Healthy Skepticism Library item: 2167

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

Publication type: news

Lenzer J.
The Benefit of the Bargain
Praxis Post 2001 Jun 27

Abstract:

link between drug company promo and formularies

Full text:

When Eli Lilly paid $4.1 billion for the pharmaceutical benefits manager PCS Health Systems in 1994, they expected something in return. The purchase, Eli Lilly’s chairman boasted, “will help sell more Prozac.”

Lilly executives hoped that PCS would favor their company’s Prozac over other antidepressants when asked to make cost-effective formulary choices for its clients. Pharmaceutical benefits managers (PBMs) like PCS contract with health insurers to trim the cost of drug benefits for covered patients. Similarly, when Pfizer (prior to Lilly’s buyout) paid PCS $10 million, the goal was to gain preferential treatment for its drugs [ 1 ].

But the deal soured, and in 1995 Pfizer filed suit against the company, alleging that PCS had failed to hold up its end of the bargain by refusing to include any Pfizer products on its formularies unless Pfizer agreed to cough up “substantial additional payments.” The agreement said that PCS “shall use its best efforts to cause each health plan to which PCS provides formulary management services . . . to add all the Pfizer Products to the Plan’s formulary, and to maintain them on the plan’s formulary at all times during the term of this agreement.” The courts sided with Pfizer, ruling in 1996 that PCS was bound by its obligations “even if the agreement has become disadvantageous.”

The courts may have agreed that a contract is a contract, but critics say that PBMs should be impartial: they’re hired by insurance companies to reduce costs and medication errors and to improve rational prescribing practices-not to push brand-name drugs. When a drug company buys a pharmaceutical benefits manager, watchdogs say, there are serious antitrust violations in the offing. And the federal government isn’t standing by idly: a 1998 Federal Trade Commission complaint against one pharma giant and its PBM, Merck-Medco, concluded that “Pharmaceutical prices are likely to increase and the quality of pharmaceuticals available to consumers is likely to diminish” if conflicts of interest were not reigned in [ 2 ].

“PBMs are being paid to give the benefit of their knowledge about which drugs are best,” says James Sheehan, Assistant US Attorney for the Eastern District of Pennsylvania, who has investigated the potential legal and fraud issues involved in PBMs. “My view is that entering into the agreement with Pfizer is a violation of their responsibility to provide disinterested expertise to their clients.”

Efficiency or cost-shifting?
PBMs have gained prominence as prescription costs have risen rapidly-in the US, to more than $132 billion last year, up 19% from 1999 [ 3 ]. Benefits managers offer a range of services to reduce costs while increasing efficiency and safety. They encourage the use of generic and less expensive drugs through the development of formularies. They can diminish the number of prescribing errors by using databases. Overhead costs can be cut through Internet based-services such as claims processing, patient education, and Web pharmacies. PBMs can also negotiate better prices on certain drugs though their considerable influence over large numbers of subscribers. In theory, PBMs could improve health outcomes by encouraging “rational prescribing” practices, detailing physicians about certain medical conditions and preferred medications. PBMs can issue reminders to ensure that, for example, all hypertensive patients receive appropriate anti-hypertensive medications.

Some doubt the advantages of PBMs, however. “Savings [through PBMs] cannot be automatically ensured,” according to a 2000 study by the Henry J. Kaiser Family Foundation [ 4 ]. Clients of the Merck-Medco PBM saw their prescription drug costs climb from $18 billion in 1999 to $23 billion in 2000-though, according to company spokesperson Jennifer Leone, that’s still a savings, because the rate of increase in spending (per covered person) dropped from 17% in 1999 to 15% in 2000. Larry D. Sasich, PharmD, MPH, a research associate with Ralph Nader’s Public Citizen in Washington, wonders if such decreases are due to the efficiencies of PBMs or to shifting costs to patients through higher co-pays-or refusing to pay for certain drugs.

Since they began forming in the 1970s, PBMs have traditionally been viewed as adversaries by the pharmaceutical industry, who fear that the decisions of PBMs can wipe out their market share when their drugs are too expensive. But some drug companies saw a chance to use PBMs to their advantage. That’s when Pfizer and PCS got into bed together for $10 million.

Some suitors were even more aggressive. In 1993, Merck bought Medco Containment Services outright, the first such purchase. A flurry of acquisitions followed in the next year: SmithKline Beecham purchased Diversified Pharmaceutical Services, Caremark allied with Pfizer and Bristol Myers-Squibb, and ValueRx allied with Pfizer.

The outcome of the Merck-Medco buyout was hardly surprising. Just prior to the merger, the number of Merck drugs on the Medco formulary suddenly increased. Equally predictable: some medications in competition with those of its parent company were removed, according to a FTC investigation [ 2 ].

Other funny business is likely to take place when drug companies buy PBMs. A 1995 survey found that, unbeknownst to doctors, PBMs often pay pharmacists to encourage physicians to switch drugs. Doctors tend to comply with such requests, assuming that they are based on special knowledge about the drug market rather than on the wallet of the person behind the counter [ 5 ].

