GM's bitter pill
Wednesday, September 27, 2006
THE GENERAL AND THE BEAST
GM's bitter pill
Automaker spends billions on drugs for aging workers, retirees
Ron French / The Detroit News
PORT ST. LUCIE, Fla. -- When General Motors Corp. CEO Rick Wagoner has nightmares, they might be about Toyota. Then again, they might be about Mae Gumbinger.
The 79-year-old wife of a GM retiree in Port St. Lucie, Fla., takes 15 prescription medicines each day. She takes Plavix to thin her blood and Mincandis to lower her blood pressure. She swallows Namenda and Aricept for her memory, Clarinex for her allergies and Nexium for her stomach. One pill helps her sleep, another pill cuts her pain, and six more prescriptions are supposed to help with a skin condition she's had for years, though she can't remember what the skin condition is and she's pretty sure the drugs aren't helping.
General Motors will pay about $16,000 for drugs this year for Mae and her husband, GM retiree Ralph Gumbinger, the equivalent of giving the couple a new Chevrolet Malibu.
"I'd say we've been lucky," said Ralph, 69, who worked in Pontiac in fleet sales before retiring in Florida. "We can't complain."
His former employer can.
The average worker, retiree and family member whose medical bills are paid by GM gets 15 prescriptions per year -- 50 percent more than the national average. The automaker pays a whopping $1.9 billion for prescription medicine alone.
GM's drug problem illustrates the trouble facing the automaker and the nation as a whole. Americans lead the world in pill consumption. We take drugs today for medical conditions we didn't take drugs for 10 years ago. In some cases, we take medicine for illnesses that weren't considered illnesses 10 years ago.
It's a financial crisis expected to explode in the next 20 years as baby boomers join the ranks of senior citizens, who consume the lion's share of pills. With about four retirees for every active employee, GM is a harbinger of the problem the United States will face in coming years.
When a year's supply of some cancer drugs costs more than a $50,000 Cadillac DTS, General Motors and the rest of the country have a problem.
"I can see GM's side of it," said Ralph Gumbinger. "They've got to make money. I don't know what the answer is."
Cynthia Kirman is supposed to find those answers, which may account for her nervous smile as she sits in GM's health care war room in Pontiac. She steadfastly avoids complaining about the drug companies that as recently as 2004 made higher profits than oil companies or the workers who take Nexium rather than stop eating chili fries.
Instead, GM's pharmacy director spends her days poring over drug usage data, looking for ways to plug a very leaky dike. She can tell when there is a successful television ad campaign for a new drug. She can tell when a drug is being used "off-label" -- for an illness for which it wasn't intended.
She knows that 60 percent of the antibiotics GM pays for are a waste of money because they're prescribed for ailments that don't respond to antibiotics. She knows GM spends $17 million a year on sexual dysfunction pills when a national study showed that two-thirds of men ages 18-45 using the drugs don't need them.
Usually, it's depressing work, watching GM's costs soar despite her best efforts.
In June, Kirman and GM caught a break. Zocor, a popular cholesterol-fighting drug, lost its patent protection, meaning that generic equivalents could be produced by other companies.
Generic drugs have the same chemical makeup of their brand-name siblings but are cheaper to produce because there are only nominal research and development costs. Zocor cost $4.50 a pill; the generic version cost 90 cents. Kirman kicked off a campaign to inform GM's 1.1 million insured that a generic alternative was now available.
Generics ease GM pain
GM pays the medical bills for about 250,000 people taking cholesterol-lowering pills, including Lipitor, the top-selling drug in America. If they all switch to the generic version of Zocor, GM could save more than $100 million.
"This is one of the biggest opportunities GM has ever had to lower our cost for treatment," Kirman said.
When Kirman joined the automaker in 1999, about half of GM employees used brand name drugs even when generic versions were available.
Education and financial incentives have increased generic use to 98 percent when they're available, saving GM $392 million per year.
But those savings barely slowed the rise in GM's drug costs. Even with the use of generics and deep discounts GM is able to negotiate because of its size (about 40 percent off retail drug prices), drug costs are likely to surpass $2 billion this year.
Even as some pills become cheaper, usage has exploded. GM believes drug consumption has doubled in the past decade.
Reasons for soaring drug use include:
The United States and New Zealand are the only nations that allow prescription drug advertising. Drug ads have proliferated over the past decade, coinciding with the soaring use of prescriptions. In 2005, pharmaceutical companies spent $4.6 billion on advertising.
Drug companies say that advertising isn't only about selling drugs but also about educating the public. Advertising "increases people's awareness of diseases and available treatments," according to a statement released by Pharmaceutical Research and Manufacturers of America, the lobbying arm of the drug industry. "Advertising brings patients into their doctors' offices and helps start important doctor-patient conversations about health that might otherwise not have happened."
