[Senate Hearing 113-859]
[From the U.S. Government Publishing Office]
S. Hrg. 113-859
WHY ARE SOME GENERIC DRUGS SKYROCKETING IN PRICE?
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON PRIMARY HEALTH AND AGING
OF THE
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
ON
EXAMINING THE PRICING OF GENERIC DRUGS
__________
NOVEMBER 20, 2014
__________
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COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
TOM HARKIN, Iowa, Chairman
BARBARA A. MIKULSKI, Maryland LAMAR ALEXANDER, Tennessee
PATTY MURRAY, Washington MICHAEL B. ENZI, Wyoming
BERNARD SANDERS (I), Vermont RICHARD BURR, North Carolina
ROBERT P. CASEY, JR., Pennsylvania JOHNNY ISAKSON, Georgia
KAY R. HAGAN, North Carolina RAND PAUL, Kentucky
AL FRANKEN, Minnesota ORRIN G. HATCH, Utah
MICHAEL F. BENNET, Colorado PAT ROBERTS, Kansas
SHELDON WHITEHOUSE, Rhode Island LISA MURKOWSKI, Alaska
TAMMY BALDWIN, Wisconsin MARK KIRK, Illinois
CHRISTOPHER S. MURPHY, Connecticut TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts
Derek Miller, Staff Director
Lauren McFerran, Deputy Staff Director and Chief Counsel
David P. Cleary, Republican Staff Director
______
Subcommittee on Primary Health and Aging
BERNARD SANDERS, Vermont, Chairman
BARBARA A. MIKULSKI, Maryland RICHARD BURR, North Carolina
KAY R. HAGAN, North Carolina PAT ROBERTS, Kansas
SHELDON WHITEHOUSE, Rhode Island LISA MURKOWSKI, Alaska
TAMMY BALDWIN, Wisconsin MICHAEL B. ENZI, Wyoming
CHRISTOPHER S. MURPHY, Connecticut MARK KIRK, Illinois
ELIZABETH WARREN, Massachusetts LAMAR ALEXANDER, Tennessee (ex
TOM HARKIN, Iowa (ex officio) officio)
Sophie Kasimow, Staff Director
Kristen Chapman, Minority Staff Director
(ii)
C O N T E N T S
__________
STATEMENTS
THURSDAY, NOVEMBER 20, 2014
Page
Committee Members
Sanders, Hon. Bernard, Chairman, Subcommittee on Primary Health
and Aging, opening statement................................... 1
Burr, Hon. Richard, a U.S. Senator from the State of North
Carolina....................................................... 3
Warren, Hon. Elizabeth, a U.S. Senator from the State of
Massachusetts.................................................. 60
Guest Congressman--Panel I
Cummings, Hon. Elijah E., Ranking Member, House Committee on
Oversight and Government Reform, Washington, DC................ 5
Prepared statement........................................... 7
Witnesses--Panel II
Schondelmeyer, Stephen W., BS Pharm, MA Pub Adm, Pharm.D., Ph.D.,
FAPhA, Professor and Director, Prime Institute, University of
Minnesota College of Pharmacy, Minneapolis, MN................. 9
Prepared statement........................................... 11
Frankil, Robert, RPh, President, Sellersville Pharmacy, Inc.,
Sellersville, PA............................................... 36
Prepared statement........................................... 37
Riha, Carol Ann, West Des Moines, IA............................. 40
Prepared statement........................................... 41
Gottlieb, Scott, M.D., Resident Fellow, American Enterprise
Institute, Washington, DC...................................... 43
Prepared statement........................................... 44
Kesselheim, Aaron S., M.D., J.D., M.P.H., Associate Professor of
Medicine, Brigham and Women's Hospital and Harvard Medical
School, Boston, MA............................................. 50
Prepared statement........................................... 52
ADDITIONAL MATERIAL
Statements, articles, publications, letters, etc.:
Senator Burr................................................. 63
Senator Mikulski............................................. 64
(iii)
WHY ARE SOME GENERIC DRUGS SKYROCKETING IN PRICE?
----------
THURSDAY, NOVEMBER 20, 2014
U.S. Senate,
Committee on Health, Education, Labor, and Pensions,
Washington, DC.
The subcommittee met, pursuant to notice, at 1 p.m., in
room SD-430, Dirksen Senate Office Building, Hon. Bernard
Sanders, chairman of the subcommittee, presiding.
Present: Senators Sanders, Burr, and Warren.
Opening Statement of Senator Sanders
Senator Sanders. Thank you all very much for being with us
today on a hearing that I consider to be very important.
And we especially want to thank our panel of expert
witnesses.
And a special thanks goes to Congressman Elijah Cummings.
Congressman Cummings and I have been working on this issue
together for quite a while now, and I very much appreciate all
the efforts that he has made in the House. And we're going to
turn to the Congressman in a few minutes.
The issue that we are discussing today is of huge
consequence to the American people. When we talk about
healthcare, we are talking about the need of the American
people to be able to afford the medicine that their doctors
prescribe. That's pretty commonsensical. Unfortunately,
however, drug prices in this country are, by far, the highest
in the world. Because the United States lacks a national
healthcare program which is able to negotiate with the
pharmaceutical industry, drug companies are able, in many
cases, to charge any price they want for their product. And
people see, time and time again--they walk into their pharmacy,
and the price of their medicine has gone way up--no particular
explanation for that.
Today, according to the most recent reports, more than one
out of four Americans do not fill their prescriptions because
they cannot afford the cost. Think about that for a second.
People walk into the doctor's office because they are sick,
they or their insurance company pays for that visit, doctor
spends time with them, the doctor diagnoses the illness, the
doctor writes out a prescription, and one out of four people
are unable to afford to fill that prescription. What happens to
those people? They go home, their illness continues, maybe they
end up in the hospital. Totally absurd situation.
All of us understand that one of the important
breakthroughs in medicine in recent years is the advent of
generic drugs. And what that means is that, while protecting
the intellectual rights of the company that developed a drug,
the patent expires at a certain point, and that drug can then
be manufactured by other companies. And that's what generics
are about.
The result of that has been that millions of people are
purchasing generic drugs at far lower prices than the same drug
sold under a brand name. And more and more people use generic
drugs. And that is, to my mind, a good thing. And this has been
an enormously helpful development in alleviating illness and
suffering.
The purpose of this hearing is to take a hard look at the
generic drug industry and to make certain that generics remain
affordable to the patients who need them; because if that does
not happen, if generic drug prices continue to rise, then we
are going to have people all over this country who are sick,
who need medicine, and who simply will not be able to afford to
buy the medicine that they need.
