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DDP Program Year 3 Report (September 2002)


The Drug Distribution Project ("DDP") has operated since the fall of 1999, working with fifteen and then an additional six pharmaceutical companies to distribute drugs for indigent patients in California. More than 90% has now been expended of the $171,152,780 total DDP liability.

Medpin's ability to distribute product representing the remaining liability depends largely on some Participating Companies agreeing to revise the products or "product specific" ceilings on their DDP offerings. If these adjustments are not made in sufficient time, the Court may want to consider other possibilities for achieving the intent of the DDP and the settlement that the DDP implements. The four Participating Companies with more than $2 million unspent DDP liability are, in descending order of their remainder: AHP (Wyeth), SmithKline Beecham (GlaxoSmithKline), Novartis, and Upjohn (scheduled for acquisition by Pfizer).


The Drug Distribution Project ("DDP") is part of the Medicine for People in Need (Medpin) Program (previously called the Pharmaceuticals and Indigent Care Program) of the non-profit Public Health Institute (www.phi.org). The DDP was created in the fall of 1999 to implement the drug distribution portion of Master Agreement of Settlement and Release of Pharmaceutical Cases I, II, and III in the Superior Court of the State of California, City and County of San Francisco, J.C.C.P. Nos. 2969, 2971, 2972 ("Settlement Agreement").

From April 1, 2000-July 8, 2001, the DDP distributed products from nineteen pharmaceutical companies pursuant to the original Settlement Agreement of 1999. On July 9, 2001, six additional Participating Companies joined the DDP pursuant to a second Settlement Agreement of the aforementioned cases. In this 2001 Settlement Agreement, the drug distribution portions of the agreement were designed to be significantly similar to provisions of the original Settlement Agreement. Minor differences between the terms of the two Settlement Agreements were based on the lessons learned during the first sixteen months of DDP operation and the practical issues connected with absorbing a new group of companies into an ongoing program.

The twenty-five DDP Participating Companies have all participated in the first two DDP Order Periods of Program Year 3, except for those companies with no remaining DDP liability, as discussed below. More than 90% of the total DDP liability has now been expended.

DDP Participant Clinics and Order Request Periods To Date

Attachment A (pdf) lists the DDP Participants (called "Eligible Recipients" in the Settlement Agreements) approved to participate in the DDP for the third and final Program Year. These Participants are California clinics that have documented to Medpin's satisfaction that they are one of the types of safety net providers specified in the Original Settlement Agreement and that they have in-house pharmacy capacity (a drug dispensary or pharmacy) licensed by the California State Board of Pharmacy. These DDP Participants have had two opportunities to date to request products during this final program year: Order Period 1 (April 8-22, 2002) and Order Period 2 (July 8-22, 2002). All participants' order requests were reviewed by the DDP and adjusted as necessary before being transmitted via facsimile or Electronic Data Interchange to the appropriate Participating Companies.

DDP Credit Limits

One aspect of the DDP that distinguishes it from pharmaceutical companies' other patient assistance programs is that each DDP Participant knows in advance the maximum amount of free product that clinic can receive. These maximums, called DDP Credit Limits, were computed annually by Medpin and assigned to each clinic based on the most recent, publicly available records of the amount of care that clinic provided to pharmaceutically uninsured patients. For clinics part of county health systems, a DDP Credit Limit was assigned to that county based on the most recent available public data on the county's proportion of residents living below the federal poverty level and on countywide indigent care actually provided. The resultant credit limits reflect the range in the number of indigent, pharmaceutically uninsured patient encounters reported for that facility. For example, Los Angeles County Medical Center has a DDP Credit Limit more than 100 times the size of DDP Credit Limits assigned to Mt. Shasta Medical Clinic or Casa de Salud.

Companies Whose DDP Participation Has Effectively Ended

Previous reports to the court have addressed the differences in value to DDP Participant Clinics of the drugs made available by Participating Companies. Companies that have now expended most or all of their total DDP liability are those that offered sufficient amounts of their valuable drugs, either in the original Settlement Agreement or after seeing the actual DDP order requests and reviewing resultant suggestions from Medpin staff.

