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Undermining Cost Control In Health Care

Editor’s note: This story appeared in the Wall Street Journal on July 20, 2009. It demonstrates how pharmaceutical firms undermine health insurers and plan sponsors in an attempt to increase the sales of their brand name drugs, when equivalent generics are available.


Drug Makers Criticized for Co-Pay Subsidies

By JONATHAN D. ROCKOFFEven as U.S. lawmakers seek new ways to rein in health-care spending, drug companies are quietly circumventing a proven tool for controlling prescription-drug costs: insurance co-payments.

Drug makers are increasingly subsidizing these “co-pays” — the share of prescription costs that insured patients must pay out of their own pocket. Insurers require co-pays to give patients an incentive to be price-sensitive and pick generic drugs over pricier name brands.

In the past year, drug manufacturers have broadly expanded their subsidy programs, according to a Wall Street Journal examination of their practices, potentially undermining the cost-cutting incentive. Drugs with co-pays subsidized by their makers include Pfizer Inc.’s cholesterol fighter Lipitor, the world’s top-selling drug, as well as more expensive therapies such as Enbrel, a drug for rheumatoid arthritis and psoriasis co-marketed by Wyeth and Amgen Inc. that costs up to $24,000 a year.

Drug makers say the subsidies help cash-strapped customers afford their medicines. But health insurers complain that the practice undercuts a proven method for encouraging use of cost-effective generics. Insurers say it’s forcing them to pay for costly therapies, and raise premiums to cover the expense.

The tension over co-pays lays bare the often conflicting interests of drug makers and insurers amid the legislative effort to overhaul the U.S. health-care system. One of the central goals of the overhaul is to contain the $2.5 trillion Americans spend annually on health care.

There is little comprehensive data on the extent of the subsidies or their potential effect on health-care costs. A 2008 study by one New York state insurer indicated that 48 drugs now have co-pay subsidies, but its list didn’t include several major pharmaceuticals that Journal research also showed to have subsidies.

Spending on drugs is about 10% of overall health-care spending. However, for working-age adults covered by private health plans, drug spending is typically double that or more, according to an analysis by Rand Corp., the nonprofit research organization.

Studies show that co-pays — introduced by insurers and employers in the 1980s — are an effective way to reduce spending. Every 10% increase in a co-pay reduces drug spending by as much as 6%, according to a 2007 survey of research published in the Journal of the American Medical Association. Prescription-drug sales in the U.S. last year reached $291 billion, according to IMS Health..

“The patient, I will tell you, is economically very, very sensitive to co-pays, and a $5, $10, $20, $25 co-pay matters,” Abbott Laboratories Chief Executive Miles White told analysts in April, after Abbott expanded its subsidy program for Humira, a rheumatoid arthritis therapy, so customers wouldn’t have to pay more than $60 a year out of pocket, down from a maximum of $300. The total cost of a year’s prescription for Humira can reach $19,000..

In April, Amgen increased its subsidies for Enbrel, a Humira rival, offering to pay for patients’ first six months of co-pays and cap their out-of-pocket costs at $10 for each of the next six months..


July 24, 2009 - Posted by | Cost, drugs, healthcare | , , ,

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