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How Big Pharma Drives Up Medicare Spending Without Improving Seniors’ Health

By Sy Mukherjee on June 11, 2013 at 2:30 pm

"How Big Pharma Drives Up Medicare Spending Without Improving Seniors’ Health"

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The Medicare Part D prescription drug program for seniors wasted $1.4 billion paying for brand name drugs that were no more effective than their cheaper, generic counterparts, according to a new study by the Veterans Affairs Pittsburgh Healthcare System. That excess spending was driven in large part by pharmaceutical companies’ efforts to delay generic drug patents and undermine competition that would lower health care costs.

Researchers compared drugs used by veterans who get VA benefits against those used by seniors on Medicare Part D. The results were unambiguous: Part D beneficiaries consistently used expensive brand name products such as Lipitor instead of their cheaper alternatives like Zocor, while Americans with VA drug coverage were prescribed less costly generic drugs that proved equally effective. For instance, 51 percent of seniors with Part D coverage took brand name cholesterol drugs as opposed to only 18 percent of VA patients.

Unlike at the VA, doctors working with Medicare Part D patients aren’t forced to justify their prescription drug preferences to the government. Consequently, they tend to recommend costlier and better-known brand name drugs to their senior patients.

Pharmaceutical companies often employ shoddy — and sometimes illegal — practices to keep this status quo in check. For example, right before the generic version of Lipitor was set to be released in 2011, Pfizer (which makes Lipitor) employed an aggressive strategy aimed at temporarily weakening generic drug makers’ competitive advantage. The pharmaceutical giant began cutting deals with doctors and pharmacies in which they provided them with a cheaper version of Lipitor, which costs about two and a half times as much as its generic alternative. In exchange, those health care providers were barred from prescribing competitors’ generic products, or even sending out mail-order services for generic drug alternatives.

Even the deals that major companies offer in exchange for this competitive advantage prove illusory. Drug makers like Pfizer provide rebates to Medicare Part D plans that show a preference for their products — but they easily make up the cost of those rebates later on.

“Rebates are a fools gold in the absence of price controls. Drug companies figured rebates cost $20 billion, so they just raised the prices by $20 billion to cover their costs,” said Dave Marley, president of the consumer advocacy organization Pharmacists United for Truth and Transparency (PUTT).

Big Pharma also stymies competition through “pay-for-delay” arrangements in which they essentially bribe generic drug makers to hold off on releasing their products in order to maximize profits. Brand name drug makers also artificially extend their medication’s patent life by adding “inactive ingredients” that marginally change a product’s chemical makeup without actually improving it or changing its effects.

Those sorts of arrangements bolster pharmaceutical companies’ and generic drug makers’ bottom lines — but they don’t improve Americans’ health, and as the recent Medicare Part D study shows, that leads to higher costs for seniors and government health entitlements.

Consumer advocates and reform-minded doctors argue that shifting Medicare Part D towards a system that’s more similar to the VA’s might help close the gap. The VA only uses one pharmaceutical company to manage its prescription database, and doctors have to provide a valid reason for prescribing a brand name drug if there’s a generic equivalent available. But Medicare Part D plans contract with thousands of pharmacies that have access to far more expansive drug databases that are susceptible to the type of arm-twisting Big Pharma engages in.

The U.S. Supreme Court is expected to rule on whether or not “pay-for-delay” schemes are legal later this month.

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