Given that pharmaceutical companies are increasingly big players in
mainstream ag, and are among those involved in the DSHEA issue at
present, I thought the following might interest you as a big-picture
sustainable ag item. For me it is highly telling for how "commerce"
and "free market" relate in such a mega-system, and also how a
broader spectrum of medical and healing wisdom is sliced down to a
thin sliver of merchandizing opportunity.
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Drug Firm Plan Would Pay HMO To Favor 5 of Its Medications
Proposal for `rebate' of $1 million per month
Sabin Russell, Chronicle Staff Writer Friday, September 25, 1998
In a deal that critics say swaps cold cash for medical judgment,
California's third-largest HMO is proposing to use only Bristol-
Myers Squibb drugs for certain illnesses in exchange for
multimillion-dollar payments from the New York drug giant.
Foundation Health Systems Inc., whose Health Net HMO serves 2.1
million Californians, is negotiating with the drug company over terms
of a plan to win exclusive listings for five key Bristol-Myers drugs
on the roster of prescriptions covered by its 19 health plans.
Details of the plan are outlined in a June draft agreement obtained
by The Chronicle. During a time of growing protest over managed care
restrictions on drug choice, critics say the deal amounts to outright
purchase of coveted shelf space in an HMO's medicine chest --
regardless of what doctors may think is best for their patients.
And while the health maintenance organization insists that deals like
this are really discounts that benefit consumers, doctors' groups
warn that patients may end up paying more for their prescriptions.
Health Net spokesman Ron Yukelson said that none of the parties would
comment on ``a 3-month-old draft agreement that has not not been
executed, and may not be.''
But in the secretive business of drug pricing, such a rarely seen
draft document may be as close a glimpse as the public can get of the
financial incentives surrounding the selection of drugs for managed
While the use of a restricted list of preferred drugs -- called a
formulary -- is a well-established practice in managed care, the
structure of this proposal has alarmed medical groups around the
The draft agreement calls for Bristol-Myers to pay $1 million per
month, for up to three years, to Sacramento-based Integrated
Pharmaceutical Services. A Foundation Health subsidiary, IPS is a
``pharmacy benefits management'' company that handles drug benefits
of more than 4 million HMO members across the country.
The deal appears to be the latest twist on a little-known practice
known as rebating, in which drug companies pay cash to insurers,
hospitals and even doctor groups for high-volume sales of their
Rebating is controversial in the medical community because the
practice bears a close resemblance to payments for medical referrals.
``It sounds a lot like a kickback to me,'' said Jeff McCombs, a
health economist at the USC School of Pharmacy.
Doctors and clinical pharmacists have been uncomfortable with rebates
since they were first used 10 years ago. ``My concern is that
formulary decisions are made on a financial basis, rather than medical
evidence,'' said Lori Reisner, pharmacist for the Palo Alto Medical
She is also bothered that the potential savings through rebates do
not reach the consumer. ``The rebates stop with the pharmacy benefit
manager. . . . The net effect of it has not been better deals for
consumers,'' she said.
NOT FOR PATIENTS
In fact, the Bristol-Myers draft agreement appears to rule out
passing the payments to consumers. The drug company ``contribution''
the memo states, ``is not an additional discount . . . and is not
intended for benefit of payor organizations whose pharmacy benefits
are managed by IPS.''
The memo describes a sequence of six monthly $1 million payments
until January, when the deal would be reevaluated for its economic
benefit to both parties. If the $1 million monthly fee is maintained,
the deal would be worth $36 million.
Neil Massoud, a clinical pharmacist for the Catholic Healthcare West
hospital chain, was outraged at the proposed deal. ``This is blatant.
They get $6 million dollars out front,'' he said. `` . . . This has
nothing to do with health care. It has everything to do with money.
That's got to stop.''
Massoud submitted a copy of the draft memorandum to the state
Department of Corporation, which regulates HMOs, hoping it will
intervene to stop the deal. But spokeswoman Julie Stewart noted that
the department has no authority over the makeup of drug formularies.
