Master Public Administration

The Oregon Approach

Concerned that skyrocketing prescription drug costs were hurting its seniors and eating up its Medicaid

budget, Oregon created its own version of Consumer Reports to help doctors and consumers make

wiser choices about prescription drugs. Scientific committees compare drugs for safety, efficacy and

price and, through this evidence-based research, develop a preferred drug list, or formulary. It's an

approach based not on controlling prices, but on maximizing value for money. As of June 2003, roughly

20 states are working on adopting in some form the Oregon model.

Here are the views of Sidney Taurel, chairman, president and CEO of Eli Lilly; Uwe Reinhardt, an

economist who specializes in health issues; Raymond Gilmartin, chairman, president and CEO of Merck;

Marcia Angell, former editor in chief, The New England Journal of Medicine; Richard T. Evans,

pharmaceutical analyst, Sanford C. Bernstein & Co.; and John Kitzhaber, former governor of Oregon.

Uwe Reinhardt, Professor of economics and public affairs, Princeton University

I think eventually all states will [adapt Oregon's approach] . ... Eventually people will say, "We will

establish a non-binding" -- not formulary. It's really an information system. The way they developed this

list about "rationing health care" was very democratic.

You could do something like that with a formulary. In other words, you could have scientists put it out

there. Then you could have citizens and pharmaceutical industry being able to take potshots at it, and

ultimately come to some decision in a democratic society.

But what we now have is a jungle. It's an information jungle, which I think is, in a way, unseemly for an

advanced society. ...

I think physicians should be the information manager in drug therapy. But in fact -- even doctors tell you

-- most of the information about drugs comes to them from the detail men and women who visit them.

There doesn't seem to be an organized method of conveying this information. ...

There's so much talk about concern over quality in the American Medical Association. But after 30 years,

they have never produced an information system that would keep a doctor up to date on new drugs. I

think that is the weak link. If I had my druthers, I would say, "Every five years doctors must be re-

licensed. They must pass a written exam, and one-third of that exam would be pharmaceutical therapy.

'Are you up on the latest drugs? Do you know what they do? Do you have any vague idea what they

cost?'" Just force the doctors to be up to speed.

Because at the moment, most of this education comes from people who have a stake in getting you to

use their drug?

Most of the information is tainted, in the sense that it comes from people who are trying to sell a drug.

John Kitzhaber, Former governor of Oregon. He led the state's effort to develop a Consumer Reports-

style preferred drug list for its citizens.

We designed this bill to make sure that we didn't substitute government regulations or rules for clinical

judgment. The ultimate treatment decision is in the hands of the provider. So if you're, let's say, a

physician, and someone comes in and there's a clinical reason that you believe they should have a drug

that's not on our preferred drug list, all you have to write is "Do not substitute" or "DNS" right across the

face of the prescription, and we pay for whatever the other drug is. So that was a question.

The first two months of experience we've had suggests the physicians are using this information. One of

the drugs that we evaluated are called long-acting opiate analgesics. They're opium-based pain

medications. And one of the most expensive is OxyContin. It's a brand name, heavy advertising, high

usage. In the first two months, prescriptions for OxyContin dropped significantly, and prescriptions for

morphine sulfate LA, a long-acting morphine sulfate, which is our preferred drug, went up significantly.

So I believe that physicians really want this kind of information. I mean, physicians are trained to

science, and they want good information. They just don't have access to it. And that's what we're trying

to develop.

Will what you're doing in Oregon change the way drug companies do research, forcing them to do these

head-to-head studies?

I think head-to-head studies ought to be done, publicly funded, and ought to be very open and

transparent. I don't think they should actually be done by the drug companies. I think they should be

funded by a neutral, objective third party.

Richard T. Evans, Senior research analyst, global pharmaceuticals, Sanford C. Bernstein & Co.

I think the basic Oregon framework makes sense, which is you, as a large buyer, decide that you are

going to make intentional decisions as to what technologies you buy and what technologies you don't

buy. That, as a basic framework, makes all the sense in the world. The risk is that Oregon, as a state, is

under extraordinary financial pressure and at least some of the decisions that seem to be coming out of

that framework tend to have more of an economic motive than a scientific motive.

