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About FDA

Transcript of Pharmaceutical Marketing and Information Exchange in Managed Care Environments - Panel 3


Friday, October 20, 1995

8:35 a.m.

Quality Hotel
3727 Colesville Road
Silver Spring, Maryland




MS. PEDERSEN: I think, with that, let's turn to the first panel. Mr. Jay?
DR. JAY: Yes.
DR. LANG: Yes.
MS. PEDERSEN: Ms. Dichter?
MS. PEDERSEN: And Mr. Lofberg?
MR. LOFBERG: Yes, and I am accompanied by Russel Teagarden, who is our chief pharmacist.

MS. PEDERSEN: Thank you. Our first speaker will be Mr. Jay.

DR. JAY : Good morning. I am going to read through my comments so we can get through this fairly quickly.
My name is Richard Jay. I am employed by FHP, Inc., as vice president of Corporate Pharmacy Services. The Group Health Association of America requested that I present today on behalf of the issues under consideration by this panel. I do wish to clarify that though FHP is a member of GHAA, our views on these issues do not necessarily represent those of GHAA or any other members of that organization.
I do not believe that either myself or my organization have any financial interest in the topic to be addressed. Our organization does, however, receive support from pharmaceutical companies on occasion to sponsor a continuing medical education program and drug information resources. My travel today was paid for by my company.
MS. PEDERSEN: Thank you.
DR. JAY: By way of background, FHP is a mixed model group, an IPA model HMO providing medical and pharmacy benefits to approximately 1.4 million commercial members in 11 states and about 400,000 Medicare risk senior patients. My department has primary responsibility for pharmaceutical contracting, the formulary development process, and drug utilization review activities throughout the company.
I think it is fair to say that the issues under discussion here are complex and pose several interesting dilemmas. On the one hand, I believe that access to valuable and meaningful outcomes, cost-effectiveness information spanning entire episodes of medical care could prove extremely valuable. Such information provided by a pharmaceutical company could lead to improvement in quality and reduced cost for a managed care organization, as well as the health care industry in general.
However, because of the diverse audience for this type of information with varying levels of sophistication, I feel that it would be wise and prudent to establish basic standards and guiding principles to assure objectivity and clarity in the presentation of such information. It is equally important, however, that the standards do not become overly burdensome and costly for the pharmaceutical industry to comply with.
Regardless of what is ultimately decided with respect to the way the kinds of information in question are communicated, it is incumbent upon the managed care organization itself, or other recipient of the information, to develop systems internally, structures and processes by which they can evaluate this information internally, so that they can come to their own meaningful conclusions on drug therapy decisions.
Over the next several minutes I would like to briefly address the following points: Number one, the changing landscape of pharmaceutical industry marketing and promotional efforts; FHP's relationship, traditional relationship, with the pharmaceutical industry; how we as an organization evaluate drug therapy information for our members, including information provided by the pharmaceutical industry; and, finally, the types of cost effectiveness data that we would like to see going forward from the industry.
A little bit about the landscape. I'm sure this is no news to anybody here. Underlying today's discussion is the realization that the drug product promotional landscape has changed. The physician is no longer the center of the universe or the central marketing focus. Because of the growing significance of HMOs as payers, promotional efforts have been broadened to include managed care administrators.
This involves not only pharmacy and medical directors within managed care organizations, but other key decisionmakers as well, including sales and marketing executives, chief financial officers, and other key non-technical decisionmakers within the managed care organization. Obviously, also employer groups and patients themselves are being targeted by the pharmaceutical industry through direct consumer advertising.
Traditionally I think the physician was primarily interested only in the therapeutic usefulness of the products being promoted to them, and were typically isolated from the economic consequences of their prescribing decision. The rising cost of health care has created a new dimension in drug therapy evaluation which includes not only considerations of safety and efficacy but cost effectiveness and ultimate value of the pharmaceutical, as well.
FHP's relationship with the pharmaceutical industry, I would characterize that relationship as somewhat circumspect, but can vary considerably from one manufacturer to the next. With many companies we have developed a strong and synergistic customer-supplier relationship where each party understands and respects the other's business and company cultures. Those companies with whom we enjoy a good working relationship understand and work in close accordance with our policies governing product evaluation, promotion, and access to our physicians.
There are, however, a small number of companies that work to circumvent or subtly undermine these policies. Examples include marketing to non-technical decisionmakers within the organization when the pharmaceutical companies are unable to achieve their objectives through the appropriate channels of communication, or misrepresenting our policies when these policies preclude or limit the use of their particular drug.
The most extreme examples of this type of behavior include instances where drug company-sponsored speakers have openly disparaged our formulary choices to our physicians, and also offering unsolicited invitations to members of our Pharmacy and Therapeutics Committee to attend specialized manufacturer-sponsored training sessions on their particular drug, in hopes of influencing formulary inclusion of their product.
Fortunately, this type of behavior is the exception rather than the rule, but does give pause and reinforces an element of skepticism in our relationship with the pharmaceutical industry. It is simply the nature of our respective businesses, and I understand that, that some conflict in goals and objectives is inevitable. But I feel that such skepticism is, however, a healthy part of any scientific or economic debate.
Number two, how we evaluate information provided by the pharmaceutical industry and how we evaluate drug therapy decisions in general. FHP, like many managed care organizations, has developed a process for evaluating these drug therapy choices. This responsibility is institutionalized through our Pharmacy and Therapeutics Committee
The committee consists of physicians and pharmacists. This includes pharmacy directors, clinical pharmacists, medical directors, and practicing physicians, and various advisory members to the panel.
The prime responsibility of the committee is to decide formulary choices and to evaluate drug utilization patterns within the organization. Formulary inclusion criteria involve comparative safety, efficacy and cost evaluations for the medications under evaluation. Guidelines are also established by the committee for the provision of non-formulary drugs as plan benefits, where appropriate.
As a rule, we do not rely on specific product-related information provided by the pharmaceutical companies when evaluating either therapeutics or cost effectiveness. These issues are generally addressed through literature review and the input of various internal physicians within our staff with specific expertise in those areas.
The type of informational support from pharmaceutical companies that we do find useful, however, involves access to on-line third party reference databases that they may be able to provide to us, and any other drug information resources that they have at their disposal that are of a general nature. It is our feeling that objectivity is best maintained when we operate in this fashion.
A little bit about cost effectiveness data that we would to see, going forward. As I have mentioned previously, cost effectiveness data could prove very valuable indeed in guiding more meaningful formulary decisions.
The issue for our organization is not really a matter of more or less restrictive access to cost effectiveness or outcomes data. More important is the kind of knowledge and conclusions that we can glean from this information.
Typically, the kinds of cost effectiveness data presented to us by the pharmaceutical industry represent comparisons within very closely related therapy classes or between two very closely related therapeutic entities, for example, one calcium blocker with a similar agent within that class. It would have more meaning for our organization if these comparisons were made with other interventions, such as lifestyle modifications or comparisons with proven, less expensive alternative drug therapies, for example, comparing a calcium blocker with a thiazide diuretic in the treatment of uncomplicated hypertension.
As an HMO in the health system in general, we need to know whether greater value can be expected elsewhere to offset, in the case of a thiazide versus a calcium blocker, a 40- to 50-fold difference in ingredient cost. This would be extremely worthwhile information, and this is just one example of many.
I will close by saying that the challenge before us is to provide greater access to truly meaningful information that will not be prohibitively onerous for the pharmaceutical industry to produce. I am not in favor of more regulation. Perhaps through a collective effort between the FDA, the managed care industry and the pharmaceutical industry, perhaps we could develop workable standards that everybody can live with.
I want to thank you for the opportunity to present today. Thank you.
MS. PEDERSEN: Thank you, Mr. Jay.

Mr. Lang?

