BRIEFING BOOK PRESCRIPTION DRUGS

Transcription

1 BRIEFING BOOK ON PRESCRIPTION DRUGS

2 TABLE OF CONTENTS I. BACKGROUND...1 A. Role of Prescription Drugs in Health Care...1 B. U.S. Prescription Drug Expenditures...1 C. Prescription Drug Utilization and Coverage...1 D. Prescription Drug Prices Prices in the U.S Drug Prices in Other Countries New Drug Prices...3 E. Prescription Drug Cost Containment Strategies Overview Hospitals and Managed Care Plans Community Retail Pharmacies Indemnity Insurance for Prescription Drugs Medicaid Drug Program...4 F. Prescription Drug Manufacturers Brand-Name ("Proprietary") Drugs Biotechnology Generic Drugs...6 II. ISSUES... 7 A. Pharmaceutical Cost Containment Short-Term Cost Controls for Drugs Currently on the Market Short-Term Cost Controls for New Drugs Cost Controls for Drugs After the New System is in Place...8

3 4. Long-Term Cost Controls for Breakthrough Drugs Access to Pharmaceutical Price Information Preserving Community Pharmacies...10 B. "Free Samples" of Pharmaceuticals...11 C. Underutilization of Generic Drugs in Federal Programs...11 III. RECOMMENDATIONS AND RATIONALE A. Pharmaceutical Cost Containment Short-Term Cost Controls for Drugs Currently on the Market Short-Term Cost Reviews of New Drugs Long-Term Cost Controls for Breakthrough Drugs Improve Access to Pharmaceutical Price Information Improve the Buying Power of Community Pharmacists...16 B. Insurance Coverage for Prescription Drugs Improve Access for People Under Improve Access for People Over C. Sampling Practices by Pharmaceutical Manufacturers...19 D. Generic Drug Use in the Medicaid Program Prior Authorization for Brand-Name Drugs Generic Drug Rebate...17 IV. QUESTIONS AND ANSWERS...22 V. INTEREST GROUP POSITIONS...25 A. Patients...25 B. Government...25 C. Industry...25 D. Pharmacy Associations...27

4 VI. APPENDIX Working Group Assumptions 2. Recommendations to Other Working Groups 3. Policy Papers with Legislative Specifications 4. Other Price Containment Formulas Considered 5. NARD/NACDS Legislative Proposal with Budget Estimate 6. Merck Proposal 7. Schering Proposal 8. Graphs (Acknowledgements to Philadelphia Inquirer and Senator David Pryor) 9. Cost of Therapy for Certain Recently Marketed Drugs 10. Correspondence 11. News Article: European State-Funded Health Systems Come Under Fire for Skyrocketing Costs (Wall Street Journal, Tuesday, May 4, 1993) 12. News Article: High-Tech Firms Feel Pangs of Reform 13. Additional Questions and Answers

5 I. BACKGROUND A. ROLE OF PRESCRIPTION DRUGS IN HEALTH CARE Pharmaceuticals are the most frequently used medical intervention. They are often more cost-effective than other therapies (e.g., surgery), but may be misused or abused, increasing morbidity and cost. B. U.S. PRESCRIPTION DRUG EXPENDITURES In 1992, U.S. prescription drug expenditures were $64 billion, or approximately eight percent of total U.S. health spending. Approximately 70% of all prescription drugs are provided to consumers through local community pharmacies. The remaining 30% are provided by hospitals, Health Maintenance Organizations (HMOs), mail order firms, and nursing homes. C. PRESCRIPTION DRUG UTILIZATION AND COVERAGE The average American under 65 years of age uses four prescription medications each year, at a cost of approximately $231. In contrast, the average American over 65 uses about 15 different prescriptions each year, and spends about $610. Most of the medications used by those under 65 are used for short-term, acute conditions (e.g., allergies and infections) or are oral contraceptives. The majority of the prescription medications taken by older Americans are used to treat long-term, chronic conditions (e.g., hypertension, arthritis, glaucoma and diabetes). Seventy-five percent of Americans under age 65 have insurance coverage for prescription drugs through Medicaid, Medigap insurance policies or private employer insurance plans. (Office of Technology Assessment, 1993). 1

