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Past Issues
Volume 16, number 4
April 2002
Contents
Price Spiral Driving Medicaid Woes
Limiting care fails to control costs
ADAP or Perish?
Cuts and restrictions are coming
New Ways Needed to Fight Patent Monopolies
Greed and indifference are not silent movies
Drug Industry Reforms
Let's talk about it
Grassroots Posers Rooted Out
We're Pharma. We're your friend.
Opinion
Project Inform's Martin Delaney on drug pricing
Patient Care Squeezed by Soaring
Drug Prices
By Bob Huff
First Michigan and now Massachusetts have thrown down the gauntlet
to the pharmaceutical industry over high drug prices and runaway
healthcare costs. Will New York be next? Unable to sustain ballooning
Medicaid drug budgets, these states are telling pharmaceutical makers
to either bring prices down or face banishment to a list of medications
that will require third party approval before they can be prescribed.
In a highly competitive market, prior approval is a steep hurdle
that effectively means the other guy's drug gets Medicaid's lucrative
business; unfortunately, prior approval can create big hurdles for
patients as well.
This is a high stakes game and an industry unaccustomed to being
bullied has pulled out all stops to undercut its foes with lawsuits
and public outcry. So far, judges have allowed the cost containing
experiments to go forward, and after years of manipulation by the
industry's public relations machine, their latest disaster alerts
ring false. Still, many legitimate consumer organizations are alarmed
about the impact these plans might have on the country's most vulnerable
citizens: the elderly, the disabled and people with complicated
treatment needs, including those with HIV.
According to a new report by the National Institute of Health Care
Management, spending on prescription drugs in the U.S. increased
faster than any other aspect of health care last year, hitting a
new high of $154 billion. Medicaid expenditures on drugs have gone
up by 18% per year for the past four years. Shrinking state and
federal budgets have put Medicaid programs under tremendous pressure
to hold down costs. Last year at least eighteen states passed laws
designed to contain state or consumer drug expenditures and a number
of experiments in tighter administration of public drug spending
are underway. These responses are important to watch because trends
in Medicaid often soon spread to other public health plans such
as ADAP, the states' AIDS Drug Assistance Programs or New York's
drug assistance plan for low income seniors (EPIC).
For a large healthcare payer, there are really only two ways to
rein in mounting drug expenditures. The hit to a state's drug budget
is determined by this equation: Price x Utilization = Cost. If you
can lower the price, you lower your overall costs; lower the quantities
consumed, and costs also go down. Lower them both... Excelsior!
In Medicare and Medicaid, drug pricing is addressed by laws that
say companies must offer their best wholesale prices to government
programs. This is supposed to insure that government programs pay
no more than any other large purchaser of drugs does. But because
of a complex set of classifications and pricing tiers, some programs,
such as the Veterans Administration (VA) get better prices than
Medicaid. Still, government doesn't have a lot of leverage to bring
prices lower than what manufacturers are willing to offer.
Cut Prices?
Efforts to bring drug prices down in the U.S. range from pitiful
to quixotic with no really promising solutions in between. Several
pharmaceutical manufacturers are boosting the idea of discount cards
for seniors that would afford a 10 to 40 percent break off the suggested
retail prices of their products. As one critic noted, a 10 percent
discount on a Ferrari won't help someone who can barely afford a
used car. President Bush has personally voiced his support for a
national discount card.
At the other end of the spectrum, many patent reform advocates
see excessive terms of market exclusivity as the culprit. Some have
called for cutting back patent protection from 20 years to as little
as three years before lower cost generic drugs are allowed to compete.
The strength of patent rights may also be conditional upon the source
of the underlying research. U.S. research dollars very often contribute
to the discovery of drugs that are subsequently developed by industry
then sold back to government programs at monopoly prices. In effect,
taxpayers are paying twice for these medications. Any other ground
floor investor would be richly rewarded, advocates say, so why should
the public good benefit less? Many are pressing the administration
to apply an existing law that could compel drug companies with products
derived from federally funded research to sell them at reasonable
prices. This legislation, part of the Bayh-Dole Act, was passed
in 1980 but its provisions have never been exercised.
Meanwhile, state governments, which bear much of the burden of
escalating Medicaid drug prices, are searching for new, practical
ways to hold down costs. Private prescription plans, hospitals,
HMOs and other volume purchasers have been able to bargain with
drug makers and pharmacists to get better deals. Last year several
states decided to pool their purchasing power and improve their
bargaining clout. But again, if prices are exorbitant to begin with,
then few savings are possible and the discounts won are often soon
erased by price hikes.
A few states have started to demand additional rebates from manufacturers.
One approach is a kind of frequent buyer plan where credits for
money spent on a particular company's drugs can later be exchanged
for free product. Some rebate plans seek across the board discounts
that demand similar sized cuts from every maker and every drug,
its base wholesale price notwithstanding. Rebate plans may save
money, but they don't alter the disparity in pricing between similar
drugs in a therapeutic class. This leaves the door open for preferred
formularies and prior authorization schemes that try to steer patients
and doctors away from using the higher priced drugs. Not surprisingly,
both consumers and the pharmaceutical industry dislike these plans.
