Transcript Paying More By Purchasing More

Paying Less By Purchasing
Smarter
Gerard Anderson, PhD
Professor
Johns Hopkins University
Outline
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Economics of Bulk Purchasing and Formularies
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International perspectives
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Why the existing systems have problems
Why do other countries pay lower prices for drugs?
Opportunities for Medicaid
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Market power using price transparency
Comparative effectiveness
Economics of Bulk Purchasing
and Formularies
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Single purchaser/single decision maker
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Wal-Mart directly purchases billions of cans of
dog food
Wal-Mart limits consumer choices to a few
brands of dog food
Medicaid is not a single bulk purchaser
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Does not directly purchase drugs
Cannot interfere with practice of medicine
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OBRA 90 prohibits formularies
Other Countries Use Bulk
Purchasing and Formularies to
Obtain Lower Prices for Drugs
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Drug prices are roughly half US prices
They use multiple strategies to determine
what specific drugs they will purchase
including:
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Bulk purchasing
Formularies
National Institute for Clinical
Effectiveness (NICE)
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Advises National Health Service (UK) on which
drugs to purchase
Objective is to recommend the lowest cost
therapeutically equivalent drug
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Not top 3 drugs in same class
Not 150% of lowest price
Employs comparative effectiveness criterion
Compares costs of different drugs
NHS negotiates to buy one drug in bulk
Options for Medicaid
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Price transparency
Better preferred drug lists
Price Transparency
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Rebates are difficult to monitor
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Is the state actually getting the appropriate rebate?
Instead compare the prices that different
entities pay for the same drug
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Medicaid versus Canada
Medicaid versus VA
California versus Maryland
Maryland Medicaid versus Maryland Prisons
Price Transparency Examples
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Drug A price
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$1.00
$1.10
$1.05
$1.05
$1.06
Canada
VA
Maryland Medicaid
California Medicaid
California Prisons
Drug B Price
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$1.00
$1.15
$1.25
$1.50
$2.50
Canada
VA
Maryland Medicaid
California Medicaid
California Prisons
Use the Bully Pulpit
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Begin by identifying specific drugs where state
agencies are paying much higher drug prices
Use information to question drug companies on
the specific prices they are charging
Most drugs are probably more like Drug A than
Drug B
Use Bully Pulpit on Drug B
Preferred Drugs Lists
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Offer much greater potential for obtaining
cost reductions than bulk purchasing
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Drugs on preferred drug list are more likely to
be prescribed – similar to bulk purchasing
Savings depend of quality of preferred
drugs list and willingness/ability to exclude
drugs
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Legislative changes may be needed
Technical Challenges in
Developing Preferred Drug Lists
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Medicaid is not in the pharmacy business
Technically difficult to do comparative
effectiveness studies
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Each patient is different
Most clinical trials exclude complex patients
Few head to head comparisons of drugs
Costs are difficult to measure
Each Patient is Different
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The same antibiotic would not necessarily
be given to a healthy 20 year old with a
cut on his leg to a frail 80 year old with a
cut on her leg
Patient tolerance for drugs depends on
age, health status, other medications, etc.
Most Clinical Trials Exclude
Complex Patients
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To get a drug approved by the FDA it is
necessary to demonstrate safety and
efficacy (not effectiveness)
It is easiest to demonstrate safety and
efficacy in uncomplicated patients
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As a result most clinical trials exclude complex
Medicaid patients
Limited evidence base for making drug
decisions
Post Marketing Surveillance
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Few studies compare effectiveness in
actual patients
Few studies compare the relative
effectiveness of different drugs
Lack of effectiveness studies makes creating
preferred drug lists very difficult
Cost Effective
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Least expensive is not necessarily the
least costly
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Lower rehospitalization rates
Costs are difficult to measure
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Direct (medical)
Indirect (transportation)
Measuring Effectiveness
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Difficult to measure
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What is the purpose of medical care
Example – cataract operation
Improve visual acuity (20/20)
 Improve visual functioning (read street signs)
 Improve quality of life ( drive at night)
Three measures not always highly correlated
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Multiple Entities in US Conduct
Comparative Effectiveness Studies
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VA
AHRQ
CMS
NIH
BC/BS
Kaiser Permanente
Drug Companies
Medicaid
What Data Should States Use
to Create PDLs
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Each state should not conduct its own
studies
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Too expensive
States should not rely on drug company
studies
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Potential for bias
States Need to Information from NIH,
AHRQ, and CMS to create PDLs
Congress needs to appropriate more money
for comparative effectiveness research to
help states
Conclusion
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Drug companies need economic reason to give a
real discount
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Drug companies unlikely to give discounts for
drugs unless the state is the actual buyer
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Without an economic rationale, drug companies will
attempt to find ways to “game” the system
Full employment for Attorney Generals
State could become bulk purchaser for all drugs
PDLs offer promise but comparative
effectiveness studies need to be improved and
more restrictive preferred drug lists are needed