Pharmaceutical Pricing and Healthcare Access

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1 WASHINGTON REPORT Pharmaceutical Pricing and Healthcare Access Lead Policy Agenda Jill Wechsler Jill Wechsler is Pharmaceutical Technology s Washington editor, 7715 Rocton Ave., Chevy Chase, MD 20815, tel , jwechsler@advanstar.com. Rising healthcare costs and pressure to expand healthcare coverage focus public attention on the costs of prescription drugs. Despite enactment of Medicare prescription drug legislation last year, healthcare coverage and costs remain prime concerns for the nation. Proposals to expand coverage for the growing number of uninsured Americans are attracting more attention, along with initiatives to curb the rising cost of prescription drugs. These proposals continue to spur calls for access to lower cost drugs from Canada, while FDA promotes generic drugs and new drug development as better ways to improve public access to needed medicines. Democratic contenders for the White House are touting a number of healthcare proposals, which they claim will help more of the nation s 43 million uninsured obtain care than will lessambitious initiatives proposed by the Bush administration. The campaign to cover the uninsured gained impetus from a report issued by the Institute of Medicine urging policymakers to establish a universal health insurance system by The panel announced in January 2004 that current incremental coverage efforts are failing to reduce the number of uninsured, resulting in inadequate care and catastrophic costs for millions of Americans (see sidebar, Coverage for all ). Rising expenditures The continuing rise in US spending on healthcare is spurring the debate. Total outlays on healthcare and products hit $1.6 trillion in 2002 nearly 15% of the nation s total economic output (gross domestic product). The main factor driving these outlays is rising hospital bills, but increased expenditures for prescription drugs are a prime culprit in the public s eye. The main reason is because many people have to pay for their medicines out of pocket. Drug spending rose by 15.3%, an increase that is actually slightly less than it was for the previous two years, but still greater than that of other healthcare components, according to an analysis by the Department of Health and Human Services (HHS), which was published in the January February 2004 issue of Health Affairs. The HHS analysts note that demand rose for pharmaceuticals in 2002 but was offset by several factors, including: States made greater use of preferred-drug lists and prior-authorization policies for Medicaid and pharmacy assistance programs. Fewer new drugs with premium prices entered the market. Direct-to-consumer (DTC) advertising declined slightly. Generic drug prescribing rose. Healthcare plans and payers boosted tiered copayments. This last trend is important in the political arena. Although only about 10% of US healthcare spending involves prescription drugs a percentage that has remained fairly steady during the past 30 years consumers now are shouldering a larger share of the bill. Drugs account for 23% of what Americans had to pay themselves on healthcare and for more than half of the total increase in all out-of-pocket healthcare spending in Modest Bush proposals In his January 2004 State of the Union speech, the President offered proposals for expanding access to healthcare, although domestic policy initiatives ran a poor second to the administration s emphasis on the need to guard against international terrorism. Bush declared the rising cost of healthcare a critical issue, but largely reiterated previously announced market-based approaches for expanding coverage and controlling healthcare costs. The President called on Congress to make healthcare coverage more affordable by taking action to: adopt additional tax credits to help low-income individuals purchase health insurance permit a tax deduction equal to 100% of the cost of catastrophic health insurance when 26 Pharmaceutical Technology MARCH 2004

2 Washington Report purchased as part of a health savings account support formation of association health plans, which allow small businesses to pool together to purchase less costly health coverage for employees reform the medical malpractice system by seeking limits on damage awards in malpractice suits as one way to curb rising provider fees and insurance premiums computerize healthcare records to reduce medical errors and improve care. Democrats seek more Democratic candidates for the White House are offering more-ambitious plans to expand coverage for the uninsured, along with proposals to curb prescriptiondrug prices to limit government spending on healthcare. The challengers aim to keep healthcare at the top of the political agenda. Advocates of single-payer plans have pretty much dropped by the wayside. Republican Dennis Kucinich (OH) sought to expand Medicare into a national singlepayer system at a cost of $6 trillion over 10 years. Republican Richard Gephardt (MO) proposed a $2.5-trillion 10-year program that mandated employer coverage, with tax credits to offset employer and individual costs. Other Democrats have offered morecentrist initiatives including: Governor Howard Dean (VT). The doctor from Vermont proposes a major expansion of Medicaid and children s health programs plus tax credits for individuals to purchase coverage, new group purchasing options and incentives for employers to offer coverage. The program aims to cover 31 million uninsured at a cost of almost $1 trillion over 10 years. Cost-containment provisions would control pharmaceutical costs by boosting regulation of DTC advertising, thereby reducing patent abuses, promoting for- Coverage for all The Institute of Medicine s (IOM) report, Insuring America s Health culminates a three-year project to assess the merits and limitations of proposed strategies for reaching universal healthcare coverage.the panel of academics, providers, and health experts acknowledges that most proposals are costly, but that escalating healthcare costs indicate a need for prompt action. Five other reports since 2001 provide evidence that people without health insurance receive substandard care and impose significant costs on society overall.the report also notes that as medicines become more successful in prolonging life and improving health, the disparities between insured and uninsured Americans will appear even more unfair and unacceptable. This final report sets a lofty goal of providing healthcare coverage for all Americans by 2010 but fails to offer a specific roadmap for change. Instead, it evaluates all the usual proposals for extending coverage: single-payer system, expansion in existing government health programs, increased tax credits for purchasing or providing coverage, and individual and employer coverage mandates. The unstated conclusion, though, is that the only way to cover all Americans is to expand government health programs significantly. 28 Pharmaceutical Technology MARCH 2004 Circle/eINFO 21

