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Drug Companies’ Cost Structure

Drug Companies’ Cost Structure. Sager FDA Testimony 4/04. Tax Pill-fering How Merck Saved 1.5b paying itself for drug patents. Merck sets up subsidiary in Bermuda, in partnership w/ British bank Quietly transfers patents for blockbuster drugs to new subsidiary

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Drug Companies’ Cost Structure

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  1. Drug Companies’ Cost Structure

  2. Sager FDA Testimony 4/04

  3. Tax Pill-fering How Merck Saved 1.5b paying itself for drug patents • Merck sets up subsidiary in Bermuda, in partnership w/ British bank • Quietly transfers patents for blockbuster drugs to new subsidiary • Merck pays royalties to subsidiary for licensing Mevacor, Zocor, etc. • Subsidiary loans money back to Merck to buy Medco. • Arrangement allows some of the profits to disappear into “Bermuda triangle” between different tax jurisdictions. • Merck avoids $1.5 billion in federal taxes over next 10 years. • Later, Merck liquidates company & recovers its money Drucker, Wall St. Jl 9/06

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

  5. Shape Medicare Drug Benefit Block Medicare Drug Benefit

  6. Citizens for Better Medicare • Sham grass-roots org • $65m Television ads • Director is former PhRMA marketing director • Multiple “independent” partner groups largely industry funded • Gave $10 phone cards to seniors to call kids convey their fears • Weren’t citizens…..weren’t for better medicare

  7. But Politicians Ones that Can Really CheerPaid Well to Protect High Prices

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

  9. Donut Hole: Not only Bad Now But….. Keeps Growing

  10. “Roller Coaster” Part D Bumpy Ride • In 1st year under the standard drug benefit-38% will be subject to no-coverage gap ("doughnut hole,”)-14% will exceed the threshold of catastrophic coverage • Over three years, enrollees, on average, will incur out-of-pocket costs of 44% of their total drug spending. Enrollees with higher spending could pay as much as 67% of total costs. Commonwealth Fund "Riding the Rollercoaster: The Ups and Downs in Out-of-Pocket Spending Under the Standard Medicare Drug Benefit” (Health Affairs, July/August 2005)

  11. Lower Part D Drug Costs?Represent Policy Failures • Shifting costs drugs from Medicaid to Medicare for dually-eligible has actually raised costs for government payers. • Study top 25 prescribed brand drugs from 41 PDPs in one Minnesota zip code 1/06 • Prices 14% -50% above those Medicaid would have paid. • Most Medicare D prescriptions 20%-30% above Medicaid prices. • Not just implementation failures, but policy failures • Competing PDP providers not likely to lower drug prices • Patients shop for premiums; can’t shop for best drug prices Schondelmeyer Congressional testimony 1/20/06

  12. IOM Report on FDA & Drug Safety • Reform FDA conflicts • Panels • Approval funded by industry • Leadership revolving door • Shift emphasis toward post approval safety • More oversight re: advertising • No direct to consumer ads 1st 2 years • Black box warnings • More comparative efficacy information Psaty NEJM 10/06

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

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