MR. LANG : If someone could turn on the slide projector, please?
My name is James Lang, from Ann Arbor, Michigan. I work for ValueRX, which is a pharmacy benefit manager owned by Value Health. These are my own views being expressed today, but I do work for and my expenses today were paid by ValueRX. We are engaged in managed care and receive revenues from managed care organizations, and I do have a financial interest within Value Health.
MS. PEDERSEN: Thank you.
MR. LANG: My goals today are to describe to you the pharmacy benefit manager drug evaluation process, and the types of efficacy and pharmacoeconomic data that we review, and the types of data that we need that is primarily unavailable.
In this marketplace there has been a substantial concentration of lives, and from my perspective that is really an improvement because we have a substantial increase in the sophistication of the clinical evaluation, and there is -- amortization of clinical expertise across a larger number of lives allows us the luxury of having a great deal of sophistication in our review process.
As well, on the other side of the table, a concentration of buyers allows the pharmaceutical manufacturers to involve us with a greater degree of expertise when dealing with those individuals. And a third leg, the buyers of these services, managed care services, are increasingly sophisticated as well, with employer alliances, and larger employers having a great deal of sophistication.
I would just like to review quickly the types of benefit decisions and types of programs that we do drug evaluation for. Basically, we do benefit coverage decisions which decides whether we should in fact cover a drug for a particular indication; prior authorization type programs, deciding whether we should cover for a particular indication; formulary programs; treatment guidelines; stepped-care therapy recommendations; pharmacy, patient, and physician education programs; disease management programs; therapeutic intervention programs; and medical necessity review programs.
The type of evaluation process that we use involves generally a literature search, a data-gathering process which would involve requesting information from manufacturers, an internal review process, an external review process, and when it is involving a managed care client, we involve their review process as well before the program is put in place.
The types of evaluation criteria that we use include efficacy, safety, side effect profile, risk-benefit information, pharmacoeconomic information. We evaluate the product relative to its current formulary category and what drugs are on formulary. As well, in some cases where there is are not a lot of drugs in a particular category, we certainly take patient need into account, and outcomes and quality-of-life studies.
One of the areas that we lack good information in is comparative data within class and between classes regarding efficacy, safety, side effect, risk and benefit, and particularly pharmacoeconomic and outcomes and quality-of-life studies.
The types of internal expertise that are available within my company with which to review this information include study design and statistical evaluation, pharmacoeconomics expertise, outcomes expertise. All the people on our staff either have general clinical background or an implied clinical research expertise. As well, the large majority of them are pharmacists, and some physicians.
Our external review process includes our ValueRX National Pharmacy and Therapeutics Committee, and our Managed Care Client Pharmacy and Therapeutics Committee when that committee is available. Our National Pharmacy and Therapeutics Committee is made up of independent consultants. They are not ValueRX employees. They are primarily physicians, with some pharmacists included, and include many, many nationally recognized experts. The types of categories of specialty expertise that are on that Pharmacy and Therapeutics Committee include these specific areas (Slide).
The types of information that we put before that group and evaluate internally include Phase 3 and Phase 4 and post-marketing clinical trials; manufacturer-supplied information; when available, academic clinical trials; medical texts; drug compendia; articles from peer-reviewed and scientific publications; presentations and proceedings from medical meetings; and, if available, national benchmarks and published guidelines.
The problem with much of this information, from our perspective, is that the clinical trial data in particular is of an artificial environment and not a real life situation, which makes it very difficult to make decisions that impact real life utilization of the drugs; and including strict inclusion and exclusion criteria that don't really categorize or adequately describe the population that these drugs are going to be used in; and, in particular, no comprehensive pharmacoeconomic data is included.
The types of pharmacoeconomic -- the situation in our environment for pharmacoeconomic evaluation is really very, very limited data is available, considering the broad number of categories that need to be evaluated. The reality of the fact is that managed care makes pharmacoeconomic decisions on a daily basis, and because the data is unavailable, oftentimes treat this in a cost minimization mode where they treat most drugs as if they were equivalent, which may or may not be the case.
The types of information that we really need are more realistically designed outcome studies, with economic data included and involving a broader category of costs and scope of costs, and then particularly outcome for all patients, and the cost of treatment failures and the cost of that therapy that is required because of that treatment failure.
In addition, in order to make our job easier, because we have a great deal of decisionmaking that needs to occur particularly right around the launch of a product and in the first 6 to 12 months of that product being available, it would help us very much to have more pre-launch information available, access to unpublished articles, in some circumstances potentially FDA submission data, certainly access to economic models, and more information on off-label information.
Thank you very much.
MS. PEDERSEN: Thank you, Dr. Lang.

Our next speaker will be Elizabeth Dichter.


MS. DICHTER: Thank you very much. My name is Elizabeth Dichter. I am executive vice president of PCS Health Systems in Scottsdale, Arizona. I am here representing my views and the views of PCS Health Systems, who pay my salary and paid my travel to this meeting. PCS is a subsidiary of Eli Lilly.
Today PCS provides managed pharmaceutical care, on behalf of the major health plans, insurers and employers in the United States, to over 55 million individuals. We actively intervene by communicating, to physicians, pharmacists and patients, information about the cost effectiveness and quality of care and the utilization of drugs by these individuals.
PCS provides communication and information to its customers and their providers, informing them about patient utilization, quality of care, relative costs, and the possible consequences and side effects of drugs. Today PCS has been successful, as a result of these processes, in reducing excess pharmaceutical costs between 10 and 20 percent for its customers, avoiding life-threatening and iatrogenic health consequences through our drug utilization reviews and alert messages to pharmacists and physicians.
To this date, we have transmitted over 100 million alerts about possible harmful drug situations, since the beginning of our computerized programs six years ago. We also provide ongoing information to physicians and patients about appropriate drug use and patient compliance with prescribed medications.
In all of those situations, in the situations where we discuss with physicians and patients cost-effective pharmaceuticals, we seek out the patient's and the payer's permission first. We also help physicians decide on the most cost-effective choices for their patients.