3 Washington Report mularies, and encouraging state drug cost control programs. Senator John Edwards (SC). The most modest Democratic proposal relies on tax credits and broader public programs to expand coverage to more children and parents. It would spend $590 billion over 10 years to cover 22 million. Edwards advocates controls on DTC advertising, an expansion in comparative drug efficacy information, and penalties for companies that overcharge the federal government. Senator John Kerry (MA). A major expansion in Medicaid and children s health programs plus tax credits for individuals and employers and new group insurance options would extend coverage to 27 million uninsured at a cost of $900 billion over 10 years. The proposal controls pharmaceutical costs by promoting generic prescribing and encouraging state discount programs. Senator Joseph Lieberman (CT). This morebalanced plan offers a mix of tax credits for individuals and small businesses, new group purchasing options, incentives for employer coverage, and public program expansion with a special focus on coverage for children. It would spend $747 billion over 10 years to cover 32 million uninsured. Lieberman also emphasizes initiatives to improve quality of care by speeding generics to market, permitting safe drug reimportation, promoting disease management, and reducing medical errors. Several Democrats also emphasize the importance of supporting biomedical research. Lieberman wants to encourage increased use of evidence-based medicine and more R&D. Ret. General Wesley Clark, Dean, and Lieberman have said that one of their first actions as president would be to cancel the Bush administration s curbs on stem cell research. States seek imports With elections looming, though, Congress is unlikely to approve any major healthcare initiatives proposed by the Bush administration or the Democratic contenders. The legislators will hold hearings about proposals for covering the uninsured, but chances for action are very low. Democrats on Capitol Hill also want to expand the Medicare pharmacy benefits program, primarily by strengthening controls on pharmaceutical prices and permitting drug reimporting. However, Bush has threatened to veto any bills revising the Medicare program, further dimming prospects for healthcare initiatives this year. Instead, the Bush administration will be busy implementing the highly complex Medicare legislation, starting with a pharmacy discount card (see sidebar, Medicare discount cards to offer first pharmacy benefits ). This puts pressure on state governments to find new ways to hold the line on pharmacy bills for Medicaid and state prescription drug programs. Despite continued opposition from FDA leaders, governors and local officials are lining up to seek access to lower-cost Canadian prescription drugs just across the border: A West Virginia proposal calls for part- 30 Pharmaceutical Technology MARCH 2004 Circle/eINFO 23

