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Medicare and Prescription Drug Costs-Part II of a VII Part Article

 

(11/23/15)- Retail sales of prescription drugs totaled $305 billion in 2014, accounting for 9.9%of all health spending, similar to the proportion in recent years, according to the Department of Health and Human Services.

(9/24/15)- Spending growth on pharmaceutical products grew by 12.6% in 2014, up from 2.5% in 2013, according to a report from actuaries at the Centers for Medicare and Medicaid Services (CMS) that was published in the journal Health Affairs.

American spending on all health care grew 5.5% in 2014 from the prior year, and will grow 5.3% this year.

The actuaries attributed the growth to the stronger economy and the aging population. Costly new medications coming into the market also accounted for a large percentage of the growth. The government paid for 43% of the nation’s health bill in 2013.

The actuaries also attributed the decline in uninsured Americans at around 8.4 million, mainly due to the Affordable Care Act.

(4/21/15)- A recently released report from the IMS Institute for Healthcare Informatics concluded that patients with expanded Medicaid coverage filled 25.4% more prescriptions than in 2013, when they did not have drug coverage insurance. In states that have not opted for the expanded coverage, the increase was only 2.8%.

The report also showed that overall prescription drug spending grew by 13.1%  to $373.9 billion in 2014. This was the highest percentage increase in drug spending since 2001. The bulk of this increased spending came from the expensive new specialty drugs that came to market, such as those that treat hepatitis C, cancer and multiple sclerosis.

Patients made 3% fewer office visits and had 1.7% fewer hospital admissions in 2014 compared to 2013.

They filled 2.1% more prescriptions, driven mainly by Medicaid patients. Prescription drug advocates argue that the increase in spending for drugs now, ulitamtely reduce medical expenses in the long run.

(3/16/15)-  Prescription drug spending grew more than 12% last year over 2013, which was the biggest percentage increase in over 10-year, according to the results of a survey from the nation’s largest prescription benefits manager.

Drug spending grew by 13.8% for Medicare plans in 2014, over 2013, while it rose 13.1% for commercial plans, and 10.29% for Medicaid plans, according to the latest annual survey from Express Script Holdings Co., the largest prescription benefits manager with 85 million participants.

From 2009 through 2013, annual drug spending by commercial health plans rose by an average of 4.2%, according to the report. Express Scripts forecasted that spending among commercial plans would grow by an average of 10% annually from 2015 through 2017.

Gilead Sciences Inc.’s Sovaldi, which treats hepatitis C infections, had $10.28 billion in global sales in 2014, its first full year on the market. In the war against cancer, the new drugs in the battle that have received FDA approval utilize the patient’s own auto-immunological system to win the patient’s fight against the disease, while in the short run adding to the cost, but helping in the long run, since the drugs have been found to be effective in the fight.

(12/6/14)- Thar projection of health-care spending that we covered in our item dated 9/7/14 by the Centers for Medicare and Medicaid Services (CMS) was a very accurate one. Health spending totaled $2.9 trillion in 2013, up 3.6% from 2012, according to the results of a study by the CMS that was published in the journal Health Affairs. That was the lowest level of growth since the government began to gather this figure in 1960.

This was the 5th straight year of exceptionally small growth in this figure. “The 3.6% increase in 2013 is the lowest increase on record in the national health expenditure going ,back to 1960” stated Micah B. Hartman, a statistician at the CMS, and lead author of the study.

Spending for health care averaged $9,255 a person and it accounted for 17.4% of the gross domestic product. One of the factors accounting for this slow growth rate was the increase in high-deductible insurance plans, causing the consumer to be more involved with the cost of medical expenses.

The share of prescription drugs filled with generics climbed to 80% from 73% in 2011. As we note below, the prices on a percentage basis have been increasing astronomically in the last year, and this will surely affect the numbers in the coming years.

(9/7/14)- National health-care spending is projected to have increased 3.6% to $2.89 trillion in 2013, according to the latest forecast from the Centers for Medicare and Medicaid Services, and this would mark the 5th year in a row that the increase was less than 4%.

The study results were published in a recent edition of the journal Health Affairs. The report attributed the slow-down in spending to the recession and increase in cost to the consumer through increased deductibles and health-insurance premiums.

2014 is projected to see an increase of 5.6% increase in spending, with the growth projected to be 4.9% in 2015. With the aging of our population becoming even more pronounced  so too will be the expected spending that goes along with it.

Sequestration helped curb Medicare spending in 2013 to 3.3% from 4.8% in 2012. Spending on doctors and clinical services rose 3.3% in 2013 from 4.6% in 2012.

Total hospital spending grew 4.1% in 2013 from 4.6% in 2012, for a total of almost $919 billion, according to the projections. Spending on prescription drugs is projected to have risen by 3.3% in 2013, up from 0.4% in 2012. That number is projected to grow by 6.8% in 2014, as more beneficiaries became covered under the provisions of the Affordable Care Act.

Medicaid spending this year was $254 billion

(7/26/14)- Gilead Sciences, in announcing its second quarter earning’s report stated that sales of its new hepatitis C drug Sovaldi had reached $3.5 billion, up from the $2.3 billion in sales that the drug had garnered in the first quarter. Since this is the first year for the introduction of the medication, it is unprecedented for a new drug to reach such a huge sales level in such a short period of time.

The drug is more effective than any prior medication in treating the disease, but it costs $1,000 a pill, or $84,000 for a typical 12-week course of treatment. It is estimated that about 3 million Americans suffer from the disease.

The current best-selling drug in the world is AbbVie’s rheumatoid arthritis drug Humira, which has sales of $10.7 billion last year, but that drug has been on the market for about 10 years now.

Express Scripts, the largest prescription drug benefits manager, estimated that states would have to pay $55 billion to treat all their Medicaid patients with the drug. CVS Caremark, the second-largest pharmacy benefits manager estimated that the drug could add $200 to $300 a year to every American’s insurance premium for the next five years.

Senators Ron Wyden (Dem.-Ore.) and Charles Grassley (Rep.-Io.) cited one estimate that Sovaldi could cost Medicare Part D, $6.5 billion in the next year or so, raising Medicare premiums by 8%.

(4/20/14)- A newly issued report from the IMS Institute for Healthcare Informatics indicates that consumer use of healthcare was on the increase in 2013, for the first time in 3 years. Healthcare in this case includes visits to doctors, hospital admissions and prescription drug usage. Is this increase due to an improving economy or increased health-care insurance coverage? Or is it a combination of both these items?

The report concluded that more than half of prescriptions costs on average $5 in out-of-pocket spending for consumers and 86% of the prescriptions were filled with generics. About 23% of them required no out-of-pocket expenditures, because the new health-care law requires that contraceptives be covered for free.

Costlier drugs are accounting for more of the total costs for prescription drugs, as shown by the fact that 2.3% of the total prescriptions account for 30% of all out-of-pocket costs.

36 new drugs were introduced in 2013, including 10 for cancer treatments, with the others being for hepatitis C, multiple sclerosis, and diabetes. Pharmaceutical companies began selling drugs for 17 orphan diseases (those that affect fewer than 200,000 people nationwide).

Total prescription drug spending in 2013 came to $329.2 billion, which was an increase of 3.2% over 2012 spending. Drug spending in 2012 had declined by 1% in 2012, mainly due to the fact that a large number of drugs came off patent that year.

(7/18/13)- Health-care costs about 18% of the nation's gross domestic product, with the latest dollar amount being about $2.7 trillion in 2011. As noted in our item dated 5/13/13, spending on health care rose at a 3.9% rate for the third consecutive year in 2011, about one half the previous decade's pace, and the lowest since the 1960s.

A Kaiser Family Foundation report attributed three-quarters of the slower growth to the recession damping demand for drugs, doctors visits and elective surgeries, but the great unknown factor coming into play starting in 2014 will be the effect of Obamacare on health-care costs.

(5/13/13)- 2 major new studies from researchers at Harvard University and the Henry J. Kaiser Family Foundation have concurred that at least some of the slowdown in health-care costs may persist. The results of the study were published in a recent edition of the journal Health Affairs.

Health economists estimate that the slowdown in spending would result in reduced spending in this area by as much as $770 billion.

On the other hand, families have found that they are assuming more and more of the costs for their health expenditures, as their out-of-pocket costs continue to grow.

Drew Altman, the president of the Kaiser Family Foundation went on to say: "Experts measure aggregate spending. But people's costs have gone up 140% over the past 10 years, while wages went up 40%."

Deductibles and premiums have continued to increase the cost for health care for most of us. Experts are already predicting that the new Affordable Care Act, when it comes into play starting in January 2014 will mean that health care premiums will be increased to help pay for the expanded number of people who will be covered under the act.

Since no one will be denied health care coverage because of prior illnesses, this too shall mean higher premiums for those who are insured.

(1/18/13)- National health expenditures rose 3.9% in 2011, the same rate as in 2009 and 2010.This was the slowest growth rate in the 52 years that the government has been keeping the statistics.

Growth in spending on doctors' visits and prescriptions rose in 2011, while hospital spending continued to slow. Health expenditures totaled $2.7 trillion in 2011, up from $2.6 trillion in 2010. Spending on prescription drugs grew by only 0.4% in 2010, which increased to 2.9% for 2011.

Hospital spending grew by 4.3% in 2011, down from 4.9% in 2010, and 6.7$ in 2009. Spending on prescription drugs at retail stores reached $263Billion in 2011, up 2.9% from 2010.

(9/21/12)- According to the latest health-insurance premium cost analysis from the Kaiser Family Foundation, the increase for family employer-provided health insurance rose about 4% over a year ago, compared to the 9% rise that took place from 2010 to 2011, as we noted in our item dated 10/6/11.

The increase in premium was even less for individual policies purchased through employers, rising only about 3%, to $5,615. For the family policies the increase was to $15,745 from $15,073 in 2011.

One of the reasons given for the slowing of the rise in the premiums is because of the recession, with many consumers forgoing visits to doctors or even postponing elective surgeries.

The results of the survey were published in a recent edition of the journal Health Affairs.

(10/17/11)- Aon Hewitt, a large Chicago based benefits consulting firm came out with slightly higher premium numbers than did the Kaiser Family Foundation's annual family health care costs, as we cited in our item dated 10/6/11.

According to the Aon numbers, which are based on figures from its database of about 350 large American employers that spend more than $52 billion on health care benefits for about 14.4 million employees and their dependents.

The Aon data indicates that the 2012 annual employee premiums will jump on average 10.6% to more than $2,300. The employee share projected for next year is a contribution of 22% of the $10,475 employer cost for the health plan. In 2011, workers are paying21.3% of the total cost, or about $2,84 of the $9,792 total company-paid premium.

To show you how complicated this whole premium cost question is, we have no answer as to why the two different surveys have such a wide difference in numbers.

(10/6/11)- Employers' average annual family premium for 2011 was $15,073, up 9% from $13,770 last year, according to the latest survey from the Kaiser Family Foundation. For some earlier data from the Kaiser Family Foundation, please see our item dated 9/8/10 below.

For a single worker, the figure was $5,429, up 8% form $5,049 in 2010.

The increase in employees' average premium contribution for a family plan was up 3% from 2010 to $4,129 according to the survey. The survey included 3,184 randomly selected companies, polled between January and May.

State insurance commissioners do not have any legal power to prevent increases by large employers other than by "jawboning" as was recently done by Obama officials in California. A large employer is one in which there are over 200 employees at a company. The "jawboning" takes place if a rate increase being sought is greater than 10%.

Under the new health care law enacted in 2010, health insurers are restricted from having profit margins of greater than 80% on the premiums that they charge.

(3/23/11)- Prescription drug costs for the most popular brand name drugs continue to soar, especially in the case of those drugs whose patents are about to expire. The average price increase for the most popular 130 brand name drugs was 6.9% in 2010,according to a report recently released from Barclay's Capital, an investment bank.

The report analyzed the list prices of the 130 top-selling drugs by sales in 2010. This topped the 2008 average price increase of 6.8% which was the highest percentage increase since the firm began to track these price increases in 2000.

The biggest price increase came from Daiichi Sankyo Co.'s blood-pressure pill Benicar that was 29.3%. Pfizer's cholesterol lowering drug Lipitor that is the biggest selling drug in the world had a price increase of 12.4%. Plavix, sold by Bristol-Myers Squibb Co. and Sanofi-Aventis rose by 13.2%.

(9/8/10)- As health-care insurance premiums continue to soar, it is the employees who are being hit the hardest in regards to the rising cost of the insurance premiums.

According to a new survey from the Kaiser Family Foundation, a nonprofit research group and the Health Research and Educational Trust, a research organization affiliated with the American Hospital Association, the employees are being hit by an increase in both premiums and deductibles.

The employees' share of the cost of a family policy jumped an average of 14%, while the cost of the policy increased only 3%, to an average of $13,770. Workers are paying on average about $3,997 for their premiums for coverage that has higher deductibles before the coverage even begins.

The survey found that 27% of the employees had deductibles of at least $1,000 this year, as opposed to the 22% in 2009. Almost half of workers who are covered by a small employers with fewer than 200 workers have an annual deductible of $1,000.

(4/13/10)- Sales for prescription drugs rose by 5.1% last year to $300.3 billion, according to IMS Health, a drug data firm.

The total number of prescription drugs sold in the U.S. increased by 2.1% to 3.9 billion. Generic drug sales rose by 5.9% in 2009, while they dropped 7.6% for branded drugs. Seventy-five percent of all prescription drugs filled last year were for generic drugs, as per the data amassed by IMS.

Antipsychotic drugs were the top-selling class of drugs in the U.S. last year, with sales of $14.6 billion, followed by proton-inhibitor with sales of $13.6 billion, while cholesterol fighting drugs dropped from 1st place to 3rd place in 2009 according to IMS.

(1/16/10)- Retail spending on prescription drugs increased 3.2% in 2008, according to the results of a study from the Department of Health and Human Services that was published in a recent edition of Health Affairs. Micah Hartman, a government statistician, who was the lead author of the study said that prescription drugs account for 10 cents of every dollar spent on health care in the United States, $234 billion of the $2.3 trillion total.

Prescription drug prices increased 2.5% in 2008, which is below the 4.1% average annual increase in drug prices form 1997 to 2007 according to the report.

Health-care spending grew 4.4% in 2008 form 2007, and an average of 7% a year in the decade from 1998 to 2008. It accounted for 16.2% of the gross domestic product in 2008, up from 15.9% in 2007.

"Spending for health-care by private businesses grew just 1.2% in 2008, in part because of a drop in the proportion of employer-sponsored insurance paid by employers," Mr. Hartman said. "Private business's health spending remained relatively flat as a share of compensation at 7.9%."

The number of people with private health insurance was 195.4 million 2008, down from 196.4 million in 2007.

National health spending rose to $2.3 trillion and averaged $7,681 a person in 2008, up 3.5% from 2007.

(12/1/09)- Industry analysts estimate that the pharmaceutical industry has raised the wholesale prices of brand-name drugs by about 9% so far this year.. Contrast that rise with the fact that the Consumer Price Index has dropped by about 1.3 per cent in the last year.

If you look at the 50 best selling drugs you will see that the percentage increase is higher for this group of drugs, so the 9% number is not really an accurate number. Contrast this with the fact that these same analysts estimate that the average price for a generic drug has dropped about 9% this year.

(10/2//09)- A drug price rollback went into effect as a result of the recent court approval of a settlement involving two drug-price publishing firms, Hearst Corp.'s First DataBank Inc. and Wolters Kluwer NV's MediSpan. To see additional information on this case, please see our item dated 6/19/09 below.

While pharmacy-benefit management and drugstore trade groups opposed the 4% cut in benchmark prices for hundreds of brand name drugs, many health care analysts say it will have very little affect on the cost of drugs for most people.

The change stems from a 2005 class-action lawsuit alleging that First Databank and drug wholesaler McKesson Corp. had worked together to wrongfully inflate the published "average wholesale" benchmark prices used to establish reimbursements to pharmacies from health insurers and pharmacy-benefit managers.

A federal judge found the scheme resulted in higher profits for retail pharmacies, even though they were not the defendants in the case.

(7/24/09)- The Senate health committee voted to give biologics 13 years of market exclusivity. The White House had proposed 7 years. Legislation expected soon from the Senate Finance Committee will leave out cost-cutting steps as part of an agreement with the industry and the White House, according to word that was leaked to the media. Representative Henry Waxman (Dem-CA), chairman of the House Energy and Commerce Committee favors only 5 years of market exclusivety.

The missing items include two planks of the Obama campaign platform: allowing cheaper drugs to be imported from Canada, and giving the federal government the right to negotiate Medicare drug prices with the drug companies on a centralized basis, instead of the present system where the Medicare Part D insurers individually negotiate drug costs with the drug makers

(7/16/09)- For the first time in a half-century, sales of prescription drugs are forecast to decline this year in the United States. Health experts attribute this decline to mainly increased usage of generic drugs, and the effects of the recession, even on the drug industry.

Sales of prescription drugs in emerging markets reached $152.7 billion in 2008, up from $67.2 billion in 2003, according to IMS Health, a drug data consulting firm. IMS forecasts sales will climb to $265 billion in this market by 2013.

(7/8/09)- Whenever the pharmaceutical industry defends the high price for prescription drugs, it includes all expenses that it incurs in connection with the entire pipeline to manufacture a drug. This includes research and development, advertising expense, administrative salaries, legal fees and also lobbying costs.

Speaking of lobbying costs, according to the latest figures from the Center for Responsive Politics, a nonpartisan group that tracks the lobbying expenditures by industry, the pharmaceutical industry increased its lobbying costs in the first quarter of 2009 by 12% to $127.1 million. Thus, for the 3rd year in a row, the pharmaceutical industry was the leading spender for lobbying in this country.

For comparative purposes, lobbying spending on average was flat in this period of time, after rising 15% from 2007 to 2008. As we all know all too well, the first quarter of 2009 was a period of time where the effects of the recession saw cutbacks in spending on almost all fronts by corporate America.

(6/19/09)- Back in 2005 several plaintiffs brought suit against Hearst Corp.'s First DataBank, which publishes lists of drug prices, and McKesson Corp., a drug wholesaler for artificially inflating the price of over 400 prescription drugs by 5% from late 2001 through 2005.

In 2007 District Council 37 Health and Security Plan, a prescription-drug plan for many unionized New York City employees, sued Medi-Span, which had previously merged with First Data Bank, and was later required to break away from it, for artificially inflating its drug price listings. Medi-Span is now owned by Wolters Klower NV.

The heart of the case revolved around the fact that reimbursements for drug costs was based on what was the "average wholesale price"(AWP) of a drug. This price was set by a drug manufacturer, and then published in the listings by these companies. No one questioned the fact that the price was set by the drug company, which had much to gain by setting a high price for its drug.

Average manufacturers price (AMP) replaced AWP in 2003 for Medicare coverage as is mentioned in our item dated 6/25/07 below. AMP is a more accurate figure in determining what the price of a drug should actually cost.

The litigation was settled in the U.S. District Court in Massachusetts for $350 million and also the drug manufacturers of those 400 plus drugs agreed to roll back their prices 4%.

Consumers can see a list of the drugs involved in the settlement by going to mckessonawpsettlement.com. Patients eligible for reimbursement must submit claim forms by July 9 to a settlement administrator. Insurers are also submitting names of consumers who paid percentage-based co-pays.

(6/15/09)- The question often arises as to why Medicare costs vary so greatly across the different parts of the nation. According to the Dartmouth Atlas of Health Care, Medicare spent an average of $8,304 per beneficiary in 2006. New York was the top cost state at $9,564, while Hawaii was lowest, at $5,311. Medicare spent $16,351 per beneficiary in Miami in 2006, while only $8,331 was spent on the average beneficiary in San Francisco.

The Senate Finance Committee is in the forefront of proposing new legislation aimed at lowering the cost of health care in the U.S. Both Senator Max Baucus, Democrat of Montana, and the panel's senior Republican, Senator Charles Grassley of Iowa, are from lower-spending states.

An article in the June 1 edition of the New Yorker magazine, Dr. Atul Gawande has garnered the attention of President Barack Obama. The article discusses the fact that McAllen, Texas is the most expensive place for health care treatment in this country. Dr. Gawande went on to state that a major cause of the high costs in that city were because of "overuse of medical care."

(5/21/09)- The pharmaceutical industry spent $47.4 million on lobbying in the first quarter of 2009, according to company disclosure reports filed with Congress and analyzed by the nonpartisan Center for Responsive Politics. That is up 36% from the first quarter of 2008, which makes it highly unusual since most industries have cut back their lobbying expenses because of the recession.

The drug industry is the biggest-spending lobby in Washington. Eight of the major pharmaceutical companies-including Bayer AG, GlaxoSmithKline PLC and Merck & Co- each reported increased lobbying expenses of more than 40% over the previous year.

Pfizer Inc. spent $6.1 million on lobbying in the first quarter of 2009, more than double the $2.8 million the company spent in the same period in 2008. The Pharmaceutical Research and Manufacturers of America (PhARMA), the industry's main trade group increased its lobbying expense in the first quarter of 2009 to $6.9 million, up from$3.6 million in the first quarter of 2008

(9/18/08)- In our article about "Research and Marketing of Drugs: a Challenge", there is an item dated 5/11/07 that discusses unethical rebates made by Johnson & Johnson in connection with its anemia drug Procrit. Procrit's main competitor for the treatment of anemia resulting from chemotherapy is Amgen's Aranesp.

Now Amgen, which has been accused of unethically giving rebates for Aranesp has agreed to halt some pricing practices that helped to increase sales of that drug.

The FDA has recently required both J&J and Amgen to put stronger warning labels on their respective drugs, because studies have indicated that higher dosages of the drug may be harmful to cancer patients using them to treat anemia.

Amgen has confirmed that it would no longer offer rebates to oncology clinics for their use of Aranesp, although it said it would offer larger discounts at the time of purchase. In February of this year Amgen offered discounts and rebates based on the share a clinic's anemia drug purchases represented by Aranesp as opposed to Procrit.

Even though the company will no longer pay rebates for usage of the drug, which come about after the usage of the drug, it will continue to offer bigger discounts to doctors who but at least 50% of their anemia drugs from Amgen rather than J&J.

Amgen also used to offer extra discounts on two other white cell boosting drugs, Neulasta and Neupogen, to doctors who bought more Aranesp. These two drugs are aimed at protecting cancer patients from infections by boosting white blood cell counts.

J&J sued Amgen over this "bundling" practice, but the matter was settled in July with Amgen agreeing to pay J&J $200 million, but not admitting any wrongdoing.

(7/22/08)- As a follow-up to our item dated 3/27/08 below, the latest data from IMS Health indicate that the rate of prescription drug growth in the U.S. has fallen steadily since early last year and in recent months has slipped in and out of negative territory.

The IMS data shows that growth for prescription volume for the first five months of this year slowed to 1.5%, the lowest rate since 1996. From 2003 to 2007, annual volume growth averaged 3%. The decline was 0.2% in April and 0.1% in May of this year.

The average co-pay for a preferred drug on an insurance company's tiered system rose 67% to $25 in 2007 from $15 in 2000, according to the Kaiser Family Foundation. Out-of-pocket costs to cover family insurance premiums were $3,281 per employee last year, up 84% from 2001.

An April poll done by Kaiser showed that 23% if patients who responded did not fill a prescription in the last year because of cost, up from 20% in 2005. Nineteen percent of those who responded split a pill in 2007, up from 16% in 2005.

In May, branded medicines accounted for 30.6% of drugs dispensed, down from 45.9% in 2003, according to IMS.

