Insurers versus drugmakers
Today's New York Times has a cover article on the battle between drug companies and health insurers set off by new Medicare rules ("Medicare Rules Set off a Battle on Drug Choices", 9/25/04). What's at stake are the formularies, the list of drugs that insurance companies will reimburse for Medicare patients. In this battle, those patients who it affects have no voice. That's because the government, in the new laws, abdicates any real control over the feuding oligopolies, declining to represent the interests of its citizens.
The much-debated new rules will allow for some Medicare drug benefits for patients who sign up with a group plan with an insurer. The insurers much carry on their formulary at least two drugs in every general therapeutic category. For each drug company, getting its drugs n the list is critical. As the article states:
In general, drug companies want as many drugs as possible on each list known as a formulary. Many doctors and consumer groups agree. But insurers and drug benefit managers want to limit the number of drugs and the types of drugs.
It comes down to battle between oligopolies. The drug giants will use their power to get on the insurance company formularies. You might think that this could lead to savings, as the drug companies jockey for position. But the bigger companies like Pfizer, Merck, and others have the ability to threaten to withhold some drugs if others aren't accepted. That could spell bad news for smaller companies, even the lesser ones among the top dozen drug companies, as they get muscled out of the way. After all, most drugs are consumed by older patients, so the awards for making the formulary (and the penalties for not making it) are huge.
For the insurers, the bigger ones will end up with more leverage on prices and availability, making small plans less profitable or less popular. Already the bigger insurers and pharmacy benefit managers get steeper discounts on the drugs they recommend, and that situation will only get worse for the small companies that can't sell the same volume.
One other issue is critical: the naming of therapeutic categories. The more there are, the more likely smaller drug firms have a chance and the more likely Medicare patients are to get a variety of remedies. The more categories, the more it will cost the insurance companies. Being able to influence the definition of the categories is already shaping up as highly political matter, one for which the biggest companies are mustering their troops of advocates and allies.
Like many of the r recent federal policies, these new laws are likely to strengthen the hands of the biggest companies, at the expense of small companies and consumers.
