are listed alphabetically within each therapeutic category and more fully spelled out, and the quantity is displayed in separate column.  Knowing what quantity is covered can be important.  In general, if you take more than one pill a day, the $4 fee will NOT cover a 30-day supply (i.e., it covers 30 pills, not 60).

Here’s a summary of the 17 additions:

• Prednisone — 3 new “dose packs” (5mg/48 count, 10mg/48 count, and 10mg/21 count)
• Fluoxetine — 1 new form (10mg tablet)
• Warfarin — 1 new package (5mg “compliance” pack)
• Lovastatin — 1 new strength (20mg)
• Pravastatin — new drug; 3 strengths (10mg, 20mg and 40mg tablets)
• Ceron — new drug; Ceron DM syrup and Ceron drops
• Guifenex DM ER — cough/could medication
• Glimepiride — 2 new strengths (2mg and 4mg)
• Glyburide — separate entry for green vs. blue tablets
• Dicyclomine — new stength (20mg tablet)
• Levothyroxine — new strength (200mcg)

Opinions expressed are solely those of the author.

Wal-Mart has published the new list.  Therapeutic categories are better organized (no more “miscellaneous”), and number of pills covered by the $4 is explicit.  More comments to come…

The NY Times this morning reports that Wal-Mart is adding 17 additional drugs to its $4 generic drug program, and expanding the program into 11 new states.  The new states are Idaho, Kentucky, Maine, Massachusetts, Nebraska, Oklahoma, Rhode Island, South Carolina, Utah, Washington and West Virginia.

As of this post, the list of Wal-Mart’s $4 generic drugs is not yet updated.  I will keep you posted as details emerge.

GOULASH OF GOODNESS

November 14th is/was World Diabetes Day. And as noted by the Sweet Resoultion blog, diabetes is not an equal opportunity disease. In affluent countries such as the U.S., diabetes disproportinately affects the poor. We’re wealthy enough to avoid starvation, but many of us aren’t eating healthfully. Note that Express Scripts’ Rx Outreach program makes some diabetes medications available at low cost for the less fortunate among us, and Wal-Mart’s $4 generic program also covers certain diabetes medications.

You’re Old and Ill? Let Me Treat You to a Prostate That Resembles Swiss Cheese. Screening for prostate cancer is tricky: when your remaining life expectancy is short, screening for and treating the cancer is likely to do more harm than good. (A positive PSA test is often followed by multiple needle biopsies of the prostate, and treatment can leave the patient impotent and incontinent.) As a result, guidelines recommend against PSA testing for men whose life expectancy is less than 10 years. In the current Journal of the American Medical Association, however, researchers found essentially no association between remaining life expectancy an health, suggesting that many men in ill health are needlessly being invasively tested and treated for a condition that is unlikely to affect their length of life.

Happy to Talk About Your Pancreas and Prostate, But Your Pocketbook Makes Me Squeamish. The historic number of generic drugs means there’s never been a better time for patients to save money by asking about lower-cost alternatives. Unfortunately, according to a recent study in the Journal of Managed Care, physicians are very unlikely to discuss the issue of drug costs with their patients. Even worse, the rate at which docs discuss financial implications of prescribed medications decreases among older patients — even though such patients are more likely to be on mulitple drugs. Be sure to ask your doctor if there is a generic drug that will work just as well as the medication you’re on. If so, you will almost certainly save a bundle.

DEPARTMENT OF RANTS

Nancy Pelosi, the soon-to-be speaker of the House of Representatives, has an aggressive agenda when the politicians return to DC.  Among her top priorities is to allow CMS to negotiate prices directly with drug manufacturers.  According to an article in today’s New York Times, her fellow Dems are on board:

“This is just good old-fashioned free market economics,” Mr. [Tom] Durbin said. “If one buys in bulk, the price goes down.”

“The government negotiates big discounts for the prices of drugs for our veterans,” said Senator-elect Amy Klobuchar of Minnesota. “But the drug companies got Congress to make it illegal to negotiate for lower prices under Medicare.”

Having the government negotiate directly with manufacturers is nifty idea in theory, but probably won’t accomplish much in the long haul.  Here’s why.

It’s the Market Share, Stupid

First, drug manufacturers offer pricing concessions for market share movement or access, not volume.  A well-known health economist who is a colleague of mine found this arrangement curious, especially for manufacturers.  For drug makers, revenue is a very good proxy for profit because the cost of goods is low relative to unit price.  Thus, one would think that manufacturers would be more than willing to offer discounts based on volume rather than access.  It is important to note, however, that utilization of prescription medications has been on an upward secular trend (i.e., over time more people are using drugs, and people are using more drugs) for some time.  It may be that manufacturers don’t want to pay for something that would have occurred without the intervention of PBMs (i.e., greater utilization of their products).

Regardless, at present the typical arrangement focuses on market share (or access) rather than volume when determining discounts.  Note: rather than negotiating rebates based on market share targets, Express Scripts’ rebates are based on copay design and the number of drugs within a therapy class that are on the formulary.

In general, this approach has worked well.  PBMs have done more than simply demand volume discounts.  By steering utilization to drugs that are included in their formularies, manufacturer pricing of new products has become (at least slightly) more rational.  Specifically, new drugs within an existing class are now typically priced at a discount (rather than a premium) to existing drugs within the class.  The FTC agrees that the net effect of the activities of PBMs has been to generate savings for plan sponsors.

The bottom line: drug manufacturers offer the biggest price breaks for moving market share… not buying in bulk.

Harry and Louise Redux

The VA health system does obtain deep discounts, and it is frequently held up as a model of what government purchasing can accomplish.  However, the key to VA pricing is not volume; it’s the formulary.  The VA formulary is exceedingly well controlled: many drugs are excluded from the formulary, and the formulary list is frequently changed.  This arrangement allows the VA to create a competitive market for drugs by quickly rewarding manufacturers who lower their unit cost.

However, it’s not politically feasible for CMS to impose any meaningful restrictions on access to specific drugs.  It’s true that Medicare drug plans today do have formularies, and that these formularies must meet certain requirements set forth by CMS.  However, these formularies tend to be very similar (and sometimes identical) to the formularies already offered by plan sponsors and their PBMs.  This arrangement means that beneficiaries can in effect choose which formulary will apply to their drug benefit – and that’s very often the same formulary to which they were subject prior to Medicare Part D.

It’s very hard to see how CMS could weather the political storm that would ensue were it to impose any meaningful formulary across all Medicare beneficiaries.  Americans hold choice dear, and a national Medicare formulary is what it would take to get meaningful discounts incremental to those already being obtained by PBMs.

If you doubt this assessment, try the following thought experiment.  You’re the CEO of a major drug company.  CMS comes to you, asking for better pricing on your most popular drug.  However, regardless of your response, at the end of the day your drug will be covered to the same extent as will your competition.  How deep of a discount do you offer?

Manufacturers pay for market share movement, market share movement means getting patients to use one drug instead of another, and getting patients (and their doctors) to change drugs is tricky.  PBMs succeed at this movement because they partner with the plan sponsor, who typically has an existing relationship with the member and saves money when a change occurs.  Resistance from constituents and pressure from interested parties will combine to make such decisions extremely difficult for CMS.

Next Time:  How the Democrats’ Plan to Negotiate Medicare Drug Prices Could Work

Opinions are solely those of the author.