[Congressional Record Volume 144, Number 85 (Thursday, June 25, 1998)]
[Extensions of Remarks]
[Pages E1238-E1240]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




           THE MEDICARE+CHOICE PHARMACEUTICAL MANAGEMENT ACT

                                 ______
                                 

                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                        Thursday, June 25, 1998

  Mr. STARK. Mr. Speaker, I am pleased to introduce the Medicare+Choice 
Pharmaceutical Management Act of 1998.
  This bill would provide important protections for Medicare 
beneficiaries receiving prescription drug benefits through 
Medicare+Choice plans. These plans would be required to disclose 
important information about how they manage their drug benefits to cut 
costs, including any incentives offered to doctors to get them to 
switch to cheaper, but sometimes less effective, medications.
  While many health plans still manage their own drug benefits, an 
increasing number of plans are hiring a new breed of management 
consultants known as pharmaceutical benefit managers (PBMs) to do their 
work for them. These companies currently manage prescriptions for some 
115 million Americans and the number is expected to reach 200 million 
by the year 2000.
  Plans have turned to PBMs in the hopes that they will be able to cut 
rising prescription drug costs. PBMs accomplish that goal by setting up 
lists of approved drugs (known as formularies), requiring specific 
authorization of non-formulary drugs, and urging doctors--often by 
providing financial and other incentives--to switch prescriptions for 
less expensive medications.
  Of greater concern is the fact that PBMs are often given free reign 
to manage benefits through their own programs, with little oversight 
from the health plan. And, PBMs are neither licensed health care 
providers nor subject to federal regulation by the Food and Drug 
Administration (FDA).
  Several of the largest PBMs are now owned by drug manufacturers and 
many independent PBMs have formed ``strategic alliances'' with drug 
manufacturers, exchanging preferential treatment on a formulary with 
millions of dollars in rebate payments from the drug companies. Since 
1993, the three largest PBMs, serving fully 80% of covered enrollees, 
have been acquired by drug manufacturers at a total cost of $12.8 
billion. And, a January 1998 study showed that drug-company-owned PBMs 
covered 41% of the lives enrolled in PBM programs.
  Drug companies that ow PBMs say that they have ``firewalls'' in place 
to prohibit the two companies from sharing proprietary information or 
conducting joint marketing efforts

[[Page E1239]]

and other deals that benefit the drug company. But can any company 
policy resolve this inherent conflict of interest, especially when the 
goal is to maximize profit? If you've the CEO of a major drug company, 
wouldn't it be tempting to try to get more doctors to prescribe your 
company's new medication for high blood pressure?
  I certainly think so. But, in case you think I'm just being cynical, 
consider the case of PCS, the largest PBM covering 50 million lives. 
When PCS was acquired by Eli Lilly, which manufactures Prozac, in 1994, 
Lilly's chairman openly declared that ``this purchase will help us sell 
even more Prozac.'' Internal PCS memos obtained by the New York City 
Public Advocate revealed a plan to steer the company's managed care 
customers toward Prozac and another top Lilly drug, the ulcer 
medication Axid. Millions of messages would be sent to physicians and 
pharmacists urging switches, leading to a projected $171 million in 
additional sales.
  Given that there are millions of dollars at stake for drug 
manufacturers and PBMs, it's very tempting for these companies to join 
forces to steer physicians to prescribe their products. But, there's 
more at stake than just money--the health and welfare of Medicare 
beneficiaries who join Medicare+Choice plans is also at risk. I am 
attaching testimony given by the Public Advocate for the City of New 
York before President Clinton's Advisory Commission on Consumer 
Protection and Quality that clearly shows just how low these companies 
will go to push their products.
  I have introduced the Medicare+Choice Pharmaceutical Management Act 
of 1998 to discourage these types of activities by requiring 
Medicare+Choice plans to disclose the following information about their 
pharmacy benefits management: the committee (if any) used to develop 
and oversee drug formularies, including the composition of the 
committee and how they decide what drugs to include on the formulary; 
and incentives to physicians, pharmacists, and patients associated with 
formulary compliance programs, including drug switching and any known 
health risks associated with such a program; all policies and 
procedures for any drug utilization reviews of physicians and 
pharmacists, including any counseling, intervention, enforcement 
actions, or penalties associated with these reviews; any expedited 
process for amendment drug formularies to include new drugs that become 
available, particularly those that treat or alleviate potentially life-
threatening illnesses; and any requirements for prior treatment 
failures of a particular drug before approving alternative drug 
therapies.
  Medicare+Choice plans will be required to disclose this information 
when they apply for a contract with Medicare and to make this 
information and their drug formularies available to the public upon 
request. That way, the Health Care Financing Administration (HCFA), the 
agency that reviews these contracts, will know about a health plan's 
pharmacy program--and any financial incentives to push certain drugs--
and can make the decision whether to contract with that plan or require 
changes in their pharmacy benefits management. And, even 
more important, the information will allow consumer groups and 
individuals to make recommendations and choices about the managed care 
plans that best serve the patient.

