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ucts and if the product is not as efficacious as the manufacturer predicts, the manufacturer reimburses the PBM for the unsuccessful drug therapies [74]. We are now witnessing aggressive pricing strategies by brand-name companies on new products to compete with other brand-name products, backed by efficiency-based money back guarantees for the product (e.g., fluvastatin). The PBMs are benefiting from all of this and saving a great deal of money. |
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2. The Expanding Role of Formularies |
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Formularies are preferred lists of drugs developed for an institution by a committee of experts based on the needs of patients and the institution. They have been around for four decades and formularies are currently used by virtually all state Medicaid programs, 90% of the nation's hospitals, 93% of the HMOs, and 70% of nursing homes [75,76]. Unfortunately, they sometimes become merely cost-containment devices rather than techniques to improve the quality of patient care [77]. These formularies are moving to closed, restrictive categories. |
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Do sales losses resulting from the widespread use of formularies have a substantial adverse effect on the incentives to develop and market new drugs, particularly those that have small annual sales? Data examining availability on Medicaid formularies demonstrates that failure to gain reimbursement for two years after marketing, caused by delays in formulary approval, results in sharp limitation in sales [78]. One study found that only 20% of new drug introductions were accepted onto all six studied state Medicaid formularies. Interestingly, the group of drugs rated as significant therapeutic advances was the least available to Medicaid patients [79]. The study investigator concluded that losses of sales resulting from the widespread use of formularies have a substantial adverse effect on incentives to develop and market new drugs, particularly those that have low annual sales. There is no doubt that this affects new drug development but further research is needed to quantitate the magnitude of this effect. |
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3. Generic and Me-Too Drugs |
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Section 202 of the Drug Price Competition and Patent Term Restoration Act has led to stockpiling and flooding the market as soon as the patent expires. While this may provide quicker access to lower priced generics, innovator pharmaceutical companies face generic competition earlier and lost market share quicker. |
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The prescription share of generics has doubled since the mid-1980s and is expected to reach 50% in 1995 [49]. A large number of breakthrough drugs are coming off patent in the 1990s. Pushed by the generic embrace of managed-care providers, many consumers continued to seek out generic substitutes to branded products. However, pharmaceutical companies that once |
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