[Pharm-policy] FW: Wall Street Journal: Pfizer Avoids Pressure on Prices By Helping Florida on Medicaid

[Paul Davis]

Subject: Wall Street Journal: Pfizer Avoids Pressure on Prices By Helping
Florida on Medicaid



> <SNIP>
> At a Republican governors' conference near Tampa, Fla., last November,
> Pfizer Inc. President Henry McKinnell made his way across the Saddlebrook
> Resort's Royal Palm Ballroom to meet Florida's chief executive, Jeb Bush.
> With a handshake and a brief exchange, the two set in motion months of
> high-stakes negotiations that culminated late last month in a novel pact
> between the world's largest pharmaceuticals company and a state with one
> of the nation's richest prescription-drug markets.
> <SNIP>
> As a result of the agreement, reached just before a new Florida drug law
> took effect July 1, doctors who treat patients insured by the state's
> Medicaid program for the poor can prescribe Pfizer medicines routinely and
> without hassle. Among these are such huge sellers as Lipitor for high
> cholesterol and Viagra for impotence. Pfizer's competitors haven't fared
> nearly as well. To get on the state's new "formulary" of easily prescribed
> medicines, they have had to offer price rebates on each of their drugs.
> <SNIP>
> The pharmaceuticals industry has long been concerned about Florida. In
> 1999 and 2000, Gov. Bush sought unsuccessfully to pass a formulary law
> that could force price concessions.
> <SNIP>
> In finally adopting a Medicaid formulary this spring, Florida passed the
> most restrictive state Medicaid drug law of the past decade. Because of
> it, Florida now has a list of about 1,300 prescription drugs that get
> preferential treatment. To prescribe a drug not on this list in a Medicaid
> case, a doctor must explain to a pharmacist working for the state why the
> patient needs the medicine -- a hassle that's expected to deter many such
> prescriptions.
> <SNIP>
> What's clear is that in Florida's Medicaid market -- the largest after New
> York's and California's -- Pfizer has won a key advantage by getting all
> of its drugs on the list. "Now, all a physician in Florida needs to
> remember is if it's a Pfizer drug, it's covered under the formulary,"
> notes Andrew Knudsen, director of pharmacy services for the University of
> Florida's Shands Hospital in Gainesville. "It was a brilliant move by
> Pfizer."
> <SNIP>
> But the company's actions suggest it has other motives as well. Pfizer is
> the most determined of all drug makers to keep prices from being whittled
> down. While others, under intense international pressure, have agreed to
> slash prices of AIDS drugs in poor nations, Pfizer has resisted, instead
> donating $50 million worth of an expensive AIDS drug. Pfizer says it is
> doing things this way because donations will get the drug to more people.
> But the company also declines to reveal its break-even price, unlike
> companies that have agreed to sell some AIDS drugs at cost.
> <SNIP>
> If the disease-management program saves what Pfizer says it will, it could
> well emerge nationwide as a popular cost-containment tool. If not, states'
> attention is likely to focus on just what Pfizer most opposes: extracting
> price concessions through preferred-drug lists. In that case, Florida is
> apt to become a key battleground in a new state-by-state struggle by drug
> makers to maintain market share and profits.
> 
> ------------------------------
> July 9, 2001
> Pfizer Avoids Pressure on Prices
> By Helping Florida on Medicaid
> By RUSSELL GOLD, SCOTT HENSLEY and JONI JAMES
> Staff Reporters of THE WALL STREET JOURNAL
> At a Republican governors' conference near Tampa, Fla., last November,
> Pfizer </pj/q-quote.cgi?sym=pfe&type=company> Inc. President Henry
> McKinnell made his way across the Saddlebrook Resort's Royal Palm Ballroom
> to meet Florida's chief executive, Jeb Bush. With a handshake and a brief
> exchange, the two set in motion months of high-stakes negotiations that
> culminated late last month in a novel pact between the world's largest
> pharmaceuticals company and a state with one of the nation's richest
> prescription-drug markets.
> The deal, how it was reached and its implications for U.S. health-care
> policy already are reverberating in other states and among other drug
> makers. On one level, it is designed to help restrain Florida's
> fast-rising health costs. But it also gives Pfizer a key edge over
> competitors at a time when drug makers and states are being drawn into an
> increasingly contentious battle sparked by a nationwide explosion in
> prescription-drug spending, which is rising by 16% to 20% a year.
