Just in case you out there haven’t been keeping up with the big city papers, the Sunday Gazette-Mail from Charleston, West Virginia reports that West Virginia is the latest state to try to institute Canadian price levels in what it pays for drugs, presumably for Medicaid and state employees. How’s it going to do that? It’s going to

establish a "pricing schedule," a list of drugs and what they should cost. It would be based on either the Federal Supply Schedule (which is estimated to be 40 percent less expensive than retail prices), what the Canadian government pays, or another price reference "that will maximize savings to the broadest percentage of the population of this state."

This is more or less the same thing that several other states have done by setting up links to Canadian pharmacies, but the first one that I recall that’s explicitly trying to piggyback of the discounts that the Feds get when they buy for the VA system. And I believe that this is the first one in a "Red" state.

While I can write a balanced article looking at the issue of drug profits home and abroad, and Derek Lowe can conduct a debate with his readers about it, we’d both probably admit that rather more people watch 60 Minutes than read our blogs. So today’s 60 Minutes on re-importation may have slightly more influence than Derek’s views or mine. I’m now pretty convinced that the Republicans are going to cave on the drug re-importation issue. With every senior in America watching, 60 Minutes showed an extremely pained Mark McClellan trying defend the indefensible–he was forced to say that the FDA is not allowed to check out if Canadian exporters are safe–"Under current law, we don’t have the authority to insure the safety of foreign produced, foreign distributed drugs." (I bet he’s damn happy he’s moving on to CMS and doesn’t have to sit through that interview again). They then showed that Lipitor is made in Ireland and that the same pill made there sells for twice as much here as it does in Canada. They showed that the taxpayers of Springfield, Mass will be $9 million better off because the city is buying its drugs in Canada, and that translates into more firefighters and cops on the beat. They even found a conservative Republican (Dan Burton) to attack both PDIMA and the pharma industry, and managed to say that no major drug company would come on the TV to defend their position. All in all, not the pharma industry’s finest 15 minutes ever of PR.

In a weird associated connection, there was also a commercial from AARP which seemed to first focus on the real "drug war" and then talked of AARP fighting the "other drug war, one we can win" demanding legalization not of marijuana but of Rx imports from Canada and for the ability of the government to negotiate drug prices. AARP’s blessing of course is what pushed PDIMA over the edge and won it through the house, so it looks like they’ve changed their PR position. Meanwhile, conservative Republican Dan Burton was featured prominently opposing PDIMA. He’s a long time drug-war warrior in that other drug war, but as he gets older he seems to be showing the odd bit of sense.

Just in case you thought drugs were too expensive in the USA, the Brits are discovering that their pharmacists (note: not the pharma companies but the corner chemist) are making big profits by buying at a discount well under the official rate. It’s like the mark-up for oncology drugs from Medicare, albeit on a much more modest scale. Still it does show you that drug pricing is a touchy subject everywhere!

And if you want to read more about the oncology story featured in Matt Quinn’s TCHB article yesterday, here’s an article from Doug Bandow, one of the "sensible libertarians" over at Cato (as opposed to the loony libertarians at take your pick of the Mellon-Scaife funded institutes….) in which he basically applauds Congress for eventually taking action on the taxpayers’ behalf here, and calls for more, and more logical, government intervention in the oncology market.

Hat tip to LM for the link.

Oops…for some reason this didn’t "publish" late last night…..

In a report out of The Delaware News Journal comes interesting news about the statin wars. The ACC meeting this week has lead to the release of a host of studies concluding that "stronger is better" in terms of the health effects of statins. Although bloggers Sydney Smith at Medpundit and Robert Centor at Medrants disagree on the exact significance of the PROVE-IT study, all concerned seem to believe that stronger is more or less better. Crestor from A-Z is usually believed to be the strongest statin, yet the folks at Medco, the nations biggest PBM have followed the lead of Wellpoint, one of the biggest health plans (and the most influential in terms of Rx trends) by leaving Crestor off its formulary listing. AdvancePCS, which is about to be the other big PBM gorilla after its pending merger to Caremark is complete, has put Crestor high up on its formulary.

So in the real world, will the dogs eat the dog food if they have to pay more for it? Astra-Zeneca is about to find out. Despite the carnage in the market lately, their stock is still doing fine. But the news from three-tier formulary land is not good, as an off-formulary position usually means that people won’t pay the extra for the non-preferred branded Rx.

From THCB Sacramento bureau, Matt Quinn continues his comments on the injectable oncology market by discussing an article in Physician Compensation Report titled Oncology Income May Drop 40% by 2005. (The article is in italics, Matt’s comments are in normal text).

"Clinical oncologists in practices that infuse chemotherapy drugs say that changes made in their 2004 reimbursement schedule by the Medicare reform law will result in income losses ranging from 2%-3% up to 15%, depending on each practice’s payer mix and current prices for purchasing the drugs. For 2005, practice managers predict physician income losses of another 25% if Congress does not repeal the new law’s reimbursement cuts for next year."

This seems significant until you get to:

"Median physician compensation and benefit expense was $446,000 in 2002, the survey says."

So, my interpretation of this is that "the powers that be" are giving oncology practices 2004 to shift from a drug-based business to a service-based business (like 99% of other practices) at relative cost neutrality (using the bad assumption that per physician salary hasn’t grown since 2002, they are estimated to make between $379K and $437K in 2004). I don’t disagree that practices / physicians that cling to the drug-based reimbursement model in 2005 will stand to lose up to a quarter of their revenue (making them paupers who only make ~$285K to $328K per year). That’s the point. The government feels that oncologists are padding their salaries (at huge expense to the taxpayer) with excess drug utilization. Either take the carrot or get the stick. It will be interesting to see how utilization patterns change when (if) financial incentives change. This is hardly a situation that will leave cancer patients dying in the streets/driving hundreds of miles for lack of a community cancer center. Although it might leave a few oncologists short some of the income to which they have grown accustomed.

"Holcombe notes that ASPs do not reflect the markup that drug distributors charge to practices, or the drug inventory financing and handling costs that practices have."

This (which is the rationalization why the ASP for a drug must be greater than the cost of the drug), of course, contradicts the huge margins that oncologists make on administering drugs. There is a "cost of money" for maintaining the drugs necessary for running a practice, although healthy cash flows, favorable payment terms from distributors (60 to 90 days is standard), low interest rates, and mileage programs make this seem pretty darn negligible. There are shipping fees (very low, especially for planned purchases), and there is a cost associated with setting up and maintaining an oncology practice (must buy a chemo mixing hood, have ventilation, must have oncology specialist nurses), but these are not (obviously) anywhere near current (or projected) overall profit levels.

"The medical lobby opponents of the reimbursement changes are working to interest Congress in a change of direction."

They have scuttled this sort of legislation many times before. A membership that makes $450K per head has some influence, to say nothing of Big Pharma.

UPDATE: The NY Times reports that the situation is extra grim for some cancer patients in Marin County because the oncologists are laying off their massage therapists!