Cost control on healthcare is often a matter of saying “No”, or at least “No, not at that price.”
Michael Bertaut of Blue Cross/Blue Shield of Louisiana has an excellent example of the escalating arms race to say no and then avoid the no between insurers and drug marketeers:
Imagine I send you to your local drug store and instruct you to buy a few over-the-counter ingredients – $37 worth (at retail) of esomeprazole (think Nexium®) and about $11 worth of naproxen (think Aleve®). These $48 worth of ingredients are what you will find in a 30-day supply of a new drug from Horizon Pharma called Vimovo®.
After this drug company works its magic, a new price is set. What’s a fair price for this combination…..
Try $1,492 for a 30-day supply.* That’s what Horizon charges for Vimovo.
I want you to purchase $53 worth of famotidine (think Pepsid AC®) and $34 worth of plain old Ibuprofen (Motrin®). This will get you a 30-day supply of another new drug called Duexis. So, what’s a fair price?
Horizon’s answer? Again, $1,492 for a 30-day supply. The same magically unbelievable amount.
You might think, “Who on earth would pay for such a drug, and what doctor would prescribe it?” Last year, Louisiana doctors prescribed – and patients filled – these drugs more than 5,000 times, and the number is climbing each year.
That is a list cost of $7.5 million dollars for what would cost retail shoppers $400,000 for generic versions. If they went to Costco or Sams Club, the total consumer cost would be less. Once you factor in discounts, the insurers probably paid between $3 million and $4 million dollars net. It is a rip-off.
The initial response of the insurer was educate the doctors in the network about the cost and low cost alternatives. That education effort resulted in the 5,000 scrips filled. They then put these drugs on a high co-pay tier. If they insurer paid for a prescription, the member was paying $100. The goal was to make the drug more expensive than buying the components at the drugstore. The initial counter-move to this cost control measure by the drug maker was to send people who were prescribed these drugs a rebate coupon equal to or greater than the co-pay amount.
The next move by the insurer is to place these drugs off the formulary. That means the insurer won’t pay for them at all. This will lead to people screaming about their insurance company being an evil bastard. The probable long term result is that the drugs will be put on a restricted formulary with significant pre-authorization or step treatment requirements to minimize quantity prescribed for an acceptable level of yelling about being an evil bastard while the drug marketeers give a larger discount off the absurdly high list price.
That will only happen as long as the payer can credibly say no. The insurer has to be able to walk away if they can’t get the net cost of the drug after co-pay to under $150 or $200 a scrip.
That is the only way cost control can work. The payer has to be able to credibly say no and walk to a near substitute. The British use NICE to determine their maximum willingness to pay. The Norwegians use cost effectiveness thresholds to determine which therapies and drugs they cover. Ontario uses its bulk purchasing power to set a single common price with modifiers.
The state-run health systems in Norway and many other developed countries drive hard bargains with drug companies: setting price caps, demanding proof of new drugs’ value in comparison to existing ones and sometimes refusing to cover medicines they doubt are worth the cost.
These are all systems that have a strong and credible “No” built in.
Medicare* in the United States has a very soft No built in for some durable medical equipment that is put out for bid (wheelchairs, oxygen etc) but it is mandated to pay average drug costs plus an administration fee for Part A and Part B drugs and it is not allowed to negotiate for Part D drugs. Medicaid is obligated to pay for medically necessary treatments which is usually interpreted to mean anything a doctor prescribes. Medicaid pays a percentage of the average cost of a brand name drug as mandated by law. The VA actively says no for its prescription drugs. Private insurers have more flexibility to say no but far less power. They can not afford to get a reputation for being too evil of a set of bastards even if they are denying expensive and non-valuable care as they’ll lose business even if their premiums are slightly lower than their competitors.