6 By contrast, only 46% of Americans over 65 have prescription drug coverage. Medicare does not include an outpatient prescription drug benefit, and only three of the ten available Medigap plans (which are unaffordable to most older Americans) currently offer prescription drug coverage. Even though a significant proportion of the population has drug benefits, 56% of all drug costs in the United States are paid out-of-pocket (64% for Americans over 65). D. PRESCRIPTION DRUG PRICES 1. Prices in the United States U.S. prescription drug prices are the fastest growing component of health care spending. Prescription drug prices increased six times faster than the rate of inflation between 1980 and 1992 (132% versus 23%). Because of recent public and political pressure and volume purchasing by managed care plans, drug manufacturers have moderated prescription drug price increases over the last few years. 2. Drug Prices in Other Countries In general, Americans pay higher prices for most prescription drugs than the citizens of other industrialized nations. Americans pay 32% more for medications than Canadians (General Accounting Office [which report?]) and 54% more than Europeans (Department of Health and Human Services, Office of Inspector General [which report?]). 3. New Drug Prices Manufacturers receive patent protection for new pharmaceutical products. Under federal patent law, a patent holder is granted exclusive rights for a 17- year period. Because drugs take a long time to develop and receive approval to market, however, the effective period of protection is considerably shorter. 2

7 Manufacturers have traditionally charged whatever the market will bear when pricing new drugs. This price may be extremely high because other manufacturers are prohibited from copying a patented drug, and alternative drugs and therapies may be ineffective or even more expensive. Manufacturers regard their pricing structures as appropriately reflective of the substantial investment required for research and development, the lengthy and expensive FDA approval process, and the uncertainty that an initially promising treatment will actually reach the market. However, there is serious concern about the cost to the public of new drugs. A recent AIDS treatment came to the market at $21,000 per year; a new treatment for migraine is expected to cost $20 per tablet; a new drug to treat multiple sclerosis is expected to cost up to $10,000 per year; and a new Alzheimer's drug is expected to cost $2,000 per year. Particularly expensive biotechnology drugs that have already come to the market include: Tissue-Plasminogen Activator (for heart attacks) at $2,500 a dose; Ceredase (to treat Gaucher's disease) at $140,000 per year; and Recombinant Erythropoietin (to treat anemia) at $6,000 per year. E. PRESCRIPTION DRUG COST CONTAINMENT STRATEGIES 1. Overview Strategies used by buyers and health plans to contain prescription drug expenditures include: Forming large pharmaceutical buying groups to negotiate with manufacturers over price. Using drug formularies (lists of drugs that a plan will cover) to encourage physicians to prescribe more cost-effectively. Promoting the use of lower-cost generic drugs. 3

8 Requiring a drug manufacturer to provide a discount or rebate if the health plan covers the manufacturer's drug. Requiring pharmacists to bid competitively to fill prescriptions for the health plan's members. 2. Hospitals and Managed Care Plans Hospitals and managed care plans, including HMOs, have pooled their purchasing power to form large buying groups. As a result, they have been able to negotiate substantial price concessions from drug manufacturers. Hospitals and managed care plans have also used drug formularies to contain costs, sometimes listing a product on their formularies only if the manufacturer gives a price concession. 3. Community Retail Pharmacies Like hospitals, community pharmacists have formed large buying groups. However, drug manufacturers have not provided equivalent discounts to community pharmacy buying groups as to hospital and managed care plan buying groups, even though they could purchase the same quantity of a drug. [WHY? THIS DOESN'T MAKE ECONOMIC SENSE? IS IT THAT PHARMACISTS CANNOT ENFORCE FORMULARIES?] As a result, community pharmacies have passed along higher prices to consumers. 4. Indemnity Insurance for Prescription Drugs Third party payers providing coverage for prescription drugs control expenditures primarily by limiting pharmacy reimbursement. Certain payers have agreements with drug manufacturers to rebate a certain percentage of the costs of covered drugs. [IS THIS CORRECT?] 4

9 5. Medicaid Drug Program Medicaid did not have an aggressive pharmaceutical cost containment strategy until 1990, when Congress enacted legislation requiring drug manufacturers to provide rebates [DOES THIS MEAN VOLUME- PURCHASING DISCOUNTS?] to the Medicaid program. Medicaid has programs in place to promote the use of lower-cost generic drugs. Congress is currently considering legislation to allow Medicaid programs to use formularies. F. PRESCRIPTION DRUG MANUFACTURERS 1. Brand-Name ("Proprietary") Drugs Most prescription drugs are discovered, patented and produced by large, multinational, research-intensive corporations. These companies have come under intense criticism as a result of high prices and price increases. On average, proprietary drug manufacturers invest 16% of their gross sales in research and development. Proprietary drug manufacturers spend almost 23% of gross sales on marketing, advertising and promotion. Profits are about 13% of gross sales. This is almost four times the average among Fortune 500 companies, making the pharmaceutical industry the most profitable industry in the U.S. 2. Biotechnology [THIS SECTION DOES NOT SAY MUCH] Biotechnology, which constitutes a small but rapidly growing segment of the U.S. health care industry, includes the patented identification and manufacture 5