In the near future PCS and its customers will operate even more comprehensive systems of real-time health information and education for physicians at the point of care and for pharmacists at the point in which they counsel patients, including information for patients and their families in their own homes as they manage their own chronic health conditions. We, in concert with our customers, are developing on-line real-time communication and computerized systems for physicians, as the managed care systems move to increase the amount of information available to physicians at the point of care.
PCS is part of the growing managed health care system. Pharmaceutical benefit management companies are just one part of the managed care revolution. Today over 50 million Americans are members of health maintenance organizations, and the expectation that millions more will be enrolled in the next few years.
Most of the HMOs that serve these people use interventions and processes identical to those of PCS, and I think you have heard testimony from the first speaker that corroborates that. These systems of intervention and evaluation of cost effectiveness of drug utilization were actually employed 10 and 15 years ago in medical treatment.
They have produced major advances in the treatment of health care for millions of individuals, including reductions in excess surgeries, hospitalizations, average lengths of stay, improvements in preventive screening, and infant health and child health care and prenatal care for members of health maintenance organizations. The benefits of these and the same principles applied in HMOs to physician and hospital care are really now what is being applied by PBMs or pharmaceutical benefit management companies.
As such, PCS customers have experienced significant improvement in their pharmaceutical care, including the increasing use of FDA-approved generic pharmaceuticals, selection of lower cost alternatives in branded medications, as well as the prevention of negative side effects by the intervention through the computerized system to pharmacists and physicians. These interventions were modeled after managed care systems and are based on reducing excess and unnecessary costs.
PCS, as such, acts as the agent of its customers -- the payer, the health plan, or the employer -- creating, if you will, an HMO-without-walls environment whereby all the costs and quality advantages of HMOs that themselves utilize many of the same processes as PCS, as a PBM, internal to their HMOs, are deployed by PCS in other settings, including indemnity and fee-for-service systems.
These HMOs and PCS itself develop self-regulatory mechanism that involve communication and education to physicians. We believe that the type of regulation envisioned by the FDA is being employed today in many of the managed care settings in a self-regulatory environment, with significant safeguards and checks and balances that already exist, and I would like to give you some examples of those.
PCS and its customers agree on the formulary and preferred drugs and the utilization and disease management intervention protocols used with every single physician and every single patient. PCS then implements and manages these through its ongoing education and communication and computerized messaging systems.
The pharmacists who intervene on behalf of PCS and the managed care plans are compensated by the savings that the payers receive. As an agent of the health plan, PCS discloses to its customers, who in turn inform its members and pharmacists about the drugs deemed most cost-effective and therefore recommended to be used.
Our customers are the largest health care payers and employers in the United States. The organizations range from 50,000 members to 4 million. These organizations are currently managing from $50 million to $4 billion in medical expenditures -- physicians, labs, and drug services.
The customers themselves already have tremendous knowledge and expertise about health care and how to promote improvements in health services delivery. The payers and employers that PCS serves aggressively compare the relative effectiveness of various managed care systems, including PBMs that compete to enroll and to provide their populations with managed care services.
This competitive environment is quick to unmask self-serving or lesser value products and services. It scrutinizes potential conflicts of interest among its providers or service organizations. As an example, there is a vast number of benefit consultants who now assist self-insured employers, insurance companies and HMOs in the selection of pharmacy benefit management organization.
These consultants analyze formularies, the preferred drug list, the rebate and pricing arrangements, the drug utilization review programs that are proposed to be deployed by the PBMs that will serve these large managed care organizations. Special attention is given to those drugs that are manufactured by the parent companies of the PBMs.
PCS welcomes this scrutiny, because our processes that develop and implement our formulary and clinical interventions are peer reviewed by major academic institutions, by consultants, by our customers' medical staffs, by the staffs of their P&T committees, and through the competitive process itself.
We also believe that there is a new climate emerging for payers and providers of managed health care, an increased focus on cost-effectiveness and the outcomes of care. Fueling this revolution today that is extending throughout the entire managed care delivery system is the increased flow of information, analysis, and health services research and ongoing communication about patient treatment and the outcomes of care.
This is not unique to the pharmaceutical component of health care, but it is growing as a portion of evaluation of all of medical services today. By example, this information is essential, the information on outcomes and quality of care, to the operation of the services of PCS and other PBMs, especially to that of drug utilization review programs, a critical component of pharmaceutical care.
We are concerned, and we would welcome the extension of the application of these programs to more populations. By example, a recent GAO study found that older Americans, who use more drugs than any other age group, experience significant problems in the inappropriate use of those drugs. It is estimated that excess hospitalizations due to inappropriate drug use range from a cost of $20 billion to $70 billion annually.
PCS's drug monitoring systems, which communicate potential drug interaction to pharmacists and physicians, and rely on the open and continuing access to information about drug efficacy and effectiveness, generated in 1994 over 25 million alerts to pharmacists and physicians, and about 25 percent of those dealt with drug/age contraindications and excessive daily doses.
This system might not be possible if the regulatory scheme being considered by the FDA today were in existence. Our largest concern is that systems such as this are not available to the higher risk populations, the elderly, in a universal manner the way they are available to PCS customers today.
A study published by the Archives of Internal Medicine, conducted at the University of Arizona College of Pharmacy, maintains that pharmaceutical care, managed pharmaceutical care, may provide the basis on which health care professionals can make an impact on drug-associated negative therapeutic outcomes. The study further states that pharmaceutical care should be provided to patients in the same way that medical and nursing care attempts to achieve optimal therapeutic outcomes.
PCS is providing such pharmaceutical care and is part of the major changes occurring within the U.S. health care system. The value and improvements PCS has already shown, and will continue to bring to patients and the health professionals that treat them, depend on the open and continuous availability of health information from all sources.
We believe that there is no need for additional regulation of managed care providers such as PCS, and that regulation contemplated by the FDA would single out one part of the managed care industry to the detriment of patients and health care providers in society.
Thank you for this opportunity to present our position.
MS. PEDERSEN: Thank you, Ms. Dichter.


