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http://www.nytimes.com/2002/12/26/politics/26DRUG.html

Drug Makers Battle Plan to Curb Rewards for Doctors

By ROBERT PEAR

ASHINGTON, Dec. 25 — Drug companies and doctors are fighting a Bush administration plan to restrict gifts and other rewards that pharmaceutical manufacturers give doctors and insurers to encourage the prescribing of particular drugs.

In October, the Department of Health and Human Services said many gifts and gratuities were suspect because they looked like illegal kickbacks. Since then, a few consumer groups, including AARP, have voiced support for the restrictions. But they are outnumbered by the drug makers, doctors and health maintenance organizations that have flooded the government with letters criticizing the proposal.

In contending that the proposed federal code of conduct would require radical changes, those opposing the change discuss their tactics with unusual candor and describe marketing practices that have long been shrouded in secrecy.

Drug makers acknowledged, for example, that they routinely made payments to insurance plans to increase the use of their products, to expand their market share, to be added to lists of recommended drugs or to reward doctors and pharmacists for switching patients from one brand of drug to another.

Insurers, doctors and drug makers said such payments were so embedded in the structure of the health care industry that the Bush administration plan would be profoundly disruptive.

Moreover, doctors said that drug companies were a major source of money for their professional education programs, and that the administration proposal could drastically reduce such subsidies.

"Without financial support from industry, medical societies would most likely be forced to curtail or stop offering these important educational activities," said Dr. Michael D. Maves, executive vice president of the American Medical Association.

Doctors of all types echoed that concern.

The arguments were made in a public comment period. The administration said it was considering those comments and expected to issue final guidelines in a few months.

In its guidance to the industry, the government warned drug makers not to offer financial incentives to doctors, pharmacists or other health care professionals to prescribe or recommend particular drugs. The government said the industry's aggressive marketing practices could improperly drive up costs for Medicare and Medicaid, the federal health programs for 75 million people who are elderly, disabled or poor.

But a coalition of 19 pharmaceutical companies, including Pfizer, Eli Lilly and Schering-Plough, said the Bush administration proposal was "not grounded in an understanding of industry practices." The payments and incentives to which the government objects are standard in the drug industry, they said.

Merck & Company said it routinely gave discounts and payments to health plans to reward "shifts in market share" favoring its products. Merck complained that the administration proposal would "criminalize a wide range of commercial conduct" that the industry regards as normal and entirely proper.

The Pharmaceutical Research and Manufacturers of America, the chief lobby for brand-name drug companies, acknowledged that these payments created a strong incentive to prescribe certain drugs, or to shift patients from one drug to another. But, it said, that did not make the payments "illegal kickbacks."

Solvay Pharmaceuticals of Marietta, Ga., told the government: "We understand that bribes and other hidden remuneration should be prohibited. However, a policy statement that declares well-established commercial practices potentially criminal creates a chilling effect on commerce and ultimately harms all consumers."

The American Association of Health Plans, which represents most of the nation's H.M.O.'s, said the proposed standards "cast doubt on the propriety of many well-established practices undertaken by health plans to develop and administer their drug benefits."

Drug manufacturers said they often encouraged the use of their products by making payments or giving discounts to H.M.O.'s and to the specialized companies that manage drug benefits for millions of Americans. Such companies, known as pharmacy benefit managers, can exert immense influence over what drugs are prescribed and dispensed.

H.M.O.'s and pharmacy benefit managers said they typically received money from the manufacturer of a drug if sales of that drug reached a certain level — say 40 percent of all the prescriptions for cholesterol-lowering agents. The manufacturer may agree to a higher payment if the drug achieves a larger share of the market.

While describing such arrangements, the drug companies, doctors and insurers did not divulge who received how much for promoting a specific drug, nor did they provide details of individual marketing campaigns.

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The Bush administration proposal received support from one H.M.O., the Great Lakes Health Plan, which serves more than 90,000 Medicaid recipients in Michigan.

Eric J. Wexler, general counsel of the Great Lakes plan, said pharmacy benefit managers sometimes sent letters to doctors recommending that they shift Medicaid patients from generic drugs to brand-name medicines. In many cases, Mr. Wexler said, the brand-name drugs cost more, but are less effective.

For each letter sent to a doctor, Mr. Wexler said, "the pharmacy benefit manager receives an administrative fee, and it may get additional remuneration for converting patients from one drug to another."

AdvancePCS, a pharmacy benefit manager based in Irving, Tex., confirmed that it received payments from drug companies for letters sent to doctors and patients urging them to use particular drugs.

But it said the payments — typically a flat fee for each letter — were for educational services that could help control drug spending.

Kaiser Permanente, a nonprofit H.M.O. based in Oakland, Calif., said the administration plan would impair its ability to negotiate lower drug prices for its 8.5 million members because it suggested that discounts and rebate payments create "a prosecutorial risk" under the kickback law.

The Blue Cross and Blue Shield Association said the proposal would impede what it described as legitimate cost-control measures.

"Pharmaceutical companies may be less willing to offer large discounts if those discounts cannot be tied to movements in market share," said Alissa Fox, policy director for the association, whose members insure more than 84 million people.

LaVarne A. Burton, president of the Pharmaceutical Care Management Association, which represents pharmacy benefit managers like Express Scripts and AdvancePCS, said that "manufacturers may cease offering discounts," rather than run the risk of liability under the proposed guidelines.

But the Food Marketing Institute, whose members operate 12,000 supermarket pharmacies, applauded the proposal. "Pharmacy benefit managers routinely refuse to disclose their financial arrangements with drug companies," said Tim Hammonds, president of the institute, "and they do not wish to be subjected to any kind of accountability, such as an annual audit."

As a result, Mr. Hammonds said, "it is not possible to know with any certainty whether P.B.M.'s are helping to control drug costs for the federal government or if these middlemen are contributing to skyrocketing drug costs."

The administration proposal says that when drug executives discover evidence of illegal conduct, they should report it to federal authorities within 60 days. Also, it said, drug makers should consider offering rewards to whistle-blowers and should prominently display the phone number for reporting Medicare fraud to the government (1-800-447-8477).

The coalition of drug makers objected to these recommendations, saying they would undercut the companies' efforts to police themselves.

The American Medical Association said drug companies should not be forbidden to give doctors pens, notepads and other items of nominal value that have "no correlation to any service provided by the physician to the pharmaceutical company." Such "giveaway items" are harmless, it said.

But the Massachusetts Medical Society suggested that "these items would not be so readily produced if they were not an effective form of advertising."

The society asked: "Is the physician who writes a prescription with a company's logo on the pen more likely to write a prescription for that advertiser? Are patients more likely to request a certain drug because they see the notepad on the doctor's desk?"

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