The United States spent 16% of its gross domestic product (GMP) in 2007 on health care. (Peter Orszag, Ph.D., director of Congressional Budget Office). In the industrialized world, the United States ranks second to last in overall quality of care, edging out only Canada by the American College of Physicians

For a comparison on where the Presidential candidates stand go to http://www.acponline.org/advocacy/where_we_stand/election/. This  URL analysis is sponsored by the American College of Physicians  .

(6/19//08)- You often hear about the 50 million Americans who have no medical insurance, but how about the 25 million who are called "underinsured"? About 1 in 5 adults younger than 65 are in a precarious situation in case they are faced with a serious illness according to a new study from the Commonwealth Fund, a private foundation in New York specializing in health research

The Fund first calculated the number of underinsured in 2003 when it estimated that 16 million Americans did not have sufficient coverage. The results of the study were published in a recent edition of the medical policy journal Health Affairs. A person is considered underinsured if a medical expense exposes that individual to a medical cost in excess of 10% of his or her income.

Twice as many people who are underinsured said they did not fill a drug prescription, or see a recommended specialist for care, compared with the number of people who had more generous coverage. They also tend not to get preventive care, choosing not to get mammograms or have their cholesterol checked.

(4/22/08)-Two senior health economists at Harvard reported in the January edition of the Health Affairs journal that the prices of medications most heavily used by senior citizens have risen by more than 24% since June 2006.

In that article the economists, Richard G. Frank and Joseph E. Newhouse, said that specialty medications have the potential to present "important new pressures on the federal budget." The cost for some of these specialty medications has risen far more than have the costs for other drugs.

Many Part D plans segregate specialty medications into a special tier, where a Medicare enrollee pays 25% to 33% of the price, according to Jack Hadley, a research professor at Georgetown University. Because of the high cost of the specialty medication, patients can quickly reach the $5,726 cap on out-of-pocket spending, after which the patient pays only 5%.

From that point, the drug plan sponsor pays 15% while Medicare pays the remaining 80% of the cost.

(3/27/08)- Prescription drug sales grew just 3.8% last year, to $286.5 billion, making it the slowest growth rate since 1961, according to a report issuec by the marketing research firm of IMS Health.

As you can read from our item dated 11/9/07 below, sales of branded drugs is expected to grow between 4% and 5% in 2008, but it is obvious that generic drug sales are having a pronounced affect on total drug gross sales in this country. With the probability that this country is in a recession, it would not be too shocking unfortunately if consumers start to cut back on drug usage because of the large cost that item is on the average persons budget.

(11/9/07)- According to a recent study from IMS Health Inc., a health care information and consulting firm, sales of prescription drugs in the U.S. will grow at its slowest pace in decades. Sales of branded drugs will grow between 4% and 5% next year to about $305 billion.

This represents the slowest rate of growth for prescription drugs since 1963. Worldwide sales of drugs will grow between 5% to 6% compared with the expected 6% to 7% mark for this year. Total worldwide sales are expected to grow to $745 billion.

IMS forecasts that about two-thirds of prescriptions sold in the U.S. next year will be generics up from 50% in 2003.

One of the main reasons for this slowdown is because of the number of drugs that have come off patent in the last year. Newer, more expensive drugs have been slow to develop from the drug companies whose pipelines are becoming barer than ever.

The study went on to predict that the industry's seven largest markets, including the U.S., Europe and Japan will for the first time contribute less than 50% of the global sales growth. In 2006, they made up 60% of the growth.

About $20 billion in annual global drug sales will be coming off patent in 2008.

(11/3/07) The "Survey of Employer Benefits 2007" by the Kaiser Family Foundation and the Health Research & Educational Trust found that employer sponsored health insurance premiums increased 6.1% on average in 2007. Inflation increased 2.6% and workers earnings 3.7%. Interestingly, only 59% of firms with fewer than 200 workers offer health benefits, down from 68% in 2001.

In these firms, 37% of the employees pay more than half the cost of family plan premiums and 45% of employers are weighing options that would increase the amount the employee has to pay for health insurance, while 42% are thinking of increasing employees' office-visit co-pays or coinsurance.

The majority of covered workers (57%) are enrolled in PPOs, while 21% are in a HMO. There has been a 1.1 million increase in enrollment in high-deductible plans in 2007, which now stand at about 3.8 million. Can families who do not have money in the bank carry such a deductible?

(7/10/07)- The federal government finances 57% of Medicaid spending and state governments pay the remainder and administer the program under certain federal coverage rules. The Deficit Reduction Act of 2006 required Medicaid programs to begin reimbursing retail pharmacies for generic drugs based on a new definition of average manufacturer price (AMP). Please keep in mind that AMP differs from the average wholesale price (AWP) that had been in use prior hereto.

The CMS issued a preliminary regulation in December 2006 that defined AMP. That regulation included PBM rebates and mail order pharmacies in calculating the AMP. AMP is defined in the law as the price the wholesalers pay manufacturers for retail drugs.

In the regulations that were released by the CMS on Friday pharmacy benefits managers (PBMs) rebates were removed from being included in determining what the AMP is for a particular drug. To learn more about PBMs please see our article: Medicare and the Cost of Prescription Drugs-HMOs and PBMs-Part III .

The final rule, including the definition of average manufacturer price is still subject to comment and potential change. We at therubins do not understand why the rebates that are given to the PBMs are not included in determining the AMP, and ask our viewers to send us emails if they understand why this is so.

(6/25/07)- Judge Patti B. Saris of the U.S. District Court in Boston ruled that AstraZeneca, Bristol-Myers and Schering-Plough must pay damages for overcharging on certain drugs that were administered by doctors. The judge ruled that J&J did not violate the law.

The suit involved a nationwide class-action brought against the drug companies for inflating the average wholesale price (AWP), which is the benchmark that is used by some third party insurers to calculate drug reimbursements. Medicare ceased using AWP as a basis for drug reimbursements in 2003.

This was the first stage of the case and the judge applied Massachusetts state law. It is likely that the judge will certify a national class to deal with the claims from other states. She ordered AstraZeneca to pay damages of $4.45 million to non-Medicare third-party insurers and Bristol to pay damages of $183,000 to third party payers who paid for certain prescription drugs from December 1997 to 2003.

Judge Saris wants more information before deciding on further restitution to the third-party payers. In her 183-page opinion, the judge wrote: "The Medicare statute itself created a perverse incentive by pegging the nationwide reimbursement for billions of drug transactions a year to a price reported by the pharmaceutical industry, thus putting the fox in charge of the chicken coop."

The plaintiffs are seeking hundreds of millions of dollars in damages in the ensuing stages of the case. Steve Berman is the attorney for the plaintiffs in the case. The defendant drug companies said that they would appeal the ruling.

(6/12/07)- The results of a recent study that was done by researchers at Duke University concluded that Medicare's "pay for performance" may not be accomplishing what it sought out to do. The idea that medical care can be improved by Medicare's financially rewarding better treatment at hospitals may not be worth the cost.

The researchers examined heart-attack treatment at 500 hospitals throughout the United States that were participating in the program initiated by the CMS in 2003. Participating hospitals provided the CMS with performance information for five conditions, including heart attack. Hospitals in the two highest performance levels for a condition received a bonus.

The results of the study were published in a recent edition of the Journal of the American Medical Association. The findings of the research team concluded "the pay-for-performance program was not associated with a significant incremental improvement in quality of care or outcomes for acute myocardial infarction" or heart attack.

Eric D.Peterson, a cardiologist at Duke University Medical Center was the lead author of the study. Researchers looked at information from hospitals treating 105,383 patients over a three-year period of time beginning in 2003.

They evaluated such factors as whether the hospitals prescribed aspirin and widely accepted cardiac drugs called beta-blockers and ACE inhibitors, and whether patients were counseled to quit smoking..

(12/12/06)- By a vote of 80 to 11 the U.S. Senate voted to confirm Dr. Andrew von Eshenbach as the commissioner of the FDA. Dr. Andrew von Eshenbach has been the acting commissioner of the agency since September 2005, after the abrupt resignation of Dr. Lester Crawford/ Previously he had serves as chief academic officer at the M. D. Anderson Cancer Center in Houston, and had led the National Cancer Institute.

His confirmation had been held up since March because several senators from both parties who had put "holds" on it. By Senate tradition, any member may delay a nominee through a hold, but the majority leader has the discretion to override it, which is what retiring Senate majority leader Bill Frist, Republican of Tennessee did do.

Senator Charles E. Grassley, an Iowa Republican was one of the senator who had put a hold on the nomination, accusing him of refusing to turn over evidence needed for a Senate Finance Committee investigation of an antibiotic Ketek.

Senator David Vitter, (Rep.-La.) was another senator who had put a hold on his nomination, saying he was protesting the administration's policy that prohibits Americans from buying their drugs from Canada.

(10/30/06)- Mark B. McClellan, who recently stepped down as administrator of the Centers for Medicare and Medicaid Services, has joined the Brookings Institution and the American Enterprise Institute.

He will be a senior research fellow focusing on ways to improve health care and eliminate excess costs. Dr. McClellan is an economist and physician who headed the CMS when the Medicare prescription drug plan Part D was initiated.

(10/8/06)- A federal advisory panel, the Citizens' Health Care Working Group made its report available in which it stated: "A national public or private program must be established to ensure protection against very high and out-of-pocket medical costs for everyone." The comptroller general, as provided for in the same law the set up the Medicare prescription drug program in 2003, appointed the 14-member panel.

President Bush now has 45 days to comment on the recommendations and offer a report to Congress. Five Congressional committees are then supposed to hold hearings on the proposals. The panel had held meetings in 37 states at 98 community meetings in which it heard from 7,000 people

Since 2001, according to Census Bureau figures, the number of uninsured has increased by 5 million, to 46.6 million in 2005.

(9/23/06)- The Senate Health Committee voted unanimously to send the nomination of Dr. Andrew von Eshenbach to be commissioner of the FDA to the full Senate for a vote. Dr. Von Eschenbach has been the acting commissioner for over a year.

Two Democratic Senators, Senator Hillary Clinton of New York and Patty Murray of Washington had held up Dr. von Eschen's nomination, as a protest against the agency's three-year delay in deciding whether to allow over-the-counter sales of the emergency contraceptive Plan B.

Two Senate Republicans have vowed to block a final Senate vote on Dr.von Eschenbach. Senator David Viitter of Louisiana has promised to hold up the nomination until the Bush administration agrees to legalize imports of drugs from abroad. Senator Jim DeMint of South Carolina, said he would not allow the nomination to proceed until Dr. Von Eschenbach took action to suspend sales of RU-486, the abortion drug.

Any Senator can place a "hold" on a presidential nomination, preventing the full Senate from voting on it. If the Senate fails to act before January, President Bush would have to renominate him.

Senator Orin Hatch, a top Republican on health issues, and one of the co-sponsors of the Hatch-Waxman Act which deals with the issue of the generic drug companies and their rights, said he and the Senate leadership are committed to eliminating opposition for the confirmation of von Eschenbach by the end of the year.

Many health-policy experts feel that it is essential for a new commissioner to be named and appointed to the job, because of all the key prescription drug issues that the agency has to deal with.

(9/9/06)- The FDA and the pharmaceutical industry are presently negotiating the fees that the industry will pay to the agency as required under the Prescription Drug User Fee Act of 1992 (PDUFA). This strange practice of having an industry negotiate with the agency that oversees its operation, because the industry wanted to speed up the whole approval time for new drugs.

Pharmaceutical companies pay fees when they file drug applications. They also pay fees based on how many drug-manufacturing facilities they own, and the number of medicines they sell in this country.

In the first year of operating under the act in 1993 the industry paid $8.9 million in user-fees, which represented about 7% of the agency's drug-review budget for the year. The fee schedule has been renegotiated two previous times under the terms of the act, with fees increasing both times. The user fee of $232 million in fiscal 2004 represented about 53% of the total drug-review budget.

The agency is seeking about a $100 million increase in the user-fee for the budget that commences in October 2007.

(8/17/06)- GlaxoSmithKline, the British drug company said that it had agreed to pay $70 million in a national settlement of civil lawsuits filed against it by individuals, health plans and six states. The states involved are Arizona, California, Connecticut, Montana, Nevada and New York.

Glaxo said that 34 other states and the District of Columbia would also be eligible to receive money from the settlement. The suits had accused the company of inflating the average wholesale price of its medicines as far back as the early 1990's.

We have previously discussed the weakness of basing reimbursements using the average wholesale price of a drug since this can be an artificially inflated price.

The deal follows a separate $150 million settlement that Glaxo reached in September to resolve government charges that it had fraudulently inflated the price of drugs bought by federal health care programs.

The drugs involved in the suits were Zofran and Kytril, which are used to treat nausea caused by chemotherapy.

(7/22/06)- The results of a recently released study done by Millmen Inc., a health-resource consulting firm, shows that the average annual medical cost for a family of four participating in a preferred provider organization (PPO) increased 9.5% from 2004 to 2005. That medical cost came to $13,382 in 2005, which includes the employee actually paying $5,020 after including payroll deductions.

The Millmen Medical Index fount that a resident of New York City paid the most in health care costs at $15,255, while a resident of Dallas had the lowest expense of $12,980.

The Millmen survey of 164 large companies found that 14% of them plan to eliminate the benefit for future retirees over the age of 65, and 6% of them plan to eliminate it for their current retirees over the age of 65, even with the recently enacted subsidy they receive under the new Medicare drug plan of 2003. .

(7/15/06)- The price of drugs negotiated by ten of the largest private Medicare drug plans are 84% higher than those obtained by the federal government (VA); 61% higher than prices negotiated by Canada; 3.5 percent higher than prices at Drugstore.com; and 2.9% higher than prices available at Costco, according to a Congressional investigation. (Committee on Government Reform-Minority Staff, "New Medicare Drug Plan Fails to Provide Meaningful Drug Price Discounts," US House Special Investigations Division, Nov. 2005)

A fifteen-month inquiry in the U.S. House of Representatives has concluded that there has been a sharp drop in the enforcement of the nation's food and drug laws, during the first five years of the Bush administration. The inquiry was pursued by the House Government Reform Committee under the leadership of Representative Henry A. Waxman, Democrat of California.

The investigation found that the number of warning letters that the FDA issued to drug companies, medical device makers and others dropped 54% to 535 in 2005 from 1,154 in 2000.

The seizure of mislabeled, defective or dangerous products dipped 44% in that same period of time. The biggest decline in enforcement actions was found at the agency's device center, where they declined 65% in the five-year period of time. This is the area where recent problems with implantable defibrillators and pacemakers have been in the news lately.

Several former top officials of the agency attributed the decline in enforcement actions to budget problems.

(6/29/06)- The results of two recently released studies show that the most cost for the most widely used prescription drugs are rising at a sharply higher rate than is the rate of inflation in the first quarter of this year.

According to the AARP study, prices charged for brand-name pharmaceuticals rose by 3.9% in the first quarter of this year, which was almost 4 times the general rate of inflation. This was the largest quarterly price increase in the last 6 years.

The study shows that the price for Lipitor, the largest selling drug in the world rose by 4.7% to 6.5% depending on the dosage. Remember this price increase is taking place even though Merck's Zocor just came off patent protection, so it is being sold as a generic drug competing with Lipitor

The AARP survey shows that the cost of providing brand-name drugs to the typical American, who takes 4 prescription drugs a day, rose by nearly $240 on average over the 12-month period ended on March 31.

The other study was done by Families USA, a patient advocacy group, the results of which can be seen on www.familiesuse.org . The two surveys covered manufacturers' wholesale prices, which does not reflect any discount that large purchaser may be able to negotiate with the wholesalers.

Once again all we need to do to see how a large purchaser can negotiate some sharp discounts with the drug manufacturers is look at the discounts that are obtained by the federal Department of Veterans Affairs. The department pays on average a price that is 46% less than the prices posted by insurers on their sites for the new prescription drug plan under Medicare Part D.

Just imagine what percentage discounts could be obtained if Medicare did centralized purchasing of drugs for Part D members.

(6/22/06)- An informed consumer is a consumer who can compare price and quality before making his or her purchase decision. This is surely one of the areas that need improvement when a consumer is making a decision in connection with health care. There are improving signs in this area that shows that help may be on the way.

Aetna Inc. announced that it is expanding its comparison-shopping program from Cincinnati to eight more areas. Under the program the company reveals the rates it negotiates with local physicians. The eight new areas to be covered under the program include: Cleveland; Pittsburgh; Las Vegas; Columbus, Ohio; Kansas City, in both Kansas and Missouri; the Washington metro area; South Florida and Connecticut.

The list of doctors rates will also be expanded to include hospital procedure rates in those areas mentioned above.

Other health insurers including Cigna Corp., Humana Inc., and UnitedHealth Group Inc. are adding their own online pricing tools.

Medicare also has its own online pricing guide for what it pays hospitals for 30 common procedures and treatments. As more and more consumers avail themselves of the new HSA program that the president is emphasizing in the battle to hold down health care costs, you will see this type of online help expanding.

Several state governments and hospital associations, including Florida, New Hampshire, South Dakota, Minnesota, Utah and New Mexico, are launching Web sites that list hospital charges.

(6/17/06)- As House and Senate negotiators try to arrive at a satisfactory compromise on the pension bill pending before them, one of the many sticking points is a portion in the House bill that allows employers and health insurers to gain a share of money their workers win in personal injury suits.

The Senate version of the bill does not contain such a provision. Most health plans reserve the right to be reimbursed for the cost of medical care. Many state laws restrict the insurers' ability to recover especially where the injured employee isn't fully compensated by the lawsuit or settlement.

The House bill would let insurers step ahead of injured employees when it comes to divvying up a legal settlement or judgment. Another provision in the House bill would make it easier for health insurers and employers to sue employees who have received a settlement for their health costs.

(6/1/06)- The FDA will begin to hold hearings shortly in connection with improving its much-criticized drug and medical device evaluation proceedings. Before making any suggestion for improving the system we thought it advisable to explain to our viewers how the panel system works at the FDA.

The FDA's Center for Drug Evaluation and Research (CDER) has 16 panels that make recommendations to the agency. Other FDA centers have their own setups similar to the CDER. Most panels have about 12 members, and include doctors who treat patients, academic researchers and experts from other government agencies such as the NIH. There is also a nonvoting patient representative as well as a nonvoting industry representative. The FDA on a one-time basis for certain meetings can add experts to a panel. Panel members serve for two-year terms, and can be re-appointed to a particular panel.

The FDA is not required to abide by its panel's recommendation. Each of the panels has guidelines for items such as financial disclosure and corporate and medical affiliations. The levels of involvement by the FDA officials, such as division heads of the part of the drug center that is reviewing a particular drug vary.

(5/12/06)- The latest estimate from Medicare actuaries is that the new prescription drug benefit for Medicare beneficiaries will cost the government $788 billion over the next 10-years, down from the earlier estimate of $997 billion. The actuaries said that fewer people than expected are signing up for the new coverage, since they originally were looking for 37 million to sign up, whereas they now expect only about 31.4 million to sign up by the May 15, 2006 deadline.

Another reason for the drop in the estimated cost to the government is because private insurers have achieved discounts on medications sooner than the actuaries had expected. That offset a 4% increase in what the government thought it would spend on Medicare beneficiaries with costly drug bills.

(4/19/06)- For the first time in its history, the FDA will have an outside panel of experts help it review the safety of heart devices already on the market. Under the present system the FDA is advised by a panel of experts working directly for the FDA before the medical devise is sold, not after it has already been on the market.

Dr. Daniel G. Schultz, director of the agency's Center for Devices and Radiological Health said that the new panel would check on the safety of medical devices that have been approved by the FDA. The outside panel would make recommendations to the FDA concerning the device, but t the FDA itself would have the sole authority to remove a device from the market.

A medical group (the Heart Rhythm Society-HRI) that represents doctors who implant defibrillators will release a report on May 2, which will recommend changes in how data about the heart units is collected and disclosed. The report is expected to urge manufacturers of heart devices to establish and outside panel to review product safety and help companies decide when to issue alerts about the safety of the products.

Seven patients are known to have died in episodes during which a Guidant defibrillator short-circuited. A legal issue in this matter will be decided in the next few years in the courts, as to whether or not Guidant knew of the safety problem with its defibrillators.

(4/10/06)- Dr. Andrew C. von Eschenbach, the acting FDA commissioner said that he was resigning from his second job as director of the National Cancer Institute. He has headed the NCI since 2002. Dr. von Eschenbach is a physician and cancer survivor.

The Senate must vote to confirm Dr. von Eschenbach, before he can take the FDA permanently, but both Senators Hillary Rodham Clinton of New York, and Patty Murray of Washington, both Democrats have vowed to block the nomination unless the FDA approves over-the-counter sale of Plan B contraceptive pills.

(3/23/06)- Dr. Andrew C. von Eschenbach, who had been acting FDA commissioner since September, has been nominated by President Bush to serve as commissioner of the FDA. In addition to being the acting commissioner of the FDA, Dr. von Eschenbach has led the National Cancer Institute since 2002. He has indicated that he will submit his letter of resignation to the institute shortly.

Senators Hillary Rodham Clinton of New York, and Patty Murray of Washington, both Democrats have vowed to block the nomination until the FDA decided whether it would allow over-the-counter sales of Plan B, Barr Lab's morning-after contraceptive pill. The Plan B application has been pending before the FDA for over three years.

In February 2005, the Bush administration nominated Dr. Lester M. Crawford to become the FDA commissioner. In the hearing before the Senate to approve the nomination Michael O. Leavitt, the health and human services secretary which oversees the FDA, testified that the agency would "act" on the Plan B application by September.

Based on the promise from Secretary Leavitt, Senators Clinton and Murray lifted their holds on Dr. Crawford's nomination that was pending approval before the Senate health committee, and he was confirmed in July. Dr. Crawford resigned the post recently when questions arose in connection with problems over his financial disclosure improprieties.

The FDA still has not acted on the Plan B proposal to be sold over-the-counter with no age restrictions being imposed. Senators Clinton and Murray have vowed not to lift their hold on Dr. von Eschenbach's nomination. A hold on a nomination can be overcome only by a vote of the full Senate. Dr. von Eschenbach can hold the position even though the Senate does not act in a timely fashion on his nomination.

(3/10/06)- According to projections from actuaries and economists at the federal Centers for Medicare and Medicaid Services health-care spending will far outpace the economy's growth over the next 10 years.

By 2015, health spending will account for 20% of the gross domestic product, up from 16% today. By 2015, federal and state governments will be picking up almost 50% of the health care costs. Growth in spending for health-care costs over the next 10 years is projected to average 7.2%.

The new Medicare drug benefit will cause a 25.2% increase in spending for the federal health program, or about $54 billion for the coming year. According to the same analysis the drug benefit will lead to a $19 billion reduction in out-of-pocket costs for Medicare beneficiaries and disabled individuals. Medicaid spending will be reduced by $21 billion, and a $15 billion decrease in private health insurance spending.

Spending on prescription drugs is expected to slow down, with average annual growth of 8.2% during the next 10 years. Hospital spending rose 7.9% last year, and will continue to outpace growth in the economy for the next 10 years.

Starting in January 2006, doctors who participate in Medicare's new Physician Voluntary Reporting Program will report how well they do on 36 quality measures developed by the government. These quality measures include : beta-blocker therapy for patients with prior myocardial infarction, hemoglobin A1c control for patients aged 18-75 with type 1 or type 2 diabetes, screening of elderly for falls, mammography, antibiotic prohylaxis for surgical patients and smoking cessation for patients with COPD.

(11/28/05)- U.S. employers' health-care costs rose an average of 6.1% in 2005, and are expected to remain at about that same level in 2006 according to a survey done by Mercer Health & Benefits. The major reason that these costs stayed at this level was because employers shifted more and more of the expenses for health-care costs to their employees through higher deductibles, co-payments and premiums.

