Drug Prices — Why They Keep Soaring

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Swallow This: How Drug Makers Use Pharmacies To Push Pricey Pills — Drugstores Are Paid to Tout Refills, New Alternatives To Prescription Customers — Suits Allege Privacy Violations

Teresa Hohu received a letter from Longs Drug Stores Co. in January suggesting that she switch from her daily Fosamax  pill for osteoporosis to a new weekly dosage.

The letter heralded weekly Fosamax as an "important development" and was signed "Your Longs Pharmacist." Ms. Hohu, a 76-year old in Hilo, Hawaii, found the letter confusing, so she took it to her doctor, Pradeepta Chowdhury. He calls it a  marketing ploy, not "patient education," as it proclaimed.

The letter’s fine-print disclosure, he notes, reveals that Fosamax’s maker, Merck & Co., which is facing litigation attempting to break its patent on the daily version, paid Longs to send the letter to patients such as Ms. Hohu.

Dr. Chowdhury says the promotion wasn’t necessarily in patients’ best interest because some elderly patients often forget  to take their medication if it isn’t prescribed daily. "It’s marketing to patients through a back door," says Dr. Chowdhury,  who has replaced Ms. Hohu’s Fosamax prescription with another drug. "Patients don’t read the small print where it says  the letter was sponsored by a drug company. All they see is that here is a supposedly wonderful new drug being touted by the trusted pharmacist."

Despite mounting legal challenges and efforts by regulators to limit the practice, drugstores continue to call and mail  letters such as the one Ms. Hohu received to thousands of their customers. It’s part of a wave of precision-targeted  marketing by pharmaceuticals makers, which pay drugstores for the service. To compile lists of names, addresses and  phone numbers, drugstores scour their data banks for people with prescriptions for a particular drug. Typically, these  people aren’t asked for permission to use their personal data and don’t know that the information will be used.

The retailers and drug makers say the letters and phone calls aren’t marketing promotions, a designation that could  subject them to stricter regulation. Rather, the companies call them "patient education," "patient compliance" or "disease  management" programs. The purpose, they say, is to improve the health of patients by sending them refill reminders  when they are past due or contacting them about new and better medical therapies.

Much of what the drug companies are doing with the drugstores helps protect the franchises of their premium-priced  proprietary medicines. The pressure on major drug companies to boost revenues has never been so great. They are losing  billions of dollars in sales to generic competition at a time when a dry spell in company labs means few discoveries are  generating new sales.

To sell the drugs it does have, the industry is pulling out all the stops: advertising to patients and doctors, giving discount coupons and free samples, dispatching armies of salespeople to woo doctors and nurses, and hiring doctors as consultants  and spokespeople. The marketing keeps doctors and patients attuned to — and using — expensive branded drugs instead of cheaper alternatives.

At Merck, switching patients to the weekly Fosamax dosage has been an important strategy. The company says that since late 2000, 85% of people who were taking the daily Fosamax have switched to the weekly version. The campaign has  helped boost sales of Fosamax overall to $1.25 billion last year, from $844 million in 2000, according to IMS Health, a health-care information company. The campaign comes as Merck is facing patent litigation aimed at eliminating its  exclusive franchise on the daily Fosamax pill. That case is being brought by Teva Pharmaceutical Industries Ltd., an Israeli company that wants to make a cheaper, generic version of daily Fosamax. Teva recently succeeded in a similar case against GlaxoSmithKline PLC’s $1.8 billion-a-year Augmentin antibiotic.

In a spate of recent lawsuits, some pharmacy customers contend that the letters and phone calls invade their privacy.

The lawsuits — against Walgreen Co., the No. 1 drugstore chain; the Eckerd division of J.C. Penney Co., and the Good  Neighbor association of independent pharmacists — allege that the companies access confidential prescription information  for financial gain without obtaining customer permission. Eckerd’s program is also being investigated by the Florida attorney general for possible violations of the state’s unfair and deceptive trade-practices statutes.

Walgreen and Eckerd acknowledge using prescription records to contact their customers on behalf of the drug makers but  say they don’t disclose the names to anyone outside their companies. A Good Neighbor spokesman says that the association of independent pharmacies doesn’t engage in these programs, but that member pharmacies may contract  directly with the companies. All of the companies say the charges in the lawsuits are baseless. Longs Drug Store, which  sent Ms. Hohu the Fosamax letter, didn’t return repeated calls for comment.