4 nering with a wholesaler that would purchase drugs from Canada to distribute to state pharmacies. New Hampshire wants to establish a state Web site to provide residents with access to certain certified Canadian pharmacies. The state also would purchase Canadian drugs directly for its prisons and Medicaid beneficiaries and provide options for state retirees. Minnesota is developing a Web site to identify credible and accredited Canadian Web sites for state citizens to access. Vermont asked FDA to approve a program that requires Canadian doctors to review patient medical histories and write prescriptions that would be filled by licensed Canadian pharmacies. Illinois has proposed a plan to buy Canadian medications for 230,000 state employees and retirees, either by contracting with a Canadian pharmacy benefits management company to administer the program via mail order or by purchasing certain drugs in bulk and distributing them through a state mail-order center. Maine seeks FDA support for a program that permits an Indian tribe to import drugs from Canada for distribution to pharmacies in the state. Governors have been meeting to discuss options for legally reimporting drugs from Canada, with a focus on gaining FDA approval of pilot programs to test various options. One concern of states is that they could face lawsuits from individuals that experience adverse reactions from reimported products. Although the federal government has not taken legal action to halt statewide import programs, FDA regulatory agents maintain that they have authority to do so. FDA officials are asking credit card firms to identify illicit Internet pharmacy transactions. Spurring congressional scrutiny So far, FDA has focused its legal guns on rogue Internet operators that openly promote illegal imports and sell controlled substances developments that have gained attention on Capitol Hill. The House Energy and Commerce Committee and the Senate Health, Education, Labor, and Pensions Committee are examining proposals to deter illegal drug sales and the distribution of counterfeit products. The Senate Permanent Subcommittee on Investigations has expanded its probe of online pharmacies to include illegal marketing and sale of prescription drugs. To deter illegal operators, congressional and FDA investigators are asking credit card firms and shipping services to identify illicit Internet pharmacy transactions. The legislators have asked the General Accounting Office to examine the role of major credit card companies in facilitat- Circle/eINFO Pharmaceutical Technology MARCH 2004

5 Medicare discount cards to offer first pharmacy benefits Pharmacy benefits management companies (PBMs) and other organizations are mapping plans to provide discount cards to Medicare beneficiaries in an interim program designed to lower drug costs for seniors. Some manufacturers such as Eli Lilly intend to offer highly discounted products to low-income seniors by partnering with sponsors of governmentapproved discount cards. In a January 2004 announcement, the company said that it plans to work with other card programs instead of continuing its own pharmacy card to make it easier for seniors to obtain low-cost Eli Lilly products. In a surprise move, the National Association of Chain Drug Stores (NACDS) and the PBM Express Scripts announced plans to jointly offer what they hope will be a leading national discount Medicare pharmacy card. Despite previous opposition to pharmacy card programs, NACDS now is encouraging member pharmacies to sign up. Express Scripts will negotiate prices with pharmaceutical companies and promises to pass all discounts and rebates on to consumers at the point of sale. Customers will be able to obtain prescriptions through a mail-order program but will not have to opt for mail to obtain 90-day refills. Express Scripts aims to start marketing the card in April 2004, begin enrolling Medicare beneficiaries in May 2004, and become operational on 1 June 2004.The PBM may only break even on the program but hopes to gain by establishing a framework for offering a broader Medicare pharmacy benefits plan in Circle/eINFO 27 ing the sale of illicit drugs through the Internet. Investigators also are discussing voluntary actions by Federal Express and United Parcel Service that could stem the flow of imports and counterfeit products into the United States. And officials have encouraged major search engines including Google, Yahoo, and Microsoft s MSN to reject advertising from unlicensed pharmacies. These inquiries are touching on industry efforts to prevent the distribution of counterfeit drugs. The Energy and Commerce panel has requested information about strategies for halting counterfeiters from several manufacturers of drugs that have been targeted by counterfeiters. Promoting generics Instead of allowing states to launch reimport programs that could bring unapproved and counterfeit products into the United States, FDA officials are supporting the increased prescribing of generic drugs as a better means for consumers to save money on drugs. In January 2004, the agency released a study concluding that generic versions of several top-selling medicines to treat chronic diseases are less expensive in the United States than in Canada. An FDA white paper outlining important achievements in 2003 similarly emphasizes agency efforts to make generic drugs more available to consumers as a prime way to expand access to affordable necessary medicines ( whitepapers/consumers.html). FDA cited its efforts to help manufacturers prepare complete market applications that can be approved more quickly, along with support for legislation that will speed approval of generic drugs after legitimate patents expire. FDA also highlights its campaign to educate the public about the safety of generic products, which it has supported with scientific studies of generic drug bioavailability to encourage development of additional generic dosage forms such as creams and inhalers. Spurring drug development FDA also is taking some credit for a slight uptick in the number of new drugs coming to market, which agency officials claim will speed access for all Americans to safe and affordable new medicines. An FDA summary of NDAs for 2003 notes that it approved applications for 21 new molecular entities in 2003, an increase from 17 in 2002 ( 2004/NEW01005.html). FDA also brought to market 14 priority NDAs, slightly more than in the previous year. The agency is emphasizing this increase in such important new medicines partly because the total number of all new NDAs actually dropped to 72 in 2003 from 78 in Similarly, FDA approved 362 new generic drugs in 2003, slightly less than the 384 approvals in FDA Commissioner Mark McClellan maintains that new agency initiatives will accelerate the development of more new drugs this year, although any major rebound in market approvals may be difficult to realize. PT