In exchange for the monthly payments, according to the memo, the
Sacramento company would launch a program to make Bristol- Myers
medicines the ``preferred'' drugs in five separate categories of
When Bristol-Myers' Pravachol, for example, is designated the
``preferred'' cholesterol lowering drug on the HMO list, patients who
are prescribed a competing drug wouldn't be able to get it without a
time-consuming appeals process.
BLOOD PRESSURE DRUGS
Other Bristol-Myers drugs covered by the deal include the blood
pressure drugs Monopril and Avapro; the antibiotic Cefzil; and
Plavix, a drug that inhibits blood clotting.
A Bristol-Myers spokesman declined to comment on the specifics of the
proposed arrangement with IPS. However, the company said it supports
``investment programs that ensure the appropriate use of our products
and their access to patients.''
Although company officials insist that no agreement has been
completed, there are already signs that Health Net is changing the
way it handles prescription drugs.
Until last month, decisions about which drugs Health Net would cover
were in the hands of a committee of the HMO's participating doctors.
Now, that decision will be made by Health Net executives, acting on
the advice of a new committee of hired, independent experts.
Health Net chief medical officer Dr. Alan Zwerner, who will now make
the decisions as to which drugs are covered, acknowledged that
physicians aren't happy about it. ``The price one pays to keep health
care affordable is a degree of aggravation,'' he said.
The Health Net executive said formularies are a sensible way for
health plans to control the cost of prescription drugs, the fastest
growing expense in medical care. By taking advantage of marketing
clout, big HMOs can negotiate lower prices from drug companies.
``We're spending $1 million a day on drugs,'' Zwerner said. ``The
reason we have formularies is to keep the cost of health care down.''
But some doctors fear that the deal will have the opposite effect.
``Unfortunately, Bristol-Myers Squibb drugs are not the cheapest in
any of the classes,'' said Dr. Steven Mitnick, medical director for
Gould Medical Group in Modesto.
Mitnick explained that many medical groups, including his own, have
signed contracts with Health Net that pay them fixed amounts each
month to care for enrollees assigned to them. They collect the money
whether the patient is sick or well. A portion of these ``capitated
payments'' is allotted to cover prescription drugs. In effect, the
doctors' groups have a drug budget.
That means it matters a great deal to doctors how much a prescription
drug costs. But formularies limit the choices of drugs a doctor can
prescribe. If Health Net requires use of a more expensive
Bristol-Myers product, and the medical group busts its budget, the
doctors have to swallow the loss.
``They are passing on the responsibility, without the authority,''
fumed Mitnick. ``They are not allowing doctors to determine what goes
into the formulary.''
Medicare patients enrolled in HMOs may have a similar drug budget
--typically a $1,500 cap on covered benefits. If the Medicare
patients must take a more expensive drug, and exceed their budget,
they have to come up with money to continue their therapy.
Foundation Health spokeswoman Lisa Haines insists that the savings
from rebate deals do reach consumers. ``Pharmaceutical costs have
been growing at 15 percent a year -- have premiums?'' she asked.
DRUG FIRM HAS NO COMMENT
Bristol-Myers Squibb declined to comment on what it called ``the
proposed arrangement.'' In a written response, spokesman Robert
Laverty said the company will ``continue to support investment in
programs that ensure the appropriate use of our products and their
access to patients.''
There are currently more than 100 Pharmacy Benefit Management
companies, but an estimated 80 percent of the business is controlled
by five companies that are either owned by or allied with
Close ties between drug makers and formulary companies have attracted
the attention of the Federal Trade Commission, which is concerned that
such alliances could violate antitrust laws.
Last month, pharmaceutical giant Merck & Co. signed an FTC consent
agreement governing its relationship to Merck-Medco Managed Care, the
nation's largest pharmacy benefits management company, which it
bought in 1993 for $6.6 billion.
The agreement requires that Merck-Medco set up an independent
committee of doctor and academic experts to determine which drugs
will be on its formulary.
c1998 San Francisco Chronicle Page A1
Michele Gale-Sinex, communications manager
Center for Integrated Ag Systems
UW-Madison College of Ag and Life Sciences
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