Washington Business Information Generic Line

In an ironic move, a major brand drugmaker has encouraged its workers to opt for generic pharmaceuticals and OTC medications, as well as purchase their medicines through the mail to help the company lower its healthcare costs.

“Every major company in the U.S. has felt these increases in [healthcare costs] and, as a result, many corporations are reducing or restricting their benefits coverage for employees,” wrote Novartis CEO Paulo Costo in a September memo to employees.

Critics, on the other hand, say Novartis‘ move undercuts the brand industry’s position that rising costs for pharmaceuticals are necessary to cover drug R&D expenses. Instead, critics say, Novartis is conceding that drug prices have increased to the point that one of the world’s largest drugmakers no longer can pay for Rx medicines for employees.

The spread between copays has increased significantly in recent years, according to IMS Health, a pharmaceutical research and consulting firm. In 1996, for example, copays averaged about $5 for generics and $9 for nonpreferred brands. By 2002, about 60 percent of healthcare plans had implemented three-tier copay systems, some of which charged copays of about $10 for generics and up to $40 for the nonpreferred equivalent brands, notes IMS Health (Generic Line, Feb. 11, Page 12).

“While big pharma tout their R&D costs, according to their tax filings they spend two to three times more on marketing and advertising,” said Jerry Flanagan, healthcare policy director of the Foundation for Taxpayer and Consumer Rights.

“Pharma have been overstating their R&D costs by 60 percent for years, according to a GAO [Government Accountability Office] report in February 2003,” he said.

Although most drug firms lump marketing and administration together, Novartis last year reported that 85 percent of the total spent went to marketing and 15 percent to administration, said Marcia Angell, a senior lecturer in the Harvard Medical School’s Department of Social Medicine and the former editor of the New England Journal of Medicine (Generic Line, Oct. 6, Page 4).

“It’s the pharmaceutical companies’ fault that healthcare costs in the U.S., particularly for brand-name drugs, are getting so high,” Flanagan said. “Companies like Novartis, have fought for years to keep generics from going to market through expensive court battles to extend their patents.”

And they have been “very successful, so successful that it very difficult to find that [cheaper] generic option,” Flanagan said. “[The brands are] getting a dose of their own medicine. Their efforts to keep prices high have impacted their own bottom line.”