Tuesday, October 21, 2014
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Which side is Pharma on?

Even as some health care trends slowly work their way to the surface, the mass media remains five years behind reality and has yet to recognize them. Yet the reactions of the world's nations to these trends will determine the nature of global health care in 2020 and beyond. The positions pharma takes on these matters will mark it for the following fifty years as either favoring public wellness or as an industry based on political cronyism, bribery and public-be-damned profiteering.

Which side is Pharma on?

Even as some health care trends slowly work their way to the surface, the mass media remains five years behind reality and has yet to recognize them.  Yet the reactions of the world's nations to these trends will determine the nature of global health care in 2020 and beyond.  The positions pharma takes on these matters will mark it for the following fifty years as either favoring public wellness or as an industry based on political cronyism, bribery and public-be-damned profiteering.

Evidence of the first trend emerges every week from the developing nations, from Europe and even the western hemisphere outside the US.  It takes different forms in the various global regions, but the common element is that most countries are unwilling to bear as high a per capita cost for drugs and other health care products as the US.

Within the past week, for example, China's National Development and Reform Commission began an inquiry into pricing practices at sixty drugmakers.  The companies mentioned include GlaxoSmithKline, Merck, Astellas, the generic division of Novartis, and Boehringer Ingelheim.  According to the British outlet, Pharma Times (see here), "The move is being seen as part of China's bid to make healthcare more affordable and pushing prices down."

Another example of the world's rising demand for greater access and lower costs appeared closer to home in Canada (see here).  There the Canadian Life and Health Insurance Association warned that Canada's current system for covering prescription drugs is a "patchwork" that has allowed costs to reach unaffordable levels.  It seems the Canadians have their nose out of joint because their per capita drug costs are the second-highest in the world behind ours.  Planners there want to reduce Canada's drug costs by 30%, which would bring them down to the average level paid by member nations of the Organisation for Economic Cooperation and Development.

The Canadian insurers warn that unless the country rectifies matters, costs will rise at even a faster pace because pharmas are making biologicals a larger percentage of their new drugs.  The annual, per person cost for biologicals averages 50 times greater than that of small molecule drugs.

The aging population in advanced, urbanized nations such as the US and Europe represents another trend that will affect health care as fundamentally as climate change is altering the earth.  For most people 90% of the health care expenses they will incur during their lifetime will come in their final 18 months.  The fact that the fastest growing population segment in these advanced countries consists of people over the age of 85 suggests why health care poses the most ominous concern for the global economy.

In addition to intensive, costly, end-of-life medical care, an aging population requires a substantial growth of the service sector known as long-term care.  Currently assisted living in a residential facility costs between $6,000 and $8,000 per person per month and only a tiny minority of the population carries long-term insurance to help defray that cost. 

As the baby boom moves toward its senior years, the US and other countries need to develop  comprehensive systems for creating, managing and paying for long-term care.  The policy planners involved with the Affordable Care Act originally wanted to include long-term care benefits as part of that legislation, but once they understood the enormous costs and the exploitive private interests arrayed against a national plan, they abandoned the scheme entirely.  It will likely lie untouched in the policy lumber room for at least another decade.

For the most part, pharma and some other health care sectors, such as for-profit hospitals, have viewed the elderly infirm as easy marks for their products and services.  For example, Johnson & Johnson last year paid the federal government a $2.2 billion fine for making illegal kickbacks to Omnicare Inc., a drug dispensing company that provides prescription drugs to residents at assisted living facilities and nursing homes.  According to the Justice Department the Janssen division of J&J bribed Omnicare to increase sales of Risperdal, a drug that treats symptoms of schizophrenia and bipolar disorder.  Some studies have linked it to increasing the risk of death for elderly patients with dementia.

