Pfizer's Lipitor: How Big Pharma Blocks Reimbursement Of Generics

Steve Denning
November 30, 2011
Pfizer's Lipitor: How Big Pharma Blocks Reimbursement Of Generics

Good news! You learn that today, November 30, 2011, a generic version of Lipitor® is going on sale for the first time. You have been using Lipitor® as an adjunct to your diet to reduce your cholesterol, So you run down to the pharmacy and ask to have the generic atorvastatin, at a fraction of the price you have been paying for Lipitor®, the world’s top selling drug made by Pfizer.

What happens? There’s a good chance you’ll be told by the pharmacist that generic atorvastatin is "not available" but brand-name Lipitor® is.

Why?

As Paul Bisaro, President and Chief Executive Officer of Watson Pharmaceuticals [WPI], the maker of generic atorvastatin, explained on CNBC’s Squawkbox this morning:  “What’s happening now is that Pfizer is blocking the ability of the pharmacists to dispense the generic. They can only dispense the Pfizer product. When the pharmacist takes the script and punches in the code and your health insurance number, it says that he can only dispense this brand drug.”

Restraint of trade?

Larry Bossidy, who happened to be on the CNBC set also and who has served on the board of Merck asked, “Isn’t that restraint of trade?”

Declining to answer that particular question, Bisaro said:"The pharmacy benefit managers (PBMs) are an area where [the brand manufacturer] can easily attack the situation, because  they can control the script.

“The thing that bothers me is confusion in the marketplace. We have told people that generics lower the cost of health care. That’s the way people should move. 80 percent of scripts today are filled with generics. That’s good for America. We saved a trillion dollars over the last ten years using generics. Unfortunately what’s happening now is that people are being told that they can’t even get the generic even though they know it is available, because the brand is being sold a lower price than the generic. We don’t need that confusion in the marketplace.“

A concerted effort to block generics

For those who follow developments in big pharma, the blocking of the generic Lipitor® doesn’t exactly come as a surprise. Earlier this month, the top pharmacy benefit managers (PBMs) announced plans to deny reimbursements for the less expensive generic. The move reflects Merck's success in using rebates to PBMs to continue offering exclusively the more expensive brand drug.

Under the guise of “continued access to affordable prescription drug benefits,” PBMs like Medco Health Solutions [MHS], CatalystRx and Medimpact say they will--at least for now--lower Lipitor co-payments to the price of a generic and reject claims for Atorvastatin, Lipitor’s new generic equivalent.

While on the surface the move looks like a price match, leaders from the PBM watchdog organization Pharmacists United for Truth and Transparency (PUTT) say PBMs have merely disguised their true intent. “While the Lipitor® co-pay will drop on November 30th, plan sponsors will stay the same."

“Plan sponsors are employers, Medicare Part D patients and taxpayers. PBMs are multi-billion dollar corporations pulling money out of the economy when Main Street needs it most,” said Dr. Kenneth Fields, CEO of ApproRx.

"That means plan sponsors will be forced to pay more for brand Lipitor even though a low cost generic is available,” said Dave Marley, a pharmacist and spokesman for PUTT, who estimates plan sponsors will pay $35 more per prescription for Lipitor® than they would for generic Atorvastatin. “Roughly 70 million Lipitor prescriptions were filled last year. Plan sponsors need to evaluate their contracts to see how much, if any, of the Lipitor rebate money they receive. It is unlikely they will receive any of it.”

A widespread practice

“The Lipitor® case is not rare,” said Fields. “Imagine how many jobs employers could create if they weren’t being fleeced by the PBMs.”

In one instance, an insurance company (Blue Cross/Blue Shield of Texas) is said to have refused to recognize the generic equivalent of Concerta (Methylphenidate ER) as a generic.  Watson Pharmaceutical released the generic form on May 2, 2011. Therefore, the patient is paying $60 for the brand name Concerta rather than $10 for the generic.  The decision is being appealed.

In another instance, customers cannot receive generic Adderall XR. The plan requires use of the brand name drug. The customers believe that there is rebating to the PBM, leaving them with higher copays for the brand name.

In yet another instance, a patient used the brand name eyedrop drug Xalatan for several years.  There was no generic, and she paid a premium price for the drug.  A year or so ago a generic for this drug became available - Latanoprost. She was thrilled, since the cost for the generic was much lower. She recently received the 2012 formulary for our Medicare Advantage plan with Anthem Blue Cross, and were surprised to see that Latanoprost will be a "brand name" drug in 2012 and she will again be required to pay a premium price. When she called Anthem she was told that only a small number of manufacturers are producing this drug (perhaps two), and that the manufacturers are therefore able to set the price.

Ending drug companies’ pay-for-delay deals

On October 24, 2011, the Washington Post said that an upcoming report by the Federal Trade Commission will show that brand-name pharmaceutical makers continue to cut questionable deals with generic manufacturers that delay the introduction of cheaper drugs onto the market.

“Such pay-for-delay arrangements hurt consumers and increase costs for federal programs such as Medicare and Medicaid, according to the report, a copy of which was obtained by the editorial board,”  writes the Post. “These deals are not illegal, but they should be.”

These deals should also give pause to those who believe, like David Brooks who wrote in the New York Times that handing over Medicare to the private sector will “unleash a wave of innovation”. Unfortunately the “wave of innovation” that will be unleashed is rather more likely to benefit the insurance companies and big pharma than it is to benefit patients.

Fixing the big pharma

Fixing these special deals between big pharma and the PBMs by making them illegal is relatively simple.

Fixing big pharma is something else. The fact is that these deals are merely a symptom of a wider problem in which the focus of big pharma is on making short-term profits, rather delivering real value to their customers.

Just as at Apple [AAPL] before Steve Jobs’s return in 1997, big pharma is being driven by the sales and marketing men. As at Apple, that is not a particularly profitable game over the long haul. Intelligent investors should take a look at the ten-year share price of Pfizer, as well as its competitors, Merck [MRK] and GSK [GSK].


This is not to say that big pharma cannot, like Apple, emerge from its death spiral by shifting its focus from short-term profits to delighting the customer. It’s not rocket science. It’s called radical management.

Read also: The World's Dumbest Idea: Maximizing Shareholder Value

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Steve Denning’s most recent book is: The Leader’s Guide to Radical Management (Jossey-Bass, 2010).

Follow Steve Denning on Twitter @stevedenning