  I urge my fellow Members of Congress to join with me in cosponsoring 
the Medicare+Choice Pharmaceutical Management Act of 1998. Together, we 
can ensure that Medicare beneficiaries get access to the prescription 
drugs ordered by their physician, not by a benefits manager focused on 
the bottom line.

  Testimony of mark Green, Public Advocate for the City of New York, 
 Before the Advisory Commission on consumer Protection and Quality in 
              the health Care industry--February 26, 1998

       We all know that there is no more common health care 
     experience in America than filling a prescription. But few 
     Americans know that the terms of our every day drug-counter 
     transactions are changing more fundamentally and rapidly than 
     anytime in modern medical history. I suggest that your report 
     to the President reflect this fact and propose reforms that 
     protect patients from the adverse consequences of ``drug 
     switching.''
       A two-year investigation by my office has concluded that 
     health plans are now frequently intervening in the 
     prescription process, pressuring physicians and pharmacists 
     to switch medications to less therapeutically valuable drugs. 
     In addition, the approved ``drug formularies'' sometimes 
     exclude critical drugs from coverage altogether. These 
     preferences seldom have anything to do with medical 
     appropriateness. Indeed, for some individual patients, the 
     substituted drug is not as efficacious as the original 
     prescription and can lead to harmful side effects.
       While the original intent of these now widespread 
     substitution strategies was to lower costs without affecting 
     the quality of care, existing research indicates that this 
     practice results in higher overall costs. Instead of cost-
     containment, commercial interests have become the guiding 
     force behind drug preferences. Health care organizations have 
     established a variety of business relationships with drug 
     manufacturers that are shaping, and in some cases 
     compromising, drug choice. The exposure of these arrangements 
     has sounded a sudden alarm among those concerned abut the 
     independence and trust implicit in the prescription tradition 
     of American medicine.
       Five federal agencies have weighed in critically on the 
     drug switching issue in the last few years: the FDA [US Food 
     and Drug Administration], the OIG [US Office of the Inspector 
     General], the HCFA [US Health Care Financing Administration], 
     the FTC [US Federal Trade Commission] and the GAO [US General 
     Accounting Office]. The FDA recently issued draft guidelines 
     to attempt to monitor these practices. Yet it is estimated 
     that 71 percent of HMOs will have programs encouraging 
     substitutions by the end of the year.
       The American Medical Association says that the ``frequency 
     and intensity'' of HMO substitution interventions ``pit the 
     interest of patients against the economic interest of their 
     health care providers'' and have risen ``to the level of 
     harassment.'' The American College of Cardiology argues that 
     heart medications are highly specific to particular patients 
     and warns that substitutions represent ``a real and present 
     danger'' that could involve patients being switched to drugs 
     that might produce ``life threatening toxicity'' or other 
     adverse reactions. My own surveys of almost 400 New York 
     physicians and pharmacists found that 75 percent of both 
     believe substitutions are diminishing care, while almost all 
     said plans routinely contact and urge them to make 
     substitutions.
       Recent academic and governmental reports have concluded 
     that both the employer groups paying the premiums and the 
     HMOs engaging in drug management tactics are becoming 
     increasingly concerned about the care-consequences of these 
     switches. Fourteen medical journal articles have reached 
     critical conclusions, six of which suggested that these new 
     drug preference practices may be leading to extended illness, 
     more visits to doctors and emergency rooms, longer 
     hospital stays and greater total costs.
       What has galvanized this concern is the growing power of a 
     new force in drug selection--PBMs [pharmaceutical benefit 
     managers]. HMOs retain PBMs as consultants to help them 
     administer drug coverage. These companies, which have 
     overnight become billion dollar giants in their own right, 
     manage prescriptions for 115 million Americans. They are the 
     engines driving the new substitution initiatives. With 90 
     percent of HMOs now employing one form or another of pharmacy 
     management, 200 million Americans are expected to be covered 
     by PBMs by the end of the decade.
       Though the initial rationale for turning over drug 
     management to PBMs was cost containment, drug costs continue 
     to increase as a share of total health costs and faster than 
     inflation. Indeed, drug costs have risen from $21 billion ten 
     years ago to $50 billion today, and ambulatory costs for 
     drug-related problems, including reactions to PBM-induced 
     substitutions, are how estimated at $76.6 billion.
       PBMs develop the formularies, a list of covered and 
     preferred drugs, thereby determining prescription access for 
     millions of patients. They pay incentives to pharmacists to 
     get them to push doctors to switch prescriptions, and drop 
     independent pharmacists who do not engineer switches often 
     enough. PBM consultants call and visit doctors to discuss 
     specific patients and urge the use of specific drugs. They 
     impose rock-bottom prescription budgets on doctors, and 
     review the prescribing records of recalcitrant physicians to 
     make sure they make the favored drug selections. They even 
     punish patients who do not accept switches by charging them 
     higher co-pays. Yet PBMs are neither licensed as health care 
     providers nor regulated by any oversight agency.
       But PBM drug preferences are frequently of questionable 
     independence. Since 1993, the three largest PBMs, serving 
     fully 80 percent of covered enrollees, have been acquired by 
     pharmaceutical manufacturers at a total cost of $12.8 
     billion. Other manufacturers have formed ``strategic 
     alliances'' with major PBMs, paying millions of dollars in 
     rebate payments for preferential treatment on a formulary. 
     The overarching corporate purpose of these acquisitions and 
     arrangements has clearly been to increase market share for 
     certain widely used drugs. Studies have shown, for example, 
     that the manufacturer-owned PBMs are unsurprisingly pushing 
     the prime pharmaceuticals of their owner.
       PCS, for example, is the largest PBM, covering 50 million 
     lives. It was acquired by Eli Lilly, the manufacturer of 
     Prozac, in 1994. Lilly's chairman openly declared after the 
     PCS merger that ``this purchase will help us sell even more 
     Prozac.'' Internal PCS memos obtained by my office revealed a 
     plan to steer the company's managed care customers toward 
     Prozac and another top Lilly drug, the ulcer medication Axid. 
     Millions of messages would be sent to physicians and 
     pharmacists urging switches, leading to a projected, almost 
     instant, burst of $171 million in additional sales. Yet both 
     drugs cost more than effective competitors'.
       PCS hired outside experts to justify the Prozac switch. 
     Though only one of the three consultants recommended knocking 
     a top competitor, Zoloft, off the preferred list, PCS did it 
     anyway. In fact, the one consultant they followed found that 
     Prozac had the longest dose adjustment time of three main 
     antidepressants--two and a half months

