PhRMa’s Free Ride in Health Care Reform

Dan Munro

Posted 3/05/12 on Forbes

You may recall that last year the DOJ agreed to a settlement with Google for $500 million. Basically Larry Page needed to avoid criminal prosecution for actively helping Canadian Pharmacies advertise to American consumers more effectively with Google AdWords.  That alone probably wouldn’t have raised any eyebrows except that the profits were being siphoned away from American pharmaceutical companies (at scale) and of course that simply can’t be allowed to happen.  Pure speculation on my part to say that pharma lobbying helped, but in either case, the DOJ filed criminal charges which forced the settlement. Open and shut case – now closed.  But here’s the thing – it’s a story that keeps repeating itself – in not so nuanced ways.  This time the thread starts with a fairly safe and upbeat report from our Nations largest e-prescribing network – Surescripts. Aptly titled: E-Prescribing Shown to Improve Outcomes and Save Healthcare System Billions of Dollars. Fabulous news. Let’s dive in.

So it turns out that the first bit of news isn’t that good.  According to the World Health Organization “as many as 50% of patients do not adhere fully to their medication treatment, leading to 125,000 premature deaths and $290B annually in the form of increased hospitalizations and costly complications (U.S. only).” Ok – so that’s not good at all.  It’s easy to dismiss the data (it’s from 2003) but still – 50%? According to Kaiser Permanente there were about 3.7B prescriptions filled in the U.S. in 2010 for a total in retail sales of about $221B.  So, in effect, the healthcare costs of poor drug adherence exceeds the total retail sales of all drugs in this country ($290B vs. $221B). While those two numbers aren’t related – it’s safe to say that the cost of poor drug adherence trumps any incremental value we’re able to get through e-prescribing by a very wide margin. In effect, non-adherence accounts for almost 10% of our $3 trillion National Healthcare Expenditure (NHE).

There are, in fact, a few different ways to measure adherence.  The two most common are primary adherence (whereby the prescription actually makes it to the pharmacy and is picked up) and secondary adherence (whereby the patient complies fully with the prescribed treatment). Primary adherence is relatively easy to track, but secondary adherence can get complicated quickly. There’s a website that predicts (accuracy unknown) our collective primary adherence by zip code. I ran it for Lipitor in my zip code and these were the results:

Again, no idea on accuracy, but it’s pretty easy to see how we could get to $290B/yr on poor adherence to prescription drugs.  As reported in the WSJ back in 2010 (More Balk At Cost Of Prescriptions), the simple abandonment rate for brand-name drugs by people with commercial health plans is about 10% (an increase of about 88% since 2006).  The larger issue here is the trend as evidenced by the chart they included in that article:

A more recent article over on InvestmentNews highlights that within a population of people who consider their own health to be “poor,” 30% adjusted their medications and more than 33% said they skipped medical appointments.  The Canadian Government recently published a study reporting that among people with no insurance and low household incomes – 36% skip their meds due to cost alone.  Here in the U.S. the number of people living below, at or within 50% of the poverty line is now about 100 million (New York Times citing U.S. Census Bureau).  All of which is to say – adherence is a really big problem – and that prescription drug costs are a major contributing factor to both poor adherence and our NHE.

Given the size and scope of this problem, it’s more than a bit baffling when you look at our healthcare reform legislation (PPACA) and find that a relatively small tax of about 1% per year is the only new legislation directed at the Pharmaceutical industry. Beyond that, the only other token consumer relief was closing the “doughnut-hole” in Medicare Part D drug coverage (where the full cost of prescription drugs to seniors still existed). Bravo – I guess. I’m sure I’ll be thrilled when I’m 65, but in the meantime, it’s not moving the needle much and certainly nothing that would help put a dent in that $3T/yr. By the time you extend insurance coverage (which will include prescription drugs) to millions who are uninsured today – that 1% quickly becomes a fractional rounding error. In what world would you not easily agree to pay $2B (divided among all the major brand manufacturers) in order to capture billions more in prescription drug sales? Quick – give me that pen! Here’s a list of the top 10 incumbents for the U.S. Pharmaceutical industry by 2011 revenue and profits:

Some estimates – including one by the Center for Medicare and Medicaid Services (CMS) forecast that U.S. drug spending will hit $514 billion by 2020 (more than double what it was in 2010). Interesting sidenote here as it relates to that Google settlement for $500M. Turns out that during her tenure as Governor of Kansas (2003 – 2009) Kathleen Sebelius (now HHS Secretary) authorized the creation of a state website so that residents of Kansas could easily access international pharmacies offering cheaper prescription drugs. I can’t help but wonder if that state sponsored website used any Google AdWords. On average, U.S. consumers pay anywhere from 30%-50% more for prescription drugs compared to other countries – and in some cases its even higher. I guess we like to think of it as our charitable drug contribution to the rest of the world. Some are quick to point out that healthy profits are essential in an industry that depends heavily on large R&D budgets to source newer life saving drugs.  Fair enough – but that R&D amount is all of 12%. Also, unlike other countries where Governments negotiate volume discounts with the drug manufacturers on behalf of their citizens, Congress has expressly barred Medicare from negotiating drug prices here in the U.S. Here’s a recent example of how U.S. pricing compares with Canada:

One sobering example of this pricing dilemma appeared just last week when a woman’s mother died because while she worked at 3 different jobs – it wasn’t enough to afford the co-pay on the rescue inhaler she needed for her asthma.  The government has provided Grant money to the National Consumer League (NCL) for bringing awareness and education to the problem of drug adherence, and there is a website designed to broadcast their outreach at I applaud these efforts and they are important – but it seems as if much more could and should be done to close the wide gulf between drug prices in the U.S. and everywhere else on the planet. In some ways, the NCL effort is the carrot of our collective efforts.  The stick could well be in the form of an announcement last year that FICO – the company that manages (and sells) your credit score – is getting into the Medication Scoring business. As the result of PPACA, the insurance industry is legally barred from denying coverage for “pre-existing” conditions. There are no such limitations on pricing any type of health insurance coverage on a wide range of variables – including freshly minted Medication Adherence Scores – as sold by FICO. As with so much of healthcare – we sure know how to make money with it’s delivery.

One thought on “PhRMa’s Free Ride in Health Care Reform

  1. Many of the problems evident in healthcare and corporate business as usual relate to the fact that organizations do bad things and the individuals that run these corporations aren’t considered culpable. Larry Page of Google got named, shamed and blamed. But when Vioxx happened, no person was blamed, when Vaniqa happened (instead of treatment for sleeping sickness) no person got the blame. Corporate decision making hides easily under the blanket of market forces but individual decision making that harms other individuals cannot claim market forces quite as easily as a defence because we are supposed to allow our values of compassion, fairness, honesty to curb the instinct to harm others. We seem to have a raft of bad corporate decisions but no bad decision makers. Let’s name names.

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