Although the percentage of increase was the lowest since 1998, the jump in absolute dollars was large. The cost of the average health plan per employee rose to $7,089 in 2005 up from $6,679 in 2004.

(11/05)- Medicare officials announced the first results of its program to improve the quality of care in hospitals by rewarding those institutions that performed better in the areas under consideration. Under the three-year test program that involved 270 hospitals, Medicare will pay the 123 that were the top performers an additional $8.85 million, the first time it has paid performance bonuses. A similar experimental program was begun this year among physicians who treated Medicare patients in their offices.

The hospital experiment began two years ago. It measured care for Medicare patients with one of five conditions: a joint replacement; coronary artery bypass graft; heat attack; heart failure, or pneumonia. The participating hospitals were scored on 33 clinical measures, including whether patients got the proper treatment and how well they fared.

Premier Inc., a nonprofit hospital alliance worked with Medicare on setting up and monitoring the experiment. Based on how they scored in treating each condition, the hospitals were divided into 10 groups with those in the top group receiving a 2 % bonus payment from Medicare, while those hospitals in the next group based on performance received a 1% bonus. Hospitals that placed in the bottom two categories for a condition must improve their ranking by the third year, or their payments will be reduced by 1% or 2%.

(11/3/05)- It is now becoming more evident that the recent resignation of Lester M. Crawford as commissioner of the Food and Drug Administration was due to failure to disclose stock holdings in companies that were regulated by the agency. Mr. Crawford held the position for only two months after the Senate confirmed him.

The latest disclosure form, signed June 28, shows that he or his wife sold shares in 2004 in the following companies:

Embrex, Kimberly-Clark, Pepsico and Wendy's are not on a form listing the Crawfords 2003 holdings, although that form states that the Crawfords sold shares that year in Wendy's and Sysco valued at between $1,001 to $15,000.

(10/30/05)- Health care insurance continues to be an important topic of concern to the American public.The New York Times (Oct. 23, 2005) carried a front page, three column article entitled "When Even Health Insurance Is No Safeguard", with a subtitle of "Being A patient: The Money Trap". The article reports that 28% of a cohort group of 1771 indicated that illness or injury was the reason they filed for bankruptcy. John Leland, the author of the article states: "After decades in which private and government insurance covered a progressively larger share of medical expenses, insurance companies are now shifting more costs to consumers in the form of higher deductibles, co-payments or premiums. At the same time, Americans are saving less and carrying higher levels of household debt, and even insured families are exposed to medical expenses that did not exist a decade ago." He reports, in a survey conducted by the Center for Studying Heath System Change, that 20 million American families had trouble paying their medical bills, despite the fact that two-thirds had health insurance.

Presently, employer-sponsored health insurance remains the nations leading form of health insurance, covering 150 million people under the age of 65 and supplementing Medicare coverage for 15 million elderly people.

Two leading forms of coverage are Preferred Provider Organizations (PPOs) and Health Maintenance Organizations (HMOs). Enrollment in PPOs increased by 6% from 2004 to 2005 (55% to 61%), while it fell 4% in HMOs (25% to 21%). Health premiums during that year rose 9.2%. This was the first year of single digit increases since 2000. However, this premium increase was nearly 6 percentage points over the overall inflation rise as well as 6 percentage points over the increase in workers wage.

What do these figures mean? To give you a long term perspective, premiums have increased 73 percent since 2000. Today, single coverage costs on the average about $4,024 per year and family coverage about $10,880 per year. A minimum wage earner employed for the whole year earns less than the average amount of family coverage for the year. No wonder health insurance is any protection for many individuals in America. Moreover, what about the uninsured?

(10/9/05)- The Senate Committee on Health, Education, Labor and Pensions will open an investigation into the reason for the sudden resignation of Lester M. Crawford as commissioner of the FDA. Mr. Crawford's resignation took place about 2 months after this same committee approved him for the job.

Daniel R. Levinson, the newly appointed inspector general at the Department of Health and Human Services will lead the investigation. The investigation is expected to "conduct a thorough review of the reasons" for his resignation, according to a letter sent to Mr. Levinson from Senator Michael B. Enzi (Rep.-Wyo.) the committee chairman and also signed by Senator Edward M. Kennedy (Dem-Mass.) the senior Democrat on the committee.

Five House Democrats led by Representative Maurice D. Hinchey of New York also asked the inspector general to find out why Mr. Crawford resigned so soon after being approved for the job.

(9/25/05)- Lester M. Crawford, DVM, PhD., who was confirmed as the commissioner of the FDA just two months ago, on July 18 abruptly resigned his post on September 23. Prior to his becoming the commissioner he had been the acting commissioner and deputy commissioner, so that his total tenure at the agency totaled 3 1/2 years. He said that at the age of 67 he was stepping down to devote more time to his family.

The New York Times issue of September 24 in an article on the resignation stated: "A government official said the resignation was related to the fact that Dr. Crawford had not fully disclosed information about his finances to the Senate before his confirmation."

Officials with the administration indicated the President Bush would name Dr. Andrew C.von Eschenbach, director of the National Cancer Institute to be acting commissioner of food and drug. The agency has been in a state of disarray the last few years as critics have claimed that the agency has become a tool of the drug industry, while the pharmaceutical industry has been castigating the agency over the length of time needed to gain approval for new drugs to come to market.

The director of the agency's Office of Women's Health, Dr. Susan F. Wood, resigned three weeks ago to protest delays in approving the over-the-counter sales of the morning after pill Plan B.

(9/16/05)- The share of workers covered by health insurance through their own employer fell to 60% in 2005, compared with 63% in 2000 according to the latest survey results from the Kaiser Family Foundation and Health Research and Educational Trust. This survey is considered the leading indicator for health care costs for U.S. companies.

The cost to employers increased by 9.2% far in excess of either the CPI or PPI. There are 2,995 companies that are included in this survey. This is the first time in the last 5 years that the increase is less than 10%. Since 2000, employers' premiums have climber 73% bringing the average annual premium for family coverage to $10,880

The study also concluded that the percentage of firms offering health insurance to their workers dropped to 60%, down from 66% in 2003, and 69% in 2000.

(8/31/05)- Medicare and Medicaid spending will account for 37% of all spending on prescription drugs next year, up from 20% this year, according to Stephen Heffler, an economist at the CMS.

California Attorney General Bill Lockyer filed an amended complaint in U.S. District Court in Boston alleging that 39 additional drug companies defrauded the state's Medi-Cal system by overcharging the state's prescription drug program for hundreds of millions of dollars through overcharges. Medi-Cal is the state's version of the federal Medicaid program, which is jointly financed by the state and the federal government. Drug costs account for about $4 billion of Medi-Cal's $34 billion annual budget.

The companies are accused of violating California's False Claims Act, which provides up to treble damages and penalties of up to $10,000 per false claim. The case arose in 1998 when a whistle-blower filed a suit in California against a Florida health-care company called Vena-A-Care. That claim involved false pricing information that was used to determine the reimbursement rate that the company received in payment for its drugs purchased by the state's Medi-Cal system.

The case was removed from state court and consolidated in federal court in Boston, where 10 other states including New York, Texas, Florida and Illinois have similar cases pending. The pharmacist who brought the whistle blower suit was John Lockwood, who worked for Ven-A-Care, a health care company located in Key West Florida.

(8/22/05)- The latest estimates from the Congressional Budget Office are that spending on Social Security, Medicare and Medicaid will run about $1.04 trillion this fiscal year for the federal government. This figure represents about 42% of the budget spending. The agency now estimates that the budget deficit this year will be $331 billion, down from the record $412 billion deficit of last year. The budget office further predicted that the deficit will be about $314 billion next fiscal year.

Major health insurance companies continue to report that they see stable or even slowing growth of medical costs according to recent corporate earnings reports. WellPoint Inc., Aetna Inc., UnitedHealth Group, Humana Inc. and PacifiCare Health Systems Inc. have reported steady or moderating medical-cost trends in their commercial health plans.

J.P. Morgan health care analyst Scott Fidel sees slowing growth in phamaceutical expenses, stable increases in physician costs, slightly moderating outpatient pricing expansion and flat hospital inpatient demand.

In June, human-resorts consulting firm Hewitt Associates said U.S. health maintenance organization rates for 2006 are expected to rise at their most moderate pace nationally in more than five years. WellPoint, the largest U.S. managed-care company by membership, said medical-cost growth continued to slow in the second quarter this year. The company expects such costs to rise by less than 9% this year, about one percentage point less than in 2004.

(8/8/05)- According to figures from Delta Marketing Dynamics, a health- care marketing and research firm in East Syracuse, N.Y., the prices for the top selling branded drugs rose an average of 5.53% in the first 6 months of this year, compared to 5.62% for the first 6 months of 2004. This compares to the figure of 2.5% for the Consumer Price Index (CPI) for the same 6 month period in 2005.

The top 50 selling branded drugs had an average price increase of 5.11% in the first 6 months of this year, compared with a 5% increase for the same period a year earlier according to Delta Marketing.

The FDA has issued 11 public health advisories about drug risks compared with 5 in 2004 and 2 in 2003. In the first 6 months of this year the
FDA has placed 45 black box warnings on drug labels compared to 9 such labelings in the first half of 2004.

The average time for drug approval in the first half of this year was 29 months compared with an average time of 16 months in the first half of 2004. Many health experts feel that this toughening stance by the FDA is a direct result of the pressure that the agency has come under as a result of the antidepressant and Vioxx issues that have come home to embarrass the agency recently.

(7/10/05)-For a list of drug alternatives, go to www.rxexaminer.com . It is a free site that gives both generic and brand name alternatives, and explains how it differs from the drug your are comparing it to. 

(6/30/05)- Spending on hospital care, physician services and prescription drugs rose 8.2% in 2004, compared to the 8.4% rise in 2003 according to a study from the Center for Studying the Health System Change, a health policy-research group in Washington, funded primarily by the Robert Wood Johnson Foundation.

"It's bad news for patients" says Paul B. Ginsburg, co-author of the study. "The rate of increase in spending is a lot higher than the rate of increase of their (consumers) incomes." The study was based on data from the Milliman Health Cost Index, constructed from public and private data on health-care provider revenue, which is paid by insures, employers and patients. It excludes Medicare but includes Medicaid spending. Milliman Inc. is a consulting and actuarial firm

Spending on prescription drugs rose 7.2% in 2004, down from 8.9% in 2003

(6/2/05)- Each of the 25 countries that comprise the European Union sets the price that drug manufacturers charge for medicines in their country based on how wealthy that country is. Thus a country such as Greece, Spain or some of the recently admitted Eastern European counties have a much lower cost for their medicines than do countries such as England, Germany and France.

This divergence in pricing has led to a practice called "parallel pricing" wherein a drug wholesaler will buy a drug at a low cost in one country, repackage the drugs with directions in the local language, and then in turn sell the drug for a higher price in another country that is part of the union. In an attempt to eliminate this practice GlaxoSmithKline brought a matter against the drug wholesalers in Greece which sought to prevent this practice from occurring with its drugs. The Greek competition commission sought to have the European Court of Justice rule on this practice and declare it as being illegal.

The European Court of Justice, which is Europe's highest court, and is based in Luxemburg, said it had no jurisdiction to hear the matter since the competition commission. is not a court or a tribunal, so therefore it could not bring up the matter before the high court.

Prices for drugs in the East European countries sell for a 30% to a 70% discount to the prices that they sell for in the wealthier countries such as England. Obviously the drug companies are hurt by the practice of "parallel pricing", but the consumer benefits from it. In the case of England the country benefits also since about 16% of the drugs that are supplied to the national health system come through this methodology.

According to NDCHealth Corp., a health care information consultant company, there were only 4 blockbuster drugs (sales of over a billion dollars) in 1992; by 1998 the number was 29, climbed to 56 in 2000, but slipped to 50 in 2004.

(5/4/05)- Under an agreement worked out between the City of New York and its teacher's union, the United Federation of Teachers, the union members and retirees will have to pay a new $100 annual deductible for chemotherapy and injectable drugs starting January 2006. Starting July 1, 2005 asthma and psychotropic drugs now paid for the city's Health Insurance Stabilization Fund will be available through the general welfare funds of the individual municipal unions.

City agencies will increase their contribution to the welfare funds by $100 per employee, through June of next year, as a stopgap measure to keep the benefits in place. The city will be paying about $50 million to the drug benefit plan.

This type of agreement may be a harbinger in what will follow for the blue collar workers in the auto industry, even though as an example, GM's present contract with its workers does not expire until 2007.

(2/1/05)-According to Delta Marketing Dynamics, a health-care marketing and research firm in East Syracuse, N.Y., 31 of the top 50 selling prescription drugs in this country have had price increases since the November elections through January 19th. For the same period a year ago, only 22 of the top selling drugs had price increases.

Many medical experts feel that the reason for these price increases is mostly tied into the fact that the new prescription drug law will go into effect in January 2006. Thus the drug companies will be able to bargain from a higher level for their most popular drugs when it comes time to negotiating the prices that Medicare beneficiaries will pay for their drugs under the new law.

According to data compiled by PriceAlert, another medical marketing and research firm, Pfizer Inc. increased the price of most of its medications by 5% at the beginning of the year. The cost of Mobic, the pain killer that is co-marketed by Boehringer Ingelheim Corp and Abbott Laboratories rose by 7% and 11% on the 7.5mg and 15mg doses, respectively, even though demand for the product nearly tripled to $258 million during the fourth quarter. Mobic has gained sales as a direct result of the problems that the Celebrex, Bextra, Vioxx and Aleve have run into recently.

Strangely enough the drug industry seems to increase prices as sales of a product increases, unlike most other industries where prices fall as production and sales increase.

(1/23/05)-Medicare payment rates for physicians for drugs administered in the office, and to durable medical equipment providers, uses the average sales price (ASP)plus a markup of 6% instead of average wholesale price (AWP). This change in payment system began on January 1, 2005, and is certainly a step in the right direction, since AWP is similar to the sales price of a car in a dealer's showroom. AWP prices were based on unaudited data submitted by the drug companies to Medicare officials.

(12/29/04)-According to a study from AARP, drug prices rose 0.5% on average in the third quarter of this year, compared to the 1.8% that they rose in the third quarter of last year. Drug prices, however did rise 3.5% on average in the first quarter of this year, and have risen a total of 7.4% for the 12 months ended September. Compare this to the 2.3% rate for general inflation in the same twelve-month period, and you see why the drug pricing problem continues to have a major negative impact on the pocketbook of our seniors, as well as the rest of the population.

In November of this year the situation worsened. Nine of the top 50 branded drugs increased in price, up from 3 in November 2003, according to Delta Marketing Dynamics, a marketing research firm.

(11/29/04)-A survey of over 3,000 large employers conducted by the Mercer Human Resource Consulting firm showed that health-care costs rose 7.5% in 2004, which is the smallest increase in over 5 years. There were two major reasons for this slowing in the costs for the employers. Factor number one is the fact that employees picked up a greater share of the costs, and factor number two was the smaller premium increases charged by the health insurers. The Mercer survey is the largest one conducted in this area.

Per employee, the cost of health care rose to $6,679 from $6, 215 in 2003. Thus the total dollar amount of the increase was still a very substantial amount. Employers predicted that the average health-benefit per employee would rise by 6.6%. About 20% of the employers in the survey said that they would increase employee costs, either with higher deductibles, co-payments or out-of-pocket maximums, while an equal share said they would increase employees' premiums.

Only about 1% of the employers now offer Health Savings Accounts, but by the year 2006 about 26% of the employers expect to offer such accounts to their employees.

(11/16/04)- GM said in a filing with the SEC that it would change the rate that it used to calculate future health cars costs for its employees, retirees and their dependents. The company will use a rate of 6% down from 6.25% used prior hereto to determine future health care costs GM further estimated that this change would raise pretax health care expenses in the U.S. by $170 million next year. G.M.'s estimate for its 1.1 million workers, retirees and their dependents would increase by $1.9 billion its 2005 estimate of future health care obligation.

Survey figures released by Towers Perrin, the New York employee-benefits consulting firm indicate that employer health care costs are moderating for this coming year. The survey is based on a study of 200 of the country's largest employers, which covers more than 4.5 million workers, retirees and dependents. Next year will be the first year in the last five that health care costs for large employers will increase less than double digit numbers, namely 8%.

Even though the percentage rate of increase may be slowing, because of the high cost base, the dollar amount of the increase continues to be substantial. With next year's increase the total health-care cost per employee will come to $7,761. The survey found that the main reasons for the increases were: more prescriptions of heavily marketed drugs; increases in hospital prices; more expensive diagnostic tests; and an increase in visits to specialists. The companies involved in the survey employ on average 9,000 people.

Employers spend about 79% of the total spent on health-care costs, with the employees spending about 21% of the cost. This percentage has remained fairly constant over the last few years, but again because of the rising base level, the cost to the employee is expected to rise to $1,610 up from $939 in 1997.

(11/1/04)-LillyAnswers, the prescription drug program from Eli Lilly and Co., for low income Medicare recipients has enrolled 15,454 members in Indiana since the program began in 2002 according to an announcement from the company. Under its program, cardholders pay a flat $12 administrative fee for a 30-day supply of most Lilly drugs. PhRMA, the pharmaceutical industry's lobbying arm also has a Web site at www.helpingpatients.org that details many of the various pharmaceutical patient assistance program available to low income people. According to the organization over 6.3 million patients received 18.2 million prescriptions in 2003, at a value of over $3.4 billion. For information about the Lilly program call 877-796-4559 or visit their Web site at www.lillymedia.com

(10/23/04)-According to a report by the National Governors Association, the cost of Medicaid is growing faster than any other expense item in the average state's spending budget. The cost for Medicaid grew 6% in the fiscal year ended June 2003. The report also concluded that Medicaid spending accounted for 21.9% of total state spending compared with 21.5% for K-12 education spending.

In a study issued by the investment firm Lehman Brothers the average U.S. pharmaceutical company spent 15.2% on R&D as a percentage of total sales in 2003, which was slightly lower than the average figure for 2002 which was 15.3%. The drug company that spent the most on R&D as a percentage of sales was Eli Lilly & Co. which spent 19.4% in 2002 and 18.7% in 2003.

Medicare actuaries broke down the cost structure itemization for the $11.60 increase in Medicare premiums starting January 2005 to $78.20 per month, which was the largest increase in the history of Medicare. Even though Bush administration officials originally stated that a large percentage of the increase was due to the new benefits that will be available to new Medicare beneficiaries, the actuaries attributed only 14 cents of the increase to that reason. Incidentally the new benefits are an initial physical exam for new Medicare beneficiaries and screening tests for diabetes and high cholesterol.

The actuaries attributed $1.60 of the increase in premiums to the increased payment to HMOs and other private plans. Most of the rest of the increase premium payment was due to the increase in Medicare payments to doctors and higher overall medical costs.

The Medicare Payment Advisory Commission, an independent federal panel, stated in a report to Congress that Medicare is paying private plans and HMOs an average of 107% of what it would cost to cover their patients under the traditional fee-for-service program. Payments to the private plans were increased recently because so many of them were abandoning their programs forcing Medicare beneficiaries back to the Medicare program.

About 4.7 million Medicare eligible people are in HMO and other private plans known as Medicare Advantage plans. Congress once assumed that the private plans could make a profit if they were paid 95% of the cost for treating patients in the traditional Medicare system, but because of the abandonment by the HMOs the payments were increased.

The office of the chief Medicare actuary told Congress that Medicare would spend $50billion less in the next 10 years if it paid private plans only 100% of what traditional Medicare pays. According to Senator Bob Graham (Dem-FL) "The federal government is dramatically overpaying HMOs" and he asked why. Former Senator Dave Durenberg, Republican of Minnesota, a member of the Medicare commission and a long time supporter of managed care, said in an interview, "There appears to be no good reason why private plans should be given more money per capita than is given through the traditional fee-for-service system."

More than 98% of the nation's 3,906 in-patient acute care hospitals are reporting quality-of-care data for treating heart attacks, heart failure and pneumonia according to the Centers for Medicare and Medicaid Services. The reporting of this information will become available on the Web or by phone early in 2005. The reporting by the hospitals is voluntary, but hospitals that do not comply face lower reimbursements from Medicare and Medicaid. This reporting requirement arose as a result of the Medicare Modernization Act of 2003. The CMS focused on these three areas because these conditions result in the longest hospital stays and are the most common problems for the elderly.

Five of the top ten drug companies in the world are European. These five are GlaxoSmithKline, Astra-Zeneca, Aventis, Novartis and Roche. All of them are in countries that regulate the prices of drugs n their home countries but not in the U.S. All of them charge much higher prices for their drugs in this country then they do overseas.

The increase in uninsured health coverage for Americans in 2003 was 1.4 million, to a record 45 million according to data from the U.S. Census Bureau. In 2002, there were 43.6 million Americans without health insurance. The percentage of uninsured grew only slightly to 15.6% in 2003, up from 15.2% in 2002. Because of the growth in population, and the greater number of people covered under various governmental programs, from year to year, the total number of insured Americans grew to 243.3 million in 2003.

More than 10 million of those without insurance were young people, 25 to 34 years old, according to the data, which was an increase of 576,000 from 2002. There were 20.6 million uninsured full-time workers last year, an increase of 1.6 million over the last two years. Health insurance coverage fell only for families with annual income of less than $75,000.

The preliminary results of the annual Mercer Human Resource Consulting survey of over 3,000 employers indicates that they expect the total cost of health-care benefits per employee will rise an average of 9.6% in 2005. In the survey's final results in 2003, employers said they expected health-care costs to increase 13% going into 2004, and they were fairly accurate in this prediction. According to a survey of over 3,000 companies done by the Kaiser Family Foundation and Health Research and Education Trust, the cost of providing health care to employees has risen 11.2 % this year. This is the fourth year in a row that the increase was in the double digits. It is slightly lower than last year's figure where the increase was 13.9% in 2003.

According to the Kaiser survey the average family coverage in preferred provider networks for small businesses has risen to $10,217, with employees paying$2,691 of the total. The survey also found that the share of companies of all sizes offering health benefits to employees declined to 61% down from 65% in 2001. The latest figures from the Census Bureau estimate that the total number of Americans without health insurance had risen to 45 million by the end of 2003.

According to Blaine Bos, a senior health-care consultant at Mercer, many of the employers intend to raise workers' deductibles and co-payments, cut back on some of the benefits in their plans, and limit the number of plans that they will offer in order to be able to hold down the costs. If they did not take these measures, the employers estimated that their costs would rise by about 12.6% in 2005.

Americans spend about 14% on health care, while other advanced nations spend an average of 8%. According to a recent research study, as of 2001, there were 2.7 doctors per 1,000 people in the U.S., compared with a median of 3.1 in the countries in the Organization for Economic Cooperation and Development. The researchers involved in the report were Uwe E. Reinhardt of Princeton and Peter S. Hussey and Gerald F. Anderson of Johns Hopkins.

The United States has only 2.9 hospital beds per 1,000 people, compared with the OECD median of 3.9 beds per 1,000 people. In Germany there are 6.3 beds per 1,000 people. The report goes on to further state that Americans usually pay significantly more for drugs and administration expenses.

The consumer group Families USA reported that prices for drugs that the elderly use the most frequently rose nearly 4.3 times faster on average than overall inflation last year. As in all their previous studies the consumer group used data from a Pennsylvania program for the elderly.

The data also showed that the drug companies are increasing their prices for the most frequently used drugs by the elderly at an exceedingly high rate just as the new drug discount cards are to go into effect for the next two years. Senators Olympia Snowe (Rep.-Me.) and Ron Wyden (Dem.-Ore.) have requested that the General Accounting Office monitor drug prices and report back to Congress with its finding as soon as practical.