Attachments B (pdf) and Attachment C (pdf) show that fifteen Participating Companies have offered sufficiently valuable products that 95%-100% of their total DDP liability is now expended. Some of these companies offered such valuable products that Medpin received three to five times the amount of requests as it was able to process into DDP orders to these companies. Five of these companies were given special recognition at Medpin's 2002 Annual Conference for their "outstanding contributions to low-income Californians through their proactive participation in the DDP." These companies are, in alphabetical order, Bristol Myers Squibb, Eli Lilly, Merck, Pfizer (these four chosen from the nineteen original Particpating Companies), and Roche (chosen from the second group of Participating Companies). At its 2003 Annual Conference, Medpin and representatives of the California safety net provider community will have other activities to recognize and honor the companies whose constructive participation throughout the DDP have brought particular value to indigent care clinics struggling to meet their patients' medication needs.

Companies with Large Unspent DDP Liabilities

Companies with large unspent liabilities to the DDP have not offered sufficient amounts of drugs perceived to be valuable to patients at the Participant Clinics, based on the products available through the original Settlement Agreement and as modified by subsequent deletions. Some companies, such as SmithKline Beecham, have never accepted Medpin's suggestions on changes to increase the value of their DDP product offerings, thereby increasing order requests and decreasing remaining DDP liability. Some other companies, such as AHP and Upjohn, have responded to some but not all suggestions, or done so only after additional order periods revealed an increased disparity across Participating Companies' rate of product orders. Attachment B (pdf) indicates that four companies now have more than $2 million unspent DDP liability. These companies are, in descending order of remaining liability: AHP (Wyeth), SmithKline Beecham (GlaxoSmithKline), Novartis, and Upjohn (scheduled for purchase by Pfizer).

There are two reasons why some companies have large unspent liabilities even while other companies are quickly spent out. The first reason, illustrated by the situation with AHP, is that the company's total DDP product offerings are considered insufficiently valuable by Participant Clinics, whose staff choose to request other companies' DDP offerings instead. The remedy for this can be either for the company to offer the DDP drugs it had not previously offered (as Medpin has requested of AHP and SmithKline Beecham, for example), or for a new parent company (where this option is available) to offer products that were not available through the original DDP participant company (as Medpin has requested of GlaxoSmithKline, for example). The second reason (illustrated by Novartis and Searle, for example) is that a company's total liability is divided into a number of category-specific or product-specific "sub-ceilings" that prevent Medpin from ordering popular drugs in amounts that reflect participant requests even when the total amount is within the company's total DDP liability. Merck and Dupont (Bristol Myers Squibb) are examples of companies whose high levels of unspent liability were significantly reduced shortly after they adjusted their "sub-ceiling" figures to allow larger amounts of its popular drugs to be ordered through the DDP.

Medpin is exploring with its Advisory Board (Attachment D (pdf)) and its Participant Clinics (Attachment A (pdf)) options for encouraging any "unspent" company to adjust its DDP product offerings so that the total, actual "safety net provider value" can be expected to generate sufficient order requests to eliminate that company's remaining DDP liability. If there are companies that do not make sufficient adjustments by September 25 (which allows the necessary time for Medpin to notify Participants of the changes and alter the DDP Order System before the final 2002 DDP Order Period that begins October 7), Medpin plans to request that the California safety net provider community leadership, relevant experts from academia, and the court offer suggestions for equitably accomplishing the intent of the Settlement Agreements for all Participating Companies.

Operation of the DDP

Medpin is proud of the DDP's overall record of creating and operating an efficient, cost-effective distribution of pharmaceutical products to clinics of highly diverse size, location, and circumstances. At the July 2002 annual meeting of the National Conference of State Legislatures, elected officials from across the country heard a presentation on how the DDP is operated and how this program could be considered a model for drug companies' other "patient assistance" programs. Attachment E (pdf) is one of the handouts from that presentation.

The DDP will also be receiving attention from academic experts and health policy leaders. It is being nominated by Professor Jayashankar Swaminathan of the University of North Carolina Business School for a prize in the Franz Edelman competition, whose purpose is to recognize and reward outstanding examples of management science and operations research practice in the world. The DDP is also the subject of an article currently being prepared on "pharmaceutical and health policy lessons learned" from the DDP's operational experience, which article will be submitted to a national health policy journal. The initiation, design, and ongoing operation of the DDP are a noteworthy and perhaps pioneering model for helping all Californians by more effectively helping the neediest ones get timely and cost effective access to their medications. The court, the Participating Companies, and the Participant Clinics can all be proud of having contributed to this special program.