10 of important naturally occurring substances, such as enzymes and hormones ("biologicals"). Although few biotechnology products have been marketed to date, some have attracted attention as a result of extremely high prices. 3. Generic Drugs After the patent on a drug expires, generic manufacturers are allowed to manufacture the drug. Generic drugs usually sell for less than half the price of the original patented medication. Over the next few years, patents on several very expensive, commonly used drugs will expire. Many proprietary drug manufacturers have established generic divisions. Approximately 60% of all generics sold in the United States are made by traditional, brand-name drug manufacturers. II. ISSUES A. PHARMACEUTICAL COST CONTAINMENT 1. Short-Term Cost Controls for Drugs Currently on the Market Universal prescription drug insurance coverage as well as new Medicare drug benefit coverage may take several years to phase in. During this period of time, many Americans will still pay for some or all of their drugs out-of-pocket. Americans may perceive serious shortcomings with health care reform if there is no moderation in prescription drug inflation in the short term. Therefore, a short-term cap on increases in the price of existing prescription drugs may be necessary. 6

11 2. Short-Term Cost Controls for New Drugs For a variety of reasons, new drugs tend to be introduced to the market by manufacturers at very high prices. Manufacturers attempt to recoup research and development costs and to show a profit as soon as possible because the patent term is limited and a better remedy may be developed by a competitor at any time. Other industrialized countries have developed mechanisms to contain new drug "launch" prices. Drug manufacturers may price new drugs higher in the United States in order to offset cost containment in other countries. Because caps on price increases would not apply to drugs that have not previously been available, drug manufacturers may attempt to offset revenue lost from caps on existing products by introducing new drugs at even higher prices. As a result, pharmaceutical expenditures for health plans and the Medicare drug program may increase rapidly unless there is some attempt to influence new drug prices. However, drug manufacturers contend that any mechanism that reduces new drug prices, even on a short-term basis, will diminish incentives to develop those drugs. 3. Cost Controls for Drugs After the New System is in Place Integrated delivery systems receiving capitated premium payments, such as will exist under managed competition, will likely be able to contain the price of most drugs once the new system is in place. This will be achieved primarily by drug formularies, which are already being used with relatively good success by hospitals, HMOs, and other managed care plans. 7

12 Government-enforced prescription drug inflation caps will therefore not be required in the long term, and could be phased out when a significant majority of the market is under managed competition. 4. Long-Term Cost Controls for Breakthrough Drugs The new system may not be effective in containing the costs of all new drugs because formularies will reduce the cost of drugs only if there is a close therapeutic alternative already on the market against which the price of a new drug can be compared. Certain new drugs ("breakthrough drugs") will represent significant improvements over treatments already on the market (e.g., a treatment for AIDS or Alzheimer's Disease). Breakthrough drugs have traditionally been introduced at very high prices, and have strained the budgets of health care providers. Some long-term strategy to contain the cost of breakthrough drugs may be advisable. However, reducing incentives to develop such drugs remains a concern. 5. Access to Pharmaceutical Price Information Physicians and patients have inadequate information about drug prices. Currently, there is no systematic mechanism in the United States for the collection and dissemination of pharmaceutical price information. Because of third-party payment, doctors and patients are generally unaware of medication prices. A recent survey found that the majority of physicians could not accurately identify the price range of 20 frequently prescribed medications. Policymakers and others have insufficient information about what other industrialized nations pay for drugs. 8