Mr. Lofberg?

MR. LOFBERG: Good morning, Madam Hearing Officer and panel members. My name is Per Lofberg, and I am president of Medco Containment Services. My address is 100 Summit Avenue in Montclair, New Jersey, and the views I am going to testify to are definitely my own views, but I think they are also shared by my employer, both Medco Containment Services and our parent company, Merck and Company. I will be reimbursed for my travel expenses by Merck, I expect.
As you know, Medco has been owned by Merck since November, 1993. As a provider of managed prescription care, Medco has a very direct stake in the outcome of these hearings, and we appreciate the opportunity to appear before you today to share with you our thoughts on communications in the managed care market.
Specifically, I intend to describe that we act on behalf of our plan sponsor customers, not on behalf of any health care provider or supplier; that we operate in a highly competitive market, where to succeed we must operate in the best interest of our customers. I will describe the policies Merck and Medco have established to ensure Medco's independence, and that because of these factors, FDA regulations are not needed in the managed pharmaceutical care marketplace.
As someone who has worked in the pharmacy benefits management business for almost 10 years, I can tell you that to succeed in our market -- that is, to retain customers and win new ones -- we cannot act or communicate on behalf of pharmaceutical manufacturers or any other provider of health care goods and services. We do not sell pharmaceuticals. We provide our customers with a service, which is prescription benefit management.
To be successful, we interact and communicate with health care providers, including pharmaceutical manufacturers, for the benefit of our plan sponsor customers. These customers are typically Fortune 500 employers, unions, Blue Cross and Blue Shield plans, insurance carriers, HMOs, public employee health and retirement programs, and federal, state and local governments.
The market for managed pharmaceutical services is highly competitive, and the sophisticated buyers and consultants who purchase these services work aggressively to ensure that providers of such services bring the greatest possible benefits to plan sponsors. Health plan sponsors select firms that provide managed care services, including managed pharmaceutical services, by issuing requests for proposals.
If plan sponsors or their consultants perceive that a managed care provider is not acting in the best interest of the plan sponsor, they have ample opportunity to correct the situation by choosing another provider. Both Merck and Medco are acutely aware of this market dynamic, and we have taken specific steps to preserve Medco's independence from Merck.
So what kinds of services do buyers of managed pharmaceutical care want? During my career with Medco, the answer to this question has continually evolved. Today the rate at which customer requirements are changing is accelerating, and the nature of the change taking place is more profound than ever.
Not long ago, our customers primarily demanded programs that would enable them to control the unit and transaction costs of their prescription drug plans. Our core competencies developed to meet those requirements and those capabilities are still fundamental to the services we provide to our customers.
We manage the expense of their benefits by reducing the cost or the rate of increase. We consult with clients on the design of complex benefit programs, administer those programs through our mail service and retail pharmacy networks, and provide performance reports.
Formularies have become a key part of our programs. Until the late 1980's, formularies were a tool available only in hospitals and some HMO settings. Medco and its competitors brought formularies to the managed indemnity sector of the health care market. Our clients have benefitted from the clinical expertise that goes into the development of a formulary and the price competition it engenders, particularly among single source branded drugs.
Several years ago we introduced formulary management programs to help our clients increase their savings. In these programs, we inform physicians that a patient's health plan has adopted a formulary, and that the plan will realize an overall savings if a generic or a particular branded drug is appropriate and can be prescribed for that patient.
In addition to these programs, we also provide clients and health care providers with information and guidelines relating to prescription drug use. For instance, in our mail service pharmacies, in keeping with the requirements of OBRA '90, we distribute patient package inserts, PPIs, with almost every new prescription we dispense. These PPIs, which are prepared by the USP, educate patients in simple, understandable language on what a medicine is for, how to take it, what to do if a dose is missed, other drugs and foods to be avoided, side effects, and other important information.
Our retrospective drug utilization review system flags patterns for prescription drug use that are inconsistent with sound medical practice, and communicates recommendations to physicians. One such program, our Optimal Therapeutics Program, uses the educational tenets pioneered by Dr. Jerry Avorn at Harvard Medical School to educate physicians about optimal practice in a wide range of disease areas. The Optimal Therapeutics Program is the first of its kind in the Nation to receive AMA certification for CME credit.
These examples give you a sense of the types of information our customers demand and how we provide it. The types of services and information I have just described are also being provided by a wide array of other health care organizations in today's market.
In fact, every organization that provides prescription drugs as part of a health benefit package must make a decision to either provide prescription drug benefit management services directly or to contract with another managed care organization to provide them. Most employers, whether they are fully insured or self-insured, have opted to buy prescription drug services either through their medical health plan provider or through a carved-out prescription drug benefit.
There are 40 to 50 pharmacy benefit managers like Medco that perform all or most of these activities. So do staff and group model HMOs, such as Kaiser and Harvard Community Health Plan, and managed care organizations, such as Humana and Foundation Health Plan, that have opted to build an internal capability, purchasing drugs directly from manufacturers, operating their own staff pharmacy sites, and employing pharmacists. Even firms traditionally thought of as electronic data interchange vendors, such as First Health, EDS, and Unisys, perform some of these activities.
Hospitals are another example. They have long employed formularies and generic preference programs on the inpatient side of their business, but often contract out for management of their outpatient pharmacy requirements.
Regardless of whether the benefit is being provided internally or managed externally, there is a core set of services that must be provided to manage a prescription drug benefit. Benefit design, member cost sharing, and drug coverage decisions must be reached.
The ability to process drug claims on a point-of-service basis must be present. There must be an ability to control drug costs through the use of compliance initiatives designed to encourage the use of formulary and generic drugs. There must be sophisticated abilities to review drug claims at point-of-service for drug interactions, misuse and abuse, and to provide other clinical safeguards.
There must be an ability to analyze how physicians are prescribing drugs into the payor's plan, how pharmacies are filling those prescriptions, and how members are using their benefit. There must be the ability to organize and manage community based pharmacy networks. In many cases, an optional mail service component is required for maintenance drug users. Finally, there must be an ability to communicate to all health care providers information on current, generally accepted medical practice.
Subsequent to the acquisition, we carefully evaluated how Merck and Medco would interact on a day-to-day basis. Based on that evaluation, we established two sets of strict policies. One ensures that the content of Medco's clinical programs are developed independent of influence from any manufacturer. The other requires that product communications by Merck employees with Medco employees generally conform to the same rules and regulations that govern the communications that Merck employees have with any other health care provider or organization.
As I said before, both Merck and Medco understand the importance the market places on Medco's independence and are committed to preserving it.
Just as was the case prior to our merger, all drugs on Medco's formularies, including Merck, continue to be reviewed by an independent Pharmacy and Therapeutics Committee. No one from Merck or Medco or from any other manufacturer serves on that P&T Committee. Rather, it is composed of board-certified physicians in teaching settings with clinical practice. We have included brief biographies on each of the P&T Committee members with the written copies of my testimony.
Medco has also established independent medical advisory boards for our disease management programs. We will gladly provide the panel with details on the members of those boards if you would like this information.
We rely on the independent P&T Committee to advise Medco on clinical issues associated with formulary development, such as whether a drug must be added to the formulary, whether a drug should be deleted, or whether it believes drugs in a class are sufficiently similar therapeutically so that not all drugs in that class need to be on the formulary. In communicating clinical data to Medco, Merck and other pharmaceutical manufacturers must adhere to the FDA requirements for manufacturers.
The P&T Committee does not make economic decisions. Once it renders its clinical opinion, it is Medco's job to determine how to achieve the savings that will cause prospective clients to want to use Medco instead of our competitors.
In conjunction with our independent P&T Committee and other independent committees of physicians, we have developed prescribing protocols which establish a common approach to specific diseases. These protocols act as a guide for programs in specific disease areas.
FDA labeling for prescription drugs is part of the information available to these committees when medical practice guidelines are established. However, information from peer review literature, consensus standards such as those reported by medical societies or the National Institutes of Health, and the information on how pharmaceuticals are used in day-to-day practice is also given consideration by the committees.
Increasingly in today's market we are not focusing solely on prescription drug use, but rather on behavior modification and disease management activity, in order to provide our clients with services that manage clinical outcomes and control overall health care cost. As a result, we are compiling and furnishing a wide range of medical information to plan sponsors and health care providers.
To ensure that the clinical components of our programs are prepared independently and are not controlled by any particular health care provider or supplier, including Merck, each of our clinical programs is based on the consensus expert opinion of our independent P&T Committee or an independent medical advisory board. Our clinical recommendations and guidelines are derived from a number of sources.
For example, our diabetes disease management program takes into account the diabetes control and complications trial which was supported by the National Institute of Diabetes and Digestive and Kidney Diseases, the National Heart, Lung and Blood Institute, and the National Eye Institute. Furthermore, our diabetes disease management materials are approved by independent boards of diabetes experts.
Given the growth of managed prescription drug services and the variety of health care organizations that are now providing these services, is there a demonstrated need for FDA regulation of communication, and does pharmaceutical company ownership of a provider of PBM services necessitate FDA regulation? For a number of reasons, I do not believe so.
First, we act on behalf of our plan sponsor customers, not on behalf of any manufacturer, including Merck. Our responsibility is to work with clients to help them maintain the affordability and quality of their medical and drug benefits. In performing that function, it is essential that we stay abreast of generally accepted medical practices and incorporate that information in our communications with physicians, pharmacists and patients.
Second, the dynamic market I have described is highly competitive and is driven by sophisticated buyers and consultants. Those who do not meet customer needs do not succeed. Ultimately, the marketplace ensures that we conduct our business in the best interest of our clients.
Third, Medco operated independently before its acquisition by Merck and we continue to operate this way today. Merck and Medco have established policies that are actively enforced to maintain that independence. Furthermore, to ensure Medco's independence from all health care providers and suppliers, Medco has established policies requiring that its clinical programs be based on the recommendations of an independent P&T committee and independent medical advisory boards.
Finally, pharmacy benefit management programs are making a significant contribution to holding down prescription drug costs, so that benefits and coverage do not have to be reduced or eliminated. We are proud of the cutting edge role we have played in reducing and controlling costs of prescription drugs, while providing our clients with a greater understanding of how to use prescription drugs to improve the health of millions of people. The value we provide should not be diminished by unnecessary regulation.
For all these reasons, the FDA should not assert regulatory jurisdiction in this area.
I would be pleased to answer any questions you might have. I am accompanied today by Russel Teagarden, who is our chief clinical pharmacist at Medco.
Thank you.