The Industry Fights Back
The pharmaceutical industry's answer to all of these schemes is
to call for open formularies and the freedom to raise prices at
will. In Florida, rather than give back rebates, companies negotiated
to invest the equivalent of rebate dollars in disease management
education programs. The net effect of this maneuver — as is
intended from the industry's professional education efforts —
was to actually increase the utilization of drugs that year.
Pharma protests that the problem with pharmaceuticals in America
is underprescribing, not overutilization; that many people who could
benefit from new drugs are not yet aware that they are suffering.
Direct to consumer advertising has caused demand for anti-depressants,
ulcer drugs, allergy medicine and Viagra to surge. The industry
is spending mightily, not only to grow the market for their products,
but also to enlist consumer voices in the fight against drug limits.
Recent news stories have detailed the manufactured nature of some
of these so called astroturf grassroots groups. A spokesman for
the Pharmaceutical Research and Manufacturers of America (PhRMA),
quoted in the Boston Globe, described his organization's response
to the roll out of a prior approval plan in Massachusetts: "We will
launch a grass-roots education campaign, so they're aware of what
the state's trying to do, before it's implemented." (See Pharma
Speaks! in this issue)
Some analysts believe that maintaining market share is ultimately
more important to pharmaceutical makers than short term maximization
of profits. If three similar drugs in the same therapeutic category
are in the market at different prices, then there will likely be
a fierce battle among them to preserve market share. A company will
swallow lower profits rather than give up even one sale to a competitor,
the theory goes. And with profit margins as steep as those in the
prescription drug industry, a maker may well find price cuts preferable
to ceding even a fraction of their drug's space on the pharmacy
shelf.
Michigan Rebels
Against this background, the State of Michigan rolled out an aggressive
plan to secure significant cost savings through rebates, without
overtly intending to restrict consumer or provider choice about
which drugs can be used. The Michigan plan created a preferred drug
list with forty therapeutic categories. Within each category, the
State's drug advisory panel chose the "best in class" drug as a
benchmark. Drugs were selected by multiple criteria, not just by
price, and in some categories, the best in class drug was not the
cheapest contender. The state allows drugs that are on the approved
list to be prescribed without prior authorization; drugs not on
the list can be prescribed, but the doctor must justify the choice.
So far, this is not unusual for a PA scheme, but Michigan took an
extra step. They said that makers of other drugs in a particular
therapeutic category could have their products added to the preferred
list if they were willing to cut prices to match that of the index
drug. This is intended to bring the price of more expensive drugs
in line with that of the best priced product in each class. The
result is supposed to level the playing field for manufacturers
and control costs for the State, all without creating artificial
prescribing restrictions for patient or doctor. Companies might
profit less, but they'd retain market share.
Michigan's plan was developed in secret then rolled out as a fait
accompli. Not surprisingly the pharmaceutical makers were apoplectic.
The industry spends billions on marketing and lobbying and plays
hardball when forces intervene in their freedom to pursue market
share. Lawsuits have been filed to prevent Michigan's program from
going forward, but so far, the State has been upheld. This idea
could yet be sunk if industry leaders stage a walkout rather than
submit to additional rebates. Several large manufacturers have refused
to lower prices to participate in Michigan's list, effectively abandoning
market share by boycotting the system. The industry may decide that
giving up market share in one or two states is an acceptable price
to pay to stop this plan from spreading elsewhere. It remains to
be seen if these tactics will work, but for now, some Medicaid patients
in Michigan will certainly face restrictions and drug denials.
Michigan hopes this system will save them $42 million during its
first year with PA. In March, Massachusetts announced that they
were adopting a similar strategy and New York State is rumored to
be next in line. Meanwhile in Washington, the powerful pharmaceutical
lobby is hard at work mobilizing Congress and consumer groups against
any effort to meddle with the sacred bonds between doctor, patient,
and Madison Avenue.
Cut Utilization
Since prices are so tough to tackle, an easier path for government
programs is to tighten up on utilization. Usually waste and fraud
are the first to come under scrutiny; no one can complain about
limiting those. Next come stricter controls over a short list of
extremely expensive drugs and other treatments such as human growth
hormone. Finally, discussion turns to plans designed to steer patients
from expensive brand medications to equivalent generic versions
or better-priced competitors. While ostensibly about price savings,
these switching efforts may have unintended negative consequences
on utilization and access. These solutions sound good in legislative
chambers but they are creating a new wave of problems for patients
— especially when drug limits are implemented crudely or without
regard for the consequences to those denied treatment or treated
improperly.
Prior authorization (PA, also known as prior approval [or in California,
TAR=treatment authorization request]) was born in the private health
plan industry as a way to assure that the prescription of super-expensive
drugs was justified. It requires an agent of the payer to review
a drug prescription and approve its use for that patient before
it can be dispensed. PA is supposed to be a checkpoint between the
pharmacy and the consumer to insure that the rules for dispensing
drugs are followed. These rules may have their origins in concerns
about drug safety, mandates to restrict waste and abuse, the desire
to make drug selections more rational, and ultimately, the need
to hold down costs. But it didn't take long for bureaucrats to recognize
that utilization of the listed meds tended to drop significantly
as the PA process increased the burden on doctors, patients and
pharmacists. Doctors tended to choose a path of less resistance
rather than deal with complicated forms and exasperating phone calls
— even if it meant not prescribing a drug they were convinced
was appropriate for an individual patient.
