Pharmaceutical Industry Disclosure Practices

Nancy Oliva hadn't paid much attention to her insurance plan's requirement that she pay half the cost of prescription drugs. Then the cashier at ShopRite told her she owed $636 for seven pills.

Oliva, 60 years old, was diagnosed with a rare type of brain tumor earlier this year. She was prescribed a new drug to be taken in combination with radiation. The retail price of a one-week supply of the pill, called Temodar, is $1,272.

Oliva, who earns about $40,000 a year managing a clothing store in Long Beach Island, N.J., pulled out her American Express card that day in September and paid, unsure where she was going to find the money for the next week's supply. Fortunately, the nurse at her doctor's office found help for her from a charity, Patient Services Inc., which picked up her drug co -payments -- $3,800 for a six-week course of treatment.

The twist: The money for her co-payments came from Schering-Plough Corp., the drug's maker.

To cope with rising medical costs, insurers are requiring patients to pay higher premiums and co-payments for drugs. While poor, uninsured patients often can get expensive medicine free from drug companies, people with insurance increasingly are finding it difficult to afford these drugs.

In response, drug companies are giving money to charities that are specifically set up to help patients pay such costs.

Under this support system, drug-company money keeps patients insured -- and keeps insurers paying for the high-priced medicine.

"It's a win-win situation," said Dana Kuhn, co-founder and president of Patient Services, a Midlothian, Va., charity that solicits money from drug companies. "Patients are helped, and companies are helped. They make a small contribution to help the patient and get much more money back when the insurer pays for the drug."

Drug companies also often take a tax deduction for their donation.

But critics contend the arrangements unfairly let drug companies protect the prices of their most-expensive medicines.

"I don't want to discount the legitimate help they provide to people in need," said Scott Howell, an internist who serves as vice president of pharmacy affairs at Highmark Inc., a Blue Cross and Blue Shield company in Pittsburgh. "But it's really a clumsy way for manufacturers to game the system so they can continue their high pricing."

The efforts, critics said, are a short-term fix that doesn't address the underlying problem: the soaring cost of ultra-expensive drugs. They argue that by paying patients' premiums or co-payments, drug companies are shifting most of the price of these medicines to the patients' insurers, who in turn spread the cost onto the other people they cover.

"This is not a sustainable level of spending," said Alan Garber, chairman of the Medicare Coverage Advisory Committee and director of the Center for Health Policy at Stanford University. "The idea of making drugs available to people who can't afford it is very appealing, but the net effect is for the drug company to appropriate most of the gain."

Drug companies say the high prices of new drugs allow them to recoup development costs and invest in research, as well as provide return for their shareholders. Donating to groups that make insurance payments helps people get their medicine.

A Schering-Plough spokeswoman said the company contributes to Kuhn's charity "as a resource for patients." She declined to say how much Schering-Plough donates to such programs.

Patients are grateful for the help.

"Whoever thought a week's worth of pills could cost $1,200?" said Oliva, who is now taking another round of Temodar. "But I'm so pleasantly surprised that someone is trying to help me stay alive, and it's the drug company, of all people."

The need for financial-assistance programs is growing. The biotechnology revolution has created hundreds of drugs for chronic, life-threatening illnesses.

But many are coming to market at high prices. In May, the U.S. Food and Drug Administration approved a drug for a rare genetic disease, called MPS-VI, made by California-based BioMarin Pharmaceutical Inc., which costs an average of $300,000 a year. Other new drugs cost less, but are still pricey, such as cancer drugs Avastin, at $50,000 a year, and Erbitux at nearly $120,000 a year.

Unlike traditional medicines that are made by mixing chemicals, many newer drugs are proteins grown in cells, which is a complex, expensive process. Companies say costly manufacturing also leads to higher prices. On the other hand, the gross profit margins on some of these drugs can exceed 90 percent.

While Patient Services developed the concept of soliciting drug-company money to pay insurance premiums, the National Organization for Rare Disorders, a Connecticut nonprofit, recently began performing the same kind of middleman role.

"Everybody knows what has to happen -- that these prices have to come down," said Abbey Meyers, the group's president.

For now, she said, "we're trying to work with drug companies in a way that's acceptable to them and that also helps patients. We're doing the best we can."

A few smaller charities have sprung up recently with similar plans.

Companies including Amgen Inc., Genentech Inc., Genzyme Corp., Teva Pharmaceutical Industries Ltd., Baxter International Inc., Novartis AG and ZLB Behring also donate to these programs.

Kuhn, 52, who suffers from hemophilia, co-founded Patient Services, also known as PSI, in 1989 while working as a counselor at a Richmond, Va., hospital. He saw hemophiliacs struggling to pay rising premiums to maintain insurance coverage for Factor VIII, the blood-clotting protein they need to stay alive. The drug today costs about $100,000 a year.

Kuhn approached companies making the drug for a donation to help patients pay premiums.

"Our argument was, 'If you donate $50,000, we can keep these people insured and provide revenue for you,' " he said.

Baxter and Armour Pharmaceutical Co., two of several companies that made the drug, each contributed $50,000 the first year. The program has grown steadily, now assisting people with 19 different chronic illnesses.

Last year, Patient Services raised $22 million, helping nearly 20,000 patients pay premiums and co-payments. About $17 million of that came from 13 drug companies.

Third-party charities struggle to maintain a working balance with corporate donors.

Maria Hardin, vice president of patient services at the National Organization of Rare Disorders, said companies routinely press the group to give out more patient information than it legally can provide.

"There's a lot of whining going on with them asking, 'What percentage of the fund is taking care of our patients?' We can't provide that information," she said.

Kuhn's charity is growing so much that it plans to build a $1.7 million, 15,000-square-foot building. One reason he expects demand for assistance to rise is that next year, Medicare will start a program to help the elderly afford drugs. Currently, Medicare doesn't pay for most prescription drugs.

But the new Medicare program is structured so that some patients on expensive drugs will still have to come up with thousands of dollars to pay out-of-pocket costs.

Long-term support from the charities is uncertain. Kuhn said patients are guaranteed assistance for two years. After that, it is hoped that they can be weaned off the program, by finding a different insurance plan or a new job with better benefits.

"We don't want to become a social-service agency," he said.

Pharmaceutical Industry Disclosure Practices