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`ow to think about prescription drugs.
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`en years ago, the multinational pharmaceutical
`company AstraZeneca launched what was
`known inside the company as the Shark Fin Project.
`The team for the project was composed of lawyers,
`marketers, and scientists, and its focus was a
`prescription drug known as Prilosec, a heartburn
`medication that, in one five-year stretch of its
`extraordinary history, earned AstraZeneca twenty-six
`billion dollars. The patent on the drug was due to
`expire in April of 2001. The name Shark Fin was a
`reference to what Prilosec sales—and AstraZeneca’s
`profits—would look like if nothing was done to fend
`off the ensuing low-priced generic competition.
`The Shark Fin team drew up a list of fifty options.
`One idea was to devise a Prilosec 2.0—a version that
`worked faster or longer, or was more effective.
`Another idea was to combine it with a different
`heartburn remedy, or to change the formulation, so
`that it came in a liquid gel or in an extended-release
`form. In the end, AstraZeneca decided on a subtle piece of chemical reëngineering. Prilosec,
`like many drugs, is composed of two “isomers”—a left-hand and a right-hand version of the
`molecule. In some cases, removing one of the isomers can reduce side effects or make a drug
`work a little bit better, and in all cases the Patent Office recognizes something with one isomer
`as a separate invention from something with two. So AstraZeneca cut Prilosec in half.
`AstraZeneca then had to prove that the single-isomer version of the drug was better than
`regular Prilosec. It chose as its target something called erosive esophagitis, a condition in which
`stomach acid begins to bubble up and harm the lining of the esophagus. In one study, half the
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`patients took Prilosec, and half took Son of Prilosec. After one month, the two drugs were dead
`even. But after two months, to the delight of the Shark Fin team, the single-isomer version
`edged ahead—with a ninety-per-cent healing rate versus Prilosec’s eighty-seven per cent. The
`new drug was called Nexium. A patent was filed, the F.D.A. gave its blessing, and, in March of
`2001, Nexium hit the pharmacy shelves priced at a hundred and twenty dollars for a month’s
`worth of pills. To keep cheaper generics at bay, and persuade patients and doctors to think of
`Nexium as state of the art, AstraZeneca spent half a billion dollars in marketing and advertising
`in the year following the launch. It is now one of the half-dozen top-selling drugs in America.
`In the political uproar over prescription-drug costs, Nexium has become a symbol of
`everything that is wrong with the pharmaceutical industry. The big drug companies justify the
`high prices they charge—and the extraordinary profits they enjoy—by arguing that the search
`for innovative, life-saving medicines is risky and expensive. But Nexium is little more than a
`repackaged version of an old medicine. And the hundred and twenty dollars a month that
`AstraZeneca charges isn’t to recoup the costs of risky research and development;; the costs were
`for a series of clinical trials that told us nothing we needed to know, and a half-billion-dollar
`marketing campaign selling the solution to a problem we’d already solved. “The Prilosec
`pattern, repeated across the pharmaceutical industry, goes a long way to explain why the
`nation’s prescription drug bill is rising an estimated 17 % a year even as general inflation is
`quiescent,” the Wall Street Journal concluded, in a front-page article that first revealed the
`Shark Fin Project.
`In “The Truth About the Drug Companies: How They Deceive Us and What to Do About It”
`(Random House;; $24.95), Marcia Angell offers an even harsher assessment. Angell used to be
`the editor-in-chief of The New England Journal of Medicine, which is among the most powerful
`positions in American medicine, and in her view drug companies are troubled and corrupt. She
`thinks that they charge too much, engage in deceptive research, produce inferior products,
`borrow their best ideas from government-funded scientists, and buy the affections of physicians
`with trips and gifts. To her, the story of Nexium and drugs like it is proof that the
`pharmaceutical industry is “now primarily a marketing machine to sell drugs of dubious
`benefit.”
`Of course, it is also the case that Nexium is a prescription drug: every person who takes
`Nexium was given the drug with the approval of a doctor—and doctors are professionals who
`ought to know that there are many cheaper ways to treat heartburn. If the patient was coming in
`for the first time, the doctor could have prescribed what’s known as an H2 antagonist, such as a
`generic version of Tagamet (cimetidine), which works perfectly well for many people and costs
`only about twenty-eight dollars a month. If the patient wasn’t responding to Tagamet, the
`doctor could have put him on the cheaper, generic form of Prilosec, omeprazole.