So the true impact of PA on utilization may not come from rationalizing
the prescribing practices of doctors as much as from installing
a mechanism that puts savings ahead of patients' needs. And it's
foreseeable that PA schemes will cause the most trouble for people
who use drugs the most — usually the sickest and most vulnerable
patients, such as seniors, cancer patients, or people with chronic
illnesses such as AIDS who need multiple drugs to control side effects
and prevent complications.
Crude Attempts to Control
Florida initiated a system in 2000 that put a four-drug cap on
the number of brand name medicines a person on Medicaid could receive
without getting prior authorization. This meant that someone already
taking two drugs could show up at a pharmacy with three new prescriptions
for a newly diagnosed condition and be told they could only fill
two of them since they were over their 4-drug limit. At this point
the pharmacist is supposed to contact the doctor to see if one of
the drugs could be changed to a medicine that didn't need PA. But
according to a study of the program's impact on consumers conducted
by the University of Florida, there were instances when patients
simply thought that they had been denied access to a drug and went
home without their medication. There was no good mechanism for following
up with the doctor or for providing a temporary supply of the prescribed
drug.
This study (widely distributed by the pharmaceutical lobby) also
found hidden costs in Florida's poorly administered PA program.
For example, if individuals' drugs are denied or interrupted, hospitalizations
may increase or additional office visits may be needed to adjust
doses or treat complications. A person with a well-managed medical
condition who is receiving expensive drugs may actually consume
fewer resources than someone with the same condition who requires
frequent dose adjustments or more serious interventions that limit
their ability to work and enjoy life normally. A Federal class-action
lawsuit against Florida Medicaid has recently been filed on behalf
of low-income patients who have been denied prescription drugs without
proper notice.
New York Medicaid has begun its prior authorization program with
a short list of the most expensive drugs. Serostim is a recombinant
human growth hormone that can cost as much as $8,000 a month to
use. The drug is approved to combat wasting syndrome in people with
AIDS and may have other beneficial uses. It's also possible that
abuse may be a problem. As one nurse who monitors patients on Serostim
put it, "It makes you feel fifteen years younger." This is usually
the first drug that state payers try to limit, not only for its
exorbitant price, but because there is no evidence of benefit after
the first 12 weeks of use. Because growth hormones are highly valued
by bodybuilders for their ability to build lean muscle mass, Serostim
prescriptions are also carefully scrutinized for fraud and diversion.
Serostim costs are a particular problem for New York State Medicaid
since it is one of the program's top five most prescribed drugs.
A policy requiring prior authorization for Serostim went into effect
in New York on February 15 of this year. A local pharmacist reported
to GMHC that before the new policy began she had twelve patients
using the drug — one month later she had four. And of those
four, two are having or have had significant problems obtaining
authorization to receive Serostim. One patient's doctor insisted
that he got authorization for a 28-day supply. However when the
pharmacist entered the authorization number into the automated phone
system, only a one-day supply of the drug was approved. The pharmacist
spent a week with Medicaid trying to solve the problem before sending
the case back to the doctor to straighten out.
The other patient had his authorization rejected by Medicaid after
the pharmacist punched in the code provided by the doctor's office.
Eventually it was discovered that the doctor had written down the
wrong code number in the first place. Despite these many, obvious
sources of error, the State insists that prior authorization in
New York is a simple three-minute process that works well.
There are signs that a major expansion of prior authorization for
New York State Medicaid recipients will begin by including the therapeutic
class of Cox-2 inhibitors used for arthritis pain management. New
York's draft plan is typical in requiring a doctor to call and answer
a long list of questions before receiving an authorization number.
The patient would then take the authorized prescription to a pharmacy
where the pharmacist confirms the PA by telephone. The cycle would
be repeated after every two refills or after 60 tablets had been
dispensed, which ever comes first. This elementary draft of a plan
is sure to cause inconvenience and pain for affected patients unless
strong consumer protections are added.
Consumers Resist
A letter written to state legislators by New York's StateWide Senior
Action Council detailed some of the problems patients can expect
if this system is implemented. The group is particularly concerned
that stifling prescribing will make it impossible for many individuals
who need medications to obtain them. Furthermore, StateWide anticipates
that physicians already at the tipping point of their willingness
to participate in Medicaid due to low reimbursement rates will simply
refuse to treat Medicaid patients if the burden becomes unreasonable.
"The plan will erect bureaucratic hurdles so high that most physicians
will be unable to obtain prior authorization. Contemporary medical
practice puts doctors under extreme time and economic pressure to
abbreviate each patient contact, leaving them without time to make
the telephone calls. Further, the telephone questions will be considered
professionally demeaning, with doctors' professional judgement subject
to second-guessing by an automated interactive phone system."
Dr. Robert Witzburg, chief of community medicine at Boston Medical
Center echoed these fears to the Boston Globe, "It's a tremendous
hassle. Prior approval saves money in the short term because doctors
and patients just give up. But in the end you just substitute other
high-cost interventions because the drugs were unavailable. It's
a disaster."
