Pharmaceutical Marketing & Economic issues: Drug copay subsidies ( coupons ) and potential consumer and State interests

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1 Pharmaceutical Marketing & Economic issues: Drug copay subsidies ( coupons ) and potential consumer and State interests Wells G. Wilkinson Staff Attorney, Community Catalyst Director, Prescription Access Litigation Attorney General Education Program, George Mason School of Law May 2012

2 About Community Catalyst Community Catalyst is a national non-profit health advocacy organization working to ensure that everyone has access to high-quality, affordable health care Collaborates with national, state and local consumer organizations, policymakers and foundations Builds and supports consumer advocacy networks in more than 40 states Runs successful state and federal issue campaigns: Children s Health, Delivery System Reform, Dental Access, Community Benefits from non-profit hospitals, and prescription drug access and quality, including the Prescription Access Litigation (PAL) project.

3 PAL s Mission: Involve consumers and consumer-oriented organizations and health plans in class action litigation and public education Aims to help make prescription drugs more affordable, and help end unfair or deceptive drug company marketing and pricing.

4 Other prescription drug advocacy by Community Catalyst 2006: The Prescription Project Funded/collaboration with PEW Charitable Trusts Highlighted conflicts of interest (COI) arising in prescribing context due to industry provider financial relationships. 2011: Partnership to Advance Conflict-Free Medical Education 3-year collaborative with PEW, the American Medical Student Association (AMSA) and the National Physician Alliance (NPA), funded by the State Attorney General Consumer and Provider Grant Program (Neurontin settlement, 2004). Aims to implement and evaluate COI policies at academic medical centers e.g. bans on gifts/meals/entertainment, or participation in promotional speakers bureaus or ghost writing; transparency & disclosures, etc..

5 The PAL Coalition 130 organizations from 36 states & DC: Consumer groups Senior groups Unions Health & welfare funds Non-profit health plans National organizations

6 PAL Member Litigation Results to Date Coalition members have brought 32 class action lawsuits in partnership with private class action firms, yielding: Injunctive relief: The settlement of the McKesson/First Databank AWP pricing fraud yielded a price rollback of 98% of all brand-name drugs in Sept. 2009, estimated to have saved Medicaid programs $500 Million in first year. Financial recoveries: 17 settlements to date, totaling $1.3 billion in recoveries Disclosure: PAL has been funded by grants from foundations (Atlantic Philanthropies, Nathan Cummings Foundation, etc.) and some donations by attorneys and law firms. See lists at

7 The newest tool in drug industry marketing: Co-pay coupons or co-pay savings cards

8 How co-pay subsidies work: Response to cost sharing 90% of health plans (but generally not Medicaid) use differential costsharing, or out of pocket co-payments: Tier type Co-pay Tier 1 generics $zero- 10 Tier 2 Preferred brands $15-25 Tier 3 Non-preferred brands $35-50 Tier 4 Specialty Drugs Eg. 20% Cost sharing higher member co-payments for expensive drugs and lower co-payments for therapeutically equivalent but less expensive drugs (usually generics) can align the member s long-term interest in keeping costs from growing with the health plan s immediate interest in paying for lower cost drugs where possible. Cost sharing makes a plan member sensitive to the significant differences in price between brands and generics.

9 How co-pay subsidies work: Promoting expensive brand-name drugs Co-pays subsidies ( coupons ) undo the alignment of interests and consumer price sensitivity created by cost-sharing under formularies. Misnamed as co-pay coupons or co-pay savings cards these subsidies are not price reductions; they allow the manufacturer to pay the beneficiary s co-payment. After using a co-pay coupon the out-of-pocket cost of a brand-name drug may be lower than or equal to the out-of-pocket cost (copayment) for a generic drug. Co-pay subsidies total $4 billion a year in payments from drugmakers to pharmacies, via third-party administrators. (PCMA Nov. 2011)

10 E.g. Lipitor for you promotion Pfizer offers the following co-pay subsidy: If your insurance co-pay is : $54 or less, you pay only $4. $55 or more, save $50 off your monthly cost, up to $600 of savings per calendar year. Source: This promotion reduces a plan member s out-of-pocket cost for Lipitor to an amount below the average co-payment for competing generic drugs like simvistatin or pravastatin.

11 Cost impact of selecting brand-name drug over generic therapeutic alternatives Total cost per month As % of premium 1 Increased cost over generic Nexium $ % $ 190 compared to omeprazole (generic of Prilosec) $ 12 4% $ 0 Crestor $ % $ 145 Vytorin $ % $ 139 Lipitor $ % $ 115 compared to generic pravastatin, or simvistatin $ 12 4% $ 0 1 Based on estimated $300 monthly health insurance premium, total cost before cost sharing, individual plan. Drug prices from as of

12 320% growth in number of different drug products promoted by co-pay subsidies Source: Cleveland Research, 2012

13 Co-pay subsidies ( coupons ) Used to promote half of the top 109 best-selling drugs by revenue in Used with Million, or 13% of all brand-name prescriptions (Cleveland Research, 2011) Projected to cause $32 Billion in increased drug costs through 2021 for state government employee plans, employers, private market health plans, and unions (PCMA, 2011) Indirectly drive up total health care costs, impacting all consumers Likely to be driving 2-out-of-3 seniors that used coupons to switch from generic to a brand (National Coal. on HC, 2012)

14 Co-pay coupons projected to increase of drug costs for health plans and employers through 2021 ($): Alabama $ 608 million Illinois $ 1,387 million Alaska $ 62 million Indiana $ 803 million Arizona $ 590 million Iowa $ 297 million Arkansas $ 308 million Kansas $ 309 million California $ 2,454 million Kentucky $ 599 million Colorado $ 410 million Louisiana $ 509 million Connecticut $ 447 million Maine $ 140 million Delaware $ 138 million Maryland $ 709 million D.C. $ 84 million Massachusetts $ 0 Florida $ 2,052 million Michigan $ 1,120 million Georgia $ 974 million Minnesota $ 571 million Hawaii $ 121 million Mississippi $ 291 million Idaho $ 149 million Missouri $ 681 million Source: PCMA, Nov 2011 N.B. A Massachusetts anti-kickback law bans use of copay subsidies.