[[Page E1240]]

     compared to Zoloft's five and a half days. The consultant 
     also found that Prozac produced far more side effects, 
     including headaches, sexual dysfunction, insomnia, diarrhea, 
     anxiety and agitation. Yet the PCS letter subsequently sent 
     to thousands of physicians erroneously suggested that Prozac 
     had the shortest adjustment time and fewest side effects.
       The misuse of this PCS drug utilization letter for 
     transparent promotional purposes was one of the reasons the 
     FDA recently decided to monitor drug substitutions. HCFA 
     recently reported that PCS believes that 30 percent of the 
     prescriptions written under its preferred drug program are 
     successfully switched, providing some measure of how 
     extensive this practice is becoming.
       Such drug policies influenced by commercial interests can 
     have damaging effects on care. Patients are being switched to 
     chemically dissimilar agents that are not rated as equivalent 
     by the FDA, and usually have different side effects, dosages 
     and efficacy rates. Patients stabilized on one medication are 
     also being moved to another without any clinical cause, 
     leading one doctor to label these switching strategies 
     ``massive unfunded human experimentation.'' With doctors 
     constrained by preferred lists, the many differences between 
     patients--age, ethnicity, multiple disease states--are not 
     always factored into prescribing decisions.
       Hurt most by these practices are the elderly and 
     chronically ill because they often consume daily dosages of a 
     variety of highly competitive medications. Take the example 
     of 65-year-old Clara Davis, a retired grocery store manager 
     from Bolivar, Tennessee. She lost a third of her stomach 
     after her ulcer medication was switched. Her physician tried 
     to persuade her plan not to force the substitution but it 
     insisted. While recovering from the operation she suffered a 
     paralyzing stroke.
       As we meet, several states--Maine, New York, California and 
     Virginia--are considering legislative action to protect the 
     Clara Davis' of this country and to restrict drug formularies 
     based more on commercial, rather than health, considerations. 
     But ultimately, since drug sales are obviously national in 
     scope, there must be a national policy on drug substitutions. 
     I urge you not to squander your once-in-a-generation 
     opportunity to stop this new and growing trend of HMOs--not 
     physicians and pharmacists--prescribing the pills that we all 
     swallow.
       Given how extensive and harmful managed-care-driven drug 
     substitutions have become, I urge the Commission to include 
     this language in their final report. I believe that these 
     recommendations implement the mandates of the Consumer Bill 
     of Rights on Information Disclosure and Participation in 
     Treatment Decisions:
       ``Consumers should be fully informed about all factors 
     affecting a prescription choice. Health care organizations 
     and physicians should disclose any possible side effects or 
     economic reasons for a recommended therapeutic switch. Health 
     care organizations should restrict substitutions to those 
     that are found to be therapeutically equivalent by the FDA. 
     Consumers should be free to reject these recommended switches 
     without penalty, such as the imposition of a higher co-
     payment. Consumers have the right to continue on a drug 
     regimen that has been medically beneficial for them, without 
     pressures on their physician to switch. Health care 
     organizations should make their preferred drug lists, as well 
     as formularies, available to consumers. Drug substitutions 
     should take into account the potential overall cost of a 