13 Drug manufacturers contend that many new drug prices in other industrialized nations are generally lower than prices in the U.S. However, there is currently no mechanism to monitor and update international drug prices. There is little information about whether new drug prices are reasonable, especially prices of breakthrough drugs. [DO YOU WANT TO MENTION SOMETHING ABOUT THE NEED FOR BETTER TECHNOLOGY ASSESSMENT; I.E., IS A NEW DRUG REALLY BETTER, OR JUST HYPED?] 6. Preserving Community Pharmacies [THIS SECTION SEEMS CONFUSING -- WHY SHOULD ONE TYPE OF BUSINESS BE PROTECTED?] Manufacturers have been unwilling to negotiate significant price reductions or discounts with community pharmacy buying groups even though many of these groups buy in volumes equal to or greater than similarly sized hospital or HMO buying groups. [AGAIN, THE RATIONALE FOR THIS PRACTICE IS HARD TO UNDERSTAND. IS THE POINT THAT PHARMACIES, DESPITE THEIR SIZE, HAVE LESS LEVERAGE THAN HOSPITALS BECAUSE PHARMACY "FORMULARIES" DON'T EXIST AND DOCTORS ARE NOT CONSTRAINED IN THEIR CHOICE ACCORDING TO THE CONTRACT?] As a result, community pharmacists often pay the highest prices in the market for medications, which are passed along to the consumer. Drug manufacturers have attempted to segment the hospital and HMO market from the community pharmacy market in order to allow them to shift costs to the community pharmacies. [IS THIS REALLY PRICE DISCRIMINATION THAT VIOLATES ANTITRUST LAWS? OR IS IT SOMETHING LESS PROVABLE?] Community pharmacy buying groups want equal access to discounts from drug manufacturers so that they can compete for the business of health plans. Without this access, pharmacy groups contend that many small pharmacies in inner-city and rural areas will be forced out of business. 9

14 B. "FREE SAMPLES" OF PHARMACEUTICALS Many drug manufacturers make samples available to physicians without charge. Samples are usually distributed by physicians to their indigent patients. "Sampling" shifts costs from those who receive the samples to those who pay higher prices for purchased drugs, and may induce physicians to prescribe expensive drugs inappropriately. Samples are often illegally diverted for sale. Fraud in sampling increases costs for all participants in the system. C. UNDERUTILIZATION OF GENERICS IN FEDERAL PROGRAMS Generic drugs are underutilized in the Medicaid program. Proprietary drugs are currently dispensed in approximately 25% of cases where a generic is available. Reducing this fraction to five percent (which is thought to be clinically appropriate), would result in savings of $90 million for the 20 most frequently used drugs in the Medicaid program with Federal Upper Limits [WHAT DOES "FEDERAL UPPER LIMITS" MEAN?]. Preferences for generic prescribing in the Medicaid program are frequently overridden by state laws which permit physicians to prescribe brand-name drugs by simply indicating that the proprietary drug is "medically necessary" without additional clinical documentation. In some states, physicians use this privilege in 50-60% of cases, even though an FDAapproved generic drug is available. The generic drug rebate required by the Medicaid prescription program (11% in FY 94) represents a heavy tax on the generic industry relative to its profitability and may put generic firms at a competitive disadvantage. 10

15 III. RECOMMENDATIONS AND RATIONALE A. PHARMACEUTICAL COST CONTAINMENT 1. Short-Term Cost Controls for Drugs Currently on the Market RECOMMENDATION: Require drug manufacturers to sign agreements with the federal government whereby they would limit price increases on drugs that are already on the market to the rate of inflation, as measured by the Consumer Price Index (CPI). Manufacturers would have three to six months to sign agreements voluntarily. The President would have stand-by authority to impose caps on manufacturers that have not signed. Agreements would last for a minimum of three years, beginning in Price caps would be lifted and agreements would terminate when the National Health Board determines that a majority of the pharmaceutical market is under managed competition or is otherwise able to contain costs. RATIONALE Americans need immediate relief from skyrocketing drug price increases. The transition to universal drug coverage could take many years. In the meantime, many Americans will remain vulnerable to high out-of-pocket drug costs. The specific pharmaceutical price caps recommended here are modeled (with improvements) after voluntary plans proposed by individual drug manufacturers. Using voluntary plans as models makes it easier for Congress to accept price caps and more difficult for manufacturers to oppose them. 11

16 After price caps are lifted, health plans will use formulary systems to contain most drug prices, reducing the need for policy action in the long term. [DOES EACH AGREEMENT INVOLVE ONLY ONE MANUFACTURER? IF NOT, SHOULD WE MENTION THAT AGREEMENTS WOULD BE IMMUNE FROM ANTITRUST ENFORCEMENT UNDER THE PARKER DOCTRINE?] 2. Short-Term Cost Reviews of New Drugs RECOMMENDATION During the phase-in to the new health care system, review the prices of all new drugs and provide information to buyers about whether the price of the new drug is reasonable. RATIONALE The government would not set or control the prices on new drugs, but would help buyers determine if the price is reasonable. This analysis would be made by the Federal Pharmaceutical Review Commission (see Recommendation 4 below). The analysis would be made public in order to induce manufacturers to be more sensitive to launch prices for new drugs, and would be used by buyers to negotiate with manufacturers. All new drugs would be reviewed in the short term because many Americans will continue to pay for new drugs out-of-pocket. This approach is a reasonable compromise between controlling new drug prices directly and doing nothing. 12