On October 2d, Representative Cummings and I launched an
investigation into the price increases of 10 generic drugs.
Now, as it happens, the manufacturers, the companies who
manufacture these drugs, have complained that we just cherry-
picked a handful of drugs that have seen the largest price
increases. And they said, ``It's not really fair. You know, you
only picked on a few drugs.'' But, in my view, that criticism
is not valid. While we are focusing on 10 individual drugs that
have seen extraordinary price increases, what we are also
seeing in the industry is that many other generic drug prices
are rising, as well.
I should mention here that, according to a November 10th
article in the Wall Street Journal, some of the price increases
that we are looking at, at this hearing, and the companies
involved, are being investigated by the U.S. Department of
Justice for possible violations of antitrust laws.
According to Medicare and Medicaid data, between July 2013
and July 2014, half of all generic drugs went up in price.
During this same time period, over 1,200 generic drugs, nearly
10 percent of all generic drugs, more than doubled in price.
More than doubled in price. In fact, these drugs went up in
price by an average of 448 percent. Dozens of drugs went up by
500, 600, 1,000 percent. To say that we're just looking at 10
drugs is not accurate. There appears to be, now, a trend in the
industry, where a number of drugs are going up at extraordinary
rates.
Let me give you a few examples. I am probably going to
mispronounce half of these drugs. From July 2013 to July 2014,
the price of Pravastatin Sodium, which is used to treat high
cholesterol, went up 577 percent. The price of Divalproex
Sodium, a migraine medication, went up by 797 percent. The
price of Digoxin, a medication used to treat congestive heart
failure, went up by 828 percent. Et cetera, et cetera.
Let us be clear that these huge increases in generic drug
prices not only drive up healthcare prices throughout America,
which is a huge issue, but they impact the lives of very real
people, many of whom are struggling economically. And if you
don't have a whole lot of money, and you go to the drugstore,
and the druggist tells you that you're now going to be paying
10 times more for a medication that you need, this has a huge
impact on your life. Maybe you don't get the food you need,
maybe you don't heat your home the way you should, because you
don't have the money to spread around.
Several months ago on my website, I asked people in Vermont
and throughout the country to tell me what this impact--what
this increase in drug prices meant to them. What did it mean to
them? And we got some 1,600 responses. Don't worry, I'm not
going to read all 1,600 of them, but I will mention just a few,
if I might.
Barbara Heller, who wrote in through my website and was
featured last week on a CBS news program, has an autoimmune
disease, and she recently saw the price of her generic drug,
Ursodiol, increase from $95 to over $1,200. Although she
eventually found a lower price, it was still over three times
what she previously paid.
North Carolina pharmacist Parks Thomas said, on April 9th,
2014, ``I have been a pharmacist for 30 years, and I've never
seen increases like this. Never.'' According to Thomas,
antifungal creams that used to cost $5 now cost $77. The cost
for a bottle of Doxycycline went from $3 to $135. The
antidepressant Clomipramine, that used to cost $35, now costs
$605.
The goal of this hearing was pretty simple--it was to have
some witnesses come forward to give us their understanding of
why drug prices had gone up, and to hear from the
manufacturers. Congressman Cummings and I, and others, wanted
to know why it is that, over the course of a year, the price of
these drugs have gone up, not 5 percent, in some cases, but 500
percent--not 10 percent, but 1,000 percent. We wanted to know
if there was a rational economic reason as to why patients saw
these huge price increases or whether it was simply a question
of greed of companies who were able to raise prices to whatever
level they wanted, and that is, in fact, what they did. And
those are the questions that we wanted to ask to a number of
drug companies. Unfortunately, not one of the companies that we
asked to testify today chose to come to respond to those
questions. We invited three companies--Lannett, Teva, and
Marathon--and I am disappointed, but not surprised, by their
refusal to show up here.
Let me conclude by saying that Representative Cummings and
I have introduced legislation that will address one part of the
problem. The bill we are introducing will require generic drug
companies to provide a rebate to Medicaid if their drug prices
rise faster than inflation. Brand-name drugs are required to
pay this rebate if their drugs go up faster than inflation, but
generic drug companies are exempt. Congress should fix this
loophole immediately.
Senator Burr, the mic is yours.
Opening Statement of Senator Burr
Senator Burr. Thank you, Mr. Chairman.
Elijah, welcome. Thank you for ``slumming it'' this
Thursday afternoon by coming to the Senate. It is always good
to see you.
While I share the concerns regarding the importance of
Americans being able to access affordable healthcare, I'm also
concerned that today's hearing not interfere with the reported
Federal investigation into generic drug pricing. It's my hope
that today's hearing will be conducted in a manner befitting
the Senate and this committee. And I think it's obvious that,
if there is an investigation, no right legal counsel would ever
allow a company to come before Congress and testify if they're
under Federal review.
Over the past few years, a lot of promises about affordable
care were made, and a lot of promises were broken. When a
patient is sick and needs a prescription drug, they are
understandably most concerned about whether that drug is
available and if they can afford it. As we examine the reasons
behind why some generic drugs have experienced price
fluctuations, I hope that the committee does not lose sight of
the important role prescription drugs play in delivering
quality care to patients in need of these therapies. These
lifesaving products not only help many Americans to meet their
healthcare needs, but also improve patients' quality of life.
While we hear about a few specific drugs and circumstances,
it's important to remember that there are over 13,000 approved
generic drugs in the United States. Generic drugs play a
valuable role in helping patients access affordable medicines.
The IMS Institute of Healthcare Informatics found that
generics saved U.S. consumers nearly $1.5 trillion over the
past decade. In recent years, the shares of prescriptions
filled by generic drugs has increased, lowering healthcare
costs not just for patients, but for taxpayers, as well.
According to the Congressional Budget Office, between 2007 and
2010, the share of prescriptions filled with generic drugs
increased from 63 percent to 73 percent in Medicare Part D. And
this has contributed to the program's success story. This is
further affirmation that, when it comes to healthcare choice
and competition, they are essential. Consumers know how to
leverage these forces to make the market respond to their
healthcare needs.
Let's take a look at today's generic drug landscape. Since
2012, the Food and Drug Administration has been implementing
the first generic drug user-fee agreement. Since this agreement
was intended to accelerate the delivery of high quality, low
cost generic drugs, we have to ask ourselves, Is it working,
and has it accomplished that goal?
In 2011, the median time for generic approvals was about 31
months. Two years and hundreds of million dollars later in
generic user fees, it's now taking longer for generic drugs to
be approved by the FDA--36 months, and counting. While FDA has
taken some initial steps to address the significant backlog of
generic drug applications, the fact remains that thousands of
generic drug products await review by the agency. In fact,
there are more generic drug applications awaiting review at the
FDA today than before the generic drug user-fee agreement was
put in place. In other words, the regulatory burden has gone up
without realizing the full potential benefit of new generic
drugs entering the market to help lower cost through increased
choice and competition.