     change in care, not merely the comparative costs of two 
     medications in the same therapeutic category.
       ``The President should provide strong, continuous 
     leadership to improve the quality and delivery of 
     prescription drug care in the United States. The President 
     should act to eliminate all commercial interests advising, 
     selecting or influencing prescription drug treatments and act 
     to improve the health of all Americans by developing a 
     patient-specific prescription drug policy.''


                               references

                     Scientific Studies and Reports

       1. Bloom BA, Hacobs J: ``Cost-effects of Restricting Cost-
     effective Therapy.'' Med Care 23:872-80, 1985.
       2. Bootman JL, Johnson JA: ``Drug-Related Morbidity and 
     Mortality: A Cost-of-Illness Model.'' Arch Intern Med 
     155:1949-56, 9 Oct. 1995.
       3. Cromwell DM, Moore RD, Steinberg EP, et al.: ``Florida's 
     Restrictions on Reimbursement for Peptic Ulcer Disease Drugs 
     Associated with Increased Hospitalizations.'' Presented at 
     the First Annual Research Service Award trainees Research 
     Conference. Chicago; 3 June 1995.
       4. Etheredge L: ``Pharmacy Benefit Management: The Right 
     Rx?'' In: Research Agenda Brief, from a discussion by the 
     George Washington University National Health Policy Forum. 
     Washington DC; 21 May 1995.
       5. Horn SD, Sharkey PD, Tracy DM, et al.: ``Evidence of 
     Intended and Unintended Consequences of HMO Cost Containment 
     Strategies: Results from the Managed Care Outcomes Project.'' 
     Am J Man Care 2:253-264, 1996.
       6. Krelig DH, Knocke DJ, Hammel RW: ``The Effects of an 
     Internal Analgesic Formulary Restriction on Medicaid Drug 
     Expenditure in Wisconsin.'' Med Care 27:34-44, 1989.
       7. Levy RA, Cocks D: ``Component Management Fails to Save 
     Health Care System Costs: The Case of Restrictive Drug 
     Formularies.'' Washington DC: National Pharmaceutical Council 
     1996.
       8. Magid D, Douglas JM, Schwarz JS: ``Doxycycline Compared 
     with Azithromycin for Treating Women with Genital Chlamydia 
     Trachomatis Infections: An Incremental Cost-effectiveness 
     Analysis.'' Annals of Intern Med 124-389-399, 1996.
       9. Moore JM, Newman R: ``Medicaid Drug formularies: Opening 
     Closed Doors.'' Washington DC: American Legislative Exchange 
     Council 1990.
       10. Schulman KA, Rubenstein LE, Abernathy DR, et al.: ``The 
     Effect of Pharmaceutical Benefits Managers: Is It Being 
     Evaluated?'' Annals of Intern Med 124:906-913, 1996.
       11. Shulman SR, DiCerbo PA, Ulcickas ME, Lasagna L: ``A 
     Survey of Therapeutic Substitution Programs in Ten Boston 
     Area Hospitals.'' Drug Info J25:41-52, 1992.
       12. Sloan FA, Gordon GS, Cocks DL: ``Hospital Drug 
     Formularies and the Use of Hospital Services.'' Med Care 
     31:851-867, 1993.
       13. Smalley WE, Griffin MR, Fought RL, et al.: ``Effect of 
     a Prior-authorization Requirement on the Use of Nonsteroidal 
     Antiinflammatory Drugs by Medicaid Patients.'' N Engl J Med 
     332:1612-7, 1995.
       14. Soumerai SB, Ross-Degan D, Fortess EE, Abelson J: ``A 
     Critical Analysis of Studies of State Drug Reimbursement 
     Policies: Research in Need of Discipline.'' Milbank Quart 71 
     (2):217-252, 1993.
       15. Soumerai SB, McLaughlin TJ, Ross-Degan D, Casteris CS, 
     Bollini P: ``Effects of Limiting Medicaid Drug-reimbursement 
     Benefits on the Use of Psychotropic Agents and Acute Mental 
     Health Services by Patients with Schizophrenia.'' N Engl J 
     Med 331:650-655, 1994.
       16. Soumerai SB, Lipton HL: ``Computer-based Drug-
     utilization Review: Risk, Benefit, or Boondoggle?'' N Engl J 
     Med 332:1641-5, 1995.