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`The patient’s insurance company could easily have stepped in as well. It could have picked
`up the tab for Nexium only if the patient had first tried generic Tagamet. Or it could have
`discouraged Nexium use, by requiring anyone who wanted the drug to pay the difference
`between it and generic omeprazole. Both the physician and the insurance company, meanwhile,
`could have sent the patient to any drugstore in America, where he or she would have found,
`next to the Maalox and the Pepcid, a package of over-the-counter Prilosec. O.T.C. Prilosec is
`identical to prescription Prilosec and effectively equivalent to prescription Nexium, and it costs
`only twenty dollars a month.
`Throughout the current debate over prescription-drug costs—as seniors have gone on drug-
`buying bus trips to Canada, as state Medicaid programs and employers have become
`increasingly angry over rising health-care costs, and as John Kerry has made reining in the
`pharmaceutical industry a central theme of his Presidential campaign—the common assumption
`has been that the rise of drugs like Nexium is entirely the fault of the pharmaceutical industry.
`Is it? If doctors routinely prescribe drugs like Nexium and insurers routinely pay for them, after
`all, there is surely more than one culprit in the prescription-drug mess.
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`T
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`he problem with the way we think about prescription drugs begins with a basic
`misunderstanding about drug prices. The editorial board of the Times has pronounced them
`much too high;; Marcia Angell calls them “intolerable.” The perception that the drug industry is
`profiteering at the expense of the American consumer has given pharmaceutical firms a
`reputation on a par with that of cigarette manufacturers.
`In fact, the complaint is only half true. The “intolerable” prices that Angell writes about are
`confined to the brand-name sector of the American drug marketplace. As the economists
`Patricia Danzon and Michael Furukawa recently pointed out in the journal Health Affairs, drugs
`still under patent protection are anywhere from twenty-five to forty per cent more expensive in
`the United States than in places like England, France, and Canada. Generic drugs are another
`story. Because there are so many companies in the United States that step in to make drugs once
`their patents expire, and because the price competition among those firms is so fierce, generic
`drugs here are among the cheapest in the world. And, according to Danzon and Furukawa’s
`analysis, when prescription drugs are converted to over-the-counter status no other country
`even comes close to having prices as low as the United States.
`It is not accurate to say, then, that the United States has higher prescription-drug prices than
`other countries. It is accurate to say only that the United States has a different pricing system
`from that of other countries. Americans pay more for drugs when they first come out and less as
`the drugs get older, while the rest of the world pays less in the beginning and more later. Whose
`pricing system is cheaper? It depends. If you are taking Mevacor for your cholesterol, the 20-
`mg. pill is two-twenty-five in America and less than two dollars if you buy it in Canada. But
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`generic Mevacor (lovastatin) is about a dollar a pill in Canada and as low as sixty-five cents a
`pill in the United States. Of course, not every drug comes in a generic version. But so many
`important drugs have gone off-patent recently that the rate of increase in drug spending in the
`United States has fallen sharply for the past four years. And so many other drugs are going to
`go off-patent in the next few years—including the top-selling drug in this country, the anti-
`cholesterol medication Lipitor—that many Americans who now pay more for their drugs than
`their counterparts in other Western countries could soon be paying less.
`The second misconception about prices has to do with their importance in driving up over-
`all drug costs. In one three-year period in the mid-nineteen-nineties, for example, the amount of
`money spent in the United States on asthma medication increased by almost a hundred per cent.
`But none of that was due to an increase in the price of asthma drugs. It was largely the result of
`an increase in the prevalence of usage—that is, in the number of people who were given a
`diagnosis of the disease and who then bought drugs to treat it. Part of that hundred-per-cent
`increase was also the result of a change in what’s known as the intensity of drug use: in the mid-
`nineties, doctors were becoming far more aggressive in their attempts to prevent asthma attacks,
`and in those three years people with asthma went from filling about nine prescriptions a year to
`filling fourteen prescriptions a year. Last year, asthma costs jumped again, by twenty-six per
`cent, and price inflation played a role. But, once again, the big factor was prevalence. And this
`time around there was also a change in what’s called the therapeutic mix;; in an attempt to fight
`the disease more effectively, physicians are switching many of their patients to newer, better,
`and more expensive drugs, like Merck’s Singulair.
