The drugs discussed in the NYTimes article for multiple sclerosis (Copaxone and others) are under patent. They have very well established efficacy profiles.
There are no generic alternatives; these are the only treatment options for MS.

So that leaves cost. If the only effective treatment is too expensive (by the judgement of the insurance company), you're out of luck.

High deductible insurance policies these days also have pharma deductibles with a cap. A cap will put many routinely prescribed drugs in a de facto tier 4 for much of the year. For example, Nexium at my prescription level costs over 2k per year out of pocket and puts every other drug I might be prescribed in the same category. My wife is in the same boat with one of her medications.

Of course excluding areas of coverage is a way to exclude costs for those will not need to use it. Eliminating cancer and heart disease coverage from a policy will greatly reduce its cost. But to my mind the concept of insurance is to cover those situations that I would not be able pay for should they occur. What is developing is a system where mid-level coverage is the norm and true financial disaster is left uncovered.

And patented phamaceuticals are going to become increasingly inaccessible due to not being adequately covered (or covered at all) by insurance. People will get their medication for 5 bucks at Walmart or not at all.

In terms of putting drugs on tier 4 to encourage the use of generics, it seems likely that he intends to be talking about cases of drugs with multiple generations available. By putting the new patent-protected version in tier 4 the Insurance company encourages people to stick with the generic of the prior version. This is theoretically a way of avoiding spending a lot more money for a marginal benefit, and it seems pretty reasonable.

But of course if there are expensive drugs in Tier 4 which are new enough or revolutionary enough that there are no marginally inferior generic alternatives, it gets sticky.

The question is, are they also putting drugs into Tier 4 which don't have any marginally inferior generic alternatives and which are used to treat serious conditions? Andrew suggests that they are, and that's a serious problem. Part of the decision making process for putting drugs into Tier 4 needs to be whether depriving people of those drugs leaves them with either other acceptable treatment options or with conditions that aren't particualrly serious.

I'd love to hear Zirlekbach's clarification on those issues.

We need a national conversation about whether drugs that cost ten or a hundred times as much as current treatment options are producing better outcomes.

aka: 'Look over there!' Let's just call him a tier 1 flack, shall we?

From the assignment desk: do pharmaceutical companies lobby for their products' tiering position? Is getting put on Tier 4 like getting a NC-17?

Also, how does this relate to off-label prescriptions, where there's documented nudging from the manufacturers?

(Strange how the analogy that comes to mind is the MPAA's equally quixotic ratings system...)

"we don't currently have good drug effectiveness information that could help insurers make value-based decisions."

Is this strictly accurate? To get their drugs listed on the national prescription plan in Australia, manufacturers have to submit data to a national body which grants or rejects coverage based on cost-effectiveness. The problem for the US doesn't seem to be *generating* the research required for cost-benefit analyses. The problem is creating regulation and legislation to ensure that that research is properly used--i.e. getting the research from pharma. companies and using it to inform policy decisions.

Or have I missed something?

What kind of effectiveness information do you have in mind? There are bushels of clinical trials for these therapies. There are bushels of studies for other treatments for the same diseases, over decades. And for some of these drugs, like the ones for MS and Gaucher's disease, there are no other treatments to compare against.

I don't see Zirkelbach "suggesting" anything; he's blowing smoke.

Also, just to muddy the waters a little more: in many of these cases, the drugs are expensive not only because they're under patent, but because of the kind of drugs they are. Recombinant human proteins and other biopharmaceuticals are hard to make, and quality control for them is much harder -- which means the approval process for generics is longer and costlier too. So yes, generic erythropoeitin will be cheaper than Procrit, but not nearly the way generic fluoxetine is cheaper than Prozac.

My understanding, though, is that most of these drugs are under patent, and the generic will be developed when they come out of patent.

No.

Most are on patent, but when they are off patent, there is not a current process to create generics. Congress is looking at this issue right now. Google "follow-on biologics" or "biosimilars" for more.

FYI-- They aren't implying that tier 4 encourages generics. You are receiving a standard response for a topic, "biologics/specialty drugs" where one of the key points is that there isn't a path to generics.

Zirkelbach is suggesting that the tiering system, with its somewhat arbitrary nature, is all they can do in the meantime.