A comprehensive system for long-term care would not leave elderly patients with diminished capacities, living in residential care facilities where they remain at the mercies of prescribers and pharmas that want to rack up service fees and drug sales.  Once again pharma faces the choice of either contributing to a solution or exacerbating the problem.  The industry's historic posture of just wanting to sell its drugs, regardless of cost and other effects on the larger system, places it squarely in the former camp.  Pharma has traditionally disdained active involvement in service ventures because of lower profit margins there.  If pharma seeks to carry that tradition forward, it would raise doubt about whether the industry even wishes to get on the right side of the aging trend.

A third trend involves pharma's growing tendency to game the elements of drug coverage programs around the world for their own benefit in ways that work to the detriment of all the other stakeholders.  Last month the AARP issued a case study on how Pfizer did exactly that when Lipitor faced the loss of its patent (see here).

As Lipitor's patent expiration approached, Pfizer began gaming the system even before the loss of exclusivity.  Its tactics included raising the drug's price by 50% during its last year of patent protection.

As the week of patent loss approached, Pfizer started an aggressive campaign of advertising Lipitor directly to consumers, urging them to stay with the familiar brand.  Around the same time Pfizer paid off the generic house, Ranbaxy, which held exclusive, six-month rights to market generic atorvastatin.  In return Ranbaxy delayed the June 2011 launch of generic Lipitor to December of that year. 

Pfizer then signed an "authorized" generic deal with Watson Pharmaceuticals.  Watson was relieved of manufacturing and various distribution expenses and, in return, shared 70% of its atorvastatin profits with Pfizer.  The deal cut into the sales of competing generics.

In another key element of the anti-generic campaign, Pfizer reduced the co-pay that patients are charged at the pharmacies as an inducement to keep them on branded Lipitor.

So how did Pfizer's "lifecycle management," as the practice is called, affect other parties in the health care system?  The AARP reports that the late-stage price increase for Lipitor created a $649 increase in the average annual, per patient cost of therapy.

It also meant that patients whose coverage requires them to pay a percentage of drug costs (coinsurance) rather than a fixed amount (copayment) had higher out-of-pocket costs.  The higher prices that Pfizer charged retail pharmacies led those businesses to pass along cost increases to insurers and consumers.  For patients whose coverage came from Medicare or Medicaid, this meant Pfizer's revenue gain was made as a result of higher costs to taxpayers.

The AARP report also notes that the six-month, pay-to-delay deal that Pfizer signed with Ranbaxy cost Americans an additional $324 million by depriving them of a truly competitive generic.

While the Pharmacy Benefit Management companies (e.g., Medco, Express Scrips, Caremark) benefitted from managed care rebates that Pfizer offered, the AARP report notes that PBMs often don't pass on such rebates to their clients -- employers and insurers.  Those payers were then charged the substantially higher costs associated with brand-name Lipitor, even though consumers paid less at the pharmacy counter.  So as many consumers continued requesting Lipitor with its lower copayment, "their insurers’ costs remain[ed] unnecessarily high."  Inevitably insurers pass those costs on to consumers in the form of higher premiums. 

During 2011 and 2012 some observers claimed that Pfizer's moves to slash generic profitability during the six-month exclusivity period would deter generic companies from challenging branded patents, thereby slowing generic entry and subverting a key factor for slowing the rise of drug spending costs.  The AARP's authors conclude that "while this behavior may increase revenues for brand-name drug manufacturers, the lost savings from any intentional disruption of the generic drug market will ultimately be passed along in the form of higher costs for consumers and publicly funded programs like Medicare."

So pharma has at least three emerging trends where it must pick a side.  Anyone want to bet which way they'll go?


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Daniel R. Hoffman, Ph.D. President, Pharmaceutical Business Research Associates
About this blog

Check Up covers major health events in our region and offers everything from personal health advice to an expert look at health reform. Read about some of our bloggers here.

For Inquirer.com. Portions of this blog may also be found in the Inquirer's Sunday Health Section

Michael R. Cohen, R.Ph. President, Institute for Safe Medication Practices
Daniel R. Hoffman, Ph.D. President, Pharmaceutical Business Research Associates
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