Members of Prescirption Access Litigation’s coalition are plaintiffs in a national class action lawsuit that alleges the Cephalon (Nasdaq:CEPH) illegally took steps to keep a less expensive generic version of its narcolepsy drug Provigil off the market, including paying off generic drug companies that challenged Cephalon’s patents on Provigil to not try to bring a generic to market. So we follow news about Provigil quite closely.

Back in September, we wondered aloud “Why did Cephalon close its Provigil Patient Assistance Program.” We speculated:

Cephalon jacked up the price of Provigil 14% back in March [2008], according to a Bloomberg News report. US sales of Provigil for the first half of the year were $417 million. Given that Provigil’s total 2007 sales were $744 million, the drug’s sales are growing….

Provigil is clearly a money maker for Cephalon, approaching the magic $1 billion “blockbuster” market. Provigil has on the one hand deprived consumers of a more affordable generic and on the other hand told uninsured patients seeking assistance that they’re out of luck halfway through the year….

One can’t help but wonder if the Patient Assistance Program’s closure has anything to do with the anticipated introduction next year of Nuvigil, a “successor drug” to Provigil. Nuvigil (armodafinil) is the “single isomer” formulation of Provigil (modafinil), which means that Nuvigil is just one half of the molecule that gives Provigil its kick.

The Wall Street Journal reported this week in How a Drug Maker Tries to Outwit Generics:

Twice this year, Cephalon Inc. has sharply raised the price of its narcolepsy drug Provigil. The drug is now 28% more expensive than it was in March and 74% more expensive than four years ago…The Frazer, Pa., company has said in investor presentations that it plans to continue to raise the price.

The Provigil price increases — the drug’s average wholesale price is now $8.71 a tablet — are an extreme example of a common tactic pharmaceutical companies employ in the U.S. to boost profits and steer patients away from cheaper generics.

It works like this: Knowing that Provigil will face generic competition in 2012 as its patent nears expiration, Cephalon is planning to launch a longer-acting version of the drug called Nuvigil next year. To convert patients from Provigil to Nuvigil, Cephalon has suggested in investor presentations it will price Nuvigil lower than the sharply increased price of Provigil.

By the time copycat versions of Provigil hit the market the company is banking that most Provigil users will have switched to the less-expensive Nuvigil, which is patent-protected until 2023. In the meantime, Cephalon will have maximized its Provigil revenue with the repeated price hikes.

“You should expect that we will likely raise Provigil prices to try to create an incentive for the reimbursers to preferentially move to Nuvigil,” Chip Merritt, Cephalon’s vice president of investor relations, told a Sept. 5 health-care conference, according to a transcript of the meeting.

A more cynical statement by a pharmaceutical spokesperson is hard to find, and that’s saying a lot. What this statement means is that Cephalon is apparently willing to force patients to pay more — for no reason other than to boost sales of its new drug, Nuvigil, and get patients and physicians to switch to it – all before a generic version of Provigil hits the market, which likely will cost 70-80% less than Provigil within a year of a generic being available.

Increasing drug prices, of course, are apparently par for the course in the U.S. But, as the WSJ points out, “Provigil’s price increase over the past four years has been almost four times steeper than the 4% compound annual growth rate of the average drug price during that period, according to a DestinationRx analysis of 2,570 brand-name drugs.”

We at PAL hear from patients on a daily basis who cannot afford Provigil. These include people who are uninsured, people who are in the Medicare Part D “donut hole,” people who have qualified for Social Security Disability Income (SSDI) but who are stuck in the ridiculous 2 year waiting period to get on Medicare, and people whose insurance won’t pay for Provigil.

For many of these people, they need Provigil in order to have functioning daily lives — we’re not talking about, as the WSJ describes, people take Provigil for uses not approved by the FDA, “as a ‘lifestyle drug’ to help them stay awake during work or leisure activities.” We’re talking about people like Jessica, who described her inability to afford Provigil in Jessica’s story: No help from Cephalon for cost of Provigil.

Making payoffs to keep generic Provigil off the market, raising its price at a rate four times higher than other drugs, closing its patient assistance program halfway through the year — all we can say is shame on Cephalon.

(Got a Provigil story to tell? Post a comment below.)