The pharmaceutical and drugstore chains don’t generally disclose their partnerships, the drugs they are working on or the  terms of their marketing agreements. But selective information provided by the companies, the lawsuits and patients  indicate that the contracts are significant revenue generators.

The contracts usually cover just one drug. The drugstore chains typically receive between 85 cents and $1.50 for each  letter they mail and between $2 and $3.50 for each phone call to a patient, industry officials say. Some contracts call for  pharmacy chains to contact several hundred thousand patients as many as three or four times during the contract period,  generally one year.

In addition, some contracts entitle the pharmacies to drug-price rebates for their services.  Eckerd committed to contact 150,000 customers during a six-month period last year on behalf of one medicine, according  to documents it has furnished the Florida attorney general’s office. Since 1998, Eckerd has had at least 51 contracts covering individual drugs, those documents show. The company, based in Largo, Fla., has set up a subsidiary, the Eckerd  Therapeutic Support Center in Pittsburgh, that handles its contract work for the drug companies.

The company said in a statement that in its programs for drug companies, Eckerd "always recommends products that are  less expensive and/or provide a therapeutic advantage at no additional cost." But the Floridian who sued Eckerd as a  "John Doe" plaintiff last fall says that wasn’t true in his case.

In an interview, the man says he is a hospital worker with the HIV virus and kept his name out of the lawsuit, filed in  Broward County Circuit Court in Fort Lauderdale, to keep people from knowing his condition. He says Eckerd violated his  privacy when it mailed him a dozen letters urging him to consider new drugs — many of which are taken by HIV patients.

He says he lives in an apartment building where letters are often delivered to the wrong mail slots, which could result in  the disclosure of his condition.

In one letter last fall, Eckerd described various benefits of "upgrading" to Eli Lilly & Co.’s insulin treatment for diabetes,  Humalog Mix75/25, which lowers blood glucose more quickly than Humulin, an older Lilly insulin treatment he presently  takes. Diabetes has been cited as a possible side effect of some HIV medications. The letter, which contained a coupon for  a free sample of the medication, didn’t mention Humalog’s higher price. A 10-milliliter vial of Humulin, good for an  average of 20 days, was recently quoted at an Eckerd’s at $27.79. A 10-milliliter vial of Humalog was $50.99.

The letter was sent at the same time that a competitor, Novo Nordisk Pharmaceuticals Inc., was launching a product  similar to Humalog in the U.S., and already was marketing one similar to Humulin. Although Novo Nordisk sponsors its  own marketing programs with pharmacies, an executive of the company says the letter sent by Eckerd on behalf of Lilly is  "one thing we would never do" because a switch in insulin can pose medical risks and is a decision that should be free of  influence from the pharmacist.

An Eli Lilly spokesperson points out that the letter instructs customers to discuss a possible switch with their doctor and  warns that switching may not be appropriate for everyone. The warning is contained in small print at the bottom of the  letter.
As for Humalog’s price, Eckerd acknowledges that in some instances, it doesn’t necessarily offer its customers improved  treatment at no additional cost. It says it decided to let patients know of the more expensive Humalog because "potential benefits from this new medication were so substantial."

Catherine DeAngelis, editor of the Journal of the American Medical Association, says letters such as the Humalog one  interfere with the doctor-patient relationship. "If a doctor prescribes a medication, and a pharmacy suggests you try  something else, I think that is practicing medicine without a license," she says.

But pharmacists don’t just sell drugs; they also provide advice and guidance on taking drugs. If a drugstore company is  compensated to push particular drugs, that advice could be compromised. "The professional ethical standard is that we should not put ourselves in a position that allows our independent judgment to be potentially conflicted," says Jesse  Vivian, a pharmacist and lawyer who teaches at Wayne State University in Detroit.

In 1998, an outcry about possible privacy violations forced CVS Corp. and Giant Food Inc., a supermarket chain that has  pharmacies, to abandon earlier versions of the programs. Some members of Congress threatened restrictions on the  programs then, but no action was taken. More recently, the U.S. Department of Health and Human Services has proposed regulations that would establish new privacy standards for patient health records under the Health Insurance Portability  and Accountability Act.

The proposal would require pharmacies to obtain prior consent from patients for marketing, defined as "to make a  communication about a product or service to encourage recipients… to purchase or use the product or service." But the  regulations include wide exclusions to the marketing definition — for any communications that are made "for treatment" of  an individual, for "case management or care coordination," or "to direct or recommend alternative treatments." In an accompanying summary, HHS says it intends the exclusions to cover "prescription refill reminders" or "disease management programs."