Of the 30 brand name drugs used most frequently by the elderly, all but 4 have been on the market for over three years. The prices of those 26 drugs increased, on average, by 3.6 times the rate of inflation. On average, the costs of these 30 drugs increased by 6.5% from January 2003 to January 2004, while the rate of inflation, excluding energy, was 1.5% during that same period.

The six most frequently used drugs by the elderly according to the Family USA study were Pfizer's Lipitor, Bristol-Myer Squibb's Plavix, Merck's Fosamax, Pfizer's Novarsc and Celebrex and Merck's Zocor. The following chart shows the average annual wholesale price of the top selling six brand-name drugs used by the elderly according to the figures from Families USA:

Brand Name

Strength

Therapeutic Category

Marketer

2001 Cost/Year

2004
Cost/Year

Lipitor

10-mg

Lipid Lowering Agent

Pfizer

$742

$943

Plavix

75-mg

Antiplatelet Agent

Bristol-Myer Squibb

$1,232

$1,661

Fosamax

70-mg

Osteoporosis Treatment

Merck

$802

$953

Novarsc

5-mg

Calcium Channel Blocker

Pfizer

$514

$603

Celebrex

200-mg

Anti/Inflammatory

Pfizer

$1,837

$2,273

Zocor

20-mg

Lipid Lowering Agent

Merck

$1,520

$1,747

Prevacid

30-mg

Gastrointestinal Agent

TAP Pharmaceutical

$1,459

$$1,740

Source: Families USA

As an example of the increase taking place all we have to do is look at the price for Pfizer's Lipitor, the cholesterol-lowering drug, which is the number one selling drug in the world. Lipitor's sales are expected to exceed $9 billion this year. The average price for the drug is up 27% in the past 3 years. Pfizer's Celebrex, the rheumatoid-arthritis drug has risen over 23% in that same period of time. Please keep in mind that in most industries, prices will fall for best selling items with the passage of time, and increased efficiencies in the manufacturing process as volume grows. Plavix's price has increased 34.8% in the last three years.

Even though Medicare does not pay for most prescription drug expenses for Medicare beneficiaries, it spent over $10.5 billion on drugs last year. According to a recent survey incomes among cancer doctors have risen faster than those among any other physician specialties.

John Garamendi, the commissioner for the California Department of Insurance said that he had denied the requested merger between Anthem and Wellpoint Health Networks. The California Public Employee's Retirement System (Calpers) had opposed Anthem Inc.'s proposed takeover of Wellpoint Health Networks Inc. that would create the nation's largest health insurance company. Calpers, which has over $162 billion in assets owns about 0.5% of Wellpoint and over 620,000 shares of Anthem opposes the merger because it claims that Wellpoint senior managers would get more than $600 million in compensation if the deal goes through.

This does not mean that the deal will be scuttled since Mr. Garamendi's office has jurisdiction over only a small fraction of the California operation of the two companies. All other agencies, both federal and state that have jurisdiction in this matter have given their approval to the merger. Wellpoint and Anthem said that they might either take the matter to court or that they might spin off the California operations of the combined companies, leaving that state with no jurisdiction in the matter.

Calpers also stated it would petition the California Department of Managed Health to hold hearing on the proposed merger in order to question the legality of the large payout to executives of both the companies. The deal has been approved by the shareholders of both companies, and by 10 of the state regulatory bodies that oversee such mergers within their borders..

There are many health professionals and analysts that feel that the merger would stiffen competition in the health insurance field leading to higher premiums, and thus resulting in increased health care costs for all of us. If approved, the deal would create a health management organization with 28 million patients and Blue Cross or Blue Shield operations, or both, in 13 states.

A report issued by AARP that examined the cost of 197 of the drugs that are most frequently used by older Americans showed an overall increase of 3.4% in the first quarter of this year. The drug price increases on a yearly basis more than doubled the rate of inflation. The AARP report also concluded that the drug prices in the group that it studied rose at a pace of 7.2% compared with 6.9% for the 12 months ended last December. During this same period of time inflation decreased from a rate of 2.3% to 2% in 2003.

Bristol-Myers Squibb Co. and Pfizer Inc. had 12 of the 25 top selling drugs, and every one of the 12 had price increases in 2003. Merck & Co. which had 3 of the top 25 selling drugs increased the price on one of them, Fosamax by 4.9%m but kept the price the same for Zocor (cholesterol) and Vioxx (rheumatoid arthritis).

A study done by the Center for Studying Health System Change, a nonprofit research group in Washington, D.C., showed that hospitals raised prices in 2003 by the largest margin in the decade since the data has been tracked. Overall hospitals raised their prices by 8% in 2003, the highest of six consecutive years of increases.

The data also showed that insurers' spending on hospital care rose in 2003, even though insured employees did not make much greater use of hospital services. Under the Medicare prescription bill of December 2003 the hospitals stand to get additional payments for their services. Calpers, one of the nations largest purchasers of health services for its members showed that it was cracking down on hospitals that it felt did not provide the quality of services at a competitive price by eliminating 38 hospitals from it list of approved hospitals.

Insurers' spending on health care increased by 7.4% in 2003. Hospital care accounted for about one half of the increase. Hospital outpatient services increased by about 11 % for the insurers in 2003. These figures really stand out when we take into consideration that the claim of a shortage of hospital workers is beginning to abate. Insured members used hospital services by only about 1% more in 2003 than they did in 2002.

A group has petitioned the NIH to consider invoking the Bayh-Dole Act of 1980 to issue a license allowing the manufacture of a copy of a patented drug that was developed with government aid. This issue was sparked when Abbott Laboratories increased the price of its AIDS drug Norvir by almost 400 %. The government has never invoked the clause in the law that allows it to issue additional licenses if the patent holder somehow misuses the patent.

John Erickson, a former Abbott scientist who received an NIH grant to do the work that led to Norvir was among those petitioning the NIH to act on the matter. According to Abbott the company received grants totaling $3.47 million that helped develop the drug, but that the company had spent more than $300 million to conduct clinical trials and bring the drug to market. Essential Inventions is the name of the group that initiated the petition to the NIH on this matter.

In a somewhat hopeful sign for health-care costs, health insurance premiums are expected to rise up to 10% in 2005, which figure is below the recent increases in the 14% to 18% range that have occurred in this century. Three large health insurance companies, United Healthcare, Aetna and Humana, have already pared premium increases this year. Aetna has signaled that it expects its increase to be about in the 8%- to 9% range this coming year compared to the 14% last year.

One of the factors said to be involved in this slowing of the rate of increase is the increased competition to enroll new members that is going on between the health insurance companies. Competitive pressure from the nonprofit Blue Cross and Blue Shield is also helping to hold down the percentage increase. Regulators and legislators in Rhode Island, New Jersey, Pennsylvania, Maryland, Tennessee and North Carolina are pointing to the big surpluses that have occurred in these companies in the last few years as ample reason as to why any rate increases should be held to a minimum.

Calpers approved a 7.7% "preliminary" rate increase limit for next year for one of its basic self-insured health plans. That plan, PERS Choice Basic, had raised premiums by 18.2% in 2004 and 18.9% in 2003. Calpers plans to announce its full array of 2005 rates in mid-June.

According to the analysis of figures for the Fortune 500 the drug industry is still the most profitable industry in America on all three counts: return on revenue (18.5%), return on assets (16.3%) and return on shareholders' equity (33.2%). The U.S. is the only major industrialized nation without some version of government price control for drugs. In Europe restrictions are also placed on the amount of advertising that drug companies are allowed to utilize.

Listed below is a ranking of the 12 largest drug companies as ranked by the Wall St. Journal edition of May 21, 2004 by revenue for 2003 in billions:

Pfizer, Inc.-$45.2.
Johnson & Johnson-$41.9 (includes non-pharmaceutical revenue also).
GlaxoSmithKline PLC-$37.9
Sanofi-Aventis-$30.9 (the companies are in the process of merging).
Novartis-$24.9 (includes non-pharmaceutical revenue also).
Roche-$24.4 (includes non-pharmaceutical revenue also).
Merck-$22.5.
Bristol-Myers Squibb-$20.7 (includes non-pharmaceutical revenue also).
AstraZeneca-$18.9.
Wyeth-$15.9 (includes non-pharmaceutical revenue also).
Eli Lilly-$12.6.
Schering-Plough-$8.3 (includes non-pharmaceutical revenue also).

Pfizer Inc. announced that it would offer a free seventh prescription to users of six prior prescriptions of Viagra. The program will be named Value Card, as Pfizer attempts to beat off inroads being made on the drug by GlaxoSmithKline PLC's Levitra, and Eli Lilly's Cialis in the impotency market. For the first two months of 2004, U.S. sales of Viagra totaled $177 million, according to data from NDCHealth, an Atlanta, Ga. Based health-research firm. For the same period of time sales of Levitra totaled $19 million, and Cialis sales totaled $12 million.

Recent ads for Levitra have included coupons good for a three-pill sample, after a doctor writes a prescription. Lilly has also provided coupons for users of Cialis. Cialis is said to last longer than the other two drugs, and in an attempt to prove it Lilly has been offering vouchers for follow-up prescriptions for five pills of a competing drug. The pills from the three different manufacturers retail for about $10 per pill. Once again we wonder about how much these "free pills" get added into the cost of the drug, for which the consumer ends up paying more in the end.

When talking about pricing and drugs the issue of "average wholesale price" almost always enters into the argument. In a suit brought against the consortium of drug companies that comprise the TogetherRx group that was filed in the U.S.District Court in Boston in 2001 this issue is one of the key elements in the case. The drug companies base their discounts in part on the AWP prices published by Hearst Corp.'s First DataBank Inc. unit. These prices are not available for the public to obtain although several consumer groups are pushing this issue right now.

The average "list price of drugs across the board in the U.S." is 6% higher than at this time last year, according to Richard Evans, a pharmaceutical analyst at Sanford C. Bernstein in New York. This is in spite of the fact that the drug companies have had extensive layoffs in an attempt to lower their overhead. Merck & Co. has begun to cutback on about 5% of its workforce, or 3,200 people. Schering-Plough Corp. hopes to cut back on 10% of its workforce through layoffs and early retirement. Johnson & Johnson is centralizing some administrative functions at five of its drug units thereby eliminating an unspecified number of employees.

Health care spending in the U.S. rose to $1.55 trillion in 2002, a 9.3% increase that surpassed growth in the rest of the U.S. economy for the fourth year in a row according to the Department of Health and Human Services. Katherine Levitt, director of the National Health Statistics Group in the Centers for Medicare and Medicaid Services, one of the co-authors of the study said that: "This continued acceleration injects pressure into the health-care system, and everyone-from businesses, to government, to consumers-is affected.

Health-care spending in 2002 reached 14.9% of gross domestic product, up from 13.9% in 2000. This amounted to $5,440 per person in 2002, up from $5,021 in 2001. Cynthia Smith, an economist at the Centers for Medicare and Medicaid Services concluded in an article that she wrote that appeared in the journal Health Affairs that prescription drug spending jumped 15.3% in 2002 over 2001, and accounted for 16% of the overall health-cost increase.

Researchers also found that the costs for Medicaid were approaching the costs for Medicare. Medicaid spending soared 11.7% in 2002, to $249 billion, while Medicare spending increased 8.4% to $267 billion. The two programs taken together accounted for about one-third of total health-care costs. The number of new drugs approved by the FDA fell to 17 in 2002, but reached 20 by November 2003. The highest number of new drugs approved in one year was 53 in 1996.

Soaring health care costs have been in the news, especially as to how it has impacted municipal, state and the federal governments. The city of New York reached the first important labor agreement with its municipal workers that reflect on this problem. In the accord that was reached with its municipal workers and retirees the city announced that it expected to save as much as $100 million in annual savings through numerous steps, including higher co-payments for doctor visits.

Mayor Michael Bloomberg announced that the agreement was consistent with his policy of not paying for increased wages and benefits unless the unions agreed to offsetting cost savings. Under the deal, city workers and retirees will average $200 more in out-of-pocket health care costs per year. Co-payments to primary care physicians will increase from the previous amount of $10 to $15, and co-payments to specialists will increase to $20 from the previous amount that was $10.

Co-payments for hospital stays will rise to $300 from $200, while co-payments for emergency room visits will double to $50. In addition, 500,000 city workers and retirees will begin paying a $35 annual administrative health fee, which still enables the unions to claim that city workers do not have to pay any health insurance premiums. The agreement begins in April 2004 and runs for 2 years. Under the agreement the city will contribute to a special fund for cancer, asthma and psychiatric drugs, which was close to insolvency. In fact the unions said that the reason why they eventually agreed to the deal was because of the poor financial condition of this special fund for the drugs that its members needed.

As part of the agreement the city will contribute $100 more per year into the welfare fund for all city workers and retirees, a fund that is used to finance optical and dental services and drugs not covered by other plans. Co-payments for drugs which previously had cost from nothing to $6 will cost $5 for generic drugs to $35 for brand name drugs not on the insurers formulary. The agreement also calls for a mandatory mail order program for many of the drugs.

Thomas A. Scully, who was the administrator of the Centers for Medicare and Medicaid Services has resigned. He joined the law firm of Alston & Bird, a law firm based in Atlanta that has many hospitals, drug companies and other health care companies as clients.

Mr. Scully was the object of a bidding war by law firms and equity investment firms once it became known that he would resign. Health and Human Services Secretary Tommy G. Thompson approved a waiver to exempt Mr. Scully from certain parts of the federal ethics law when it became known that he would leave his post. The waiver let him negotiate with potential employers while he helped to write the Medicare law.

According to a study done by Bain & Co., a consulting firm, a drug company will invest about $1.7 billion in order to be able to garner FDA approval and bring a single drug to market. Tufts Center for the Study of Drug Development put the cost at $802 million when it released its study in 2001. The Bain's study also found that for every 13 drugs that start out in animal testing, only one in makes it to market. The FDA received 2,374 applications to test drugs in clinical trials in 2002, up from 1,596 in 1986.

The problem in this figure is that it is subject to a wide interpretation when coming to this conclusion that the number is $1.7 billion. Ask 2 accountants how to interpret an accounting rule and you will come up with 5 answers. What numbers are included in determining what expenses are included in this figure? Is it only items involved in the R & D budget, or do you include some extraneous items such as consumer advertising costs, lobbying expenses, general administrative expenses, interest expenses, etc.

The new Medicare bill outlines many changes in reimbursement methodology including those that will effect the biotechnology companies. In 2004 the government will reimburse physicians for certain biologics at 85% of the Average Wholesale Price (AWP) versus the 95% rate that has been set up to now. Starting in 2005 these drugs will be reimbursed at 106% of the Average Selling Price (ASP) plus an additional amount for the cost of administration by the medical professional.

Thus we see that Medicare will be moving away from the AWP system for reimbursement to the medical professionals, towards the ASP system which we feel is a step in the right direction. Beginning in 2006 rates will be based on "competitively biddable drugs and biologics." This is another step in the right direction to arrive at a more reasonable pricing structure under Medicare. We discuss this issue more fully later on in this article.

Is the claim that is being made by many U.S. corporations that their rising costs for retiree's health benefits has become one of the main reasons that American companies are becoming noncompetitive with foreign corporations true? When we look at the facts we can see that this claim is not an accurate one. As an example it does not take into account the fact that at least half of this country's major employers have caps on the amount that they will spend on these costs for their retirees.

This was one of the surprising results of a survey of 435 large companies done by the Kaiser Family Foundation and Hewitt Associates, an employer benefits consultant firm. Once the caps are reached it is the retiree, not the company who is affected by the rising cost of health benefits. IBM is one of the companies that put such caps in place in the early 1990s. The company capped the amount it would spend on the health-insurance premiums for retirees over the age of 65 at $3,000 a year for those who reached 65 and retired after 1992. Pre-1992 retiree health care costs were capped at $3,500. All premium increases in excess of $3,500 are now borne by their retirees.

This point was brought into view as shown in an article in the November 26, 2003 edition of the Wall St. Journal, by Ellen E. Schultz and Theo Francis entitled "Employers' Caps Raise Retirees Health-Care Costs". The amount that "IBM spent on retiree health care last year actually fell 8.3% to $566 million from $617 million in 2001. Meanwhile the amount that IBM retirees paid increased by 67% to $119 million.

It is not only brand name drug companies that have been charged with overcharging Medicaid and Medicare…. generic drug companies have also been charged with the same offense. Watson Pharmaceuticals Inc. of Corona, Ca., has received a subpoena from the California attorney general. The subpoena required the company to produce records in connection with drug prices billed to Medicaid in the state. California filed suit against Wyeth and Abbott Laboratories alleging that the companies inflated prices charged to the state Medicaid program. The Watson subpoena seems to be a continuation of that investigation.

The year 2004 will be the fourth year in a row that health care costs have risen by double-digits. For comparative purposes please keep in mind that the rate of inflation has been in the very low single digits for this same period of time. According to Hewitt Associates, a health benefit-consulting firm, the average annual out-of-pocket costs for employees of large companies have more than doubled since 1998, to $2,126 this year. Hewitt is expecting a 22% increase next year to $2,595.

According to the Commonwealth Fund, which studies health policy issues, 9.6 million workers and family members at companies with more than 500 employees did not have employer-provided health coverage in 2001. At Wal-Mart Stores, the nation's largest private employer, only about half of the roughly one million domestic employees are in a company health plan.

Pfizer Inc. and Governor Jeb Bush (Rep-Fl.) announced that they were extending the program for Pfizer to pay for health counseling for poor patients in the state, in return for staying as one of the four drug companies on Florida's Medicaid formulary from July 2003 through September 2005. The formulary is a list of drugs approved by the state for Medicaid recipients. Pfizer claims that it would deliver $45 million in savings and program investments during this period.

A recent study by the state's Office of Program Policy Analysis and Government Accountability found that the state would have saved an extra $64.2 million if the drug companies had paid cash rebates instead of providing health counseling. Because of this report the state's legislature passed measures mandating that the drug companies collectively provide an additional$16 million in savings during the program's first phase.

According to a survey done by the Kaiser Family Foundation and Health Research and Education Trust health-insurance premiums climbed by 13.9% tin 2003. This is the third year in a row that these premiums increased by double digits. The survey was conducted among more than 2,800 U.S. companies from January through May of 2003. The average premium an employee pays annually for family coverage is now $2,412 up 49% from three years ago. The majority of employers surveyed said that they would be increasing employee premiums again next year.

The Kaiser study found that larger companies that were self-insured had a slower increase in costs: 12.4% down from last year's 12.9% overall increase. Employers also indicated that they would be increasing employee deductibles for the coming year. More insurance companies have indicated that they would be using the "lasering" approach in connection with health insurance policies in 2004. Under this approach, the sicker employees would have to pay higher premiums for their coverage than the healthier employee would be paying.

Employers are still paying the bulk of the costs, since the typical employer pays about 75% of the health costs of its employees. According to the study 34% of the employers increased the employees deductibles, and 34% increased the co-payment for doctor's visits. According to a survey done by Towers-Perrin, the benefits consulting firm, early retirees will continue to pay a significantly higher share of their company's health care costs, namely 41% and those over 65 paying 44%.

On average according to the Towers-Perrin survey, on average the active employee will pay $7,308 for their health-care costs, which is up more than $742 from what it was in 2003.

Deductibles and co-payments for hospital care were required by 4 in 10 plans this year, and tier structuring for prescription drugs has been adopted by many of the plans. Employer's health plans cover 175 million people, including 160 million workers and 15 million retirees. The combination increased health premiums and increased deductibles payable by the employees is becoming a key issue in many of the new labor contracts being negotiated between labor and management in this country.

The FDA announced 354 prescription drug recalls in 2002, which was up from the 248 in 2001 and the 176 in 1998. Although the media has highlighted recalls in other industries, such as the automobile industry, not as much publicity has been given to the high number of prescription drug recalls by the agency. Schering-Plough has been fined over $500 million for deficiencies and safety violations in it manufacturing facilities in the last year alone.

This situation will hopefully be changing very shortly since the FDA has announced it is overhauling the regulations on the manufacturing process for the drug industry. It will be the first change in these rules in almost 25 years. The first of these changes that have been announced involve the use of new quality testing technologies for the industry.

Up to now, once a plant has received approval from the FDA, it did not make economic sense for the manufacturers to try and change the manufacturing process. If a drug manufacturer made a change in his plant, it would mean having to undergo a new set of tests that would delay the production of a drug for many years. There was no inducement to make the change because of the lengthy process involved in getting the new approvals from the FDA. Thus revamping manufacturing facilities was one of the lowest priorities on a manufacturers "to do" list.

Dr. Mark McClellan, the former head of the FDA told the industry in a speech in March that: "Other high-tech industries…. have achieved enormous productivity gains in manufacturing in the last 25 years. We should expect nothing less from the pharmaceutical industry." According to an analysis of financial statements by Raymond Scherzer, senior vice president for manufacturing at GlaxoSmithKline the top 15 drug companies spent a total of about $90 billion on manufacturing facilities in 2002.

In the last three years the government has collected over $4.21 billion in fines, settlements and restitution payments from the health-care industry. This far exceeds the $3.29 billion that it collected in the 10-year period prior thereto according to figures that were recently released by the Health and Human Services Inspector General.

Included in this amount is the $500 million that has been assessed against Schering-Plough Corp. for plant violations at its production facilities. The company has set aside another $150 million in liabilities resulting from marketing violations that are being investigated by the U.S. attorneys in Philadelphia and Boston.

One of the reasons for the increase is that the number of federal criminal prosecutions of health-care companies and workers jumped 34% last year to 333 according to figures from the Office of the HHS Inspector General. Between 1996 and this year, Congress more than tripled the budget for Medicare and Medicaid enforcement at the HHS Office of the Inspector General, and more than doubled the budget for the same type of work by the FBI. Another reason for the sharp increase in the number of cases that have been settled is because if a health-care company goes to trial and loses it can be barred from federal insurance programs for a minimum of five years.

Thomas A. Scully, former administrator of the Centers for Medicare and Medicaid stated: " It is abundantly clear, from many studies and Congressional hearings, that we are significantly overpaying for outpatient drugs under Medicare." In an attempt to remedy this situation the government will announce shortly some cuts in what Medicare will pay for cancer drugs that are administered in the doctor's office. At the same time it will announce a modest increase in the amount that it will pay to the doctors who administer the drugs.

The root of the problem continues to be the "average wholesale price" (AWP) system that Medicare uses in connection with payments for drugs. Doctors typically pay 66% to 87% of the AWP according to studies done by the GAO. Medicare coverage for cancer treatments is important because the chance of developing cancer increase in the aging process. The median age at which cancer is diagnosed is 68. About 60% of all cancers are diagnosed in people 65 or older.

One of the possible remedies to this situation is for the federal government to do its own surveys of the pharmaceutical market instead of using the AWP. Using this methodology the market place would determine what price Medicare pays for drugs rather than the numbers given to the government by the drug industry. Another possibility would be to continue to use the AWP system, with the numbers being submitted by the drug companies being subjected to closer scrutiny than what is used today.

According to the C.B.O., use of generic drugs instead of brand-name drugs could save consumers $8 billion to $10 billion dollars a year. Generic drugs are equivalent to brand-name drugs in bioequivalency since they are chemically identical to the branded counterpart. An advertisement that ran in the Washington Post gave the mistaken impression that generic drugs can't provide the same life-saving treatments to patients facing deadly illnesses.

Many of our lawmakers are beginning to learn first hand about the high cost of drugs. Representative Jo Ann Emerson (Rep.-Mo.) who was instrumental in passage in the House of the drug re-importation bill found out first hand when she saw the drug bills of her mother-in-law, who spends as much as $1,200 a month on her prescription medication. Representative Dan Burton's (Ind.-Rep.) wife spends about $360 a month for tamoxifen for breast cancer.