We here at Prescription Access Litigation (PAL) are pleased to congratulate Shirlee Zane, the Executive Director of the Council on Aging of Sonoma County (CA), on her recent election to be the Sonoma County Supervisor for the Third District. The Council on Aging is a member of Prescription Access Litigation’s coalition of 130+ organizations.

Shirlee has been a tireless advocate for the needs of seniors and for a health care and human services system that provides for everyone’s needs. She has helped educate thousands of seniors about prescription drug issues through Council on Aging programs and services. We have no doubt that the people of Sonoma County will be well served by Shirlee.

Congrats, Shirlee!

Prescription Access Litigation coalition member National Women’s Health Network recently sent a news item about the FDA’s September 29 letter to LabCorp, advising it that its ovarian cancer screening test is a medical device that must be pre-approved by the FDA before it can be marketed. In response to the letter, LabCorp (NYSE:LH) announced at the end of October that it is halting sales of OvaSure.

Back in August, the New York Times ran an article on the test: Cancer Test for Women Raises Hope, and Concern

As the FDA’s letter said:

Our review indicates that this product is a device under section 201(h) of the Food, Drug, and Cosmetic Act (FDCA or Act), 21 U.S.C. 321(h), because it is intended for use in the diagnosis of disease or other conditions, or in the cure, treatment, prevention, or mitigation of disease. The Act requires that manufacturers of devices that are not exempt obtain marketing approval or clearance for their products from the FDA before they may offer them for sale….

According to our records, no such determination has been made for OvaSure™. Because you do not have marketing clearance or approval from the FDA, marketing OvaSure™ is in violation of the law. The device is adulterated under section 501(f)(1)(B) of the Act, 21 U.S.C. 351(f)(1)(B)…. The device is also misbranded under section 502(o) the Act, 21 U.S.C. 352(o)….

Here’s what National Women’s Health Network had to say about the test:

Don’t Be Fooled by OvaSure

The Food and Drug Administration (FDA) recently warned that the marketing of a new ovarian cancer test violates the laws guarding against promotion of unproven technologies, vindicating skeptics like the National Women’s Health Network, who were concerned that the test was not ready to be used for routine cancer screening. OvaSure is a test that measures six different proteins in blood samples and calculates the odds that a woman will develop ovarian cancer. The $220 test was developed by LabCorp and has been available since late June.

When ovarian cancer is detected in its earliest stages, more than 90 percent of women survive at least five years. When the cancer is discovered in its late stages, after it has spread beyond the ovaries, only about 30 percent of women survive five years. There is currently no effective screening tool for ovarian cancer, so only about 20 percent of cases are detected early. OvaSure was developed to fill this void, but the test has not yet been shown to be very effective at detecting early disease. False positives are also a serious concern. A screening test that says a woman has a cancer when she doesn’t is dangerous because it subjects women to unnecessary worry and sometimes even surgery, including the possibility of unnecessary removal of a healthy ovary. (It shouldn’t happen, but it does.)

The NWHN worked hard with other consumer safety organizations and with our allies in Congress to enact FDA reform in 2007 sending the FDA a clear message that the agency should be tougher in enforcing its rules to protect women from ineffective drugs, devices and tests that could put their health at risk.

LabCorp has been told by the FDA that it must meet premarketing approval requirements before getting the okay to market Ovasure. Thanks to everyone who helped us send a message that women want safe and effective health products, as well as speedy approvals. We urge Labcorps, and others trying to find a good screening test for ovarian cancer, to do the research necessary to prove the tests will meet the FDA’s standards and actually improve women’s health. Women are waiting.

Today, the 1st Circuit Court of Appeals issued a decision in IMS v. Ayotte, the case challenging New Hampshire’s Prescription Confidentiality Act, which prohibits the commercial use of prescriber data, including for pharmaceutical detailing. The Court unanimously upheld the law, finding that it did not violate the First Amendment. The opinion weighed in at a hefty 148 pages.

The Act sought to prohibit the practice of “datamining” for the purpose of pharmaceutical marketing: pharmacies sell doctors’ individual prescribing data (what drugs the doctors prescribed, when, and how often) to companies that aggregate such data. Those companies then sell prescribing “profiles” of individual physicians to drug companies, whose salespeople can then use that information to tailor the “pitch” that they use in marketing their drugs to those doctors. For instance, if a doctor has been prescribing a competitor’s drug, they might tailor the sales pitch to talk about why their drug is allegedly superior.

