More Firms Give Medicaid Breaks on Drug Prices : Pharmaceuticals: Discounts to participants in the government insurance program could boost sales. They may also invite pressure for price cuts from private customers.
California Medi-Cal patients with high cholesterol now have easier access to a widely known but expensive cholesterol-lowering drug.
Mevacor was added to the list of drugs that doctors can prescribe for Medi-Cal patients without prior authorization because its manufacturer, Merck & Co., was willing to bargain with the state to lower the price.
In a reversal of past practices, drug companies have recently started offering discounts to Medicaid, the federal/state health insurance program for the poor known in California as Medi-Cal. They say they are motivated to provide rich and poor with the same access to brand-name drugs. But they are also clearly acting under the threat that the federal government will make them bid for Medicaid work--in effect, forcing discounting.
The new approach may carry unintended risks for the companies. Some analysts say it may increase pressure for more drug discounts from public and private customers. By emphasizing discounts, these analysts say, the drug companies are also inviting probing questions about how drugs are priced in general.
Nor does the strategy seem to be deterring those in Congress who want to find ways to cut deeper into the burgeoning cost of Medicaid.
Sen. David Pryor (D-Ark.) has introduced a bill that would force drug companies to bid for Medicaid business in an effort to help cut 1991 Medicaid expenses by $300 million.
States, which share the cost of Medicaid, are also looking for ways to lower their prescription drug expenses, said Bob Hodgsen, an analyst with Boston-based Cowen & Co. “There is a lot of momentum at the state level. There is a realization that cost containment is going to be applied to drugs,” he added.
Meanwhile, analysts say, Medicaid discounts will not cost manufacturers much and will likely expand their Medicaid market.
Rahway, N.J.-based Merck, the world’s largest manufacturer, has signed about 20 agreements with states since it said in May that its Merck, Sharp & Dohme unit would offer discounts for Medicaid prescriptions. The company said it will save Medicaid programs more than $20 million a year.
California, which spent a half-billion dollars on Medi-Cal prescriptions last year, signed its third discount contract last week--with Chicago-based G. D. Searle & Co. Maryland has just signed an agreement with Kalamazoo, Mich-based Upjohn Co. that provides a standard $1.35 rebate on all Medicaid prescriptions.
In agreeing to discounts, companies are asking states to lift restrictions on all their drugs, potentially increasing their overall sales to Medicaid. About 19 states have devised Medicaid formularies--lists of drugs that may be prescribed without prior approval--that tend to eliminate many expensive brand-name drugs. In order to prescribe a drug not on the list, a doctor generally has to provide written proof that only that brand will suffice.
California did not agree to blanket acceptance of all Merck drugs, said Jim Parks, chief of the Medi-Cal drug-discount program. “We tell people up front that we will not agree to any drug sight-unseen,” he said. California agreed that if Merck gets Food and Drug Administration approval of a new drug, the state will give it “some special consideration,” expediting the process for adding it to the Medi-Cal formulary, he explained.
In the Searle agreement, Medi-Cal agreed to add four Searle drugs to its formulary. They include Calan SR (180-milligram tablets) and Kerlone, both for the treatment of hypertension; Demulen, an oral contraceptive, and Cytotec, which is prescribed for patients who are at high risk for ulcers, particularly those taking aspirin-type medication for problems such as arthritis.
State officials say their discount contracts contain provisions barring them from disclosing the amount of the discounts. Without the Searle discounts, a standard Calan prescription would cost $36.60, Cytotec $54.28, Kerlone $54.32 (for 10-milligram tablets), and Demulen $17.23. The regular Mevacor price is close to $20 for a month’s supply.
The Medi-Cal formulary is based on five factors, including “essential need,” effectiveness and cost, Parks said. Now that the state has the ability to negotiate drug prices, “cost will take a less important role,” he said.
Maryland does not have a restricted list of Medicaid drugs, but that may change, said Nelson Sabatini, deputy director of the Maryland Department of Health and Mental Hygiene. Upjohn has given notice that its rebate deal is off if the state develops a restrictive formulary, he said.