MS. PEDERSEN: Thank you, Mr. Lofberg.
Could we have the lights up, please?
Are there questions from the FDA panel? Ms. Baylor-Henry.
MS. BAYLOR-HENRY: I would like each of the panelist to answer a question that was raised in the Federal Register notice: How should FDA address methods employed by pharmaceutical manufacturers to switch patients from one drug therapy to another similar product?
And I would particularly like you to also address whether or not there should be any kind of disclosure statement made regarding the relationship between the pharmaceutical company and the PBM.
MS. PEDERSEN: Shall we start --
MS. BAYLOR-HENRY: We can start with the representative from Medco.
MR. LOFBERG: Let me start with the last point. We do provide disclosure in our formulary compliance communication, with respect to both Medco's ownership by Merck and with respect to the manufacturer of any drug that is being recommended to a physician in a formulary compliance communication, regardless of whether it is manufactured by Merck or any other manufacturer. So that is just the answer to your question about disclosure.
I think the broader question, I think has to do with the savings that plan sponsors can get from adopting a formulary as part of their benefit program. And in many ways I think this is analogous to many of the managed care efforts that plan sponsors throughout the country have been engaged in for many years now, where one of the principal opportunities for savings has been to narrow down or to try to focus the plan members and the providers on selected provider arrangements where there are discounts available.
So, for example, physicians form PPO arrangements to participated in a managed care plan. Hospitals form PPO networks, pharmacies form PPO networks, and so forth. Likewise, within the formulary approach, the discounts that are made available by pharmaceutical manufacturers in order to participate in a formulary are a critical ingredient in generating savings for the customers.
Obviously, those savings would only come if the providers and the patients eventually end up using the drugs that are on the formulary, so the communication that has to take place in a plan is really directed to trying to encourage the use of those drugs that have savings available to them for the plan sponsors, and it is really directed on behalf of the plan sponsors to obtain those savings. It is not directed by the pharmaceutical manufacturer.
MS. BAYLOR-HENRY: I would like to hear from the other PBMs, but may I probe a little bit more?
MS. BAYLOR-HENRY: Thank you.
Would you just procedurally explain how you go about doing this? You have a patient that enrolls in the PBM plan with Medco and they are on, let's just say, an H2 receptor antagonist, and you are going to switch them to another H2 receptor antagonist that is part of your formulary. Would you walk me through the steps that you would go through to make this happen, particularly the communications with the patient?
MR. LOFBERG: Right. I think the best place to start is probably with the design of the formulary in the first place, and that begins with a clinical review of really all of the products available in the category, with a view to making an evaluation of what the necessary requirements are from a clinical standpoint.
Our P&T Committee that I described earlier in my testimony then evaluates all of the compounds in that particular category to try to determine which drugs really have to be on the formulary for clinical reasons, which drugs should be excluded from the formulary for clinical reasons and, thirdly, which drugs fall into a category where it is possible to eliminate some of the products without any harm to the quality of the health benefit program. So that is the first step.
We then at Medco look in that third category at the types of contractual arrangements that could be available from pharmaceutical companies in order to include them in the formulary, and what types of discounts we can negotiate with them to offer savings to our customers. So the formulary is designed, really, with that in mind, that first the clinical parameters are established, and then within that category of therapeutically comparable drugs we look for what types of arrangements can be negotiated to generate savings.
Then when the program is endorsed by the P&T Committee and ultimately endorsed by our customers, it gets implemented in the day-to-day pharmacy practice. If, for example, a prescription is presented to a pharmacist, either a retail pharmacist in the community or to one of our mail service pharmacists, typically the system will trigger that this is a non-formulary drug that should be considered for a potential change to a formulary drug.
The first thing that takes place is a clinical review of that patient's profile, to really evaluate whether there is any reason why the patient shouldn't be considered for a change to the formulary drug. There might have been something in the prior history or some other drugs that the patient is taking that, you know, would really disqualify this particular candidate for a change to a formulary drug.
But if that hurdle is passed, so to speak, then typically the pharmacist places a call to the physician and asks the physician if the physician is comfortable, from a clinical standpoint, to consider changing the prescription to a formulary prescription. The physician always has the final say, but many times the physicians do agree with that particular suggestion, and then a new prescription is entered into the system for the formulary drug.
When that happens, a follow-up letter goes to the patient. If the patient is one that is served through our mail service pharmacy, we simply inform the patient that the physician has authorized a change to a formulary drug, and that there is a savings to the plan and sometimes to the patient as a result of that. The patient then has the ability, if they want further information or if they want to disagree with this particular change, to contact us, and we can then proceed from there.
If the patient is served through a retail pharmacy, the letter to the patient indicates that the physician has authorized a change to the formulary drug, so that the next time the patient goes back to the retail pharmacy, he or she presents the letter to the pharmacist, and they can then identify that this is a pre-authorized change from the physician. They will contact the physician and receive a new prescription over the phone into the retail pharmacy, and the patient receives a formulary drug as a result of that.
That is, in short form, the procedure.
MS. BAYLOR-HENRY: Thank you.
MS. DICHTER: PCS does not switch drugs on behalf of any manufacturers. The fundamental economics that we attempt to achieve for our customers is the development of a list of pharmaceuticals that we believe, and the experts who advise us believe, are most cost-effective.
In many of the cases in our preferred drug list the first drug of choice is a generic drug. There really are no benefits at all to any particular branded pharmaceutical manufacturer, and to no specific generic manufacturer because we don't specify the generic manufacturer.
The only benefits that accrue in that system, the system we operate, where in an overwhelming number of cases the drug of first choice is generic, if it is clinically equivalent, is to the payer and to the patient who has a co-pay. For example, in PCS's preferred drug list there is no branded Lilly antibiotic anywhere on the list.
In addition to that, in terms of disclosure, it really begins very, very early on in the process in terms of the consultants and the clinical staffs of our customers, who pour through every element of our formulary and preferred drug list, who are well aware, and we fully disclose, and ask us to disclose any of the drugs of our parent manufacturer, and then evaluate all of the selections on the formulary and the preferred drug list.
Once an employer -- in many cases the customer is sophisticated and has their own P&T committee, and will ask that substitutions be made to our preferred drug list to in many cases parallel contracts that they may already have with manufacturers -- and these are the largest HMOs in the country -- because they deem a particular drug in their professional judgment is more cost effective than the one we have on our particular list. In that case, we modify all of our computer messages on behalf of our customers to alert pharmacists to the choices made by that particular customer.
Immediately upon that decision, the plan design and the plan scope is set. At that point, when the plan sponsor seeks to enroll individuals like an employee in an organization, it often discloses at the point of enrollment or competition during open season that many employees experience, what any restrictions are in that plan, including if there is a formulary and the variable co-pay in the formulary and the drugs included in that formulary. So individuals often, at the point of choice of Plan A or Plan B, even, are given disclosure about what particular drugs that particular plan prefers they will use or have their physician prescribe.
It is not uncommon, increasingly, for employees once they enroll in a plan to get a little pocket reminder card, again in an attempt to continue to reinforce decisions about more cost-effective deployment of pharmaceuticals they are prescribing. So the employee then gets a card that they are asked to carry in their wallet, so that when they go to the physician, the physician is further made aware of what it is the health plan and the payer deems to be the most cost-effective pharmaceutical.
When the patient goes to the physician, we anticipate very soon across America physicians will get information on their computers at the point of diagnosis, again, instructions that are programmed as a function of the health plan that pays them their capitation and their premium, what not only are the appropriate medical protocols but also the pharmaceutical protocols selected by that particular client. That is in the hopes of avoiding the inconvenience at the pharmacy, such that the pharmacist then has to say, in essence, "Oops, the physician didn't write for the drug that your plan will pay for."