IMS Health, a company that collects and sells pharmacy data on doctors’ prescribing practices, sued the state of New Hampshire before the ink was barely dry on the law. They alleged that it violated their First Amendment rights. In April 2007, the U.S. District Court for the District of New Hampshire agreed, and struck down the law. The State of New Hampshire appealed the decision to the 1st Circuit Court of Appeals, which heard the appeal in January 2008.

Sean Fiil-Flynn, who represented PAL’s parent organization Community Catalyst, as well as AARP, National Legislative Association on Prescription Drug Prices, National Physicians Alliance, New Hampshire Medical Society, and Prescription Policy Choices in filing an amicus brief before the 1st Circuit, gave an excellent analysis of the decision and its ramifications:

The court unanimously upheld the New Hampshire law. The majority found that the act does not regulate speech, but rather regulates only the conduct of health information companies that aggregate and sell prescription records. The concurrence concluded that the Act does affect speech of pharmaceutical marketers, but the regulation is nonetheless justified by the state’s overriding interest in promoting cost containment in the pharmaceutical sector.

This is an important decision for data privacy advocates. The ramifications of giving companies a First Amendment right to sell data on all of our purchases, travel and activities would be staggering. The First Circuit ruled on the side of consumer privacy, admonishing that the First Amendment does not protect every exchange of information from traditional social and economic regulation. It refused to apply the First Amendment to the trading of prescription records for marketing purposes where “information itself has become a commodity.” The court explained that applying the First Amendment to such trade in prescription data “stretches the fabric of the First Amendment beyond any rational measure.”

The 148 pages of analysis exhaustively analyses the voluminous evidence amassed by New Hampshire demonstrating the negative effects on our health care system of allowing pharmaceutical marketers to use prescription record tracking to target their marketing efforts.

The court affirmed that states have a valid interest in regulating the use of prescription records to target marketing to doctors. The court found that the use of such information to identify doctors who prescribe lower cost drugs and target marketing campaigns at them has a demonstrable impact on pharmaceutical spending that states are not disempowered to respond to. Access to individualized prescription data also allows companies to target gifts, consultancies and other perks to their most favored physicians, in effect incorporating prescribers into the commission structure of their sales forces. These practices debase the medical profession and, the more the practices become public, break the chain of trust between doctor and patient.

Other resources:

• The 1st Circuit’s decision is here
• An Associated Press article on the decision is here: NH prescription privacy law upheld
• The 1st Circuit Amicus Curiae brief of Community Catalyst and others is here.
• The District Court Amicus Curiae brief of Prescription Access Litigation and others is here.
• See also what PostScript, the blog of our colleagues at The Prescription Project, had to say about the decision.

We noted this Newsday story with pleasure: “2 drug chains to provide Rx translation services,” about an agreement between NY Attorney General Andrew Cuomo and the pharmacy chains CVS (NYSE:CVS) & Rite-Aid (NYSE:RAD). Says the article:

CVS and Rite-Aid, will advise pharmacy customers about prescriptions with spoken and written translations in Spanish, Chinese, Italian, Russian, French and Polish, Cuomo said in a news release.

Cuomo’s office launched an undercover investigation after a Brooklyn-based nonprofit, Make the Road by Walking New York, complained that pharmacies “routinely fail to advise non-English-speaking customers in a language that allows them to understand the purpose, dosage and side effects of their medications,” according to the release.

State law requires pharmacists to “personally provide information about prescription drugs to all patients, orally and in writing,” the release said.

This is great news, given that patients whose first language is not English face major obstacles to getting adequate health care. Recognizing this problem, there are state and federal laws requiring that health care providers (and pharmacies, at least in NY) ensure language access for all their patients/customers.

A patient who can’t read or understand the instructions for a prescription drug can’t take it correctly. They may not understand how often to take it, what time of day to take it, whether to take it with food or not, and whether it has any dangerous drug interactions.

Failing to ensure that the millions of such patients can understand how to take their drugs isn’t just important for them individually and their families — it’s important for the health care system as a whole. Patients who can’t comply with their prescription drug regimen because of language barriers are more likely to have their chronic conditions not controlled. This can lead to a worsening of those conditions (e.g. heart disease, high blood pressure, diabetes), putting them at an increased risk of complications and even death. It also puts them at an increased risk of injury caused by their drugs — because of accidental overdosing and drug interactions.