One of the biggest reasons for the escalating costs of prescription drugs in this country is the growing army of salespeople being employed by the drug industry. The drug industry is one of the few industries in this country that has seen an increase in the number of salespeople in spite of the recession that the country has been going through.

Merck & Co. has added 1,500 sales reps in the U.S. since 2001, bringing its total to about 7,000. The completion of the merger between Pfizer and Pharmacia resulted in an increase of 3,000 sales force at Pfizer to an army of 11,000 sales reps. The combined company has11 separate sales forces calling on primary care physicians up from 3 separate sales forces less than a decade ago.

The industry now has a total sales force of 90,000 sales reps, which is almost triple the number that existed in 1993. According to Sanford C. Bernstein & Co., an investment firm, the industry spent more than $12 billion on its sales force last year. Add to this number the approximate $2.76 billion that the industry spent on consumer ads last year and you see how the expense side of the ledger continues to grow for the drug industry. This in part helps to explain the increase of about 14% by the American consumer for prescription drugs to $161 billion in 2002. The average sales rep had 529 meetings with doctors in 2001, which is down from the 808 meetings in 1996

According to a study from the Urban Institute, spending per enrollee has grown on average 9.6% a year at Medicare and 11.1% per year at private insurers since 1970. Today, there are 4.6 million Medicare beneficiaries enrolled in managed care, which is 25% less than there were 6 years ago. IMS Health, a health care information company estimated that the rate of increase in the number of prescriptions at retail pharmacies and mail-order pharmacies dropped to 1.8% in the first quarter of this year compared to 5% in the first quarter of 2002. In the five years ended in 2001, the cost to the average consumer of prescription drugs and over-the-counter medicines rose nearly 50%, to $449 a year.

Of the 28,000 employers who provide drug benefits to retirees the total cost for their retirees comes to about $22.5 billion this year according to Hewitt Associates, a benefits consulting firm, and the Kaiser Family Foundation. About one in three big employers offered retiree health benefits in 2002.

The drug industry hired 675 lobbyists from 138 firms and spent a record $91.4 million on lobbying activities last year, according to twin studies released by Public Citizen's Congress Watch, a non-profit consumer advocacy group founded by Ralph Nader. The number of lobbyists increased by 4% from 2001, and spending rose 12% from 2001 according to Public Citizen's. The industry has spent a total of $650 million since 1997 lobbying Congress since 1997, of which 4478 million was spent on direct efforts, and 4172 million on federal campaigns, TV ads, hiring academics and funding non-profit organizations.

HMO premium rates rose an average of 18% in 2004, according to preliminary figures from Hewitt Associates, a human resources consulting firm. This figure represents a drop however from 2003 in which the average premium rate rose 21%. After plan changes, negotiations and terminations, the average HMO premium increased 17.5% this year. According to Hewitt the number of companies with $15 co-payment for a physician's office visit increased this year to 43% from 24% in 2002. Employees offering a 410 copayment declined to 39% this year from 58% in 2002.

The European Commission has adopted a proposal that would permit drug companies in Europe to offer their drugs at whatever price they want. Currently most European countries ban the sale of drugs until their government fixes the price at which the medication could be sold. That is the main reason why prices for drugs in Europe are cheaper than they are in the U. S.

Abbott Laboratories agreed to settle an investigation of its sales practices of its tubes and pumps used to deliver liquid food directly into patient's digestive tracts for $622 million. The U.S. attorney's office for the Southern District of Illinois conducted the investigation. The investigation centered around the companies giving the tubes and pumps for free in return for which the company received large orders from hospitals and nursing homes for the liquid food that was used by these devices. Some of the hospitals and homes that received these devices for free, are thought to have illegally billed Medicare and Medicaid for them. The settlement is still subject to approval by a judge in the Southern District of Illinois.

A spokesperson for Abbott stated that this matter had nothing to do with the TAP matter. TAP, which we discuss in this article, was a joint venture of Abbott and Tadeka Chemical Industries that pleaded guilty to fraud and conspiracy in connection with the marketing of the cancer drug Lupron. TAP was accused in that matter of giving Lupron to doctors for lower than the reported cost of the average wholesale price that Medicare and Medicaid uses to set the price for a particular drug. TAP has agreed to pay $875 million to settle that matter but the criminal portion of that case is still pending.

AstraZeneca Pharmaceuticals has pleaded guilty to a felony charge of health care fraud and agreed to pay $355 million to settle the criminal and civil charges against it. Of that amount, about $64 million is a criminal fine, $266 million will go to settle the civil charges and about $25 million will go to the states that were defrauded as part of the Medicaid fraud, since the states partly finance Medicaid.

The government said the company's employees had given illegal financial inducements to as many as 400 doctors across the country to persuade them to prescribe the drug, Zoladex. Included in the inducements to the doctors were thousands of free samples of Zoladex, illegal financial grants, consulting fees, free travel and entertainment to the doctors. Prosecutors said that they would not charge any Astra employees for the illegal activities which they alleged began in 1991 and continued till last year. Zoladex is a medication that is administered in the doctor's office in connection with the treatment of cancer.

The government had previously collected a fine of $875 million in a settlement in October 2001 with TAP Pharmaceutical Products in connection with the sale of its cancer treatment drug Lupron. TAP was a joint venture of Abbott Laboratories and Takeda Chemical Industries. Sales of Lupron were $876 million in the U.S. last year, compared with $212 million for Zoladex.

The prosecutors also alleged that Astra had reported false and inflated prices for Zoladex to the federal government in connection with the "average wholesale price" of the drug. Once again the matter of AWP enters into the picture as it has time and time again in connection with fraud against the government. Astra had reported the AWP for the drug at $300 for a month's dose of Zoladex when in fact it was only charging the doctors $170 for that dose. Astra has also disclosed that federal prosecutors in Boston had requested documents involving the sales of Prilosec, the ulcer and heartburn drug. The company also said that the FTC was investigating its advertising and marketing in connection with Nexium, the company's next generation drug to Prilosec.

Schering-Plough Corp. announced that it has received a letter from the U.S. attorney's office in Boston saying that it was the subject of a criminal investigation into its prescription drug marketing and pricing practices. It is also alleged that employees of the company destroyed documents after the company had received a subpoena to produce these documents.

According to the company the prosecutors are examining whether the company gave financial grants and other items of value to doctors and other customers illegally, and also whether or not the company gave false pricing data in connection with the average wholesale price of its drugs. The investigation also covers the marketing of its drugs for unapproved uses. If found guilty of the obstruction of justice matter the company could be barred from dealing with the Medicare and Medicaid programs.

The California Public Employees' Retirement System (CalPERS), which manages more that $130 billion in pension funds, is the nation's second largest purchaser of health care. Only the federal government spends more for its members than does CalPERS. It is expected to spend about $3.3 billion this year on health care coverage for its 1.3 million members. Seventy percent of the pension fund's members belong to HMOs.

The health panel at CalPERS voted to require HMOs that it contracts with to provide more data on costs and outcomes for treatment of its members. At the same time the organization wants increased medical coverage in every California county within which its members reside. The panel also voted to give the HMOs longer term contracts than the yearly ones that had been the case up till now.

CalPERS members experienced a 25% increase in premiums last year. The increase for this coming year will average between 16.7% and 18.4% in 2004. The organization originally dealt with over a dozen HMOs, but that number was cut down to three a few years ago. The three HMOs that it deals with are Kaiser Permanente ( rise by 16%-18.2% for its 422,000 members), Blue Shield of California (rise by 17%-18% for its 460,000 members) and Western Health Advantage rise by 32.8% to 34.5% for about 35,000 members). CalPERS entered into a multi-year contract with Blue Shield subject to re-pricing mechanism in 2005 and 2006.

The panel also announced that it would utilize a "regional pricing" structure that would take into account geographical differences in the cost and use of medical care. This is needed because it was felt that the Southern California members were in affect subsidizing the Northern California members. As part of its new rate schedule,it also adjusted co-payments for emergency-room visits at $50, and changed the amount of co-payments for non-formulary prescription drugs.

The cost of Medicaid has grown by more than 25% in the last two years and by over 50% since 1997. The Bush administration has announced a program to give the states expanded powers over running the system. Moderate Republicans have joined forces with the Democrats to try and have the federal government allocate more money for Medicaid. Senator Susan Collins (Rep.-Me.) and Senator John D. Rockefeller IV ( Dem.-W.Va.) have sponsored legislation in the Senate to achieve this goal. The Bush administration has announced its opposition to the proposed legislation.

Medicaid insures one-fifth of all children in the U.S. and helps pay for two-thirds of all nursing home residents. The Medicaid program costs more than $250 billion in federal and state money. With both the federal and most state governments facing growing deficits no immediate solution appears available on the horizon. Prescription drug costs are the fastest growing part of Medicaid, with the tab having doubled in the last 4 years to a cost of $23 billion last year.

In February Georgia reduced Medicaid payments to nursing homes for residents from $98.50 per day to $92.50 per day. To complicate matters even further is the fact that Medicaid enrollment in the U.S. is growing at its fastest pace since 1992. State officials and health policy experts say that these cuts will only meant that more and more Americans will be uninsured. According to the latest figures Medicaid now covers over 50 million people. According to the National Conference of State Legislature, almost every state has made or is contemplating cuts in benefits or payments to health care providers.

The government issued a compliance guide for the drug industry, telling the manufacturers that they must not offer any financial incentives to doctors, hospitals, insurers or pharmacists to induce the prescribing of particular drugs. According to Janet Rehnquist, the inspector general of the Department of Health and Human Services such payments have a "high potential for fraud and abuse".

The law, known as the anti-kickback statute, forbids some practices that are common in other industries, Ms. Rehnquist said. The guide goes on to state: "A lawful purpose will not legitimize a payment that also has an unlawful purpose." Ms. Rehnquist went on to state that drug companies and benefit managers should disclose their financial arrangements to the people who pay for prescription drugs, including employer-sponsored health plans. A drug company should not have any influence whatsoever over the content of professional education programs. Research and education grants should not be "based in any way, expressly of implicitly," on a doctor's ability to generate business for a drug manufacturer.

Ms. Rehnquist also stated that the new guide condemns any arrangement where the drug companies pay doctors for the time they spend listening to sales pitches, even if the pitch is made in the doctor's office. Drug companies are responsible for the integrity of the data they report to the government. The data reported should take into account any discounts, rebates, price concessions or other benefits offered to the purchaser.

GlaxoSmithKline, PLC, the world's largest maker of AIDs drugs announced it was cutting the price of some of the AIDs drugs by as much as half in poor countries. Among the drugs effected by the price cuts are Combivir, whose price was cut from $1.70 cents a day to 90 cents a day versus its price in the U.S. of $18 a day. This price will be available to qualified customers in 63 countries, including all of sub-African countries. These price cuts will mean that the drugs will be available at just about the same price as some of the generic AIDs drugs.

The company said it was able to reduce the drugs' prices because it is making the drugs less expensively as a result of improvements in it manufacturing techniques. The company also stated that some of the suppliers of the raw materials that go into the medicines had reduced their prices, which in turn meant that Glaxo could reduce its price for these drugs. Last September Glaxo had reduced its prices for some of the AIDs drugs by as much as a third.

In discussing the issue of the high cost of prescription drugs, we have not run across any discussion involving the efficiency of the manufacturing process that the drug company's use to make their products. We also have not run across any discussion as to the cost of the raw materials used for making the drugs. We wonder if any of our viewers have any thoughts on these issues that may further enlighten us. If so we would appreciate your emailing us with your thoughts on this matter.

It is our belief that one of the key problems in the prescription drug reimbursement system is the average wholesale pricing system (AWP) that is used for both Medicaid and Medicare covered medications. Medicare and Medicaid combined spend more than $39 billion a year on prescription drugs. While the majority of Medicare prescription drugs are not covered unless administered in a physician's office, Medicaid beneficiaries are covered by governmental coverage for their usage. Current Medicare law allows for a reimbursement at 95% of the AWP for drugs administered in the physician's office.

AWP should be considered similar to the list price of a car in a car dealer showroom. No one pays the listed price. Specialty pharmacies and other bulk purchasers can obtain substantial discounts from the AWP. If the provider obtains a cheaper price than the AWP, he can therefore make more money in administering the drug.

The Centers for Medicare and Medicaid (CMS) has threatened to change the system to a more realistic one, namely one based on what the drug costs in the real market. Rebates and discounts must be taken into consideration at arriving at this market based pricing. The House Ways and Means committee is presently investigating this matter. The CMS has set a date of May 2003 for Congress to act on this matter.

One of the other problems associated with the AWP system is that it is open to fraud. An example of the fraud going on in connection with drug pricing was shown by the settlements by Bayer AG for $251.6 million in civil damages for violation of the Federal False Claims Act and a $5.6 million criminal fine for violating the Food, Drug and Cosmetic Act. The criminal portion is subject to approval in the U.S. District Court in Boston. The company cheated Medicaid out of the required price discounts and rebates for Cipro, its best selling antibiotic, as well as the blood-pressure drug Adalat. In a related matter, GlaxoSmithKline PLC, agreed to pay $87.6 million in civil damages to settle the fraud charges against it in connection with the pricing of its antidepressant Paxil, and also its allergy spray Flonase. It was not charged with any criminal wrongdoing.

The settlement was the largest ever for Medicaid fraud and was the result of a 3 year investigation. "These schemes shed some light on what is behind rising drug costs for states," said Maine Assistant Attorney General Marci Alexander, who handled the case for the state.

Federal prosecutors say both companies failed to report to the government the discounted prices given to the health-maintenance organization Kaiser Permanente Medical Care Program. The money from the settlements will be divided between the federal government, the District of Columbia and every state government except Arizona. $34 million of the settlement will go to the estate of George J.Couto, a whistle-blower who worked for Bayer. Mr. Couto died from cancer at the age of 39. A portion will also go to public health clinics, AIDS programs and other groups that are allowed to buy medicines at the Medicaid prices. Maine Attorney General Steven Rowe said  that the state will get $2.5 million as its share of the settlement for Medicaid fraud by Bayer and Glaxo. The money that the state receives from the settlement will go to the MaineCare program that was formerly known as Maine Medicaid. 

Bayer's Cipro scheme began in 1995 when Kaiser, a nonprofit health insurer with 8 million members threatened to stop buying the drug after J&J offered its antibiotic Floxin at a much lower price. The companies avoided disclosure of the price breaks by slightly changing the labels on the drugs to make it appear as if they were from a different maker. According to FDA records Kaiser has its own national drug code numbers. In a study done under the leadership of Dr.Stephen W. Schondelmeyer, a professor of pharmaceutical economics at the University of Minnesota it was found that the number of medicines that had been relabeled much as Bayer did with Cipro, had grown from 791 in 1990 to 20,801 this year.

The FDA announced that it would require bar codes on all medications, so that hospitals could use scanners to make sure patients are getting the correct dose of the right medication. These proposals will be subject to 90-days of public comment before the proposals can be adopted. According to the commissioner of the FDA, Mark B. McClellan, the system could prevent 400,000 bad drug reactions over the next 20 years. The bar code system is already in use in VA hospitals, which prints its own bar codes. It is estimated that it would take about 3 years before the system could be implemented. The UPC bar codes used in supermarkets are too big for drug packages, and drug companies have argued over the standards to be used for drug packaging.

The FDA will order the drug companies to come up with codes identifying each drug and dosage. It has not been determined whether or not lot numbers and expiration dates will be included in the new system. It is estimated that it would cost pharmaceutical companies $50 million to put bar codes on every product and the hospitals would have to spend about $7.2 billion on scanners and computers. The Institute of Medicine of the National Academy of Sciences estimated in 1999 that medical errors killed as many as 98,0000 people a year in the United States. About 7,000 of those deaths were attributed to drug errors.

Bar codes now appear on only about 35% of all hospital medications, which are typically packaged in single doses of a pill or two or in a single syringe ampoule. Under the system envisioned by the F.D.A. every patient admitted to a hospital would receive a bar-coded bracelet. A nurse would scan in the patient's bar code as well as the bar code on any medication being administered to that patient. The computer instantly reads whether the medication is the correct drug, with the correct dosage, dispensing time and delivery method that the doctor ordered, and will sound an alarm if there is a mismatch.

Pfizer, Inc. said it would begin printing bar codes on individually wrapped packaged pills used in hospitals. This will be the first time a major pharmaceutical company will integrate its medications into a hospital's computerized systems to assure that a patient is getting the right medicine in the right strength at the right time. Pfizer expects each dose of all 30 medicines it sells in blister packs for hospital use to feature a bar code and text that identify the medicine, its dosage, lot number and expiration date. It is estimated that only 10% to 15% of hospitals have the scanners available to use the bar code system, but this is the kind of technology that will ultimately save lives. According to a report by the National Institute of Medicine issued in 1999, medication mix-ups accounted for about 7,000 hospital fatalities.

The system will add a cost on to the medications being computerized, and the hospitals will also have to add a cost on to update their system to have bar scanners available to read these bar codes. Another question that arises in connection with the bar coding system is that standards for bar coding have not been set yet. Pfizer said its bar coding system will use the bar-code standard called RSS14, developed previously by the Uniform Code Council, a nonprofit organization. Abbott Labs estimated that it is about 90% finished with a program announced before Pfizer's to add bar codes to individual units of intravenous solutions and injected drugs. Abbott's coding does not include information about expiration date or lot number.

The F.D.A. also announced that it was revamping its system for reporting bad medication reactions and bad reactions to blood or blood products. Pharmaceutical companies would be required to report even "near misses" in connection with medication errors, and blood banks and blood product makers will have to report all suspected serious reactions, not just fatalities as is the present requirement.

One of the other areas that the hospital information executives listed that was of key importance to them was the ability for a computer-based practitioner order entry system that they needed to have up and running within the next two years. The order entry system would allow staffers in hospitals to enter prescriptions and to order needed tests for the patients while at the same time having the capability of preventing errors from occurring.

Another key item for the hospital executives is the ability to invest in bar-coded medication management systems that would allow hospital staffers to match codes on a drug label with those on a patient's wristband. The wristband would contain information on the patient's diagnosis and the treatment options available for that particular patient.

Because the new software system that set Medicare payment rates for outpatient hospital services had been expected to be online by January 1, 2002, (but instead had been delayed), the federal government originally planned to delay the payments of about 20 million Medicare outpatient hospital claims for three months. This did not mean that the hospitals wouldn't be paid, it did mean however, that they would be paid according to a formula based on 2001 payments. Because of the loud outcry from hospital groups and legislators, the new rates did not go into effect until April 2002.

Medicare has estimated that it would pay about $17.5 billion in outpatient medical bills for Medicare funded services in 2002. The Centers for Medicare and Medicaid Services handles payments for the Department of Health and Human Services. "I don't blame (hospitals) for being upset," said Tom Scully, CMS's administrator. CMS's Outpatient Coding Editor software system was supposed to be ready to process these claims using the new Medicare payment rates on January 1, 2002.

The agency asked its contractors, who use the software, not to process outpatient claims for outpatient services. It also urged the hospitals not to collect co-insurance payments from patients until after April 1, because it would be unable to determine until then what the appropriate co-insurance should be since it did not know what the proper billing rate was for the Medicare outpatient services.

To help deal with the problem the agency planned to pay hospitals during the first three months of 2002 an amount equal to 90% of the Medicare payments each hospital received from September 1, 2001 through November 30, 2001. Once the correct amount has been computed after April 1, the CMS would make the appropriate payments to the hospitals with interest.

Hospital groups lobbied against the plan, and instead it looks like the government will delay the new Medicare payment rate schedule. It now looks like the new Medicare payment rate schedule will not go into effect until April 1, rather than the January 1 date that was mandated by the law. Since the software is not in place for the new rates, Medicare does not know how much to pay the hospitals for outpatient services. Officials from CMS however are unsure as to whether or not the Medicare agency has the legal authority to do this, since the act required the January 1 date to be the effective date for the new rate schedule. 

Barrett Toan, the chief executive of Express Scripts Inc., a prescription benefit management firm (PBM) announced that his firm would disclose financial relationships with pharmaceutical firms in the future, shortly after his firm was served with a second subpoena in connection with a federal inquiry of pharmacy-benefit prices. The company also announced that it had received $2.48 billion in rebates and fees from pharmaceutical companies in the last three years.

The company disclosed the rebates under a change in accounting practices in a regulatory filing. Under the change the rebates were used to decrease the cost of goods sold, rather than as revenue items. If the rebates were counted as revenue items, it falsely increases the amount of revenues on the balance sheet. Sooner or later the problem is going to be addressed in connection with the "average wholesale price (AWP)" issue that is used in the pharmaceutical industry to determine how much the government pays for Medicaid and Medicare prescription drug costs. Shouldn't any rebate that a pharmaceutical company gives for one of its drug be used to lower the AWP?

According to Employee Benefit Research Institute, a nonprofit group in Washington only 37% of retirees in the 55 to 64 age category have an employer plan. Watson Wyatt Worldwide, an employee benefit-consulting firm reports that only 3 in 10 Medicare beneficiaries have additional coverage from their employers.

Of the 10 Medigap plans, the last three, Plan H through Plan J, offer a prescription drug benefit. Plan J is the most comprehensive, covering 50% of drug costs up to $3,00. Plan H and I both cover 50% up to $1,250. If you want to buy a Medigap policy, be sure to sigh up for it when you enroll in Medicare. If you wait until you are over 65, you will be "subject to underwriting", or in other words, you may not be eligible for coverage because of a pre-existing condition.

About 11% of elderly people who are eligible for Medicare are enrolled in Medicare H.M.O.'s through Medicare+Choice. You can not be turned down for these plans for any reason if there is a plan available in your area. The number of Medicare+Choice plans available dropped from 346 in 1998 to 155 in 2002 according to the Kaiser Family Foundation. If you are dropped from a Medicare H.M.O., you have a three-month open enrolment window to join a Medigap plan. If you do not join within the allotted three month period of time you will be back in the "subject to underwriting" pool. There are 34 states that currently have some form of prescription drug plan available for low income individuals or families.

The American Federation of State, County and Municipal Employees and the Boston consumer group Prescription Access Litigation filed a suit in State Superior Court in Los Angeles against the four largest-pharmacy benefits managers. Named, as defendants in the suit are Advanced PCS, Merck & Co.'s MedcoHealth unit, Express Scripts Inc. and Caremark Rx Inc. The plaintiffs in the suit allege "unfair competition" under the California law that resulted in consumers and state governments paying more for prescription drugs through higher co-payments and deductibles.

The American Federation of State etc. represents over 1.3 million public employees, while the four-named defendant PBMs manage the drug benefits of about 200 million Americans. The suit alleges that the PBMs steered health plans and consumers to more costly drugs because they were getting rebates and discounts from the drug companies that were not passed on to the members. Even though the union does not contract directly with the PBMs, it is a party to the suit because health care costs are a major issue in collective bargaining.

The complaint alleges that the PBM engaged in several deceptive practices including:

  1. Accepting manufactures rebates.
  2. Earning retail pharmacy spreads.
  3. Including more expensive drugs in their formularies.
  4. Failing to disclose 2% "prompt pay" discounts to plan sponsors.

Express Scripts in a separate action to the lawsuit, announced that it planned to stop taking money from drug makers to promote their products to doctors and patients. The company has more than 50 million members stated that it would continue to promote certain drugs "on our own nickle". The company stated that the new policy would take effect on October 1, 2003.

Barrett Toan, the chief executive of Express Script promised in a letter sent to its customers to promote lower cost drugs and "never recommend switching a member to a higher-cost drug". Investigators for various governmental agencies are investigating whether or not rebates and other fees paid by the drug makers are accurately reflected in the "average wholesale price" (AWP) that is the basis for the amount that Medicare and Medicaid pays to health providers, drug manufactures and pharmacies. Generic drugs represented 46.9% of all medicines purchased by the company's card-holders.