Much of that advertising is focused on ailments for which Americans didn't used to take prescription drugs. "Years ago, everyone would take (over-the-counter) ibuprofen for pain," Kirman said. "Now they take prescription medications."
The definition of illness has widened. Ailments once considered rare are today billed as widespread, severe and treatable by pills. Social anxiety disorder, sexual dysfunction and restless leg syndrome are a few examples cited recently at a medical conference in Newcastle, Australia.
Americans are getting fatter. Obesity is linked to increased risk of diabetes and heart disease, which are treated with drugs.
The average prescription now costs GM $120, illustrating the rising prices pharmaceutical companies argue are necessary to pay for research and development of the next generation of miracle drugs. Out of every 25 drugs in development at Pfizer, only two or three will eventually make it to market, said David Canter, senior vice president of Pfizer Michigan. A drug typically costs almost $1 billion to develop. Cutting the price of drugs would cut the money used for research.
Those high drug prices also mean big profits. In 2002, the top 10 drug companies made more money than the other 490 companies combined in the Fortune 500.
Mae Gumbinger doesn't give a hoot about the profit margins of drug companies or GM. She vividly recalls her mother having a stroke and the family not taking her to the hospital for a month because they didn't have insurance. If doctors prescribe a pill that may keep her alive, Mae Gumbinger isn't going to ask the price.
So Kirman tiptoes around the issue of drug use. Instead, GM's pharmacist writes articles in company publications encouraging workers to lead healthier lifestyles and looks for ways to lower prices.
E-prescribe system is success
One success story has been an electronic prescription program spearheaded by GM, Ford and DaimlerChrysler. In its first 17 months, the e-prescribe system changed 63,000 prescriptions from brand name drugs to cheaper generics and caught 7,300 potential allergic reactions.
"We never give up," Kirman said. "We're holding our own."
GM's pharmacist can look at her data and see reason for hope. The patents on many blockbuster drugs are running out in the next five years. Generic versions of Plavix, Zoloft, Mobic and Provacol all will be available soon.
"We are entering the most amazing era for controlling costs," Kirman said. "We will have the opportunity to save money."
You can reach Ron French at (313) 222-2175 or rfrench@detnews.com.
© Copyright 2006 The Detroit News. All rights reserved.
THE GENERAL AND THE BEAST
GM's bitter pill
Automaker spends billions on drugs for aging workers, retirees
Ron French / The Detroit News
PORT ST. LUCIE, Fla. -- When General Motors Corp. CEO Rick Wagoner has nightmares, they might be about Toyota. Then again, they might be about Mae Gumbinger.
The 79-year-old wife of a GM retiree in Port St. Lucie, Fla., takes 15 prescription medicines each day. She takes Plavix to thin her blood and Mincandis to lower her blood pressure. She swallows Namenda and Aricept for her memory, Clarinex for her allergies and Nexium for her stomach. One pill helps her sleep, another pill cuts her pain, and six more prescriptions are supposed to help with a skin condition she's had for years, though she can't remember what the skin condition is and she's pretty sure the drugs aren't helping.
General Motors will pay about $16,000 for drugs this year for Mae and her husband, GM retiree Ralph Gumbinger, the equivalent of giving the couple a new Chevrolet Malibu.
"I'd say we've been lucky," said Ralph, 69, who worked in Pontiac in fleet sales before retiring in Florida. "We can't complain."
His former employer can.
The average worker, retiree and family member whose medical bills are paid by GM gets 15 prescriptions per year -- 50 percent more than the national average. The automaker pays a whopping $1.9 billion for prescription medicine alone.
GM's drug problem illustrates the trouble facing the automaker and the nation as a whole. Americans lead the world in pill consumption. We take drugs today for medical conditions we didn't take drugs for 10 years ago. In some cases, we take medicine for illnesses that weren't considered illnesses 10 years ago.
It's a financial crisis expected to explode in the next 20 years as baby boomers join the ranks of senior citizens, who consume the lion's share of pills. With about four retirees for every active employee, GM is a harbinger of the problem the United States will face in coming years.
When a year's supply of some cancer drugs costs more than a $50,000 Cadillac DTS, General Motors and the rest of the country have a problem.
"I can see GM's side of it," said Ralph Gumbinger. "They've got to make money. I don't know what the answer is."
Cynthia Kirman is supposed to find those answers, which may account for her nervous smile as she sits in GM's health care war room in Pontiac. She steadfastly avoids complaining about the drug companies that as recently as 2004 made higher profits than oil companies or the workers who take Nexium rather than stop eating chili fries.
