Category Archives: Pharmacy

Understanding Pharmacy Prices. Can It Be Done?

20130206There are several good reasons to know what your pharmacy is charging you for each of the drugs you order. You need to know actual prices in order to assess the value of similar drugs, like two different first generation cephalosporins. In fact, you will have to know this in order to be able to set up a Pre-Approved Drug List. You need to know when a particular drug has a sudden price decrease or increase so you can switch to the most cost effective drug. Finally, you want to know that you are being charged fairly. If a pharmacy sells you a drug for 5% more than the price they paid to the wholesaler to obtain it; that seems fair. But if they jack up the price literally by 46 times, well, that does not go down so well. (See story below)!

Unfortunately, pharmaceutical prices are among the most convoluted and hard to understand of all drug prices. They are kind of like airline ticket prices. Have you ever heard of the game in which passengers on a commercial airline flight compare what each of them paid for their ticket with the lowest price being crowned the winner? (Their reward is the deep satisfaction that comes from knowing that everyone else is jealous of them). Airline tickets are kind of a unique item in the economy in that the price varies depending on many factors like when you book, how you book, how often you fly, how many bags you check and on and on.

Who Can Understand Pharmacy Industry Jargon?

Pharmacy prices are similar to this. What you pay per pill for drug X at your facility may be far different than what the facility down the street pays. The system is so convoluted, in fact, that it sometimes can be hard to even find out what your pharmacy is charging you and how they derive this price.

Pharmacies have their own professional jargon that can be hard for outsiders to understand—just like us! We say, for example, that a patient has an “erythematous urticaria” when we mean “itchy red rash.” Pharmacists say “I’m charging you the Average Wholesale Price minus 12%.” What the heck does that mean?

It turns out that there are many pricing systems in the pharmaceutical industry. You only really have to know about two of them, but it is worthwhile to peruse a list of the others:

Average Wholesale Price (AWP)
Actual Average Acquisition Cost (AAC)
Wholesale Acquisition Cost (WAC)
Average Manufacturer’s Price (AMP)
Maximum Allowable Cost (MAC)
Federal Supply Schedule (FSS)
Federal Upper Limit (FUL)
Estimated Acquisition Cost (EAC)
Average Sale Price (ASP)
Usual and Customary Charge (UCC)

And that is not all of them! The problem is that each of these pricing systems can give amazingly different prices for the exact same medication.

Fortunately, you only have to know about two of these pricing schemes; one that you don’t want to use and one that you do want to use. Forget about all of the others.

Average Wholesale Price (AWP)

The one that you don’t want to use is the Average Wholesale Price (AWP). Historically, this is the most common price system used by pharmacies. The problem is that it is a misleading term. You would think that the “Average Wholesale Price” would be the average price that the wholesalers charge for a drug. Well, you would be wrong. AWP is not a wholesale price and it is not an average. It is just a price set by the pharmaceutical industry. It is debatable exactly where that price comes from. However, AWP is, on average, 20% higher than the true wholesale price. But can be as much as 120% higher!  That means if a pharmacy says to you “I’m going to charge you AWP less 12%,” that means that they will be making somewhere between 8% and120% profit on these sales.  (They were probably smiling when they said it).  And that is in addition to their “Fill fee,” which I will discuss in a future post.

In addition to being an inaccurate representation of wholesale costs, AWP is quite hard for the typical consumer, like you and me, to find. You can’t just look up AWP online. AWP are listed in certain pharmacy trade publications like The Red Book, but access to the Red Book is quite expensive. And even if you get one, you will find that a certain medication, say ranitidine 150mg, has not just one AWP like you would expect, but a bewildering array of AWPs that range in price from one cent a tablet to well over one dollar a tablet. Some AWPs apply only to hospitals, some to huge bulk purchases like Wal-mart would make. It is often almost impossible to decipher what would apply to your situation. I know. I have tried.
Some pharmacies really like to use AWP and I can see why. It has many advantages for them. AWP overestimates wholesale costs to the advantage of the pharmacy. The pharmacy understands it, but you don’t. In essence, AWP is what the pharmacy says it is! How are you going to know differently? If possible, do not deal with the AWP!

