War of Each Against All Is a Good Thing

Last week Merck and GlaxoSmithKline (GSK) announced they will suspend co-pay cards because, under the Affordable Care Act, these cards could constitute a possible kickback and expose the pharma companies to legal liability (see here).  Therein hangs a tale.

First, here's a bit of background on these co-pay cards.  For most prescription drug plans, insurers and other payers charge consumers co-payments that generally range from five to fifty dollars per prescription.  With many of the expensive specialty drugs, however, payers with growing frequency are charging consumers somewhere between 20% and 40% of the prescription's total cost.  Given that specialty drugs can cost upwards of $50,000 per patient per year, the co-payments can pose an enormous financial burden on most people.

Pharmas believe they can continue to charge exorbitant prices and preempt public outrage by relieving consumers of that co-payment burden with cards that patients receive from their physician and present to the pharmacy.  Instead of a patient failing to fill a prescription for a medication costing $100,000 a year because it would take between $20,000 and $40,000 out of his pocket, he can fill the scrip and the pharmaceutical company gets to pocket between $60,000 and $80,000.

Pharmas prefer to use co-pay cards rather than discounts/rebates to payers because they remove opportunities for payers to manage the use and selection of medications.  For example, last year GSK refused to sweeten the rebate on its Advair asthma medication to the country's largest pharmacy benefits manager, Express Scrips.  Instead the company preferred to receive a Tier 3 designation on Express Scrip's formulary, thereby triggering a higher co-pay than that required for other asthma medications.  GSK figured they could prevent any share loss from the less favorable tier placement by saving consumers the co-pay with a card.

This current position by Merck and GSK to suspend co-pays will likely be short-lived.  Amgen, Novartis, Sanofi, Eli Lilly, Gilead Sciences and Johnson & Johnson told Bloomberg News they will continue the practice.  It's also likely that the Department of Health and Human Services and/or the Justice department will “clarify” the ACA's legal implications in a manner that can appease the lawyers at Merck and GSK.

What also seems possible is that these passive executive agencies will find ways that allow private payers to do some of this harder work for them.  For example, last week Medical Marketing & Media made the point (see here) that specialty drug costs are growing by 15%-20% per year and they will account for 40% of total drug costs by 2020.  MM&M also presented the view that in an effort to control this cost increase, most payers will switch to handling specialty drugs as a pharmacy benefit rather than as a medical benefit.  Classifying specialty drugs as a pharmacy benefit will allow payers to exert much stronger control over selection, use and cost.  

This suggests that in lieu of a strong, progressive government with the gumption to tame a predatory sector of the economy, what’s needed is to turn the major sectors (payers, manufacturers, providers, consumers) against one another.

Another potential opportunity for this lies in disrupting the cozy, bribery-based relationship between manufacturers and physicians.  An encouraging nod in that direction appeared last week when the county's major organization of oncologists, the American Society of Clinical Oncology (ASCO), announced it intends to create a cost-benefit scorecard for cancer medications because prices there are becoming "unsustainable" (see here).

Unlike countries such as Great Britain and Germany, where national health care systems can restrain unconscionable drug prices, the U.S. cowboy culture prefers to leave such decisions to the market, that is, to the control of corporate managers.

Given this historical deference to wealth, progress is sometimes possible when segments of mammon tear into one another.  If ASCO can truly function in oncology as a domestic version of the UK's NICE or Germany's IQWi, albeit in private hands, then "Drugs that offer borderline benefits to patients, but sell at a premium, would find themselves without ASCO backing...[A] thumbs-down from the group would obviously present a new obstacle for sales reps to overcome."

Fund manager Nathan Sadeghi-Nejad was correct when he wrote in Forbes last week (see here) that the only real fix to the problem of extortionate drug prices lies in adopting "a European-style single payor system.  The data show clearly [here] that outcomes across a range of measures are equivalent or superior in Europe to those in the US, despite substantially lower per capita spending."

But the U.S. political landscape puts that totally out of the picture in the foreseeable future.  Until then, a war among the various health care sectors seems to offer the best chance of dragging the country into line with the rest of the advanced world.

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