WellPoint's Regimen for Affordable Drugs

CEO Leonard Schaeffer of the big health insurer is pressing for wider use of generics and more over-the-counter approvals by the FDA

Leonard Schaeffer, CEO of WellPoint Health Networks (WLP ) isn't about to sit back and let skyrocketing prescription-drug costs threaten his company's bottom line. Last year, he petitioned the Federal Drug Administration to move pricey allergy drugs Claritin, Allegra, and Zyrtec to the over-the-counter market, the first time an insurance company had ever made such a request.

Now, Schaeffer is at it again -- this time with yet another innovative approach. The week of Nov. 5, Thousand Oaks (Calif.)-based WellPoint mailed 15,000 letters to physicians in its network, offering them samples of generic Prozac for patients requiring antidepressants. More than 2,000 have already taken him up on the offer. Schaeffer hopes the samples will inspire patients to switch from Prozac, which costs twice as much as its generic equivalent, a price differential Schaeffer calls "stunning."

The move underscores one of the biggest challenges facing companies like WellPoint: Drug costs are leaping more than 14% annually. Yet health-plan providers have few weapons at their disposal to fight the multimillion-dollar ad campaigns that pharmaceutical companies use to market new remedies. "That's the problem with generics," Schaeffer says. "No one's out there promoting them."


  Schaeffer is trying to fill that void, though in a decidedly low-key way. WellPoint orders just enough samples from its manufacturing partner, PAR Pharmaceutical, to send to the doctors who respond positively to the letter. It doesn't use high-pressure sales tactics. And WellPoint, the nation's fourth-largest health insurer, won't try the program with other drugs until it can gauge the response to generic Prozac.

Analysts applaud the program. They say it could help keep drug prices in line, at a cost CIBC World Markets analyst John Szabo, for one, sees as negligible.

Schaeffer doesn't want drug-price inflation to put the brakes on WellPoint's rapid growth. In the first nine months of 2001, revenues jumped 32.7%, to $9 billion, while profits were up 21%, to $305 million. The company recently announced that it will acquire RightCHOICE Managed Care and CareFirst BlueCross BlueShield, which will increase WellPoint's total membership to 16 million consumers, vs. 10 million before these deals.


  Still, Schaeffer worries about WellPoint's ability to foot the bill for increasingly expensive drugs. Just three medications -- Claritin, Allegra, and Zyrtec -- cost WellPoint $90 million a year, he says. That's why, when big names like Prozac go off-patent, he believes it's up to him to alert consumers to generic alternatives.

Early results from a similar but smaller generic-promotion program suggest the payoff could be significant. Last October, pharmacy-benefits manager Merck-Medco began mailing letters to 7,700 physicians offering samples of 11 generics. It achieved a 20% response rate. "That's double the average request rate for samples of branded drugs," notes Merck-Medco spokeswoman Ann Smith.

The company estimates that if it can nudge up the rate of generic prescriptions by just one percentage point, it will save $200 million a year for its clients, which include HMOs, employers, and unions.


  Getting Claritin, Zyrtec, and Allegra declared over-the-counter medications will be a tougher job for WellPoint. Its petition argued that if the three drugs are so safe that their manufacturers can plug them in TV ads, a prescription shouldn't be required. In May, an FDA advisory panel agreed.

Facing protests from drugmakers, which argue that the FDA doesn't have the authority to force a drug over-the-counter, the agency hasn't yet honored WellPoint's petition. Some analysts predict it probably never will. Says Szabo: "This will get bogged down in disagreements between the drug companies and the FDA."

Other health-plan administrators support WellPoint's approach. "The evidence is so clear Claritin should be available over-the-counter," says Dr. Sharon Levine, associate executive director of the Kaiser Permanente medical group. Kaiser, the nation's largest nonprofit HMO, has implemented a variety of its own programs to fight rising prescription-drug costs, such as requiring members to pay more for brand-name drugs than for generics and training Kaiser doctors how to deal with patients who demand expensive drugs they don't need.


  Safety concerns shouldn't keep drugs such as Claritin out of the over-the-counter market, Levine says. She notes that its manufacturer, Schering-Plough, already sells Claritin on a nonprescription basis in countries such as Australia and New Zealand, where government-controlled pricing prevents companies from making significant profits on prescription medications. "You don't hear about people in New Zealand dropping dead in the street from self-dosing Claritin," she adds.

At the very least, Schaeffer believes the FDA's acknowledgment that the three allergy drugs are safe enough to sell over-the-counter is an important step forward. "The FDA is now saying it's open to entertaining these requests," he says. Someday, he predicts, "a drug [won't] require a prescription just because that's what the manufacturer desires."

Until then, Schaeffer will continue to look for new ways to fight rising drug prices. He believes it's the only way to ensure a healthy future for WellPoint.

By Arlene Weintraub in Los Angeles

Edited by Thane Peterson

Before it's here, it's on the Bloomberg Terminal.