Judge Charles L. Brieant of the Federal District Court in White Plains, N.Y. unsealed a portion of the records in the suit brought as a class action against Merck and its former subsidiary Medco (now known as Medco Health Services) that was settled last month for $42.5 million. Some of the plaintiff's attorneys who represent different health plans have requested that the judge reject the settlement as inadequate. The judge rejected the request of the four news organizations to open all the records in the case. A date still has not been set for a hearing on the merits of the settlement.

The plaintiffs in the suit accused Medco of violating fiduciary duties to customers by failing to disclose the extent of Medco's ties to Merck and other manufacturers. Medco had about $30 billion in sales in 2002, and has about 65 million members. According to some heavily edited documents that the NY Times received and wrote about, Medco received more than $3.56 billion in rebates in the period from 1997 through 1999 from drug manufacturers who were seeking to promote their sales through Medco's services. The plaintiffs allege that Medco did not inform its customers about the rebates that it had received.

The settlement is subject to approval by Judge Charles L. Brieant in Federal District Court in White Plains, N.Y. In several other class-action suits against the PBM that have arisen throughout the U.S., the plaintiff have alleged that the PBMs including AdvancePCS and Express Script have violated their fiduciary duties to customers under the federal Employee Retirement Income Security Act. They violated this fiduciary duty by failing to disclose the extent of their financial ties with the manufacturers. Under the terms of the settlement, Medco agreed to notify customers when it makes changes on its preferred list of drugs and when lower priced generic drugs are available.

As an example of the misfeasance the plaintiff's pointed to the fact that Merck's Zocor (for lowering cholesterol) cost about $116.22 for a 30-day supply in retail pharmacies, versus $82.22 for Pfizer's Lipitor and $90.55 for Bristol-Myer's Pravachol. In spite of this pricing differential, Zocor accounted for 31% of Medco's cholesterol lowering drug sales in December 1999 as opposed to its 25% national sales figure as compiled by IMS Health, a health care data firm. The documents show that Medco persuaded doctors to switch more than 71,000 prescriptions form Pfizer's Lipitor to Merck's Zocor even though Lipitor was a more expensive drug. When Merck attempted to spin off its Medco division in 2002, the prospectus disclosed that the share of Merck drugs sold through Medco was 37% higher than the share for non-Merck drugs.

One of the key problem areas as we see it in connection with the issue of drug pricing is the "average wholesale price" list that is used to determine how much a particular drug should cost a governmental body in connection with Medicaid and Medicare. This issue is at the core of the suit being brought by Richard Blumenthal, the Connecticut attorney general against 7 pharmaceutical companies. Mr. Blumenthal asserts in his complaint that the companies inflated the "average wholesale price" resulting in a $15 million overcharge to the Department of Social Services in Connecticut. Damages to be sought on behalf of consumers have not yet been calculated, he said. The seven drug companies are Aventis, Dey (a unit of Merck), GlaxoSmithKline, Pharmacia, Roxanne Labs (a unit of Boehringer Ingelheim), Schering-Plough and Warrick Pharmaceuticals. Similar lawsuits are pending in New York, California and Texas.

The five-year old investigation by the U.S. Attorney's office in Boston into the sales practices of prescription drug company's is not over yet. The office now has subpoenaed records involving the distribution of the best selling drug Prevacid, which is made by TAP Pharmaceuticals. The records of two prescription drug benefits managers, Caremark Rx and Express Scripts have been subpoenaed. Prevacid is an ulcer treatment drug that had over $3 billion in sales in 2001.

Federal investigators told the PBMs that they were not the targets of the current phase of the investigation. Bristol Myers Squibb and Schering-Plough have also been subpoenaed for their records by the Boston U.S. Attorney's office. It is believed that the investigation of Schering revolves around Intron A and Rebetron, its line of hepatitis C drugs, and Temodar, an oral chemotherapy agent for brain tumors. The drug companies and what the doctors do with the free samples of the drugs is believed to be the subject of the investigation.

Federal prosecutors in Boston have also subpoenaed the records of AstraZenaca in connection with the marketing of the ulcer drugs Prilosec and Nexium to the New England Medical Center as well as service and purchase agreements with AdvancePCS, a pharmacy benefits company. The FTC has also issued a demand for documents tied to the advertising and marketing of Nexium. As we point out in our article Patents and the Cost of Prescription Drugs Part II, Astra recently lost a battle in connection with its patent for Prilosec.

According to a study from the Urban Institute, a nonprofit research center, employers and managed care companies paid $1.5 to $3 billion to cover part of the $24 billion hospitals spent caring for patients who could not pay their bills in 2001. In addition, the federal taxes, of employers help to pay for programs that cover the greatest share of hospital costs for the uninsured. "This is a huge issue for everybody in the private sector and the public," said William T. McCallum, chairman of the American Association of Health Plans, a trade group for 1,000 health insurers, and chief executive of Great-West Lifeco. Many insurers are also calling for some form of universal health coverage now so that the estimated 41 million Americans who are not insured will have some kind of health care coverage. Many are calling for a tax deduction for the premiums for health-care coverage. If you can give an entertainment deduction for taking a client or prospect to a sports event, why not get a deduction for premiums for health-care coverage?

During the past decade, U.S. prescription drug sales have quadrupled to $192.2 billion a year in 2002 from $48 billion in 1992. European drug sales have increased by a little over 50%, going to $88 billion from $57 billion in the same period of time. Worldwide drug sales increased by 8% last year to $430.3 billion according to IMS Health, a health information and consulting firm. The top 10 best-selling drugs accounted for $44.7 billion of the global sales, an 11% increase from 2001. Pfizer's Lipitor was the number one selling drug worldwide, taking in a record $8.6 billion in sales. Merck's Zocor came in 2nd place for worldwide sales with $6.2 billion in sales. AstraZeneca's Prilosec came in third worldwide with sales of $5.2 billion, but keep in mind that a generic version of Prilosec is now on the market. Lilly's Zyprexa was the fastest growing drug of those in the top 10, since its sales increased by 21% to $4 billion in 2002.

Prescription drug sales in the U.S. grew about 12% in 2002, from $172 billion in 2001 to the $192.2 billion figure in 2002, according to IMS Health. About 5% of the growth in last year's sales volume came from a higher volume of prescriptions and a changeover to more expensive prescriptions. Just 3% of the growth came from the introduction of new drugs. IMS predicted that prescription drugs sales would increase by 10% to 11% in 2003 as opposed to the 17% growth rate that it had from the 2001-2000 period. Drug price increases averaged about 4% in 2002, which was about double the rate of inflation.

Pfizer had the most prescription drug sales in 2002. Novartis AG's sales grew the fastest among the top 10 drug companies. Bristol's sales dropped the most, about 13% because of the loss of patent protection for several of its drugs. J&J took over 3rd place switching slots with Merck, which dropped to 4th place. Lily dropped to 10th place from 7th because of the loss of patent protection for Prozac, the anti-depressant.

Pfizer Inc., Merck & Co. and GlaxoSmithKline PLC were among several of the large drug companies that donated more than $200 million to Germany's public health-insurance system, for which they received the promise that the country would not cut drug prices for 2 years. Germany reneged on that promise by announcing that it would cut drug prices by 6% in 2003. The German government purchases about 80% of the prescription drugs in the country.

In France and Italy drug prices will be cut by about 5% this year. The Japanese government has also mandated across the board price cuts in recent years for its drug manufacturers. The U.S. is the only major industrialized country without price controls for its drug companies. We also are the only major industrialized country that allows direct to consumer advertising by drug companies.

"American end up subsidizing the rest of the world," says Bernie Horn, policy director for the Center for Policy Alternatives, a U.S. based public-policy group. "We pay the very highest drug prices and we finance the biggest part of drug research with federal dollars." Generic drugs accounted for more than 4 of every 10 prescriptions being filled at retail pharmacies according to an article in the November 2, 2002 New York Times written by Milt Freudenheim entitled "Generic Drug Sales Flourish Thanks to Big Companies." According to the latest figures from IMS Health, generic drugs accounted for 51% of all prescriptions filled in 2002.

The Food and Drug Administration announced new rules and procedures that it said it hoped would help companies avoid missteps that often result in delaying approval for new drugs and medical devices. The median FDA review time for a new-drug application has been 12.7 months, but agency records indicate that the give and take in procedural matters between the agency and the applicant adds about 2 1/2 months to the procedure.

The FDA cleared for marketing almost 5,000 new drugs, biologics, medical devices and animal drugs in 2002. On the other hand, drug companies are submitting fewer novel drug applications as shown by the fact that 17 novel drug applications were approved in 2002, down from 30 in 2001, and a high of 60 in 1995, and 56 new drug applications in 1996. The agency approved just 17 new chemicals in 2002, down from 24 in 2001.

The agency approved 32 novel medical devices in 2002, down from 56 in 2001. Among the procedural changes that will take place will be an improvement in communication between the FDA and the developer, so that the developer will have a better understanding of what the FDA is looking for that is missing in the application that is pending before the agency.

Approval times for drug applications inched up last year, thus reversing the recent trend of shorter approval times for drug application by the FDA. In 2002, the median approval time for standard drug applications was 15.3 months, up from 14 months in 2001 and 12 months in 2000.

The median for "priority" applications that the FDA tries to resolve in 6 months, because they involve drugs that promise medical breakthroughs, jumped to 19.1 months. For the previous five years, the FDA had acted on "priority" applications roughly within a six-month period

In addition to the fear of malpractice suits another insidious item is in the mix that also helps to drive up the medical costs for all of us. Health-care fraud accounted for more than half the $1.5 billion the Justice Department collected from civil fraud cases, including doctors and medical groups who billed Medicare for unnecessary lab test last. According to a Harris Interactive poll, nearly 80% of physicians say that malpractice fears had led them to order more tests than are medically necessary. Anyone who has been ill and who has been through this process can well attest to the fact that you often question the need for all the tests that the medical profession puts you through. You can be caught in between the CAT Scan, MRI, X-ray, lab tests etc that your doctor recommends that you submit to.

In agreeing to the $396 billion appropriations bill which covers governmental financing for the fiscal year through September, payments to physicians under Medicare will be increased by 1.6% starting March 1, instead of being cut by the mandatory 4.4% provided under the formula in place for doctor’s payments. It is estimated that this will cost as much as $9 billion over the next 10 years. A provision to help rural hospitals was also included in the spending bill, and that will cost about $300 million this year. The Department of Health and Human Services had originally announced that Medicare payments to doctors would be cut 4.4% effective March 1, 2003. This comes on top of the 5.4% cut that took place in the Medicare payments to doctors in 2002.Doctors at that time faulted both the Congress and the administration for failing to avert the cuts. According to Mr. Scully: "The reduction in physician fee schedule rates results from a formula specified in the Medicare law, and we believe that formula is flawed and must be fixed."

The House had originally passed a bill to address the issue but the Senate failed to act on the measure before adjoining in December. The new schedule specifies the amounts paid to doctors for the more than 7,000 services and procedures for which they treat the over 40 million Medicare beneficiaries. It is estimated that the Medicare bill will run the government over $45 billion to pay the more than 750,000 doctors and other practitioners who participate in the program.

According to Mr. Scully, if the formula accurately reflected doctor's costs, they would receive 1.6-percent increase next year, rather than the 4.4% cut that the formula called for. This is the amount that was ultimately decided on by the Congress instead of the decrease. In March 2001 of this year the administration told Congress that any infusion of new money into Medicare should be used for prescription drugs benefits, " not for increasing payments to fee-for-service Medicare providers." Somehow or other this statement has now been lost in the shuffle. In looking at the situation as a whole, if you increase payments to the doctors, than the government will also have to increase payments to hospitals, nursing homes and health maintenance organizations. With the huge deficit that the federal government is already faced with, where will it find the funds necessary to pay for the cost of Medicare coverage of prescription drugs for the elderly?

Under the formula for payment to the doctors, spending increases with Medicare enrollment and economic growth. The government can not just alter the formula, Congress must enact legislation for the formula to be altered.

The Food and Drug Administration announced new rules and procedures that it said it hoped would help companies avoid missteps that oftern result in delaying approval for new drugs and medical devices. The median FDA review time for a new- drug application has been 12.7 months, but agency records indicate that the give and take in procedural matters between the agency and the applicant adds about 2 1/2 months to the procedure.

Approval times for drug applications inched up last year, thus reversing the recent trend of shorter approval times for drug application by the FDA. In 2002, the median approval time for standard drug applications was 15.3 months, up from 14 months in 2001 and 12 months in 2000.

The median for "priority" applications that the FDA tries to resolve in 6 months, because they involve drugs that promise medical breakthroughs, jumped to 19.1 months. For the previous five years, the FDA had acted on "priority" applications roughly within a six-month period.

In Part I of the articles on Medicare and Prescription Drug Coverage, we wrote that TAP Pharmaceutical Products, a joint marketing venture which is 50 % owned by Abbott Laboratories and 50% owned by Takeda Chemical Industries, pleaded criminally guilty to illegal marketing and health care fraud. In that case the prescription drug at issue was Lupron. Lupron is a drug used in connection with prostate cancer. Another drug used in the fight against prostate cancer is Zoladex, a drug sold by AstraZeneca.

Judge William Young of the Federal District Court in Boston held a hearing on December 17, 2001 in order to determine if the $290 million fine agreed to by the prosecutor's office and the company was a sufficient and proper an amount to settle the matter. The $290 million settlement was approved and is the largest criminal fine ever in a health care fraud matter. TAP had previously agreed to pay $559 million to settle the civil portion of the case.

The case against TAP Pharmaceutical Products involves improper billing by physicians for free medical samples that they received from the drug company. TAP will pay a total of $875 million to settle the criminal and civil charges of fraud against the Medicare and Medicaid programs. The settlement agreement further requires that TAP accurately report its true "average wholesale price" to the government.

Prosecutors also indicted six current and former employees of TAP who are charged with conspiracy to pay kickbacks to doctors for prescribing Lupron over Zoladex. Abbott Laboratories said that it was setting aside about $344 million to settle accusations raised by the Justice Department in this case.

The case involves both improper inducements and free samples of the drug Lupron that is a prostate-cancer drug. The Prescription Drug Act of 1987 makes it a felony for doctors to bill insurers for drugs they receive free, as well as for the manufacturers to conspire with the doctors in such a scheme. In several of the cases it is alleged that the physicians were given free doses of Lupron if they would prescribe Lupron for their patients instead of the rival drug Zoladex which is manufactured by AstraZeneca.

Drug companies often point to the high cost for the development of new drugs in charging some of the high prices for prescription drugs. It is difficult if not impossible to ascertain what the actual true cost is for developing a new drug by one of the drug companies. Accounting rules have proven to be quite flexible in allowing for a wide latitude of discretion by the accounting firms who do the accounting work for the drug companies.

Recently Bristol-Myers accounting in connection with its purchase of the drug business from Dupont brought to the forefront the so-called "acquired in-process research and development" loophole that can skew this question in favor of higher costs for the drug company. Bristol paid $7.8 billion for Dupont's drug business, which was about $2 billion more than any other company had bid for that division.

Dupont's drug division had few new drugs coming off the shelf. Bristol then wrote off $2.7 billion as an "acquired in-process research and development" item. Calling a big chunk of a purchase price "research" gives the impression that the company got something rather than just calling it an overpayment. It has the further advantage of avoiding the embarrassment of having a future big write off for goodwill.

Like many other professions in this country, the states require members of the medical profession to take continuing education courses in order to be able to maintain their medical licenses in that state. Instructors who sell products or services to the members of the group give many of the courses in the different professions.

A moral and ethical question is now coming to the forefront in connection with the continuing education courses for the medical profession. According to the nonprofit Society for Academic Continuing Medical Education, about 40% of the funding for CME comes from commercial sponsors versus the 17% in 1994. Government and industry guidelines forbid manufacturers from directly controlling the courses.

In the lawsuit involving Neurontin and Warner Lambert that we discuss later in this article it is alleged that the company hand-picked speakers and signed off on their presentations including in this case approving the okay to recommend the drug for off-label usage. CME courses may discuss unapproved uses for drugs as long as the drug is commercially available.

Some companies derive the vast majority of their revenue from the medical education courses that they provide to the medical profession. They often arrange for the lecturers from the medical profession and theoretically do not control what the instruction deals with other than the general subject involved for the particular lecture. Lecturers are paid anywhere from $1,000-$5,000 per lecture. If the lecturer is a member of the medical profession he or she must forego the revenue from their private practice for that day.

Since many members of the medical profession do not pay for attending these CME lectures someone has to foot the bill. According to the Accreditation Council for Continuing Medical Education, a nonprofit group whose board is drawn from medical associations and hospital groups, direct commercial support for continuing medical education was $569 million, up 22% from 2000. If you include spending on related exhibits and advertising, the industry share of support is $729 million or 62% of the $1.18 billion spent for the CME courses.

According to a four-year tracking study done by the Center for Studying Health System Change, a nonprofit research group financed by the Robert Wood Johnson Foundation, 30 million Americans in working families lack health care coverage. Another 16 million Americans get their health care coverage from government programs or have no insurance because they decline it because the premiums are too expensive for them to pay for even though their employer may pick up a part of the cost.

Drew E. Altman, president of the Henry J. Kaiser Family Foundation said recently that "The number of uninsured will continue to grow as long as health insurance premiums rise more rapidly than earnings, as they have for the last decade." For many who are laid off, the high cost for COBRA premiums mean that they can not afford to be covered for their health benefits. 

According to Medicare figures 27% of the people who are on Medicare have no prescription drug insurance coverage. The GAO study was done at the behest of six Democratic House members. An article in the New York Times dated Saturday, January 5, 2002 entitled "Drug Middlemen are Facing Pressure Over Rising Prices" dealt with the fact that Pharmacy Benefits Managers (PBMs) sometimes have conflicts of interest in their dealings with the drug companies. The article written by Milt Freudenheim points out that PBMs have not done enough to stem the rapid growth in national spending on prescription drugs. National spending on drugs has risen from $50 billion in 1993 to $150 billion in 2001.

Instead of looking at the discord in connection with the high cost of prescription drugs, there seems to be one area that the Congress and the President may be able to reach an accord. The Senate passed the McCain-Schumer bill, and the President issued a very similar proposal to that bill when he announced his program to curb the abuse of patent extensions by the pharmaceutical companies.

Before seeing if there is an agreement that is possible in this area lets look and see where the problem comes from in the first place. The FDA publishes a list of patent expiration dates in its publication known as the "Orange Book" (Formally known as "Approved Drug Products with Therapeutic Evaluations"). When a pharmaceutical company submits a product to be included in the book, the FDA has no discretion in the matter; it must list the drug in the book.

If a generic drug company wants to sell a generic copy of a drug prior to the expiration of the patents listed for that drug in the Orange Book, it submits a certification (paragraph IV ANDA) to the FDA. The certification contains the reasons for its belief that the patent is: 1) invalid; 2) unenforceable; 3) would not be infringed by the applicant's generic drug.

The patent holder than has 45 days to sue the generic drug company in federal court. The institution of that suit starts a 30-month clock to run. The FDA can't give final approval to the generic product unless the generic drug company wins the case or all of the drug's patents listed in the Orange Book expire. It is the filing of frivolous patents on top of the original patent that is the area of abuse that the president and the McCain-Schumer legislation hopes to bring to an end.

Generic drugs account for more than 4 of every 10 prescriptions being filled at retail pharmacies according to an article in the November 2 New York Times written by Milt Freudenheim entitled "Generic Drug Sales Flourish Thanks to Big Companies."

Medco Health Services, the pharmacy benefit management firm which formerly was a subsidiary of Merck & Co. said that retail pharmacists and its own mail-order unit were substituting generic drugs for the brand name drugs that had lost their patent protection more than 92% of the time. Medco has had so much success with its program to promote generic drugs that it is extending the promotion to now include Illinois, Kentucky, Indiana, New York, Philadelphia and northern New Jersey. Merck promotional campaign had been instituted 2 years ago in 10 other states.

General Motors, which spent $1.3 billion for employees and retirees has been involved in Medco's program, is also instituting its own generic program. Express Script and AdvancePC, two of the other large PBMs also sponsor programs that encourage its members to use generic drugs. The average cost of a generic drug is $14 versus the over $70 cost for the average brand-name drug.

Within the last year three blockbuster drugs have come off patent thus accounting for a lot of the increased usage of the generic drugs. The three drugs that came off patent are: Prozac the antidepressant; Glucophage for diabetes and Prinovil or Zestril, two names for the same blood pressure drug.

In its 10-Q filing with the SEC, Pfizer Inc. had disclosed that the marketing and pricing of two of its drugs have drawn the scrutiny of federal and state investigators in the last several months. The drugs involved are Lipitor, the cholesterol lowering drug and Neurontin, which is a drug used in connection with epilepsy which was developed and marketed by Warner-Lambert before Pfizer took it over. Neurontin has been approved by the F.D.A. for the treatment of epilepsy, but has been prescribed by many physicians for off-label usage.

Pfizer has admitted that over 78% of the prescription that were written for Neurontin in 2000 were written for off-label uses. Sales of the drug are expected to reach over $2 billion this year. As a matter of fact the writer of this article has been using Neurontin as prescribed by one of my doctors in connection with the treatment of the inflammation and pain in sural nerve in my lower left foot. This problem arose in connection with the spinal stenosis that I wrote about in the article "Spinal Stenosis-A Personal Saga".

David Westerbury, assistant attorney general for Washington State, said in a court filing that he was leading the investigation by 47 states into whether or not Pfizer Inc. made illegal payments to doctors who have Medicaid patients. The filing was made in connection with a whistle blowers suit against the company in Boston. The whistle-blowers suit involved the drug Neurontin.

The civil lawsuit was brought in the Federal District Court in Boston, by Dr. David P. Franklin, a former Warner-Lambert employee as a so-called "whistle-blower". Dr Franklin alleges that doctors allowed the Warner-Lambert detail person to be in the examining room with the physician. It is further alleged that the detail person encouraged the doctors to recommend Neurontin for off label usage, including pain, bipolar disorder and attention deficit disorder in children.

According to Dr. Franklin's attorney, Thomas Greene, Warner-Lambert's marketing executives urged their superiors to let them promote the drug for off-label uses. It is further alleged that the marketing people urged this usage even though they were well aware that no clinical trials had been performed to prove that the medication was safe for off- label usage.

Mr. Greene cited two memos in support of his position in the case. In a memo dated June 26, 1995 a marketing executive at Warner-Lambert said that in the Northeast, doctors who attended educational dinners that were held where Neurontin was the featured drug, wrote 70% more off-label prescriptions for the drug than doctors who did not attend.

In a memo dated May 5, 1997 the marketing department proposed that Neurotin be promoted to treat pain in diabetic patients by creating education classes for doctors and sponsoring a symposium with the American Diabetes Association. Dr. Franklin stated that one of the reasons why he resigned from Warner-Lambert was because he felt that the company was involved in an illegal campaign to market Neurontin even though the safety of the drug had not been proved for these off-label purposes.

Dr. Franklin further alleged that Warner gave financial incentives to hundreds of physicians to prescribe Neurontin for unapproved uses, by inviting them to dinners and weekend trips to resorts. Doctors were paid to speak about Neurotin and encourage its usage for off-label purposes.

It is alleged that each doctor was paid $350 or more for each day they let sales people watch as they examined their patients. The federal investigation alleges that Medicaid paid many millions of dollars for Neurontin prescriptions written for unapproved uses.

It is also alleged that Warner-Lambert hired two marketing firms to write articles about the unapproved uses of Neurontin and find doctors willing to sign their names to the articles as the authors thereof. The marketing firms were allegedly paid $12, 000 for the articles and the doctors were paid $1,000 for signing the articles as the authors of the pieces. 

