Drug Co-Pay Subsidies From Pharma At Odds With Goals Of Health Reform - Medco

From a health care reform perspective, the industry's increasing practice of providing subsidies that help keep patients on higher cost drugs "is a really bad thing to do" and "should not be allowed," Chairman Snow comments during PBM's earnings call.

The pharmaceutical industry's increasing practice of providing subsidies to consumers to help defray the cost of very high insurance co-payments for expensive drugs runs counter to the goals of health care reform, according to Medco Chairman David Snow.

During Medco's second quarter earnings call July 29, Snow commented on media reports that such subsidies are becoming more common and can be a way for drug companies to protect market share. Higher co-pays are regularly used by insurers for expensive drugs to help contain costs, sometimes by inducing enrollees to switch to a generic or a lower-priced brand.

As a pharmacy benefit manager, Medco is more aligned with the insurance industry perspective in the co-pay subsidy debate. However, Snow pointed out that "it really hasn't affected Medco because most of these programs are being offered in the biotech space," where there are no generic alternatives yet available.

Snow said that his concern is with the way the practice could undermine the cost-savings potential built into formulary management tools like co-pays.

"From a health care reform perspective ... it is a really bad thing to do, because it fundamentally takes some of the benefit design that is meant to create consumer-driven behavior, prudent buyer behavior, out of the system" and therefore, such subsidies "should not be allowed," Snow said.

He also noted that the issue of high co-payments and subsidies from the drug industry has caught the attention of Congress. "I actually think Congress may address this because it is on their radar and it is talked about a lot."

Recent public discussions in Congress have centered upon PhRMA's proposal to offer some Medicare Part D beneficiaries 50 percent discounts on the cost of branded drugs once they reach the donut hole (Also see "PhRMA Health Reform Deal Is Not Binding On House, Rep. Waxman Declares" - Pink Sheet, 8 Jul, 2009.).

The proposal is part of the drug industry's $80 billion pledge toward reducing health care costs over 10 years (see (Also see "Can Pharma Industry Afford To Give Up More For Health Reform? PhRMA Calls President "Misinformed"" - Pink Sheet, 29 Jul, 2009.)). However, policy analysts have observed that the donut hole relief program also benefits the pharmaceutical industry by keeping beneficiaries from switching to cheaper drugs, or dropping therapy altogether, once they reach the coverage gap.

For its part, the Pharmaceutical Research and Manufacturers of America has been pushing for co-pay reform as an important part of overhauling the health care system. In testimony to the Senate Finance Committee in May, the group argued that by suppressing high co-pays, Congress can help improve patient access to important therapies that play a "critical role in disease management and prevention."

The group also cited a Rand Corp. study showing that doubling co-pays resulted in patients cutting their use of drugs for chronic diseases by up to 23 percent. At the same time, visits to hospital emergency rooms rose by 17 percent and hospital stays increased 10 percent among patients with diabetes, asthma and gastric acid disease.

-Cathy Kelly ([email protected])