Average Actual Acquisition Cost (AAC)

The price that you want to use instead is the Average Actual Acquisition Cost (AAC). AAC is an estimate of the actual wholesale cost your pharmacy pays for medications. Instead of being head-scratchingly hard to understand, AAC is easy to understand. It is the true wholesale price. And instead of being almost impossible to find out, you can find out the AAC in one of two easy ways. First, you can ask your pharmacy for the AAC of medications you commonly order. Some pharmacies will give this information to you, no problem. If you have a pharmacy like this, consider yourself blessed. Other pharmacies can be quite loathe parting with this information.

Fortunately, there is a second way to find AAC prices: You can look them up online. Most state’s Medicaid programs utilize AAC to set Medicaid drug prices and publish the AAC on their website. If your state does not offer online access to AAC, feel free to use Idaho Medicaid’s AAC website, found here.

How Much Difference Does It Really Make?

Is the difference between AAC and AWP really that important? Here is a true story that illustrates the difference.

Like many doctors, I have a little black bag with some doctor tools and medications that I can use in urgent situations. One such “stat” medication that I keep in my black bag is ondansetron (Zofran), which is, of course, used to treat nausea. A couple of weeks ago, I went to a local chain pharmacy to get some new ondansetron for my black bag. I had looked up the AAC online before I went to the pharmacy and found that the AAC of generic ondansetron 8mg tabs was 15 cents apiece. For 30 of them, the total AAC would be approximately $4.50. Figure in a percentage markup and a fill fee and I thought I would be charged approximately $10.00-$15.00 for this prescription.
Instead, the pharm tech looked me in the eye and said “That’ll be $235.43.” The pharmacy had calculated the price using AWP!

$10.00 vs. $235.43. Now that is the difference between AWP and AAC in a nutshell. What would your facility have done had it been charged $235.43 for this prescription? Paid it without question, I suspect.

So getting back to the original question: Is it possible to understand pharmacy prices? The answer is Yes! As long as you use the Actual Average Acquisition Price. You can understand the numerous other pharmacy pricing schemes only if you understand their relationship to AAC.

Do you have a good relationship with your pharmacy? What do you pay for your pharmaceuticals?  Please Comment!

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Interesting Articles of the Week: Prescriber’s Letter and Medical Letter

20121128The saying goes that just half of what we were taught in medical school is wrong.   Also half of what we think we know about medicine now is wrong.  The problem is that we don’t know which half!  But this does mean that keeping up-to-date with the current medical literature is very important.  Why just yesterday I read that maybe leeches and purging aren’t such good treatments for headaches after all!

Two of my favorite sources of continuing medical education are the Prescriber’s Letter (found here) and the Medical Letter (found here).  Both provide evaluations of medications and changes in medical thinking that are unbiased by marketing from Big Pharma.  Both are subscriptions services (which they have to be since they don’t accept advertising) but both are well worth the money.

Recent editions of both publications have some really interesting information that I would like to share here.  Because I don’t want to infringe copyrights, I will summarize the information presented instead of “copy and paste.”  Those who are interested can look up the originals!

Prescriber’s Letter, January 2013

Beta Blockers for Hypertension?  Not for most patients!

Beta-blockers are no longer a preferred drug for uncomplicated hypertension.  Even though they do lower blood pressure, beta blockers are less effective in preventing long term bad outcomes like heart attacks and strokes than alternative medications like  diuretics, ACE inhibitors/angiotensin receptor blockers (ARBs) or calcium channel blockers. Atenolol appears to be the worst offender in this regard.  The one population in which beta-blockers should still be used are those patients who have had heart attacks or otherwise have known coronary artery disease.  So if your patient has had an MI, use metoprolol or carvedilol.  If not, use something else for hypertension.  Get rid of atenolol entirely.

The Medical Letter, Dec. 24, 2012

Can you use cephalosporins in patients with penicillin allergies?  Yes, in most patients.

I was taught in medical school that patients with a true penicillin allergy had a 10% risk of also being allergic to a cephalosporin.  It turns out that this is not true.  The true incidence of allergic reactions to cephalosporins in patients who relate a history of penicillin allergy is only 0.1%.

There are two reasons for this.  First of all, if you skin test all people who say that they are allergic to penicillin, only a small minority will be found to be truly allergic (I have heard less than 10%).  Second, even those patients who are proven to be allergic to penicillin by skin testing have only a 2% chance  (not 10%) of also being allergic to cephalosporins.

Chemically, penicillins and cephalosporins do share a common beta-lactam ring, but it is the side chains of the molecules, not the central ring, that cause allergic reactions.