The proposed rules don’t require pharmacies to disclose who pays for drug mailings or telephone calls. The regulations,  which would allow states to impose further restrictions, are scheduled to take effect in April next year.

John Coster, a vice president of the National Association of Chain Drug Stores, says industry representatives met several  times with Bush administration officials, including HHS Secretary Tommy Thompson, to press their argument that their  contracts with the drug makers keep health-care costs down by pushing cheaper and more effective drug alternatives  while also encouraging patients to take their medication as instructed. If everyone took their medications appropriately,  they argue, fewer people would need expensive hospitalizations.

Indeed, much of the marketing effort is intended to promote refills. According to industry studies cited in a contract  between Eckerd and one pharmaceutical company, between 12% and 25% of patients who fill a prescription forgo a refill  allowed by the original prescription. Many patients allow their prescriptions to lapse and must visit their doctors again.  And doctors sometimes switch them to a competitor’s medicine after a lapse.

There appear to be only a few refill-reminder programs for low-cost generic drugs. That’s because generics makers are  "trying to keep their profit margins as narrow as possible, and they don’t have the resources to fund marketing and  education campaigns as the branded manufacturers do," says Clay O’Dell, spokesman for the Generic Pharmaceutical  Association in Washington.

Eckerd recently handed over copies of its contracts with drug makers to the Florida attorney general’s office as part of  that agency’s investigation. The contracts cover individual drugs, but their names, the identities of the pharmaceutical  companies, and the amounts they pay the drugstore chain were blacked out by Eckerd.

One contract says the purpose of the direct-mail program is to "broaden customer awareness" of the pharmaceutical  company’s drug. Several contracts include restrictions barring Eckerd from promoting or exposing customers to the  competing drugs of other pharmaceutical companies for as long as six months. One contract prevents Eckerd from
promoting a competitor’s generic equivalent.

Walgreen mailed 200,000 letters to customers urging them to refill their prescriptions for the heartburn drug Prilosec last  year. In small print at the bottom of the letter, Walgreen said that "funding for this mailing is supplied" by AstraZeneca  PLC. It didn’t say that AstraZeneca is the maker of Prilosec, which yields $6 billion in annual sales. Customers weren’t  asked ahead of time for permission to use their prescription data for the mailings.

"As the Pharmacy America Trusts, Walgreens is committed to your health and well being," the letter began. "Although you  may have begun to feel better, it is important you do not stop taking your Prilosec, unless directed to do so by your  doctor."

That guidance appears at odds with AstraZeneca’s application to the U.S. Food and Drug Administration to turn Prilosec  into an over-the-counter drug. In the application, AstraZeneca and its partner, Procter & Gamble Co., argue that some  patients on Prilosec therapy are capable of safely deciding for themselves when to start and stop therapy.

AstraZeneca is also in the midst of a court fight to delay rivals that have been clamoring to launch generic competitors to  Prilosec since the company’s main patent on the drug expired in October. Also part of its strategy: promoting a newer  premium-priced product, its new heartburn pill Nexium, which is in no imminent danger from copycats.

One of the people who received the Prilosec mailing last year was an 82-year-old Floridian who sued Walgreen and  AstraZeneca in Miami-Dade County Circuit court in February as "Jane Doe." A few months after getting the Prilosec letter,  she says in an interview, she received another letter — this one directly from AstraZeneca — describing the benefits of  Nexium. The letter also contained an offer for a free seven-day supply of Nexium.  Advice regarding prescriptions, she says, "should be done through the doctor’s office. It is nobody else’s business." In the  lawsuit, the woman alleges that the companies violated her privacy by accessing her confidential medical information  without her consent.

AstraZeneca says that since Jane Doe’s real name isn’t in her lawsuit, it can’t say how it may have gotten her name for  the Nexium letter. But the company says it assumes she provided it voluntarily through other marketing programs. A  judge last month dismissed the case against AstraZeneca.

Walgreen, which remains a defendant, says the Prilosec letter didn’t violate the woman’s privacy because no one outside  the company was privy to her records. Prior consent to use her records wasn’t needed, the company says, because its  communications are "patient compliance letters, not marketing letters." The letters, a Walgreen statement adds, "remind  the patient of the importance of staying on prescribed medicine, how to properly take the medicine and they inform the  patient of less-expensive generic alternatives and other options, such as reducing the number of pills taken daily."