So there are plenty of drug categories where one drug is just as good as another one. You can play those

drugs off of each other and get a lower price. God bless them. Go do it. It's a good thing to do. But I

think if you're economically strapped, as Oregon and many states are, you can make inappropriate

clinical decisions for just a short-term economic gain. So we get into the same trade-off. What you are

trading off is today's access to good technology for current savings.

Raymond Gilmartin, President, chairman and CEO, Merck

In Oregon, some big drugs have failed to make the formulary -- Lipitor, Vioxx. Does this system make

you nervous, or do you think it's a good system long-term, if it's fair because it's a level playing field for

everybody?

In the private sector, as well as in a state like Oregon, basically companies that have health benefits for

their employees and who use health plans rely upon these health plans through their independent

pharmacy and therapeutic committees to look at drugs. They generally classify them into different

categories. They recommend generics as appropriate. They recommend that there are groups of

medicines that look very similar and therefore are liable for price competition, and then others that are

absolutely essential, that there are no equivalents. Therefore, we're very much in favor of a system

which basically encourages competition among the medicines, because that's ultimately the way that

we're going to control costs, and it's in a system in which the best medicine wins.

Now in the private sector, you have the circumstance where you have many competing health plans.

Basically they have to make the best possible decision on behalf of the plan member, or the corporation,

or the plan members are going to choose a different health plan. So there's a built-in check as to

whether or not people have access to their medicines. Once you get into a government-run system

where you don't have that competitive environment -- in theory, this is a very good way to go -- [but]

once again, one has to watch out for the potential downsides, or even the unintended consequences of

people being denied access to medicines arbitrarily and inappropriately.

But it's one thing to use preferred drug lists or formulary management, as it's called, as a way of

stimulating price competition. It's quite another thing to try to use that to set prices. So once you move

from market competition or price competition to setting prices, then you run the same kind of risks they

have in Europe of having a declining industry in terms of its ability to innovate.

Sidney Taurel, Chairman, president and CEO, Eli Lilly

What's wrong with the state using its money in the most wise, efficient way possible? Oregon -- while

Lipitor lowers cholesterol, there is no evidence it reduces heart attacks, so they prefer the other drugs.

What's wrong with that?

Again, I think what formularies in general do is ignore the individual differences between individual

patients. Different patients react differently to different drugs. ... Physicians should have the final word

as to which product should be used based on the needs of each individual patient.

But make all that information available to physicians, rather than have a commission or bureaucrats

decide what's good for everyone.

This would incentivize pharmaceutical companies to do this kind of post-market research.

There is absolutely no question that pharmaceutical companies should do everything in their power to

understand the benefits and the disadvantages of the drugs that they put on the market. A lot of this

research occurs before the launch; a lot of it needs to occur after the launch, as we learn more in

practice about those drugs. So I'm totally in favor of pursuing more clinical research. If incentives can

exist to do that, that's fine.

I don't see what the states are supposed to do. If you're against price limitations, quality is the only way

they can go. They have to use an evidence-based approach. They don't have any other sources of

money.

[I] think if I were a state governor, I would not focus exclusively on something which represents 10

percent of my total [health care] expenditures. I would really look at what are the other things I can do

with the other 90 percent. ... Simple case management can improve costs and outcome tremendously.

Improvement in malpractice laws can improve the costs tremendously. ... We estimate that 40 percent

of all lab tests performed in this country are either duplicative or unnecessary.

Marcia Angell, Former editor in chief, The New England Journal of Medicine

If we did have effective head-to-head studies for drugs, could we save a lot of money?

We could save an awful lot of money. The FDA itself indicates that 56 of the 66 newly approved drugs

last year were "me too" drugs. If each of these drugs had to be compared with the best of its class

already on the market, I would imagine that most of them would never reach the market. Nor would

you see promotions, I mean, this constant marketing of drugs that are just like other drugs. ...