There’s one thing in particular that jumped out while reading the Newsday story:

CVS and Rite-Aid, will advise pharmacy customers about prescriptions with spoken and written translations

[emphasis added]

If this means that CVS and Rite-Aid will be translating a drug’s official FDA-approved label, who is responsible for the content and accuracy of the translated label? Is it the drug store, which translated it? Or the manufacturer, which wrote the original? Manufacturers would argue, understandably, that they’re not responsible for something they didn’t write/translate.

Medical translation is a delicate art, and minor changes in translation can have major consequences for the meaning of the text once it’s translated. Who does the translating is key. There are translators, and then there are translators. Nuances of meaning and idiom are notoriously tricky, yet are key to adequate understanding. PAL’s parent organization, Community Catalyst, learned this while translating its Generics are Powerful Medicine materials into Spanish (those Spanish-language consumer materials about generic drugs are here.

Some other questions came to mind:

• How will these written translations be done? They can’t be done on an as-needed basis – you can’t exactly translate a drug’s label, or even the instructions for taking it, on the spot in the pharmacy. If they’re done prospectively, what drugs will they be done for? There are tens of thousands of prescription medications on the market in the U.S. Yet a huge percentage of dispensed prescriptions are concentrated in a very small number of best-selling drugs. CVS and Rite-Aid aren’t going to translate the label of every drug on the market, so how do they decide which to do?
• What if there are changes to the drug’s label? Is there an ongoing obligation for CVS and Rite-Aid to update the translations? What if, for instance, new risk information is added to a drug’s label and the pharmacy doesn’t add that to the translation? This could present a liability risk to the pharmacy.
• What if there’s a discrepancy between the original label and the translation? Another possible liability risk for the pharmacy
• How do small independent and community pharmacies fulfill this obligation? They don’t have the resources and the staff to do such translations that chains like CVS and Rite Aid do. Does this place them at an even greater competitive disadvantage than they already are?
• If drug manufacturers know that their drugs’ labels have been translated, do they have an obligation to ensure that those translations are accurate? On the one hand, you can’t make a drug maker responsible for every mis-translation of things they write. But on the other hand, if they know a major chain has translated their materials, do they have a responsibility to check the accuracy?
• How do you guard against differing translations? No two translators will translate the same item the same way. Will there be uniformity throughout, say, all of CVS’s stores? What if CVS’s translation differs from Rite-Aid’s? Consumers change pharmacies at times — this can create patient confusion.

The growth of the number of patients in the U.S. who are not fluent or literate in English suggests that translation of prescription drug instructions and labels is going to be an increasing need. The problems above suggest that there’s a need for uniformity. Perhaps drug manfacturers should proactively translate their materials and labels to ensure accuracy and uniformity. The question arises whether a translated label would require the same FDA approval as the original label, and whether FDA has (a) the capacity to review translations and (b) the regulatory or statutory power to do so.

This is an issue that pharmacists, manufacturers, regulators and advocates for improved language access in health care need to address.

We’d be very interested in pharmacists’ take on this issue. How have you dealt with this in your pharmacy? What do you think needs to be done to ensure that non-English speakers understand their medications? How do we take these steps without overburdening pharmacists, particularly those in small independent and community pharmacies?

David Armstrong reports in today’s Wall Street Journal that Change to Win, a member of the Prescription Access Litigation coalition, is launching campaign to challenge CVS Caremark’s [NYSE:CVS] sending of a letter to doctors of specific patients, apparently promoting Merck’s [NYSE:MRK] diabetes drug Januvia. (“Unions Say CVS Pushed Costly Drug to Doctors“)

As the article reports:

A group of labor unions is launching a campaign that accuses CVS Caremark Corp. of violating patient privacy and improperly pushing doctors to prescribe a costly prescription drug.

Change to Win, a group of unions that represents about six million workers, said CVS’s pharmacy benefits management business has been urging doctors via a letter to add Merck & Co. diabetes drug Januvia to specific patients’ treatments. The letter, obtained by the union group, said CVS identified the diabetes patients through a review of prescription-drug claims processed by its Caremark unit.
[on the rise]

A line at the bottom of the letter says Merck paid for the mailing. Neither Merck nor CVS would say how much Merck paid, and the drug maker also declined to say whether the mailing boosted Januvia sales…

Januvia is as much as eight times more expensive than many other diabetes treatments, according to a recent study. Some medical experts say patients may not need the drug and may respond just as well to older, cheaper treatments…

Change to Win says the Januvia letter is an example of CVS putting its interests ahead of the businesses that pay it to manage employee prescription-drug benefits. CVS became a big player in the pharmacy-benefits business when it acquired Caremark, then the nation’s second-largest PBM, for about $27 billion in 2007.

