Pfizer Florida Formula: Free Goods In Exchange For Formulary Status

Pfizer is offering Florida free goods in exchange for continued unrestricted access to its products on the state Medicaid formulary.

In anticipation of a state supplemental rebate/prior authorization program for Medicaid, Pfizer is offering to provide "its medicines at no charge to Medicaid patients receiving their primary care at more than 40 community healthcare sites throughout the state."

In 2000, Pfizer provided $15.7 mil. worth of pharmaceuticals through its patient assistance program to 71,000 Florida residents, the company noted.

The expanded product donations are part of a three-tiered proposal by Pfizer to secure formulary status for all of its products when the state sets up a prior authorization program.

The company is offering to fund 60 nurse case managers to conduct disease management. The company will also fund statewide health literacy efforts.

Pfizer estimates that its offer would save Florida more than $30 mil. over two years.

Florida is setting up a prior authorization program for its state Medicaid program, under which manufacturers will be required to offer a minimum of a 10% rebate on top of the existing 15% Medicaid rebate in order to retain formulary status. A formulary committee will also make prior authorization status decisions based on the relative cost of therapies.

Pfizer's effort to reach a deal with Florida could have broader implications for the industry if it is a signal of further unilateral actions by pharma companies on federal pharmaceutical reimbursement issues.

The 1990 Medicaid rebate law was patterned on direct negotiations between Merck and the state of California. The "best price" formula had a limited impact on Merck, which did not discount its products, but a more significant impact on other firms.

From the perspective of purchasers, the 1990 law also created an artificial floor on prices for pharmaceuticals launched after the law went into effect. Most of the brand name pharma companies appear comfortable with the formula today.

From Pfizer's perspective, expanded product donations are an attractive alternative to prior authorization. The breadth of the Pfizer product line allows the company to offer products of significant value to a state government without a noticeable impact on revenues.

The $30 mil. value placed by Pfizer on its offer to Florida represents 0.1% of Pfizer's $30 bil. in sales in 2000. Even if Pfizer had to make similar offers to the other large state Medicaid agencies, it would not present an unmanageable challenge. When foreign currency fluctuations caused Pfizer to revise its revenue forecast for 2000 downward by $1 bil., the company had no difficulty in meeting its earnings targets.

The relatively small investment by Pfizer would help the company avoid potentially significant discounts. Viagra (sildenafil) is one Pfizer product frequently cited by payors as an example of a "lifestyle" drug that should be carefully restricted.

Pfizer's more significant commercial products, including Celebrex (celecoxib) and Lipitor (atorvastatin) also would be vulnerable to prior authorization/step therapy programs that encourage use of cheaper products.

The publicity surrounding Pfizer's negotiations with Florida highlights the strains within the brand name industry over political issues. Reports in the Florida Sun-Sentinel related to the "secret" negotiations quoted a Johnson & Johnson lobbyist questioning the propriety of the proposed arrangement.

The prospect of unilateral action by Pfizer is a particular challenge to the unity of the brand name industry. In addition to representing the largest pharmaceutical company, Pfizer CEO Henry McKinnell is the current chairman of the Pharmaceutical Research & Manufacturers of America.

PhRMA continues to keep a relatively low profile in the public portions of the Medicare prescription drug coverage debate.

A May 16 House hearing on Medicare included a representative of the Biotechnology Industry Organization, but did not include a witness from PhRMA (¹ (Also see "CBO Remains Skeptical Of Rx Cost Savings In Medicare Estimates" - Pink Sheet, 21 May, 2001.)).

The BIO representative, Inhale Therapeutics, is developing an inhaled insulin product in collaboration with Pfizer and Aventis.

The reintroduction of a bill to expand Medicare Part B coverage to include oral chemotherapy is also prompting work outside PhRMA by some members. The approval of Novartis' Gleevec (imatinib) is the primary driver of renewed attention to the issue (² ).

In addition to Novartis, AstraZeneca is a longstanding supporter of the proposal as a means to expand coverage for Nolvadex (tamoxifen) and newer oral agents. Pfizer is also understood to be in favor of the bill, based on the oral oncologic development efforts at its Agouron subsidiary.

Piecemeal efforts to expand Medicare coverage are a double-edged sword for the industry in terms of its position on senior drug coverage.

Gleevec is an attractive example for the brand name industry to demonstrate the value of its research and the need for expanded coverage. Industry support for coverage of the product through traditional Medicare may make it more difficult for PhRMA to argue that a drug benefit must be administered outside of the existing program.

Bills to expand coverage to individual big-ticket products may also remove some of the momentum for a full drug benefit.

Industry supporters of the coverage expansion suggest that oncology is a well-recognized specialty market and that the distinction between chemotherapy coverage and a general outpatient drug benefit will be apparent to policy makers.

The push by Florida for supplemental rebates illustrates the depth of the political challenge PhRMA is facing over drug costs.

The soaring Medicaid pharmacy budgets represent a potentially thorny issue for pharmaceutical companies in their relationship with the Republican party at the state level.

PhRMA can mobilize in opposition to proposals like the Maine pharmacy discount program without jeopardizing important relationships in Washington (³ (Also see "Maine Prior Authorization May Be Rechallenged By PhRMA If Harm Is Shown" - Pink Sheet, 21 May, 2001.)).

In Florida, the supplemental rebate program will be administered by Gov. Jeb Bush (R). The administrative momentum for the proposal was initiated by Agency for Health Care Administration head Ruben King-Shaw, who is joining the George W. Bush Administration in Washington as deputy director of the Health Care Financing Administration (⁴ (Also see "HCFA deputy" - Pink Sheet, 2 Apr, 2001.)).