A recent article appeared in the AMA journal noted why certain drug prices, especially generics, are outrageously high. As I explained in a previous post, (http://www.mortontavel.com/2017/01/06/), some drug makers employ legal “scams” to achieve such astronomical results. Below we describe a more subtle means they achieve the same results of bilking the public.
To begin, approximately 13% of health care expenditures in the United States are for prescription drug spending, nearly $420 billion in 2015. High-priced pharmaceuticals, therapies that cost more than $600 per month, are projected to eclipse 50% of total drug spending by 2018. Price increases for these therapies have been persistent, with unit costs increasing 164% between 2008 and 2015.
Pharmacy benefit managers are third-party administrators that process and pay prescription drug claims and negotiate drug prices with manufacturers. These managers are ostensibly charged with the responsibility of mitigating cost increases through such means as controlling increased co-payment requirements for patients, and exclusion of some expensive medications from health plan formularies. Below we use the illustrative example of Duexis, a single-tablet, fixed-dose combination of the nonsteroidal anti-inflammatory (NSAID) ibuprofen and the common antacid, famotidine (PepcidR), marketed by Horizon Pharma (Dublin, Ireland). This is how the pharmaceutical companies have sought to circumvent such restrictions and maintain high prices for drugs with generic alternatives.
Duexis was approved by the US Food and Drug Administration (FDA) in 2011 to relieve symptoms of arthritis and to decrease the risk of developing peptic ulcers in patients at risk for such problems. After approval, Duexis was first marketed at an average wholesale price, used for pricing and reimbursement of prescription drugs, of $158.40 per month. The drug is a combination of 2 over-the-counter medications that are sold as generics and would cost approximately $16 per month if purchased separately at the same doses. Since 2012, Duexis has had 11 price increases. As of August 12, 2016, the monthly wholesale price was $2061, representing a 1131% aggregate increase. In 2015, nearly $200 million was spent on Duexis in the US, with estimated cumulative revenue over 5 years of more than $600 million since FDA approval.
To circumvent co-payment requirements imposed by pharmacy benefit managers on patients to reduce use of high-priced drugs, pharmaceutical companies frequently offer co-pay assistance, also known as drug coupons; coupons cover direct costs to patients but not the amounts that insurers pay the manufacturer. In 2015, pharmaceutical manufacturers spent more than $7 billion on co-pay assistance. Horizon reports that 98% of patients prescribed Duexis have co-payments of no more than $10. Thus, patient out-of-pocket costs for Duexis are less than for ibuprofen and famotidine purchased separately. Federal programs, such as Medicare, do not permit manufacturers to provide co-pay assistance, because such assistance is considered an illegal inducement to encourage use of the drugs. Pharmaceutical companies, however, can work around this federal policy by providing financial assistance to patients through “independent” charities. The Patient Access Network Foundation, a large co-pay charity, provides financial assistance to patients prescribed Duexis and others.
Pharmacy benefit managers can also limit use of high-priced drugs by excluding them from health insurance formularies. When 2 large pharmacy benefit managers, Express Scripts and Caremark, excluded Duexis in 2015, Horizon provided Duexis without charge to patients covered by plans using these benefit managers. This response ensured that patients who received Duexis at no cost and the physicians who prescribed it remained aware of the brand, while the company collected revenue from other payers that continued to reimburse the drug. Pharmaceutical companies also ensure that their expensive therapies remain on formularies by providing rebates to pharmacy benefit managers, calculated as a percentage of the dollar value of a dispensed drug. As the result of an increased rebate offer from Horizon, Caremark removed Duexis from its exclusion list for 2017. Pharmacy benefit managers may provide some of the rebate savings to their customers, but typically much of the rebate is kept by the benefit manager as additional revenue, clearly an ethical violation.
In 2015, Horizon’s CEO was among 5 industry leaders elected to the board of directors of the Pharmaceutical Research and Manufacturers of America. Such tactics have been used to increase sales for other expensive drugs with effective, lower-priced, generic alternatives. Examples include Horizon’s Vimovo (naproxen/esomeprazole), Novum’s Alcortin A (hydrocortisone/iodoquinol) topical gel, Valeant’s Zyclara (imiquimod) topical cream, Mallinckrodt’s Acthar gel (Corticotropin injection), and Insys Therapeutics’ Subsys (fentanyl) sublingual spray.
The US experience with Duexis illustrates the problem of self-serving interests in health care. Companies charge what the market will bear and use available strategies to circumvent price constraints. Insurance plans and pharmacy benefit managers generally avoid the negative publicity that accompanies restrictive drug formularies and pass along the associated increases in costs through higher premiums. Patients, noting that they have paid for health insurance coverage, request what they believe to be the best and most convenient therapies, regardless of the price or generic alternatives. Physicians, perceiving that they are acting in the best interests of the individual patient and seeking to avoid disagreements and insurance hassles, are often unwilling to advocate for clinically equivalent but less costly therapies.
REMEDY FOR THIS PROBLEM
There should be greater scrutiny of the medical value of expensive drugs, especially those with inexpensive generic alternatives. The states and the federal government should ban all third parties from being involved in prior authorization. This is the responsibility of the physician who prescribes the medication. Additionally, states should restrict the use of co-pay assistance programs, particularly since the majority of drug coupons are for brand-name medications for which lower-cost therapeutics are available. Finally, better federal regulation of “charitable” organizations that provide financial assistance to patients is needed. For example, contributions to such organizations from manufacturers should not be allowed for diseases treated by a single drug, because manufacturers can effectively ensure that donations will be spent only on co-pay assistance for their products. To preserve the long-term financial stability of the health care system, the use of medications that provide clearly established benefit to patients should be the first priority, although they have their own challenges. High-priced drugs with generic alternatives should be, as described above, carefully controlled by governmental action