Prescription Drugs

Via Marginal Revolution, I see that Malcolm Gladwell has an article on prescription drugs. Gladwell is one of my top two or three favorite writers of all time; check out his website, his book The Tipping Point, and his forthcoming book Blink: The Power of Thinking Without Thinking, which was the subject of a very interesting lecture on C-Span recently.


Anyway, here are a couple of quotes from the article:

Throughout the current debate over prescription-drug costs — as seniors have gone on drug-buying bus trips to Canada, as state Medicaid programs and employers have become increasingly angry over rising health-care costs, and as John Kerry has made reining in the pharmaceutical industry a central theme of his Presidential campaign — the common assumption has been that the rise of drugs like Nexium is entirely the fault of the pharmaceutical industry. Is it? If doctors routinely prescribe drugs like Nexium and insurers routinely pay for them, after all, there is surely more than one culprit in the prescription-drug mess.

* * *

The perception that the drug industry is profiteering at the expense of the American consumer has given pharmaceutical firms a reputation on a par with that of cigarette manufacturers.

In fact, the complaint is only half true. The “intolerable” prices that Angell writes about are confined to the brand-name sector of the American drug marketplace. As the economists Patricia Danzon and Michael Furukawa recently pointed out in the journal Health Affairs, drugs still under patent protection are anywhere from twenty-five to forty per cent more expensive in the United States than in places like England, France, and Canada. Generic drugs are another story. Because there are so many companies in the United States that step in to make drugs once their patents expire, and because the price competition among those firms is so fierce, generic drugs here are among the cheapest in the world. And, according to Danzon and Furukawa’s analysis, when prescription drugs are converted to over-the-counter status no other country even comes close to having prices as low as the United States.

The complaint that I had heard about Bush and Congress's prescription drug plan is that it forbids Medicare from bargaining with drug companies for lower prices. Whenever I've seen this claim, it is never accompanied by any citation to the actual prescription drug bill. If what Gladwell says in the following is true, that charge may be highly misleading:

This is why increasing numbers of employers have in recent years made use of what are known as Pharmacy Benefit Managers, or P.B.M.s. The P.B.M.s 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. * * *

There is no mention of these successes in “The Truth About the Drug Companies.” Though much of the book is concerned with the problem of such costs, P.B.M.s, 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 that 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 P.B.M.s their leverage when it comes time to bargain with pharmaceutical companies.

With the passage of the Medicare prescription-drug-insurance legislation, late last year, the competition created by me-toos has become even more important. The bill gives responsibility for managing the drug benefit to P.B.M.s. In each therapeutic category, Medicare will set guidelines for how many and what kinds of drugs the P.B.M.s will have to include, and then the P.B.M.s 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.”

Interesting. Similarly, the CBO's analysis of the prescription drug bill said, "The gross drug savings achieved by the Medicare plans would result from negotiating price discounts or rebates from drug manufacturers and pharmacies; controlling overall drug use; and changing the mix of drugs used."

Anyone know why the drug plan's critics all seem to think that negotiating with drug manufacturers was somehow forbidden? What are they talking about?

Back to Gladwell: One of the main problems with increasing drug prices is that people (doctors and patients) irrationally choose to use the most expensive new drug, ignoring the fact that a very cheap older drug might work just as well:

Among the costliest drug categories, for instance, is the new class of antiinflammatory 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.