Physicians

The Drug Formulary Death Cage Match of Awesomeness

I got an unusual request last week.  I had written a prescription of a generic medication (which has been generic for a couple of years) and the prescription was denied by the insurance carrier.  The reason for denial: I had to try a brand-name medication first.

Stop.  Read that again.  They wouldn’t allow me to give a prescription for the (cheaper) generic drug because I had to try the brand-name medication first. This is opposite of the usual reason for denial, the availability of a cheaper alternative than the prescribed drug, and, to my knowledge, is the first time I have ever seen it upside-down like this, and I have been in the ring for the duration of the drug formulary death cage match of awesomeness.  I’ve seen it all unfold.

Here is what happened.

I am not, like many physicians and patients, against the idea of cost-control through the use of drug formularies.  Medications are very expensive (unnecessarily expensive, as I have discussed previously), and the previously strong influence of drug reps made many doctors quick to jump for the latest and greatest medication.  I did this myself, during the first few years of practice – before the advent of drug formularies.

We were constantly detailed on new NSAID’s, antibiotics, cholesterol, and blood pressure pills.   There was always a reason the latest drug was worth using over the old one (sounds a lot like fancy smart phones, doesn’t it?), and since insurance paid the same for brand drugs, I was often influenced by the drug reps.

Round 1 went to drug companies.

Then came the first drug formulary, which, to my initial consternation, told me I could not prescribe whatever I wanted.  The drug class impacted most during that initial wave of formularies was the NSAID (non-steroidal anti-inflammatory drugs, like ibuprofen) class.  I quickly discovered something amazing, however: my patients did just as well on generic Naproxen as they did on the far more expensive brand medications.  Cost savings didn’t hurt my patients!  What a concept!

This opened my mind toward other generics, which became more bountiful as patents expired.  It became a hard-sell for the drug reps to talk down a drug they had previously touted as the “next big thing.”  This got worse for the drug reps when the “next big thing” ended up being the “next big class-action lawsuit,” with drugs that would interact with every other drug or have toxic effects on internal organs.  Patients became less enamored with new drugs, and less upset with generic substitutes.

Round 2 went to insurance companies.

The game changed once again with the advent of direct-to-consumer advertising for prescription drugs.  ”Ask your doctor if Nexium is right for you!” the commercial said.  Well, Nexium is an isomer of Prilosec, which used to be the greatest drug invented.  Prilosec, of course, replaced Zantac as both the treatment choice for GI problems and as the greatest drug ever invented.  Both Prilosec and Zantac went generic (and OTC eventually), so drug companies needed a new way to make money.  There was still pushback from insurers and formularies, but with consumer demand created by clever commercials about “purple pills,” the pushback was bad for PR.

Round 3 went to drug companies.

But then the goose with precious metal ovulation went into menopause.  Block-buster drugs lost patents, and the “tweak drugs” like Nexium (tweak the molecule and get more patent) became less impressive or simply tiresome.  Crestor is great, but Simvastatin is much cheaper and almost as powerful.

Add to this the intrusion of Wal-Mart into the ring, bringing $4 drugs (or cheaper) into the public mindset, and the fight once again took a turn toward the insurers.  It is much harder to get someone to pay $150 per month for something that is 5% better than a $4 drug (or even 25% better).  Drug companies took control and were met with few cries from doctors or patients.

Round 4 went to insurance companies.

This is where things got hazy.  Drug companies, awash in the generic onslaught realized they could not stay alive forever, so they took a new approach: they starting making generic drugs.  I couldn’t believe that this was legal when this first happened, as the term “generic” implies “non-brand.”   A company who has simply to change the labels on the drug has a huge advantage over those who must go through all of the FDA steps to produce approved generics, so they automatically took the lead in the market.  This lowered the number of competitors in generic manufacturing, raising the cash price for them significantly.  Hence, the insurance companies were no longer seeing the financial benefits of pushing generics.

Round 5 went to drug companies.

There is more to this fight than what meets the eye.  Behind the scenes in this fight (as is the case with the real purveyors of pugilism) are shady deals going on in smoke-filled rooms.  This is not exactly a mano-a-mano winner gets the prize affair.  The drug companies and insurance companies are engaged in deals to benefit both sides.  The biggest area of behind-the-scene dealing is in the are of drug rebates. A “rebate,” which usually refers to money paid back to the person buying an item, is different in the insurance/drug world.  Drug rebates are paid by the drug companies to the insurers in exchange for advantageous positioning in drug formularies.

I saw behind the scenes on this when I had the “honor” of serving on the drug formulary committee for a large insurance company in our area.  In consideration of inclusion on the formulary we were supposed to consider the following:

  1. Is the drug effective for the condition?
  2. Are there other drugs of equal or more efficacy?
  3. What is the cost of the drug?
  4. What is the demand for the drug?

After all were considered, if there was no obvious choice, the subject of “rebates” was considered.  Drug companies would pay extra for the following:

  • If their drug was exclusive
  • If it was not exclusive, then rebates were paid based on reaching a certain market share.