So if a patient has almost died from a penicillin allergic reaction, i.e, Stevens Johnson Syndrome or toxic epidermal necrolysis or the like, I would not risk the 2% chance of repeating the event.  But if the patient gives a history of a vague rash thought to be due to penicillin, the risk of using a cephalosporin is very, very low.

Do you still use beta blockers for uncomplicated hypertension?  Why or why not?  Please comment.

Do you give cephalosporins to patients with a stated penicillin allergy?  We would like to hear your comments!

I have only listed two of my many favorite resources for Continuing Medical Education.  What are yours?  Please comment.

 

 

 

The F-Word. “Formulary!”

20021002Back when I worked in the Emergency Department of a large hospital, my medical staff assignment for many years was to the Pharmacy and Therapeutics Committee.  The P&T committee’s assignment was to develop a hospital Formulary and to establish guidelines and rules for medication use.   My hospital was not unusual.  In fact, every hospital has a drug formulary and a P&T committee to oversee it.

So when I got into correctional medicine, I was surprised to learn that “Formulary” is often considered to be a dirty word in corrections and many correctional facilities do not even have a formulary.

I have been told that one reason for this is that inmates, their attorneys and advocates (like the ACLU) sometimes define “Formulary” as a system that bans certain medications simply based on their cost without any consideration of the medical needs of the patient. “This is the best medication for my client and you denied it just because it cost too much.  As a result, my client suffered harm.”  So some facilities, I am told, are afraid to have a formulary because of its bad reputation.

But this is an incorrect definition of a formulary.  Formularies aren’t bad; to the contrary, a well-done formulary is good medical practice.  Every correctional facility should have a formulary and some mechanism for formulary oversight.  In fact, if you don’t have a formulary, you are practicing inferior medicine.

The first thing to understand about formularies is that having a drug formulary is the Standard of Care in your community.  Every hospital has a formulary. Nursing homes have formularies.  The VA has a formulary.  Your state’s Medicaid program has a formulary.  Why is this? Because formularies are good medicine.  Formularies have two basic functions.

Formularies and Drug Value

First, formularies do evaluate drug prices, but not to forbid medications based on cost alone but rather to evaluate drug Value.  “Value” in general is the benefit of a product, any product, divided by its cost.  The easiest way to assess value is by comparing prices of identical (or similar) items.  For example, if I want to purchase a new vacuum and the exact same model is sold at store A for  $50.00 less than store B, I usually will buy from store A because it is offering me a better deal, i.e. better value.

In pharmaceutical purchases, the value of a drug again is the benefit of that drug divided by its cost.  Since Value is easiest to assess when comparing similar drugs, my P&T committee spent a lot of time setting up lists of “Therapeutic Equivalents.”  This entailed reviewing the literature and making lists of drugs that had similar therapeutic properties.  A good example would be Proton Pump Inhibitors (PPIs).  The literature shows that the various Proton Pump Inhibitors are equivalent; there is no one PPI that is clearly better than any other.  So the preferred PPI for our hospital was the least expensive one.  This PPI was the best value.

Interestingly, the prices of similar models of vacuum cleaners don’t vary too much between stores.  The $50.00 cheaper price between store A and store B may represent only a 10% cost savings.  But the difference in pharmaceutical prices can often be mind-boggling.  For example, consider these two therapeutically equivalent PPIs:  as of January 2, 2013, the cost of Nexium was $6.15 per capsule.  But omeprazole costs 10 cents a capsule.  Is Nexium really 60 times better than omeprazole?  No!  They are therapeutically equivalent!

A formulary points these two facts out:  that the two drugs are therapeutically equivalent and that omeprazole is 60 times less expensive.  A formulary that absolutely forbids any physician to prescribe Nexium, ever, is called a “Closed Formulary.”  On the other hand, a formulary that allows Nexium to be prescribed in certain circumstances is called an “Open Formulary.”  In my hospital, if you wanted to prescribe Nexium rather than omeprazole, you would have to make a presentation to the P&T Committee as to why you thought Nexium (or any other non-formulary drug) was worth the extra cost.  Until then, the hospital pharmacy would not fill a Nexium prescription.  In fact, if you were to write an order for Nexium, the hospital pharmacy would automatically substitute omeprazole without even telling you—this is called “Automatic Substitution” and happens all the time in community hospitals.