CVS, the nation’s largest retail pharmacy chain, with approximately 6,800 stores across 41 states, acquired Caremark, one the nation’s three largest Pharmacy Benefit Managers (PBMs) in March 2007. Despite concerns that a company comprised of both a pharmacy chain and a PBM (which are supposed to help control health plans’ pharmacy costs) would have untenable conflicts of interest, the Federal Trade Commission (FTC) approved the merger). Change to Win’s campaign suggests that these concerns were not trivial.

We’ll report more on Change to Win’s campaign as we info becomes available…

The good folks over at Alliance for Justice are premiering a new 22-minute documentary about Diana Levine, the Vermont musician who lost her forearm to gangrene caused by a prescription drug made by Wyeth, and whose suit against Wyeth has gone all the way to the Supreme Court.

Here’s the description:

When Diana Levine went to the hospital in April 2000 seeking relief for a severe migraine headache, the professional musician and children’s record producer never imagined that faulty drug labeling would result in the amputation of her arm. Today she is at the center of a closely-watched Supreme Court case and a national debate about the federal courts and corporate accountability.

Produced in conjunction with 12-time Emmy award-winning producers/directors Jon Alpert and Matt O’Neill, Alliance for Justice’s documentary Access Denied?: The Fight for Corporate Accountability tells Ms. Levine’s powerful story and exposes the slow but steady transformation of our federal courts into institutions that favor corporate interests over everyday Americans. Through an examination of Diana Levine’s case against Wyeth Pharmaceuticals – and the experiences of others like her – Access Denied? takes the legal issue of preemption out of the courtroom and into the real world, where millions of Americans find themselves unable to access the courts and hold corporations accountable for their misconduct.

And here’s the trailer:

Bradley Whitford, of West Wing fame and other films & TV shows, is promoting the film. (If I may digress for a moment: Your humble blogger once was a humble stage crew intern at an off-off-Broadway theater in Hell’s Kitchen in New York in 1987. A then-completely-unknown Bradley Whitford was in a one-act play in said theater. So was Marisa Tomei, who at the time was NOT unknown, because she was in the Cosby Show spinoff series “A Different World.” One exciting night saw Lisa Bonet and then-hubby Lenny Kravitz come to see the show.)

And speaking of celebtrity actors, one can’t help but wonder: Who would play Rep. Henry Waxman in the feature film?

There are plenty of good candidates in the roster of bald actors, such as:

Sir Ben Kingsley:

Or perhaps Alan Arkin:

Or Robert Duvall:

We could do this all day! Your other Waxman portrayal suggestions welcome in the comments.

The Center for Progressive Reform < (CPR)issued this week a report called "Protecting Public Health and the Environment by the Stroke of a Presidential Pen: Seven Executive Orders for the President’s First 100 Days,”

As CPR’s Blog describes,

Through Executive Orders, a President exercises his broad authority over the executive branch; and in so doing can have a profound influence on how the federal government responds to important policy issues. By directing federal agencies to focus on particular priorities, and by reshaping the internal processes by which agencies do their business, President Obama can impose new policies, while at the same time sending a clear message to Americans and the world that change is under way.

Readers of this blog know that we frequently write about FDA preemption of consumer lawsuits against drug companies. The Supreme Court just heard on November 3 arguments in Wyeth v. Levine, a case that could very well shut the Courthouse doors across the U.S. to consumers who’ve been injured by unsafe drugs. Wyeth, the drug company defendant in the case, argued that the lawsuit against it for failing to warn musician Diana Levine and the medical staff that cared for her that a particular method of administering the anti-nausea drug Phenergan could cause gangrene should be preempted by the FDA’s authority to approve prescription drug labels. Most observers expect the Supreme Court to decide in Wyeth’s favor, and to say that consumers cannot file lawsuits alleging drug company “failures to warn.”

