E-DRUG: big business vs big farma?
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[In the early 1970s, developing countries asked a similar question from the
World Health Organisation. How do we buy enough drugs when our budgets are
being cut and the dermands are increasing. And so the Essential Drug Concept
was born.
Should not the the largest employers be thinking in the same manner? Should
not health, scientific evidence be the first criterion and the Buying Club
considerations be second? This would serve health, be cost-effective and
benefit many except a few.
Developing Countries and WHO got it right 25 years ago and it looks like the
"largest employers" are still learning.
Thanks to Ed Rugger for spotting this; copied as fair use. WB]
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http://www.nytimes.com/2004/06/12/business/12drug.html
Big Employers Join Forces in Effort to Negotiate Lower Drug Prices
By MILT FREUDENHEIM
Hoping to slow the rising cost of providing health coverage, 50 of the
country's largest employers are creating a buyers' club to bargain directly
with drug makers on behalf of five million active and retired employees and
their families.
The move is a major departure from the current industry practice of
employers paying middlemen - known as pharmacy benefit management
companies - to provide drug coverage for their insured workers. Those prices
are supposed to be at discounted rates. But because drug pricing is
notoriously opaque, employers cannot be sure they are getting the best
possible deal.
By shrinking the role of middlemen, the employers hope to seize control of a
system that they say has fueled one of their fastest-growing costs. The 50
employers in the buyers' group spent roughly $4 billion for prescription
drugs last year. Over all, the nation's employers spend more than $70
billion through pharmacy benefit managers, and their drug bills rose 9.1
percent in 2003, on top of eight years of double-digit increases.
Employers say they typically cannot determine the true costs of drugs, and
note that their bills are largely based on discounts from "average wholesale
prices'' that are quoted by the industry but that no one actually pays.
Consider this example: A 30-day supply of 40-milligram tablets of Lipitor, a
cholesterol treatment that is the world's best-selling drug, costs $112.48
at the "average wholesale price.'' For the average employer drug plan it is
reduced to $97.51, not counting various rebates from the manufacturer. But
at the Drugstore.com Web site, available to anyone, the price is $94.99.
"Large employers have an opportunity here to basically change the model and
to get to price transparency in prescription drugs," said Jane Lohmeier,
benefits manager of one of the employers involved in the effort, the FPL
Group. The company spent $14 million last year to provide benefits for
33,000 people at Florida Power and Light and its other divisions.
"We require price transparency in everything we do," Ms. Lohmeier said. "But
drugs have been a little bit of a black box."
Even when prices are lowered, employers' overall costs keep rising, because
manufacturers offer rebates to the pharmacy benefit managers that lead them
to encourage higher use of multibillion-dollar products. Although a portion
of those rebates are passed along to the employers, the companies suspect
that they would be better off negotiating directly for the best prices for
the drugs that best suit their employees' needs. "We pay twice as much for
drugs as we did five or six years ago," said Greg Folley, the benefits and
compensation director for another member of the group, Caterpillar, which
provides benefits for 66,000 employees and retirees and their dependents in
the United States. "We would like to drive the inefficiency associated with
the rebate process out of the system."
The employers are working through the Human Resources Policy Association, a
Washington trade group of senior executives for 220 large companies, and
through Hewitt Associates, a benefits consulting firm. The group has started
discussing drug pricing for next year's health plans with drug makers and
the large pharmacy benefit management companies that currently arrange the
discounts and rebates.
The group plans to negotiate on the 50 drugs that its members spend the most
on, including Lipitor and another cholesterol treatment, Zocor; Prevacid and
Nexium for heartburn; the painkillers Celebrex and Vioxx; Zoloft, Paxil and
Effexor for depression; and Allegra, an allergy drug.
They are seeking "a revolutionary change," said David B. Snow, president and
chief executive of Medco Health Solutions, one of the largest pharmacy
benefit managers, which has offered to cooperate with the employers' group.