`Asthma is not an isolated case. In 2003, the amount that Americans spent on cholesterol-
`lowering drugs rose 23.8 per cent, and similar increases are forecast for the next few years.
`Why the increase? Well, the baby boomers are aging, and so are at greater risk for heart attacks.
`The incidence of obesity is increasing. In 2002, the National Institutes of Health lowered the
`thresholds for when people with high cholesterol ought to start taking drugs like Lipitor and
`Mevacor. In combination, those factors are having an enormous impact on both the prevalence
`and the intensity of cholesterol treatment. All told, prescription-drug spending in the United
`States rose 9.1 per cent last year. Only three of those percentage points were due to price
`increases, however, which means that inflation was about the same in the drug sector as it was
`in the over-all economy. Angell’s book and almost every other account of the prescription-drug
`crisis take it for granted that cost increases are evidence of how we’ve been cheated by the
`industry. In fact, drug expenditures are rising rapidly in the United States not so much because
`we’re being charged more for prescription drugs but because more people are taking more
`medications in more expensive combinations. It’s not price that matters;; it’s volume.
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`his is a critical fact, and it ought to fundamentally change the way we think about the
`problem of drug costs. Last year, hospital expenditures rose by the same amount as drug
`expenditures—nine per cent. Yet almost all of that (eight percentage points) was due to
`inflation. That’s something to be upset about: when it comes to hospital services, we’re
`spending more and getting less. When it comes to drugs, though, we’re spending more and
`we’re getting more, and that makes the question of how we ought to respond to rising drug costs
`a little more ambiguous.
`Take CareSource, a nonprofit group that administers Medicaid for close to four hundred
`thousand patients in Ohio and Michigan. CareSource runs a tightly managed pharmacy program
`and substitutes generics for brand-name drugs whenever possible. Nonetheless, the group’s
`pharmacy managers are forecasting at least ten-per-cent increases in their prescription-drug
`spending in the upcoming year. The voters of Ohio and Michigan can hardly be happy with that
`news. Then again, it’s not as if that money were being wasted.
`The drug that CareSource spends more money on than any other is Singulair, Merck’s new
`asthma pill. That’s because Medicaid covers a lot of young, lowerincome families, where
`asthma is epidemic and Singulair is a highly effective drug. Isn’t the point of having a Medicaid
`program to give the poor and the ailing a chance to live a healthy life? This year, too, the
`number of patients covered by CareSource who are either blind or disabled or have received a
`diagnosis of aids grew from fifteen to eighteen per cent. The treatment of aids is one of the
`pharmaceutical industry’s great success stories: drugs are now available that can turn what was
`once a death sentence into a manageable chronic disease. The evidence suggests, furthermore,
`that aggressively treating diseases like aids and asthma saves money in the long term by
`preventing far more expensive hospital visits. But there is no way to treat these diseases in the
`short term—and make sick people healthy—without spending more on drugs.
`The economist J. D. Klienke points out that if all physicians followed the treatment
`guidelines laid down by the National Institutes of Health the number of Americans being
`treated for hypertension would rise from twenty million to forty-three million, the use of asthma
`medication would increase somewhere between twofold and tenfold, and the number of
`Americans on one of the so-called “statin” class of cholesterol-lowering medications would
`increase by at least a factor of ten. By these measures, it doesn’t seem that we are spending too
`much on prescription drugs. If the federal government’s own medical researchers are to be
`believed, we’re spending too little.
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`T
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`he fact that volume matters more than price also means that the emphasis of the
`prescription-drug debate is all wrong. We’ve been focussed on the drug manufacturers. But
`decisions about prevalence, therapeutic mix, and intensity aren’t made by the producers of
`drugs. They’re made by the consumers of drugs.
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`This is why increasing numbers of employers have in recent years made use of what are
`known as Pharmacy Benefit Managers, or P.B.M.s. The P.B.M.s draw up drug formularies—lists
`of preferred medications. They analyze clinical-trials data to find out which drugs are the most
`cost-effective. In a category in which there are many equivalent options, they bargain with drug
`firms, offering to deliver all their business to one company in exchange for a discount. They
`build incentives into prescription-drug plans to encourage intelligent patient behavior. If
`someone wants to take a brand-name oral contraceptive and there is a generic equivalent
`available, for example, a P.B.M. might require her to pay the price difference. In the case of
`something like heartburn, the P.B.M. might require patients to follow what’s called step therapy
`—to try the cheaper H2 antagonists first, and only if that fails to move to a proton-pump
`inhibitor like omeprazole. Employers who used two or more of these strategies last year saw a
`decrease of almost five per cent in their pharmacy spending.