The pricing question with Lipitor involves the period from 1998-2001. Medicaid drug programs are entitled to the "best price" that a drug company offers the drug to any buyers. Medicaid will receive a discount off this price. Pfizer made educational or research grants to private health plans and pharmacy-benefit managers that should possible have been deemed rebates. Grants are not considered a factor in the price calculation but rebates and discounts are used in determining the "best price" calculation.

Pfizer announced that it had agreed to pay $49 million to settle allegations of defrauding Medicaid in connection with the cholesterol-lowering drug Lipitor in a suit that was brought against the company in the U.S. District Court in Beaumont, Texas. John David Foster, who had been the former national sales manager for Parke-Davis, a subsidiary of Warner-Lambert, (a firm that Pfizer took over in 2000 filed the lawsuit in 2000) filed the "whistle blower" suit against Pfizer in 2000. The federal government joined in the suit in 2001.

Federal law requires that the drug companies provide Medicaid with the "best price" for the program. That price must reflect rebates or any other price concessions that are given by the drug company. "Educational grants" are not classified as rebates in determining the best price. The issue involved in this case arose from moneys paid by Parke-Davis to Ochsner Health Plan, an HMO that was operating in Louisiana and eastern Texas. After the payments were made Lipitor was placed on Ochsner's preferred list of drugs.

Mr. Foster, "the whistle-blower" learned that his company Parke-Davis, had offered $250,000 to provide funding to Ochsner for the alleged purpose of supporting educational programs for patients and physicians. In reality however these payments were in fact kickbacks by Parke-Davis that should have been factored into the best price paid by Medicaid. When Mr. Foster complained to his supervisor, he was ignored and eventually placed on indefinite administrative leave. He left the company in 2000.

Mr. Foster will receive about $6 million of the settlement, the federal government will receive about $28 million of it, and the state governments will receive about $21 million of it. Under the settlement, Pfizer agreed to enter into a five-year agreement with the Department of Health and Human Services to prevent this type of problem from arising again. The government said it would not pursue other accusations in the lawsuit involving payments to five other health plans and two pharmacy benefit managers.

Many of our viewers have e-mailed us with queries as to what programs are available to assist people in obtaining information on prescription drug program that are available to help with the high cost of their medications. For a starter one of the best sites is: http://www.medicare.gov/Prescription/Home.asp

The House has approved, and the Senate will take up when it reconvenes a bill that imposes an increased fee on companies that submit applications to gain marketing approval for medical devices. Under the bill the FDA would gain an additional $25 million in user-fee revenues in fiscal 2003, which is to be used to expedite the review of applications for medical devices.

An agreement has been reached between the FDA and the drug industry for increasing the fees under the Prescription Drug User Fee Act of 1992 that was due to expire this fall. The agreement would allow the FDA to use some of the money from the fees to conduct safety reviews of newly approved drugs.

User fees totaled less that $140 million in the year ended September 30, 2001, and would rise to more than $160 million this year. Five years down the road this fee would rise to $259 million. The agreement, which includes the biotechnology industry, will allow the funds to be used for the safety monitoring of new drugs, not ones that have been on the market for years. With the extra money provided under the agreement, the FDA will add an extra 20 drug-safety employees this year and gradually increase that level to 100 employees by the fifth year.

Median review drug times have decreased since 1992. Priority drug review time dropped from 20.5 months to 6 months and standard NDA's review time dropped from 26.9 months to 12 months. FDA approval review time is slower for generics than brand name drugs; in 2001, the average time to approve brand names drugs was 12 months vs 22 months for generics. Again it is only fair to point out that the brand name drug companies pay a higher fee to the FDA with one of the purposes thereof being to speed up the review time of their drugs.

UnitedHealth Group Inc., in a letter to the 97,000 members of AARP, announced that it would waive its requirement that only prescription drugs bought in the U.S. would be covered by its prescription drug purchase plan. United reimburses AARP members for prescription drug purchases for amounts ranging from $500 to $1,500 a year.

Even though UnitedHealth and AARP officials claim that the letter does not represent a change in its policy, it is a fact that thousands of Americans cross the border to purchase their prescription drugs in Mexico, Canada and other places outside the U.S. because it is much cheaper in these foreign countries. The Senate did vote this year to allow Americans to import drugs from Canada for their own personal use, but the House has failed to enact any legislation on this matter.

About 400,000 AARP members have drug coverage through UnitedHealth. The 97,000 AARP members who got the letter live in states where United previously notified authorities that it will reimburse only for drugs provided by a U.S. pharmacist. Covered members who did not receive the letter would also be eligible for reimbursement.

In an interesting study done by the Rand Corp, a Santa Monica think tank, that all the measures that health plans have undertaken to reduce the cost of prescription drugs, result in savings to the health plans themselves, but not to the consumer. According to Geoffrey Joyce, lead author of the study, "The measures that plans have implemented, whether raising co-payments or adding tiers, do what they are intended to do-reduce prescription-drug costs,"

The study used claims data of 25 large employers from 1997 to 1999. Consumer advocates and public policy experts found it to be extremely disturbing, that people would have to forego medications because of the higher costs involved.

The FDA has cut back substantially on warning letters sent to companies that run afoul of its rules. In a policy change that took place at the agency in February, division and district FDA offices around the country must clear all warning letters with the FDA's chief counsel office before they can be sent out. In the six months since this policy change the agency has issued a drop of 64% for these letters compared to the same period last year. There were 279 warning letters sent for this period from February through September for this year.

Are you an employee who is covered by your employer's medical plan? If you are, you noticed that you pay a premium for the coverage, and that the premium has been rising in excess of the rate of inflation over the last several years. Like most employees however you do not get a bill from your physician, lab if you do go to one, or from the medical facility where you have a CAT scan, MRI, x-ray, etc. performed. The bill goes directly from the medical organization to the insurer. Yes it is true, most insurers provide you with a Web site for you to go into, where you can see how much you were charged, and also how much the insurer paid the provider for the service.

How many of you actually go onto the site? We venture to guess that not even 10% of the employees go onto the site. If you did go onto the site you would get a big shock for yourself. That's because of the fact that you would then see how expensive medical costs have become. You would see the amount that the provider charges for the service, the amount the insurance company pays for the service and you would also be able to see the amount of your co-payment. Incidentally we wonder why the physicians or the lab service is always a great deal higher than what the insurance company pays for the service?

What other business do you know of where the provider does not at least send a copy of the bill to the person on whom the service was performed? Many employees would say that they are not interested in getting a copy of the bill, since they do not pay for it, but many of us would like to know what the service being performed on us costs. We think if more employees knew what the cost for the service performed on them was, you would see a greater outcry that something should be done to hold down the rising cost of medical care.

The Balanced Budget Act of 1997 (P.L. 105-33) specified that Medicare payments for outpatient prescription drugs would cover 95% of the AWP for the drug. The drug companies report the AWPs to organizations that publish the data in compendia. Medicare carriers use the published data in calculating the payments for covered drugs. As we have pointed out in these articles on Medicare and Prescription Drugs, these prices that the drug companies report are questionable at best and we feel that some other system should be used rather than the AWP system.

Unfortunately we see another example of how an unscrupulous prescription drug wholesale firm can take advantage of the system for its own nefarious purpose. The Netherlands General Health Inspection Service alleges that a tiny Dutch company, Askiepios imported the shipments of two AIDs drugs made by GlaxoSmithKline PLC that were intended to be shipped to Africa, but instead shipped the drugs for resale in Germany and the Netherlands.

Instead of 36,000 boxes of Combivr and Epivr, being shipped to Africa, about 30,000 boxes were shipped to Germany and the balance were shipped to the Netherlands. This is the first known case of AIDs drugs being diverted from Africa since Glaxo and other drug companies agreed two years ago to supply AIDs drugs to African countries at or below cost. Glaxo said that it did not intend to alter its policy of shipping the discounted AIDs drug to the African countries, but that it would change the packaging colors of the drugs to try to prevent this from occurring again.

The number of Americans without health insurance rose to 41.2 million in 2001 from 39.8 million in 2000 according to statistics released by the Census Bureau. Most of the increase was due to the loss of health insurance coverage from employers who either dropped the insurance for its employees, dropped employees from the payroll, or employers who dropped the coverage because of the substantial increase in the premium for the coverage.

The portion of Americans with employer-provided health plans fell a full percentage point last year to 62.6% from 63.6% in 2000. The Census Bureau statistics also showed that Medicaid covered 13.3 million Americans last year, up from 29.5 million in 2000.

The National Institute of Health conducts and finances basic research and clinical trials that compare the performance of drugs. In 1994 the NIH's National Heart Lung and Blood Institute launched a 44,000 patient trial to compare, among other things, four hypertension medications. They wanted to ascertain which was more likely to prevent heart attacks and deaths.

The final results are not expected till later this year. One of the findings has been that patients taking a blood-pressure medication called doxazosin were more likely than those on a cheaper diuretic to have heart problems and be hospitalized for congestive heart failure.

Unfortunately these studies are very costly and complex. Many experts argue that the federal government has an obligation and duty to explore the cost-effectiveness of drugs. Maybe this will be one of the answers in solving the problem associated with the rising cost of prescription drugs.

According to the market research firm IMS Health, U.S. drug spending totaled $172 billion in 2003, up from $82 billion in 1996. Medco Health Solutions, the pharmacy benefits subsidiary of Merck & Co., Whitestation N.J., released figures of their 65-million drug-benefit members by age groupings. The figures showed that the largest percentage increase of prescription drug usage was found in the under 19 age category, which showed an increase of 28% from the prior year. The 35 to 49 age category showed a 23% increase. For those age 65 and over the increase was 10%..

The U.S Office of Personnel Management (OPM) announced that federal workers would pay an average of an 11.1% increase in their health care premiums in 2003. This increase represents a 220 basis point decrease from the rate paid in 2002. The fee for service members will pay a 10.5% increase in their premiums and the HMO members will be paying a 13.6% increase. Starting on July 1, 2003, federal workers will be able to contribute to a Flexible Spending Accounts.

The "just in time" philosophy that we have grown familiar with from corporate America is now being extended to your local pharmacy also. How often have you been told when you go to get a prescription filled at your local pharmacy that: " We'll give you some of the medication now but come back the next day or so and we will fill the rest." Or the answer from your pharmacist is that: "We are out of that medication right now but come back in a day or two."

It is not only that this is an inconvenience in having to make two visits to the pharmacy instead of one, but frequently this creates an added problem for the elderly as well as putting an additional stress on them. It is not always just an inconvenience but sometimes the elderly may forget to come back for the rest of the medication.

There has to be a greater obligation placed on the pharmacy to make sure that the full amount of the required drug is delivered into the hands of the individual presenting a prescription. It should be the pharmacy's obligation to make sure that the correct amount of medication reaches the hands of the consumers. We suggest that Congress or the state legislature look into this situation to insure that the consumer gets what the prescription entitles him or her to be getting.

"Seniors across the country are experiencing the growing dilemma of fewer and fewer physicians who are willing to provide basic medical services under Medicare. Instead of receiving treatment, they are being told to look elsewhere," Billy Tauzin (Rep.-La.), Chairman of the House Committee on Energy and Commerce, stated. "Unfortunately, the Senate has chosen to ignore this growing crisis by failing to pass legislation that fixes the problems that are causing doctors to reduce the number of Medicare patients they treat."

A survey recently released by the American Medical Association revealed that 25 percent of physicians have limited or will restrict the number of Medicare patients they treat due to increasing Medicare reimbursement cuts. This year, those cuts will amount to 5.4 percent. "We can no longer stand idly by as physicians face the largest payment reductions in over a decade, which in turn are putting seniors at risk of receiving inadequate and inefficient health care. Many health care professionals are being placed in a tenuous financial position and Medicare beneficiaries will be the victims."

Barbara Martinez, writing in the September 12 issue of the Wall St. Journal illustrates the fact that some patients pay more for their co-pays, than the actual cost of the generic prescription drug. The article is entitled " The $5 Drug Is a Lousy Deal".

The article specifically points out 4 generic drugs where a customer of the pharmacy pays more when he/she pays the $8-$10 co-pay than if he/she would pay for the negotiated drug price. According to the article, "The practice is most likely to occur with common generics like prescription strength ibuprofen" for the treatment of arthritis where the discount price is $4.30:, the antibiotic amoxicillin where the discount price is $4.75; the popular painkiller hydrocodone w/acetaminophen where the discount price is $4.90; and alprazolam where the discount price is $4.60.

With pharmaceutical benefit managers negotiating aggressively with the drug stores, "they are sometimes ending up with prices on generic drugs below the standard co-payments. Yet instead of allowing consumers to pay the lower prices, many plans are either pocketing the difference themselves or allowing the pharmacies to keep it."

In one case that the article alludes to, James Alves was paying $5 each month to his local CVS pharmacy for a 30-day supply of the generic heart drug furosemide. His prescription benefits manager Harvard Pilgrim Healthcare Inc. had negotiated a price with CVS of 76 cents for the drug. Thus Harvard was pocketing a profit of $4.24 every time Mr. Alves bought the drug. Mr Alves has brought suit against Harvard, claiming he was "fraudulently charged" "co-pays in excess of his plan's costs." In June a federal court dismissed his case and he is appealing that verdict.The article also points out that the Walgreen Co. pharmacy chain has "instituted a minimum prescription price of $7.99 or $8.99, no matter what the negotiated discount price is."

The co-pay that an employee has to pay has gone up very sharply this year. If an employee gets a brand-name drug when a generic is available the co-pay averages $26 this year versus the $21 he/she paid in 2001. On average the co-pay for the generic is $9.

Eleven major U.S. corporations including Verizon, Eastman-Kodak, Wal-Mart Stores, Inc., Weyerhaeuser Co., GM, Georgia Pacific and Albertson's Inc. had formed a coalition with 12 states and a small group of labor leaders called Business for Affordable Medicine (BAM). Among the states in the coalition are Vermont, Washington, Iowa, Louisiana and Missouri.

The purpose of the coalition is to encourage legislation to promote the passage of legislation to encourage the usage of generic drugs of equal efficacy and safety to brand name drugs. Vermont's Governor Howard Dean has been the main spokesman for the state governors to the coalition.

According to Brad Cameron, a spokesman for BAM, Georgia-Pacific has asked that it no longer be listed as a member on the coalition's Web site after receiving pressure from Eli Lilly & Co. Another coalition member, Verizon Communications left the group recently he said, after being pressed, primarily by Wyeth. PhRMA denied that any of its members used threats to end their contracts with the coalition's corporate members to force them to withdraw from the coalition. Mr. Cameron further stated that Lilly, Wyeth and other large companies that make branded drugs had been using financial ties to the coalition's corporate members to try to halt their lobbying efforts.

Senator John Rockefeller (Dem.-W.Va.) has introduced legislation that seeks to prevent brand name drug manufacturers from blocking less expensive generic alternatives from entering the market. The Consumer Access to Prescription Drugs Improvement Act also directs the Institute of Medicine to study the scientific and regulatory feasibility of generic biologics.

The objective of the coalition is to speed up the generic approval process. The group also wants to close some of what it calls the "loopholes" that exist under the Hatch-Waxman Act of 1984. These "loopholes" allow the brand name drug companies to prolong the life of their patents for more than 20 years while at the same time delaying the introduction of cheaper generic versions of their drugs.

The drug industry's main trade group Pharmaceutical Research and Manufacturers of America (PhRMA) has argued that the coalition is misguided because Hatch-Waxman is necessary in order to protect the property rights of the industry. If the industry is not allowed a fair rate of return for its newly discovered drugs, the industry will be forced to cut back substantially on the amount it devotes to research and development of new products.

The financial interest of the states is effected by the soaring Medicaid prescription drug bills, that are covered by the states which are now faced with budget deficits as opposed to the surpluses that they had existed 4 years ago. On the corporate side of the ledger, a company like GM spent $1.3 billion last year on prescription drugs for workers and retirees, up 14 % from the year 2000. The BAM members spent $460 million to buy 17 brand name drugs that will face patent expiration by the year 2004. Next year's health premiums are expected to rise by about 15 % to 20 % for most employees.  

According to a preliminary study from Mercer Human Resource Consulting, companies will face an average increase of 12 to 15 percent in 2003 in health care costs, compared to a rise of 12.7 % this year. Many experts in the field are predicting that the employers, who are already dealing with a recessionary economic environment, will pass a good percentage of their increased health care costs on to their employees.

With prescription drug costs soaring researchers are searching for ways to help reduce the costs for medications. According to a study done at the Stanford University's Center for Research in Disease Prevention pill-splitting "can provide cost savings without really changing the clinical care that patients are getting, " according to Randall Stafford, assistant professor of medicine at the Center who led the study.

As an example of the savings Kevin Graham, a cardiologist at Minneapoles Heart Institute in Minnesota, say prescribing 40- milligram tablets of the cholesterol-lowering drug Zocor for patients who then take just 20 milligrams a day by breaking the pill can result in a savings of over $700.

The study selected those medications that it found was both clinically appropriate and cost-effective for the splitting strategy. Dr. Stafford noted that " It's important to note that it's a minority of medications that fall into this category," and yet the potential for cost savings is tremendous. The cost effectiveness arises from the fact that many drug companies charge the same price per pill regardless of how many milligrams the pill consists of. Kaiser Permanente, the Oakland based HMO is presently defending itself in a lawsuit brought by some of its members who seek an end to the practice that Kaiser encourages in selective cases.

The drugs on the list that met the criteria included Lipitor (cholesterol) and Viagra (impotency) marketed by Pfizer Inc.; Paxil (anti-depressant) marketed by GlaxoSmithKline PLC; Celexa (anti-depressant) marketed by Forest Labs Inc.; Prinvil (ACE inhibitor) marketed by Merck & Co. which recently went off patent and Zestril (ACE inhibitor) marketed by AstraZeneca PLC.

Calpers has sent out invitations to other big state pension plans to join the National Coalition on Health Care, an advocacy group that favors universal health care coverage. The Commonwealth of Massachusetts Group Insurance Commission, the New Your State Teachers' Retirement System and the New York employees' retirement fund have already joined the coalition. Universal health care coverage and Medicare prescription drug coverage are probably going to be two of the biggest issues in this coming election.

In June of this year the government cancelled a proposed 6-year study of the effect of testerone replenishment in older males both because of the cost of the study, and also because of the increased risks associated with this replenishment process. By increasing the testerone level in older males it thereby also increases red cell production. This in turn increases the risk of clots that can cause heart attacks and strokes. It also fuels the growth rate of cancer cell in patients who have prostate cancer.

There has been a great increase in this topic as shown by the increase in the number of prescriptions written for the testerone hormone from 806,000 in 1997 to 1.5 million prescriptions written in 2001. Many in the medical community have been recommending the testerone treatment as a possible antidote for aging. It is a medical fact that as men age, their testerone levels decrease starting at the age of 30.

The inspector general for the Department of Health and Human Services has issued a subpoena to Premier Inc. one of the two largest hospital buying services. Both Premier and Novation Inc., the other large hospital buying group are already being investigated by the Federal Trade Commission and the General Accounting Office. The FTC wants to investigate to see if these two groups are wielding too much power in the market for hospital supplies.

The inspector general's subpoena to Premier sought records relating to Premier's contracts with suppliers that then granted Premier's executives stock options or other securities. In some of the contracts being checked on, executives of Premier held stock in or other beneficial interests in the supplying company.

The other companies being served with subpoenas by the inspector general were: Express Script, a pharmacy benefits management concern, Horizon Medical Products, a Georgia company that makes medical devices, and American Pharmaceutical Partners, a generic drug company. Premier helped start American Pharmaceutical, and then steered millions of dollars in business to it. Two former Premier executives received stock options from American. The G.A.O. has already issued a report that questions whether or not these buying groups actually do save the hospitals any money.

The Bush administration formally issued the new rules that set the federal standards for medical privacy that will affect every doctor, patient, hospital, drugstore and health insurance company in the United States. Although the federal rules set the minimum standard for medical privacy, state law can enhance the degree of protection and would still apply.

The rules announced by the Bush administration roll back some of the major protections for medical privacy that had been adapted under former President Bill Clinton. The rules that have been issued have the force of law. Most health care providers and insurers have to comply by April 14, 2003 or face civil and criminal penalties up to and including a $250,000 fine and 10 years in prison.

The new rules do not include the provision that doctors, hospitals and other health care providers must obtain written consent from patients before using or disclosing personal medical information for treatment or paying claims. Under the Bush rules, providers would have to notify patients of their rights and have to make " a good faith effort to obtain a written acknowledgment of receipt of the notice." Most consumer advocates and patient rights groups had opposed this change.

The FDA in a warning letter dated July 19, 2002 ordered Abbott Laboratories to improve its reporting of side effects among patients taking some of its drugs. The letter stated that the company had failed to "quickly and accurately report "serious and unexpected" adverse reactions among patients taking several of its medications.

Among the drugs specifically mentioned in the letter were the diet drug Merida and the HIV treatment drug Norvir. Drug companies are required to report to the FDA any adverse reactions that occur among users of their drugs, which sometimes do not appear during the clinical testing phase for the drug. The letter cited reporting process deficiencies and did not allege product safety problems. Abbott failed to meet the FDA's 15-day deadline for reporting adverse reactions 18 times between Jan. 1, 2000 and Oct. 31, 2001. A drug company must reply within 15-days to the letter from the FDA.

The 107 members of the Leapfrog Group has unveiled its strategy to hopefully push hospitals to reduce medical errors, thereby saving both lives and money. Some of America's largest employers including some state and federal agencies, GE, GM, AT&T, IBM and Boeing are members of the group. In an interesting development HCA, Inc., a Nashville, Tenn. company that owns nearly 200 hospitals and has 170,000 employees has joined the Leapfrog Group.

The strategy is for the members of the group to steer their employees to hospitals that excel in three areas in particular. The three key areas that Leapfrog is keying in on are:

Does the hospital computerize doctor's orders and prescription systems?
Does the hospital employ specialized doctors in intensive-care units at all times?
Does the hospital have extensive experience in certain medical procedures?

Leapfrog spent over $52 billion on health benefits for their more than 32 million employees last year. Some state and federal agencies are included in the group. Leapfrog claims that 60,000 lives would be saved if the 2,800 urban acute-care hospitals adopted the 3 safety principles.

It is interesting to note that Leapfrog is looking at quality of care rather than lowest cost in formulating its strategy. Leapfrog has the ratings on about 250 hospitals in 6 geographic areas in its database, which can be found at http://www.leapfroggroup.org.

Only 3.3% of the hospitals that responded to Leapfrog's survey have installed computerized physician order entry systems, wherein software can automatically spot prescribing errors such as bad drug interactions. Only 10% of the hospitals surveyed have intensive-care specialists overseeing care in the ICU at least 8 hours a day. Leapfrog also feels that hospitals that have had extensive experience with certain medical procedures are most likely to perform them better.


The state of Vermont became the first state in the nation to require pharmaceutical companies to disclose their gifts and cash payments to doctors, hospitals and other health care providers. Governor Howard Dean, a Democrat who is himself a doctor has talked about running for the presidency of the U.S. on a health care platform.

Under the Vermont law the pharmaceutical companies would have to disclose any gifts or payments of $25 or more to doctors, hospitals, nursing homes, pharmacists or health insurers for the purpose of marketing their product. The companies would not have to disclose the value of free drug samples or medical school scholarships. A Minnesota law passed in the mid-90's prohibited drug companies from giving gifts valued above $50 to doctors or other health care providers. Massachusetts is considering a law that would require physicians to disclose detailed information about gifts they receive every two years, when they renew their licenses.

