The Devil in the Tiers

Prescription drug spending in the USA has soared, fueled by rising drug prices. A critical mechanism for restraining drug prices is the formulary tiering system. Although tiering should reflect the cost of a drug—and reward patients who choose less-expensive drugs—something is seriously amiss. Using Medicare claims data from roughly one million patients between 2010 and 2017, this article finds troubling amounts of distorted tiering and wasted cost. Increasingly, generics are shifted to more expensive—and therefore less accessible—tiers. The percentage of generics on the leastexpensive tier drops from 73% to 28%; the percentage of drugs on inappropriate tiers rises from 47% to 74%. Considering only costs paid by patients and the federal Low-Income Subsidy Program, tier misplacement cumulatively costs society $13.25 billion over the time period. An unruly problem demands a disruptive solution. This article advances the counterintuitive regulatory reform that tiering should be based on a drug’s list price. Yes, list price—that roundly dismissed figure—should become the touchstone. This would deter incentive-distorting rebate schemes while recognizingthat many people already pay list price. It is a remarkably streamlined approach for cutting through a wide swath of perverse incentives and manipulations

Perverse Incentives: Why Everyone Prefers High Drug Prices -- Except for Those Who Pay the Bills

Health care spending rarely follows an ordinary, rational model. Yet even in that context, prescription drug prices are rising at a puzzling rate. What is causing the phenomenon? Quite simply, incentives percolating throughout the prescription drug market push players toward higher prices. At the center lies the highly secretive and concentrated Pharmacy Benefit Manager (PBM) industry middle players who negotiate between drug companies and health insurers by arranging for rebates and establishing coverage levels for patients. Contracts between drug companies and the middle players are closely guarded secrets. The PBM customers, including Medicare, private insurers, and even their auditors, generally are not permitted access to the terms. And the middle players are not alone; everyone is feeding at the trough. Markets, like gardens, grow best in the sun. They wither without information. Thus, one should not be surprised to see competitive distortions and suboptimal outcomes. Despite the extreme secrecy, details have begun to seep out-through case documents (including recent contract disputes among parties), government reports, reports to shareholders, and industry insider reports. Piecing together these sources, this Article presents a full picture of incentive structures in which higher-priced drugs receive favorable treatment, and patients are channeled towards more expensive medicines. In exchange for financial incentives structured in different ways to appeal to hospitals, insurers, doctors, and even patient advocacy groups, drug companies ensure that lower-priced substitutes cannot gain a foothold. It is a win-win for everyone, except of course for taxpayers and society. This Article also analyzes popular proposals that are unlikely to work and suggests approaches for aligning incentives

Designing Disruption in Pharmaceuticals

Antitrust is atomistic: deliberately focused on trees, not forests. It pays attention to the consequences of individual acts alleged to be anticompetitive. That focus is misplaced. Companies and markets don\u27t focus on one particular act to the exclusion of all else. Business strategy em­ phasizes holistic, integrated planning. And market outcomes aren\u27t determined by a single act, but by the result of multiple acts by multiple parties in the overall context of the structure and character­ istics of the market. The atomistic nature of modern antitrust law causes it to miss two important classes of potential competitive harms. First, the focus on individual acts, coupled with the preponderance of the evidence standard for proving a violation, means that antitrust can\u27t effec­ tively deal with what we might call probabilistic competitive harm: multiple acts, any one of which might or might not harm competi­ tion. Second, atomistic antitrust tends to miss synergistic competitive harm: acts which are lawful when taken individually but which combine together in an anticompetitive way. Unfortunately, modern antitrust law has strayed too far down the atomistic pathway. Courts and agencies too often take a narrow, transaction-specific focus tochallenged conduct. Instead of asking is the overall behavior of this company reducing competition in the market, they focus on a particular merger or challenged monopolis­ tic practice in isolation. Courts and agencies need to move beyond atomistic antitrust and take a more holistic look at the circumstances and effects of an overall pattern of conduct. Our goal in this Article is to set out a framework for integrated antitrust, in which individ­ ual actions can be understood not just on their own but also as part of a comprehensive whole. Only by doing so can the legal system both return antitrust to its roots and bring antitrust into the modern context of the business decisions that courts must analyze today

Physicians Treating Alzheimer’s Disease Patients Should Be Aware that Televised Direct-to-Consumer Advertising Links More Strongly to Drug Utilization in Older Patients

Background: US direct-to-consumer advertising spending for medicine has soared in recent decades. Advertising has been shown to impact drug utilization. Most Alzheimer’s disease patients are above age 65 and may take a range of prescription medications for various disease states. Objective: To investigate how direct-to-consumer advertising is associated with the drug utilization of patients ≥ 65 years old. Methods: Using advertising expenditure data and Medicare Part D drug purchase claims, we performed regression analyses for each of the highest-spending drugs and age group, with cumulative monthly spending as the predictor variable and drug utilization as the response variable. For each drug, we ran a second set of regression analyses to determine if the spending-utilization correlation showed a significant difference between the two patient age groups (older than 65, younger than 65). Results: For all 14 drugs in our study, advertising spending is positively correlated with utilization (p \u3c 0.01) in both age groups. For seven of the 14 drugs studied, the difference in the utilization of patients older than 65 and the utilization of patients younger than 65 is statistically significant at a p \u3c 0.01 level. The 65-and-older age bracket exhibits significantly greater utilization for all seven of these drugs. Conclusion: We find televised advertising for certain drugs to be associated with significantly stronger drug utilization among seniors, as compared to younger patients. Alzheimer’s disease physicians should be aware of this result, in light of the medications that patients may take for other disease states, particularly mood and mental health medication