But the push for preemption in the past several years has not just been in the Courts. The FDA too has been aggressively arguing for preemption for the past 8 years. The FDA actively intervened in numerous lawsuits on unsafe drugs and medical devices to argue for preemption. In 2006, the FDA included a lengthy “preamble” in its revised rules on drug labelling requirements that argued that such lawsuits are/should be preempted. And the FDA’s new “Changes Being Effected” regulations, enacted in late August, (about when drugmakers can change the label of their drugs to include new information on risks) seems designed to preempt such suits as well.

This 8-year push for preemption is in stark contrast to the FDA’s previous approach to the subject for many years, which was to treat such suits as complementary to the FDA’s regulation of drugs and not antagonistic.

CPR proposes that the Obama administration adopt an Executive Order on preemption, or, specifically an order that would amend the existing Executive Order on Federalism. The main feature of their proposed Order would be to restore the traditional “presumption against preemption” (i.e. in order to preserve the powers that States are granted under the constitution — see, e.g. the Tenth Amendment– it should be presumed that state laws do NOT conflict with federal law unless shown otherwise.) They also propose a number of specific procedures that federal agencies like the FDA would need to follow to get White House approval before they take an action or position in favor of preemption.

Such an Executive Order would be a step in the right direction, at least in terms of halting the FDA’s (and other federal agencies) eight-year battle to limit the rights of states to protect public health and safety. But such an Order would not do anything to reverse a finding in favor of the pharmaceutical industry in Wyeth v. Levine (a decision is not expected from the Supreme Court until sometime in the first half of 2009).

To do that, Congress would have to step in and pass a law essentially reversing a Supreme Court decision in favor of preemption. Earlier this year, in Riegel v. Medtronic, the Supreme Court held that patient claims about unsafe medical devices are preempted, and more than 80 members of Congress and Senators are trying to restore patients’ rights to sue device companies in such cases with the Medical Device Safety Act. (H.R.6381 and S.3398). It is virtually certain that a similar bill will be filed if and when the Supreme Court decides in Wyeth’s favor.

An Executive Order also arguably wouldn’t do anything to affect the preemptive effect of the FDA’s Changes Being Effected regulations, which have already been promulgated and which stand as the “law of the land” for now. To undo the preemptive effect of those rules would most likely require that the FDA amend those regulations. Whether the new administration at the FDA will seek to tackle that remains to be seen — given the scandals that have rocked the FDA over the past few years, there may be bigger fish to fry (food safety, inspections of foreign drug manufacturing plants, etc.)

But an Executive Order would be important – not just to ensure that the Executive branch thinks long and hard before it tramples on the traditional powers of the States to protect public health and safety, but to change the tone and tenor of federal agencies’ approach to the issue. A restoration of the “presumption of preemption” in the FDA (and other federal agencies) would naturally affect what new regulations are promulgated, what old regulations are amended or scrapped, whether the FDA chooses to intervene in private lawsuits and what position it takes when it does so, what the FDA’s overall priorities are, and even what laws and regulations States pass – right now, the fear of preemption has a chilling effect on what measures States and state agencies will put into place to protect the public from unsafe drugs, food, and medical devices.

Drug Benefit News brings us this fascinating story: Caterpillar/Wal-Mart Rx Drug Pilot Scraps Use of Average Wholesale Price, Uses Drug Cost-Plus Pricing.

Readers of this blog know that we are prone to getting on a soapbox about the flawed “Average Wholesale Price” (AWP) system that health plans and many government programs (like Medicaid) use to decide how much to pay pharmacies for prescription drugs. In fact, a number of members of our coalition have brought class action lawsuits against drug companies, drug pricing publishers and major drug wholesalers for allegedly inflating the Average Wholesale Prices of prescription drugs.

In a nutshell, pharmacies generally are very protective of the details of how much they pay to drug companies and wholesalers for the drugs that they then sell to consumers and health plans. They argue that revealing those prices would put them at a competitive disadvantage. So, health plans and governments are forced to decide how much to pay for drugs without knowing what the pharmacy paid. The Average Wholesale Price was intended to approximate what pharmacies in general were paying for a drug. The health plan would then agree in a contract with a pharmacy that they’d pay them an amount based on the AWP of each drug — say, AWP minus 5%. The idea was that a health plan would pay a pharmacy an amount that would be a modest amount higher than than what the pharmacy paid – the “actual acquisition cost.”

But AWPs no longer have any basis in any reality — the joke is that AWP stands for “Ain’t What’s Paid.” In the lawsuits mentioned above, there are examples cited where the AWP was many times, even tens or hundreds of times, higher than what pharmacies were actually paying. This meant that health plans were overpaying pharmacies — often massively – for prescription drugs.

