October 29, 2007

Presidential Anti-Pharma Rhetoric Heats Up

So once again I’m in the weird position of having to defend something I’m actually against.

The latest is from John Edwards, et al. Here’s the headline: Edwards unveils plan to control drug advertising.

Read that sentence, and decide what you think the intent of the plan is.  Is he talking about controlling the colors of the ads?

Most likely, you think it’s the effect the ads have on drug prices.

“The excessive costs of prescription drugs are straining family budgets and contributing to runaway health care costs…”

Let’s temporarily grant that that this statement is true.  What is the link between advertising and prescription drug costs?  Is he saying that spending on ads increases the price of drugs?  That would be wrong, and I have to believe he knows it.

First, Pharma spends about $4b on DTC ads.  It has yearly sales of about $200b, so even if every penny spent on ads was instead used to lower the price of the drugs, no one would actually notice.  Additionally, prices of branded drugs rise about 6%/year, regardless of how much they spend on ads.

Second, we should probably define “drug prices.”  If I roll into a pharmacy with a prescription and choose to pay cash, how much will it be?  The answer, as it turns out, depends on the pharmacy.  These are retail prices, that pharmacies charge no-insurance cash payers; on average, 15% more than insurance rates. But let’s be honest here: cash payers can’t afford a lot of these medications at any price.  If you’re one of the unfortunate working poor who don’t have a prescription plan, you can’t afford the medication at full price, 20% off, even 50% off. The price is irrelevant; what matters is whether you have a prescription plan, or a doctor who can provide samples forever.

So for everyone else, “prices” really means prices to insurance companies, or Medicaid/Medicare, all who  negotiate a price that has almost nothing to do with the actual patient demand for a drug.  A  price which is considerably lower than retail.  Medicaid apparently gets a 20% discount, the VA 40%. (1)

So DTC advertising doesn’t affect the price because the consumer isn’t paying it.  The price was set in negotiation.  Certainly the price Pharma asks from wholesalers and insurers takes into account their costs, including advertising; and more ads (hopefully) means more scripts which means higher profits. But increases in advertising don’t translate directly to higher prices, they reduce the profits.  Higher prices are the result of  negotiations between parties that are immune to the effects of advertising.  That’s the problem.

Third: perhaps what we really mean is that DTC ads raise the overall Medicaid/Medicare expenditures because more scripts are being written that would otherwise not have been written without the DTC ads.  Well, if this is what we’re saying, we should just say this; let’s not use factually inaccurate soundbites that play to the hearts of superficial idiots.

But if we are saying this, then the problem isn’t the prices of the drugs, it’s doctors prescribing drugs they shouldn’t be prescribing.  The solution isn’t, therefore, to reduce drug prices; in fact, that’s the opposite of what you want, because it makes it even easier for doctors to prescribe what they shouldn’t be prescribing.  The actual solution would either be to raise drug costs (bad idea), controlling doctors’ prescribing (bad idea), or giving them a medication budget they have to stay within, but preserving prescribing freedom.

It should bring us pause that even the AMA refused to recommend banning DTC ads.  If Edwards plan was specifically about protecting the patients from half-truths or seductive graphics that compel patients to request medications that they don’t need or might compromise their health, then I’m behind him 100%. I already think DTC should be banned. But like all political soundbites, this isn’t about content but about ambiance, creating a feeling that he’s all about cutting costs— that’s he’s more than Hillary. Unfortunately, empty rhetoric like this distracts us from real problems, like Iraq, Iran, wealth divergence, recession, etc.


1.  As a horrifying diversion into drug pricing, let’s look at Medicaid.
Medicaid, by law, will pay (to a pharmacy who dispenses the drug) a percentage of the average wholesale price, plus a dispensing fee.  Both the percentage and the dispensing fee vary from state to state, but it’s on the order of 85% of average wholesale price, and $5 dispensing fee.  On average, Medicaid pays about $61 per prescription: $14 goes to the pharmacy, $47 to Pharma.   If anyone can tell me how DTC ads affect that, I’m listening.  So pharmacies don’t make a lot on this, and it’s a far cry from the markup the pharmacy can impose on a cash payer.  And pharmacies aren’t obligated to participate in Medicaid.

drug payments.JPG

In practice, wholesale price is anything Pharma says it is, including some bizarrely inflated price.  But whatever it is, I hope it is clear that it has nothing to do with ads.

And then there are the rebates. I hope you’re sitting down.

In gratitude for this excellent reimbursement, Pharma agrees to rebate Medicaid about 15% or the manufacturer’s price, plus an additional rebate every year for the amount of price increase that exceeds inflation.  In 2003, the average rebate was 31%.

There’s another rebate.  Many insurances have pharmacy business managers (PBMs) who make preferred drug lists.  How does a drug get on that list?  It isn’t by being cheap; ask Illinois Medicaid in 2005, when they wouldn’t cover Seroquel, arguably the most demanded but hardly the most expensive.  What it takes is, as they say in Big Pharma, “our willingness to play ball.”  Another “rebate.”

That money stays in the managed Medicaid’s pocket. The savings aren’t passed on to the patient, either directly or indirectly.   If you want an analogy, it’s the parking authority; revenue from tickets doubles, triples, but the amount they pay to the cities doesn’t change.   The extra “profits” goes back into the authority, to hire more people, pay more salaries. It’s a self-propagating bureaucracy.  I should also mention that, consistent with bureaucracies, it can’t even collect those rebates very well.


All good points. I think t... (Below threshold)

October 30, 2007 7:27 AM | Posted by Steve: | Reply

All good points. I think the simple problem with DTC is that they inflate the patient demand for patent drugs -- and this drives cost.

