e-mail Interview with Tom Kelly

The following is a compilation of e-mails exchanged between therubins and Tom Kelly dealing with the issue of prescription drug coverage and Medicare. Mr. Kelly is not affiliated in any manner with therubins, or this site and the views that he expresses do not necessarily represent the views of therubins.

(Editor's Note: Tom Kelly R.Ph. is a Graduate of Temple School of Pharmacy class 1980.
Past Executive Vice President of United Pharmacist's Guild Local 100A. Currently a member of the Garden State Pharmacists Organization, and The Greater Lacey Chamber of Commerce. He is the current President of Handicapable, Inc. and owner of Medicine Shoppe 1493.)

Dear Mr. Rubin,

It is obvious to those of us within the drug distribution system that both Bush's and Democrats Medicare prescription benefit plans are unworkable.

I have been looking at both the Republican and Democrat versions of proposed Medicare prescription benefit plans, and I find both versions seriously lacking in their ability to keep a healthy private sector pharmaceutical research and distribution system healthy.

The Republican version stresses private insurance. I assure you that only the Medicare recipients most in need of this type of insurance will purchase it. Without the benefit of being able to dilute out risk by insuring everyone the premiums will inevitably rise above the means of lower income constituents. Also, by putting the control of the benefits in the hands of PBM's (pharmacy benefit managers) the drug choices for patients will be left up to the PBM's and not left in the hands for the recipients of their health care providers. This is a very poor precedent. It lends itself to the distinct possibility of the use of bribes and political maneuvering by drug manufacturers to gain access to PBM's formularies. Who is best suited to pick the medication for you loved ones, their medical provider, or some Washington insider, who could care less about the patient, and only represents the interest of his/her special interest.

PBM's are in the business to make money for PBM's. They make a great deal of money using formulary restrictions. These restrictions allow for legal kick backs from the manufacturers to the PBM's. This results in drug formularies designed for high profit margins for the PBM's, but not necessarily the most cost effective choices for the patient/end consumer. A very significant hidden cost is the additional staff doctors offices and pharmacies must maintain to accommodate the recent surge in telephone calls generated by formulary changes forced upon patients by their PBM's. The constant barrage of drug switching demanded by PBM's is taking valuable clinical time away from the physician, patient and pharmacist. If this time is added back into the equation, the costs imposed by PBM's would greater then the amount of money the PBM's claim they save.

The Democrat version, needless to say is far worse. To allow Medicare to oversee a pharmacy benefit program would only amount to cost overruns commonly see within the current Medicare system. What we need is less government, not more.

Both versions will discourage research and development by implementing counter free market forces on the industry. Prescription drug prices will only inflate further once manufacturers know that the government will pick up the tab.

The prescription research, development, and distribution system as it stands today is a very vibrant and fluid industry. This industry exports an amazing amount of product, and employs countless citizens here in New Jersey. What we need not accomplish is a ruination of a healthy industry by big governments heavy hand. New Jersey's auto insurance industry is a perfect example of government meddling gone bad. Encouraging free market forces is the best approach to not destroying a vibrant industry. As I see it, there is only one Medicare prescription benefit program which can provide drug benefits, encourage competition, keep a vibrant industry healthy, and by the nature of a free market, keep prices within most constituents reach.

The best prescription benefit plan would be to offer a debit card for prescription benefits. The dollar limits could be raised or lowered based on income. A debit card would inspire Medicare recipients to price shop for the best price and best service. No government/HMO/PBM plan could ever accomplish the cost savings a free market can. There are many reasons multiple players/voters that would support the use of debit cards.

#1 Medical doctors would be rid of the inundation of telephone calls requesting their patients medications be switched to another medication, as is now common practice. The medical community would support this program.

#2 Drug manufacturers would support a free and open market. Drug switching by HMO's/PBM's deters research and development.

#3 Consumers would prefer to spend their benefits as they and their doctors see fit. Drug switching by HMO's and PBM's drive up health care costs and are a major source of inconvenience for patients, medical doctors, and pharmacists.

#4 Medicare recipients who already have prescription benefits could use their debit card to pay for co-pays, allowing them to get yet more mileage for their toil in earning their private benefits.

#5 Medicare recipients who do not use all their allotted benefits could be rebated back a small percentage of their benefits in the form of an income tax return to reward those who are frugal.

#6 Our drug manufacturing industry is very healthy and employees many people. It also exports a great deal. Keep it healthy with a free and open market. A restrictive prescription benefit plan with price controls will only destroy a healthy industry.