New York's StateWide group also believes that doctors will inevitably
avoid prescribing medications requiring PA, even it means compromising
the best interests of the patient. Since the harmful outcomes are
apparent to anyone who has experience with the realities of medical
care, the group wonders about New York's true agenda: "Some... suggest
that the state is simply proposing prior authorization to force
pharmaceutical manufacturers into paying higher Medicaid rebates.
They suggest that the state would drop the prior authorization if
the manufacturers cough up more money. StateWide certainly hopes
that this is not true since it would mean that the plan was intended,
in effect, to hold hostage the medical needs of patients in order
to procure money."
A Kinder System?
Theoretically, the problems with PA arise from poor implementation,
not necessarily from the concept itself. There are proposals to
use sophisticated networked computer systems to manage drug authorizations
without creating undue burdens for the participants. Ideally, the
transaction between a doctor, the PA plan's administration and the
pharmacist would be swiftly and transparently handled so that patients
are never confused or inconvenienced by delays, denials, or the
need to make multiple trips to pick up their medicines. While the
technology exists to make a pain-free system possible, ultimately
the rules adopted by legislatures and administrators will determine
how successful a PA program will be.
A national pharmaceutical benefits managemment company (PBM), First
Health Services, is the vendor for Michigan's controversial PA plan
as well as for a more conventional plan in New Jersey. The company
would also like to bid to operate a proposed Medicaid PA plan in
New York State. In its marketing efforts, First Health places the
emphasis on safety. There are certainly important public health
gains to be made from reducing prescribing errors, drug interactions
and preventable side effects by using a central authorization system.
Computerized review could detect potentially deadly drug combinations
before they were dispensed. The patients likely to bear the greatest
burden from PA, those who use medications the most, are also the
patients most likely to have drug interaction problems and could
benefit most from a system that analyzed their entire pharmaceutical
usage in one place.
Another worthy goal of prior authorization is to educate providers.
The aim is to alter physicians' prescribing patterns by asking them
to think twice before requesting the latest and most expensive drug
when an earlier, far less costly, drug performs just as well. The
difficulty is to accomplish this without imposing frustrating barriers
that compromise appropriate patient care. Some advocates are proposing
other ways to encourage doctors to prescribe responsibly, such as
counter-marketing programs designed to offset the millions of dollars
industry spends influencing physicians' prescribing habits.
It's clear that safeguards must be put in place to insure that
cost cutting does not come at the expense of beneficiaries' health.
One idea is to exempt entire classes of patients from PA based on
their diagnosis. For example, it is understood at the outset that
people with HIV on treatment will require multiple brand name medications,
therefore an HIV diagnosis should be sufficient to justify a blanket
PA. Another approach would be to exempt patients based on individual
clinical necessity. A doctor should be able to make one phone call
that would justify authorization of prescriptions for an entire
year if a person has complicated treatment needs. These may be fair
and humane solutions, but for budget hawks, one overarching question
looms larger: If everyone who needs medication is able to obtain
their drugs without barriers, will there be any room left to realize
significant savings? And if the state can't save money without harming
patients, then are plans to limit utilization merely papering over
the crisis? It may all come back to prices.
Changes need to be made, and it's clear that the current system
cannot continue to support the growing burden indefinitely. Most
critically, the pharmaceutical industry needs to accept discipline
over its pricing and marketing practices. As for the states, better
provider education, a focus on waste and inappropriate prescribing,
and measures to improve drug safety are all potentially positive
outcomes of prior authorization plans. But crudely implemented schemes
to limit utilization will only cause additional pain and suffering
while simply shifting costs elsewhere.
Many thanks to Susan Dooha, David Wunsch, Gregg Gonsalves, Anne
Donnelly and Lei Chou for help in preparing this article.
Prior Authorization: How Not to do it.
Example of an actual prior authorization procedure used by an
HMO in Texas.
Applying for Prior Authorization
If you are currently taking one of the restricted medications,
your doctor may request a review by calling the Plan's pharmacy
benefits manager (PBM).
If review is not sought in advance, the process for prior authorization
is as follows:
1. The prescription is presented to the pharmacy. In
other words, if you need a refill for your ongoing treatment or
you need a new medicine, but your doctor forgot to check with the
PBM first...
2. When the pharmacy submits the prescription to the PBM,
an on-line message tells the pharmacist that authorization is necessary.
Sorry, there's a problem. No information about getting an
emergency supply. No warning of possible risks to your health from
discontinuing or delaying a treatment.
The pharmacist is provided with the PBM's phone number to begin
the authorization process. That's if the pharmacist has the
time or patience to wait on the phone. More likely he says, "Come
back tomorrow." Or simply, "Sorry it was denied."
3. The member should ask their prescribing physician to
contact the PBM to discuss the criteria for use and other clinical
parameters. The burden is on you. If you really want the drug
you need to go back to your doctor and tell him he has to call the
PBM with a good reason why you should have that medicine. Or maybe
you just give up after hearing, "Sorry, it was denied."
4. Coverage is decided and patient and physician receive
notice of either approval or denial. If they approve the prescription
(and you're not in the hospital from complications), you can go
back to the pharmacy and pick up your medicine.
Hopefully, no more than a week has gone by.
If they deny authorization, go back to your doctor and start
all over again.
