Pfizer Maneuvers to Delay Access to Generic Lipitor

Today’s Managing Health Care Costs Indicator is $106 billion

Saturday’s New York Times documented efforts Pfizer is making to  thwart conversion from brand name Lipitor to generic atorvastatin.  Pfizer is promising huge discounts on brand name Lipitor if the Pharmacy Benefit Managers (PBMs) block coverage for generic atorvastatin for six months. 

Here’s what this will do:

1)     Patients will continue to pay the higher ‘brand name’ copay or coinsurance, rather than paying the lower cost share for a generic

2)     Employers will in general pay more – although if the Pfizer discounts are deep enough the incremental payment could all be absorbed by increased patient cost-sharing

3)     Enhance profitability for PBMs, which will take a share of the ‘discount’ offered by Pfizer as detailed in employer contracts.   PBMs usually make more money with generics – but Pfizer’s move would upend that situation for Lipitor for the next six months.

4)     This will be a financial body blow to the two generic manufacturers, Ranbaxy and Watson, who have a 6 month window of semi-exclusivity when they can sell their generics for a discount compared to Lipitor.  Six months later, when all generic manufacturers are able to produce and sell atorvastatin, the price will collapse, and there will only be a small profit opportunity.

New generic medications, in general, sell for about 20% less than the brand name equivalent during the 6 month semi-exclusive window.  At that point, it’s likely that the price of generic atorvastatin will decline to just a little bit more than generic simvastatin, which is now sold at WalMart and other pharmacies for as little as $4 per month.   Lipitor now sells for $160 for a one month supply (drugstore.com, 20mg). 

Pfizer has earned a quarter of its revenue, or $106 billion, from Lipitor over the last decade. 

The manufacturers willing to run the legal gauntlet to challenge Pfizer’s patents to be the first to offer generic equivalents must see a substantial payoff, otherwise we would have a de facto six month extension for drugs going off patent. Delaying availability of generics could cost us billions.

More important than the higher prices consumers or employers will pay is that Pfizer’s actions threaten the profitability of the initial generic manufacturers. That could prove the most expensive result – and employers and regulators should look at this deal very closely.

Combination Drugs: At What Price?

Today’s Managing Health Care Costs Indicator is $167.40

I’m a devoted reader of the Medical Letter – a nonpartisan, nonprofit biweekly newsletter on drugs that is not supported by pharmaceutical advertising.

This week’s issue highlights a new medicine, Duexis, which is a combination of a high dose of ibuprofen (800 mg, Advil or Motrin) and a high dose of famotidine (26.6mg, Pepsid).  These medicines make sense together – ibuprofen causes a substantial amount of GI upset and some ulcers, and famotidine can prevent these complications. 

All the elements of this medicine are available over the counter – and they’re all available from multiple different generic manufacturers.  The cost of a month of this therapy – using generic OTCs, would be well under $30, and would allow more dosing flexibility. (Many patients experience relief from ibuprofen 600mg, and famotidine is generally not prescribed as more than 40mg a day). 

The cost of the combined pill?  $167.40 per month.

There are compelling reasons to put medicines together – and a single “superpill” to address cardiovascular risk (combining aspirin, angiotensin converting enzyme inhibitor, and statin cholesterol medication) would be an enormous boon. 

There are good reasons not to prescribe Duexis, though:

1)     It’s far too expensive

2)     The fixed doses are convenient but not clinically optimal

The manufacturer has priced this medication with reference to the cost of brand name antiinflammatories and antiulcer medications – but it makes better sense to value this medication with reference to generic/OTC medications.

I’m hopeful that health plans and pharmacy benefit managers will choose not to increase the cost of health care by providing coverage for this medicine.

Generic Cancer Drug Shortage

Today’s Managing Health Care Costs Indicator is 14

Ezekiel Emanuel has a column in this weekend’s NY Times  pointing out that there are currently national shortages of 14 of 34 generic cancer drugs currently on the market.  As a result, oncologists are rationing care, and some with leukemia are unable to receive the standard care.  Here’s a link to a Boston-affiliate public radio interview on the same topic.

The underlying problem here is that the 2003 Medicare Part D act, which limited oncologist payment for chemotherapeutic drugs, also put in place a cap of price increases for these generic drugs.   This cap, while well-meaning, has turned out to be too low to support new generic company capital investments in plants to manufacture generic chemotherapy drugs .

It’s possible that we’ll need some type of price control for branded pharmaceuticals.  Sometimes a branded oncology drug costs as much as $90,000 – and there is no competition for unique medications still under patent.   However, price controls can cause unexpected market distortions – like the problem we’re having now with oncology medications.  European governments extensively regulate drug prices, but their generic cancer drugs prices are higher than ours, and they are not suffering from supply shortages.