There is another solution besides reinforcing points of “No. The US Patent regime could be reformed. The change would be to redefine “novelty” and “non-obviousness” criteria so that dumb combinations like the two drugs in the example fail as a “novelty” or a “non-obvious” use. Reducing the scope of the patentable idea space would make a lot of the combination drugs, dosage changes and delivery system changes (ie from caplets to tablets) far less valuable to the original manufacturer/current marketing entity. It would move a source of rent from the US economy and slightly improve efficiency at the cost of pulling a lot of money out of the pockets of entrenched interests.
* As a side note, the recently released Sanders plan is full of “Yes” and very few points of “No” so trying to figure out how the plan will save 20% of healthcare spending is tough. 5% could be saved on admin, but the other 15% has to come from either reduced utilization or reduced cost per service. It is not obvious how a system without constraints does that?
JGabriel
Richard Mayhew @ Top:
So … unless one is an entrenched interest, that would be a win-win-win.
dr. bloor
@JGabriel: Which is to say that it will never happen. The only parties who will feel like they have skin in the game are the entrenched interests. Particularly if they’re getting rebate coupons, this is all an invisible (read: nonexistent) cost to the average consumer, and it won’t garner much grassroots support.
Caphilldcne
I rarely comment but this is such a good post. This is a major problem in the case if HIV. We’ve gone from having no effective medications to having one pill a day regimens that are tolerable to most people. These regimens allow a person with HIV to live a nearly normal lifespan and have the public health effect of also reducing the likelihood of someone passing along the new infection. So an HIV positive person needs to take then to save their life. However these drugs are incredibly expensive. In some states insurance companies are moving all HIV drugs including generics to the highest specialty tier (with maybe 50% co-insurance). Advocates for people with HIV have had some successes with discrimination claims since there is no alternative to taking some form of these drugs. Another option is to try to backfill the cost from another source of funding the AIDS Drug Assustance Program (ADAP) which is a billion dollar fund in the Ryan White Program administered by the states. No other diseases that I’m aware of have any similar funds. Finally the effect on public health is that higher prices likely lead to more loss of coverage, fewer people able to stay undetectable and therefore more new HIV cases than we would have if we could achieve full coverage. Its a serious problem and right now we just have a series if kludges rather than fixing the system.
PurpleGirl
Interesting post Richard and informative. Over the next few months I have to investigate what my medication costs will be once I’m on Medicare next year. Right now I get my prescriptions at the NYC hospital where I get my healthcare and pay a very reduced cost per prescription. But once I’m covered by Medicare I lose using the hospital pharmacy and that reduced cost program.
I'mNotSureWhoIWantToBeYet
While not in the same league as HIV drugs, those of us who suffer from seasonal allergies and the like have issues with the US drug system as well.
I inherited part of my father’s reactions to “everything that’s green and grows” (and gives off pollen). I went through a long series of desensitizing shots which helped but didn’t eliminate the problem. When my body acts up, what works for me is Allegra D (or a generic equivalent). Years ago, when it required a prescription, I could get a long enough supply to be reasonable (60 days? 90 days?) and it cost me almost nothing (a combination of “free” samples and insurance). Then the brainiacs in Congress decided that everyone who needs a decongestant is a potential meth kingpin, and at roughly the same time it became (only) available over the counter.
So now it costs me close to $1 a day and yet I can’t buy it without being treated like a criminal and I can only buy a 1-2 week supply at a time. I can’t get it via mail-order any more.
So rather than being cheaper and more convenient by being over-the-counter, it’s far more expensive and far less convenient.
Grr.
It’s no big deal for me in the greater scheme of things, but I can afford it and it’s not a hardship for me to go to the store and be humiliated.
There is talk about over-the-counter birth control pills. A good idea! But I’ve only seen mentioned a handful of times that that would (almost certainly) impose similar issues with increased prices for many people who can least afford it.
Is there any hope that issues like these will be fixed any time soon?
1) There must be a better way to keep mad chemists from cooking meth than forcing people who need decongestants to go through these hoops.
2) There must be a better way to control end-user costs for OTC medications that go off prescription. The choice shouldn’t be between paying (money and time and transportation) for a doctor’s visit to get cheap (to the patient) pills or paying vastly more for a tiny supply of much more expensive equivalents.
