Thursday, May 15, 2014

Please explain this drug pricing

I don't understand this, do you?

Here's a full page ad from Pfizer in the New York Times that, it seems to me, makes a prima facie case that the company is engaged in price discrimination against (1) the federal government through Medicare and ACA Exchange plans and (2) uninsured people.  If you are in those categories, you pay $30.  On the other hand, if you are with a commercial insurance company with one kind of policy you pay $4, and with another kind of policy, $30.

I guess this is legal, but it sure makes you wonder how it can be, or whether it should be.


Anonymous said...

Simple. the government does not allow coupon use where they support the insurance

Paul Levy said...

ACA Exchange Plans are not all "supported" at least financially. Are they still prohibited in those cases?

Also, uninsured people get to pay more because . . . ?

Anonymous said...

What about colchicine? 3 years of exclusivity for running a small trial and lo and behold, Takeda buys out said company and gets a 17 year extension expected to gouge Americans to the tune of $30 billion! Where is the outrage?

Anonymous said...

Patient co-pays vary by insurance plan. Some patients pay $20 for Lipitor and others pay more than $65. It is the insurance companies that discriminate on price. Pfizer is just setting a ceiling on patient out of pocket costs. No one will pay more than $30 per month.

It is great for patients.

Anonymous said...

I have always believed U.S. consumers of drugs get gouged.

Background - there are those who worry about the cost of drugs - who want low prices. There are others who worry more about the drug development pipeline which requires that drug companies can make a good profit on there "overall business" -- including both the few drugs that succeed and the many that fail.

So the ones who want low prices want one buyer or other ways to lower costs of drugs in healthcare.

The ones who worry more about the drug industry and the development of new wiz bang drugs want to find ways to have higher prices to ensure the drug companies have the right incentives for drug development.

The net effect is U.S. drug consumers generally pay much higher prices than those in other countries [many of which allow much greater of market power to drive hard bargains with drug companies] effectively subsidizing drug development. U.S. consumers of drugs get to pay for research and development costs, when those in many other rich countries pay a much smaller portion of this cost.

There is a simple remedy.

The U.S. should institute a system where one entity buys all drugs and sells them for a small mark up to all U.S. health companies.

The price they should pay is the LOWEST charged to any other OECD country. So if a country is Europe is buying drugs nationally basically at close to manufacturing cost, we get that same rate or don't buy the drug. With U.S. buying power nationally we could get the lowest priced charged to any other country.


Those who want low prices are happy.

But what happens to incentives for drug development?

Drug companies will swiftly understand that the game must change.

They will now have to have a "lowest price" for OECD (or rich) countries that is high enough to cover research and development.

US consumers will have lower prices. Though in the long run higher than the lowest rates now charged since other rich countries consumers will have to pay more since they now must cover research and development charges, paid by U.S. drug consumers.

No more sweet deals in Canada or anywhere else.

Other drug prices will be the lowest in the rich world.

Europeans, Canadians etc will pay more, because they will no longer have U.S. consumers footing the bill for drug research and development.

Why won't this work?

Paul Levy said...

Thanks, Anon 2:13.
I'm really confused.

Please explain the "no insurance" pricing?

Also, the explanation given by Anon 10:42 for the $30 price is that the government price cannot discounted by law.

That seems to conflict with your statement that the ceiling on out-of-pocket at $30 IS a discounted price.

I'm really confused.

Barry Carol said...

Brand name drugs are generally significantly more expensive in the U.S. than in other developed countries but generic drugs, believe it or not, are cheaper. Presumably, this is because the U.S. is the largest market and when there are multiple manufacturers of generic drugs, competition to serve large markets results in low prices. As for Lipitor, the generic version is chemically equivalent to the brand. I don’t see any valid reason for doctors to prescribe the brand. About 80% or more of all U.S. prescriptions are now for generic drugs but they account for only 15%-20% of the dollars spent on drugs.

The U.S. wholesale drug market is largely controlled by three companies – Amerisource Bergen, Cardinal Health, and McKesson. The average operating profit margin in the wholesale drug business is about 3%. There is not a lot of gold to be mined by trying to replace drug wholesalers.

I don’t think a so-called most favored nation clause to guarantee the U.S. the lowest price that drugs are sold in other developed countries would work. The stated price can be obfuscated by rebates and other tricks. In the U.S., there is something called the average wholesale price or AWP. Since rebates and discounts from wholesale factor into the equation, some industry wags tell us that AWP really stands for “Ain’t What’s Paid.”

