Need, Not Greed, Is What’s Causing High Prices for Prescription Drugs

Published January 1, 2005
Editor’s note: In part 1 of this article (Health Care News, December 2004), the author explored how the pharmaceutical firm AstraZeneca developed a heartburn drug, Nexium, when the patent on the drug company’s other heartburn drug, Prilosec, was about to expire and, with it, the company’s profits–which had totaled $26 billion over five years. The new drug, “little more than a repackaged version of an old medicine,” cost $120 a month.
Gladwell pointed out, however, that high drug prices cannot be blamed on drug companies. Doctors, for example, know enough to prescribe a cheaper generic drug or even an over-the-counter remedy. And the main reason spending on prescription drugs is rising is because we are using more drugs: Prices are not rising faster than the general rate of inflation. As Gladwell wrote, “It’s not price that matters, it’s volume.”

The fact that volume matters more than price means the emphasis of the prescription-drug debate is all wrong. We’ve been focused on the drug manufacturers. But decisions about prevalence, therapeutic mix, and intensity aren’t made by the producers of drugs. They’re made by the consumers of drugs.

This is why increasing numbers of employers have in recent years made use of what are known as Pharmacy Benefit Managers, or PBMs. The PBMs draw up drug formularies–lists of preferred medications. They analyze clinical trials data to find out which drugs are the most cost-effective. In a category in which there are many equivalent options, they bargain with drug firms, offering to deliver all their business to one company in exchange for a discount. They build incentives into prescription drug plans to encourage intelligent patient behavior.

If someone wants to take a brand-name oral contraceptive and there is a generic equivalent available, for example, a PBM might require her to pay the price difference. In the case of something like heartburn, the PBM might require patients to follow what’s called step therapy–try the cheaper H2 antagonists first, and only if that fails move to a proton-pump inhibitor like omeprazole. Employers who used two or more of these strategies last year saw a decrease of almost 5 percent in their pharmacy spending.

Competition Keeps Prices Down

There is no mention of these successes in The Truth About the Drug Companies, [a new book by Dr. Marcia Angell, a physician and former editor of The New England Journal of Medicine]. Though much of the book is concerned with the problem of such costs, PBMs, the principal tool that private health care plans use to control rising drug costs, are dismissed in a few paragraphs.

Angell’s focus, instead, is on the behavior of the pharmaceutical industry. An entire chapter, for instance, centers on the fact that the majority of drugs produced by the pharmaceutical industry are either minor variations or duplicates of drugs already on the market. Merck pioneered the statin category with Mevacor. Now we have Pfizer’s Lipitor, Bristol-Myers Squibb’s Pravachol, Novartis’s Lescol, AstraZeneca’s Crestor, and Merck’s second entrant, Zocor–all of which do pretty much the same thing.

Angell thinks these “me-too” drugs are a waste of time and money, and that the industry should devote its resources to the development of truly innovative drugs instead. In one sense, she’s right: We need a cure for Alzheimer’s much more than we need a fourth or fifth statin. Yet me-too drugs are what drive prices down. The presence of more than one drug in a given category gives PBMs their leverage when it comes time to bargain with pharmaceutical companies.

With the passage of the Medicare prescription drug insurance legislation late in 2003, the competition created by me-toos has become even more important. The bill gives responsibility for managing the drug benefit to PBMs. In each therapeutic category, Medicare will set guidelines for how many and what kinds of drugs the PBMs will have to include, and then the PBMs will negotiate directly with drug companies for lower prices. Some analysts predict that, as long as Medicare is smart about how it defines the terms of the benefit, the discounts– particularly in crowded therapeutic categories like the statins–could be considerable.

Angell appears to understand none of this. “Medicare will have to pay whatever drug companies charge,” she writes, bafflingly, “and it will have to cover expensive me-too drugs as well as more cost-effective ones.”

Mission for PBMs: “We’re Not Cheating”

The core problem in bringing drug spending under control, in other words, is persuading the users and buyers and prescribers of drugs to behave rationally, and the reason we’re in the mess we’re in is that, so far, we simply haven’t done a very good job of that.

“The sensitivity on the part of employers is turned up pretty high on this,” Robert Nease, who heads applied decision analysis for one of the nation’s largest PBMs, the St. Louis-based Express Scripts, says. “This is not an issue about how to cut costs without affecting quality. We know how to do that. We know that generics work as well as brands. We know that there are proven step therapies. The problem is that we haven’t communicated to members that we aren’t cheating them.”

Among the costliest drug categories, for instance, is the new class of anti-inflammatory drugs known as cox-2 inhibitors. The leading brand, Celebrex, has been heavily advertised, and many patients suffering from arthritis or similar conditions ask for Celebrex when they see their physician, believing that a cox-2 inhibitor is a superior alternative to the previous generation of nonsteroidal anti-inflammatories (known as NSAIDs), such as ibuprofen. (The second leading cox-2 inhibitor, Merck’s Vioxx, has just been taken off the market because of links to an elevated risk of heart attacks and strokes.)

The clinical evidence, however, suggests that the cox-2s aren’t any better at relieving pain than the NSAIDs. It’s just that in a very select group of patients they have a lower risk of side effects like ulcers or bleeding.

