Additional Math Pages & Resources

Monday, February 8, 2010

We sell you the same for less and we make more. How?

NEWS ITEM
Pfizer (Big Drug company) offers a preferred-customer discount program to heart patients using long-term drugs, who are outside the USA and buy drugs with their own money (no government, no insurance). Here's the deal:
  • customers pay Pfizer rather than the pharmacy, through a direct buyer card
  • customers continue to pick up their drugs from the pharmacy
  • Pfizer still pays the pharmacy a commission for handling the customer and drug
Pfizer gets customer names, and keeps track of their drug use (pharmacists don't monitor patients well). Pfizer continually encourages patients to take their medicine, and to reorder. They give a discount to customers as an incentive to participate.

Does this make financial sense? How can a company sell something for less money and still earn more on the business?  Let's see if math can help us figure out this question.

RESEARCH
First, some research:

A study from 15 years ago reported 15-46% of heart patients discontinue their drugs within a year. The rate was somewhat dependent upon cost and the side effects that were experienced.

Another study found that 54% of heart patients discontinued for at least 90 days in the first year. Of those who stopped, 48% restarted within one year, and 60% within 2 years. Some restarted treatment after conversations with their doctors, a negative cholesterol test, or another heart incident.

A third study showed that just 66% of heart patients given aspirin, beta blockers and statins continued taking all of them for more than one month after leaving the hospital. So 34% of patients stopped taking one or more of the drugs after only 30 days.

A fourth study reported 77% of patients who were given statin drug prescriptions WHILE IN the hospital were taking them a year later. Only 25% of patients who were given statin prescriptions AFTER leaving the hospital were still taking the drugs a year later (75% discontinued).

SUMMARY
Many (most?) people stop taking their medicine soon after it is prescribed. People who stop taking medication may hasten their "mortality risk" (newly-approved drugs appear to work for only about half the people who take them) but are certainly former customers of the drug companies.

ACTION
Therefore, Pfizer started this program to encourage people to stick to taking drugs. They cited a 162% increase in customer retention through this discount purchasing program.

MATH?
So can we demonstrate drug costs and savings with math? It's hard to determine! Congress can't do it.

Let's assume:
  • Average price per month is $75
  • Average pharmacy share is $15
  • Duration of dose is 12 months
One year dose  12 x 75 = $900

Pharmacy gets 15 x 12 = $180
Big Drug gets  60 x 12 = $720

This income stops if the patient stops buying the drugs!

Assume we have 1000 patients for 2 years.
Pharmacy = ($180 x 1000) + ($180 x 1000) = (180,000 + 180,000) = $360,000
Big Drug = ($720x 1000) + ($720 x 1000) = (720,000 + 720,000) = $1,440,000

TOTAL $1.8 million.

If 50% stop taking the drugs within one year, and never reorder, then

Pharmacy = ($180 x 1000) + ($180 x 500) = (180,000 + 90,000) = $270,000
Big Drug = ($720x 1000) + ($720 x 500) = (720,000 + 360,000) = $1,080,000

TOTAL $1,350,000

Pharmacy is down $90,000 and Big Drug loses $360,000 per 1000 patients. Each year.

TOTAL LOST $ 450,000 or 25% of the total potential revenue

Big Drug has to work out the discounts that will earn them MORE money than the current pricing is losing, and covers the cost of the follow-up program. 

We can't do all the math on this topic, but Pfizer most certainly can, or they wouldn't be expanding this program! More than $3.5 billion dollars of "heart medicines" were sold by Pfizer last year.

Will this extra effort to sell drugs keep us from dying? I think the math is fairly clear on that (human mortality = 100%) but perhaps a few of us could get a temporary reprieve ...