I agree that other developed countries are essentially free riding on the unfettered U.S. market which means that a disproportionate share of drug company R&D costs are covered by high U.S. prices. The best way to combat this, I think, is to learn to just say no. That is, if the drug price is deemed too high, don’t allow it on the formulary or relegate it to a higher tier which requires a much higher consumer co-payment.

Congress in its infinite wisdom, does not allow CMS to take costs into account in determining which drugs and other treatments it will pay for and to win FDA approval, a new drug just has to show that it’s more effective than a placebo. Why should we pay a high price for a new drug that is little or no better than existing drugs in the market that costs a lot less? There is lots of room to spend society’s resources more wisely here.

Anonymous said...

Once again, an elegant comment, Barry. (How do you know all these things?!)
What frustrates me is that Congress continues to focus on cutting Medicare payments rather than do the more thoughtful but harder work of reforming some of the brainless policies that make Medicare's expenditures so high. Of course much of this is due to pressure from the equally brainless public, but at some point common sense should prevail.


Anonymous said...

Barry Carol,

If new drugs are of marginal benefit at much higher cost they shouldn't be allowed in the formulary I agree.

For instance a cancer drug that allows someone to live 1 week longer than its nearest competitor but cost two or three times as much [rather than $50K per year, $100k to $150K per year].

But there are drugs that do dramatically improve outcomes at high cost, we should have a way to ensure U.S. consumers are not subsidizing pharmaceutical drug consumers in other rich countries.

Barry Carol said...

Anonymous 3:40 PM,

As many former blockbuster brand name drugs lost patent protection in the last five years or so, many more low cost generics are now available and the growth rate of spending for prescription drugs slowed materially. The biggest problem area is the specialty drug category, especially biologics and other drugs to treat cancer, MS, RA and a few other conditions. Drugs that qualify under the Orphan Drug Act of 1983 for conditions that affect fewer than 200,000 patients are also extremely expensive.

Driving down the cost of the most expensive drugs is easier said than done. For example, Gilead Sciences new drug, Sovaldi, to treat hepatitis C is priced at $84,000 for a 12 week course of treatment in the U.S. That’s $1,000 per pill. Gilead will sell the same drug in Germany for $66,000 and in the UK, the price is $57,000. In a poor country like Egypt, it’s $840. Gilead tries to justify its differential pricing to developed countries based on differences in per capita GDP. I think the rationale that U.S. patients should pay 30% more for Sovaldi than German patients do just because U.S. per capita GDP is 30% higher is absurd. No other industry operates this way as far as I know including those whose products are patent protected.

Since Sovaldi is a highly effective drug that can offer a cure for hepatitis C most of the time, it’s tough to just say no, we won’t pay for it. Payers could try reference pricing to limit what they would pay to what other developed countries pay and dare the drug company to go after the patient for the rest of the money knowing that most can’t afford it. Reference pricing could be quite effective, though, for drugs that cost a few dollars per pill in the U.S. and 25%-50% less in other countries and there are quite a few of those.

With respect to cancer treatment, oncologists very recently have started to look a lot harder at costs vs. effectiveness of various treatments. Last year, Memorial Sloan Kettering stopped using one drug because there was an alternative that cost half as much and was equally effective. Four weeks after that decision, the manufacturer of the more expensive drug cut its price in half.

Historically, the drug companies’ attitude is if the docs prescribe it, pharmacies have to stock it and payers have to pay for it and the price is the price. If the docs stop prescribing drugs that are substantially more expensive than more cost-effective alternatives, pricing will likely be reevaluated and quickly.

Barrett Mand said...

The answer to the question actually lies in the fine print, though it's not very clear to a person who doesn't deal with these on a daily basis (I work for a hospital as a reimbursement specialist). The fine print says "Patients with Medicare Part D or an Affordable Care Act (ACA) Exchange plan must agree not to use any prescription benefits to purchase LIPITOR."

The reason for this is because Medicare guidelines state that you have to bill them primary and doesn't allow discount programs such as these to be used in conjunction with Medicare Part D. Many drug companies are currently not allowing ACA insurance to use theirnprograms in conjunction as well simply because they ACA is so new and regulations are changing constantly. They're trying to avoid having to go through the legwork of potentially having to revoke coverage to patients due to any legal changes to the ACA preventing their use like Medicare does. There are some drug companies that will offer to ACA patients. That's why the cost is $30 for the listed people, because the deal has to be used without billing Medicare Part D or the ACA insurance. In this sense, they're actually writing off the entire cost of the drug, minus $30. They can offer the lower price to those with other commercial insurance because they're pnly writing off most of your copayment resulting in actually a much better deal for the ACA/Medicare D patients.

Paul Levy said...

I believe you, but I still don't understand! :)