Medco and other benefit managers would maintain a role even if the employers
negotiated their own drug deals: they would continue to manage the
employers' payments for thousands of less expensive drugs, including
generics, and would still operate the mechanics of company drug plans.
The benefit manager companies will receive fees to cover their costs and
profits on crucial services like determining plan members' co-payments in
stores and directing patients with chronic diseases to mail-order
pharmacies.
Still, Mr. Snow said he doubted that the employers could save money by
negotiating their own deals for the 50 drugs. "It's worth trying, but I'm
highly skeptical that they can do it," Mr. Snow said.
Drug companies, he said, trim their prices only when the deals result in
larger market share for their products - something he said the employers
were unlikely to achieve by making deals outside the larger buying pools
controlled by benefit managers like Medco, which represents more than 60
million people.
Another pharmacy benefits management executive, though, said the employers'
group might succeed if it sticks together and shows its resolve. "The
cohesiveness of the buying group will matter a lot in terms of their ability
to move market share," said Timothy F. Dickman, president and chief
executive of Prime Therapeutics, which manages drug plans for 10 million
members of nine Blue Cross and Blue Shield plans. "If you don't get the
price you want, you have to be ready to move your business" to another
manufacturer.
A spokesman for the Pharmaceutical Research and Manufacturers of America, a
drug industry trade association, said that the group could not comment on
the marketing arrangements of its members.
But Kenneth Sperling, a health care consultant at Hewitt, said drug makers
so far "have reacted positively" to the employers' initiative. "The pharma
companies realize that the current rebate model has a limited future," he
said.
The system is changing as Medicare prepares to begin paying for prescription
drugs in 2006 and writes new rules requiring more clarity on pricing, Mr.
Sperling said.
The current system is "all based on sales volume and rebates,'' Mr. Sperling
said.
"You can't get to the right solution until you fix the pricing model," he
said. "If the cost is not real, it is not fair to the consumer'' who will be
making choices and paying a growing share of the costs.
"We have a responsibility to show consumers the real cost of the drug and
the real cost of the alternatives so they can make an informed choice with
their doctor."
The buyers' group is the latest and most far-reaching of several recent
efforts to change the way employers pay for drugs. For example, Towers
Perrin, a benefits consulting firm, has recruited "numerous companies" by
promising to pass through to them 100 percent of rebates and other
manufacturers' payments made to their pharmacy benefit manager, which is
Medco, according to Rich Ostuw, a principal at Towers.
"Transparency means you know what the real price is," Mr. Ostuw said. "The
employer needs to understand what the true price is'' - both the gross price
and the net price without the rebate.
On another tack in the push for transparency, Stephen N. Limbaugh Jr., a
federal district judge in St. Louis, recently ordered Express Scripts, one
of the largest benefit managers, to open its electronic and other records
for inspection by lawyers who are suing the company. Stephen E. Littlejohn,
a spokesman for Express Scripts, said the company would not comment on
current litigation.
Mr. Folley, at Caterpillar, said that by using prices established directly
with the drug makers, "consumers and providers can look to see what is the
most cost-effective drug among many that are similar and identical in
efficacy."
"We want to let the consumers and doctors have a good basis for deciding
which drug to select," he said.
But Patricia Wilson, an independent consultant who helps large companies
with their drug plans, questioned the effectiveness "of taking the 50 most
costly drugs and thinking that you can negotiate a better price."
Employers, she said, would have more success if they worked more closely -
not less - with their pharmacy benefit managers. "The question is, How do I
keep pressure on the P.B.M.'s to get a better price?" she said.
And one benefits management executive, Kevin Nagle, said that negotiating
payment rates for stores and mail-order pharmacies is also important in
controlling drug costs. Mr. Nagle is president of Envision Pharmaceutical
Service, a smaller benefits manager that says it has two million members.
Negotiating contracts with drug companies, he said, is "only one part of the
equation."
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