Dialogue on Pharmaceutical
Pricing and Safety in the USA
Washington, DC
September 25, 2007
John Rother
Director of Policy & Strategy, AARP
Who takes Rx drugs?
100%
93%
77%
80%
60%
81%
“Any Medication” includes:
50%
40%
20%
Rx
% of U.S. Adults
Using Medications
in Previous Week
Any Meds
0%
• Prescription drugs (Rx)
• Over-the-counter meds (OTCs)
• Vitamins & Minerals
• Dietary Supplements
• Natural & Herbal Remedies
• Contraceptive Drugs & Devices
All Elderly All Elderly
Rx
Rx
Any
Any
Meds Meds Meds Meds
Source: JAMA, Vol 287, No. 3, Jan 16, 2002, based on adult population survey in 1998-99.
U.S. Total Drug Expenditures as Percent of
National Healthcare Expenses: 1988 to 2010
% of NHE
(Projected)
23.8%
25%
22.1%
19.2%
20%
16.6%
Will have
tripled share
15%
10.7%
10%
Doubled share
in 10 years
8.1%
Today
5%
Source: Compiled by the PRIME Institute, University of Minnesota from data found in Pharmaceutical Benefits Under
Medical Assistance Programs, National Pharmaceutical Council, 1975 to 2002 and in HCFA Form 64.
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
0%
Lack of Compliance with Medications
a Serious Problem with Chronically Ill
• 89% of seniors reported taking Rx drugs in last year
• Nearly half take five or more
• More than half have more than one M.D.
• About a third use more than one pharmacy
• Among seniors with at least 3 chronic conditions,
nearly 3 out of 4 take five or more meds regularly
• More than half of the chronically ill admit they do
not take all their drugs as prescribed
Source: Kaiser Family Foundation/Commonwealth Fund joint study, 2005.
Good Chronic Care Management
Key to a Large Segment of Cost
SOURCE: Conwell & Cohen, Agency for Healthcare Research and Quality, Statistical Brief #73, March 2005
80
60
40
20
0%
% Health Care Dollars Spent
100%
22% of costs for
1% of people
3% of costs for
50% of people
20%
40%
60%
Percent of Population
80%
100%
Checking with the 50+ population
Before Medicare Modernization Act (MMA)
Polling Results
Major Problem
35%
71%
Not a Problem
28%
Minor Problem
36%
Great majority saw “paying for Rx drugs” a problem
Typical MMA Rx Drug Personal Impact
With NO other coverage
$12,000
TOTAL Rx SPENDING
$10,000
What Medicare pays
Individual's Co-pay
$8,000
Individual's Premiums
$6,155
$6,000
$1,500
$4,000
$1,500
$2,000
$1,313
$188
$563
$0
$500
$1,000
$2,000
$3,000
$5,000
PRESCRIPTION COST
$10,000
Use of Generic Drugs
Checking with the 50+ population
Polling Results
70%
• About 7 in 10 respondents– with monthly out-of-pocket Rx
drug expenses over $200– say they “routinely ask for generic
drugs”
Generic Substitution Rates in USA, 1984-2005
60%
Percent of Rx Filled
50%
40%
30%
20%
10%
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
0%
•More than half of Rx drugs dispensed in USA are GENERIC
•Yet they account for only 13% of total Rx costs
Special Research Effort – Since 2003
Tracking Rx Drug Prices through
the AARP Rx Watchdog Program
How were prices measured?
•Manufacturers’ prices measured by
“Wholesale Acquisition Cost” (WAC)
• Invoice price of manufacturer to wholesaler
• Manufacturers’ prices account for most of a
retail drug’s cost
• Typically, a change in a manufacturer’s
price is passed on to final purchaser
•Tracked the 197 brand-name drugs most widely
used by Americans age 50+
The “Black Box” of
U.S. Pharmaceutical Pricing
U.S. Pharmaceutical Supply & Payment
Drug
Manufacturer
Pharmacy
Consumer
U.S. Pharmaceutical Supply & Payment
Pharmacy Benefit Manager
(PBM)
Drug
Manufacturer
Employer/
Plan Sponsor
or
Health Insurer
Pharmacy
Consumer
Wholesale
Distributor
Source: AARP---Based on work of The Health Strategies Consultancy (now Avalere Health) for the Kaiser Family Foundation
U.S. Pharmaceutical Supply & Payment
Employer/
Plan Sponsor
or
Health Insurer
Pharmacy Benefit Manager
(PBM)
M.D.