I’ve written in the past about apparent drug discounts which can actually raise overall costs.  In many cases a pharmaceutical company offers a discount to patients, which undermines a higher differential cost patient share and eliminates price sensitivity.  This raises the average price paid by all purchasers.

The shortage of generic cancer drugs is another example where the lowest unit price doesn’t lead to the best value in health care purchasing.

The Cost of New Pharmaceutical Agents

Today’s Managing Health Care Costs Indicator is $7.24

The Wall Street Journal has an article in Monday's paper entitled “Hurdles Multiply for Latest Drugs.”  It points out that there is more market pressure from health plans and governmental payers against new expensive brand name drugs. This is especially true for new agents for indications for which there are already generic medications.  WSJ points out that new agent sales (first 2 years) were $11.8 billion in 2005, but only $4.3 billion in 2010.

The article sites a new AstraZeneca medication, ticagrelor, sold in the US under the brand name Brilinta.  This is a new anticlotting agent for those at risk for blockage of coronary artery stents.  In the US, it would like be used instead of  Plavix (clopiogrel). 

Plavix is scheduled to become available generically in 2012.   In the US, it still costs over $6 per day, but in Europe generic versions are already available for 24 cents a day.   The price of Brilinta is $7.24 per day.

The New England Journal published some evidence that Brilinta is better than Plavix – a manufacturer-sponsored study that showed substantially lower rates of  rates of death.

At 12 months, the primary end point — a composite of death from vascular causes, myocardial infarction, or stroke — had occurred in 9.8% of patients receiving ticagrelor as compared with 11.7% of those receiving clopidogrel (hazard ratio, 0.84; 95% confidence interval [CI], 0.77 to 0.92; P<0.001).

As I’ve discussed before, early trials tend to show very positive results, which often fade considerably  with larger trials performed in more different settings

Here’s the conundrum.   It makes sense to approve ticagrelor based on the evidence.   It even makes sense for this medication to be 20% more expensive than brand name Plavix now– since there is some evidence that it’s better.  However, it won’t make sense in a year for this medication to be 30 times more expensive than generic clopidogrel. 

On approach is to pay for “value.”  For instance,Germany has a reference based pricing system for pharmaceuticals that would lower the price of a new agent in its second year if it proves no better than existing therapy.   However, that’s government price control – which we are loathe to accept in the US.

The US approach is to allow the pharmaceutical company to set its price, and ask health plans to control costs.  The health plans will try to negotiate lower prices for preferred formulary status, which is difficult because there is no competitor to AstraZeneca for this medication. The health plans will likely eventually either increase premiums to account for this new medication,  charge patients substantially more for this medicine, keep it off the formulary altogether, or require prior authorization for its use.

Which innovations can lower health care costs, and why they are difficult to obtain

I’m on vacation with my family this week – it gives me a chance to read a lot of fiction (just finished The Tiger’s Wife  and The Beauty of Humanity Movement,  both of which transported me to exotic lands (Yugoslavia as it was collapsing and Vietnam of just a few years ago)   Vacation also gives me a chance to step away from the daily news a bit – and muse about health care policy.

A few thoughts on innovation today.

Bold new innovation isn’t going to solve the problem of health care costs going up.  

We read with great interest the front page story about the young man with quadriplegia who trained his brain to activate his lower extremities.   I pointed out that whatever this therapy and the associated hardware cost, it would be nearly impossible to fund this for even a small portion of quadriplegics.   Of course, we have no idea how much this would cost.  My wife pointed out that quadriplegics were at high risk of pneumonias and other complications, and this therapy could lower the costs of such complications.

Here’s why this type of innovation won’t lower the cost of health care, even if it prevents many grievous and expensive complications.   When this technology becomes more mature and is commercialized, the patent owners will do an economic study of the benefits and cost savings associated with the therapy.  That will include the benefits of this therapy to the individual, to his or her family, and to society overall, as well as any health care cost savings through prevented complications or substitution for more expensive care.  

Many of these benefits will be outside of the health care system – such as years or decades of company of a loved one, productivity at work, and ‘life years’ saved. Then, the patent owner will assign a price, grabbing a substantial portion of the value created by this new invention.  I’m not griping- that’s the way things should be under patent law.  This encourages life-saving and life-improving new inventions.  However, as long as the inventor is setting the price based on all the value created, and much of that value is not measured in saved future health care claims alone, bold new medical innovations will almost always raise, rather than lower the cost of health care.

Disruptive innovation, however, really can lower health care costs.

Disruptive innovations are a bit inferior to the current incumbent technology –but “good enough” initially for a narrow group of customers who are being overserved by the existing approach.  Disruptive innovations exert negative price pressure on incumbent technologies, and improve at rapid enough rates that they often displace the incumbent over time.