Because we don't have that universally available in the country today, the pharmacist does get a message. The pharmacist -- and because PCS is the largest manager of retail pharmacy benefits in the country, connected to 56,000 pharmacies and over a quarter of a million pharmacists -- the pharmacist, on behalf of the plan sponsor -- because remember the plan sponsor is now saving $10, $15, $20, $25 in that prescription event, if the more cost-effective pharmaceutical is dispensed -- the pharmacist is then compensated by the plan in whose interest it is to have that substitution made, and seeks from the patient consent to call the physician. Is the patient interested in an alternative drug which may have a different co-pay or may save the health plan a significant amount of money?
And our experiences with this to date are in many cases, 70 percent of the patients consent to having their physician called. At that point the retail pharmacist will inquire of the physician, and if in the physician's judgment this is an appropriate and cost-effective decision, then they communicate that to the pharmacist and the pharmacist will make the change on behalf of the health plan.
But we see this really in many cases very similarly to what happens in medical care, when much of medical treatment that was formerly done in the hospital is now done in the outpatient environment. In fact, those substitutions occurred. They occurred to the benefit of the health plan and to the patient.
We see the ability to continually evaluate new drugs, new cost-effective formulas for drugs, the economic value to the health plan, and the continued vitality of these formularies, particularly with on-line electronic messaging. As new economics and benefits are discovered, the plans are extremely flexible, and pick and choose among all the pharmaceuticals available with their own consultants, and then ask that we in fact then implement those through our on-line communication and education system.
But there is as full a disclosure as could possibly be made, and an intense scrutiny of all the pharmaceuticals that we might recommend. And increasingly we are at risk for the savings, so our interests align perfectly with the interests of our customers who pay the bill, because if savings don't accrue to our customers, then we are at risk for financial loss in those situations as well.
MS. PEDERSEN: I wonder if we could hear quickly from Mr. Lang and Mr. Jay, because I know there are other questions that the panelists would like to get to.
MR. LANG: Our therapeutic intervention programs are part of our overall formulary program. The overwhelming majority of those are actually to encourage generic products to be utilized. We do include, with the mailing of those products, information to the patient. If the patient has a differential co-pay or a percentage co-pay, they share in the savings. Otherwise, the savings accrue to the plan sponsor.
DR. JAY: In terms of -- sorry.
MS. PEDERSEN: Do you divulge any relationship with a pharmaceutical company to your customers?
MR. LANG: We have normal contractual relationships of a managed care type with many pharmaceutical manufacturers. We just -- this is part of a formulary process, and it is formulary compliance that we are --
DR. JAY: We have a fairly rigorously enforced formulary, so that information is disclosed in our evidence of benefits or evidence of coverage.
In terms of trying to encourage one product over another, typically if we do negotiate a new contract on a very therapeutically close equivalent, we will notify physicians, pharmacists and patients that we are going to be encouraging the use of the alternative product, but at the end of the day the ultimate decision rests with the physician. If they can justify use of the product we are trying to switch from, the physician can prescribe that, the patient can receive that as a plan benefit, because we do want to maintain the credibility of the process, so we do allow a lot of flexibility there.
MS. PEDERSEN: Thank you.
Mr. Braslow, then Dr. Morris.
MR. BRASLOW: For the panel, could you tell us to what extent your managed care organizations themselves do detailed studies of comparative outcomes or cost effectiveness, and do you make such studies available to others?
MS. PEDERSEN: Maybe start this time with Mr. Jay and work down the other way.
DR. JAY: Yes, we do have kind of the structure in place to begin doing some outcomes type of work ourselves internally, through our Clinical Research Committee. All of the data elements are there. The pharmacy transactions are in the database. The medical visits, the medical encounter information is there. So we are in a position to begin looking at those types of things. However, we have not embarked upon anything significantly at this point.
MR. LANG: For us, most of the employer groups that we do services for do not have ready access to the medical information. We do do some types of outcome studies. It is more informally and internally, and is not shared externally.
MS. DICHTER: In the last several years PCS and Eli Lilly have developed a disease management capability whereby our customers share with us their longitudinal medical records of patients. And we have begun, with our customers and with panels of experts from academic institutions, either selected by our customers -- some of the premier medical organizations in this country are taking the longitudinal medical data and marrying that with the pharmaceutical data to begin to evaluate the cost effectiveness of the deployment of various pharmaceuticals, the use of pharmaceutical A over B, or the continued compliance of patients with a particular pharmaceutical and their impact on the medical costs and the patient outcomes.
We have just begun that but we feel -- and we have experienced a tremendous amount of desire on the part of our customers to bring those databases together. We are also participating in national studies of that kind. Large employer coalitions are now developing the capability to look at patient outcomes and to evaluate those, using some of the foremost academic research centers in the country to validate the methodologies of those studies.
Not only are we embarking on studies ourselves, but we rely on the studies and cost effectiveness data of some of the most prestigious academic institutions and medical teaching organizations and clinical organizations, as well as the government regulatory bodies in the United States for that information. We anticipate publishing the results of our longitudinal medical, pharmaceutical, cost-effectiveness studies that we are embarked on.
MR. LOFBERG: I will distinguish in two types of situations. First, the P&T committee in its review of products, they will access everything that is in the public domain with respect to those products, be it clinical studies or cost effectiveness studies that have been done by -- and published in the peer review press and so forth.
Inside Medco and with respect to our own activities, we have focused -- we have not focused on products and the cost effectiveness of products, but we have begun to look at certain aspects of our programs and try to determine from our customer's standpoint, the plan sponsor's perspective, what is the potential impact of some of our programs on their total health care cost. That is a complex process and, you know, with -- you have to be very careful about the conclusions that are drawn based on the methodologies.
But the first thing that we did in this area was to look at the two-year program for diabetics that we have had in place, which has basically focused on improved patient self-care and improved compliance with glucose measuring and insulin regulation. We have been able to gather medical claims information for that whole patient cohort, to begin to draw some inferences with respect to the impact of that type of intervention program with respect to the total health care cost for that patient cohort, and we probably will try to do similar types of studies in other types of disease areas, to really look at the potential benefits to our customers of more sophisticated disease management efforts.
MS. PEDERSEN: Dr. Morris?
DR. MORRIS: Would you plan to publish that information when those studies are concluded?
MR. LOFBERG: I don't -- I can't answer that off the top of my head. I think in some cases we might, in some cases we might now. I think our principal objective here is really to be able to address our customers' interest in how and to what extent we are impacting their cost.
MS. PEDERSEN: Dr. Morris?
DR. MORRIS: I have more of a situation than a question or a set of questions. The inquiry regards the concept of level playing field which we have heard discussed late yesterday and again today, and there were three situations.
Situation 1 is when a pharmaceutical company does not have a relationship with a PBM or other distributional outlet. Situation 2 would be the case where the pharmaceutical company does have some relationship with a PBM, and situation 3 would be a case of just a PBM without a relationship with a pharmaceutical company.
Yesterday we heard testimony in which we were asked to make sure that in situation 1 a pharmaceutical company with a PBM is not put at a competitive disadvantage by a situation 2. In other words, if a pharmaceutical company cannot put out some information that a PBM could, the pharmaceutical company by working through the PBM may indeed be able to communicate certain information that the first pharmaceutical company could not. I have this on a schematic, too, if you want that. Would that help, actually?
The other situation that we just heard from Ms. Dichter is also the concern about competitive disadvantage if FDA's rules and regulations might apply to you just because you had some relationship with a drug company. That would put you at a disadvantage because another PBM could communicate information that you would not be able to.
So I would like you to -- as I guess, the whole thing kind of boils down to the relationship and the independence between the pharmaceutical company and the PBM, and my specific question goes to what tests should the FDA use to judge the independence of a pharmaceutical company compared to a PBM, so that we can indeed say that these are independent communications?
