Health Business Blog

Health care business consultant and policy expert David E. Williams share his views

Merck decides to compete with Canadian pharmacies

Merck has a new program to provide 15-40% discounts on its drugs to anyone who lacks insurance. Unlike competitors’ programs, Merck’s is broad based. There are no age or income limits. The program is clearly aimed at matching Canadian prices.

There are some interesting implications if other big pharma companies follow Merck’s lead:

  • If consumers can get the same prices as insurers and PBMs, it may make sense for companies and individuals to drop insurance coverage for drugs and avoid the overhead of plan administration. (This has to be counterbalanced against the tax advantages of insurance and the need for catastrophic coverage.)
  • Insurers and PBMs may demand greater discounts and rebates in order to restore the differential
  • A conscious effort to match Canadian prices in the US may enforce greater discipline as pharmaceutical companies negotiate prices abroad. The pharma industry has argued that Americans subsidize other countries’ drug purchases –on the other hand the companies are free to walk away if they don’t want to charge the lower prices. I expect we’ll see greater harmonization of world prices –the Merck program is one factor contributing to that trend
  • Relief for the non-poor uninsured may increase pressure on hospitals and physicians who charge list prices to the uninsured but no one else

Health plans jump on the e-prescribing bandwagon

Horizon Blue Cross Blue Shield of New Jersey is the latest health plan to provide support to physicians who shift to electronic prescribing, according to the New Jersey Star-Ledger. Doctors have been slow to embrace e-prescribing because it costs them money and time while most of the benefits accrue to health plans, pharmacies, office staff and patients.

However, health plans are realizing that they can generate a high return on investment by providing financial support for e-prescribing. Plans like e-prescribing because it improves formulary compliance and use of generics by presenting information at the point of care. It’s also good for patients, because it reduces errors from sloppy handwriting and allows checking for drug-drug interaction and allergies. And it helps cut down on phone calls and paperwork for prescription renewals.

E-prescribing is also a good first step to prepare doctors for electronic medical records. And when e-prescribing, electronic medical records and claims systems are fully integrated, physicians will be able to rely on decision support systems to analyze all the information about a patient’s medical record and insurance coverage to suggest the most efficacious and cost effective treatments. I recently saw a very impressive demonstration of such a system from SafeMed, which is being piloted by Blue Cross Blue Shield of Massachusetts at Beth Israel Deaconess Hospital in Boston.

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Big pharma tries to have it both ways on patents

The pharmaceutical industry doesn’t understand why it’s unpopular with the public. In my opinion, a big part of the problem is that the industry’s lofty rhetoric is seen as self-serving. For example, the industry touts the importance of patents on its drugs, but is seeking to preserve an exemption that has allowed drug companies to use analytical companies’ patents in drug discovery without paying royalties.

Here’s what the Pharmaceutical Research and Manufacturer’s of America (PhRMA) says on its website about the importance of patents:

Pharmaceutical companies rely on government-granted patents to protect their huge investments in researching and developing new drugs… Without patents to
protect all the inventions necessary to develop a drug for a limited time, others could simply copy the drugs immediately, offering their versions at a reduced price since they did not incur the high costs to develop the drug. This would seriously impact the pharmaceutical companies’ ability to recoup their costs and reinvest in other research projects.

But the drug industry is fighting hard to preserve an exemption that has allowed it to use analytical companies’ patents free of charge in research that is aimed at gaining FDA approval for a drug. When someone else owns the patents, all of a sudden the drug companies find that patents impede progress!

From today’s Wall Street Journal:

…if the Supreme Court upholds [the] view [that drug companies are infringing the analytical companies’ patents], “drug innovators would have to sit on their hands, awaiting patent expiration before starting to conduct the battery of experiments necessary to qualify a path-breaking new drug for clinical trials including human subjects.” Potential treatments “for innumerable diseases and conditions will be denied to patients for a decade or more after all patents expire” if the Supreme Court upholds the earlier decision [that drug companies must pay royalties to the patent holders].

If patents are necessary for pharma companies to “recoup their costs and reinvest in other research projects,” why doesn’t the same hold for analytical tool companies?

90 day prescriptions at retail

Blue Cross Blue Shield of Minnesota will now let members fill 90-day prescriptions in retail pharmacies rather than forcing them to use mail order, according to the New York Times (In Switch, Insurer Lets Stores Fill 90-Day Prescriptions). Patients prefer retail because of the convenience and access to pharmacists, but mail order is more cost effective. Retailers are being squeezed on price by Blue Cross, but are willing to make low margins in order to increase customer traffic.

Pharmaceutical Benefit Managers (PBMs) with mail order operations, such as Medco and Caremark, make a lot of money on mail order. One reason is that the mail order process gives the PBMs a greater opportunity to shift patients to drugs that provide higher rebates for the PBMs.

Interestingly, one of the reasons commercial payers are starting to allow 90 day prescriptions at retail is that Medicare beneficiaries will soon have the same privilege under the Medicare drug benefit. It’s just one more example of Medicare setting the pace for the industry.

Concierge practices fail to thrive: I’m neither surprised nor disappointed

Today’s Boston Globe reports that “concierge practices” are not succeeding. The concept refers to primary care physicians who cut their panels from about 2000-2500 patients down to 300-600 patients, and charge each patient an extra $1500-4000/year in exchange for better access, longer appointments, and more personalized care.

It’s interesting that concierge medicine hasn’t caught on. Why hasn’t it?

  • Many patients get good service from their existing doctors. When the first concierge practices were introduced a few years back, my primary care doctor wrote a letter to the Boston Globe suggesting that the answer was for physicians to work harder to provide excellent care to a regular sized panel of patients for regular reimbursement. (I’ve always gotten good service from him –including same-day responses to emails.) I’d rather have him as my doctor than pay extra to someone who is more concerned about his own lifestyle.
  • Primary care isn’t the bottleneck. A greater problem is access to specialists
  • It’s expensive

I never liked the idea of cutting a physician’s capacity by 75 percent to address quality of care. That’s not how quality is addressed in other industries, and it’s a bad idea for healthcare too. Just think what would happen if every physician, including primary care docs, oncologists, and neurosurgeons reduced their patient loads by 75 percent.