> As a result of the agreement, reached just before a new Florida drug law
> took effect July 1, doctors who treat patients insured by the state's
> Medicaid program for the poor can prescribe Pfizer medicines routinely and
> without hassle. Among these are such huge sellers as Lipitor for high
> cholesterol and Viagra for impotence. Pfizer's competitors haven't fared
> nearly as well. To get on the state's new "formulary" of easily prescribed
> medicines, they have had to offer price rebates on each of their drugs.
> Some of the competitors' drugs didn't make the cut. Pfizer got all of its
> drugs on the list -- and without dropping prices a penny. During the
> months of private talks with the state, Pfizer persuaded Florida to let it
> keep its drug prices intact by promising it would save the state money
> another way: through an innovative but controversial set of preventive
> health-care services known as disease management.
> Such services, long touted by drug makers as money-savers, are largely
> unproven as a way to curb health-care inflation. Indeed, health-policy
> experts say Pfizer and Florida are embarking on a grand experiment with
> implications well beyond one state and company. If the deal can restrain
> this state's surging Medicaid costs, disease-management programs are
> likely to be embraced by other states and even, perhaps, by federal
> lawmakers who are struggling to extend prescription-drug benefits to the
> elderly without busting budgets.
> "If in a year from now Florida is successful, this will go like wildfire
> through the landscape" as other states mimic the approach, predicts Uwe
> Reinhardt, a health-care economist at Princeton University. He says
> Pfizer's move "is as innovative as anything I've seen a drug company do:
> to put its reputation on the line and be accountable for the results."
> The potential payoff to Pfizer -- and ultimately for the rest of the
> industry -- could be protection from one of pharmaceuticals companies'
> worst nightmares: governments amassing enough buying power to dictate
> prices. The companies have reason to worry. In a closely watched legal
> battle, Maine recently won an appeals-court victory that moves that state
> a step closer to extracting price cuts on prescription drugs for uninsured
> residents. And just last month, Louisiana adopted a drug-pricing law
> similar to Florida's.
> The industry, already stung by price controls in Europe, worries that each
> discount cedes more power to government buyers, who executives believe
> will react to tight budgets by clamping down on drug spending. Companies
> fear that even modest compromises on price threaten to erode a cornerstone
> of the industry's profitability: the freedom to price their drugs in the
> U.S. at a premium.
> Pfizer's deal in Florida, in offering an alternative to this scenario,
> also brings the state some relief. Florida gets Pfizer to underwrite a
> trial of a new cost-saving approach, plus $33 million in Medicaid savings
> over two years -- the amount Pfizer has promised to save through disease
> management. In addition, the state expects to save $199 million over the
> next year from price concessions that other companies have made to get
> their medicines on the state's new Medicaid-drug formulary.
> The pharmaceuticals industry has long been concerned about Florida. In
> 1999 and 2000, Gov. Bush sought unsuccessfully to pass a formulary law
> that could force price concessions. These would be over and above the
> federally mandated discounts Florida's Medicaid program already gets from
> companies, averaging about 19% off prevailing prices. Despite those
> discounts, spiraling drug spending is a major culprit in a $650 million
> shortfall in Florida's $9.7 billion Medicaid budget for the fiscal year
> that began July 1.
> In finally adopting a Medicaid formulary this spring, Florida passed the
> most restrictive state Medicaid drug law of the past decade. Because of
> it, Florida now has a list of about 1,300 prescription drugs that get
> preferential treatment. To prescribe a drug not on this list in a Medicaid
> case, a doctor must explain to a pharmacist working for the state why the
> patient needs the medicine -- a hassle that's expected to deter many such
> prescriptions.
> To make the list, drug makers generally promised rebates that equal price
> cuts of at least 6%. Florida won't release details of the offers companies
> made, but the drug list itself is now available -- and some companies were
> hurt. Novartis </pj/q-quote.cgi?sym=nvs&type=company> AG of Switzerland
> failed to get most of its big-selling remedies, such as Diovan for high
> blood pressure, on the formulary. Also not on it is Bristol-Myers Squibb
> </pj/q-quote.cgi?sym=bmy&type=company> Co.'s Pravachol cholesterol drug.
> Medicines were judged first on net price to the state but also on clinical
> factors. There will be reviews over the next 12 months, so those that
> missed out will get another chance. Neither the state nor the companies
> will say why certain ones didn't make it.
> What's clear is that in Florida's Medicaid market -- the largest after New
> York's and California's -- Pfizer has won a key advantage by getting all
> of its drugs on the list. "Now, all a physician in Florida needs to
> remember is if it's a Pfizer drug, it's covered under the formulary,"
> notes Andrew Knudsen, director of pharmacy services for the University of
> Florida's Shands Hospital in Gainesville. "It was a brilliant move by
> Pfizer."