The FDA has also proposed a generic drug labeling rule that
actually undermines the core tenet of the term, ``sameness''
under the Hatch-Waxman Act. This rule will increase the cost of
generic drugs and lead to increased cost for patients.
Obamacare's prescription drug tax is being passed on to
patients, not only raising prescription drug prices, but also
raising premium pricing.
Instead of cherry-picking a handful of examples, we need to
look at what the full picture tells us. Drug shortages remain a
concern. Taxes, fees, and regulatory burdens are driving up the
cost of doing business. When the cost of doing business goes
up, the market responds and adjusts. We have thousands of
generic drug applications awaiting FDA review. Ultimately, many
factors, including the policies enacted by the Congress of the
United States and this Administration's actions, are impacting
the availability, the access, and the price of these lifesaving
products.
The first rule of medicine is ``Do no harm.'' If we're
going to point a finger at why healthcare costs are increasing,
we should start by pointing it at ourselves, the Federal
Government, and ask if the policies that we're implementing are
helping or hurting. When it comes to healthcare law and FDA
actions in--or/and inactions, we already know the answer.
So, Mr. Chairman, by all means, let's hold a hearing on
drug pricing. But, we're not doing right by the American people
if that's all we look at and then proceed to ignore the fees
imposed, the bureaucracies created, the hurdles erected, the
regulations unleashed, and other roadblocks constructed by this
Congress and this Federal Government more broadly.
I look forward to hearing from our witnesses today. And I
would remind the Chairman, we're going to be challenged,
because we've got a series of votes at 2 o'clock. So, I will
shut up.
Senator Sanders. OK. Senator Burr, thank you very much.
Now we're really pleased to hear from Congressman Elijah
Cummings. Since 1996, Congressman Cummings has represented
Maryland's 7th Congressional District in the U.S. House of
Representatives, and he currently serves as the Ranking Member
of the Committee on Oversight and Government Reform.
Congressman Cummings, thanks so much for being with us.
STATEMENT OF HON. ELIJAH E. CUMMINGS, RANKING MEMBER, HOUSE
COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, WASHINGTON, DC
Representative Cummings. Thank you very much, Chairman,
Senators and Ranking Member Burr. I consider this a magnificent
and very important opportunity.
And let me say, to both of you, as I listened to your
statements, we, in the Congress of the United States, do not
have the right to remain silent on this issue.
I'd like to start off by highlighting two fundamental
principles that I believe we all share:
First, generic drugs are critically important to the
American people. Thirty years ago, Congress passed the Hatch-
Waxman Act to expand a market for low-cost generic drugs. They
now account for 86 percent of all drugs dispensed in the United
States. They save the American people billions of dollars every
year, and they reduce our Nation's healthcare costs, as well.
The majority of manufacturers are upstanding companies that
should be commended for delivering lifesaving drugs to patients
who need them.
Second, I believe just as strongly that when drug companies
increases their prices by hundreds or even thousands of percent
virtually overnight, we, as Members of Congress, have an
obligation to our constituents to find out why and to determine
what we can do to help the people we serve, the ones we'll see
this weekend at the gas station and at the supermarket and in
church.
I am sitting before you today not because I have anything
against generic drug companies. Quite the contrary. But, people
have been coming out in droves to warn us about the staggering
price increases they are now facing for drugs they rely on
every single day. We have heard from patients, doctors,
pharmacists, hospitals, providers, and groups--group purchasing
organizations, all raising the alarm. And I am certain that,
when you travel back home for Thanksgiving next week, you will
hear the same thing from your constituents.
Let me give you an example. The retail price of a certain
dosage of Albuterol Sulfate tablets increased by more than
3,000 percent from November 2012 to June 2014. Three-thousand
percent. I personally use the inhaler, myself, a version of the
drug, so I know how important it is for people with asthma to
be able to breathe. To breathe.
Let me give you another example. Doctors use a drug called
Digoxin to treat heart failure and irregular heartbeats and
similar conditions. In 2012, this drug cost 11 cents per
tablet, but, in June of this year, it had risen to $1.10 per
tablet. Why did this happen? This drug is manufactured by a
company called Lannett. In 2012, there were three
manufacturers, but one stopped producing. After this occurred,
Lannett increased its price by more than 1,000 percent.
I know Chairman Sanders invited the company's CEO, Arthur
Bedrosian, but he declined to testify because he's speaking to
potential investors in London. Hello. London. What is he
telling them? According to a call he held with investors on
fourth-quarter earnings for 2014, his company just recorded its
highest net sales, its highest gross margin, and its highest
net income in their entire 72-year history. With respect to
cardiovascular drugs in particular, the company boasted that
their earnings rose from $4.5 million to $16.9 million in a
matter of months. The CEO attributed these dramatic profits to
their decision to raise prices on 75 percent of their products.
He also said this,
``We are an opportunistic company. We see
opportunities to raise prices. Competitors drop out of
products, there are shortages in the marketplace that
sometimes drive it up.''
This sounds like Gordon Gecko, ``greed is good.'' But,
instead of the victims being other corporate entities, the
victims here are real patients, real people suffering from
heart disease.
Let me close with one final example, if I may. In 2005,
Jeff Aronin was the CEO of Ovation Pharmaceuticals. His company
bought a drug called Indocin, which doctors use to treat life-
threatening heart conditions in babies. This drug used to sell
for $77, but no other companies manufactured it, so they
increased the price to $1,500. Let me repeat that. They hiked
up the price from $77 to $1,500 for a medicine that doctors use
to treat heart conditions in premature babies.
We do not have the right to remain silent.
Today, Mr. Aronin is CEO of a new company called Marathon
Pharmaceuticals, and they apparently use the same business
model. I'm almost finished, Mr. Chairman. They purchased a drug
called Isuprel, which is also used for heart conditions. A box
of 25 vials used to cost $916 in 2012, but, again, no other
companies manufacture this drug, so they raised the price to
$4,489. Corporate executives claim they are reinvesting 100
percent of these massive profits into production improvements
and new medicines, but they refuse--refuse--to provide any
documents to support this dubious claim, and they declined to
send anyone here today to testify.
Finally, let me reiterate to every member of this panel,
your constituents and mine are directly affected by these
abuses. No doubt there are certainly legitimate reasons to
increase the price of drugs on occasion, but I believe some
companies are exploiting monopolies and disruptions in supply
to implement massive price increases in order to reap
unconscionable profits.