Formularies Monitor Appropriate Drug Prescribing

The second main function of a formulary is to define and monitor appropriate prescribing within the facility.  As another example, we had one older physician who prescribed hydralazine as a first line agent for hypertension. The P&T Committee noted that this did not conform to any hypertension treatment guidelines (notably JCIS-7) and so did not permit the prescription to be filled until the physician explained himself.  Rather than come to a P&T Committee meeting, this physician chose, instead, to change his prescription to a standard agent. The reason, then, that hydralazine is non-formulary is not that it is expensive (hydralazine is, in fact, quite cheap); rather, it is because hydralazine has no indications as a first line antihypertensive.  There are other, better drugs that should be used yet before anyone thinks of using hydralazine.

Another way my P&T Committee’s formulary monitored prescribing was by making sure that specialty drugs were prescribed appropriately.  For example, the P&T Committee would not allow, say, an orthopedic surgeon to prescribe chemotherapy for leukemia without consulting an oncologist (don’t laugh, it really happens).  Some medications are so potentially toxic that their prescription should always be double-checked by someone:  a specialist, a P&T committee, or maybe just the facility medical director.  Thus, Peg-interferon for hepatitis C is non-formulary in my jails not because we do not want to use it, but because its prescription should be double-checked to make sure it is being used appropriately.

What’s in a Name?

The problem with the word “Formulary” is not with what a formulary does.  No one would object to monitoring appropriate drug usage within a facility or preferring the best value among equivalent drugs.  No, the problem with the word “Formulary” is that the word itself has taken on a negative connotation:  “Formulary” implies to some the denial of appropriate medical care based on cost alone.

One way to combat this notion is to use a different term for the processes of monitoring appropriate drug usage and preferentially using drugs with the best value.  This term should emphasize the “Open” nature of the process.  No drug is banned.  Any drug can be prescribed if the prescriber can justify the medical need for that particular drug over alternative therapies.  (That might be hard for a drug like hydralazine.  Or Nexium.  Or Ritalin in a county jail.  But it is not impossible!  In fact, I have allowed all three of those drugs to be dispensed in my jails in unusual but appropriate circumstances!)

“Pre-Approved” instead of “Formulary”

One term that works to convey this is “Preferred Drug List.”  My state’s Medicaid program uses that term.  But I think an even better term is this:  “Pre-approved Drug List.”  That term concisely conveys all of the important information:  the drugs on the list can be prescribed without obtaining outside approval.  Obviously, cancer chemotherapy is not going to be on that list.  Neither is Nexium.  But the term also implies that there is a mechanism to obtain approval for drugs not on that list.

Next:  A step-by-step guide on how to set up a “Pre-Approved Drug List.”

Has your facility had problems setting up a formulary?  Has your facility had particular success with your formulary program?  Please comment!

Interesting Article of the Week Plus Price Check!

An acquaintance complained to me recently that he was struggling to afford his medications, which cost him a couple of hundred dollars a month.  I looked at his medication list and saw (among other examples) that he had been prescribed the statin Crestor, which costs $5.00 a pill, even though generic simvastatin costs just 3 cents a pill!  He was prescribed the Angiotensin Receptor Blocker (ARB) Benicar ($4.26 a pill) even though the generic ARB losartan costs 7 cents a pill.

When I called the prescribing doctor on behalf of this patient, the doctor readily changed his prescriptions to the more affordable brands.  But why would he prescribe expensive stuff his patient couldn’t afford in the first place?  That is the subject of our interesting article of the week.

Ann Pharmacother. 2012 Feb;46(2):200-7. Epub 2012 Feb 7.

Assessment of prescribers’ knowledge of the cost of medications.

Cogdill BNappi JM.

(Click here to go to the PubMed citation)

This study assessed physician and medical students’ knowledge of drug prices. The prescribers in the study did amazingly poorly on a test of their knowledge of drug prices.  That didn’t surprise me.  What did surprise me, however, that the prescribers seemed not to care that they did not know drug prices! They didn’t seem to think it was important.  These prescribers also routinely prescribed medications without knowing or checking whether their patients had insurance that would cover the drug.

This attitude may be common (common?  Almost universal!) in the outside world of medicine, but it has no place in Correctional Medicine.  We prescribers who work in correctional facilities need to have an idea of what drugs cost.

