Drug Companies

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Drug Companies Cost Structure
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Sager FDA Testimony 4/04
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Tax Pill-fering How Merck Saved 1.5b paying
itself for drug patents

• Merck sets up subsidiary in Bermuda, in
  partnership w/ British bank
• Quietly transfers patents for blockbuster drugs
  to new subsidiary
• Merck pays royalties to subsidiary for licensing
  Mevacor, Zocor, etc.
• Subsidiary loans money back to Merck to buy
  Medco.
• Arrangement allows some of the profits to
  disappear into Bermuda triangle between
  different tax jurisdictions.
• Merck avoids 1.5 billion in federal taxes over
  next 10 years.
• Later, Merck liquidates company recovers its
  money

Drucker, Wall St. Jl 9/06
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Drug Industry Lobbying

• 108.6m spent industry-wide- 2003
• Total 750m spent 1997-2003
• Employed 824 lobbyists (2003)
• 8 lobbyist per member of senate
• 45 lobbying for Industry and HMOs have
  revolving door connections
• Both sides of the aisle (2005-06)
• No. 1 recipient R.Santorum (R-PA) 977,000
• No.2 recipient H.Clinton (D-NY) 854,000

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Shape Medicare Drug Benefit
Block Medicare Drug Benefit
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Citizens for Better Medicare

• Sham grass-roots org
• 65m Television ads
• Director is former PhRMA marketing director
• Multiple independent partner groups largely
  industry funded
• Gave 10 phone cards to seniors to call kids
  convey their fears
• Werent citizens..werent for better medicare

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But Politicians Ones that Can Really CheerPaid
Well to Protect High Prices
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Particularly Problematic Areas

• Enrollment mass confusion
• Website referral
• Penalty
• Forced/Involuntary plan assignment
• Donut hole
• Public hospitals penalty
• Discount cards (remember them?)

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Donut Hole Not only Bad Now But.. Keeps Growing
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Roller Coaster Part D Bumpy Ride

• In 1st year under the standard drug benefit-38
  will be subject to no-coverage gap ("doughnut
  hole,)-14 will exceed the threshold of
  catastrophic coverage
• Over three years, enrollees, on average, will
  incur out-of-pocket costs of 44 of their total
  drug spending. Enrollees with higher spending
  could pay as much as 67 of total costs.

Commonwealth Fund "Riding the Rollercoaster The
Ups and Downs in Out-of-Pocket Spending Under
the Standard Medicare Drug Benefit (Health
Affairs, July/August 2005)
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Lower Part D Drug Costs?Represent Policy
Failures

• Shifting costs drugs from Medicaid to Medicare
  for dually-eligible has actually raised costs for
  government payers.
• Study top 25 prescribed brand drugs from 41 PDPs
  in one Minnesota zip code 1/06
• Prices 14 -50 above those Medicaid would have
  paid.
• Most Medicare D prescriptions 20-30 above
  Medicaid prices.
• Not just implementation failures, but policy
  failures
• Competing PDP providers not likely to lower drug
  prices
• Patients shop for premiums cant shop for best
  drug prices

Schondelmeyer Congressional testimony 1/20/06
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IOM Report on FDA Drug Safety

• Reform FDA conflicts
• Panels
• Approval funded by industry
• Leadership revolving door
• Shift emphasis toward post approval safety
• More oversight re advertising
• No direct to consumer ads 1st 2 years
• Black box warnings
• More comparative efficacy information

Psaty NEJM 10/06
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A few Simple Prescriptions

• Publish all the trials, not just ones
• Intl Com Medical Jl Editors clinical trial
  registry
• Compare drugs with standard therapy rather than
  just placebos
• Are they really any better than what we have
• More meaningful trials and outcomes data
• Efficacy vs. effectiveness
• Full spectrum of patients and real interactions
• More transparency of costs
• True cost of drug development
• Less secrecy about negotiated prices