17 3. Long-Term Cost Controls for Breakthrough Drugs RECOMMENDATION After the transition to the new system, the Commission should review for reasonableness only the prices of new drugs that the Food and Drug Administration has determined to represent therapeutic breakthroughs. RATIONALE The FDA would identify breakthrough drugs to the Pharmaceutical Review Commission at the time of FDA approval. Twelve to fifteen such breakthrough drugs are approved each year by the FDA. Even under managed competition, the costs of these drugs could be overwhelming for health plans and hospitals. Purchasers using drug formularies will have little bargaining leverage with respect to breakthrough drugs without clear therapeutic alternatives because comparative information on costs and benefits will be difficult to evaluate. Health plans should not be tempted to deny access to breakthrough drugs because of cost. 4. Improve Access to Pharmaceutical Price Information RECOMMENDATION Establish a Federal Pharmaceutical Review Commission (PRC) as a part of the National Health Board. 13

18 The Commission would be charged with: monitoring Medicare drug program expenditures and operations; determining whether the prices of all new drugs are reasonable in the short term (see Recommendation 2); determining whether the prices of breakthrough drugs are reasonable in the long term (see Recommendation 3); and collecting and publishing information about U.S. and international drug prices. RATIONALE There is currently no centralized federal body that collects and publishes information about prescription drug pricing issues. Similar commissions have been established to monitor hospital and physician program expenditures under Medicare. Without such a commission and the analyses it produces, there will be little incentive for manufacturers to contain launch prices of new prescription drugs. 5. Improve The Buying Power Of Community Pharmacists RECOMMENDATION Once the new system is in place, pharmaceutical manufacturers would be required by law to offer the same price concessions and discounts to all volume purchasers. 14

19 [AS NOTED ABOVE, IT IS NOT CLEAR (I) THAT CURRENT PRACTICES ARE IMPROPER OR (II) THAT EXISTING LAW (E.G. ROBINSON-PATMAN ACT) IS INADEQUATE TO ADDRESS THE PROBLEM] RATIONALE The refusal of drug manufacturers to negotiate sizeable discounts or price reductions with community pharmacy buying groups has resulted in much higher drug prices for the average American consumer. Drug manufacturers have intentionally segmented the market to avoid price competition in the community pharmacy market. Community pharmacists should be able to compete on the same terms as other volume purchasers of prescription drugs. This is unlikely to happen without legislative action. [WHAT ABOUT GETTING ANTITRUST AUTHORITIES INVOLVED?] This policy will allow small rural and inner-city pharmacies to buy prescription drugs at reasonable prices [ONLY IF THEY ARE IN BUYING GROUPS]. Without these pharmacies, access to pharmacists and pharmaceuticals may be severely impaired in those areas. There should be a phase-in period to avoid disrupting current contracts between manufacturers and buying groups. B. INSURANCE COVERAGE FOR PRESCRIPTION DRUGS 1. Improve Access for People Under 65 RECOMMENDATION Include prescription drugs as a standard health insurance benefit for the under 65 population. 15

20 RATIONALE Pharmaceuticals are a cost-effective form of medical care intervention. Individuals that do not take medications as prescribed because they are unaffordable often require more expensive medical care as a result. 2. Improve Access for People Over 65 RECOMMENDATION Establish an outpatient prescription drug benefit under the current Medicare fee-for-service plan. The plan would have a deductible of $250 per year, after which the Medicare beneficiary would pay 50% of the cost of each prescription up to a total of $800 and 20% of the cost of each prescription thereafter. The deductible and copayment thresholds would be indexed and increased each year so that a fixed percentage of Medicare beneficiaries exceeded each limit in a given year. The Medicare benefit would also contain specific cost containment mechanisms to reduce the chance that costs would escalate too rapidly. RATIONALE People over 65 have been hit hardest by drug costs. It would be practically and politically difficult to provide drug coverage to people under 65 and not to the Medicare population. Medicare will probably not be folded into the new health care system (which would contain drugs as a standard benefit) immediately. Therefore, most older Americans will not have coverage unless a drug benefit is developed under the current fee-for-service Medicare structure. 16