Chairman Sanders, Ranking Member Burr, thank you again for
inviting me here today. And I promise you, I will fight this
issue until I die, because there are people dying because of
it.
Thank you.
[The prepared statement of Representative Cummings
follows:]
Prepared Statement of Hon. Elijah E. Cummings
Chairman Sanders, Ranking Member Burr, and members of the
subcommittee, thank you very much for the opportunity to
testify on this critically important issue. I would like to
start by highlighting two fundamental principles I believe we
all share.
First, generic drugs are critically important to the
American people. Thirty years ago, Congress passed the Hatch-
Waxman Act to expand the market for low-cost generic drugs.
They now account for 86 percent of all drugs dispensed in the
United States. They save the American people billions of
dollars every year, and they reduce our Nation's healthcare
costs as well. The majority of manufacturers are upstanding
companies that should be commended for delivering life-saving
drugs to patients who need them.
Second, I believe just as strongly that when drug companies
increase their prices by hundreds or even thousands of
percent--virtually overnight--we as Members of Congress have an
obligation to our constituents to find out why, and to
determine what we can do to help the people we serve.
I am sitting before you today not because I have anything
against generic drug companies-quite the contrary. But people
have been coming out in droves to warn us about the staggering
price increases they are now facing for drugs they rely on
every single day.
We have heard from patients, doctors, pharmacists,
hospitals, providers, and group purchasing organizations--all
raising the alarm. And I am certain that when you travel back
home for Thanksgiving next week, you will hear the same thing
from your constituents.
Let me give you an example. The retail price for a certain
dosage of albuterol sulfate tablets increased by more than
3,000 percent from November 2012 to June 2014. I personally use
the inhaler version of this drug myself, so I know how
important it is for people with asthma and other lung
conditions.
Let me give you another example. Doctors use a drug called
Digoxin to treat heart failure, irregular heartbeats, and
similar conditions. In 2012, this drug cost 11 cents per
tablet, but in June of this year, it had risen to $1.10 per
tablet.
Why did this happen? This drug is manufactured by a company
called Lannett. In 2012, there were three manufacturers, but
one stopped producing. After this occurred, Lannett increased
its price by more than 1,000 percent.
I know Chairman Sanders invited the company's CEO, Arthur
Bedrosian, but he declined to testify because he is speaking to
potential investors in London.
What is he telling them? According to a call he held with
investors on fourth quarter earnings for 2014, his company just
recorded its highest net sales, its highest gross margin, and
its highest net income in their entire 72-year history. With
respect to cardiovascular drugs in particular, the company
boasted that their earnings rose from $4.5 million to $16.9
million in a matter of months. The CEO attributed these
dramatic profits to their decision to raise prices on 75
percent of their products. He also said this:
``We are an opportunistic company. We see
opportunities to raise prices. Competitors drop out of
products. There are shortages in the marketplace that
sometimes drive it.''
Let me close with one final example, if I may. In 2005,
Jeff Aronin was the CEO of Ovation Pharmaceuticals. His company
bought a drug called Indocin, which doctors use to treat life-
threatening heart conditions in babies. This drug used to sell
for $77, but no other companies manufactured it, so they
increased the price to $1,500.
Today, Mr. Aronin is the CEO of a new company called
Marathon Pharmaceuticals, and they apparently use the same
business model. They purchased a drug called Isuprel, which is
also used for heart conditions. A box of 25 vials used to cost
$916 in 2012. But again, no other companies manufacture this
drug, so they raised the price to $4,489.
Corporate executives claim they are reinvesting 100 percent
of these massive profits into production improvements and new
medicines, but they refused to provide any documents to support
this dubious claim, and they declined to send anyone here to
testify today.
Finally, let me reiterate to every member of this panel
that your constituents and mine are directly affected by these
abuses. No doubt, there are certainly legitimate reasons to
increase the price of drugs on occasion. But I believe some
companies are exploiting monopolies and disruptions in supply
to implement massive price increases in order to reap
unconscionable profits.
Chairman Sanders, thank you again for inviting me here
today, for agreeing to work with us on this investigation, and
for your tremendous leadership on this issue.
(Contact: Jennifer Hoffman, Communications Director, (202) 226-
5181.)
Senator Sanders. Congressman Cummings, thank you very much
for being here, and thanks for your work on this issue.
If the second panel could come on up, we'd appreciate that.
We are very fortunate to have with us some extremely
knowledgeable people on the pharmaceutical industry, and
generic drugs in particular. And let us begin with Dr. Stephen
Schondelmeyer, who is a professor of pharmaceutical economics
at the University of Minnesota, College of Pharmacy, where he
holds the Century Mortar Club Endowed Chair in Pharmaceutical
Management and Economics. We're very pleased that he is here.
Dr. Schondelmeyer, we'd be delighted to hear your
testimony.
STATEMENT OF STEPHEN W. SCHONDELMEYER, BS PHARM, MA PUB ADM,
PHARM.D., PH.D., FAPHA, PROFESSOR AND DIRECTOR, PRIME
INSTITUTE, UNIVERSITY OF MINNESOTA COLLEGE OF PHARMACY,
MINNEAPOLIS, MN
Mr. Schondelmeyer. Thank you, sir. I'm pleased to be here.
I am a professor at the University of Minnesota, but I'm
here representing my own views and my own experience after
about 40 years of studying this marketplace and studying the
pricing behaviors and practices in the marketplace.
Also, I will say up front, our focus today is on
skyrocketing generic drug prices, and I will address that, but
I think it's important for us to realize, Where do we get
generic drugs? Every generic drug in the market today started
as a brand-name drug. And the brand-name drug prices are
equally in the Wild, Wild West today, as far as pricing, as are
generics. And so, we need to, at some point, consider issues of
where a drug starts out at its price, what is the value of that
drug in the market, from a broad market standpoint, not just
from the stockholders of the drug company, and how do we price
and change prices of those drugs over time? But, all that said,
then we end up with generics that come into the marketplace
today.
As has been commented, Hatch-Waxman was a major innovation
for the marketplace and in providing useful, viable drugs to
the public. Hatch-Waxman really did two basic things with
respect to generic drugs and generic drug competition. One, it
put drugs in the marketplace that assured that these generics
and their competitors, as well as the original brand name, all
would be identical, or essentially identical. And we have a
government program that we spend a lot of resources on, and I
think wisely, to assure and certify, as a government, that
these products are equal in the marketplace. I can't think of
any other industry where we've made that type of investment or
commitment.