#7 A competitive retail market place will benefit both Medicare recipients and the public at large. A consumer could make their purchases from a retail pharmacy, a mail order pharmacy, a deep discounter, a 24 hour pharmacy, a pharmacy that delivers... etc. The
point is the consumer will drive the market and not the government. The consumer will be making his/her own choices, and not some faceless PBM.

#8 The same system is already used for food stamps, so there will be no need to "re-invent" the wheel. The benefit level could be easily raised or lowered with equal access for all.

I'm no socialist, but the way I see it, the politicians are hell bent on giving away prescription benefits. I think it is OUR responsibility to make sure that fellow citizens do not get stuck with a big government program, nor do they all end up in the hands of a PBM. We all know that big government programs just don't work well. We also know that encouraging free market forces keep prices down. So we all have to find a way to get through all this quagmire. I think debit cards are the answer. Too many have fought against communism and socialism for too long for us to go down the wrong road. We are just beginning to reap the benefits of not having to fight the Cold War, and what are the politicians proposing? Government run prescription benefits. I'm telling you that this would be the worst dispensing error of all time.

Thank you for your consideration.

Tom Kelly R.Ph.
Medicine Shoppe 1493
528 W. Lacey Road
Forked River, NJ 08731


The italic lettering contains Mr. Kelly's response to the questions that therubins e-mailed to Mr. Kelly

Dear Mr. Rubin,

Thank you very much for your insightful observations. I do so enjoy your timely response. Your thoughtful criticism is and will continue to be greatly appreciated.

I attempted to insert some of my thoughts in between your lines. I hope it is easy to read. I am by no means an economist, nor an author, so please offer allow me some literary and economic Mulligans.

therubins wrote:

Dear Mr. Kelly,
Thank you for e-mailing us with your thoughts regarding the prescription drug benefit question. I would also like to thank you for viewing our site and hopefully you will recommend it to your friends and relatives. As you can note therein we have no ads and the work is done purely as a public service to enhance the knowledge for and about our seniors. They are one of the groups that are most affected by this whole prescription drug question, so we are quite interested in helping them.
I found your proposals to be quite interesting and well thought out. There are obviously some questions that I have that I would like you to address:
therubins: Obviously the first question that arises in connection with the matter is how do you propose to fund your debit card solution and how much do you estimate it will cost the government? If President elect Bush carries through on his tax cut proposal that will mean about a $1.6 trillion expenditure for the government over the 10 year period of time. If we add in the cost of the proposed missile defense system that will mean another expenditure of about $1 trillion over the 10-year period of time. The latest budget surplus estimate calls for an estimated surplus of $5 trillion over the next 10 years. As I am sure you are well aware of the solvency of both Medicare and the Social Security system is an issue we must face up to now. Because the recent health of the economy has resulted in an increase in the time factor before insolvencies for both of these funds what will happen if we have an economic downturn and the surpluses begin to evaporate?

Kelly: I share your concerns. The projected surplus varies greatly, and will change with the relative strength of the economy. The debit card proposal is based on the premise that politicians will encumber Medicare with a prescription benefit plan.

therubins: You speak about a "healthy private sector pharmaceutical research and distribution system healthy" leads to my next question. The pharmaceutical industry is by far and away the most healthy industry profit margin wise of any industry in the U.S. It's profit margin as an industry is almost 18%. I do not begrudge any industry a reasonable profit margin, but don't you think this high a profit margin level suggests that some of the cost of prescription drugs may be excessive?

Kelly: All the more reason to increase the competitive nature of an end user driven market.

therubins: You state that PBM are subject to bribes and political maneuvering. I admit this is certainly a possibility, and in fact probably does exist, but we have no evidence to prove this is a widespread, rampant problem. I am not a communist or socialist but I do know that centralized purchasing has helped the federal government and HMO's to reduce the cost of prescription drugs for the members of their health and drug plans. States are now proposing to band together to help utilize their mass purchasing power to reduce the cost of drugs for their citizens. Isn't this what democracy and a free market is all about? Shouldn't the consumers be able to band together to help each other in the battle in a free market?