1-4 were equal, then rebates were the decision maker.  The problem, of course, is that “efficacy” of drugs is never real clear when compared with another (due to the nature of drug studies, head-to-head trials are often unethical or dangerous from a marketing standpoint).  Is Lipitor the same as Zocor or Crestor?  What about $4 Lovastatin, which also lowers cholesterol?  There is seldom enough information to judge them equally, so money comes in to play very early in the process.

In truth, “rebates” are probably better re-labeled as what they are: “kickbacks.”  You scratch my back, I scratch yours.  They seem to realize this doesn’t look good, as they are largely kept secret from the public.  How secret?  I was once a part of a physician group who teamed up with an insurance company to lower cost and improve their rolls.  We accomplished both, and were eventually quite profitable.  There was an out clause from the deal that freed them from the partnership if the plan wasn’t profitable, which they tried to exercise at a time in which the plan was growing and seeming to do well.  They opened their books for us to show us the lack of profit, but insisted that the rebates were not part of the formula (even though the prescribing habits of us physicians were responsible for meeting the quotas).  It ended up going to court, and the judge sided with us, showing a huge profit.  They settled before the numbers went public, so nobody ever did see the actual size of the rebates.

So what about the brand drug that the insurance company favored over the “generic?”  Coincidentally, the main generic manufacturer is the same one who makes the brand drug you have to use before changing to generic.  You don’t have to be paranoid to see a problem with this.  It seems the two fighters have teamed up and are now beating the crap out of whoever challenges them in the ring.  I am not sure who wins this fight in the end, but I know whose money is being spent, so I know who loses.

Rob Lamberts, MD, is a primary care physician practicing somewhere in the southeastern United States. He blogs regularly at More Musings (of a Distractible Kind) where this post first appeared. For some strange reason, he is often stopped by strangers on the street who mistake him for former Atlanta Braves star John Smoltz and ask “Hey, are you John Smoltz?” He is not John Smoltz. He is not a former major league baseball player.  He is a primary care physician.

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DanJohn GSeth KaplanVikram CPeter1 Recent comment authors
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Dan
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Dan

Just because a drug is labeled as a generic, does not necessarily mean it is cheaper. It just means that there is open competition among companies to produce the drug, without all the original R&D investment. There is no law against a branded manufacturer lowering their price to compete with the generic market. If the brand name drug is $2, and generics come out at $1.50, the brand name manufacturer can lower their price (or rebate!) down to $1.25. It would then be in the insurance companies, and patients best interest to get the brand name because it is less… Read more »

John G
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John G

Can you enlighten me as to why the drug involved is not identified?

Rob
Guest

I have to be careful in blogging specifics about anything when I have signed contract agreements with insurance companies. Also, I didn’t want to focus on one drug company or one insurance company. This is but one example of what is a widespread problem. I find that putting specifics in this kind of article causes the focus to be too narrow.

Seth Kaplan
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Seth Kaplan

Not all generics are created equal. Some generics provide the same benefits as the name-brand drug. Some, however, do not. Examples of the latter are: Celexa and citalopram; Adderall and generic amphetamines.
Prescribing statins for most people often doesn’t help them and will almost certainly hurt them, causing muscle pains, mental deterioration, bone aches, etc.
Let me know your thoughts.

Vikram C
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Vikram C

Somehow I can’t relate to how insurance companies would profit from forcing patients into more expensive brands this increasing their payouts. Here are possible reasons.

1. Branded is really ‘branded generic’, with insignificant price difference.
2. Rebates versus savings by paying less. Maybe rebates have some different tax status.
3. It’s a tool to market, saying they pay for branded too.

I do think 2nd point is most likely reason. I don’t this kind of setup will continue for long. It will be a matter of time before OIG makes an example out of a payer.

Peter1
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Peter1

Thanks for the eye opener Rob.

DeterminedMD
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DeterminedMD

My point to this PPACA fraud. Why did pharma and insurers support the Reid/Pelosi/Obama initiative? They never had any interest in negotiating nor compromise. Just a different approach to continue obscene profiting. What you and colleagues need to ask yourselves is this: who with a conscience and invested soul in being a true physician would not only refuse to be an AMA member, but call for an organization that would collude with this farce in claiming helping health care to be ostracized and made irrelevant as a physician lobby source. It really is time to put up or shut up.… Read more »

Rob
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Rob

Not sure I get your point. Lots of injustice to go around, in my opinion. Clearly neither the pharmaceutical companies nor the insurance companies can be left unattended. We really have problems on all sides.

DeterminedMD
Guest
DeterminedMD

Like I said at an earlier post, attempt to have a rational, responsible debate with either side of these ugly Republocrats, and they will get you to argue against the very points you began with, because reason and reality are not experiences that happen in political arenas. This is part of the “pass the freakin’ bill so you can find out later how it screws America” Nancy P of Frisco-land used as an alleged defense of this legislation! Again, narcissists and antisocials use primitive and destructive defenses to survive, and all the key players of Democrats and Republicans do it… Read more »

maggiemahar
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Great post!

Yes, these “rebates” are in fact “kickbacks”

IMHO they should be illegal.