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The Battle for my Office (and yours)

By Dr. Chris Lillis
. 5 Comment(s)

As a primary care physician in private practice, I have my own little taste of celebrity. Every day attractive people come to my office seeking time to speak with me and collect my autograph.  They fawn over my partners and I, and bring us food for lunch, and will invite us to the nicest restaurants in town for dinner.   These people also used to bring gifts, until they were barred from doing so a couple of years ago.  I must admit, they are not doctor-groupies.  They are pharmaceutical marketing representatives. Rather than stalking me, they are just performing the job they are paid to do.

Each year, the pharmaceutical industry and its army of salespeople spend billions of dollars marketing brand name patented drugs.  Annual estimates range from $20-60 Billion every year.    Sadly, this represents almost 30% of their sales revenue, while they invest about 11% on research and development of new pharmaceuticals. 

Marketing practices of pharmaceutical companies should not be news, but you may not be noticing the building battle between insurers and pharmaceutical companies unless you are being “detailed” every day like me. 

The formularies kept by private insurance companies are a great source of pain for pharmaceutical marketing professionals.  These are lists of available drugs, categorized into tiers. Tier 1 drugs are often generics: very inexpensive, and therefore offered to patients at very low copayments.  Tier 2 drugs are brand name drugs without generic alternatives, and at the other end of the spectrum are Tier 3 drugs - typically brand name drugs that may be new to market, and have several alternatives both generic and brand name. As you advance up the tiers, the copayments rise.  In order to force more generic medication usage, insurance companies are rapidly increasing these copayments to reduce their expenditures.

So begins the battle.  Pharmaceutical companies know that high copayments are effective ways to encourage patients to ask their doctors to prescribe generic drugs.  So pharma lobbies the insurance companies to reduce the tier status of their drugs.  In some cases, this leads to drugs being switched tiers, sometimes quite often.  A tier 3 drug that gets bumped down to tier 2 becomes a marketing highlight.  And it always leaves those of us with prescription pads guessing and rather frustrated. 

The latest trend I have observed: coupons.  Pharmaceutical representatives will provide physicians coupons to give to patients for their new product.  The most generous of these coupons will actually cover the entire copayment of the drug, thereby eliminating the incentive designed by the insurance industry to encourage generic drug use. 

Coupons may be great for individuals with higher copayments set by their insurers, but they do nothing to lower our national health care expenditures.  In fact, coupons encourage higher costs for pharmaceuticals.             

The tragic irony of the coupon scheme devised by pharmaceutical marketing is that Medicare Part D patients cannot use them.  The government by regulation prohibits any inducement that would directly or indirectly cause the government to spend money. Hence these coupons are not permitted to be split billed with Medicare or Medicaid.  Those who need help to defray their prescription costs the most cannot use them, but in some way I am glad.  This forces me to choose generic prescriptions more often.

The pharmaceutical industry lobbyists have been successful thus far in avoiding regulations that would hurt their profits.  But this is leading to skyrocketing costs.  In both the inception of Medicare Part D and in the passage of the Affordable Care Act, Congress neglected to provide the authority to Medicare to negotiate the prices of prescription medicines, leaving it to the private insurers who administer Medicare Part D.  This has led to greater profits for pharma at the direct expense of the consumer and taxpayer.

A study conducted by a prominent health care economist, funded by the Robert Wood Johnson Foundation, found that if Medicare adopted the Veterans Affairs (VA) drug formulary, America would save $14 billion a year on drug costs.  The VA directly negotiates drug costs with manufacturers, and its evidence-based formulary is able to keep drug costs down.

If any politician were bold enough to advance the proposal of allowing Medicare to negotiate drug prices, I can imagine the demagogue’s argument: “Don’t allow government to restrict your choices of drugs!”  Except that the facts point to health care consumers much preferring to have lower drug costs than infinite choices of expensive brand name drugs.  Polls show 80% of Americans would choose generic medicines in order to save money. 