21 Older Americans will expect a significant expansion of health care benefits under Medicare if they are going to be asked to pay more taxes for health care. Outpatient prescription drug coverage, while expensive, is a more affordable benefit than long-term care. This approach would assure drug coverage for a larger percentage of Medicare beneficiaries, and would also protect beneficiaries who have very high drug bills. The cost-sharing structure for a Medicare drug benefit will differ from the cost sharing in the drug benefit package for people under 65, which is likely to have a lower (or no) deductible and smaller copayments. The lower the deductible in the Medicare fee-for-service package, the higher the Part B premium that a Medicare beneficiary will pay. [THIS DOESN'T SEEM NECESSARY, JUST PROBABLE UNDER A FIXED BUDGET] At some point, high Part B monthly premiums from a very expansive Medicare drug benefit may be unaffordable for many Medicare beneficiaries. Because Medicare beneficiaries use more drugs than people under 65, a Medicare drug benefit will be valued by Medicare beneficiaries despite higher cost sharing. C. SAMPLING PRACTICES BY PHARMACEUTICAL MANUFACTURERS RECOMMENDATION Pharmaceutical sampling should be prohibited except in certain cases: if samples are provided to Public Health Service clinics or similar clinics solely for the purpose of distribution to the medically indigent, or if a physician requests, on physician letterhead with the physician's DEA number and manual signature, samples from the manufacturer to be used by medically indigent patients. 17

22 RATIONALE Diversion and fraudulent sale of samples have been of concern for many years. Given the costs involved with this practice, some manufacturers have indicated that they would be willing to eliminate sampling altogether. Whenever major companies have unilaterally stopped sampling, they have been forced to reinstitute the practice quickly because competitors took advantage of the opportunity to capture markets. Sales representatives use samples to stimulate physicians' interest in newer, more expensive drugs. To the extent that sampling is a marketing tool rather than a means of physician education, it can lead to inappropriate prescribing. [THIS OPENS UP THE WHOLE ISSUE OF MARKETING -- IT SEEMS OUT OF PLACE WITHOUT A MUCH MORE COMPREHENSIVE DISCUSSION] Samples could still be distributed to indigent clinics and to physicians requesting them for indigent patients. Over time, as all Americans obtain drug coverage, the need for samples should diminish. D. GENERIC DRUG USE IN THE MEDICAID PROGRAM 1. Prior Authorization for Brand-Name Drugs RECOMMENDATION Require prior authorization for brand-name drugs in the Medicaid program where generic alternatives are available. 18

23 RATIONALE There is a need for the generic industry to be a strong, viable industry in order for competition to work in the pharmaceutical marketplace. A prior authorization requirement would assure that patients receive brand name drugs only in those cases where it is medically necessary. 2. Generic Drug Rebate RECOMMENDATION Decrease the Medicaid generic drug rebate to seven percent. RATIONALE The size of the Medicaid drug rebate is burdensome to generic drug manufacturers. Generic drug use will increase and expenditures will decrease as a result of a prior authorization procedure (see Recommendation 1). Savings from this measure will finance an appropriate reduction in the Medicaid rebate for generic drugs. 19

24 IV. QUESTIONS AND ANSWERS 1. Why should controls be applied to the industry if the industry is willing to hold prices in line with inflation voluntarily? Not every company has agreed to hold prices in line with inflation. Those offering voluntary enforceable agreements have not done so on consistent terms. Some companies have offered to contain costs only on a product-by-product basis, while others have offered to do so for all their products at once. The goal of the Administration is to provide a mechanism whereby consumers can be reasonably assured that overall drug prices will increase at a rate no greater than the rate of inflation. The Administration's plan allows companies to negotiate agreements with the government voluntarily before mandatory compliance is enforced. 2. Why apply cost controls to pharmaceuticals if other areas of health care expenditure remain uncontrolled? Since 1980, prescription drug prices in the U.S. have increased at more than three times the rate of inflation. Excessive price increases, combined with incomplete insurance coverage for prescription drugs, make prescription drugs the highest out-ofpocket medical expense for many Americans. 3. Won't price controls and reviews of the prices on new medications stifle research and development of important new pharmaceutical and biotechnology products [OR WAS THIS QUESTION JUST BIOTECH PRODUCTS AND NOT DRUGS]? Representatives of the biotechnology industry have assured us that their prices are increasing no faster than the rate of inflation. Short-term controls that limit price increases to the rate of inflation should therefore not be a problem. [THIS DOESN'T WORK. IF PRICES AREN'T INCREASING, THEN WHY ARE WE PROPOSING A CAP? THE INDUSTRY MAY NOT BE ARGUING HONESTLY, BUT THE DETERRENCE TO INNOVATION IS A REAL CONCERN AND NEEDS A BETTER ANSWER.] In addition, the industry claims that prices in the U.S. for new products are equal to or lower than the prices in other countries. Our proposal for long-term review of drug prices merely suggests [ORIGINAL TEXT SAID "REQUIRES"] that drugs in this country not be launched at prices that are higher than 20