If coverage is denied, your physician can request an appeal. With
an appeal, new information MUST be provided. It's not enough
to say that you really need this drug... your doctor has to come
up with another reason why you should be treated the way he thinks
is best.
Good luck!
We can do better
The bottom line for any fair prior authorization (PA) system
should be that no patient is denied medicine simply because arbitrary
procedures haven't been followed.
The patient shows up at the pharmacy with a prescription. The script
is entered into the pharmacist's computer, which communicates with
the PBM. The PBM computer recognizes that the script is for a listed
drug but the doctor hasn't obtained PA. At this point the PBM computer
should:
1) Approve a 30 day supply of the drug for the patient;
2) Inform the pharmacist that a temporary exemption has been issued
and print out a written notification to the patient;
3) Send a written notice to the doctor that this drug requires
PA and tell the doctor how to request authorization. Follow up with
phone calls to the doctor;
4) Insure that all problems are resolved before the patient returns
for a refill.
In cases when the doctor has correctly obtained PA, the patient
should present the script to the pharmacist whose computer will
confirm the authorization and approve dispensing the drug. No special
action is required of the patient or pharmacist and the confirmation
is handled transparently. Once authorized, PA should remain in effect
for one year.
In cases when PA is denied but the doctor states the drug is medically
necessary for the patient, PA must be granted and the drug must
be dispensed.
ADAP Strapped
By By Lei Chou and Anne Donnelly
ADAP stands for AIDS Drug Assistance Program, although some states
have different names for similar programs. ADAP provides life-sustaining
and life-prolonging medications to low income individuals with HIV
who have no other source of payment for these drugs.
In June of 2001, ADAP served roughly 77,000 people and national
ADAP enrollments have been growing consistently at about 600 people
per month.
Although an average of 80 percent of ADAP funding comes from the
Federal government, individual ADAPs are administered by the states
and require some additional amount of state funding if they are
to offer more than bare bones drug coverage. The list of medications
provided by the ADAPs varies considerably from state to state, ranging
from excellent programs in California and New York to very problematic
programs in much of the Southeast and other areas.
Federal ADAP funding was increased by $50 million this year —
well short of the $130 million estimated need. Recent pharmaceutical
price increases may push this estimated shortfall up by an additional
50 percent during 2002. This means that most, if not all, ADAPs
will run out of money towards the end of this year.
Pressure on ADAP is expected to increase as new drugs such as pegylated
interferon and T-20 become available next year. Access to these
newer products will probably require prior authorization. Additional
pressure will likely come from rising unemployment and loss of insurance;
a steady level of new HIV infections and a possible rise in AIDS
cases; the emergenge of long-term drug side-effects; and the tightening
of state Medicaid programs.
For 2003, the President has proposed flat funding ADAP (no increases).
Advocates for ADAP say a push in Congress for an Emergency Supplemental
Request to increase federal funding is needed right away. If no
supplemental funding is received this year, then next year's shortfall
could rise to $161 million or about 14 percent of the total ADAP
budget.
With the Federal shortfall, the States (already under budgetary
pressure from Medicaid and other health programs) will need to contribute
additional money to avoid resorting to waiting lists or other restrictions.
Six ADAPs currently have waiting lists representing about 700 people
who are going without treatment. This number is expected to grow.
Several states currently have restrictive eligibility criteria and
several more are likely to introduce new restrictions later this
year. Most states will soon begin to debate increasing their own
contributions to ADAP funding, but few can afford to fill the gap.
All of this means that ADAPs — and the people with HIV who
depend on them — are in deep trouble.
The 2002 National ADAP Monitoring Report will be released soon
by the Kaiser Family Foundation. This report will be available at
www.kff.org
(selecting this link will open a new browser window).
For detailed information on each state's individual ADAP, contact
the AIDS Treatment Data Network/The Access Project: www.aidsinfonyc.org/network/access.
Fighting Back Against Pharmaceutical
Company Greed
By George M. Carter
The high price of drugs is destroying what there is of the dismal
U.S. public healthcare system. AIDS Drug Assistance Programs (ADAP)
have been crippled nationwide and the formularies of state Medicaid
programs are under enormous strain. The pharmaceutical industry
protests that they run a risky business and that their prices are
fair. There's nothing wrong with drug makers earning a fair and
decent profit, nor, certainly, with researchers bringing home good
pay for doing good work. But with government subsidies, tax write-offs
and the numerous incentives industry receives in the form of corporate
welfare, the profit from bringing a drug to market dramatically
outweighs the cost.
It appears that industry operates on the model that says, "Greed
drives the engine of discovery." While this idea may be partly true,
it has many pitfalls — and millions of human lives tumble into
these pits each year. Examples were sharply highlighted at a meeting
on neglected diseases sponsored by the humanitarian group, Doctors
Without Borders held in New York City, March 14, 2002. There is
little or no research occurring on better treatments for malaria
or tuberculosis, despite their impact on millions of people. Compound
this neglect with the fact that legal controls over certain drugs
allow companies such as GlaxoSmithKline to actually block countries
from obtaining fairly priced generic medications. If industry invested
a fraction of the energy they spend for public relations and legal
battles in finding new ways to help people afford treatment, they
could be part of a win-win situation, be better positioned to negotiate
reasonable tiered pricing strategies, have a vastly improved public
image — and quite frankly, not be guilty of committing what
many believe to be a criminal act of enormous proportions —
an economic form of genocide.