Instead, GM's pharmacy director spends her days poring over drug usage data, looking for ways to plug a very leaky dike. She can tell when there is a successful television ad campaign for a new drug. She can tell when a drug is being used "off-label" -- for an illness for which it wasn't intended.
She knows that 60 percent of the antibiotics GM pays for are a waste of money because they're prescribed for ailments that don't respond to antibiotics. She knows GM spends $17 million a year on sexual dysfunction pills when a national study showed that two-thirds of men ages 18-45 using the drugs don't need them.
Usually, it's depressing work, watching GM's costs soar despite her best efforts.
In June, Kirman and GM caught a break. Zocor, a popular cholesterol-fighting drug, lost its patent protection, meaning that generic equivalents could be produced by other companies.
Generic drugs have the same chemical makeup of their brand-name siblings but are cheaper to produce because there are only nominal research and development costs. Zocor cost $4.50 a pill; the generic version cost 90 cents. Kirman kicked off a campaign to inform GM's 1.1 million insured that a generic alternative was now available.
Generics ease GM pain
GM pays the medical bills for about 250,000 people taking cholesterol-lowering pills, including Lipitor, the top-selling drug in America. If they all switch to the generic version of Zocor, GM could save more than $100 million.
"This is one of the biggest opportunities GM has ever had to lower our cost for treatment," Kirman said.
When Kirman joined the automaker in 1999, about half of GM employees used brand name drugs even when generic versions were available.
Education and financial incentives have increased generic use to 98 percent when they're available, saving GM $392 million per year.
But those savings barely slowed the rise in GM's drug costs. Even with the use of generics and deep discounts GM is able to negotiate because of its size (about 40 percent off retail drug prices), drug costs are likely to surpass $2 billion this year.
Even as some pills become cheaper, usage has exploded. GM believes drug consumption has doubled in the past decade.
Reasons for soaring drug use include:
The United States and New Zealand are the only nations that allow prescription drug advertising. Drug ads have proliferated over the past decade, coinciding with the soaring use of prescriptions. In 2005, pharmaceutical companies spent $4.6 billion on advertising.
Drug companies say that advertising isn't only about selling drugs but also about educating the public. Advertising "increases people's awareness of diseases and available treatments," according to a statement released by Pharmaceutical Research and Manufacturers of America, the lobbying arm of the drug industry. "Advertising brings patients into their doctors' offices and helps start important doctor-patient conversations about health that might otherwise not have happened."
Much of that advertising is focused on ailments for which Americans didn't used to take prescription drugs. "Years ago, everyone would take (over-the-counter) ibuprofen for pain," Kirman said. "Now they take prescription medications."
The definition of illness has widened. Ailments once considered rare are today billed as widespread, severe and treatable by pills. Social anxiety disorder, sexual dysfunction and restless leg syndrome are a few examples cited recently at a medical conference in Newcastle, Australia.
Americans are getting fatter. Obesity is linked to increased risk of diabetes and heart disease, which are treated with drugs.
The average prescription now costs GM $120, illustrating the rising prices pharmaceutical companies argue are necessary to pay for research and development of the next generation of miracle drugs. Out of every 25 drugs in development at Pfizer, only two or three will eventually make it to market, said David Canter, senior vice president of Pfizer Michigan. A drug typically costs almost $1 billion to develop. Cutting the price of drugs would cut the money used for research.
Those high drug prices also mean big profits. In 2002, the top 10 drug companies made more money than the other 490 companies combined in the Fortune 500.
Mae Gumbinger doesn't give a hoot about the profit margins of drug companies or GM. She vividly recalls her mother having a stroke and the family not taking her to the hospital for a month because they didn't have insurance. If doctors prescribe a pill that may keep her alive, Mae Gumbinger isn't going to ask the price.
So Kirman tiptoes around the issue of drug use. Instead, GM's pharmacist writes articles in company publications encouraging workers to lead healthier lifestyles and looks for ways to lower prices.
E-prescribe system is success
One success story has been an electronic prescription program spearheaded by GM, Ford and DaimlerChrysler. In its first 17 months, the e-prescribe system changed 63,000 prescriptions from brand name drugs to cheaper generics and caught 7,300 potential allergic reactions.
"We never give up," Kirman said. "We're holding our own."
GM's pharmacist can look at her data and see reason for hope. The patents on many blockbuster drugs are running out in the next five years. Generic versions of Plavix, Zoloft, Mobic and Provacol all will be available soon.
"We are entering the most amazing era for controlling costs," Kirman said. "We will have the opportunity to save money."
You can reach Ron French at (313) 222-2175 or rfrench@detnews.com.
© Copyright 2006 The Detroit News. All rights reserved.
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