Sabatini says the discount programs are very positive, but the department believes that the state needs to establish other criteria that consider both the cost and therapeutic value of drugs to ensure that Medicaid patients are getting cost-effective care.
“The drug companies are arguing that if we do (restrict some of their drugs), that the discount deal is off. We will continue to develop a therapeutic formulary, and if I find I save money that way, I will do it,” he said.
“We are trying to force some price competition in this business,” he added. “There is tremendous competition toward getting doctors to write prescriptions. But it is not competition that will benefit consumers.”
David F. Saks, a New York-based analyst with Wedbush Morgan Securities, says offering Medicaid discounts carries risk to drug companies, despite the possible advantage of increasing sales in a market that is now about 10% of the prescription drug business. For one, he said, “this issue has unearthed a whole question about how drugs are priced.” Such questions may just increase pressure to discount, he said.
Merck’s share price dropped when it first announced its program because Wall Street perceived that the door had been opened to more discounting and thus a squeeze on profits, Saks said.
Less attention had been given to the fact that drug companies have for years offered discounts to such large customers as the Department of Veterans Affairs and the Department of Defense--and discounts to private customers in the form of lots of free samples and rebates based on volume. Saks said he doesn’t believe that the drug companies’ initiatives on Medicaid will stop government-mandated discounting. “It just adds more fuel to the fire,” he said.
Private health care concerns are also pressing for more specific discounts, said William R. Boyles, publisher of Health Market Survey, a Washington-based trade publication focusing on health maintenance organizations.
“HMOs and insurers all consider drugs third in line behind hospital and physician charges for cost containment,” he said.
The magnitude of discounting is unclear, but HMOs have obtained “extensive free samples, which amounts to a discount,” Boyles said. Drug companies have tried to get by with so-called value-added items such as free pens, pads and seminars, he said. But more and more, HMOs are bringing the discussion back to bottom-line prices, he said.
A relatively small percentage of HMOs have their own pharmacies, but those that do “consider discounts the only reason to talk to a pharmaceuticals firm . . . I’m pleased to see the turn of events on Medicaid,” Boyles said. “Drug companies have overcharged for years.”
THE FLEXIBLE PRICE OF DRUGS
The pricing of drugs is a mystery to people outside the industry. Drug manufacturers acknowlege providing discounts to certain large customers. But many discount contracts contain clauses prohibiting disclosure of the terms.
Brand name Lopressor 50mg (antihypertensive made by Ciba-Geigy) Naprosyn 500mg (Syntex’s non-steroidal anti-inflammatory for arthritis treatment) Tagamet 300mg (SmithKline brand for treatment of ulcers) Cardizem 30mg (Dow-Marion cardiac medication) Ceclor Pulvule 250mg (Eli Lilly antibiotic) Lo/Ovral 28s (Wyeth-Ayest contraceptive) Retrovir 100mg (Burroughs-Wellcome brand name for AIDS-fighting AZT) Halcion 0.2mg (Upjohn brand for short-term treatment of insomnia)
Average Los wholesale Angeles Veterans price State County Affairs Brand name (AWP)* hospitals hospitals hospitals Lopressor 50mg $39.31 $24.13 $30.32 $11.94 Naprosyn 500mg $95.22 $74.83 $77.08 $42.17 Tagamet 300mg $57.65 $38.59 $38.59 $27.65 Cardizem 30mg $70.00 -- $25.00 $17.72 Ceclor Pulvule 250mg $149.08 -- $116.10 $55.67 Lo/Ovral 28s $16.37 $1.75 -- -- Retrovir 100mg $144.23 -- $121.77 $120.19 Halcion 0.2mg $36.49 $34.10 $35.76 $9.98
% difference in AWP and Brand name lowest price Lopressor 50mg 213% Naprosyn 500mg 115% Tagamet 300mg 98% Cardizem 30mg 275% Ceclor Pulvule 250mg 168% Lo/Ovral 28s 835% Retrovir 100mg 14% Halcion 0.2mg 266%
* Average wholesale price as of January, 1990, based on a standard package--usually containing 100 tablets.
Sources: California Department of Health Services and Physician’s Desk Reference.