The failure to study potentially useful products that have little
profit potential stands as a further indictment of a broken system.
Once a drug's patents have expired it is almost never clinically
evaluated to see if it has therapeutic value for neglected or commercially
unimportant diseases. A nearly complete absence of studies on the
dietary supplements used by large numbers of people to help manage
chronic diseases makes the data vacuum even worse.
How can activists respond in a meaningful way? Many are seeking
new ways to inject competition into the equation, which may be the
only way to gain genuine leverage against an industry that is out
of control. One avenue being sought and strongly supported by activists,
physicians and people with HIV/AIDS around the world is the use
of certain legal means, recognized as valid by the World Trade Organization.
While these are generally thought to apply to developing economies,
could they also be invoked by struggling state health programs in
the U.S.? Here's a few proposals.
A large pharmaceutical purchaser, say a state Medicaid formulary,
could obtain expensive medications through a parallel import program.
This would allow the state to buy drugs identical to the expensive
domestic versions, but licensed only for distribution in other countries
where they are sold for less. This idea drives the industry crazy.
Another approach might be for a state to issue a compulsory license
permitting local manufacturers of generic drugs to make copies at
reasonable prices. Admittedly, these radical solutions might need
significant litigation to realize, but perhaps an attorney general
from a state at the end of its budgetary rope might be the first
one to try.
Still another proposal might be for states to build on the personal
use importation exception that permits a person to import a three-month
supply of drugs from another country. In the early 1990s, the PWA
Health Group buyer's club in New York exploited this rule to import
as-yet unapproved drugs to the United States, which were distributed
to its members. Nowadays most available AIDS drugs are approved,
but there are generic formulations made by companies such as CIPLA
in India that could be brought in. Some of these are convenient
three-in-one combinations using drugs from multiple manufacturers
that could never be produced otherwise. An organization such as
a state Medicaid formulary or a separately constituted NGO could
serve as a broker to undertake this activity. In the meantime, more
and more Americans everyday fall hostage to the greed of Big Pharma.
The need for relief is dramatic and growing. Must seniors, the disabled
and people with AIDS gather before the gates of corporate headquarters
and state legislatures to demand change? Or will the drug industry
wise up — and drop their prices substantially?
Can We Reform the Drug Industry?
An Online Discussion This is an edited email
discussion that took place between participants in the AIDS Treatment
Activists Coalition (ATAC). George Carter is an activist interested
in patent reform and researching complementary therapies; Eric Goldman
is a patent attorney.
For more on ATAC, see www.atac.org
George M. Carter wrote:
I think we should reform the patent system so pharmaceutical companies
only get three years of exclusive profits on a patented drug instead
of the twenty years they currently enjoy. After that, put price
controls on them. Slash the salaries of the executives and increase
the salaries of the people doing the real work — the bench
workers and the study nurses.
Eric Goldman: Believe it or not, this is an issue of constitutional
proportions. Today's patent laws are derived from Article I, Section
8 of the Constitution. Thus, today, in order to encourage drug companies
to share the research and development information behind their drug
development efforts, we grant them patent protection to ensure that
disclosing that information will not kill their profits.
George: Patents may be constitutional, but we still need reforms.
Eric: Even if we eliminate or reduce the duration of the state
monopoly created by a patent, one might predict that drug companies
will begin to keep more and more of their research secret. What
they cannot protect under patent laws, they will maintain as trade
secrets. Once information is not freely shared, progress slows.
There would be no more presentations at conferences about pending
research.
George: But in genome research, proprietary claims and gene patents
are stifling progress. Even university researchers have been prevented
from investigating genes that are "owned" by someone else.
Eric: Anyway, I don't think gutting the patent laws will get us
where we want to go. In my view, the best way to go is to track
which drug patents were obtained in whole or in part with NIH money
or money from another government source, and then seek to control
the price of drugs so patented. There is already some legislation
on the books (Bayh-Dole Act) to support this approach; it's just
not being actively pursued by anyone.
George: Why are corporations able to profit from taxpayer-supported
research?
Eric: Twenty years ago the government adopted a policy of granting
exclusive licenses to let private industry conduct basic research
on discoveries from government labs, rather than having the NIH
conduct or fund such research directly. This was part of the whole
"streamlining government" revolution. For example, the NIH holds
patents on using blue-green algae as a topical and in-vivo microbicide,
but is not doing the basic research. They've farmed it out to small
companies under exclusive licenses.
George: And that development work should go forward with promising
candidates investigated independently by the NIH, universities and
hospitals. Then the cost of developing a drug could be assessed
rationally and prices set accordingly. Until then, why shouldn't
we be able to import fairly priced generic versions of life-saving
drugs that are unaffordable here?
Eric: CIPLA in India and several other Israeli and Brazilian companies
ignore patents to make generic versions of protected pharmaceuticals.
But none of the outside-the-U.S. companies I am aware of have the
infrastructure or expertise to develop drugs: they really ride on
the coat tails of U.S. and European industry. They wait for Big
Pharma to screen the drug, do the pharmacokinetics and toxicity
stuff, do the full-scale clinical trials, and then get the drugs
approved by the FDA.
