US discount scheme pulls in drug makers

DRUG makers like Eli Lilly, Merck and Novartis are competing to offer discounts of 12%-50% on prescriptions for elderly people under the Medicare plan that began yesterday.

Sponsored by the US congress, the programme is a step towards a Medicare drug benefit for seniors and disabled people that the congressional budget office estimates will cost 400bn over eight years starting in 2006. Old patients accounted for 40% of the 216,4bn US prescription market last year.

What's in it for the drug companies is access to the senior market, which is by far the largest individual market in the US, Medicare chief Mark McClellan said in an interview. It's going to be incumbent on drug companies to give seniors what they want, which is better medicines at lower prices.

Until the programme is up and running in 18 months, disabled patients and those 65 or older can sign up for cards entitling them to discounts of at least 10% on brand-name medicines at local pharmacies or by mail. Health insurers and pharmacy-benefit managers offer 73 programmes approved by Medicare.

Patients register for the cards at local pharmacies and community centres or by Internet for annual fees of up to 30. By presenting the cards at pharmacy counters patients can save an average of 12% to 18% on a top-selling drug like Merck's Zocor pill to lower cholesterol and 30% to 50% on generics, says Medicare.

Prices for drugs may vary from one card to another. A government study released last week found that when card users order Zocor by mail they save up to 11% on the price through Drugstore.com and 24% through Costco.com. Jack Rodgers, PricewaterhouseCoopers health policy economics practice director, said: The companies are hoping the cards will build some brand recognition - and that you will take the card into a health plan in 2006.

More than 5-million poor patients will be eligible for free medicines from Merck, Johnson & Johnson and Novartis through the card programme. Lilly, Abbott Laboratories, AstraZeneca and Wyeth will offer higher discounts to low-income patients who enrol in certain drug cards.Such programmes give companies an opportunity to increase market share and generate customer loyalty Eli Lilly public health director Josh Smiley said his group was the first to offer poor seniors in Medicare a lower price - 12 a month - than richer elderly. Weeks later, Merck said it would give free drugs to poor Medicare patients.

McClellan said drug prices were listed on Medicare's website, and could change weekly as costs rose or competition drove further discounts.

Legislators, including Republican Michael Bilirakis of Florida, said they would monitor the card programmes to ensure they did not raise prices after attracting patients to enrol.

Drug prices fell as much as 13% in the first week they were posted, McClellan told a congressional panel on May 20. Prices fell 2% to 3% more the next week after drug makers realised what rivals were charging.

For many of the new products in development designed to treat chronic illnesses this is the main part of our population that can benefit and will be in the market for those products, McClellan said.

harmacy-benefit managers Medco and Express Scripts and insurer Aetna are also competing now for customers. Medicare will create a new market for insurers in 2006 when it establishes prescription drug plans.

Benefit managers will seek contracts with insurers to act as middlemen and negotiate with drug makers. We obviously see it as a tremendous opportunity for Aetna to establish our name brand in that market, said Frank McCauley, head of Aetna's Medicare business.His group thought it a good prelude to the fuller benefit coming in 2006.We look forward to playing a role in that.

Express Scripts said it needed 250 000 members for its Pharmacy Care Alliance card programme to break even, and would probably get that. Medco estimated it would sign up 500 000 for its dozen card offerings by the end of next month.

Express Scripts CE Barrett Toan said his company had assembled a network of pharmacies and pushed manufacturers for steep discounts as a way to make its cards more attractive.

We went out and contracted with 144 000 stores, said Toan. We were also able to get a large number of drug makers to provide discounts. We got a 20% reduction on brand-name drugs at the pharmacy counter and about 40% on generic drugs.

(Source:Kristen Hallam and Keith Snider: Bloomberg via Business Day, 2 June 2004)