`There is no mention of these successes in “The Truth About the Drug Companies.” Though
`much of the book is concerned with the problem of such costs, P.B.M.s, the principal tool that
`private health-care plans use to control rising drug costs, are dismissed in a few paragraphs.
`Angell’s focus, instead, is on the behavior of the pharmaceutical industry. An entire chapter, for
`instance, centers on the fact that the majority of drugs produced by the pharmaceutical industry
`are either minor variations or duplicates of drugs already on the market. Merck pioneered the
`statin category with Mevacor. Now we have Pfizer’s Lipitor, Bristol-Myers Squibb’s Pravachol,
`Novartis’s Lescol, AstraZeneca’s Crestor, and Merck’s second entrant, Zocor—all of which do
`pretty much the same thing. Angell thinks that these “me-too” drugs are a waste of time and
`money, and that the industry should devote its resources to the development of truly innovative
`drugs instead. In one sense, she’s right: we need a cure for Alzheimer’s much more than we
`need a fourth or fifth statin. Yet me-too drugs are what drive prices down. The presence of more
`than one drug in a given category gives P.B.M.s their leverage when it comes time to bargain
`with pharmaceutical companies.
`With the passage of the Medicare prescription-drug-insurance legislation, late last year, the
`competition created by me-toos has become even more important. The bill gives responsibility
`for managing the drug benefit to P.B.M.s. In each therapeutic category, Medicare will set
`guidelines for how many and what kinds of drugs the P.B.M.s will have to include, and then the
`P.B.M.s will negotiate directly with drug companies for lower prices. Some analysts predict that,
`as long as Medicare is smart about how it defines the terms of the benefit, the discounts—
`particularly in crowded therapeutic categories like the statins—could be considerable. Angell
`appears to understand none of this. “Medicare will have to pay whatever drug companies
`charge,” she writes, bafflingly, “and it will have to cover expensive me-too drugs as well as
`more cost-effective ones.”
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`The core problem in bringing drug spending under control, in other words, is persuading the
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`users and buyers and prescribers of drugs to behave rationally, and the reason we’re in the
`mess we’re in is that, so far, we simply haven’t done a very good job of that. “The sensitivity on
`the part of employers is turned up pretty high on this,” Robert Nease, who heads applied
`decision analysis for one of the nation’s largest P.B.M.s, the St. Louis-based Express Scripts,
`says. “This is not an issue about how to cut costs without affecting quality. We know how to do
`that. We know that generics work as well as brands. We know that there are proven step
`therapies. The problem is that we haven’t communicated to members that we aren’t cheating
`them.”
`Among the costliest drug categories, for instance, is the new class of antiinflammatory
`drugs known as cox-2 inhibitors. The leading brand, Celebrex, has been heavily advertised, and
`many patients suffering from arthritis or similar conditions ask for Celebrex when they see their
`physician, believing that a cox-2 inhibitor is a superior alternative to the previous generation of
`nonsteroidal anti-inflammatories (known as nsaids), such as ibuprofen. (The second leading cox-2
`inhibitor, Merck’s Vioxx, has just been taken off the market because of links to an elevated risk
`of heart attacks and strokes.) The clinical evidence, however, suggests that the cox-2s aren’t any
`better at relieving pain than the nsaids. It’s just that in a very select group of patients they have a
`lower risk of side effects like ulcers or bleeding.
`“There are patients at high risk—people who have or have had an ulcer in the past, who are
`on blood-thinning medication, or who are of an advanced age,” Nease says. “That specific
`group you would likely start immediately on a cox-2.” Anyone else, he says, should really be
`started on a generic nsaid first. “The savings here are enormous,” he went on. “The cox-2s are
`between a hundred and two hundred dollars a month, and the generic nsaids are pennies a day—
`and these are drugs that people take day in, day out, for years and years.” But that kind of
`change can’t be implemented unilaterally: the health plan and the employer have to explain to
`employees that in their case a brand-new, hundreddollar drug may not be any better than an old,
`one-dollar drug.
