Medicare HSAs May Compel Drug Industry To Rethink Position On OTCs

The growth of health savings accounts could force pharmaceutical companies to rethink their approach to OTC switches and consumer marketing, medical economist J.D. Kleinke told the Pharmaceutical Research & Manufacturers of America.

HSAs will have "profound implications for things like deciding about OTC switches, something which you have resisted for a long time and suddenly you may very quickly embrace," Kleinke said during a panel discussion as part of the PhRMA annual meeting April 3 in Palm Beach, Fla.

The Medicare prescription drug benefit, signed into law in December 2003, allows for the creation of HSAs.

The program allows employers to offer high-deductible insurance policies (typically $2,000) while giving employees control of pre-tax accounts to cover medical expenses up to that threshold.

Kleinke maintained that the HSA provisions in the Medicare law will become the defining feature of the bill, in much the way the privacy provisions of the Health Insurance Portability & Accountability Act (HIPAA) are now considered the central element of a law that was created for other purposes.

He also compared the Medicare bill to the Employee Retiree Income Security Act (ERISA), which originally was designed to set minimum standards for voluntarily established pension plans in the private sector. The law is now considered the governing statute for employee-sponsored healthcare plans.

Adoption of HSAs could eventually lead to "the breakup of the health insurance system into truly a consumer business and truly an insurance business," Kleinke said.

Consumers managing their own spending for prescription drugs will bring much different sets of expectations than those who have conventional third-party coverage.

"That is going to revolutionize the industry structure in terms of [mergers and acquisitions], in terms of internal [organization]," Kleinke said. "The industry needs to recognize that it will be in the consumer business very soon."

The level of consumer awareness could reach a point that participants will choose their insurance plans based on the brands of drugs covered, thereby putting a premium on building brand loyalty.

For example, a drug company could refuse to sign up with an insurer unless the group's pharmacy benefits manager covers its branded product. "PBMs will be the arbiters...People will pick their PBMs...based on 'I like this brand,'" Kleinke said.

"The traditional heterogeneous pharmaceutical company that sells all things to all people will really bifurcate into two businesses," he said.

As a result, pharma companies may move away from the current attitude that OTC switches are a step to be resisted until all other life-cycle extension strategies have been exhausted, Kleinke suggested.

Look back a decade from now, " Prilosec may be one of those tipping point compounds," Kleinke said. He also defended the pharma industry during the panel (see chart: " ¹ Kleinke's Defense Of Big Pharma ").

The launch of an over-the-counter version of AstraZeneca's proton pump inhibitor by Procter & Gamble has been a significant commercial success and has created a ripple effect on the prescription PPI category.

FDA Office of New Drugs Director John Jenkins recently pointed out that it has not been lost on the agency that pharma companies begin thinking about switches only as the Rx patent life is set to expire (² (Also see "FDA Guidances On Actual Use Studies, Switches Will Clarify Agency Processes" - Pink Sheet, 22 Mar, 2004.), p. 5).

Jenkins said that both the pharmaceutical and insurance agencies need "to come to grips" with their consumer healthcare goals.