> Instead of giving price rebates, Pfizer will finance the hiring of nurses
> to monitor the care of tens of thousands of Florida Medicaid patients,
> especially about 12,000 high-cost ones. These patients, many with asthma,
> diabetes or heart disease, often wind up getting their care in costly
> emergency-room visits. It's by encouraging them to take their medicines
> dutifully, follow diet and exercise regimens and have regular checkups
> that Pfizer thinks it can save the state money.
> So confident is Pfizer that it has agreed to pay Florida an amount equal
> to the savings if they don't materialize. It's something of a gamble,
> because the sum is about double what Pfizer would probably have had to
> offer in price concessions to get on the formulary through that route. But
> to Pfizer, this is a risk worth taking to avoid giving the state more
> authority over pricing.
> Asked in June whether Pfizer would accede to a state demand for price
> concessions, Mr. McKinnell was unequivocal: "They can ask. Our response is
> no."
> Will It Work?
> But Pfizer's alternative is controversial. The company has fractured the
> united front the industry used to fend off formulary laws in the past. In
> private, other drug makers are upset that Pfizer broke industry ranks.
> Moreover, many health experts are doubtful the approach will save much
> money -- or even that its effects can be measured. Pfizer and Florida will
> jointly select a third party to determine savings. But Stephen Soumerai, a
> professor at Harvard Medical School, says, "To do an intervention and
> document that it saves lives or money or improves health in one year is
> way beyond anything I've ever seen in decades of research." He adds that
> trying to measure results by looking at how the highest-cost patients fare
> could give a false impression of success, because the law of averages
> suggests that the cost of their care is likely to fall anyway.
> Says Myron Winkelman, a health-care consultant in Lansing, Mich.: "It's
> going to be a hoot to watch."
> The initial Florida-Pfizer contacts trace back more than a year, to when
> Gov. Bush watched his second straight effort to enact a formulary die in
> the legislature, amid resistance led by Pfizer. With Medicaid's drug costs
> threatening to swallow funds for other programs, Mr. Bush turned for help
> to the very industry he had sought to control. When he was visited by a
> Pfizer vice president, Chuck Hardwick, Gov. Bush recalls asking, "Why not
> partner with us rather than be adversaries?"
> It was vintage Jeb Bush. The 48-year-old brother of the president has made
> a point of linking up with private enterprise to get the state's work
> done, privatizing such matters as elevator inspection, park maintenance
> and the operation of a police-radio network.
> Point Man
> The first brief meeting between the governor and Mr. McKinnell in November
> was no accident. As TV screens at the governors' conference flashed news
> of another Bush's battle for Florida's electoral votes, Mr. McKinnell was
> working the room. Slated to become Pfizer's CEO at the start of 2001, as
> well as head of the drug industry's trade group in April, he was eager to
> meet governors as states became aggressive about curbing costs.
> Mr. McKinnell, 58, had been a key member of an inner circle of managers
> who took Pfizer from middle of the pack to No. 1 seller of prescription
> drugs last year. He led Pfizer's $116 billion hostile takeover of
> Warner-Lambert Co. last year, preventing the maker of the blockbuster drug
> Lipitor from falling into the hands of rival American Home Products Corp.
> When he and Mr. Bush met, the governor quickly confirmed his concern about
> drug costs. "I'm dying with this Medicaid problem," Mr. McKinnell recalls
> Gov. Bush telling him -- "Help me, work with me." After the short
> conversation, the Pfizer executive said to an aide, "Let's go get this job
> done."
> Although state officials talked to other companies besides Pfizer about
> cost-saving alternatives, Gov. Bush says Pfizer responded most
> aggressively, offering the disease-management package. Pfizer officials
> say they favor the approach because they believe restricting patient
> access to drugs, as in a formulary, can lower the quality of medical care.
> But the company's actions suggest it has other motives as well. Pfizer is
> the most determined of all drug makers to keep prices from being whittled
> down. While others, under intense international pressure, have agreed to
> slash prices of AIDS drugs in poor nations, Pfizer has resisted, instead
> donating $50 million worth of an expensive AIDS drug. Pfizer says it is
> doing things this way because donations will get the drug to more people.
> But the company also declines to reveal its break-even price, unlike
> companies that have agreed to sell some AIDS drugs at cost.
> Pfizer soon learned that negotiating with Florida wouldn't be easy. In
> January, Pfizer's Mr. Hardwick discovered that Gov. Bush intended once
> again to ask the legislature to adopt a strict Medicaid formulary. "You're
> pulling the rug out from under us," the Pfizer executive told state
> officials. He argued that if Florida did decide to make companies offer
> price concessions to get their drugs on a preferred list, Pfizer should be
> exempt if it provided savings through other means. They agreed.
