Transcript Slide 1

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
• 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.
Drucker, Wall St. Jl 9/06
• Later, Merck liquidates company & recovers
its money
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
Shape Medicare
Block Medicare
Drug Benefit
Drug Benefit
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
But Politicians Ones that Can Really Cheer
Paid Well to Protect High Prices
Particularly Problematic Areas
•
•
•
•
•
•
•
Enrollment mass confusion
Website referral
Penalty
Forced/Involuntary plan assignment
Donut hole
Public hospitals penalty
Discount cards (remember them?)
Donut Hole: Not only Bad Now But…..
Keeps Growing
“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 outof-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)
Lower Part D Drug Costs?
Represent Policy Failures
• Shifting costs drugs from Medicaid to Medicare for duallyeligible 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
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
Psaty NEJM 10/06
• More comparative efficacy information
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