25 those in other countries. [IS THIS THE POINT OF THE PROPOSAL? IT IS NOT OBVIOUS FROM THE ABOVE DISCUSSION!] 4. Who will benefit? Who will lose? The American people are all winners under this proposal. In the long run, an emphasis on cost-effectiveness, availability of information and generic prescribing should allow physicians to make more informed decisions based on safety and efficacy rather than brand loyalty. This should increase the quality and efficiency of health care nationwide. The prohibition on sampling contained in our proposal will cost the pharmaceutical industry a marketing tool, but it is a tool whose merits are questionable. [IS THIS LAST SENTENCE NECESSARY?] 5. Why not allow sampling for new drugs? Allowing sampling for new drugs would create an opportunity for product diversion and other abuses to occur. It is also likely that companies would intensify their sampling practices during this time period (sample dumping or seeding of patients with sampled products), which would impede the development of informed prescribing practices. 6. Isn't price information about prescription drugs already available without a new federal commission? Information is often available, but is not easily accessible to prescribers, consumers and purchasers. If physicians are going to be held accountable by health plans for the cost impact of their prescribing decisions, they need current and complete information. Consumers deserve the same information so that they can be full participants in decisions about their health care. A similar information initiative was undertaken in 1981 [?] and was met with great enthusiasm by health care professionals before being killed by the Reagan Administration. A source of information similar to what we propose is currently available in England (Monthly Index of Medical Specialties) and is praised by practitioners in that country. 21

26 7. Why give another responsibility to the FDA instead of creating an independent board to compile the information? Evaluation of data submitted by manufacturers to demonstrate relative efficacy requires resources similar to those already in place at FDA. In addition, manufacturers might attempt to use a new board to substantiate claims that the FDA has rejected. 8. Isn't this proposal really the beginnings of a national formulary? No. The proposal is to merely to give providers and health plans complete price information. The decision as to which products to prescribe still remains with the provider. 9. How do you justify a higher deductible and higher copayment for older Americans enrolled in Medicare than for those receiving a prescription drug benefit as part of the comprehensive benefits offered in the new system? Because older Americans use drugs more than people under 65, the annual average dollar value of a Medicare drug benefit is much greater than the value of the drug benefit for the under 65 population, even though deductibles and copayments are higher. 10. Based on the negative experiences with the Medicare Catastrophic Coverage Act (MCCA) of 1988, how can you be sure that older Americans will support a Medicare drug benefit? While the MCCA benefit was financed solely by older Americans, a Medicare drug benefit as part of national health reform will be financed like all other Medicare Part B programs, using both an increase in Part B premiums and through general revenues. Therefore, drug benefit financing is much more broadly based than the MCCA. 22

27 V. INTEREST GROUP POSITIONS A. PATIENTS (FOCUS GROUPS AND CORRESPONDENCE) Patients express concern about the high prices of prescription drugs in retail and non-retail settings, and the lack of coverage. B. GOVERNMENT The U.S. Trade Representative expressed concern regarding perceived actions by the working group to limit drug patents in the United States or abroad. C. PHARMACEUTICAL INDUSTRY The proprietary pharmaceutical industry, represented by the Pharmaceutical Manufacturers Association (PMA), supports the expansion of prescription drug insurance coverage to the under 65 population and the establishment of a Medicare drug benefit. The PMA adamantly oppose any type of legislated price controls on pharmaceuticals. It contends that such controls would reduce the incentives to develop new drugs, which might mean that treatments for serious diseases such as cancer, AIDS and Alzheimer's Disease would not be found or would be significantly delayed. Some drug makers are publicly supporting voluntary price caps on drugs that are currently on the market. There is also support for a government-enforced mechanism to assure that manufacturers do not increase prices faster than these voluntary caps would allow. There is almost unanimous agreement within the industry that manufacturers should have the freedom to price new drugs as they wish. 23