As I wrote in the prior post, this is reality-based cost control. Policy types and academics can fantasize about a system based on data that doesn't exist, politicans can demagogue whose plans controls costs the most, but insurance companies are acutally trying different methods of cost control. There are many things to gripe about with insurance companies, but cost controls aren't one of them. They are pretty much the only group out there doing something. Medicare is this regardless is a spectaculous failures.

A little friendly advice-- you're blogging more quickly than your knowledge base allows. The follow-on biologics legislation, and biologics versus small molecule (i.e. primary-care drugs generally) differences generally is something you should know if you're blogging on this issue. If you were more informed here, you'd know the PR response you received back was complete standard boilerplate on this topic as well. I'd suggest a little more reading.

As someone who is insured I would prefer that the coverage is for the high - expense drugs. I would rather pay for 100% of the $25/month drugs than 33% of the $4000/month drugs. Lets spread the risk of catastrophic costs wide and know that there are not that many people that will see the benefit

My understanding, though, is that most of these drugs are under patent, and the generic will be developed when they come out of patent. Making the original drug more expensive doesn't seem particularly germane to the patent issues keeping the generics out of the market.

What's missing from this ongoing discussion on Tier Four drugs is acknowledgment of the need for generic biologics. Unfortunately, biologic drugs will never go generic under current law even after patent expiry. This means that biopharma companies can continue to charge the high prices that drive the need for a fourth tier indefinitely.

Although bipartisan legislation to create a process through which the FDA can approve generic versions of these biologic drugs has been proposed (the "Access to Life-Saving Medicine Act" sponsored by Reps. Waxman, Emerson and Pallone and Senators Schumer and Clinton), there has been quite an industry backlash against the creation of a process to approve generic biologics (industry fearmongering in the guise of safety concerns). Doing so, however, would likely save billions of dollars and increase access to the Tier Four drugs that are so desperately needed by tens of thousands of Americans with chronic and life-threatening conditions.

Talk about having a point to make then writing a story around it.

"Health insurance companies are rapidly adopting a new pricing system"

"With the new pricing system, insurers abandoned the traditional arrangement"

We have PBM contracts going back 10+ years doing this. High price drugs and compounds have always been pulled out of the Rx co-pay. Like typical NYT articles complete lies and BS.

Does anyone know if there has been a study of the comparative prices of the Tier 4-5 drugs in the various private insurer Medicare Part D formularies, and a further comparison to what those drugs cost under, say, the Canadian, UK, and French systems?

Also, does anybody know if the Part D insurers get reimbursed by Medicare when one of their insured clients has reached his level of "catastrophic" coverage in a given year ($6,250 this year) in his Part D coverage, but is still racking up charges for a very expensive Part D drug?

Thus, the insured's responsibility once he is into catastrophic coverage territory is capped at a 5% coinsurance payment, where the 5% is 5% of the price for the drug as listed in his carrier's formulary. (I think I have that last part right.) That would be plus or minus – depending on how he got to the $6,250 -- $5,000 for a drug which "retails," i.e., is listed in his insurer's formulary, at $100,000 a year.

The specific question is: can the insurer turn around to Medicare and get some sort of reimbursement for the $95,000 that he would otherwise have to eat (less his profit margin, of course)?

A link would be most appreciated if you have it.

Great Quotes! I will be using them on my friends and family.

Thanks to wisewon for alerting to the importance of understanding the complex issues involved with creating generic equivalents of the large molecule biologic drugs, which are some of the major players in the costly Tier 4 drugs.

John E. Calfee, "Facing Reality on Follow-on Biologics," Health Policy Outlook, AEI Online, April 24, 2007 is a good starting point for the discussion. Though if only because it was published under the aegis of the American Enterprise Institute, it should not be taken as the last word on this matter. This is not to impugn Calfee's intellectual integrity in the least. It is simply to note that in this very complex area it is imperative that there be multiple points of view expressed. His is one, and it is a very serious and important one.

The basic non-partisan problem is that the science of large molecule drug replication is so much more complex – in terms of ensuring functional substitutability of the generic for the original -- than for small molecule drug replication that one of the main cost advantages of small molecule generic drugs, which of course gets reflected in a lower price when it hits the market, namely, that time-tested FDA protocols of not requiring them to have the expensive clinical trials that are required for an initial drug entry – for large or small molecule drugs – will predictably not pan out for a whole lot of arguably valid reasons in the case of large molecule drugs. And these reasons are not simply for the understandable economic reasons that a proprietary drug manufacturer has in retaining an effective monopoly on a product so that he can charge more for it. Though the issue may get clouded at some points in this debate for those kinds of reasons.