15 Co-pay coupons projected to increase of drug costs for health plans and employers through 2021 ($): Montana $ 96 million Rhode Island $ 140 million Nebraska $ 189 million South Carolina $ 547 million Nevada $ 253 million South Dakota $ 64 million New Hampshire $ 164 million Tennessee $ 890 million New Jersey $ 1,043 million Texas $ 2,560 million New Mexico $ 165 million Utah $ 277 million New York $ 2,316 million Vermont $ 67 million North Carolina $ 1,120 million Virginia $ 935 million North Dakota $ 64 million Washington $ 638 million Ohio $ 1,511 million West Virginia $ 261 million Oklahoma $ 401 million Wisconsin $ 617 million Oregon $ 338 million Wyoming $ 51 million Pennsylvania $ 1,756 million Total, all States: $ 32,276 million Source: PCMA, Nov 2011

16 Co-pay subsidies marketed aggressively Co-pay subsidies (coupons) are promoted, marketed, and distributed to consumers from many sources: By Doctors By Pharmacists On-line internet ads TV ads promote offers of expensive brand-name drugs for free Magazine ads s from drugmakers Direct mail from drugmakers

17 Co-pay subsidies driving Medicare costs, despite ban under federal programs The National Coalition on Health Care surveyed seniors covered by Part-D, Medicare Advantage, or retiree plans, finding: 6% of seniors had used a co-pay coupon (despite federal ban on use in federal health plans) 4% (i.e. 2 out of 3) had switched from a generic to a brand-name drug due to the copay subsidy. 93% do not know coupons not allowed under Medicare, 3% not sure. Only 3% of seniors were aware of ban on coupons in federal health programs like Medicare. (Source: National Coalition on Health Care, April 2012)

18 Most seniors unaware that coupons are banned under federal programs National Coalition on Health Care survey found: Only 3% of seniors knew coupons not allowed under Medicare 93% of seniors had never heard anything about whether they are allowed or not. 1% of seniors thought coupons were permitted under Medicare. (Source: National Coalition on Health Care, April 2012)

19 Seniors favor negotiation of lower prices, shared discounts with health plans, over coupons. National Coalition on Health Care survey also found: Most seniors (64-85%) think their health plans should also get an equal discount from any coupon used. 61% of seniors think drug companies should be required to lower their prices for seniors on Medicare. (Source: National Coalition on Health Care, April 2012)

20 Issues of potential unfairness Co-pay subsidies are administered at the pharmacy through a shadow claims system designed to be invisible to health plans and PBMs. (PCMA, 2011) Co-pay subsidies likely include additional administrative fee of at least $1-$5 paid to pharmacists. (Cleveland Research, 2012) Use of a co-pay coupons by consumers will unwittingly provide drugmakers with access to their private drug history information, opening consumers up to highly effective and personally invasive direct marketing. (PCMA, 2011) Many co-pay coupon offers are restricted to patients covered by insurance.

21 Possible state interests in preventing drug co-pay subsidies Help reduce costs for state and municipal employee health plans. Help health plans and employers in the state prevent wasteful drug costs Ensure co-pay subsidies comply with: - State insurance, pharmacy, and generic substitution rules Protection of patient privacy rights at risk

22 Consumer interests in preventing drug marketing using co-pay subsidies Help align a consumer s long-term interest in lower health care costs with their employer or health plan s interest in preventing wasteful or unnecessary spending on expensive drugs. Prevent drug-makers from accessing personal health information in prescription records. Prevent the lure of a good deal on an expensive drug product from distracting patients from a full consideration of the risks and benefits of taking a prescription drug.

23 Possible solutions Litigation Class action lawsuits were filed March 8th by 4 ERISA health plans representing public and private sector employees. Investigation of possible State Attorney-General anti-kickback or consumer protection actions Investigation and enforcement Federal investigation and possible rulemaking/enforcement action by CMS to ensure compliance with the ban on coupons under federal health programs under anti-kickback statute State investigation of the possible non-compliance of drug copay subsidies with state insurance laws, or state generic substitution laws. (cont d...)

24 Possible solutions (cont d) Health Plan design changes Contracting by public and private health plans and employers, through their pharmacy benefit managers (PBMs), to ban pharmacies from accepting these payments, and to require transparency of pharmacy financial transactions with drug makers. Health plans may need assistance to prevent unfair contracting practices by PBMs or pharmacies from interfering with such protective contract terms. Consumer Education Helping consumers understand how using co-pay coupons has significant hidden costs, and will provide drug makers with access to their private health information.

25 Additional Resources on Coupons Community Catalyst fact sheet on co-pay subsidies as a marketing tactic: PCMA report on impact of co-pay subsidies upon State health care spending, Nov. 2011, at National Coalition on Health Care survey on effect of copay subsidies on senior drug selection, April 2012, at Additional resources on drug co-pay subsidies:

26 Questions? For developing information on consumer education resources and best practices by health plans, please contact: Wells G. Wilkinson Staff Attorney, Community Catalyst Director, Prescription Access Litigation