The second thing we've done under Hatch-Waxman was to
shorten the time and resources required to get a drug on the
market. And I agree with your colleague that we need to look at
FDA's timing and what it costs to get that drug on the
marketplace, but the bottleneck at FDA has been a part of
constraining the number of competitors in the market. And, when
you have fewer competitors in a market, what happens to price?
It goes up. I'm not blaming FDA, totally. FDA is an excellent
agency, does many good works. But, we need to look at how we
can loosen that bottleneck of getting generic drugs on the
marketplace.
I study, with colleagues at the AARP, drug prices over
time. And each year, we do an analysis, looking at not only
brand names and generic drugs, but also specialty drugs. We
look at each of those. We've already completed our brand-name
marketplace analysis for 2013. We're in the middle of our
generic. And I'll give you a few highlights of our generic
results. But, it's--I think I have to point out, first, that
the brand names went up 12.9 percent last year, on average,
across all of the brand names. So, with that as a baseline,
that's telling us--that's pushing up our future generic prices
by that much as a baseline.
Then, we looked at a market basket of 280 generics in the
2013 time period, and a third of all of those had price
increases, not price decreases, as we normally expect. I don't
think you can call that a series of isolated anecdotes or
cases. A third of all the market is a substantial portion of
the market, and the trend line is going up, rather than down,
in terms of the proportion that have these increases. I think
it's grossly unfair to call that anecdotal or just a few cases.
I think it is a trend in the marketplace that we're going to
have to deal with.
And the percent increases we're seeing for these drugs is
not 2 percent or 5 percent or 10 percent, even. These drugs are
going up at, as we've heard, hundreds of percents or thousands
of percents at a time. Now, imagine if you're a diabetic
patient and the cost of your diabetic medicine goes up 50
percent. As a diabetic patient, you don't have any choice.
Either you don't buy the medicine and you get worse and you
suffer the consequences or you pay the price. But, even if you
pay the price, your diabetes doesn't get 50 percent better when
you pay 50 percent more. It's the same drug. It works the same
way, and it has the same result for the patient if they have
access to it and take it.
We have to realize, these price increases aren't increasing
the value of what we're delivering to the patient in the
marketplace. These aren't innovations in the generic drug that
are being delivered to the patient. It's the same exact generic
drug. And that could apply to any therapeutic category.
I noticed among the drugs that have gone up--I didn't see
on your list--but Levothyroxine is a drug for thyroid. These
drugs have been around since before the 1950s, and these drugs,
all of them, went up in price 35 to 50 percent in the last
year. Just in the last year, a 35-to 50-percent increase in
price. Again, the patients taking those drugs aren't getting
35-to-50 percent better.
You will hear from various witnesses that part of this is
because the cost structure and the barriers and the burdens
that we've placed on industry, and regulation, is raising their
cost structure. There is some element of truth to that. That
may explain 2-, 5-, 10-percent cost increases, it doesn't
explain hundreds of percents or thousands of percents. You
can't show me, in aggregate, all of the regulations and all of
the behaviors in the market that would justify a 100-percent
increase in the last year, or a 1,000-percent increase.
First these are notions thrown out to kind of sidestep what
the issue is, and second, these are industrywide effects. But
if they were industrywide, we would see all drugs going up at
the same rate. No, we've only seen select drugs--32 percent
being select--go up in price. I don't find those arguments
largely compelling, that that explains why we're experiencing
these drug price increases.
What all of this is leading me to is to tell you--also, we
hear a lot of talk about a market. And I believe in markets,
and pharmaceutical markets as well. But, this market is broken.
This market is failing. And I think it's structurally failing.
If we would step back and look, consumers don't make a choice
about what drug they're going to get. Their physician does,
their PBM influences it, their insurance company, their
employer. A lot of people have a role in it, but they don't
make that point.
The markets are broken, and we need to do something to fix
it. And I think the government needs to step in and monitor and
develop solutions.
[The prepared statement of Mr. Schondelmeyer follows:]
Prepared Statement of Stephen W. Schondelmeyer, BS Pharm, MA Pub Adm,
Pharm.D., Ph.D., FAPhA
Thank you Senator Sanders and members of the Senate Committee on
Health, Education, Labor and Pensions (HELP) for this opportunity to
provide information and insights on drug price trends related to
generics and other pharmaceutical products. I am Stephen W.
Schondelmeyer, Professor of Pharmaceutical Management & Economics at
the University of Minnesota where I serve as Director of the PRIME
Institute. The PRIME Institute focuses its research on policy issues
related to pharmaceutical economics and the management of drug
expenditures at all levels in society. These remarks are my own views
based upon my research and experience in studying the pharmaceutical
marketplace for over 40 years. Previously, I have had the opportunity
to serve Congress as a member of the Prescription Drug Payment Review
Commission (established under the Catastrophic Coverage Act of 1988),
as an author or co-author of several legislatively mandated Reports to
Congress, and through testimony before congressional committees on
numerous occasions.
This hearing is being held to examine ``Why are some generic drugs
skyrocketing in price?'' Various aspects of this issue are addressed in
my written remarks which include comments on:
(1) improved coverage and access to pharmaceuticals;
(2) the role of generics in the U.S. pharmaceutical market;
(3) recent price trends for brand and generic prescription drug
products;
(4) signals of market failure in the pharmaceutical market; and
(5) policy options to address skyrocketing drug prices.
I will briefly address each of these topics and describe their
relationship to the skyrocketing generic drug prices being observed in
the market.
improved coverage and access to pharmaceuticals
Actions taken by Congress over the past decade have expanded health
insurance coverage, in general, and more specifically prescription drug
coverage. Two major pieces of legislation have been enacted and
implemented in the past decade: (1) The Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (MMA); and (2) The Patient
Protection and Affordable Care Act (PPACA)--commonly called the
Affordable Care Act (ACA) (2010).
First, the MMA established the Medicare Prescription Drug Program,
also known as Medicare Part D. The MMA's most prominent feature was the
introduction of an entitlement benefit for Medicare beneficiaries
covering prescription drugs through tax breaks, subsidies, premiums,
and other forms of cost-sharing. The Medicare Part D program was
implemented on January 1, 2006. The ACA was the second major piece of
legislation passed by Congress in less than 10 years. The ACA was
enacted with the goals of increasing the quality and affordability of
health insurance, lowering the uninsured rate by expanding public and
private insurance coverage, and reducing the costs of healthcare for
individuals and the government. While some of the provisions of the ACA
were implemented as early as 2010, the major provisions went into
effect on January 1, 2014. Both the MMA and the ACA have expanded the
number of persons with health insurance including prescription drug
coverage. Gallup has estimated that the uninsured rate for adults
(persons 18 years of age and over) was 13.4 percent as of the second
quarter of 2014, down from 18.0 percent in the third quarter of 2013
when the health insurance exchanges created under the Patient
Protection and Affordable Care Act (PPACA or ``Obamacare'') first
opened.\1\
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\1\ Levy,Jenna, Well-Being, Gallup Release Date: October 8, 2014,
found on website at: http://www.gallup.com/poll/178100/uninsured-rate-
holds.aspx.