Drug
Manufacturer
Pharmacy
Consumer
RxRxRx
Advertising
Wholesale
Distributor
Payment for Marketing and Advertising
Source: AARP---Based on work of The Health Strategies Consultancy (now Avalere Health) for the Kaiser Family Foundation
2%
Proctor & Gamble
Eisai
Zocor 20 Mg
McNeil
Merck
Levaquin 500 mg
B-Myers Squibb
AstraZeneca
Lilly
Toprol Xl 50 mg
Evista 60 mg
Pravachol 20, 40 mg
Sanofi Pharm
Merck
Ambien 10 mg
Vioxx 25mg
Aricept 10 mg
Xalatan Sol 0.005% Pfizer
Actonel 35mg
Abbott
AstraZeneca
Flomax 0.4 mg
Nexium 40 mg
Pfizer
Wyeth
Pfizer
8%
Norvasc 5, 10 mg
Protonix 40 mg
Celebrex 200 mg
TAP
Pfizer
Prevacid 30 mg Dr
Lipitor 20, 40mg
B-Myers Squibb 90, 30
Pfizer
Merck
4%
Plavix 75 mg
Lipitor 10 mg
Fosamax 70 mg
10%
Prices Increases Vary Substantially by Drug
Example:
1st-3rd Quarter 2004
25 Most-Used Drugs
Price increases in 9-month period
6%
60%
Average % Change
50%
40%
30%
53.6%
20%
10%
Inflation 20.3%
0%
Cumulative Rise 2000 thru 2006
Years refer to change from previous year.
Source: AARP Public Policy Institute
Years refer to change from previous year. Source: AARP Public Policy Institute April, 2007
Rx Manufacturers’
Price Increases
FAR Outpacing Inflation
Distribution of Gross Revenues for
U.S. Drug Companies by Expense Type
$100
$80
$60
$40
$20
$31
$6
Marketing, Advertising,
& Administrative Costs
Taxes & Other Costs
$20
Net Profit
$13
Research & Development
$30
Cost of Production
$0
Out
$100
Every $100
Outofofevery
Source: Compiled by the PRIME Institute, University of Minnesota from data found in DHHS, CMS, Jan 2003, and
from Bloomberg, analysts models, & corporate annual reports. Presented by AARP Rx Watchdog Forum February 2005
Drug Safety is also an Issue in the USA
A seemingly
effective pain
medication for
arthritis . . .
Was heavily advertised, thus widely demanded
Total Advertising Dollars per Year
$200
Millions of Dollars
$175
$150
$125
$100
$75
$50
$25
$0
Nike
Pepsi
Source: Thomas Rice, UCLA, National Academy of Social Insurance Annual Mtg February, 2007
Vioxx
VIOXX
PROVIDES POWERFUL 24-HOUR RELIEF OF ARTHRITIS.
