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In this issue: PBM Investigations Generic Pricing Review FDA Update Arxcel, Inc. 4390 Quinby Dr. Suite D Hamburg, NY 14075 (716) 646-9292 (716) 646-6985 Fax www.arxcel.com info@arxcel.com ARXCEL can help with: Plan Design Proposals Clinical Analysis Product Line Development Sales & Marketing |
| Fall 2003 | Arxcel News Brief |
PBM INVESTIGATIONS
Over the past year, numerous articles pertaining to alleged inappropriate business practices by pharmacy benefit managers (PBMs) have appeared in various periodicals. PBMs have come under scrutiny for the discounts and rebates they negotiate with pharmaceutical manufacturers in return for favorable placement on their formulary lists.
While some consider this a breach of a PBM's fiduciary responsibilities to its clients, others view this practice as standard, well-known and commonly accepted in the industry.
Opponents argue that this type of arrangement dictates the prescribing habits of physicians and determines what drugs are included on a particular formulary. Proponents disagree, recognizing it as a means for PBMs to derive revenue.
In reality, a PBM's formulary is developed by a Pharmacy and Therapeutics (P & T) Committee. The P & T Committee is an independent decision-making body comprised of health care professionals including specialists, primary care physicians and pharmacists. Their main purpose is to develop policies governing the use of high quality, safe and cost-effective drugs to be included in the PBM's formulary.
The P & T Committee relies upon peer-reviewed clinical literature, research and outcomes studies when evaluating a new pharmaceutical product. They also compare the drug to others that have been shown to be effective in the treatment of the same disease or condition. Due to the rapidly changing pharmaceutical marketplace, P & T Committees must meet regularly to consider new drugs and revise the formulary accordingly.
In reaction to these allegations, some PBMs have devised new pricing arrangements which "pass through" all negotiated discounts and rebates directly to the payor. The PBM charges an administrative fee on a per claim basis, thus alleviating speculation and suspicion surrounding the ways in which a PBM is able to generate profit.
Numerous factors must be considered in determining the financial ramifications of a PBM's pricing. PBMs have proven themselves to be valuable enterprises in the healthcare delivery system. Their willingness to incorporate such practical changes as "pass through" pricing indicates their intent to remain integral players in the industry for many years to come.
An essential element of an effective pharmacy benefit plan design is to promote the appropriate use of generic drugs. Generic drugs are the therapeutic and clinical equivalents of their brand-name counterparts and, at 25 to 30% of the cost, are a cost-effective alternative.
Over the past year and a half, generic forms of many popular and highly utilized drugs have become available, such as fluoxetine, the generic version of Prozac. Until recently, generic drugs have accounted for approximately 40% of all drugs dispensed. It is anticipated that the number of generics dispensed will increase to approximately 60% over the next couple of years.
However, recent research indicates that the cost increases for generics have been nearly twice the increases for name brand drugs. According to IMS Health, the cost of generics rose by 15% in 2002, while brand names increased by only 8%. There are three main reasons for this phenomenon:
- Generic versions of several popular brand name drugs have recently been released. When generic versions of a drug are introduced, the manufacturer has six months of exclusivity. Therefore, due to the initial lack of competition, the cost of the generic is not significantly less than its brand name counterpart.
- Numerous consolidations of generic manufacturers contribute to a lack of competition in the marketplace.
- There has been a dramatic escalation in the cost of older generic drugs. For example, promethazine, which used to cost $.03 per dose, now exceeds $.30 per dose.
LITHIUM: Extended release tablets of lithium carbonate, the generic equivalent of Eskalith CR®, were approved by the FDA.
ETANERCEPT: The FDA approved an expanded indication for etanercept (Enbrel®), which inhibits the progression of structural damage in active arthritis patients.
ANAPROX: Anaprox, a generic version of Naproxen Sodium®, was approved by the FDA and will be available in 275 mg. and 550 mg. doses.
GLIPIZIDE: The FDA approved the generic application for the agent glipizide, the bioequivalent of the brand drug Glucotrol XL®.
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