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As a result of the MMA and the ACA, more Americans have public or
private health insurance which includes coverage of prescription drugs.
This expansion of health insurance and drug benefit coverage has been
accomplished using a combination of premiums, subsidies, taxes and
penalties for lack of coverage. The percent of Americans with
prescription drug coverage is at an all-time high (about 86 percent of
the U.S. population).
Drug therapy is perhaps the most widely used form of therapy in
health care. Each year in the United States there are more than 4
billion outpatient prescriptions provided to 310 million Americans.\2\
This means that each American gets 12 or more prescriptions per person
per year on average. In addition to outpatient prescriptions in retail
settings, patients use drug therapy in virtually all other areas of
health care such as hospitals, nursing homes, physicians' offices and
clinics, dentists' offices, government facilities, public health
clinics, and other settings. Each year there are 20 to 40 new molecular
entities that are approved by the Food & Drug Administration for
marketing in the United States.\3\ These new drug (or biological)
approvals are usually for innovative drug therapies that almost always
have one or more patents and/or other forms of exclusivity. Often these
new drug therapies hold the promise of treating a previously untreated
disease or providing safer or more effective therapy to replace older
drugs on the market. Also, keep in mind that today's new and innovative
drug therapies and biologicals are the drug products that will become
available as generics or biosimilars in the future.
---------------------------------------------------------------------------
\2\ IMS Institute for Healthcare Informatics. Medicine use and
shifting costs of healthcare. April 2014., p. 49.
\3\ U.S. Food & Drug Administration. Novel New Drugs, 2013 Summary.
January 2014, p. 3.
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role of generics in the u.s. pharmaceutical market
In 1984, Congress enacted the Hatch-Waxman Act also known as the
``Patent Term Restoration and Drug Price Competition Act.'' The Hatch-
Waxman Act (``the Act'' or ``Hatch-Waxman'') simplified the regulatory
hurdles for prospective generic drug manufacturers by eliminating the
need for generic companies to file lengthy and costly New Drug
Applications (NDAs) in order to obtain FDA approval.\4\ The Act also
eliminated the duplicative clinical trials in patients that had been
required for a generic drug to obtain approval from the FDA. Instead,
drug companies are permitted to file Abbreviated New Drug Applications
(ANDAs) and to rely on the safety and efficacy data already supplied to
the FDA by the original NDA holder for a given drug. Hatch-Waxman also
added a number of provisions to the statutory scheme, which extended
the time during which brand name (and patented) drugs may enjoy patent
and other forms of market exclusivity.
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\4\ How Increased Competition from Generic Drugs Has Affected
Prices and Returns in the Pharmaceutical Market, Congressional Budget
Office, July 1998, (``CBO Report''), at xii.
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The main purpose of the Hatch-Waxman Act was to balance two
competing aims: (1) the protection of intellectual property rights of
those who discover and market new and novel drug therapies, by ``Patent
Term Restoration,'' in order to account for and to restore part of the
time a drug product was under review by the FDA; and (2) the benefit to
the American public that can be provided by ``Drug Price Competition''
resulting from prompt market entry of less expensive generic drug
products that are therapeutically equivalent to the brand name drug
product.
Generic drugs are essentially exact substitutes for brand name
drugs which have met the same exact standards for bioequivalence and
pharmaceutical equivalence set by the FDA. Generic drug products are
approved by the FDA through an ANDA and contain the same active
ingredient(s), in the same dosage form, in the same strength, and are
bioequivalent to the reference listed drug (RLD) (i.e., the original
brand name version of the drug approved by FDA through a New Drug
Application (NDA)).\5\ The FDA through its review process assures the
same clinical effect and safety profile for brand and generic drug
products rated as therapeutically equivalent.\6\ According to the FDA,
``Products classified as therapeutically equivalent can be substituted
with the full expectation that the substituted product will produce the
same clinical effect and safety profile as the prescribed product.''
\7\
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\5\ While a generic drug must have the same active ingredient in
the same amount as the brand drug, the generic can use different
inactive ingredients.
\6\ Orange Book, 27th ed. (12/31/2006) Preface, p. vi.
\7\ Orange Book, 27th ed. (12/31/2006) Preface, p. x.
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Evaluations of therapeutic equivalence for prescription drugs are
based on scientific and medical evaluations by the FDA. Products
evaluated as therapeutically equivalent can be expected, in the
judgment of the FDA, to have equivalent clinical effect and no
difference in their potential for adverse effects when used under the
conditions of their labeling.\8\ If the brand and generic products are
shown to be therapeutically equivalent, and therefore interchangeable,
they are rated as ``A'' by the FDA. Because there is no difference in
efficacy and safety between the FDA-approved brand and generic versions
of a drug product, they are freely substitutable and interchangeable
from a clinical standpoint.
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\8\ range Book, 27th ed. (12/31/2006) Preface, p. x.
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Brand-name drugs that are approved for sale by the FDA are
sometimes protected by one or more patents or other forms of
exclusivity,\9\ which provide the patent owner (or exclusivity holder)
with the ability to ask a court to enforce an exclusive right to sell
that drug in the United States for the duration of the patent, or
patents, plus any other extension times afforded by law. The Hatch-
Waxman Act requires the brand company to file with the FDA the patent
number and expiration date of any patent covering the drug in question.
---------------------------------------------------------------------------
\9\ Drug companies may receive FDA-granted exclusivity periods for
several reasons including: (1) orphan designation; (2) completing FDA-
requested pediatric studies; (3) conducting new clinical trials that
result in substantial label changes; and (4) other reasons.
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Patent information received by the FDA with respect to approved
drugs is published in the FDA's ``Orange Book,'' where such information
can be found and consulted by future FDA applicants. In accepting and
publishing patent information in the Orange Book, the FDA's role is
purely ministerial. The FDA does not verify the facts supplied to it by
the patent holder, but instead relies on the good faith and presumed
truthfulness of the original NDA holder. An invalid patent that is
issued will be listed in the FDA Orange Book and may delay generic
competition.
The first generic competitor to enter a market typically does so at
a price substantially lower than the price of the equivalent brand name
drug, and quickly takes a substantial amount of the share of the market
for the particular drug ``molecule'' away from the brand name drug
manufacturer. As additional generic competitors come to market, the
prices of the generic drug competitors continue to fall compared to the
brand price, and their combined share of the market for the molecule,
relative to the brand name equivalent, usually continues to grow.