First Databank and Medispan, two of the defendants in a class action lawsuit on this issue, have voluntarily agreed to stop publishing AWPs within approximately the next two years. Since these two companies are pretty much the only ones who publish AWPs anymore, this information is going to cease to be available pretty soon. That means that health plans, pharmacies and government programs are going to have to figure out an alternative. And that’s a major question still up in the air — what are they going to use instead of AWP?

Well, it looks as though WalMart (NYSE:WMT) and Caterpillar (NYSE:CAT) are already thinking about that, and have come up with an alternative — at least for those two companies. As Drug Benefit News explains:

A new pharmacy benefit pilot program involving Caterpillar Inc. and Wal-Mart Stores, Inc. cuts “significant waste” out of the pharmaceutical supply chain and scraps the long-maligned average wholesale price (AWP) discount methodology in favor of an Rx cost-plus model, say those involved in the program…

When Caterpillar approached Wal-Mart, the first thing the parties did was address the question of AWP, which Bisping describes as a “flawed methodology.” Typically, PBMs negotiate discounts off AWP, which can be wildly inflated and bear little resemblance to the true cost of the drug.

To address this concern, Caterpillar developed a new pricing methodology based on Wal-Mart’s actual invoice prices on drugs, Bisping says, adding that AWP doesn’t appear at all in the contract. “For all of the drugs that we purchase now from Wal-Mart, the core basis is on the real invoice price, of course, plus some money for their overhead and any margin they have to make,” he explains.

The article doesn’t go into very much detail about what this “new pricing methodology” actually means. We’re willing to bet that there are heavy-duty confidentiality provisions in the contract to prohibit Caterpillar from revealing the “real invoice prices” that Wal-Mart pays for drugs.

What’s most intriguing about this new model, as scant as the details are, is that it’s based on actual prices, instead of inherently unreliable and unverifiable “benchmark” prices. Basing drug reimbursements on actual costs is something we’ve supported for a long time, including in an article that ran several years ago in the BNA Pharmaceutical Law & Industry Report.

Another interesting aspect of this agreement is that it basically cuts out the traditional middleman between an employer (or health plan) and a pharmacy: the Pharmacy Benefit Manager (PBM). The PBM industry grew massively in the 90s to save employers and health plans from the hassle of having to engage in such negotiations. Now, Caterpillar is quite a large company, so don’t expect to see small- or even medium-size companies or health plans negotiating directly with pharmacies anytime soon. And Caterpillar’s PBM doesn’t seem that worried:

For their part, RESTAT [Caterpillar's PBM] executives say they are more than happy to assist Caterpillar with the program. The Wal-Mart agreement doesn’t do anything to change RESTAT’s basic relationship with Caterpillar, except for some negotiating relationships on acquisition costs at the pharmacy level, says David Kwasny, vice president of sales and marketing.

“We’re very flexible,” he tells DBN, adding that RESTAT is a highly transparent PBM that doesn’t make any spread on pharmacy utilization. “It’s not a conflict for us.”

Is this a sign of things to come? Can we expect to see other large employers and insurers moving away from AWP? With the coming demise of AWP, it’s inevitable. Let’s hope that other employers and health plans follow suit in the near future, rather than waiting until AWP is on its way out the door.

Tomorrow we’ll all be glued to our TVs, radios, computer screens, teletypes and telegraphs for news of the Election. But today it’s all about Wyeth v. Levine, the critical case addressing whether consumers’ lawsuits against drug companies for failing to warn them of the risks of dangerous drugs are preempted by federal law. For previous posts on this topic and background, go here.

The Supreme Court heard oral arguments in the Wyeth case today, and reports from the hearing are starting to trickle in. The transcript is now up on the Supreme Court’s website. Here’s an analysis posted at the Drug and Device Law Blog, which is written by lawyers who represent drug and medical device company defendants. Here’s a report on Pharmalot. And this morning the Wall Street Journal Health Blog wondered allowed “Would an Obama Victory Preempt Wyeth v. Levine?”

We here at Prescription Access Litigation make no secret of the fact that we oppose preemption here. We joined an amicus curiae (“friend of the Court”) brief with AARP and the National Women’s Health Network in the Wyeth case. You can view that brief here.