Drug Pricing Is Symptomatic of a Much Bigger Problem

Internal Medicine World ReportNovember 2006
Volume 0
Issue 0

Dr Alper is Clinical Professor of Medicine, University of California, San Francisco, and Visiting Scholar, HooverInstitution, Stanford University, Calif.

There's an old saying about borrowing money: borrow heavily so that if you run into trouble, the bank will help you because it can't afford to let you go under. Borrow less than that and you do so at your own peril.

It's one of the reasons why poor people have trouble moving up in life and the wealthy get along so much more easily. I say this not as some kind of closet socialist, but as an economic realist who sees the banking and business sectors and their attendant morality moving too heavily into medicine.

This has a lot to do with us and our patients because, when money talks too loudly, other stuff tends to go out the window. Predictably, those holding the short end of the stick are patients and physicians who don't wield much economic power. Consider the following drug pricing abuse that has irritated me for years.

A hypothetical patient goes to the drugstore with a prescription for a generic antihypertensive, thyroid pill, or whatever. The patient hands the pharmacist an insurance card along with the prescription because he or she is "covered." Big mistake!

Suppose you, the doctor, have written a prescription for 100 tablets, with a Sig of 1 daily. The insurance card is processed and a message flashes to approve only a 1-month supply, the covered quantity. The amount you prescribed becomes irrelevant. Thirty pills may be dispensed at the price of one generic copay. In my personal case, because I have a PPO insurance policy from a major national carrier, that amount would be $20. So if I were the patient, I'd be paying 3 and one-third copays, at $20 each?nearly $67?to get my 100 pills (not to mention 10 trips to the drugstore instead of 3 to get 300 pills).

Now let's suppose that our patient just submitted the prescription and asked for the price as written. Lo and behold, 100 atenolol, thyroxine, or hydrochlorothiazide and a host of other drugs cost far less than the sum of the copays required to purchase them, sometimes even less than a single copay.

This is the perfect scam. The patient is deluded into thinking that he or she is always protected by having pharmaceutical benefits. Because a substantial paycheck deduction is taken as the employee contribution toward purchasing the insurance, the delusion is reinforced (selling worthless insurance would be stealing, wouldn't it?). Pharmacists merely process the card and aren't under any obligation to inform the patient of total costs either as the prescription was originally written or to provide a price comparison with and without using insurance. (They're too busy, and besides, it's far too profitable to passively collude with the insurance game.)

It gets worse. Insurance plans typically don't warn patients about how to be smarter shoppers for their drugs. Revealing hidden traps might raise additional questions. Better for employees and unions to simply pose as the member's benefactor who has negotiated the best possible deal.

As for the carrier, forget it. Extra copays are hidden kickbacks to retail pharmacists who make up in copays what the carrier fails to pay in fees?allowing both to reap extra profits?at the patient's expense.

Even doctors get sucked into the scam, if only inadvertently. Insurance coverage has increasingly conditioned us to write 1-month prescriptions with many refills instead of normally more economical, larger quantities. Furthermore, explaining insurance issues to patients does take a lot of time.

We're supposed to be the patients' fiduciaries, advising them on how to shop wisely in the healthcare system. Years ago, before pharmaceutical costs became the fastest rising component of health costs, uniform pricing, orderly increases, and relatively simple insurance rules allowed us to do that. Now pricing is opaque and subject to complex private deals that we don't understand. For example, the most expensive drug may become "preferred" because the pharmaceutical benefit manager (PBM) has put together a drug formulary that includes several of the manufacturer's other products in a quid pro quo arrangement. There's just too much to keep track of and too much that's "proprietary."

I can readily imagine the response of insurers and PBMs if challenged: "Nothing's perfect," they'd say, "and, anyway, we save patients a bundle on branded drugs. Besides, there haven't been many complaints?if there are anomalies, they would only apply to some generics and only then at higher copay levels. Let's also be realistic?every plan has limitations, and if we were to expose them all, we'd be out of business."

Right. But it's hard to buy that kind of stuff after reading about some of the inner workings of the health insurance industry. "Health Care Consultants Reap Fees From Those They Evaluate" is a page 1 story in the Wall Street Journal (9/18/06). Here we learn that "many consultants and brokers who are hired to help employers get the best deal on insurance or prescription drug coverage have significant financial ties with the health vendors they are supposed to be scrutinizing." Tellingly, "Consultants and other middlemen are prospering even as employers struggle with spiraling health costs."

If you still missed the point, there's a cartoon of money changing hands with a prescription bottle under the outstretched palm. The caption proclaims, "Health-Care Goldmines?Middlemen Strike It Rich." (All this in a newspaper that is reputedly pro-business!)

The basic thrust is that simultaneously charging fees to employers seeking advice and accepting commissions from companies that are recommended is often considered normal business procedure. An adjacent article announces, "When Employers Get Advice, Price Can Be Steep." It describes a pharmacy benefit consulting firm that is paid $.25 for every prescription filled in lieu of charging a fee for its advice. The contract with the PBM allows for some out-of-pocket charges to members to exceed the cost of the drugs and for the PBM to charge the union fund more than it actually pays to retail pharmacists. Audits are not permitted.

In both stories, the most striking quotations are testy company comments that essentially put the questioner on the defensive, because the sums in question are "small" in comparison to the total amount that the deals "save" their clients. There is no recognition of either ethical issues or the corruptive effect of such double-dealing. Nor is there any apparent concern for the overall inflationary "who cares" effect that such behavior has all along the line.

The lesson is not to worry about the chump change. And that's where we come in. There may be a free pass for the guys doing the big deals (and plenty of expensive legal talent to back them up), but conflicts of interest, let alone payoffs aren't okay for prescribing physicians. Not that I'm trying to argue that they should be, but the degree of difference in approach is ludicrous. It's simple: because our living represents chump change to today's heavy hitters in healthcare, the smallest details of our professional activities are proportionate to the much larger details of their own activities. Thus, micromanagement for us; gross negligence for them.

The process has just been institutionalized by Stanford Medical School, which has joined Yale University and the University of Pennsylvania in banning the smallest gifts?mugs, pens, and lunches, as well as drug samples?to physicians who actually prescribe for patients. This rite of self-purification is intended to eliminate undue industry influence on the prescribing process. The New York Times (9/12/06) and the Los Angeles Times (9/13/06) reported the announcement in generally favorable terms.

For a very different, in fact scathing, analysis see the commentary by Roy M. Poses, MD, professor of general internal medicine, Brown University, at www.hcrenewal.blogspot.com/2006/09/stanfords-new-conflict-of-interest.html. Dr Poses points out that minor conflicts of interest affecting mainly trainees and junior faculty have been prohibited, but major conflicts involving consultation and speaking fees and even stock options continue to be allowed for senior faculty, because these doctors do not directly prescribe.

This should come as no surprise. Medicine now resembles a big fat juicy turkey with more and more diners at the table, all aiming to grab as big a piece of that turkey as they can. The question is, "How long can the party last?"

e-mail: philipa@ucsf.edu

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