Between pharmaceutical marketing costs and the inflated prices of brand name medicines, there are tens of billions of dollars to be saved in health care expenditures each year.  I am confident the pharmaceutical industry will fight for those billions with vigor, but will we? 

Share Your Comments

 

  1. ina

    Permalink
    Great article, and good pointing to some of the issues that people don't see (the results of this kind of marketing that aren't as direct). One thing I'd like to mention is on behalf of MSLs. They find their jobs frustrating because (so I'm told) they're always being pushed by reps to say things or to allowing the reps to say things that aren't scientifically accurate or aren't verified. Basically the whole rep system dilutes the dissemination of good info.

    ina
  2. Scott Poppen

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    Well said. The amount of money that pharma spends feeding physicians and their staffs every year must be in the order of 10's to 100's millions of dollars...all of which makes branded meds just that more expensive. It is scandulous in a way but it is a rare physician or physicain group that turns down a free Iunch (and I've eaten many). In regards to Medicare negotiating for the price of its meds, it is a no brainer. That it hasn't happen already is testament to the sad fact that Congress, despite the enormous budget deficits and even bigger rhetoric from both side of the isle, is still unable to shed the influence of powerful special interests and do what is best for the country.
  3. Christopher M. Hughes

    Permalink
    You forgot about the cheerleaders!

    http://www.nytimes.com/2005/11/28/business/28cheer.html

    Great job!
  4. Evil Drug Rep

    Permalink
    The statistics in this article are outdated and reflect an anti- free market bias. Question: where do new life saving drugs come from? Answer: not from governments or medical schools, but from pharmaceutical companies competing for profits for their sticjholders. Why can doctors and bureaucrats afford to drive a Lexsus if medicine isn't profitable? Worse, insurance companies pay doctors to deny patients newer, novel medicines - which sounds worse than buying an office lunch so that a sales rep can update staff on product and insurance issues.


    PHARMA had lots of issues and problems to be sure. But it remains America's (and the worlds) bright shining star of hope for the sick. See PHARMA website for fair balance.
  5. Dan

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    Pretty good article. I take issue with a couple of points though. First, drug companies could lower the price of their meds by 25%. But would the insurance co. lower the price to the patients? No, they wouldn't. Unlike Wal-Mart which squeezes profits out of suppliers and then lowers the cost to the consumers allowing manufacturers to make up lost profit on volume, insurance companies don't work this way. In order to lower the cost to the patient, drug companies go directly to the patient with a coupon. The author paints a much different picture of coupons in his article. With Medicare Part D, the population with the most need, a coupon cannot be used. What the author didn't discuss is that the gov't is guaranteed best price. Using a coupon would lower the price, therefore it cannot be used since it would in effect make the negotiated price invalid. So, the gov't gets the best price for medications but the copays are highest. Makes sense to me. The author would have you believe the gov't is a poor victim of the mean drug companies.

    Furthermore, the author states that 80% of patients would prefer a generic over a brand if given the choice. Sounds reasonable. But let's rephrase the question to simulate reality. "Patient, drug a is branded but has a direct head to head study v. drug b which is generic. The study shows drug a had a 20% reduction in heart attacks and mortality v. drug b. Basically, I am confident that you will live longer on drug a. Drug a is $30 a month, cheaper if I give you a voucher that takes $15 off. Drug b is $4 at Wal Mart. Which do you want?" I think that 80% figure would go down significantly.

    One last point. Formularies are not based on whether or not a drug has superior scientific evidence. The VA was referenced here. If a drug has an indication to reduce the frequency of heart attacks, that is considered "evidence". Especially if it is cheap. But along comes a brand with head to head data v. the cheaper generic demonstrating superiority and it doesn't get on formulary unless it is given away. The problem is that people change insurance plans way too frequently to incentivise insurance companies to invest in the superior drug. It may take a good 5 years to realize the savings of fewer hospitalizations and doctor visits. By that time, the patient is part of a different plan. Google "The Asheville Project" to gain more insight into what an open pharmaceutical formulary along with patient education can do for controlling medical costs over the long term by allowing doctors to select medications that best treat a patient's disease instead of treating their pocket book.

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