Thanks.
Cheers,
Scott.
currants
Interesting post as usual, Richard. I can remember my doctor telling me once that she could prescribe X or I could just get Y over the counter. At the time, buying enough Y over the counter would have cost more than half my grocery budget for the week (I was very poor and had a small child). I was too embarrassed to tell her that–I did, after all, have insurance by then after several years of no insurance, so that was a plus, even if not a very useful plus at that moment.
I guess the point of all that is that it’s really useful to get a view of the things that are normally invisible to the consumer/patient (insurer, payer, drug company), and to realize what a truly insignificant role the patient’s ability to pay plays.
ETA: or what Scott said above more eloquently.
Sister Rail Gun of Warm Humanitarianism
This kind of crap is why I question my doctors on everything. It took a while to find one who was comfortable with that.
Forex, right now you can’t get Imitrex nasal spray at any price.
So my doc gave me a scrip for Cambia. The first thing out of my mouth was “How is this different from Goody’s?”
The answer, of course, is that it affects the secondary symptoms, which I’ve never had another NSAID do. We had to jump through some preauthorization hoops, but that went smoothly. I suspect the cost to the insurer is lower than Imitrex; it’s on the lowest copay tier and I’m allowed more doses per month.
currants
@Sister Rail Gun of Warm Humanitarianism: Where are you that you can’t get Imitrex? I had to wait a couple days for the Rx to be filled, but I did get it (two weeks ago).
Sister Rail Gun of Warm Humanitarianism
@currants: The nasal spray has been on the shortage list since December. I suspect your store still had some in its network. Mine is a national chain and called several of their competitors looking for it; none had it available. The only places I haven’t tried at this point are Costco and Wal-Mart. (I hate the stand-in-line-to-be-questioned process at Costco. I will probably never be a member for that reason.)
MomSense
I drove my mom to get her eye drops. HOLY CRAP those teeny tiny bottles are expensive.
Richard Mayhew
@dr. bloor: Yep, you’ll get several hundred wonks up in arms about that type of change and then a 30 million dollar advertising campaign and a lot of trickle down money to the FUD machine about how this change will kill Grandma if Big Pharma can’t make 25% or more operating margins.
currants
@Sister Rail Gun of Warm Humanitarianism: My pharm at the moment is CVS. It took me until last year to actually use Imitrex (hadn’t read the directions; can’t read when I have a migraine), but OMG, that stuff is MAGIC and I can’t believe I didn’t bother to figure it out sooner. Well, yes I can, because I’ve had other migraine meds that were almost as bad as the migraine. Anyway. Good luck.
@MomSense: Not sure which ones, but the pre-cataract-surgery ones are crazy costly.
Central Planning
@currants: Just as an fyi, my wife has had migraines for years. She used imitrex for a while but it began to lose its effectiveness for her. She now takes Frova which is crazy expensive but it works great for her. The price puts us into the ” No deductible” part of the plan in the May timeframe.
I think she would be a good test case for genetically tailored drugs because she had tried almost every migraine drug out there.
Sister Rail Gun of Warm Humanitarianism
@currants: Huh. I tried CVS, and they said they couldn’t get it.
Imitrex is indeed a miracle drug. I dearly wish it had been available when my pipe-fitter dad had to work through a migraine and simply slept the clock around in his off hours.
I have enough of the nasal spray to carry with me for emergencies for the next little bit. I get the chest paralysis side effect from the pills and the injections, so I stick with the spray. But the Cambia worked so well that I expect that I’ll start filling one Imitrex a year to keep in my purse alongside my Epipen and mostly use the Cambia. The necessity of finding a glass of water to mix it in makes it less useful for emergencies.
Eric U.
if you can buy two pills and get the same effect as a patented drug, that seems to be the very definition of ‘obvious.’ The problem is that the examiners almost surely have no way of easily determining this. Maybe the medical insurance companies should join together in a group effort to provide information about prior art like the software community has done.
