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Antitrust scrutiny of Big Pharma could benefit hospital supply chain

Ruling has the potential to encourage increased development and availability of generic drugs

In a landmark case this June, the U.S. Supreme Court - in FTC v Actavis Inc. - permitted antitrust scrutiny of brand-name drug companies participating in reverse payment settlements, known as "pay for delay" agreements, with firms producing generic drugs.

Some experts suggest the ruling could mean significant cost reductions for hospitals.

Reverse payment settlements are situations where drug patent holders agree to make payments to potential competitors who have threatened to enter the market and challenge the patent holders' right to the patent. The agreements are intended to delay a competitor's entry into the market and maintain the high market price of the patented drug.

Intensified scrutiny of the practice, Justice Stephen Breyer wrote in the ruling, will permit examination of payoffs in which the "patentee and the challenger gain; the consumer loses."

The ruling has the potential to encourage increased availability of generic drugs, as well as reduce the development delay of generic forms of new brand-name drugs. Stephen Tambolas, vice president of supply chain and facilities administration at Conemaugh Health System in Johnstown, Pa., believes the positive impact of the ruling could be seen relatively soon in hospitals, where cutting supply costs is key to staying afloat.

Once the word on rulings like this gets out, changes in hospital purchasing "tend to be very quick," Tambolas said. With rising pressures to cut costs without expense to patients, hospitals can't afford to waste any time.

With the implementation of the Affordable Care Act taking hold, and reimbursement reductions in the offing, many hospitals are being forced to cut costs by 10-15 percent, Tambolas noted. A category hospitals are paying closer attention to is discharge costs, he said.

"In today's environment," says Tambolas, hospitals "are becoming more and more accountable for the entire episode of care for a patient."

This is particularly true in the case of Medicare. The Readmissions Reduction Program introduced in late 2012 targets hospitals determined to have excess rates of readmission. If these hospitals readmit a patient within 30 days of discharge, Medicare will not cover the costs of care.

With this new accountability, Tambolas says hospitals are increasingly asking affordability questions of patients being discharged. We ask, "you're going home with this prescription for a drug - can you afford it?" If a person is unable to cover the cost of their medications, he says, "we'll find it's actually worth our while to provide those drugs for free before they leave. It actually becomes an increased cost for that episode of care, but in the long term it's a lower cost for us than taking the readmission and not getting paid for it."

With health systems like Conemaugh giving away such drugs in greater number, a reduction in pharma costs could have a real impact on the bottom line.

Tambolas said Conemaugh is participating in several initiatives designed to reduce costs and increase transparency. For instance, the health system provides its physicians with up-to-date information about the real costs of drugs. Transparency about drug costs encourages doctors to prescribe generics when available, Tambolas said, helping defeat the marketing efforts of pharma company sales reps who often emphasize the negligible benefits of brand name drugs over generics.

Photo used with permission from Shutterstock.com

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