> In early February, Mr. McKinnell went to Tallahassee to explain Pfizer's
> offer. Using a handout to walk Gov. Bush and state officials through it --
> the room was too small for a planned Powerpoint presentation -- Pfizer
> officials said that 60 case-manager nurses, using Pfizer software to
> target chronically ill Medicaid recipients, could produce $16.5 million in
> annual savings. These would come mostly from improving the patients'
> health and reducing their emergency-room visits. Pfizer also proposed to
> donate some drugs at community health centers and mount a health-literacy
> campaign.
> The governor was intrigued. As the meeting ran long and aides told him he
> was late for his next appointment, he shooed them away. But he also was
> skeptical. "I told them it couldn't be one of those nebulous promises of
> pay $1 now, save $4 later," he recalls. His response: "Show me the money.
> ... Unless there was a guaranteed savings, there was no deal."
> In mid-March, the company and state Medicaid officials began confidential
> negotiations in earnest, causing some Medicaid officials to fret that
> other drug makers would bombard the state with superficial programs to get
> on the formulary without lowering prices.
> Meanwhile, at Florida's statehouse, industry opposition to the proposed
> drug formulary wasn't coordinated. Pfizer's Tallahassee lobbyist, David
> Nickles, who had led the industry opposition in the past two sessions,
> uncharacteristically became "very, very quiet," says Sen. Ron Silver, a
> Democrat and sponsor of the drug-formulary bill. Adds Tarra Ryker, an Eli
> Lilly </pj/q-quote.cgi?sym=lly&type=company> & Co. spokeswoman: "Nobody
> knew exactly what Pfizer was doing."
> Competitors began complaining privately to legislators that Pfizer was
> trying to get itself a "sweetheart deal." This complaint stirred
> opposition in some legislators who until then had heard nothing of
> Pfizer's idea. "It just didn't seem ... right to have one company going
> freewheeling and trying to cut their own deals when we didn't even have a
> policy in place," says Jim Horne, Republican chairman of the state
> senate's appropriations committee. "I said, 'Over my dead body.' "
> Final Push
> In April, with just a week to go in the legislative session, Gov. Bush
> stepped in. He convinced Sen. Horne the Pfizer plan wouldn't hurt the
> budget and that the formulary bill needn't bar other companies from
> seeking similar deals. Late at night on April 27, Mr. Bush sent an e-mail
> to aides urging them to give Mr. Horne "information to stop the Senate's
> efforts to prohibit the Pfizer deal." Within days, the formulary bill was
> amended to permit any drug company to offer cost-saving services instead
> of rebates. It passed in early May.
> On May 31, the day Gov. Bush signed the bill into law, the state convened
> a meeting of drug makers in Tampa and told them to submit their best
> rebate offers within 12 days. The Medicaid formulary would go into effect
> as soon after July 1 as possible.
> As competitors e-mailed their offers to a firm hired to evaluate them,
> Pfizer focused on trying to nail down its own deal with the state. By
> mid-June only a few issues remained. Pfizer wanted to lower the guaranteed
> savings if enrollment goals weren't met. State Medicaid Director Bob
> Sharpe stood fast. "There is no risk-sharing," he said.
> The state relented on a key point, agreeing Pfizer could have a two-year
> deal instead of one. On June 21, with Gov. Bush's chief of staff steering
> the talks, a deal was struck. Pfizer guaranteed $15 million in savings the
> first year and $18 million the second year, no matter how many patients
> actually entered the program. If the Medicaid savings fell short, Pfizer
> agreed to pay the difference.
> Other states are watching the experiment closely. In state budgets,
> Medicaid is generally the second-largest item, after education. "It's
> great that somebody is out there pushing the envelope because hopefully
> we'll learn something from them," says Indiana's Medicaid director, Kathy
> Gifford.
> If the disease-management program saves what Pfizer says it will, it could
> well emerge nationwide as a popular cost-containment tool. If not, states'
> attention is likely to focus on just what Pfizer most opposes: extracting
> price concessions through preferred-drug lists. In that case, Florida is
> apt to become a key battleground in a new state-by-state struggle by drug
> makers to maintain market share and profits.
> Write to Russell Gold at russell.gold@wsj.com
> <mailto:russell.gold@wsj.com>, Scott Hensley at scott.hensley@wsj.com
> <mailto:scott.hensley@wsj.com> and Joni James at joni.james@wsj.com
> <mailto:joni.james@wsj.com>
>