28 1. Merck, Searle, Schering-Plough, Bristol Myers Squibb, Lilly and Pfizer Oppose: price controls for drugs currently on the market; price controls for new drugs; price setting on new drugs. Support: voluntary controls for drugs currently on the market; elimination of sampling if the practice is industry-wide; comparisons of U.S. prices to international prices. Express concern regarding price controls and their impact on research and development. 2. Biotechnology Firms Oppose: price controls for drugs currently on the market; price control for new drugs; price setting on new drugs; comparisons of U.S. prices to international prices. Support: elimination of sampling; 24

29 voluntary controls for drugs currently on the market. Express concern regarding price controls and their impact on R&D, and regarding their ability to gain access to venture capital if price controls are imposed. 3. Generic Pharmaceutical Industry Oppose the application of price controls to the generic sector. Oppose the generic rebate required by the Medicaid drug rebate provisions of OBRA 90. Support the increased use of generics to control expenditures through mandated generic reimbursement rules. Express concern regarding past actions by the United States Trade Representative with respect to international intellectual property rights and the resulting inability of the generic industry to acquire source product for experimentation [YOU MAY HAVE TO EXPLAIN THIS]. D. PHARMACY ASSOCIATIONS 1. Hospital Pharmacists (ASHP) and Managed Care Pharmacists (e.g., GHAA) Oppose: limitations on current hospital and managed care management practices to contain costs; discounts based exclusively on volume; price controls. Support: 25

30 the use of formularies to contain expenditures; the use of rebates as a mechanism to achieve lower net prices; collaborative efforts between physicians and clinical pharmacists to assure safe, effective and appropriate drug use; generic substitution; therapeutic interchange [WHAT DOES THIS MEAN?]; processes to evaluate drug use and contain costs; prescription drugs as a covered benefit. 2. Retail Pharmacy Associations (NARD/NACDS) Oppose: discounts and rebates given to managed care health plans and hospitals on any other terms other than volume; the ability of health plans to contract with preferred pharmacies; rebates based on formulary status of a drug (but are silent on the Medicaid rebate provisions). Support: exempting federal and state governments from the requirements [WHAT REQUIREMENTS?]; exempting Planned Parenthood organizations from the requirements [SAME QUESTION]; mandatory generic substitution; 26

31 medication sampling with practical restrictions [HOW DOES THIS COMPARE WITH OUR PROPOSAL?]; a waiver for Medicaid formularies; prescription drugs as a covered benefit; price controls, with a higher level of control at the retail level. 3. Consultant Pharmacists (ASCP) Oppose discounts and rebates given to managed care health plans and hospitals on any other terms other than volume. Support prescription drugs as a covered benefit, and the use of pharmacists in controlling drug expenditures. 4. APHA (membership is a mix of hospital, managed care and retail) [SPELL OUT THIS ORGANIZATION'S NAME] Support prescription drugs as a covered benefit. Support the use of pharmacists in controlling drug expenditures. No official position on the class of trade pricing issue [PLEASE EXPLAIN]. Oppose the adoption of the NARD/NACDS position on pharmaceutical prices as it relates to the federal government due to fiscal implications [EXPLAIN]. 5. Wholesalers Support increased role of wholesalers in decreasing systems costs by decreasing inventory overhead using "just-in-time" inventory systems. 27

32 6. Medco [DESCRIBE WHO THIS IS] Support: a plan that does not preclude the use of mail order prescription firms; volume-based discounts and rebates; collaborative efforts between physicians and clinical pharmacists to assure safe, effective and appropriate drug use; the provision of a prescription drug benefit; the ability of mail order firms to control expenditures in a fee-forservice environment; mandatory generic drug requirements. 28

33 VI. APPENDIX 1. Working Group Assumptions 2. Recommendations to Other Working Groups 3. Policy Papers with Legislative Specifications 4. Other Price Containment Formulas Considered 5. NARD/NACDS Legislative Proposal with Budget Estimate 6. Merck Proposal 7. Schering Proposal 8. Graphs (Acknowledgements to Philadelphia Inquirer and Senator David Pryor) 9. Cost of Therapy for Certain Recently Marketed Drugs 10. Correspondence 11. News Article: European State-Funded Health Systems Come Under Fire for Skyrocketing Costs (Wall Street Journal, Tuesday, May 4, 1993) 12. News Article: High-Tech Firms Feel Pangs of Reform 13. Additional Questions and Answers 29