The most recent issue of Health Affairs (subscription required) has an intriguing proposal on how we might pay for drugs to maximize the number of people who need drugs actually taking them while minimizing cost. (“Drug Licenses: A New Model For Pharmaceutical Pricing”). The authors introduce the problem:

High drug prices are a major barrier to patients’ access to drugs and compliance with treatment. Yet low drug prices are often argued to provide inadequate incentives for innovation.

While their analysis of whether prices really influence R&D is, in my opinion, flawed, their underlying point is accurate: High drug prices reduce patients’ compliance (i.e. whether patients actually take the drugs they’re prescribed). For conditions where drug treatment has a significant impact, that can affect the patients’ health and also increase health costs overall. The drugs the authors focus on are a good example: statins for high cholesterol. Ensuring that patients who actually needs statins can afford to take them can prevent heart attacks and hospitalizations, which are of course far more expensive than the drugs. The authors point to studies showing that even modest increases in the copayments that patients have to pay for statins under their insurance can significantly reduce patient compliance.

The authors’ proposed solution is to change how we pay for drugs like these. The main costs associated with a producing a drug are upfront: the research, the clinical trials, the steps to get the drug approved, etc. Once approved, the cost of producing each tablet or capsule is, for most drugs, very low. Thus, paying by the pill it is not necessarily the only, or the best, way to compensate the drug company. We already pay for certain products the way the authors propose, the most familiar example being computer software and cable TV:

The licensing model we propose is referred to by economists as “two-part pricing.” Numerous examples of this exist in the nonmedical world, including Internet service, cable and satellite television, all-you-can-eat buffets, country club memberships, and cell phone plans. But perhaps the most relevant example is software. Instead of charging a fee every time a person starts his or her computer, Microsoft charges a one-time fee for the use of Windows. What makes pharmaceuticals similar to these products—and distinguishes them from other health services—are the very low costs of production and the existence of few good substitutes.

Uncoupling the cost of the treatment from each pill (or each monthly supply of pills) ensures that patients won’t stop taking the drug, or stop filling the prescription because of the cost of a particular bottle of pills.

It’s an interesting model to consider: That patients purchase not the pills themselves, but the right to as many pills as they need for a given year.
Whether this is the right model, or whether there are others that are better, remains to be seen. But our current system in which drug companies hyper-market drugs to consumers regardless of whether those drugs are truly needed, in which many consumers are shielded from the true cost of those drugs, and in which ironically many patients who actually need certain drugs can’t afford them, clearly isn’t working. This is one alternative worth considering.

In the past several months, WCVB in Boston has run two reports on insurers giving financial incentives to doctors to switch patients off the expensive brand-name cholesterol drug Lipitor (made by Pfizer [NYSE:PFE] and on to a cheaper drug, either generic or brand-name. The most recent was earlier this week: “Doctors May Not Reveal Full Truth Behind Rx Switch.” The tone of the pieces has been one of shock and disbelief, that doctors are receiving some form of payment for making these switches. These reports tell about 1/5 of the real story.

The first key fact, mentioned in passing in the story, is that most patients that need a statin don’t need Lipitor – Lipitor is the “most powerful” statin available, but as one Doctor in the story says, “the vast majority of patients you can get to goal [i.e. get to the desired cholesterol level] with Simvastatin [a generic which used to go by the brand name Zocor] and if you can get them to goal for less money, less money to society, less money to them out of pocket, that’s what we should do.” And with drugs like statins, “more powerful” is not necessarily better — but it is more expensive. If patients’ cholesterol can be lowered to the needed level with a generic, then it should be.

But what about the “payments” to doctors? The story claims that insurers are paying doctors to switch their patients — the story is noticeably silent on the details of these payments:

Many doctors get a financial benefit from insurers through a complicated formula if they switch enough patients off of brand names to generics. Patients see that they are saving money on co-pays, but do they know their physicians are making money?

The choice of phrase “complicated formula” suggests that it’s not a straight payment — i.e. switch a patient, get a check. If it were such a one to one transaction, you can be sure that the story would have made strong emphasis of that fact. So, if, as it seems, the payment is more indirect — i.e. the number of patients that a doctor switches off of Lipitor is part of a larger reimbursement formula, then is there a problem with giving doctors an incentive, even a financial one?

Maybe, maybe not. But let’s put it in context. There are numerous “incentives” pushing doctors to prescribe particular drugs. Let’s look at those incentives and ask where they really stack up:

• 100,000 drug salespeople who work for drug companies like Pfizer (maker of Lipitor) descend on doctors’ offices every day, delivering slick sales pitches on why they should prescribe their patients the most expensive brand-name drugs instead of cheaper and equally effective generics.
• These same drug salespeople come bearing pens, prescription pads, and other gadgets emblazoned with the drug’s name and logo, along with drug samples, lunches for the entire staff, invitations to meals at fancy restaurants where there will be a presentation about the wonders of their drug, and of course a healthy dose of flattery.
• These sales reps enter the office with data purchased from local pharmacies, so they know exactly how many prescriptions the doctor is writing for their drug versus their competitors, and how that rate has changed since the last visit the salesperson made — allowing them to tailor their pitch to that doctor.
• When the doctor opens up the pages of medical journals, they see them plastered with ads for the drugs the salespeople are hawking.
• The doctor may then attend a Continuing Medical Education seminars (a certain number of which doctor must attend each year to keep their license to practice) where the speaker is a paid consultant of the company.
• Doctors who are high-prescribers of the drug or well-known in their region are designated as “thought leaders” and may be invited to be a consultant or part of a “speakers’ bureau” for the company, receiving a payment in return.

And so on, and so on.

As you can see, there are many “incentives” that drug companies give to doctors to get them to prescribe a certain drug over another. Some of them are financial — some are not. But they all influence the doctors’ choice of what drug to prescribe — and more often than not, it influences them to prescribe a newer, more expensive drug, regardless of whether that drug is more expensive or not. These tactics work, otherwise drug companies would not spend more than $20 Billion a year marketing to doctors.

And let’s not forget that drug companies have enlisted us, the consumer, as an unpaid member of their sales force. The pharmaceutical industry spent around $5 Billion on “direct to consumer” drug ads in 2006. Lipitor, the best selling drug in the U.S. and the world, spent $138.2 Million on Lipitor ads in 2006 (see our post, “Top 3 Bestselling Drugs spent $460.5 Million on Ads in 2006″), most of them featuring Dr. Robert Jarvik, inventor of the artificial heart, waxing ecstatic about Lipitor. After the sales rep has visited, and the doctor has seen the ads in the medical journal, and attended the dinner at the fancy restaurant, and gone to the seminar where a colleague who’s on the drug company’s payroll has preached the wonders of the drug, into the office comes the consumer, who says they saw an ad for Lipitor on TV, and that’s the drug they want.

So into this tangled web of pharmaceutical company influence and incentives comes the insurance company, also offering an incentive. Does this make the insurance company’s incentive right? Not necessarily. But to focus only on the insurance company in this equation, to express shock and horror at their incentive while ignoring the morass of promotion and persuasion used by the drug company, is to entirely ignore the full picture and the real story.

But reporting on that whole picture doesn’t make for a nice, neat, 3 minute “news” piece, does it? And what impression does a story like this leave in viewers’ minds? A PAL staffer did a presentation yesterday at a Senior housing complex, two days after the story aired, and the attendees overwhelmingly said that they had seen the report, and that they were led to believe from it that generics are not as effective – a message that was strongly implied by the story but which is a significant distortion of the truth.

(Postscript: If you’re curious about what statins are appropriate for which people, check out Consumer Reports’ Best Buy Drugs report on them)