Kelly: Centralized purchasing on a small scale is far different then what will ensue when purchasing on the scales proposed. Purchasing on hundred fighter bombers is very different then accommodating the needs of millions of Medicare recipients. "Banding together" as you say will result in markets that meet the needs of politicians and big players. I am acutely aware of this because I purchase electricity at a discounted rate through a consortium of retailers, while the rest of the public is watching their electric rates sky rocket. When the balloon is squeezed here
it will pop out somewhere else. The true costs will just be distributed elsewhere in the market as an indirect tax levied on other purchasers of pharmaceuticals via pharmaceutical inflation. A better answer would be to end discriminatory pricing by the pharmaceutical manufacturers. Kickbacks (commonly called rebates within the industry) to HMO's, hospitals, PBM's, the federal government, and various state governments have indirectly lead to increased costs to cash paying customers. As you already know the typical demographic for a prescription purchaser is a senior citizen. They have been paying through the nose BECAUSE of rebating.

therubins: Your idea about a debit card is certainly an interesting and provocative thought. I think it is an excellent idea. I do see that there are problems attached to it also. When you have an elderly, infirm or even homebound individual, you can not have your ideal situation where someone shops around for the best price for a drug. You suggest that the amount available to the beneficiary be tied in to the income level, but you do not state what those levels would be. What would you do with a middle income older person who has extremely high prescription drug costs? What do you propose when someone has disastrously high drug bills because of some life threatening illness?

Kelly:I can currently process a credit card/debit card via cellular telephone if necessary. Allowing my delivery person to perform this transaction is a very simple matter. In fact, if retailers are forced to endure significant reductions in reimbursements via a government mandated PBM, deliveries will go the way of the milk man, and grandma will be in much worse straits. With a debit card the elderly person WILL be able to shop for both price AND service. If a pharmacy offers delivery, then perhaps the recipient would be willing to pay a couple of extra dollars for the delivery service.

I have no specific proposals about income limits, or limits of benefits. Perhaps catastrophic pharmaceutical insurance would be an answer for those with extreme costs. Of course these policies would have to limit out pre-existing conditions. One benefit that debit cards offer is the flexibility, and the ease of which the government could increase or decrease benefits.

therubins: You state that the Democratic version is "far worse" than the Republican plan. Yet you wrote about the fact that under the Republican plan the insurance companies could cherry pick who they would cover. Thus the sicker larger users of prescription drugs would not have any company willing to cover them. The pool of sickest individuals would have to be covered by the government and yet under the Democratic Party plan this would not be the case.

Kelly: I think we lose each other here.

therubins: I know that the PBMs are in the business to make money or save money for their organizations. Sometimes their decisions have negative results for the drug companies. If they are doing a lousy job however I think that they would not be needed to help equaize the scales which a semi-independent body can perform. They can recommend generic versions of drugs that are just as good as the brand name drugs.

Kelly: The largest PBM, Merck Medco is owned by the largest U.S. pharmaceutical manufacturer. Merck Inc. and Merck Medco currently control a disproportionate percentage of the pharmaceutical market. The federal government should set it's sights on Merck, Inc. when it resolves the Microsoft case. Mail order PBM's actually
dispense more brand name pharmaceuticals (as a percentage) then retail pharmacies. I truly believe the savings are on paper only. Quite often the PBM is rebated back more money by the manufacturer then the pharmacist earns. The end user rarely sees any of the savings directly. The PMS's and the manufacturers thrive off of each other, and they are driving each others markets higher and higher. And they are driving costs higher and higher.

therubins: You wrote about an inundation of phone calls to doctors and pharmacies. I see that you are involved with a pharmacy so maybe you are speaking from experience but I have not heard of doctors complaining about an inundation of phone calls from the PBMs.

Kelly: Call a couple of general practitioners and pharmacists and elicit their perspective. You will be surprised.

therubins: As our articles have pointed out increased ad spending and staffing has been the greatest cause for increased spending by the pharmaceutical companies. Research and development expenditures have not kept pace with the percentage increase in those areas. Instituting law suits and trying to extend life of patents on expiring drug patents have been some of the methods that the drug companies have used to increase the costs for drugs to the consumers. The Hatch-Waxman Act of 1984 has led to many abuses that should be corrected.

Kelly: I agree with you. We have also found profound shortages of many brand name drugs in recent months. I believe that every time a manufacturer allows significant lapses in the availability of a patented pharmaceutical that they should lose a portion of their patent protection. I'm not sure of the genesis of this problem. I do believe some of the problems stem from intentional withholding of product before price increases, end of year inventory reduction for tax purposes, shuttering plants for vacation purposes, and many other reasons.

We all know of the great costs associated with research and development, but, the enormous sums spent on marketing is mind boggling. Over ninety nine percent of most practicing physicians post graduate continuing education is funded by the pharmaceutical manufacturers. This has got to stop. A drug should be prescribed on its merits, and not because of some slick marketing program. Drug sampling increases costs by moving market share to sampled products. I have also seen physicians write for products tied to companies with which they own stock. This should be outlawed.

Thank you again for your time. I look forward to your correspondence. Your
questions hold great merit.

Tom Kelly


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