Great post, and the timing is great for me because I’m teaching engineers about patents tomorrow
narya
@Caphilldcne: However! If someone (a) has third-party (but not Medicaid/Medicare) insurance and (b) goes to a community health center, the health center gets enormous 340b benefits, which are really important in terms of supporting the HIV program at that health center. The trick is finding a community health center that has expertise in HIV treatment–but many places that get Ryan White Part A, C, or D funds would have that expertise.
StellaB
In California the pharmacy gets a slightly larger flling fee for filling a generic prescription and the pharmacist is permitted to substitute a generic for a name brand and vice versa unless the physician adds “as written” to the prescription. In Louisiana, the pharmacist has to fill the prescription with the form the physician writes; Pepcid or famotidine. You can guess which state has the higher per capita generic use. There is no motivation for the physician to prescribe generic vs. name-brand (despite the cheesy plastic pens), so California has provided motivation on the other side of the equation.
I’ve actually had to argue fiercely with pharmacists when patients need controlled release medications which are often not quite equivalent between generic and name brand, even though the insurance company has approved the name brand.
RaflW
Slapping together two OTC drugs and charging 16X the retail price? These fakers should be named and shamed like the amoral carbuncle who was buying up orphan drug patents and screwing the desperate.
Horizon pharma should be a terribly embarrassing place to work, and Senators like Bernie Sanders should be holding hearing a to expose their bullshit “innovations.” But we love in a greed-worshipping oligarchy, so insurance companies have to work the commercial counter-angles to the grifting horseshit of businesses like Horizon.
Can you tell I’m mad? Fuckballs I get pissed when this is what our American healthcare industry gets up to.
Luthe
@I’mNotSureWhoIWantToBeYet: Ah, but birth control is in the ACA regs as a $0 copay medication. The government, in its wisdom, realized that free birth control = less unplanned babies and less unplanned babies = major cost savings. So it’s cheaper for them (and the insurers) to mandate $0 co-pays for all forms of birth control (Plan B, the pill, NuvaRing, IUD, etc) than to have women not use birth control because they can’t afford it.
I'mNotSureWhoIWantToBeYet
@Luthe: The ACA is good about that, no doubt. But there are still millions of people who don’t have access to the ACA, and even those who do can suffer a hardship in getting to a doctor (no available time off during office hours, etc.)
Guttmacher:
As always, the devil’s in the details.
Cheers,
Scott.
jl
” The US Patent regime could be reformed. ”
Thanks. I think the only starting point for reducing excessive drug costs while maintaining quality and access to care is to start with fact that the R&D needed to get a drug ready for market, and the cost of manufacturing a drug after that are two distinct economic goods.
I would modify the phrase to ” The US Patent regime could be reformed for drugs ” because drugs are bit different from other products. There are several reasons. One reason that is not discussed much is the different nature of demand for some medical products. For things like cool new TV displays, fitbits and gimmicks for cars and machines is that demand is more uncertain, there are more substitutes for a new product, many patents are for products that bomb. Besides paying for the R&D, the patent monopoly functions as a reward for bearing the risk of development of a product for market when the demand is uncertain.
The demand for a safe and effective life-saving drug is much more certain. Drug companies know this. I was giving a seminar on IP and patent economics, and a few clinicians took it over for a few minutes describing the immense marketing effort of drug companies, who basically have the orders lined up and ready to go in advance of FDA approval.
Once the CEPR website is fully functional again, that organization has some studies on alternative ways to pay for drug R&D.
I am not an expert, but docs and pharmacists and pharmaceutical chemists I know claim that most of the follow-on patents drug companies get are unjustified. A new method for time release, or drug transport is worthy of a patent. But they claim most follow-on products where a specific method of time release, or transport is applied to an already patented drug should be considered routine product development, and trade secrets law or economic first-entrant advantage should be enough. What is happening is that drug companies are finding ways to extend patent protection for very long periods and using patent thickets to discourage entrance. And of course, there is the legal bribery of patent holders paying off potential generic entrants to stay out of the market.