The price competition engendered by generic drug manufacturers
affects all purchasers of the drug, who are able to buy the generically
equivalent chemical substance (the molecule) at much lower prices.
Pharmacies and pharmacists--the people and organizations who dispense
drugs to patients--can and do substitute A-rated generic drugs for
brand name drugs wherever possible in order to lower their own costs
and those of their customers. The incentive for pharmacists and
patients to engage in routine and easy substitution of A-rated generics
has been enhanced over the years by managed care organizations, who, to
encourage the use of cost-saving generic drugs, typically place A-rated
generic drugs on the ``first tier'' of their formularies, which
corresponds to a lower co-pay level.
Pharmacy-driven substitution is extremely rapid and robust in
causing the share of the market for the particular drug molecule to
shift away from the more expensive brand name drug product and toward
the less-expensive A-rated generic equivalents. When easy and routine
pharmacy substitution is possible, i.e., when there is an A-rating, all
purchasers of the brand name drug--pharmacies of all types (including
independent, chain, food and drug stores, and mail order pharmacies),
wholesalers and distributors, managed care organizations, hospitals,
group purchasing organizations (GPOs) and other ``classes of trade''--
rapidly begin to purchase the generic version in lieu of the brand
version. In addition to my own research, there are a large number
(indeed hundreds) of sources--both published and unpublished--
describing the effects of generic competition in pharmaceutical
markets. These sources include published articles and research papers,
unpublished analyses and research papers, policy papers, government
studies and documents, dissertations, data bases, and other sources
describing the effects of generic competition.\10\ In the course of my
work, I have reviewed most of this research, as it is available in the
public domain. I have also conducted studies on the generic pricing and
generic penetration rates of nearly all new molecular entities (drug
molecules) that have faced generic competition since 1983.
---------------------------------------------------------------------------
\10\ Among the principal studies in the scientific and economic
literature which analyze the effects of generic competition are the
following:
a. How Increased Competition from Generic Drugs Has Affected Prices
and Returns in the Pharmaceutical Market, Congressional Budget Office,
July 1998 (Ex. 96);
b. Jae P. Bae, Drug Patent Expirations and the Speed of Generic
Entry, Health Services Research, Vol. 32, No. 1, pp. 87-101, April 1997
(Ex. 98);;
c. Richard G. Frank and David S. Salkever, Generic Entry and the
Pricing of Pharmaceuticals, Journal of Economics and Management
Strategy, Vol. 6, Spring 1997, pp. 75-90 (Ex .99);
d. Henry Grabowski and John Vernon, Longer Patents for Increased
Generic Competition in the U.S.: The Hatch-Waxman Act After One Decade,
PharmacoEconomics, 1996 (Ex. 100);
e. How the Medicaid Rebate on Prescription Drugs Affects Pricing in
the Pharmaceutical Industry, Congressional Budget Office, 1996 (Ex.
101);
f. Pharmaceutical R&D: Costs, Risks, and Rewards, Office of
Technology Assessment, February 1993 (Ex. 102);
g. Henry Grabowski and John Vernon, Brand Loyalty, Entry, and Price
Competition in Pharmaceuticals After the 1984 Drug Act, Journal of Law
and Economics, October 1992, p. 339 (Ex. 103);
h. Richard E. Caves, Michael D. Whinston, and Mark A. Hurwitz,
Patent Expiration, Entry, and Competition in the U.S. Pharmaceutical
Industry, Brookings Papers on Economic Activity: Microeconomics, 1991,
pp. 1-66 (Ex. 104);
i. Alison Masson and Robert L. Steiner, Generic Substitution and
Prescription Drug Prices: Economic Effects of State Drug Product
Selection Laws, Federal Trade Commission, 1985 (Ex. 105);
j. Jerry I. Treppel, Andrew S. Forman, Daniel A. Seto, Geoffrey G.
O'Brien, Specialty Pharmaceuticals Industry: The Thrifty Fifty (New
York: Warburg Dillon Read, May 5, 1999) (Ex. 106);
k. Kirking D.M., Ascione F.J., Gaither C.A., Welage L.S., Economics
and Structure of the Generic Pharmaceutical Industry, Journal of the
American Pharmaceutical Association, 41: 578-584, 2001(Ex. 107);
l. Ascione F.J., Kirking, D.M., Gaither C.A., Welage L.S.,
Historical Overview of Generic Medication Policy, Journal of the
American Pharmaceutical Association, 41: 567-577, 2001(Ex. 108);
m. Suh, D.C., Manning W.G., Schondelmeyer, S., Hadsall, R., Effect
of Multiple-Source Entry on Price Competition after Patent Expiration
in the Pharmaceutical Industry, Health Services Research, 35: 529-547,
1993 (Ex. 109);
n. Reiffen, D. and Ward, M.R. (2002), Generic Drug Industry
Dynamics FTC Working Paper 248 http://www.ftc.gov/be/workpapers /
industrydynamicsreiffenwp.pdf (Ex. 110);
o. Rozek, P.R., Berkowitz, R, The Cost to the U.S. Health Care
System of Extending Marketing Exclusivity for Taxol, Journal of
Research in Pharmaceutical Economics, 9(4): 21-41, 1999 (Ex. 111);
p. Hong, S.H., Shepherd, M.D. and Wan, T.T., The Impact of Product
Line Extensions on Rising Prescription Drug Prices. Manuscript in
progress (2003) abstract presented at the 130th Annual Meeting of the
American Public Health Association; Philadelphia, PA (November 9-13,
2002) (Ex. 112);
q. Andrew S. Forman and David S. Moskowitz, Specialty
Pharmaceuticals: Rising to Another Level (New York: Warburg Dillon
Read, May 5, 2000) (Ex. 113).
---------------------------------------------------------------------------
Testimony by the FDA's Director of the Office of Generic Drugs
before the Senate Special Committee on Aging in July 2006 reported that
``[t]he Hatch-Waxman Amendments have been very successful and have
provided for the approval of over 8,000 generic drug products. These
products are lower cost, high quality products that have saved the
American public and the government billions of dollars.'' \11\ The
Congressional Budget Office has credited the Hatch-Waxman Act and,
importantly, the process for easy and routine A-rated generic
substitution by pharmacists with providing meaningful economic
competition from generic drugs, and with achieving billions of dollars
of savings for drug purchasers such as consumers and employers. \12\
The rate of generic dispensing has reached an all-time high with
generic drug products being dispensed for 77 percent to 85 percent of
all outpatient prescriptions in 2012 and 2013. \13\ \14\
\11\ Statement of Gary Buehler, R.Ph., Director of the Office of
Generic Drugs, Center for Drug Evaluation and Research, FDA, before
Special Committee on Aging, U.S. Senate (July 20, 2006), available at
http://www.fda.gov/ola/2006/genericdrugs0720.html.
