Eli Lilly and Co.'s top seller Zyprexa, pummeled in recent quarters by concerns over side effects, now faces a growing challenge from some of its biggest customers: state Medicaid programs.
Citing high costs, more than a half dozen states have moved Zyprexa and other pricey anti-psychotics off preferred drug lists or made it harder for doctors to prescribe them for patients on Medicaid, the state-federal program that provides health care coverage for the poor and disabled.
Georgia, for instance, saved nearly $7 million on Zyprexa after it moved the drug off its list in September 2004, state spokeswoman Julie Kerlin said.
Doctors in that state who want to start a prescription for Zyprexa, which treats schizophrenia and bipolar disorder, now must submit a clinical rationale explaining why it's the only drug suitable for their patient.
More recently, Tennessee, Louisiana and Illinois decided to require prior authorization for Zyprexa prescriptions. Pennsylvania will do the same starting next year.
Florida, which spends about $70 million annually on Zyprexa, nearly excluded Zyprexa from its Medicaid preferred drug list earlier this year. However, company and state officials reached a last-minute compromise.
Nine states now require or plan to require a form of prior authorization for the drug.
A 10th, South Carolina, decided this summer to ask doctors to voluntarily consider cheaper alternatives first. Zyprexa is the most expensive anti-psychotic covered by that state's Medicaid program, said James Assey, a pharmacist with the state's Department of Health and Human Services. A month's supply of 20-milligram Zyprexa tablets costs South Carolina $700.52.
The wave of bottom-line concerns among Medicaid programs is coming at an inopportune time for Lilly. Analysts say the Indianapolis company needs to maximize sales of Zyprexa as it waits for a new stable of drugs to pick up the slack.
Zyprexa sales last year accounted for nearly one-third of Lilly's $13.9 billion in sales. But stiff competition and concerns that the drug can fuel weight gain and diabetes have hurt sales, especially in the United States. In the third quarter, U.S. Zyprexa sales slid 10 percent, to $504 million.
"Do we see some reductions in sales in these states where we have restrictions? Certainly, we do," said Mark Johnson, Lilly's director of payer marketing, though he declined to quantify the extent.
People who suffer from schizophrenia and bipolar disorder make up a "significant population" within state Medicaid programs, said Craig Waugh, Lilly's business-to-government manager.
Lilly officials say the single-minded focus on cost is misguided. They argue the restrictions can compromise patient care and actually increase expenses. They also say Medicaid programs could save money in other ways.
"We think that, in the long run, you're going to have better cost control when you allow those doctors to make the right treatment choices for their patients rather than having them be forced to make a decision based solely on costs," Lilly spokeswoman Carole Puls said.
Lilly isn't alone in voicing concern. Mental health experts say drugs like Zyprexa affect each patient differently, and switching a patient to another medication could have negative health consequences.
"Sometimes it takes years for someone to get the correct diagnosis, let alone find the right treatment regime," said Jennifer Bright, vice president with the Virginia-based National Mental Health Association.
On top of that, scientific studies have found Zyprexa and other newer antipsychotic to be more effective and have fewer severe side effects-such as involuntary limb twitching-than older, cheaper drugs.
In addition, a study in the New England Journal of Medicine in September found differences between Zyprexa and other newer drugs. It found that patients taking Zyprexa were hospitalized less for schizophrenia than were patients taking those other drugs.
Blanket policies restricting access to expensive antipsychotic like Zyprexa could lead to more hospital stays or greater use of the health care system, Bright said.
"If someone is not getting the treatment that's best for them, their overall health will be affected," she said.
For states, however, psychiatric drugs jump out as big line-item expense at a time many are facing budget crunches. In South Carolina, for instance, psychiatric treatments make up $160 million of the $600 million Medicaid drug budget for fiscal 2005.
Not only is Zyprexa the most expensive of the newer anti-psychotics, South Carolina's Assey said, the difference is "significant enough for us to not want them to use it."
Lilly's Waugh said federal law requires drug companies to give Medicaid programs either a 15.1-percent discount on drugs or the best commercial price. But some states are starting to push for an even better deal.
Zyprexa nearly was left behind this summer when Florida expanded its list of preferred drugs to include mental health medications. The state asked for an additional discount in return for being considered for a spot on the list. Lilly initially balked but ultimately agreed.
"Being that Florida is the largest purchaser of health care in the state, we feel Medicaid should be able to leverage what we spend on prescription drugs," said Jonathan Burns, spokesman for Florida's Agency for Health Care Administration.
In place of additional discounts, Lilly favors forming partnerships with states to monitor drug use and the quality of care.
Waugh points to Missouri as an example. There, Lilly helped set up a program that tracks use of mental health medications and compares it with best practices. Since its launch in 2003, the partnership has saved the state Medicaid program more than $7 million.
Pressure from states to reduce costs likely is having only a small effect on overall Zyprexa sales, said Matt Boice, an analyst who covers the health care industry for 40/86 Advisors Inc., a unit of Conseco Inc. People covered by Medicaid, he said, represent "only one subset of the prescribing population."
And even among that subset, doctors won't necessarily avoid Zyprexa just because a state adds obstacles to prescribing it.
Lilly's Johnson said doctors who find the right medication to stabilize a person's mental illness can be reluctant to change therapies.
"There's more of a willingness in these kinds of classes of drugs for physicians to go the extra mile for preauthorization than you might see in some other classes," he said.
Still, Lilly officials aren't taking anything for granted. More states are taking up the cause of Medicaid reform, and they'll be on the hunt for ways to rein in the cost of big-ticket drugs like Zyprexa.
Johnson said Lilly will continue to be challenged "to prove the value of our medication for the state and its customers."