I would like you to answer that in the specific content of a complaint that we receive, and we have gotten these complaints, and some were brought in yesterday where, let's say for example if it just so happens that Merck is your formulary drug and you are trying to switch people onto a Merck drug -- you know, if Medco is giving Merck or if PCS is giving Lilly, it just happens to be that drug, how should we analyze that complaint?
Because indeed there is a -- and, you know, the complainant says to us, "Of course they are going to switch to Merck drugs," or "Of course they are going to switch to Lilly drugs. Look who owns the company." What analysis, what test should we use to see whether this is being caused by the drug company of this truly is an independent communication?
MR. LOFBERG: I will start and let my colleagues continue here, but at first I think the question is, is the complaint a business complaint or a medical complaint? I can envision that in the heat of the competition some companies win, some companies lose, and those companies that lose in the business marketplace might choose to complain about that.
But I think the principal test from my standpoint is really how are the customers viewing these relationships, and are the customers finding that the relationship between a pharmaceutical company and a PBM is benefiting them or not benefiting them? To me that is the ultimate test. The competition in our industry is so intense that any attempt by any PBM to unduly favor its parent company, if you will, to the detriment of the plan or to the detriment of the patients, would immediately be exposed because of the intensity of the marketplace that we are in, and it would never be acceptable.
So I think all of us, and I speak for Medco and Merck here, we live in a fish bowl with intense spotlight on this particular issue, and I think if we at any time attempt to do something that is not in our customers' best interest or in our patient's best interest, we will be disqualified. So I think that's the principal thing to look for from my standpoint.
DR. MORRIS: So it is the motive of the complainant, is that what you are saying? If it is a business issue, that it is market share, but there is no medical issues? We shouldn't go beyond that? It is only if the patient is put at risk because of the switch, is that what you are suggesting?
MR. LOFBERG: No, I wasn't trying to suggest that. It would be wrong for me to try to suggest what you, the FDA, should be looking at. All I am saying is that --
DR. MORRIS: But I am asking for that.
MR. LOFBERG: -- it is understandable, it is understandable that people will complain if they lose in the competitive battle, and that doesn't necessarily, I think to me, translate into the fact that the customers that we serve, that they suffer. In fact, I think the evidence is very strong that over the last several years our customers and our plan members have benefited from the improved economics that have been available to them as a result of the vertical integration.
MS. PEDERSEN: Dr. Woodcock?
DR. WOODCOCK: Is there transparency of your formulary decision? I would think that would be, as you have been saying, it is in your best interest to be impartial about what you recommend in a formulary. Are the minutes available? Do you do things like that, or do you simply rely on competition, that your customers that you contract with, the care plans, scrutinize your formularies and find that it meets their needs?
MR. LOFBERG: I will answer quickly and then I will hand over. Our customers are the ones that ultimately decide on the formularies, so the process by which the P&T committees evaluate drugs is transparent to them. And if they have any desire to modify or adjust the recommendations that come from Medco with respect to formulary designs, they can do that, and frequently that happens. So, you know, many customers have their own clinical input into the process, so the process is totally transparent.
MS. DICHTER: In the case of PCS, a number of our customers sit on our P&T Committee. The physicians and the P&T Committee members of our customers are voting members of our P&T Committee, so they are privy to all the decisions made by that committee.
Secondly to your question about what would you do if you get this kind of complaint, I think the concern would be that the processes and procedures that organizations like PCS have in place guarantee a fair and impartial and customer-based set of decisions.
I find it interesting that when Mr. Lofberg was talking about his diabetes program, the diabetes program itself, some of the information and some of the education about patients and good patient care actually came from Lilly. So what we find is that we, as some of our competitors do, look across all pharmaceutical manufacturers for any and all of the best processes, information, and products and services, such that what we have is the most competitive market basket to bring to our customers.
I would also agree that, you know, any pharmaceutical company aggrieved by what they perceive to be somehow or another losing in the market, have ample opportunity to go directly to any of our customers, as I think in the testimony by the HMO today. HMOs and now pharmaceutical companies have deployed marketing people to talk to business coalitions and employers, and they certainly can present any information against which the customer can evaluate the formulary that they may be using in these pharmaceutical care systems.
Finally, I think it is important to state that these are not cast-in-stone services. Increasingly our customers are active participants in asking us to change drug A for drug B because, you know, their own independent research shows that, or they would prefer -- in some cases, it is very interesting, we have customers who say, "Yes, I know that you are recommending a more cost-effective drug, but since 50 percent of our patients may be on the less cost-effective drug, we really don't want to hassle them, so we are not really interested in having in some cases the more cost-effective pharmaceutical because of the dislocation to patients."
So there is so much flexibility and, as I said, continuous change in these decisions, and so much opportunity -- if we want to stay in business and our customers want us to change a selection, and they have ample evidence and they are carrying the liability, we will do that.
MR. LANG: Our formulary process, the minutes and the meeting processes, have been made available through an RFP process, for instance, to benefit management consultants and employers if they want to have access to that, as well. Many of our managed care customers have their own P&T committee, and they further evaluate their own formulary through us.
DR. JAY: I think the real irony here is that with the intense scrutiny that the Mercks, the Lillys, and the SKBs are getting, it is much more of an opportunity for another pharmaceutical company to form an alliance with a non-manufacturer, PBM, to get their products promoted.
MS. PEDERSEN: Thank you. We have a couple of questions that come from the floor that we want --
DR. WOODCOCK: I have a question.
MS. PEDERSEN: Oh, Dr. Woodcock also has a question. Dr. Woodcock?
DR. WOODCOCK: Yes. I am really intrigued by the issue that you all have raised, which is that you are maintaining that in the future a lot of the value added by pharmacy benefit management will come from rationalizing therapeutics. I have heard you all really say that. Isn't that right? By that I mean by ensuring, through various mechanisms, that because you can bring so many experts to the choice of pharmaceutics, that the best choices are made in pharmaceutics for patients.
To what extent do you believe that actually will be part of the services and value, that role of your types of organization?
MR. LANG: A lot of it really depends on the ability to deliver those recommendations to the decision-maker at the point of care, and I think as we develop more point-of-care clinical systems like wiring a physician's office with that sort of a technology where those recommendations can be made prior to prescribing, then it will be -- but right now it is largely an educational process to the physician, to try and decrease practice variability.
DR. JAY: I think the real challenge -- I think the selection process is fairly simple. I think the real challenge is to make sure that the drugs that are selected are used appropriately.
DR. WOODCOCK: Right. That is what I was talking about, and so that is the second piece --
DR. JAY: That is an enormous challenge.
DR. WOODCOCK: -- that is the second piece that I hear you saying you see yourself getting into. Right now it has been really limiting the choices available, and it has basically been on a cost minimization basis to a great extent. But what I hear is that you see in the coming years, in the next few years, getting into more rational therapeutics.
DR. JAY: Exactly, making sure that the drug is dosed correctly, making sure that somebody that is sensitive to a non-steroidal anti-inflammatory with peptic ulcer disease is not ending up in the hospital because they are on those indiscriminately. I think that is the real issue.
DR. WOODCOCK: Dealing with
polypharmacy --
DR. JAY: Polypharmacy, underdosing, overdosing, wrong drug for the wrong patient.
MS. DICHTER: Well, I would like to say we already do that today; that in fact the repository of pharmaceutical statistics that is available to PPS, with our 50-plus million individuals and the numbers of prescriptions they take, really allow us to develop clinical records over time for patients, and to alert and to share with their payers these incidents of polypharmacy, of overutilization.
Actually we are extremely proud just in Washington, D.C. to have brought to the federal employee program, our largest customer, millions of dollars in savings because with the demographics of that group there are significant numbers of high-risk populations and significant numbers of instances of polypharmacy, doctor-shopping, situations where the clinical record is apparent. And again at the urging of our customer, the payer, we intervene by sending physicians information and sharing with them, again with the consent of our customers, the pharmaceutical data about a particular patient which may go into multiple physicians and multiple pharmacies.
It is unfortunate that while the pharmacist in the retail setting has the clinical record through the messaging system, that the physician today does not, and the patient may be using multiple physicians.