A pharmacist’s duty of confidentiality to customers is well-established in law. In 2000, a San Francisco woman won a $100,000 judgment against Thrifty Payless drugstores after the pharmacy gave her estranged husband a list of all the  medications she was taking. The husband had used that information in an unsuccessful attempt to win custody of their  children. The woman said the pharmacy should have protected her records and not violated her privacy.

The pharmacy chains say accessing prescription records for mailings and telephone calls on behalf of drug makers doesn’t  violate their duty to confidentiality. It’s also well-established in law, they note, that the pharmacist who fills out the  prescription may share the information with others for administrative necessities — such as billing, or phone calls advising  customers their prescription is ready. All the people inside the companies handling the contracts on behalf of the drug  companies, they say, are covered by this "confidentiality umbrella."  

Jeffrey Krinsk, the plaintiffs’ attorney in the suits filed against Eckerd and Walgreen, says the refill reminder and  medication switching programs aren’t the kinds of things covered by the confidentiality umbrella. "They are marketing  initiatives, and many states, including Florida, have laws that specifically bar pharmacists from sharing patients’  confidential medical information without their permission for commercial purposes," Mr. Krinsk says.

Wal-Mart Stores Inc. says it uses an outside company, Adheris Inc., to generate the letters used in its pharmacy direct-  mail program. Wal-Mart says it does computer searches in its Bentonville, Ark., headquarters looking for names of people  suffering from chronic conditions, then sends encrypted versions of the names to Adheris computers in Massachusetts.

Wal-Mart says Adheris then writes letters and sends them back to Arkansas with the encrypted names, where the retailer  replaces the encryptions with the real names and does the mailing.

Adheris, formerly known as Elensys Inc., is the same company that CVS and Giant Food used in programs they ended in  1998. Adheris and CVS remain defendants in a class-action lawsuit in Massachusetts Superior Court alleging that the  previous CVS program improperly used confidential medical information, which the companies deny. But after the furor over its involvement in the programs subsided, CVS two years ago signed back up with the drug companies and says it is engaging in refill-reminder programs.

The new CVS programs appear to violate tougher rules established in Massachusetts last year as a direct outcome of the  program the company stopped. CVS automatically enrolls customers without asking them when they fill a prescription. But  in a letter to CVS on Feb. 27, 2001, the Massachusetts Board of Registration in Pharmacy instructed the company that it  should both get the consent of customers before enrolling them in direct-mail programs and give them an opportunity to  get out of the programs after they are signed up.

Todd Andrews, a CVS spokesman, says the company interprets the Massachusetts guidelines differently. He says the  company believes it only has to offer an "opt out" program. "We believe our programs are consistent with the intent of  the Mass board of pharmacy," says Mr. Andrews.

Charles Young, director of the Massachusetts Board of Registration in Pharmacy, says, "You should have an opportunity to  review the program and decide if you want to participate." Mr. Young says his office now plans to investigate the new CVS  program and determine if a complaint against the company is merited. The board can take disciplinary action ranging from a letter of warning to suspension or revocation of a pharmacy license.  California also requires that pharmacies obtain customer permission before using their prescription records for refill-reminder programs, says Patty Harris, executive officer of the California Board of Pharmacy. Mrs. Harris says she believes that many pharmacies aren’t doing that, but the board hasn’t acted because of a lack of resources.

Among seven chains that say they have prescription-specific, direct-mail programs, only Eckerd says it seeks permission  from its customers to contact them on behalf of the pharmaceutical companies. That consent, the company says, is obtained when customers sign the prescription pick-up log, which has a permission clause printed in tiny typeface at the

Eckerd says it provides the notice "even though it may not be legally required to do so, in order to give its customers the  opportunity at point-of-purchase, to opt out." Eckerd says that patients also can opt out after receiving the materials, and  that it provides a toll-free number in its letters for that purpose. Eckerd’s prescription pick-up log also says customers can  alert employees if they want to opt out of releasing their medical information to Eckerd for the direct-mail programs.

After several consumers complained to the Florida attorney general’s office that Eckerd was using their prescription  records for marketing purposes without their permission, the attorney general dispatched a number of its employees and  consumers into Eckerd stores to pick up prescriptions and test the "opt out" provisions. But John Newton, a Florida senior assistant attorney general, says that when the people sent to Eckerd asked pharmacy employees about opting out, none of them knew what to do.

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