Clay Christensen of Harvard Business School has developed this theory, initially from the world of computer hardware,  and most recently applied it to health care.   His first book The Innovator’s Dilemma,  is a short, pithy, insightful business classic.  Everyone in health care policy should read it. 

What are examples of disruptive innovations in health care?

-        Retail clinics:  They can’t do nearly all that can be done in a physician’s office – at this point, 20 or so different diagnoses are the limit.  They often use nurse practitioners rather than physicians, and they don’t offer 24 hour coverage.  So, retail clinics are not as good as a physician’s office – but MUCH more accessible, and substantially less expensive.  Over time, they will increase their capabilities.

-        Low strength MRI scans and handheld ultrasound machines.  Japan has $100 MRI scans, which don’t have nearly the definition offered by 2+ Tesla machines available in the US.  Handheld ultrasounds also don’t give as good an image as currently available installed ultrasound machines.  But they’re good enough for many purposes. Right now in the US, we use MRIs that are good enough to give a roadmap for brain surgery –but the level of detail available is unnecessary for many orthopedic procedures.

-        Generic drugs.  You could argue, and I often do, that generic drugs are just as good as brand name drugs.  The FDA’s effective regulation of the generic drug manufacturers has meant that the generics are as likely as brand name medicines to have the stated potency.   But they are at least a bit inferior, because the pills are not all the same colors and shapes. This can lead to more difficulty with adherence, especially for older patients and those with cognitive difficulty.  They’re good enough, though, for many, and much less expensive.

Disruptive innovation isn’t easy to implement.   Physician advocacy groups vehemently opposed retail clinics in many states, and licensure rules meant to protect the public are often used as “guild” tools to protect those who have an existing monopoly.  You might know that the Toshiba MRI scanner that allows $100 MRI scans isn’t licensed for use in the United States.  It would be opposed by makers of the current expensive MRI scanners – much as the makers of mainframe computers weren’t thrilled about the idea of personal computers. A complex web of regulations in health care makes it almost impossible to get a license to import a scanner that is inferior (albeit much cheaper) than existing technology. Radiologists aren’t eager for a lower priced scanner, which could further erode their dominance in imaging as many other physicians purchased such scanners.  Hospitals that have invested millions in the current generation of MRIs with incredible capabilities also see how low-priced scanners could threaten their profit margins.

Generic drugs are readily available, and have been a major source of health care savings over the past half-decade. However, brand name pharmaceutical companies have used vigorous legal maneuvers to delay the introduction of generics. Big pharma companies in some instances have even paid generic manufacturers to delay generic launches to maintain their sole-source protection for extra months or years. 

So – bold new innovation can make our lives longer and better, but won’t save a lot of health care claims dollars.   Disruptive innovation can save money – but is forcefully opposed by those who profit from the current state, who are enabled by regulations meant to protect patients. 

We need to make our health care system more avid for disruptive innovation. 

Drug Prices Still Climbing

Today’s Managing Health Care Costs Indicator is 29.3%

Click to Enlarge. Image from WSJ - article referenced below

When a drug becomes available as a generic, price drops of as much as 90% are expected within 18-24 months. 

However, the Wall Street Journal used a recent report by Barclays Capital to show what happens just before a drug loses its patent protection.  The drug price goes up – not just a bit – but a lot.  Daiichi Sankyo’s Benicar, used for high blood pressure and congestive heart failure, increased in price by 29.3% last year – a year when the overall inflation rate was negative.  The General Accounting Office reported last week that annual inflation rate for brand name medications was 8.3%, while generic priced decreased by 2.6% annually.

Why do brand name prices go up just before a medication goes generic?

When a drug is available only as a patented “brand name,” many benefit plans enforce higher member cost sharing, encouraging patients to use a similar generic, or a ‘preferred’ brand name – where there is a lower acquisition price, or a higher rebate.  Therefore, the pharmaceutical company will offer rebates and preferred pricing to increase market share.

However, as a drug loses its patent protection the manufacturer removes rebates and stops offering preferred pricing and discounts.  This could encourage patients to switch to another brand name medication – but the brand name drugs are almost always from another manufacturer, so this couldn’t drive pricing behavior.

What the pharmaceutical companies are doing is maximizing their overall yield.  When they have years of exclusivity left on a medication, they price competitively to increase the drug’s market share.  When the exclusivity is about to run out, pharmacy benefit managers are hard-pressed to engage in a campaign to demarket the medication, which will soon be available generically. Therefore, the pharmaceutical company prices the soon-to-be-generic medication price high to maximize ultimate revenue from the patent.

The pharmaceutical companies are doing exactly what we’d expect them to do in a relatively unregulated market to maximize their overall profits.

Speaking of interesting price tags, the pharmaceutical company that just gained FDA permission to market progesterone injections to prevent premature deliveries announced that the drug, which had previously been available for about $20 per injection, will now ship for $1500 per dose.