So what PCS has is the ability to aggregate these data on behalf of single patients and evaluate those with the clinical staffs of our customers and then, with their consent, provide this information. We have books of letters from physicians thanking us for the first time because they are made aware of the irrational prescribing or consumption of pharmaceuticals on behalf of their patients that they know nothing about.
Today, if it not as futuristic for PCS because today PCS is participating in the electronics system with physicians with over 30,000 physicians now connected not just to their plan sponsor or to their HMO but, increasingly, to laboratories so that clinical laboratory findings, whether these are theophylline levels or hemoglobin A1C levels, can be provided to physicians such that the physician doesn't have to wait months or until the next appointment of the patient for the physician to titrate the particular pharmaceutical for the patient.
We see also the ability to enter, real time, the clinical record in the physician's office, and to have the physician then make even more accurate therapeutic decisions in terms of pharmaceuticals, coming within a short several months actually through the availability of on-line connectivity, but some of this we are doing today.
DR. WOODCOCK: One more question. For the panel, then, everyone said they -- I heard almost everyone here say they didn't think FDA regulation would help in this area of the perception of to what extent the pharmaceutical firms' marketing interests are intruding into the determination of what would be appropriate on a particular formulary, where particular drug choices should be available.
Are there other alternatives that you -- I have heard you all say, though, that you believe in disclosure of various sorts, you believe in -- you feel that it is in your best competitive interest to have an open process, a fairly transparent process. Is there anything you could recommend that would be guidelines that would be helpful in this area, or you simply don't think so?
MR. LOFBERG: No, I think the independence has to be well established, and I think the independent review of clinicians to really try to make sure that, you know, current medical practice is being promulgated in these programs, is important. I am not sure that regulation is the answer to that. I think competition has a great influence on that, as well, but to me that is the essence, you know, that these programs really do reflect best medical practice and that they do -- that they are designed in a way that really focuses first and foremost on the patient and secondly on the plan sponsor.
MS. PEDERSEN: Brief comments by other members of the panel?
MS. DICHTER: I think our position would be that it would be a mistake to treat PBMs, or pharmaceutical benefit management companies, separately. As has been stated by other panelists, what we engage in is similar to and in some cases identical to what 600 HMOs in this country engage in, everything from staff model HMOs to IPA HMOs, who by the way have contracts with pharmaceutical manufacturers as they develop their formularies.
To single out a relatively small -- in this sort of vast array of pharmaceutical managed care and managed care -- PBMs would be a mistake, but I think you should look to all of the activities in any organization that is engaged in activities that are similar to any other of the managed pharmaceutical care activities we engage in, such that if you were considering any expansion of regulatory domain, that everyone would be treated equally, not just singling out the PBMs.
But we feel, again, that as the customers become increasingly sophisticated, in fact there is an enormous regulatory infrastructure today inside our customers, who are making their decisions and regulating providers of health care perhaps much more effectively and powerfully than any of the concerns around manufacturer relationship, because these payers capitate physicians. They are holding the physician income streams, as these HMOs capitate them, and inside the capitation are assumptions about the appropriate mix of pharmaceuticals.
Frankly, for any of you who live in HMO-dominated areas, increasingly physicians get it, and they get it even without electronic connectivity, so when you go to a physician it is not uncommon for that physician, if 50 percent of his or her practice is in managed care, to write as first choice a generic product, even if you are not a managed care patient.
So the impact of managed care is so enormous, particularly in those states and those cities where it is increasingly dominant, like California, that it has nothing to do any more with pharmaceutical manufacturers and their communications. It is the power of the HMO, the managed care organized delivery system decision, and the economic relationship it has with physicians in terms of how they are increasingly practicing medicine and prescribing pharmaceuticals.
MS. PEDERSEN: Thank you, Ms. Dichter.
A quick comment by either Mr. Lang or Mr. Jay?
MR. LANG: I believe that the situation is so competitive that it is virtually self-regulating.
DR. JAY: And also you may be aware, and Elizabeth alluded to it, the employer groups through the HEIDS initiative are holding HMOs accountable for quality and outcomes.
MS. PEDERSEN: What initiative?
DR. JAY: The HEIDS, Health Employer Information Data Set, basically a measure of different types of outcomes, what percentage of your population are you doing breast screening on, et cetera.
MS. PEDERSEN: We are going to take two more questions and then we will have a recess.
MS. BURKE: This is a combination of several questions from the floor, and it relates to the transparency that we have been talking about and the established policies for maintaining independence between the owner/manufacturer and the PBM. The letter -- and the first question that I am going to read from is directed to Mr. Lofberg, but then we will expand it to the other panel members, too:
The letter that your subsidiary, Paid Prescriptions, sends to patients telling them that their physician has authorized a change from their current prescription says that the medications have been approved by an independent pharmacy and therapeutic committee, which you mentioned. The example given yesterday said the authorized switch was to one of your parent company's products. Are such letters sent out that advise patients of changes to products manufactured by Merck's competitors? If so, what percent of these letters tell patients a switch is to Merck products versus products of competing manufacturers.
This also relates, I think, to our previous discussion of bias in formulary design. And this also, then maybe we could expand it to such letters that perhaps PCS does send out, and the other panel members may want to comment.
This is said in light of the New York Times article this week that says that the number of Merck drug prescriptions rose 16 percent in the United States in the quarter, which was double the 8 percent increase before Merck bought Medco in 1993.
MR. LOFBERG: Well, there is a large number of drugs that are included in Medco's formulary program, somewhere in excess of 500 drugs. Merck has probably something like 30-odd drugs on the formulary out of those 500-plus drugs, and there are formulary management or formulary compliance communications that take place really with respect to a large number of preferred drugs on our formulary.
Some of those are Merck drugs, but it is a small number in relation to the total number of drugs that are featured or that are emphasized in these formulary management efforts, so there is no disproportionate focus on Merck versus other manufacturers that participate in our formularies and that have these types of programs as part of the arrangement with us. So, you know, that is something -- I can't give you the exact statistics in terms of the percentages.
With respect to the increase of Merck's share in Medco's total business or the disproportion of growth as you stated, I think the one thing I want to say there is that we have a very explicit commitment to review Merck drugs and include them in our formularies along exactly the same lines as we look at other manufacturers' drugs, and that ultimately there is a two-step process that every drug has to pass through. First it has to be reviewed and approved by the P&T committee and, secondly, it has to be accepted by our customer as being in their best interest.
Obviously, if we can -- if Merck drugs can pass that process and become preferred drugs in our formulary, subject to those particular constraints, it can become a win-win. It can become a win for our customers, they can save money from it, and it can become a win for Merck. The same thing is, the same opportunity is available to other manufacturers that contract with us that can participate in our formulary through contractual arrangements.
MS. BURKE: I guess more pointedly the question was, has Medco instituted what we are calling a switch campaign, or sent out letters switching patients to non-Merck products?
MR. LOFBERG: The answer to that is yes. We have many formulary communication letters that go out that encourage the use of drugs that are manufactured by other companies than Merck.
MS. BURKE: A brief comment, Ms. Dichter?
MS. DICHTER: Yes, from PCS's perspective, the answer is yes. In the H2 and antibiotic class, our communications with members, again based on the formularies that our customers approve, recommend non-Lilly pharmaceuticals. Lilly pharmaceuticals only make up 3.4 percent of the total prescription package any individual employer might utilize, and the policy is, and our customers scrutinize, the most cost-effective drug.
And as I indicated before, if customers have access to a better contracting relationship than we can provide them with a branded product, they will ask us to switch out those products and end up really with a very different type of formulary program than we might even have recommended to them.
MS. BURKE: Thank you.
Did you want to make a quick comment, Mr. Jay?
DR. JAY: I am just wondering if some of these companies have regretted their purchases.
MS. PEDERSEN: Do you have one more?
MS. BURKE: Yes, I have one more question.
MS. PEDERSEN: Okay. This is the last question which we want to get, and then we will take a break.
MS. BURKE: Mr. Jay, you mentioned that managed care needs more between therapeutic class or between treatment modality comparative studies, and that you really are not in the market, so to speak, for comparisons, pharmacoeconomic studies that are comparing drugs within a therapeutic class. I first of all want to ask you if you think that other managed care organizations, HMOs, would agree with this statement, and then I would like to ask the other members of the panel what their opinion is about this statement.
DR. JAY: I would suspect that they would agree with that, but I can't be sure about that.
MR. LANG: I believe we need both within-class and between-class pharmacoeconomic information. I think we require both.
MS. DICHTER: Yes, increasingly -- for example, the NIH consensus panel on ulcers, which raised the question of the first-line deployment of antibiotic therapy as opposed to the use of H2, those kinds of studies and analysis and outcome measures that could provide us with impartial and scientifically based information about what best first-line pharmaceutical therapy to use are always welcome. We continue to support and encourage the health services research communities, both public and private.
We also believe that if you look at -- again, if you look at the institution of managed care today, millions of dollars are being spent on the development of outcome-based capabilities. Employers and their managed care organizations are rushing to create massive databases and do longitudinal studies such that the question can be answered, for the trillion dollars being spent by the U.S. in health care, what is the most efficacious treatment?
And how do we compare, not just drug A to drug B, but now it is HMO A to HMO B, in the treatment of asthmatics or diabetics, a much more, we think, broad-based and more appropriate set of questions. Embedded in those may be the pharmaceutical, but in addition to the pharmaceutical it is the hands-on patient management that goes on after the physician leaves the office.
We would encourage you and anyone else in the United States or anywhere in the world to produce more of that information, because increasingly that is what is going to guide our customers and the payers who make the decisions, and the employees who now will be getting that information: "Your chances of surviving a cardiovascular event are higher if you go to this provider versus this." We encourage that, we support that, and we think that is what continues to drive us to make these decisions more cost-effective.
MS. PEDERSEN: Thank you. Brief comment?
MR. LOFBERG: Yes. I would just say in a category like hypertension, for example, where you have patients treated with many different classes of drugs, like diuretics, beta blockers, calcium channel blockers, ACE inhibitors, and so forth, I think it would be extremely valuable to get cost effectiveness research conducted that can really look at the difference between drugs that may have side effects that cause -- that cause outside of the drug bill, so to speak, and compare some of the recent, more expensive drugs to the older, less expensive drugs.
MS. PEDERSEN: Dr. Woodcock?
DR. WOODCOCK: The FDA agrees with that heartily, and in fact we believe that these studies need to be carried out within the health care settings which this data would be applicable to. What really needs to be studied is treatment policies, the comparison of different treatment policies -- should you start with this, that or the other thing -- rather than just one agent against another, which in a year may be an irrelevant comparison.
MS. PEDERSEN: Thank you. I did want to note we do have a lot of other questions from the floor that we were not able to get to, just in the interest of time. Those will be part of the record, available for people to see what the questions are and have the opportunity to respond or comment on them further.
We will now take a break and reconvene promptly at 25 minutes to 11. Thank you.

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