George: Hmm. That sounds like the way Pharma treats the NIH.
Eric: If the U.S. and Europe start buying CIPLA knockoffs, or if
we demand domestic pricing on parity with the lowest price developing
nations pay, we would simultaneously remove virtually all incentive
to develop AIDS drugs **and** we couldn't use the enormous inflated
prices gouged out of U.S. customers to help subsidize lower rates
in the developing world.
George: Nonsense. Paying lower prices here until the necessary
reforms are in place would free up funds currently wasted on executive
golden parachutes and the marketing departments of Big Pharma. That
money could be used to do other things like expand ADAP coverage.
Eric: This is a nation that functions on the profit motive. We
have to accept that. Take away the profit motive, and investors
in pharmaceutical companies will move their money someplace else.
And, since we all seem to agree that the U.S. drug industry is the
primary source of R&D, this prospect scares me.
George: The bottom line is, the industry is not going to settle
for any situation where they don't make obscene profits.
Eric: I personally don't care how much profit drug companies make.
I do care how much of that profit comes from me, either directly
as a consumer or indirectly as a taxpayer; and I do care if their
profit depends on restricting worldwide access to necessary drugs;
and I do care that some of that profit be spent on basic research
instead of stock dividends and advertising. I don't demonize profit,
but I deplore a lack of progress in the name of profit.
George: Frankly, this is a campaign that other groups of pharmaceutical
consumers are keenly interested in and the industry is frightened
by that. Because a reform movement like this represents genuine
leverage against their outrageous power and greed. Settling for
the few crumbs they sweep from the table is a failed form of activism.
It's time for a revolution.
Eric: And what will be the implications of that revolution? That
we will force drug companies to produce better drugs for less money
through legislation? Never gonna happen; they donate too much money
to politicians. That we will get some form of socialized medicine,
a federal drug plan? All the money for that plan just got spent
on stealth bombers and a missile shield defense.
George: Yet the current situation is utterly intolerable.
Eric: Or are you suggesting that we get into bed with AARP and
the various State Attorneys General, the people who will be most
interested in forming drug-buying collectives to drive down prices
by using market forces? This seems more promising; to use the capitalist
system to beat the capitalists by raising the market power of the
consumers. Not as sexy as a revolution, but possibly more achievable.
PhRMA Speaks! And We All Listen
By Bob Huff
The marketing reach of the pharmaceutical industry is deep and
pervasive. Among the top four U.S. drug makers, marketing expenses
last year were at least double the amount spent for scientific research
and development. Pharmaceutical marketing is a wide ranging set
of activities that includes direct to consumer advertising (which
has proliferated wildly since being deregulated in 1997); informative
productions (such as those consumer health segments that fill space
on local news broadcasts); or "issue awareness visits" with state
and national elected officials (lobbying). Pharma money goes for
the bagels and coffee consumed at a hospital's grand rounds session;
an HIV community's "Meet the Doc" event at a nice hotel; and the
slides and text preparation for a researcher's plenary talk at a
major scientific conference. Drug company dollars also support hundreds
of HIV outreach and educational programs for rural, urban or hard
to reach populations, help float a raft of publications (including
this one), and pay for meetings that bring treatment advocates together
who would not otherwise meet. Arguably, the drug companies have
kept the HIV treatment activist movement alive, not only through
unrestricted educational grants and travel budgets, but by serving
as a lightning rod to focus community interest over certain hot
button issues. Whether for a product pitch at a resort destination
or an adversarial meeting to criticize the pace of expanded access
programs and negotiate lower prices, it all goes under the marketing
budget.
It can be difficult to level criticism against pharmaceutical companies
when your only point of contact is through a local representative.
Drug reps are some of the nicest and most helpful people around;
that's part of why they were hired. They provide an important conduit
for channeling market information from the field to decision makers
in the company and they bring life-giving grants and guidance to
small non-profits. The clinical staff and researchers who work for
big drug companies are usually great people, too. They are generally
deeply dedicated to curing HIV/AIDS and often they have been personally
affected by the epidemic. Yet these people are remote from the business
strata of their companies, a world populated by individuals responsible
for maximizing the profits of complex billion dollar enterprises.
Practically speaking, the executives making multimillion-dollar
salaries exist in an alien world; they don't necessarily share conventional
humanitarian concerns, and it would be na•ve to expect them to.
Recently several news stories have thrown a spotlight on the public
relations activities of the Pharmaceutical Research and Manufacturers
of America, (PhRMA) the drug industry's trade group and Washington
representative. PhRMA is one of the most effective — and shameless
— industry trade groups to cross the Beltway. With $154 billion
spent on prescription drugs in the U.S. last year, the group's influence
with politicians and media rivals that of the defense industry.
One tried and not-so-true tactic rolled out in the emerging fight
against state Medicaid prior authorization plans is the creation
or co-optation of legitimate sounding grassroots consumer organizations
that then are employed to influence politicians and produce sound
bites for the media. These artificial grassroots groups are known
as "astroturf" organizations.
The Baltimore Sun recently published a report about a fax campaign
aimed at community leaders in Maryland. The fax was an urgent appeal
from an organization called the Consumer Alliance. Recipients were
urged to contact their state assembly members and demand free choice
and affordable access to medicines for poor and disabled people.
