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Same drug, wild cost difference

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As sky-high EpiPen costs show, price gouging of patients by greedy drug companies is one part of our dysfunctional health care system. Another is what may appear to be the arbitrary way that insurers decide what copay to charge.

Southern Californians William and Phyllis Stevens encountered this recently when they were both prescribed the same cream for precancerous skin growths.

One had a copay of $20, the other a coinsurance cost of $300. And the much-higher charge was levied for a version of the medicine that was weaker than the cheaper version – yet had jumped nearly 1,500 percent in price since 2009.

Welcome to Crazy Town.

‘No good explanation’

“There’s no good economic rationale for why this happens,” said Gerald Kominski, director of the UCLA Center for Health Policy Research. “But it happens all the time.”

Insurers’ decisions about which drugs will be placed on which pricing tier can have a significant effect on patients.

Tier 1 and tier 2 drugs typically will be generic or commonly prescribed medications and will have lower copays. Drugs on higher tiers will be regarded by the insurer as “specialty” meds and will come with higher copays or coinsurance costs.

Coinsurance is a percentage of the drug’s cost, usually about 25 percent, rather than a fixed copayment.

It’s a loony situation.

Sharon Jhawar, Scan’s vice president of pharmacy

“What this illustrates is that there are things we don’t think about when we buy insurance,” Kominski said. “But when we use insurance, we’re in for surprises.”

He said it’s a system “that requires us to be more and more sophisticated. But no one’s that smart.”

Shana Alex Charles, an assistant professor of health sciences at Cal State Fullerton, put it like this: “Much of our insurance system flies in the face of reason.”

The EpiPen focus

The Stevens’ experience comes amid the ongoing fracas over pharmaceutical heavyweight Mylan boosting the price of EpiPens by more than 400 percent – the latest example of a drug company seeking sky-high payments for a medication that has been around for decades.

Families have long relied on EpiPens to administer epinephrine, a hormone that counters the potentially fatal effects of severe allergic reactions to things such as bee stings and peanuts. There is about a dollar’s worth of epinephrine in each EpiPen, to which Mylan purchased the rights in 2007 and proceeded to impose a string of double-digit percentage price hikes.

On Monday, Mylan announced it will introduce a generic version of the EpiPen for half the cost. But that still will mean $300 for a pack of two and potentially will give Mylan even more control over the market by discouraging other generic manufacturers from trying to compete.

William Stevens, 83, told me he and his wife were both prescribed generic fluorourcil after their dermatologist found precancerous growths on their skin. They were each given a prescription for a topical cream containing 5 percent of the drug.

The couple are insured by Scan Health Plan of Long Beach, which provides supplemental Medicare Advantage coverage to seniors. It’s a not-for-profit organization founded in 1977.

Stevens’ 81-year-old wife filled her prescription first. Because 5 percent fluorourcil was a tier 3 drug for Scan, she was charged a $20 copay.

A few weeks later, Stevens filled his own prescription. This time, the pharmacist said she was out of 5 percent fluorourcil but could give the 0.5 percent strength. However, the pharmacist warned, this was a tier 5 drug for Scan and thus would come with a coinsurance payment of $300.

Think about that: The same exact drug at a tenth of the strength costing more than 10 times as much.

“I asked the pharmacist how that could be,” Stevens recalled. “She had no explanation.”

The drug company’s explanation (you’re not going to like it)

There is an explanation, but it’s not a very satisfying one.

Insurers use tiered pricing to steer members to the most affordable options, usually generics. In the case of fluorourcil, the 5 percent formulation is generic, so that’s the one Scan placed in its cheaper tier 3.

The 0.5 percent version contains the same active ingredient but isn’t generic – it’s sold under the brand name Carac. So the insurer bumped it to tier 5.

“It’s a loony situation,” acknowledged Sharon Jhawar, Scan’s vice president of pharmacy. “It’s maddening even to us.”

Loonier still, the manufacturer of Carac, Valeant Pharmaceuticals, has indulged in price hikes that make Mylan’s greed seem miserly by comparison. Valeant has drawn fire in the past for jacking up drug prices to astronomic levels, including a more than 700 percent increase in the price of heart medicine Isuprel.

In 2009, Jhawar said, a 30-gram tube of Carac sold for $160. It now runs closer to $2,500 – and that is the discounted price negotiated by most insurers, she said. Valeant’s desired price is even higher.

Remember: Same active ingredient as the generic, only less.

Much of our insurance system flies in the face of reason.

Shana Alex Charles, an assistant professor of health sciences at Cal State Fullerton

I asked Valeant why the price of Carac has risen nearly 1,500 percent since 2009. The company sent me a statement that didn’t address that question.

Instead, it said Valeant, which replaced its chief executive in March, has set up a committee that “will take a disciplined approach to reviewing the company’s pricing of drugs, and will consider the impact on patients, doctors and our health care industry partners.”

“While we will raise prices from time to time, we expect those price increases to be much more modest and within industry norms,” it said. “With respect to Carac, a lower-priced generic alternative is available.”

Well, that’s good news. Or maybe not.

Jhawar said Valeant gave permission last year for another drugmaker, Spear Pharmaceuticals, to sell an “authorized generic” version of Carac until Valeant’s patent expires in 2021.

The price of that authorized generic? A mere $1,300 a tube.

David Lazarus is a Los Angeles Times columnist. He answers consumer questions. Contact him: david.lazarus@latimes.com or @Davidlaz. Read more by Lazarus at fblinks.com/laz.

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