After the DDP Ends

Medpin has devoted considerable effort to helping indigent care clinics become better informed and better prepared at selecting, dispensing and sometimes purchasing drugs for their indigent patients. A portion of these efforts are within Medpin's implementation of the Settlement Agreements; the bulk of these efforts are separate projects funded by charitable foundations based in California.

Notwithstanding Medpin's larger training and assistance efforts, the end of the DDP comes at a particularly difficult time for indigent care clinics. Community clinics and county health systems must cope not only with the effects of California's unprecedented state budget deficit, but with additional fiscal blows such as the loss of federal cost-based reimbursement for community clinics, significant cutbacks in state and federal reimbursement for public hospitals serving the largest numbers of uninsured patients, and major fiscal problems for county health departments in Los Angeles and other areas of the state. In addition, drug costs have become a larger part of all health providers' expenditures since the DDP was designed in 1999. Although the DDP's $50+ million average annual distribution of free drugs has covered only a portion of the need for drugs to indigent California patients, the loss of DDP assistance will seriously affect indigent care clinics and their patients.

Medpin has contacted each of the Participating Companies to invite a conversation on the possibility of continuing at least some aspects of the DDP. With even a small number of companies continuing to play a constructive role in helping get appropriate amounts of medications to indigent patients as cost effectively, efficiently, and equitably as possible, the DDP would have a positive impact going well beyond the project outlined in the original Settlement Agreement.


As Medpin plans for the final months of the DDP, two general observations emerge from our past experience and our thoughts for the future. First, the court, companies, and clinics that have been part of the DDP can point with pride to this project's overall record of cost-effective, efficient management in improving the value of health care to indigent Californians , thereby benefitting all California taxpayers. The DDP has brought great benefit to the state, and could be considered as a possible model for continuing partnerships among pharmaceutical companies, nonprofit organizations, and public agencies seeking to help indigent patients.

Medpin's second observation is that despite our efforts to make a unified program out of separate agreements with 25 companies, we cannot completely unify the DDP's charitable drug distribution activities. Although we have tried to "level the playing field" by standardizing as much as possible our administrative approach to all Participating Companies, our experience has been that the pharmaceutical sector is not a monolith in its approach to indigent patients. Some of the DDP Participating Companies have worked constructively with Medpin staff to promote the intent of the Settlement Agreement and offer the DDP products of real value to indigent care clinics. These companies appear to view this project as an opportunity to significantly and cost-effectively expand their indigent patient assistance activities. Other companies' actions suggest a different approach to the DDP, one arising from the more adversarial structure of the litigation that led to the Settlement Agreements. Medpin's dealings with these companies represent the final but perhaps most difficult part of Medpin's efforts to expend total DDP liability in a manner that reflects the intent of the Settlement Agreements and brings real benefit to indigent patients and ultimately all Californians.

Whatever the final disposition of the DDP's total $171 million product commitment, it has brought benefit that will continue even after the DDP's official end date. Medpin is currently considering a range of strategies to continue helping indigent care clinics get more value out of their total pharmaceutical expenditures, and will be pleased to work with interested pharmaceutical companies, nonprofit organizations, and public agencies in planning some of these ongoing activities.

Report submitted by:

Kathryn Saenz Duke, JD, MPH
Medpin Program Director
Leon Wilde, RPh
Medpin Program Pharmaceuticals
Liz Maslin, MA
Medpin Program Administrator
Marice Ashe, JD, MPH
Director, Public Health Trust
Other Medpin staff:
Kimberly Arroyo, Health Educator; Harriet Charney, Director of Health Education; Vanisha Evans, Medpin Administrative Assistant; Long Tran, Patient Assistance Program Research Assistant

1 Due to mergers and acquisitions that have occurred subsequent to the Settlement Agreements, the 25 companies that entered the DDP are now represented by only 14 separate corporations. Medpin continues to refer to companies as they were named upon entering the DDP, often following that with the name, in parentheses, now used by that company or its merged entity.

2 For information on the addition and deletion of products or product amounts subsequent to the Original Settlement Agreement, see Program Year 2 Report on the Drug Distribution Project, Medicine for People in Need Report to Judge Chiantelli, April 2002, Attachments F and G.


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