Dey creates uproar

NAPA, Calif. -- Dey Pharmaceuticals has implemented a tier-pricing structure for its popular DuoNeb product that some industry watchers fear could put small providers at a severe competitive disadvantage. At issue is Dey's practice of giving volume discounts, which is common for generic drugs but highly unusual with a brand product like DuoNeb. DuoNeb combines albuterol and ipratropium in a single vial. In years past, this might not have been a big deal, but Medicare's new reimbursement methodology pays providers a drug's average sales price plus 6% (in addition to a monthly $57 dispensing fee). The average sales price is a 12-month running average that is updated every quarter. Large volume discounts to some companies drive the ASP down, giving them bigger margins than small players, say some industry watchers. Dey did not respond to questions for this story. Complaints over Dey's pricing point to a bigger concern: In today's Medicare pricing environment, a drug that is profitable today may not be in six months. So simply switching from Duoned to another product is easier said than done. "Our rule of thumb is you can change drugs no more than once every six months on a patient," said an industry source. "The danger we face this year in this market is that we may see three or four transitional opportunities in 2005, but the doctor is not going to let you change drugs every three months. You are going to have pick one that fits you company." Some industry watchers believe concern over Dey's pricing is overblown. Small providers make up 75% of the respiratory market, and will prevent DuoNeb's ASP from dropping too low. Additionally, Dey sells a lot of DuoNeb to retail pharmacies at a price higher than what most HMEs pay. That will also act to keep the ASP from plummeting, sources say. If a provider can't compete on volume, he's got to reduce his cost of dispensing the drug. Medicare's new $57 dispensing fee is the same for all providers, big and small. "It comes down toe recognizing that the reimbursement model for respiratory meds has changed," the source said. "It has changed because you used to make all of the money on the drug, the difference between the reimbursement and what you bought it for. Now if you are going to make money, you are going to make it on the dispensing fee."