VIOXX
VIOXX
VIOXX
VIOXX
VIOXX
VIOXX
VIOXX
VIOXX
VIOXX
VIOXX
ONCE DAILY
VIOXX
©
AARP’s Efforts
on
Drug Safety and Effectiveness
Rx Drug
Home
Page
Access
by
Specific
Drug
Access
by
Medical
Condition
Summary
of
Effectiveness
and
Safety
Information
Relative
COST
of
Similar
Drugs
Safety with Drug Importation
Checking with the 50+ population
Polling Results
Have
imported
8%
Have not imported
91%
Fewer than 1 in 10 have actually imported Rx drugs
Insuring Safety when Importing Rx Drugs
Check that the Canadian pharmacy:
1. Provides on its website its license number and name of Canadian
regulatory agency that granted license (to check authenticity)
2. Displays seals of CIPA or IMPAC, organizations that set standards for
safety and service, and accredit Canadian mail-order pharmacies that
sell to Americans and meet standards
3. Requires prescription from your doctor. Reputable pharmacies will either
confirm a faxed prescription in a phone call to doctor’s office or await
receipt of original in the mail before filling Rx
4. Requires patient to submit details of medical history and clearly states
pharmacy’s policies for ensuring medical and personal privacy
5. Requires patient to have taken drug for at least one month before order
by mail, so that patient and doctor know medication suits
6. Provides a full mailing address and a toll-free phone number on its
website so patient can call to ask questions of a pharmacist
(Continued)
Source: AARP Website http://www.aarp.org/bulletin/prescription/a2004-08-02-rxcanada.html
Insuring Safety when Importing Rx Drugs
Check that the Canadian pharmacy:
7. Explains differences between American and Canadian drug names and
labeling and why pharmacy does not sell some drugs
8. Normally sends drugs in the manufacturer’s original container with seals
intact. In some cases, though, drugs may arrive in ordinary pharmacy
bottles if the quantity of pills in the manufacturer’s own container
exceeds 90-day supply
9. Sends drugs with labeling that includes strength, dosing directions,
expiration date, appropriate warnings and a Drug Identification Number
(DIN) [Shows drug is approved by Canadian health authorities
10. Displays -on its website- full information about shipping fees, payment
policies and refunds. Reputable pharmacies offer secure (encrypted)
online payment for credit cards, alternative options for payment (such as
electronic fund transfers and regular checks) and do not charge any
separate fees, except shipping fees
11. Charges cost of drugs to your credit card only when the drugs are
shipped to customer, not when order is first placed
12. Refunds money or re-ships drugs immediately if order does not arrive
Source: AARP Website http://www.aarp.org/bulletin/prescription/a2004-08-02-rxcanada.html
Sites on Getting Rx Drugs Safely From Canada
• Canadian International Pharmacy Association
(CIPA)
• Internet and Mail-Order Pharmacy Accreditation
Commission (IMPAC)
• PharmacyChecker.com
Summary of Problems
• Due to lack of transparency, U.S. Rx drug pricing is a
“black box”
• Industry profits are extraordinary; scrambel for profits
leads to lack of manufacturing care, in some cases
• Price increases have averaged 2 to 3 times the CPI
(Consumer Price Index)
• Price negotiations are based on volume changes,
formularies
• Rx drugs continue to be a growing percent of
overall healthcare costs, especially in the care of
the chronically ill, where they are often crucial
Summary of Problems
• USA lacks comparative-effectiveness studies which
could reduce cost, improve safety, and increase the
quality of care
• Consumer cost-sharing as a means of cutting costs,
especially for the elderly, can be counter-productive,
leading to more serious complications
• The raising public resentment at high prices, lack of
fairness in pricing and coverage, compared to other
countries, is driving politics
Characteristics of Quality, Affordable,
Patient-Centered Health Care
• Integrated team knows person’s entire
situation
• Care is coordinated, all doctors know all a patient’s
meds, and tests are not repeated needlessly
• Patient given decision tools, other supports, appropriate
to his/her level of understanding
• Patient controls and has access to own health
information, is an active partner in own care
• Patient has coaching or counseling support
• Patient has access to information on cost and quality of
procedures and understands treatment options ahead of
time
How do We Offer a
Quality, Affordable Health System?
3.
4.
5.
6.
1. Medical home
2. Electronic prescribing/medical
records/decision support
Chronic care management
Benefits based on “comparative effectiveness”
studies for procedures and pharmaceuticals
Low or no cost-sharing for services with high
medical or preventive value --e.g. flu shots,
blood pressure medication, insulin, etc.
Coaching patients to understand and to act
on prevention, price and quality information
Dialogue on Pharmaceutical
Pricing and Safety in the USA