As a primary care physician in private practice, I have my own little taste of celebrity.
Every day attractive people come to my office seeking time to speak with me and collect my autograph. They fawn over my partners and I, and bring us food for lunch, and will invite us to the nicest restaurants in town for dinner. These people also used to bring gifts, until they were barred from doing so a couple of years ago. I must admit, they are not doctor-groupies. They are pharmaceutical marketing representatives. Rather than stalking me, they are just performing the job they are paid to do.
Each year, the pharmaceutical industry and its army of salespeople spend billions of dollars marketing brand name patented drugs. Annual estimates range from $20-60 Billion every year. Sadly, this represents almost 30% of their sales revenue, while they invest about 11% on research and development of new pharmaceuticals.
Marketing practices of pharmaceutical companies should not be news, but you may not be noticing the building battle between insurers and pharmaceutical companies unless you are being “detailed” every day like me.
The formularies kept by private insurance companies are a great source of pain for pharmaceutical marketing professionals. These are lists of available drugs, categorized into tiers. Tier 1 drugs are often generics: very inexpensive, and therefore offered to patients at very low copayments. Tier 2 drugs are brand name drugs without generic alternatives, and at the other end of the spectrum are Tier 3 drugs – typically brand name drugs that may be new to market, and have several alternatives both generic and brand name. As you advance up the tiers, the copayments rise. In order to force more generic medication usage, insurance companies are rapidly increasing these copayments to reduce their expenditures.
So begins the battle. Pharmaceutical companies know that high copayments are effective ways to encourage patients to ask their doctors to prescribe generic drugs. So pharma lobbies the insurance companies to reduce the tier status of their drugs. In some cases, this leads to drugs being switched tiers, sometimes quite often. A tier 3 drug that gets bumped down to tier 2 becomes a marketing highlight. And it always leaves those of us with prescription pads guessing and rather frustrated.
The latest trend I have observed: coupons. Pharmaceutical representatives will provide physicians coupons to give to patients for their new product. The most generous of these coupons will actually cover the entire copayment of the drug, thereby eliminating the incentive designed by the insurance industry to encourage generic drug use.
Coupons may be great for individuals with higher copayments set by their insurers, but they do nothing to lower our national health care expenditures. In fact, coupons encourage higher costs for pharmaceuticals.
The tragic irony of the coupon scheme devised by pharmaceutical marketing is that Medicare Part D patients cannot use them. The government by regulation prohibits any inducement that would directly or indirectly cause the government to spend money. Hence these coupons are not permitted to be split billed with Medicare or Medicaid. Those who need help to defray their prescription costs the most cannot use them, but in some way I am glad. This forces me to choose generic prescriptions more often.
The pharmaceutical industry lobbyists have been successful thus far in avoiding regulations that would hurt their profits. But this is leading to skyrocketing costs. In both the inception of Medicare Part D and in the passage of the Affordable Care Act, Congress neglected to provide the authority to Medicare to negotiate the prices of prescription medicines, leaving it to the private insurers who administer Medicare Part D. This has led to greater profits for pharma at the direct expense of the consumer and taxpayer.
A study conducted by a prominent health care economist, funded by the Robert Wood Johnson Foundation, found that if Medicare adopted the Veterans Affairs (VA) drug formulary, America would save $14 billion a year on drug costs. The VA directly negotiates drug costs with manufacturers, and its evidence-based formulary is able to keep drug costs down.
If any politician were bold enough to advance the proposal of allowing Medicare to negotiate drug prices, I can imagine the demagogue’s argument: “Don’t allow government to restrict your choices of drugs!” Except that the facts point to health care consumers much preferring to have lower drug costs than infinite choices of expensive brand name drugs. Polls show 80% of Americans would choose generic medicines in order to save money.
Between pharmaceutical marketing costs and the inflated prices of brand name medicines, there are tens of billions of dollars to be saved in health care expenditures each year. I am confident the pharmaceutical industry will fight for those billions with vigor, but will we?
Chris Lillis is an internal medicine physician who blogs at Progress Notes.
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