Edit: and drug companies should be forced to release far more information about both the research on the safety and effectiveness of the drug, and the non-active ingredients and details of formulation. In some industries, such as chemical engineering, how to force adequate disclosure of information so that the product can be truly reproduced after patent expires has been a problem for more than a century. And drug development is another example.
jl
The problem with not getting to the root of the problem is that many commonly accepted solutions that avoid the issue are very second best. An example IMHO, is cost-effectiveness tests that use a threshold. No one has ever figured out a good explanation what threshold cost-effectiveness values are appropriate for certain situations (mainly, where probability of a very bad outcome is higher than for average person in ordinary life), There is no economic theory justifying it, and where there is some theory, the empirical evidence justifying the thresholds is shaky.
For preventive care for general population, where probability of a life-threatening health event is small, like getting badly hurt in a car accident or breaking your neck after you fall while mopping naked at 3 AM, the statistical value of life can be used to develop a good threshold.
But if you know you are going to die or suffer permanent serious disability, what threshold should you use?
The theory that justifies cost-effectiveness rules for efficient care actually doesn’t use thresholds at all. It recommends ranking treatments by cost-effectiveness and wherever possible, using the most cost-effective one. And, experience with thresholds has not produced observable savings.
Thresholds are very easy to use, so some types of health policy people and docs like them, but they are hard to justify. Some approaches to saying ‘No’ are really just sketchy rules of thumb. I think it is important to recognize that, even while recognizing that some form of ‘No’ is required for cost control. But some ways of saying ‘No’ are better than others.
Richard Mayhew
@jl: Agreed on this paragraph:
But we really should have that discussion in public rather than as a dick measuring contest between the Pharmacy Department on the 7th floor, the Pharmacy Benefit Manager and the drug manufacturers. That is the current system of No, and it is not a particularly good system of No.
quakerinabasement
I ran into a shocker last year. Oracea is a drug for treating rosacea–essentially old, white people acne. It’s simply a slow-dissolving doxycycline pill inside a fast-dissolving capsule of more doxycycline. At Costco: $500 for a thirty day supply. Or $30 for plain old doxycycline.
KithKanan
Sometimes attempts at saying ‘no’ backfire.
My Dr. proscribed me a generic medication to take twice a day. Cost for a 90 day supply is approximately my generic copay, leaving my insurance company to pay nearly nothing. My insurance company didn’t allow that, citing their “dose optimization” policy of only paying for it once a day.
My Dr’s response was to proscribe the controlled release version of the same medication 1x/day. Cost to me is the same, one generic copay for a 90 day supply via mail-order. Cost to my insurance company went from nearly nothing to roughly $300 every 90 days. Claim goes through with zero issues.
jl
@KithKanan: Somebody, or something (protocol, algorithm) decided you fit the description of non-compliant patient who would not take it twice a day, maybe. Depending on practice setting, and contracts, some Pharmacy Benefit Management outfits are not shy about dictating terms. Need to see the kick-back… I mean, ‘incentive payments’ the PBM gets from its supplier contract to figure out who may benefit from that rule.
Morat20
I was prescribed Vimovo once. I saw the price, looked it up, realized it was Alleve + Nexium and then called my doctor’s office and told them I wasn’t paying for it (my insurance didn’t cover it, a decision I have to admit was completely correct!) and the doctor had no idea it was that expensive.
He had just given me a sample, said if my stomach could tolerate it (NSAID’s tend to give me issues) to fill the script. He then quickly gave me the equivalent dosage of naproxen and Nexium and told me to just take that for a month.
I would hope he remembered how ludicrously expensive it is in the future. He flat out told me he’d just prescribed it because he thought it was cheap and efffective, being two generic drugs in a single dose. No forgetting to take part of it. (Which, given there’s a lot of older folks using that practice, is probably pretty important for people on tons of pills).