So while we can hope for scientific breakthroughs to help solve this economic problem, it is probably even more likely that we're going to have to think about social policy alternatives along the lines that have been proposed in Dean Baker, "Financing Drug Research: What Are the Issues?", Center for Economic and Policy Research, September 22, 2004. Baker there, and elsewhere, has essentially argued for introducing a strong element of socialization into the drug manufacturing process.

Conservatives typically howl against this as promoting the twin evils of stifling innovation and unreasonably confiscating private, intellectual property.

The "stifling innovation" argument is a serious one deserving of very careful consideration. At the same time, however, the claim that innovation would be inevitably stifled is by no means as clear cut as those who use the slogan form of this argument would have you believe.

As to the supposed "unreasonable confiscation of private, intellectual property" argument, the counter argument is that you cannot consistently claim that the benefits from "your" private intellectual property should not be socialized to any degree when it turns out that the intellectual property was socialized pretty directly at its origins in terms of a large chunk of the expense which was used to create it having come from taxpayer supported grants to the researchers (largely academic) who created the drugs, or the proximate possibilities for the drugs, in the first place.

Because of their complexity, both of these arguments will have to be left for another day. But thanks again to wisewon for having provided the caution which shows the necessity for bringing them into play.

There is a combination of several issues:

1. Some new drugs are really only marginally better (if at all) than existing options, but are much more expensive. I don't think anyone would disagree that insurers are within their rights to make people pay more if they really want to use these drugs notwithsanding lack of clear benefit.

2. There is almost no comparative data between drugs and most data that exists is heavily influenced by the funding source. Insurers know this and have a great deal of difficulty knowing what to do with it. No one will accept studies funded by insurers because they will assume bias based on cost (which might be true). Example: insurers got shit (and sometimes sued) for limiting access to Vioxx because of cost and their perception that Vioxx yielded no material benefit, and within a decade Vioxx was taken off the market because it had potentially life threatening consequences.

This is a real problem and only public funding of scientifically controlled studies can help. This will not happen if FDA funding continues to be heavily subsidized by new drug applications paid by manufacturers.

3. Some new drugs are extremely expensive and totally lifesaving, especially for chronic conditions. Other new drugs are extremely expensive and are lifesaving only if the meaning of that term is stretched to the breaking point (e.g., a two month survival advantage for a cancer drug that costs $200,000 per treatment). If you need the drug, the cost will never be too much. There are different strategies as a society for dealing with this, the most obvious being drug pricing regulation. (When the state is the only purchaser, the manufacturer has a hard time saying no, because then it will have no market.) However, the fragmented state of our so-called system tends to diffuse the serious difficulty of this point in search of a favored whipping boy. There is none: if the insurer has to pay, so, eventually do you and me. A societal response is needed, and it won't necessarily result in lower costs, but it will be a lot easier on everybody if there is consensus that those costs should be shared.

4. There is a clear trend among manufacturers to adopt Ivy League pricing with respect to drugs that, in effect, charges insurers and public payers (Medicaid) a very high price and then gives "financial aid" to the truly needy as determined by the manufacturer. This shifts the cost of paying for uninsured to private insurers and Medicaid while preserving manufacturer profits. I am just telling you what's happening.

First of all, captured shadow, insurance isn't about making drugs affordable to people who can't afford it, it's about making drugs affordable to people who can't afford it right now. Over the lifespan of a health plan, people are supposed to pay more than the cost of the medical care, because some money goes the the insurance company. It's about the probability of a particular person needing unexected care, not the probability of some member of a group needing predictable care.

One of the nice safe-guards that health insurance adds, however, is when the health insurance companies act as the representative of the patient to add greater symmetry of information to a transaction, which is what the insurers seem unable to do without value-related data. What I don't understand is why the insurance companies can't do the value proposition research themselves, like United Laboratories does for electronics?

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Over the lifespan of a health plan, people are supposed to pay more than the cost of the medical care, because some money goes the the insurance company. It's about the probability of a particular person needing unexected care, not the probability of some member of a group needing predictable care.