  1. Most of our patients will eventually get out of our jails and prisons.  Most of them will not have medical insurance.  We need to prescribe medications that they will be able to afford.
  2. Besides being medical practitioners, we also are stewards of the money the county or state spends on medical care within our facility.  Every dollar that we spend needlessly is a dollar that cannot be used for something else.
  3. Besides looking for effective medications, we also need to look for medications with high value.  Value is a concept that seems to have been forgotten in modern medicine, as practiced in the United States at least.

What is the Value of a Drug?

The “Value” of a drug can be defined as the benefit of that drug divided by its cost.  If medication A and medication B both achieve the same result, but medication A is 20 times more expensive than medication B, then medication B has 20 times more value.

Sometimes, new and expensive drugs are touted by drug reps as having, say, “17% improved relative benefit” over the old, generic drug.  Almost always, these claims are unfounded or the difference is clinically meaningless.  But even if it is true, the generic drug  will still usually have more Value.  Nexium versus omeprazole is a good example.  AstraZenica, the maker of Nexium, claims that Nexium provides slightly better stomach acid control than does omeprazole.  Most experts do not believe this, but even if it is true, omeprazole costs 10 cents a pill, whereas Nexium costs $6.15 a pill.  Is Nexium 61 times more effective than omeprazole?  The answer is, of course, no.  Instead, omeprazole is 60 times more Valuable than is Nexium.

So why is Nexium one of the best selling drugs in the world?  The Interesting Article of the Week has the answer:  Because U.S. doctors don’t know how much Nexium costs and they don’t care.  Sad.

Let’s make sure that we Correctional Medical Specialists know the basic price of the drugs we use.  To do this, we need a source.  Your pharmacy is one source.  Have your pharmacy do a price comparison for you on a different category of drug every month.  You can also find the acquisition cost of most medications online.  Here is the one I use:  The Idaho Average Acquisition Cost Drug List.  It is published by Idaho Medicaid and is updated every two weeks.  You can find it here.

Price Comparisons

Here is the Average Acquisition Cost Drug List price for the medication classes I discussed in today’s post:

Angiotensin Receptor Blockers

Generic Drugs Brand Name Drugs Price per Pill
Losartan (Cozaar)50mg $0.07
Irbesartan (Avapro)150mg $1.83
Atacand (candesartan) 4mg $2.79
Benicar (olmesartan) 40mg $4.26
Diovan (valsartan) 40mg $2.67
Micardis (telmisartan) 40mg $4.02

Comment:  If you have to use an ARB rather than an ACE inhibitor, why would you use anything other than losartan (at least until the price of irbesartan falls to comparable levels?)

Statins

Generic Drugs Brand Name Drugs Price per Pill
Atorvastatin (Lipitor) 20mg $0.22
Simvastatin (Zocor) 20mg $0.03
Pravastatin (Pravachol) 20mg $0.07
Crestor (rosuvastatin)20mg $4.99
Livalo (pitavastatin) $4.14

Comment:  Note that atorvastatin is rapidly falling in price and will soon be comparable to simvastatin and pravastatin.  Lipitor was once the top selling drug in the world!

Proton Pump Inhibitors

Generic Drugs Brand Name Drugs Price per Pill
Omeprazole (Prilosec) 20mg $0.10
Lansoprazole (Prevacid) 15mg $1.27
Pantoprazole (Protonix) 20mg $0.09
Nexium (esomeprazole) 20mg $6.15
Dexilant (dexlansoprazole) 30mg $4.67
Aciphex (rabeprazole) 20mg $8.61

Comment:  Note that pantoprazole (Protonix) is now even a little less expensive than is omeprazole!  And remember that omeprazole also has an OTC formulation, so you can put it on your commissary, so inmates won’t have to come to you to get it.

Do you track drug prices at your facility?  How do you do it?  Please Comment!

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Essential Pearls from Essentials

Essentials of Correctional Medicine was held last week in Salt Lake City, Utah and included some great talks.  Today’s post is a list of Pearls I gleaned from the conference speakers.

The definition of a “Pearl” is a bit of pithy and insightful information that can be communicated in one or two sentences. Hopefully, it is also something that you have not thought of yet and will change your practice for the better.

I ran into several Pearls at the Essentials conference. Here is a sampling (in no particular order): Continue reading

A Daring Plan for Discharge Meds!

One of the “systems” problems that all jails have to deal with is what to do with medications when a patient is released from jail.  Prisons deal with this issue as well but tend to have fewer headaches than jails, mainly because they know exactly when inmates are leaving the facility and can plan ahead.  In jails, often we don’t know exactly when a patient will leave.  Continue reading