The campaign was actually organized by a Washington lobbying firm,
Bonner & Associates, that specializes in generating ersatz grassroots
outrage designed to sway impressionable politicians. Bonner's corporate
clients select the issues and Bonner crafts the letters and chooses
the targets. According to The Sun, "The fax, sent to dozens of community
leaders, had the markings of a grass-roots effort, including grammatical
errors and a handwritten cover letter."
"This kind of politics is the most deceitful, underhanded brand
of politics that can be practiced," Bishop Douglas I. Miles, pastor
of Koinonia Baptist Church in Baltimore and one of those who received
the fax told The Sun. The appeals, sent from a Washington office
using Consumer Alliance letterhead, made no mention of the pharmaceutical
industry, only of the need to protect "poor children, adults and
seniors."
Jack Bonner, who directs the firm orchestrating the campaign, was
not sympathetic to criticisms that hiding behind legitimate sounding
community organizations to disseminate PhRMA positions was fraudulent.
"Welcome to the big leagues," he told The Sun. "The more people
and organizations that come forward on your behalf, the better off
you are in politics."
On the prior authorization issue, the offensive is well under way.
The Boston Globe quoted a PhRMA spokesperson on the group's plans
to influence public opinion: "We will launch a grass-roots education
campaign, so they're aware of what the state's trying to do, before
it's implemented."
As the rebellion against uncontrolled drug prices spreads to state
legislatures throughout the country, look for a message from PhRMA
in your fax machine soon.
Opinion
The Looming Crisis in Drug Pricing
By Martin Delaney
By any measure, the present system of paying for expensive anti-HIV
therapies is on the verge of collapse. The AIDS Drug Assistance
Program (ADAP) is failing to meet needs in many states, leading
to lengthy waiting lists and reduced coverage. Nor can Medicaid
keep up. Even people with private insurance programs are affected.
More and more of them are reaching the life-time cap or limits on
their prescription drug benefits, forcing them to join those already
dependent on federal and state programs and hastening the day when
these programs will become insolvent. And, as the drug prices go
up, so too does the cost of private insurance. Every year, more
and more people are priced out of the market for insurance and forced
into the government programs, again increasing the demand on those
programs. Even the wealthy few that were once able to purchase treatment
for themselves cannot keep up with the upward price spiral.
To be fair, many factors contribute to this. Certainly, the increased
number of people seeking treatment puts growing pressure on all
payer programs. But there is simply nothing that can be done about
that, other than to create better prevention programs, a vaccine
or a real cure. In contrast, the upward spiral of drug prices is
both unnecessary and something we should be able to change. The
continual increase in the price of drugs seems to say that the pharmaceutical
companies have put a higher priority on paying dividends to their
stockholders than they do on saving human lives. They seem to believe
that people with HIV will constantly create enough political pressure
to force government and other payers to foot the bill.
In the last round of Federal negotiations over the ADAP program,
the final amount agreed to by Congress and the Administration fell
far short of what was needed just to keep up with the growing demand.
To make matters worse — far worse — almost all of the
pharmaceutical companies announced, without warning, sudden price
increases in late 2001 and early 2002. As a consequence, roughly
half the amount of new money allotted was consumed by price increases,
further diminishing the number of people served. Though exact figures
aren't available, a similar scenario almost certainly occurred for
the Medicaid program.
Even if the needs of ADAP and Medicaid were being met (which they
most certainly are not), allowing these annual price increases for
private insurance and retail sales still ends up creating havoc.
Each time the price goes up on the retail or wholesale level, that
new price impacts on the federal price. It also pushes price thresholds
higher for entire classes of drugs, and when a new drug comes out,
pricing negotiations begin at record high levels. Onward and upward
goes the spiral.
There is no economic justification for constantly increasing prices.
The development costs of the new drugs are typically recovered within
the first few years of sales. Not only are AIDS drugs already among
the highest priced, but such drugs are used for a lifetime. Each
new drug is a new and virtually permanent profit stream for industry
and its stockholders.
That's fine for the shareholders and the companies, but unacceptable
to the rest of us. It must stop. No one wants to deny industry a
fair profit, nor does anyone want to drive companies away from working
in AIDS. But surely there must be room for a compromise that places
a higher value on human life. After years of quiet acceptance, the
HIV community is rising up against drug pricing, just as it did
in the early years of the epidemic.
In the last few weeks, one company, Pfizer, announced a "two year
price hold" on prices for ADAP programs, while another, Bristol
Meyers Squibb announced a one year hold. They didn't hear the applause
they were seeking, however. Unless guarantees are built in that
prevent them from simply postponing a large leap in prices until
the end of the "hold," such offers are meaningless. Moreover, any
offer which is limited to the price paid by a single program, such
as ADAP, makes little or no difference to the larger problem in
the long run.
The HIV community must unite in demanding an end to the price spiral
for existing drugs and an end to increased price thresholds for
new drugs. There is perhaps no more critical domestic battle around
HIV than the fight to stabilize, if not reduce prices. Without it,
our entire system of paying for medical care for people with HIV
is in jeopardy, brought about by the companies that already profit
most from the disease.
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