Tag Archives: generic drugs

Could Generic Prescriptions Be The Greatest Placebo Ever?

Those of you who know me know that I’ve been a huge advocate for generic prescriptions since the early part of my PBM/pharmacy career in 2001. It wasn’t long ago that I talked about unresponsible reporting when slamming generics and scaring the population. But, we all enjoy a good conspiracy theory which is about the only thing that makes sense reading the new Fortune article – Dirty Medicine – about Ranbaxy. Both articles are written by the same author, but this one scares me a lot more than the other one. This article reads like a fiction book but appears to be true.  It should scare you also and put a spotlight on the FDA.

Here are a few things from the article.

On May 13, Ranbaxy pleaded guilty to seven federal criminal counts of selling adulterated drugs with intent to defraud, failing to report that its drugs didn’t meet specifications, and making intentionally false statements to the government. Ranbaxy agreed to pay $500 million in fines, forfeitures, and penalties — the most ever levied against a generic-drug company.

The company manipulated almost every aspect of its manufacturing process to quickly produce impressive-looking data that would bolster its bottom line. “This was not something that was concealed,” Thakur says. It was “common knowledge among senior managers of the company, heads of research and development, people responsible for formulation to the clinical people.”

It made clear that Ranbaxy had lied to regulators and falsified data in every country examined in the report. “More than 200 products in more than 40 countries” have “elements of data that were fabricated to support business needs,” the PowerPoint reported. “Business needs,” the report showed, was a euphemism for ways in which Ranbaxy could minimize cost, maximize profit, and dupe regulators into approving substandard drugs.

But, we know that generics have worked. People have gotten better so one has to assume this isn’t a massive fraud especially when 50% of generics have traditionally been made by the brand manufacturers themselves who would never risk their companies to do what Ranbaxy did. So, it made me wonder about the Placebo Effect. Did some drugs work simply because of that?  Is there anything else that would make sense for why this wasn’t discovered more quickly?

I’ve talked a lot about the Placebo Effect. There’s now even an app to make you feel better using the Placebo Effect.

I’m shocked that the PBMs, pharmacies, manufacturers, associations, wholesalers, and others aren’t out talking about this.  I would want to let the public know that this isn’t a systemic problem, but is one contained to one instance and that quality will be maintained…but maybe no one cares?

Where are the generic only pharmacies?

A few years ago when there was all the debate around Canadian reimportation of drugs, I had the opportunity to write the position paper for Express Scripts on this topic and work with our internal and external counsel to summarize our position with our clients.  At the time, payors and patients were very interested in getting branded drugs filled outside the US and shipped back to them.  [Or, in some cases, driving across the border to get the prescriptions filled.]

In working on that project, I learned that the government control that worked to keep brand prices low – at a simple level think one buyer – had the opposite effect on generics.  Generic drugs actually cost more outside the US where there is massive competition for the drugs.

As I have talked about before, consumers who pay cash pay a ridiculous mark-up on generic drugs even in the US.  Given those two facts, I remember talking with a friend of mine about opening generic only pharmacies just inside the US border to attract Canadian citizens.  Problematic legally I am sure, but the concept seemed like a genius move pre-Medicare Part D.  You could save the uninsured and seniors massive amounts of money.

I haven’t had the time to do the research, but I still have to believe there is an opportunity for a highly efficient pharmacy which offers generics closer to cost.  I would see it more like a membership.  You pay $100 per year to belong and you get your prescriptions for the pennies that they cost rather than your copay or the cash price.  Everyone wins.

But, here we are four or five years later and to the best of my knowledge no one has done it.

Confusing Stock Market Reaction

So, Walgreens announced that they were going to miss earnings because of generics (oh and higher expenses).   All of a sudden, the PBM stocks (e.g., Medco and Express Scripts) took a hit which makes no sense to me.  [BTW – I own none of these individual stocks although they may be in mutual funds that I own.]

Walgreen Co., one of the nation’s biggest drugstore chain operators, said Monday its fourth-quarter profit dropped nearly 4 percent because of lower reimbursements for some popular generic drugs and increased store and staff costs.  (See all)

“If Walgreen is receiving lower reimbursement for some generics, it means that PBMs are paying the company less for generic drugs,” Wachovia analyst Matt Perry surmised on Tuesday. “In other words, the PBMs’ drug purchasing costs have gone down. We think the selloff in shares of Medco and Express Scripts is unwarranted.” (see entire article)

At least one analyst understood.  But, why would the market response this way.  There are only a few reasons that these could be correlated positively.  My hypothesis would have been that if Walgreens is getting less than the PBMs are making more or are neutral.  This would make sense because if the PBMs paid Walgreens less they wouldn’t immediately pass that on to their clients assuming they make spread on those claims and have multi-year contracts with employers and managed care companies.  And, if they simply passed on the retail costs to their clients, it would have no impact on them.

How could it be true that Walgreens and the PBMs made less?

  1. The acquisition cost of generics could have gone up which would likely only happen if the wholesalers (e.g., McKesson or Cardinal) changed their prices dramatically or the generic manufacturers increased their prices (not likely).
  2. A significant number of PBM clients (or major managed care companies with their own PBMs like Aetna, Cigna, Wellpoint, Humana) requested price concessions on generics which forced the reimbursement rates down for the retail pharmacies and the mail order pharmacies.  (possible, but clearly not what you hear from the other players)
  3. Costs for a specific generic (with material marketshare) changed dramatically from what was forecasted (shame on the planner).  The worse case here would be if they struck a sweetheart deal (i.e., guaranteed supply at a lower than market price) and then saw the price drop out with a new manufacturer come to the table.

Generics are definitely a key profit driver for the pharmacy industry.  The average AWP (average wholesale price) is $40 (for a 30-day supply).  Companies pay less than 50% of this.  The actual costs are typically less than 80%.  And cash customers pay greater than 100%.  Lots of spread.

Now, of course, there are costs to fill each prescription so it is not that simple.

Paper Claims – Are You Kidding Me?

The more I use the healthcare system the more I realize the issues with the system.  While I was preparing to take my new job, I went temporarily on COBRA.  I ended up with a few paper claims while I waited for my new insurance cards and due to an eligibility file issue which the MCO or the TPA made.

Now, I am trying to get reimbursed for the 5 prescriptions for my family.  After filling out the forms and getting the pharmacist to sign them, I faxed them to my payor.  A month later, I have heard nothing so I called them.  They inform me that they have been processed, and I will get a check less my copay.  (Sounds great.)

Then, they walk me through the claims.  In one example, I paid $95 for a generic drug.  Well, their negotiated rate with the pharmacy for that drug is $22.  Taking out my $10 copay, they are sending me a check for $12.  WAIT!  What about the other $73 that I spent (times 5).  I got a nice lecture on negotiated rate versus retail which I explained to the woman that I knew.

(Here is a WSJ article on generic pricing.  This is where the margins exist.  Cash customers often pay the average wholesale price plus while the negotiated rates for the payors are usually 60% or more below the average wholesale price.  Here is a blog discussion in the Freakonomics area about prices ranging from $12 to $117 for the same generic prescription.)

All I care about is getting my cash back.  They can refund my premium, claw it back from the pharmacy, or write me a check.  They didn’t get me my cards or set me up right (or the Third Party Administrator (TPA) didn’t).  I don’t care.

After a second call, they inform me that I can appeal it and will hear in 30-days at which time I can appeal it again.  It makes me ask what the problem is and how this works for people with limited cash flow.  You have to pay and wait 3 months only to likely get turned down.  This seems like a major flaw in the process.  Why offer paper claims if you don’t get your money back? 


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