Of course, that's why I'm against them. But the real problem therefore isn't the ads themselves, but the doctors. The problem is that the doctor has no incentive-- except good medical practice, which of course is no incentive at all-- to not gie the patient what they want. You want Zoloft? Fine. Two questions need to be asked: first, are doctors giving Zoloft instead of another antidepressant (e.g. a generic)-- in which case the problem is money; or are they giving Zoloft when they wouldn't have given anything at all-- in which case you have a completely different problem? The only incentive that will make them think twice is holding them to a budget.

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"The only incentive that wi... (Below threshold)

October 30, 2007 6:53 PM | Posted by Ben Hansen: | Reply

"The only incentive that will make them think twice is holding them to a budget."

Is this really the ONLY incentive that will make doctors stop pushing pills?

How about doctors who prescribe antipsychotics like Seroquel to toddlers? (Remember little Rebecca Riley?)

What if doctors were sent to prison for prescribing drugs off-label? What if they were jailed for ignoring FDA guidelines?

Perhaps then some doctors might think twice before writing prescriptions. Maybe then our nation's doctors would stop dispensing pills as if they were handing out jelly beans.

Alone's response: loaded comment, and certainly deserves careful response.

First, I'm sure there are other ways we could keep doctors from prescribing too many unnecessary meds. However, most of them impose a restriction on the types of meds-- for example, a formulary may not cover a med, in an effort to keep costs down. This only reduces the treatment options. I am assuming that doctors are simply prescribing multiple meds because it is too easy-- not because they're getting paid, etc.

Second, and this is a tough question: so what if they're getting paid to write a med? I know it's ethically wrong. But what is the harm to the patient if Pfizer pays him to write Zoloft but not Lexapro? If a patient needs an SSRI, there is simply no way you can say that Lexapro is the right med,and Zoloft the wrong one. If they're writing Zoloft when they would not have prescribed any SSRI at all, then you have a problem, but I haven't found any evidence that this is what happens. They would be getting an SSRI anyway, all Pharma did was buy brand loyalty.

Which brings me to the third point:most branded meds that are used for maintenance treatment aren't necessary _at all._ They're helpful, but not necessary. No one _needs_ Zoloft, or Lipitor, or Celebrex, or Viagra (sorry, Pfizer.) But there are times when Viagra is useful and I want to prescribe it. In order for me to preserve the ability to write it when it is more important, I have to be prudent with its use, i.e. save money. This is why I'm against price caps or formularies: I want to be able to prescribe any med I want, any time I want, because I (as a _rigorous_ doctor) believe I should be the one to decide when to use what-- not an insurance company, etc. A budget is the best way to preserve my autonomy but minimize costs.

However, if doctors are not rigorous, or fall in the, say, highest 20% of medication use, then there can be a mechanism for "counseling" that doctor...

As for using drugs only for their FDA approval, forget it. It is not only a bad standard to use, it is the worst standard. FDA approval doesn't mean best tested for efficacy and safety; it means Pharma CHOSE that specific indication to pursue. Vioxx was a pain killer according to FDA approval. It turns out-- right before they pulled it-- that it might actually have been a colon cancer preventative. Now we'll never know. Viagra was/is a drug for pulmonary hypertension; but Pfizer chose to pursue penile enlargement because the market was better. Zoloft has an OCD indication, but Lexapro doesn't. Am I to believe that that is even physically possible?

That said, your site is pretty funny.

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Not all doctors are in the ... (Below threshold)

October 31, 2007 7:33 AM | Posted by Harold C.: | Reply

Not all doctors are in the pockets of big Pharma. I see no sales reps, give no samples, and have one of the highest generic Rx-ing rates in my state. Please check out www.nofreelunch.org and you'll see its a growing trend...

Oh, long time reader, 1st time commentor. I love the site. A patient of mine sent me the link and I've been following (and laughing my tail off) ever since. Please keep up the great work!

thank you sir, I appreciate the compliment-- and pass the blog around to others like the virus that it is...

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Vioxx was a pain killer ... (Below threshold)

October 31, 2007 7:59 AM | Posted by Ben Hansen: | Reply

Vioxx was a pain killer according to FDA approval. It turns out-- right before they pulled it-- that it might actually have been a colon cancer preventative. Now we'll never know.

Nope, we'll never know by using our patients as guinea pigs via off-label prescribing of Vioxx, but perhaps some day we WILL know if Merck ever conducts clinical trials testing the safety and efficacy of its product for the treatment of colon cancer. What's wrong with that?

Merck was testing the drug in clinical trials for colon ca. (I'm not sure I fully understand your comment.) But my point in making the Vioxx comment was to reinforce the idea that an FDA approval isn't a validation of efficacy and safety, it is a decision by the drug company to call a drug something. We don't have a funding source that will test drugs for various diseases, we rely on Pharma to do that. If they decide that it's more lucrative to pursue a pain killer indication as opposed to a colon cancer indication, then the drug "becomes" a pain killer.

What people want, however, is that somehow Pharma will decide what indication serves mankind best, and pursue that indication. (so, for example, Viagra would be pursued as a pulmonary hypertension drug.) But there is not only no incentive for them to do this, but they are actually penalized for doing this. Two examples: they pursue a colon ca indication, which is more "noble" but more difficult-- and one study out of three falls short, so the FDA says "do more studies." Meanwhile, they could have simply released it as pain killer and made much dinero. Or: they get the "noble" indication-- so noble, in fact, that France decides they are ovrerriding the patent to give the drug away for free. That almost happened with HIV meds.

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