Previously hereto the executive committee of the Pharmaceutical Research and Manufacturers of America (PhRMA) unanimously approved a code of conduct which set up guidelines for its members that will sharply cut back on some of the excesses involving the medical profession and the drug industry.

According to the National Conference of State Legislatures at least 15 states have had legislation introduced that limit pharmaceutical companies marketing practices. In Hawaii legislation was passed this year that requires the drug companies to report how much they are spending on marketing. Other states have introduced legislation that would limit the amount that can be deducted by the drug companies for their advertising expenses.

The PhRMA guidelines are to take effect July 1, and even though there are no enforcement mechanisms set up under the code, all members of PhRMA are expected to adhere to it. The guidelines will still permit "modest meals as judged by local standards". It will not be permissible for drug sales reps to pay for golfing outings, sporting events, movies or shows. Spouses or other guests will not be allowed as free guests to educational outings.

Free gifts to doctors that are linked to patient care must be valued at $100 or less. Free pizza for the doctor's office is not permissible unless it is part of an educational session for the office. Pens, notepads and other such minor items will be permissible as gifts, but floral arrangements will not be allowed. An anatomical model is acceptable, but a VCR or CD player is not allowed.

"Dine and dash" events in which doctors listen to a brief sales pitch while ordering a meal to go will be verboten. Financial inducements to induce doctors to come to meetings about drugs will also be forbidden under the new code.

Drug companies spent about $19 billion promoting their products last year according to IMS Health a consulting firm. Five years ago the industry spent about $9.1 billion on advertising and promotion. It is estimated that about $9 billion is the value of the free drug samples given to doctors. There are now about 80,000 drug sales reps working in the pharmaceutical industry, which is about double the number of sales reps 5 years ago.

The new guidelines that the industry recently adopted do allow the pharmaceutical companies to hire doctors as consultants, but the contracts that are used would specifically have to detail what the consulting arrangement entails.

In their latest attempt to hold down rising medical costs HMOs are categorizing hospitals according to cost and charging members higher co-payments for using the more expensive of the facilities. Members who choose from the lower-cost hospitals make co-payments that range from nothing to $250 a day. Those who choose a "nonpreferred hospital" could pay as much as $400 a day. Many health care advocates feel that this system discriminates against teaching hospitals which can cost up to 30% more than other hospitals.

Whereas drug prices have been rising between 2% to 3% annually in the U.S. prices in Europe have been dropping. According to IMS Health, a drug market research firm, the U.S. accounts for 46% of the pharmaceutical industry's sales and more than 60% of its profits.

State Attorney General Betty Montgomery of Ohio is chairing a newly created task force of nearly 40 state prosecutors in exploring a series of lawsuits against the pharmaceutical industry similar to what occurred in the state actions against the tobacco industry.

Unlike the tobacco suits the states are spurning many of the private law-firms and the large contingency fees that went to those firms. Delaware Attorney General Jane Brady declined a request from Nevada officials to join two lawsuits brought by that state against the drug industry. Ms. Brady declined the invitation to join the suit saying: " I'm philosophically opposed to providing contingency-fee-payments to private attorneys to resolve matters of public-interest law".

The members of the task force discussed the pros and cons of hiring private attorneys in the case, with most states opposing the idea. Nevada Attorney General Frankie Sue Del Papa said she hired an outside firm because " We're a small state, and resources are very limited".

An advocacy group, which is believed to have the financial backing of PhRMA began an advertising campaign to support the House Republican version of legislation on Medicare prescription drug coverage. The group named the United States Senior Association (USSA) is not legally required to disclose the source of its financing for its commercials. Jackie Cottrell, a spokeswoman for PhRMA, said it had made an "unrestricted educational grant" to the USSA. The Association is expected to spend at least $3 million on the campaign.

U.S. pharmaceutical companies spent about $200 billion on R&D in the last decade, including more than $30 billion on R&D last year. Yet only 24 new drugs were approved for marketing last year which was the fewest amount since 1994. Pfizer will spend about $5.3 billion on R&D this year, which is about five times more than it spent on R&D in 1992. Yet with more blockbuster drugs coming off patent, than potential new blockbuster drugs in the pipeline, the pharmaceutical companies find themselves more in a marketing battle than in a research battle.

In its battle to try and retain sales for its new allergy drug Clarinex, Schering-Plough wants you to call them or visit their Web site for information on how to get a free seven-day sample of the drug. Clarinex is Schering wild card in trying to replace Claritin whose patent is expiring shortly, which is being shifted to becoming an over-the-counter drug by Schering. This free sample is worth about $15 retail.

In the same vein many brand name drug companies are offering free samples or rebates of their drugs by obtaining coupons from the patent holding drug company. For Viagra, the promotion involves a six free pill sample worth about $50 retail; for Xenical a weight-loss drug the promotion involves buying a 3-month supply in return for which you get a free 3-month supply worth about $356. In the case of Prozac, the antidepressant drug you can get a one-month free trial package worth about $75. The offer allows only one per household and you must have a doctor's prescription in order to be able to get the drug.

In most of the cases where these offers are being made there is a generic version of the drug that is available at a cheaper price. In order to get the coupon you must be willing to answer several questions involving your personal medical history.

In order to find these offers you should go to the Web site of the brand name drug company. Check the site regularly because there is no definite timetable as to when these offers are made. Sometimes the site does not even mention the fact that by requesting additional information about a particular product, you may in fact receive a coupon in the informational package that you receive. Sometimes the coupons are sent to physicians so you should ask your doctor when he prescribes a particular drug to you, if he has any coupons issued by the manufacturer of the drug.

Centocor, a subsidiary of Johnson & Johnson, has been cited by several doctors for improper marketing in connection with its rheumatoid arthritis prescription drug Remicade. Centocor had a document on its website that stated that one of the "benefits" of prescribing Remicade was the "financial impact" on the physician's practice.

This situation arises because Remicade is covered under Medicare, since the drug must be administered intravenously in the doctor's office. Rick D. Anderson, vice-president of Centocor's immunology division stated that this document was outdated and inadvertently had remained on the company's website. The document in question is no longer on the site. Most of the drugs used to treat rheumatoid arthritis are in pill form. Enbrel is an injectible medication that is self-administered by the patient and therefore not reimbursed by Medicare.

In addition to the financial benefit that may accrue to the doctor, many physicians prescribe Remicade for their elderly patients, since most other medications are not covered by Medicare. The cost for a full year's treatment of rheumatoid arthritis with Remicade comes to about $10,000, while a year's treatment with a generic drug such as methotrexate would cost about $400. Medicare is considering extending coverage for arthritis if the medication is administered through injection as well as if it is administered intravenously.

We have created two separate articles concerning the issue of dealing with the issue of lowering the price of prescription drugs. One of the articles deals with the drug discount plans that have been created by the drug companies, and the plans proposed by federal government. To view this article please see Proposed Drug Plans. To see the article as to what legislation the states have passed in connection with this issue please see "State Legislation in Connection With Lowering the Cost of Prescription Drugs."

Of the $20.8 billion increase in retail drug spending from 1999 to 2000 about 42% was attributable to the increase in the number of prescriptions written. About 36% of the increase were attributable to the shift from lower priced older drugs to higher-priced medications the majority of which were approved in the last 5 years. About 22% of the increase was caused by the one-year increase in the individual drug price increase. The average number of prescriptions per person in the U.S. population rose from 9.9 prescriptions per person in 1999 to 10.4 in 2000.

In an interesting development involving the whole area of drug pricing, Pfizer, Inc. the world's largest drug company announced that the Justice Department was investigating its pricing for Lipitor for the years 2000 and 2001. Last year Pfizer reported Lipitor sales of $6.45 billion, a 28% increase compared with 2000.

Lipitor, which is a drug used to treat high cholesterol levels, is Pfizer's biggest selling drug. The investigation concerns whether or not the payments to certain health plans and pharmacy benefits managers should be considered rebates or grants. If they are considered rebates the government should have gotten a cheaper price for the Medicaid patients who used the drug during the period covered by the investigation.

The Centers for Medicare and Medicaid Services (CMS) announced its proposed prospective payment system rule for long-term care hospitals in the Federal Register on March 23. The new payment system affects over 270 hospitals with an average inpatient stay of over 25 days.

The proposal calls for an adjusted version of diagnosis related groups (DRG) to reflect the costs of the long-term care facilities, as opposed to the all-patient related DRG. The DRG system was established in 1965 and provides for a 5-year phase-in, with the exception of low-cost facilities that will be able to bypass the transition and go immediately to the full federal rate.

An article in the March 4, 2002 edition of the New York Times written by Walt Bogdanich, based on the reporting of Barry Meir, Mary Williams Walsh and Mr. Bogdanich is entitled " Questions Raised of Conflicts at 2 Hospital Buying Groups." The article is sub-titled "Medicine's Middlemen-Spending Billions Strings Attached".

The article points out that there are two private groups that act as middlemen for about half of the nation's nonprofit hospitals. These two groups were responsible for negotiating contracts worth about $34 billion for everything from pharmaceuticals to supplies covering about 1,500 hospitals each.

The groups were formed with the avowed purpose of using the group's purchasing power to help lower the costs for the hospitals while at the same time finding the best medical products also at the lowest cost. One of the groups is named Premier, and its purchasing volume in 2001 was $14.8 billion. The other group is named Novation and its purchasing volume in 2001 was $19.4 billion.

According to the Times article " The problem begins with this simple fact: The buying groups are financed not by the hospitals that buy products but by the companies that sell them. In other words, the groups take money from the very companies they are supposed to evaluate objectively. Each year, companies pay Premier and Novation hundreds of millions of dollars in fees that represent a percentage of hospital purchases. The more hospitals spend on medical supplies, the more dollars Premier and Novation get from the suppliers."

The article goes on to further point out that in the case of Premier or some of its officials, they have taken or received stock or options from companies that they are doing business with. " Critics say such conflicts of interest can, mean that the buying groups do not always choose the products that are best for patients, hospitals or the taxpayers and insurance that pay their bills."

Several months ago we wrote about the lengthy legal battle between Barr Labs and Eli Lilly & Co. regarding the patent life for Prozac. This matter has now come back into the limelight because it showed that the consumer does not always benefit when a generic company prevails against a brand name pharmaceutical company. The legal costs involved in the court action can make it so costly that the generic drug company will charge a much higher price than usual for the generic version of the drug during the 6-month exclusivity period.

When looking at the cost to the consumer of prescription drugs, one of the factors that has to be taken into consideration in this matter is interrelated to our prescription drug patent laws. The battle between the generic drug company Barr Labs and Eli Lilly, over the length of the patent for Prozac is a classic example for us to take a look at, to see that the consumer pays in the end. Lilly used every legal means available to it in order to extend the patent life of Prozac. Lilly could not be blamed for doing this since it took in over $2.6 billion in revenues last year from this drug. The legal battle was a long drawn out affair that was costly to both sides. Barr's 6-month period of exclusivity for the generic version of Prozac has now expired in this case.

Barr announced that it took a .04 cents a share charge to its earnings for the legal fees they incurred in the battle with Lilly. With its victory in the courts, Barr had a 6-month period of exclusivity to sell the 20 mg version (the dosage that is used in over 90 % of the prescriptions) of the drug. Thus no other generic drug company could come out with their generic 20-mg version of Prozac for 6 months.

Normally a generic version of a drug will sell for a discount of between 60 to 80 % to the branded product. Because of the long and costly legal battle with Lilly, Barr announced that it would sell its generic version of Prozac for only a 30% discount. Thus the consumers of the generic version of Prozac will be paying anywheres from 30 to 60% more than usual for this 6-month period. We realize that Barr should be rewarded for pursuing the long and costly battle, but wouldn't it be fairer to impose a monetary penalty on the company that lost the lawsuit rather than the consumer? That way Barr, the winning party in the legal proceedings would be compensated for their expenses from Lilly.

In addition a monetary penalty could be assessed against Lilly for causing the delay. Instead of having one generic company receive a 6-month period of exclusivity, all generic manufacturers of the drug in question could begin competitive pricing immediately. Under this system the consumer would benefit immediately instead of being penalized by the 6-month delay.

Andrew Caffrey has written an article in the February 13, 2002 edition of the Wall St Journal showing that a generic drug usage is not always cheaper to the states than is the brand name drug. The article is entitled " Why Generics Can Cost States More Money". In the article he pointed out that the state of Maine paid 17 % more for its Medicaid beneficiaries when they switched over to the generic version of Prozac ( Fluoxetine)than what the state paid for the brand name Prozac.

In another example where the state of Maine paidd more for a generic version of a drug than the brand name, Tiazac, which is the brand name drug made by Forest Labs. used for the treatment of hypertension and angina costs $1.15, while Diltiazem, the generic version of the drug costs the state $1.60. Adalat CC, the brand name drug manufactured by Bayer AG for the treatment of hypertension costs $1.30, while Nifedipine ER, the generic version of the drug costs $1.85.

This increased cost occurred as a result of the 1990 federal law that requires a minimum of a 15.1% rebate of the average wholesale price for a brand name drug versus only a 11% rebate for a generic drug. Sometimes a brand name pharmaceutical drug company will offer more than the minimum rebate. Thus in Maine "the antidepressant Luvox is 30 cents to $1.10 cheaper per pill that several generics". In reality therefore you can not assume that a generic drug will cost a state's Medicare and Medicaid program less than the brand name drug will cost.

According to the article the state of Maine has restricted access to nine generic drugs because they cost more than the brand name drug cost. As a matter of fact the state of Maine would have paid over $400,000 more by switching to generic Prozac than it did with the brand name Prozac. Minnesota estimated that generic Prozac cost the state about $170,000 more than it should have cost if it had continued to use brand name Prozac.

The anti-allergy family of drugs generated $4.2 billion in sales in the U.S. last year, or about 2.5% of all drug spending in this country. Managed care companies do reimburse for usage of the anti-allergy drugs Claritin (Schering), Allegra (Aventos) and Zyrtec (Pfizer). Since these three are all second-generation antihistamines the managed care industry has claimed that they are safer than the first generation antihistamines and therefore should not need any prescriptions to be bought by the public.

In July 1998 Blue Cross of California/Well Point Health Networks filed a Citizens Petition with the FDA requesting that these aforementioned drugs be switched to over-the-counter status. An advisory panel to the FDA reviewed this petition on May 11, 2001. The advisory panel consisted of 23 members who are experts in the field of pharmacology. The manufacturers of these anti-allergy drugs opposed the change to over-the-counter status since this would sharply reduce the price that the drug is sold for in the U.S. Recently Schering announced that it would be selling Claritin as an over-the-counter medication that did not need a prescription.

The advisory panel ruled that the 3 drugs are safe enough to be bought without a prescription. The advisory panel's decision is not binding on the FDA, and so the process now requires that the further collection of research data, hearings and then a ruling on the matter by the FDA itself. The second generation of antihistamines is considered safer than the first generation because among other things they are less drowse inducing. For those who are on Medicaid the changeover to OTC status for these drugs is a negative since Medicaid does not pay for OTC drugs while it does pay for prescription drugs.

Health and Human Services Secretary Tommy Thompson, after testifying before Congress regarding the HHS budget, stated that it was his personal opinion that "some" of the 3 above mentioned antihistamines should be made available as over-the-counter medications. He did not mention any timeframe within which he expected this to be done, though he did indicate that he expected a decision on the matter shortly.

Johnson & Johnson's McNeil Consumer Healthcare unit and American Home Products Corp.'s Whitehall-Robins unit have asked the FDA for permission to market generic, over-the-counter versions of Schering-Plough's Claritin next year. Schering announced that it had filed suit against these companies to try and prevent them from introducing the generic versions next year. Some analysts have theorized that Schering may decide to make Claritin over-the-counter on its own, which would mean that Schering would then have 3-years of exclusivity for the generic version of Claritin itself.

The drug industry argued that in allowing the drugs to be bought without a prescription you are thereby eliminating the need to be seen by a competent medical professional. With the rise in asthma cases reaching epidemic proportions you are putting many people at risk that it is asthma which can be deadly rather than an allergy that is causing the problem. If the FDA does allow the change in status it is expected that the drug companies will take the matter to the court system. Many legal experts feel that the FDA does not have the power to change a drug from prescription to otc status. Even if the FDA does have the power to change the status how can you deprive the drug companies of their legal right to the full life of their patents?

The only other time that a drug was switched from prescription to over-the-counter status was in October 1982 when Alupent for asthma was switched to OTC status. Shortly thereafter the FDA reversed this switch, and even today Alupent has remained a prescription medication.

As part of the revamping of Medicare and Medicaid, President George W. Bush is proposing that the "average wholesale price" be utilized in determining the rebate Medicaid receives from the drug companies rather than the "average manufacturer's price" which is the one being currently used to determine the rebate.

The president also proposed spending about $100 billion for programs to help people lacking health insurance. Under the plan, families with two or more children and incomes below $25,000 could receive a tax credit of as much as $3,000 to help pay health-insurance premiums.

Individuals earning as much as $15,000 annually could receive a tax credit of as much as $1,000. The credit would phase out as the family income achieved the $60,000 level, and for the individual it would phase out as the income reached the $30,000 level. The administration estimates that there are about 6 million Americans who would be helped by such a plan. It further estimated that there are about 44 million Americans with no health insurance coverage.

The FDA recently released the figures for the median review times for new drug applications. The agency divides drug applications into "standard" or "priority" classifications. A "priority" application represents important new drugs that the FDA aims to decide upon within six months.

In 1993 the median approval time for the 51 "standard" drug applications under consideration was 26.9 months. In 2001 the median approval time was 14 months for the 56 drugs under consideration. In 1993 the median approval time for the 19 "priority" drug applications under consideration was 20.5 months. In 2001 the median approval time for the 10 "priority" drugs under consideration was 6 months. Prior to 2001 the least number of drugs up for approval for "priority" review was in 1997 when only 17 new drugs were up for consideration. The most drugs up for "priority" review since 1993 was in 1996 when 29 drugs were up for "priority" review.

The year 1996 was the year where the most drugs were brought up for consideration in both categories, with there being 29 drugs up for "standard" review and 102 drugs up for "priority" review. Congress passed the law in 1992, which allowed the drug industry to speed up the pace of drug considerations in exchange for extra fees from the pharmaceutical industry. That law is due to expire this fall, unless Congress renews it provisions.

Pfizer Inc. has reached an agreement with the GAO to turn over the information that had been subpoenaed in connection with the government's investigation into its drug pricing practices. Originally Pfizer was the only one of the 11 drug companies from whom drug-pricing information had been requested, that failed to supply the information. The investigation centers on the prices that Medicaid and Medicare pay for prescription drugs.

In order to be able to participate in the Medicaid and Medicare programs, the drug companies have to supply pricing data, telling the government both the "best price" they charge any customer, and the "average manufacturer price" for any prescription drug they sell to a state's Medicaid and Medicare recipients. Under a complicated drug-rebate formula, those figures are then used to determine the price that Medicaid and Medicare will pay for the drug.

The GAO is seeking sales transaction information for specific high-volume drugs to see if the data is factually correct. Most of the drugs are cancer drugs that must be administered in a doctor's office. Pfizer states that it has been willing to share the pricing data, but the company is fearful that the data would then be released to the public. The company felt that the release of this information to the public could compromise its competitive position in the market. The inquiry began at the request of Representative Henry A. Waxman (Dem-Ca.).

The inspector general for the Department of Health and Human Services estimates that inaccurate reporting of drug prices is costing the government over a $1 billion a year. TAP Pharmaceutical Products had previously agreed to pay a fine of $875 million to settle civil and criminal charges of illegally manipulating the drug prices through inaccurate pricing information that it had supplied to the government.

The attorneys general of Florida and Washington state have filed suit against the online pharmacy Aprescribe, and a Florida physician Dr. Serge Lefevere Alexandre. The suit was commenced after the Florida attorney general's office was able to order the prescription drug Cipro using a fictitious name, and without being examined by the doctor.

According to the complaint customers do not have to submit prescriptions, but must list any current or past medical problems and surgeries. The space provided for the listing of such information was already filled in with the word "none", so that any potential patient would have to delete "none" and submit their own information.

The complaint further alleges that Dr. Alexandre would purportedly review the medical information and then write a prescription for the drug ordered without having examined the patient. The patient would also have to certify that he/she is "fully informed and understands the risks, benefits, and possible side effects of the prescription drugs." The statement also include an agreement to waive all liability claims against the company.

The lawsuits charge that these practices are illegal and that the defendants were not properly registered to do business as a pharmacy in Washington or Florida. The suits filed under Florida's Deceptive and Unfair Practices Act, and Washington's Unfair Business Pratices Act seek to stop the sales and obtain fines and restitution for the consumers. The defendants also include B&G Wholesale Inc. the owner of the site, and Linzer Burton, its president.

The Federal General Accounting Office conducted an interesting test involving drug discount cards, and found that they did not significantly cut the cost of drugs for the elderly buying brand name drugs. The cards did however significantly cut the cost for generic drugs.

The study involved 493 price quotations showing the charges for 17 drugs of which 12 were brand name and 5 were generic. The drugs were purchased at 19 different drugstores, 5 Internet pharmacies and at 5 discount card programs throughout the country. As a matter of fact the study found that at one of the Seattle drugstores studied, the elderly were able to buy 12 popular-brand name drugs for an average of $61.17 for each prescription, about 3 % less than they would have paid with discount cards.

The results showed a saving of about 8.2% for brand-name drugs when the cards were used versus a saving of about 36.8% for generic drugs when the discount cards were used. President Bush has proposed the discount card program for helping to lower drug costs for seniors but the program has been tied up in the court system up to now. Under his plan the card would cost between $12 and $24 a year to entitle the holder to get a discount at a participating pharmacy.

The drug card plans that were involved in the GAO study were from Merck-Medco Managed Care, a unit of Merck & Co., Advance PCS, Express Scripts Inc. and Wellpoint Health Networks Inc.. Please keep in mind that the government receives a legally mandated 15 % discount from the listed Average Wholesale Price (AWP) for its drug purchases and many states are negotiating additional discounts on top of this 15% mandated one. Large drug purchasers such as hospitals, employer sponsored plans, drug repackagers and HMOs receive these discounts as well as anything else that they can negotiate with the drug company.

We have listed some other helpful online sites that may help you reduce your prescription drug costs. To see other sites that help you in this area please see Part I in this series of articles:

www.DestinationRx.com -Searches the major online pharmacies for the best deals on prescription and OTC medications.

www.theunadvertisedbrand.com - Blue Cross Blue Shield of Michigan's clearinghouse for information on generic drugs, including a savings calculator that compares popular brands to their generic equivalents.

www.aarp.org/wiseuse/oregon-table.html -the AARP and State of Oregon teamed up to present this useful comparison on the safety and effectiveness of drugs that treat various conditions.

www.TxPricePoint.com- The Texas Hospital Association has launched a Web site to allow patients the ability to price shop for procedures by looking at fee schedules for every hospital in the state.

Medicare and Prescription Drug Coverage-Part I 
Medicare and the Cost of Prescription Drugs-Part IIa- Medicare and Medicaid Drug Spending
Medicare and the Cost of Prescription Drugs-Pharmacy Benefits Managers-Part III
Crossing the Border to Obtain Cheaper Prescription Drugs-Part IV
Prescription and Generic Drug Costs- Part V
Medicare and Prescription Drug Costs- Part VII

FOR AN INFORMATIVE AND PERSONAL ARTICLE ON PRACTICAL SUGGESTIONS WHEN SELECTING A NURSING HOME SEE OUR ARTICLE "How to Select a Nursing Home

By Allan Rubin and Harold Rubin, MS, ABD, CRC, Guest Lecturer
updated November 23, 2015

http://www.therubins.com

To e-mail: hrubin12@nyc.rr.com or allanrubin4@gmail.com

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