A sign of the times

A sign of the times

With competitive bidding about to go into full swing it’s no secret that the major branded glucose monitoring companies are doing everything within their power to retain their existing patients. With reimbursement rates cut to under $11 for a box of 50 test strips conventional the general feeling within the industry is that DME’s will switch their Medicare patients from high cost low margin branded products to cheaper non-branded (likely imported) systems. Some companies such as Johnson and Johnson (NYSE:JNJ) have made special deals with DME’s in attempt to fend off possible share erosion. It’s also no secret that all the major branded companies realize that share erosion is inevitable and are cutting operating costs to the bare bones.

One company that’s taking a somewhat different, yet not unexpected approach is Abbott (NYSE:ABT). Take a look at this web site http://www.freestylecoveredbymedicare.com/ and read the copy carefully. On the one hand it seems Abbott is at least realistic about what DME’s will be doing and the impact it can have on their already shrinking share. Yet on the other hand one has to question whether this approach will work in the real world. While Diabetic Investor agrees that Medicare patients may not like being switched from their existing monitor to another, given the commoditization of the market we believe price trump brand loyalty. The fact is most Medicare patients will likely choose the path of least resistance and prefer to pay less or at least not have to go through the hassle of signing up for a special program to get their diabetes testing supplies.

Diabetic Investor also questions the not so subtle message that the meter patients are being switched to a meter that isn’t as good as their Abbott meter. At the very top of the page it states; “Your test strip supplier might try to switch you to a brand your doctor never heard of that may be less accurate.” While there is some truth to this statement again were not sure it will resonate in the real world. The harsh reality is that most doctors could care less which meter a patient uses, a fact reaffirmed by the fact that the majority of physicians do not write a script for a specific brand. It’s equally true that just as patients see all meters doing basically the same thing the same way, physicians feel exactly the same way. The harshest reality of all is that what physicians really want is for the patient to actually use their meter regardless of who makes it. Yet here too they realize from experience patients fail to test as frequently as they should and Medicare patients in particular tend to stockpile unused test strips which are automatically sent to them by their DME.

It’s also somewhat strange that should a Medicare patient decide to actually sign up for the Abbott program it contains the following disclaimer; “Co-pay assistance is not valid for prescriptions reimbursed under Medicare, Medicaid, or similar federal or state programs or in Massachusetts. Eligible patients are responsible for the first $15 of co-pay under their insurance coverage, and can receive up to a maximum of $50 in co-pay savings. Uninsured patients are also eligible for savings in most situations.” Now let’s see if we’ve got this right Abbott wants to help patients who are on Medicare but patients who are reimbursed under Medicare don’t qualify for co-pay assistance. Is it just Diabetic Investor but doesn’t this seem like a classic catch-22? And what’s happens after these patients reach their maximum of $50 in co-pay savings, what prevents them from maxing out on the program and then switching?

Listen we understand the point of the web site and the program but given the nature of how the market works in the real world we doubt it will do much of anything to help Abbott or any other branded meter company for that matter. To Diabetic Investor messages like the one on the site and co-pay assistance programs are like to trying to put out a fire when the structure has already burned to the ground. They do not create value in the eye of the patient and do nothing to associate a brand with what a patient wants most, someone, anyone who will help make living with diabetes easier. Programs like these just reinforce what Diabetic Investor has been saying all along, most of the branded companies just don’t get it and likely never will. They are so used to doing things the old way they just can’t even consider any program that is even slightly out of the box.

The bottom line here is that when it comes to the Medicare segment of their business it’s a very ugly picture for the branded players and without a dramatic departure from their standard operating procedure it’s just a matter of time before they won’t be in the Medicare segment.