`Similarly, a P.B.M. might choose to favor one of the six available statins on its formulary—
`say, AstraZeneca’s Crestor—because AstraZeneca gave it the biggest discount. But that
`requires, once again, a conversation between the health plan and the employee: the person who
`has happily been taking Pfizer’s anti-cholesterol drug Lipitor for several years has to be
`convinced that Crestor is just as good, and the plan has to be very sure that Crestor is just as
`good.
`The same debates are going on right now in Washington, as the Medicare program decides
`how to implement the new drug benefit. In practice, the P.B.M.s will be required to carry a
`choice of drugs in every therapeutic category. But how do you define a therapeutic category?
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`Are drugs like Nexium and Prilosec and Prevacid—all technically known as proton-pump
`inhibitors—in one category, and the H2 antagonists in another? Or are they all in one big
`category? The first approach maximizes the choices available. The second approach maximizes
`the bargaining power of P.B.M.s. Deciding which option to take will have a big impact on how
`much we end up paying for prescription drugs—and it’s a decision that has nothing to do with
`the drug companies. It’s up to us;; it requires physicians, insurers, patients, and government
`officials to reach some kind of consensus about what we want from our medical system, and
`how much we are willing to pay for it. AstraZeneca was able to do some chemical sleight of
`hand, spend half a billion on advertising, and get away with the “reinvention” of its heartburn
`drug only because that consensus hasn’t yet been reached. For sellers to behave responsibly,
`buyers must first behave intelligently. And if we want to create a system where millions of
`working and elderly Americans don’t have to struggle to pay for prescription drugs that’s also
`up to us. We could find it in our hearts to provide all Americans with adequate health insurance.
`It is only by the most spectacular feat of cynicism that our political system’s moral negligence
`has become the fault of the pharmaceutical industry.
`There is a second book out this fall on the prescription-drug crisis, called “Overdosed
`America” (HarperCollins;; $24.95), by John Abramson, who teaches at Harvard Medical School.
`At one point, Abramson discusses a study that he found in a medical journal concluding that the
`statin Pravachol lowered the risk of stroke in patients with coronary heart disease by nineteen
`per cent. That sounds like a significant finding, but, as Abramson shows, it isn’t. In the six years
`of the study, 4.5 per cent of those taking a placebo had a stroke versus 3.7 per cent of those on
`Pravachol. In the real world, that means that for every thousand people you put on Pravachol
`you prevent one stroke—which, given how much the drug costs, comes to at least $1.2 million
`per stroke prevented. On top of that, the study’s participants had an average age of sixty-two
`and most of them were men. Stroke victims, however, are more likely to be female, and, on
`average, much older—and the patients older than seventy in the study who were taking
`Pravachol had more strokes than those who were on a placebo.
`Here is a classic case of the kind of thing that bedevils the American health system—
`dubious findings that, without careful evaluation, have the potential to drive up costs. But
`whose fault is it? It’s hard to blame Pravachol’s manufacturer, Bristol-Myers Squibb. The
`study’s principal objective was to look at Pravachol’s effectiveness in fighting heart attacks;;
`the company was simply using that patient population to make a secondary observation about
`strokes. In any case, Bristol-Myers didn’t write up the results. A group of cardiologists from
`New Zealand and Australia did, and they hardly tried to hide Pravachol’s shortcomings in
`women and older people. All those data are presented in a large chart on the study’s third page.
`What’s wrong is the context in which the study’s findings are presented. The abstract at the
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`beginning ought to have been rewritten. The conclusion needs a much clearer explanation of
`how the findings add to our understanding of stroke prevention. There is no accompanying
`commentary that points out the extreme cost-ineffectiveness of Pravachol as a stroke
`medication—and all those are faults of the medical journal’s editorial staff. In the end, the fight
`to keep drug spending under control is principally a matter of information, of proper
`communication among everyone who prescribes and pays for and ultimately uses drugs about
`what works and what doesn’t, and what makes economic sense and what doesn’t—and medical
`journals play a critical role in this process. As Abramson writes:
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`When I finished analyzing the article and understood that the title didn’t tell the whole story, that the findings were not statistically
`significant, and that Pravachol appeared to cause more strokes in the population at greater risk, it felt like a violation of the trust that doctors
`(including me) place in the research published in respected medical journals.
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`The journal in which the Pravachol article appeared, incidentally, was The New England
`Journal of Medicine. And its editor at the time the paper was accepted for publication? Dr.
`Marcia Angell. Physician, heal thyself. ♦
`Subscribe now to get more of The New Yorker's signature mix of politics, culture, and the arts.
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