“There are patients at high risk–people who have or have had an ulcer in the past, who are on blood-thinning medication, or who are of an advanced age,” Nease says. “That specific group you would likely start immediately on a cox-2.” Anyone else, he says, should really be started on a generic NSAID first.

“The savings here are enormous,” he went on. “The cox-2s are between a hundred and two hundred dollars a month, and the generic NSAIDs are pennies a day–and these are drugs that people take day in, day out, for years and years.” But that kind of change can’t be implemented unilaterally: The health plan and the employer have to explain to employees that in their case a brand-new, hundred-dollar drug may not be any better than an old, one-dollar drug.

Communicating Which Drugs Are Equally Effective

Similarly, a PBM might choose to favor one of the six available statins on its formulary–say, AstraZeneca’s Crestor because AstraZeneca gave it the biggest discount. But that requires, once again, a conversation between the health plan and the employee: The person who has happily been taking Pfizer’s anti-cholesterol drug Lipitor for several years has to be convinced that Crestor is just as good, and the plan has to be very sure that Crestor is just as good.

The same debates are going on right now in Washington, as the Medicare program decides how to implement the new drug benefit. In practice, the PBMs will be required to carry a choice of drugs in every therapeutic category. But how do you define a therapeutic category? Are drugs like Nexium and Prilosec and Prevacid–all technically known as proton-pump inhibitors–in one category, and the H2 antagonists in another? Or are they all in one big category? The first approach maximizes the choices available. The second approach maximizes the bargaining power of PBMs.

Deciding which option to take will have a big impact on how much we end up paying for prescription drugs, and it’s a decision that has nothing to do with the drug companies. It’s up to us; it requires physicians, insurers, patients, and government officials to reach some kind of consensus about what we want from our medical system, and how much we are willing to pay for it.

AstraZeneca was able to do some chemical sleight of hand, spend half-a-billion dollars on advertising, and get away with the “reinvention” of its heartburn drug only because that consensus hasn’t yet been reached. For sellers to behave responsibly, buyers must first behave intelligently.

And if we want to create a system where millions of working and elderly Americans don’t have to struggle to pay for prescription drugs, that’s also up to us. We could find it in our hearts to provide all Americans with adequate health insurance. It is only by the most spectacular feat of cynicism that our political system’s moral negligence has become the fault of the pharmaceutical industry.

Responsible Reporting of Findings Essential

There is a second book out this fall on the prescription drug crisis, titled Overdosed America (HarperCollins; $24.95), by John Abramson, who teaches at Harvard Medical School. At one point, Abramson discusses a study he found in a medical journal, concluding that the statin Pravachol lowered the risk of stroke in patients with coronary heart disease by 19 percent. That sounds like a significant finding, but, as Abramson shows, it isn’t. In the six years of the study, 4.5 percent of those taking a placebo had a stroke versus 3.7 percent of those on Pravachol. In the real world, that means that for every thousand people you put on Pravachol you prevent one stroke which, given how much the drug costs, comes to at least $1.2 million per stroke prevented.

On top of that, the study’s participants had an average age of 62, and most of them were men. Stroke victims, however, are more likely to be female and, on average, much older. The patients older than 70 in the study who were taking Pravachol had more strokes than those who were on a placebo.

Here is a classic case of the kind of thing that bedevils the American health system: dubious findings that, without careful evaluation, have the potential to drive up costs. But whose fault is it? It’s hard to blame Pravachol’s manufacturer, Bristol-Myers Squibb. The study’s principal objective was to look at Pravachol’s effectiveness in fighting heart attacks; the company was simply using that patient population to make a secondary observation about strokes.

In any case, Bristol-Myers didn’t write up the results. A group of cardiologists from New Zealand and Australia did, and they hardly tried to hide Pravachol’s shortcomings in women and older people. All those data are presented in a large chart on the study’s third page.

What’s wrong is the context in which the study’s findings are presented. The abstract at the beginning ought to have been rewritten. The conclusion needs a much clearer explanation of how the findings add to our understanding of stroke prevention. There is no accompanying commentary that points out the extreme cost-ineffectiveness of Pravachol as a stroke medication–and all those are faults of the medical journal’s editorial staff.

Standards Need Monitoring

In the end, the fight to keep drug spending under control is principally a matter of information, of proper communication among everyone who prescribes and pays for and ultimately uses drugs about what works and what doesn’t, and what makes economic sense and what doesn’t, and medical journals play a critical role in this process. As Abramson writes:

“When I finished analyzing the article and understood that the title didn’t tell the whole story, that the findings were not statistically significant, and that Pravachol appeared to cause more strokes in the population at greater risk, it felt like a violation of the trust that doctors (including me) place in the research published in respected medical journals.”

The journal in which the Pravachol article appeared, incidentally, was The New England Journal of Medicine. And its editor at the time the paper was accepted for publication? Dr. Marcia Angell. Physician, heal thyself.

Malcolm Gladwell, author of The Tipping Point, is a staff writer for The New Yorker. This article originally appeared in The New Yorker on October 25, 2004. Reprinted with permission.