                     Federal Government Agencies--

               United States Food and Drug Administration

       1. ``Guidance for Industry: Promoting Medical Products in a 
     Changing Healthcare Environment; I. Medical Product Promotion 
     by Healthcare Organizations or Pharmacy Benefits Companies 
     (PBMs)''. Docket No. 97D-0525) 1998.

                United States General Accounting Office

       1. ``Pharmacy Benefit Managers: Early Results on Ventures 
     with Drug Manufacturers'' GAO/T-HEHS-96-85 (Nov. 1995).

           United States Health Care Financing Administration

       1. ``Assessment of the Impact of Pharmacy Benefit 
     Managers.'' HCFA-95-023/PK (September 30, 1996).

               United States Office of Inspector General

       1. special fraud alert issued by OIG (August 1994).
       2. ``Experiences of Health Maintenance Organizations with 
     Pharmacy Benefit Management Companies.'' OIG-01-95-00110, 
     April 1997.

                        State Attorneys General

       1. In the Matter of the Upjohn Company: Assurance of 
     Discontinuance/Assurance of Voluntary Compliance. Entered by 
     the State Attorneys General of Arizona, Iowa, Minnesota, 
     Missouri, New York, North Carolina, Texas and Wisconsin, July 
     1994.

                     Medical and Healthcare Groups

       1. American College of Cardiology: ``Position statement: 
     Therapeutic substitution.'' 22 Feb. 1988.
       2. American College of Physicians: ``Position paper: 
     Therapeutic substitution and formulary systems.'' Annals of 
     Intern Med 113-160-2, 15 Jul. 1990.
       3. American Medical Association: ``AMA policy on drug 
     formularies and therapeutic interchange in inpatient and 
     ambulatory patient care settings.'' Am J Hosp Pharm 51:1808-
     10, 1994.
       4. American Pharmaceutical Association: ``Statements at the 
     Food and Drug Administration's Hearing on Pharmaceutical 
     Marketing and Information Exchange in Managed Care 
     Environments.'' 19 Oct. 1995.
       5. National Association of Chain Drug Stores: Petition to 
     the Federal Trade Commission (12 Jun. 1996).

                        Legislative Initiatives

       1. California Senate Bill 625 (Senator Rosenthal), passed 
     the Senate, in the House. California Assembly Bill 1136 
     (Assembly member Brown), passed in Senate and House, died in 
     Conference Committee, Nov.30, 1996.
       2. New York State Assembly. Hearing held by the Standing 
     Committees on Insurance and Health, New York City: May 1, 
     1997
       3. Virginia Senate Bill No. 1114, as amended, 1997.

                               Litigation

       1. Pfizer v. PCS, No. 96-126154 (S.D.N.Y. filed Oct. 1995).

       

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