The feds step in
FTC consent decrees have attempted to reduce undue influence by drug manufacturers over PBMs. Both Lilly and Merck were required to establish independent pharmacy and therapeutics committees and to create firewalls-barriers in the corporate chain of communication-between the manufacturer and the PBM. Merck-Medco was also ordered to maintain an open formulary with relative costs of drugs included, though it was not prohibited from also maintaining closed formularies. Following the consent decrees, Lilly and SmithKline Beecham divested their PBMs.

That left Merck-Medco as the only manufacturer-owned PBM, albeit with a staggering share of the PBM market. After Merck purchased another PBM, ProVantage Health Services, last year, the company had roughly one-third of the entire PBM market, a market estimated to cover 71% of the volume of outpatient medications covered by third-party payers. Indirectly, the drug company manages benefits for 65 million Americans.

Merck did put up a firewall, but according to James Sheehan, such barriers are incredibly porous. “In the past 5 years, industry has moved toward ‘partnership’ and ‘co-promotion’ that could conflict with their duties to their clients,” Sheehan said.

Sheehan cautions, “Clients need to know whether the pharmacy and therapeutics [P&T] committee [of a PBM] is really independent. They need to know how P&T members are selected and how much time and resources they are given to do their job. Being given a dinner and told, ‘Here, make a choice’ while a [research] paper is tossed in your lap isn’t the way to make these kinds of decisions. Clients have to know what information is provided to the P&T committee.”

Merck-Medco’s Leone defends the integrity of their committee. “We have an independent P&T committee that makes all recommendations for our clients. We do extensive research into their backgrounds to ensure they are independent and they sign conflict of interest forms,” she says. “We must be doing a good job-96% of our clients stay with us.”

Denying that Merck receives any “special treatment,” Leone says that Merck drugs constitute only 2% to 3% of the drugs on the formulary. That small number may do the trick, however. As with many drug companies, just a handful of Merck products bring in the lion’s share of profits, according to an independent health care management group [ 3 ]. The anti-ulcer drug Prilosec was the top-selling scrip in the US, with sales of $4.1 billion in 2000-a whopping 3.1% of all prescription drug costs. Merck’s Vioxx-the much-touted COX-2 inhibitor designed to provide pain relief without the gastrointestinal side effects of traditional nonsteroidal anti-inflammatory drugs-entered the market in mid-1999 and by 2000 had sold $1.5 billion.

But critics say that the presence of Vioxx on the Merck-Medco formulary should give consumers pause. After all, says Jerome Hoffman, professor of medicine and emergency medicine at the University of California, Los Angeles, pointing to recent studies [ 6 , 7 ], the gastrointestinal advantages of Vioxx over traditional drugs are marginal at best, and “there is some evidence of a comparable increase in cardiovascular events, presumably because with the selectivity of the COX-2s you lose the [cardiac] protective effects.”

Public Citizen’s Sasich echoes Hoffman: “Vioxx is no more effective-and it’s no safer overall and its cost is significantly greater. So who does that benefit?”

References

Freudenheim M: Pharmaceutical giant is buying operator of drug benefit plans. New York Times. 1994 Jul 12;A1.

United States of America before Federal Trade Commission. In the Matter of Merck & Co., Inc., a corporation, and Merck-Medco Managed Care, LLC, a limited liability company; 1998.

National Institute for Health Care Management Foundation: Prescription drug expenditures in 2000: the upward trend continues; 2001. Accessed 2001 Jun 27: link.

Cook A, Kornfield T, Gold M: The role of PBMs in managing drug costs: implications for a medicare drug benefit. The Henry J. Kaiser Family Foundation. 2000 Jan. Accessed 2001 June 27: link.

Schulman KA, Rubenstein E, Abernethy DR, et al.: The effect of pharmaceutical benefits managers: Is it being evaluated? Ann Intern Med. 1996 May 15;124(10):906-13.

Bombardier C, Laine L, Reicin A, et al.: Comparison of upper gastrointestinal toxicity of rofecoxib and naproxen in patients with rheumatoid arthritis. VIGOR Study Group. N Engl J Med. 2000 Nov 23;343(21):1520-8.

Watson DJ, Harper SE, Zhao PL: Gastrointestinal tolerability of the selective cyclooxygenase-2 (COX-2) inhibitor rofecoxib compared with nonselective COX-1 and COX-2 inhibitors in osteoarthritis. Arch Intern Med. 2000 Oct 23;160(19):2998-3003.

End Links

American Council on Pharmaceutical Education This site contains information about professional degree programs in pharmacy and evaluates providers of continuing pharmaceutical education. The evaluation criteria are posted along with a section for complaints, a program accreditation guide, and a newsletter.

Pharmacy Watch A filter for news about pharmacies, general health, and online pharmacies, this site’s consumer section includes a pharmacy complaints registry, pharmacy ratings, nonprofit and government resources, tips on preventing medical errors, and pharmacy and health product warnings from the Food and Drug Administration.

Jeanne Lenzer ‘s writing has appeared in the Journal of Family Practice, Mother Jones, and The Independent.