\12\ Congressional Budget Office, How Increased Competition from
Generic Drugs Has Affected Prices and Returns in the Pharmaceutical
Market, July 1998, p. ix (``CBO Report'').
\13\ Pharmacy Times, November 12, 2013, ``2012 Generic Drug
Dispensing Surpasses 2011 for New Record,'' found on website at: http:/
/www.pharmacytimes.com/publications/issue/2013/November2013/2012-
Generic-Drug-Dispensing-Surpasses-2011-for-New-Record.
\14\ The Express Scripts Lab, The 2013 Drug Trend Report, April
2014, p.67.
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In other words, generic drug products play a critical role in the
U.S. market because they are the only form of direct economic and price
competition from identical, therapeutically equivalent drug products
which can be legally substituted for brand name prescription drugs.
Generics can perform this critical function effectively, however, only
through the A-rated substitution mechanism. Generic drugs are
essentially exact substitutes for brand name drugs which have met
standards for bioequivalence and pharmaceutical equivalence set by the
FDA. Without the presence of, or ability of, purchasers to choose an A-
rated therapeutically equivalent generic alternative, brand name
products will face relatively little effective price or economic
competition. The availability and use of FDA-approved A-rated generics
provides the key mechanism for assuring that a competitive market for
drug products exists, allowing patient-users to achieve equivalent
efficacy and safety with increased access and decreased cost. This
process of making generic drug products readily available and routinely
substitutable at the pharmacy level is what brings effective economic
competition to the generic segment of the prescription drug
marketplace. Generic drug companies serve a vital role in the
pharmaceutical marketplace, and as Hatch-Waxman intended, are meant to
stimulate ``Drug Price Competition.''
recent price trends for prescription drug products
What are the recent price trends for prescription drug products in
the past few years? Research performed by the PRIME Institute at the
University of Minnesota, in conjunction with the AARP Public Policy
Institute, has examined the price trends for various segments of the
pharmaceutical market including brand name, generic, and specialty
products. Actual transaction prices \15\ at the retail level for
prescription drugs widely used by older Americans have been examined
over the time period December 31, 2005 to December 31, 2013.\16\ (See
the AARP Public Policy Institute Report for details on the study
methods.) We have completed the brand name drug price trend analysis
and we are continuing to examine the generic and specialty drug price
trend analysis. I will report here a summary of the brand name drug
price trends for 2013 and preliminary findings from the generic drug
price trends for 2013.
---------------------------------------------------------------------------
\15\ The retail prices used in this report are drawn from Truven
Health's MarketScan Commercial Database and MarketScan Medicare
Supplemental Database (Truven Health MarketScan Research Databases).
The prices reflect the actual total price for a specific prescription
that a pharmacy benefit manager (PBM) bills to a specific health plan
for consumers enrolled in employer-sponsored or government-sponsored
(i.e., Medicare or Medicaid) health plans and not simply the out-of-
pocket cost (such as the copay) which a consumer would pay at the
pharmacy. These amounts may or may not reflect what the PBM paid the
pharmacy or the usual and customary price that a pharmacy would charge
a cash pay consumer for the same prescription.
\16\ Schondelmeyer, Stephen W. and Purvis, Leigh, Trends in Retail
Prices of Brand Name Prescription Drugs Widely Used by Older Americans:
2006 to 2013, AARP Public Policy Institute, Rx Price Watch Report
#2014-03, November 2014. 38 pp.
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Brand Name Drug Price Trends for 2013. The trends reported here are
annual price changes based on the 12-month rolling average for the
period from December 31, 2012 to December 31, 2013. So let's examine
price changes in the market for brand name drug products in 2013.
Retail prices for the 227 brand name drug products \17\
most widely used by older Americans rose 12.9 percent in 2013 (Figure
1).\18\
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\17\ The market basket for this analysis had 227 brand name
prescription drug products. Some critics of the Rx Price Watch reports
have suggested that brand name drug products in our market basket that
subsequently face generic competition should be excluded from this
analysis because they may be skewing the results upward. However, when
only the 169 brand name drug products with no generic competition are
considered, the average annual price change was 13.2 percent in 2013--
higher than the 12.9 percent price trend shown in this report (for
additional information and analysis, see Appendix B).
\18\ When measured as a 12-month rolling average and weighted by
actual 2011 retail prescription sales to older Americans ages 50 and
above, including Medicare beneficiaries.
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The average annual retail price increase in 2013 for these
brand name prescription drug products was more than eight times higher
than the rate of general inflation (12.9 percent vs. 1.5 percent).\19\
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\19\ The general inflation rate used in this report is based on the
average annual rate of change in the Consumer Price Index-All Urban
Consumers for All Items (seasonally adjusted) (CPI-U), Bureau of Labor
Statistics series CUSR0000SA0.
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The average annual retail price increase for brand name
prescription drug products in 2013 (12.9 percent) was more than two
times higher than the average annual brand name drug price increase in
2006 (5.7 percent).
The average annual cost for one brand name medication used
on a chronic basis was nearly $3,000 in 2013.
For a consumer who takes three brand name prescription
drugs on a chronic basis, the annual cost of therapy would have
been more than $8,800 during 2013--more than double the cost
seen 8 years earlier.
Between January 2006 and December 2013, retail prices for
140 chronic use brand name drugs that have been on the market since the
beginning of the study increased cumulatively over 8 years by an
average of 113.0 percent.
The cumulative general inflation rate in the U.S.
economy was 18.4 percent during the same 8-year period.
Retail prices increased in 2013 for 97 percent (219 of
227) of the widely used brand name prescription drug products in the
study's market basket. All but two of these retail price increases (217
of 227) exceeded the rate of general economic inflation in 2013.
Retail prices for all 32 of the drug manufacturers with at
least two brand name drug products in the study's market basket
increased faster than the rate of general inflation (1.5 percent) in
2013.
Twenty-two drug manufacturers, including the ``All
Other'' category, had average annual price increases for their
brand name drugs of 10 percent or more during 2013.
All but two of the 46 therapeutic categories of brand name
drug products had average annual retail price increases that exceeded
the rate of general inflation in 2013, with price increases by
therapeutic category ranging from 4.2 percent to 41.1 percent.
Figure 1. Average Annual Brand Name Drug Prices Continue to Grow
Substantially More than General Inflation in 2013
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Note: Calculations of the average annual brand name drug price
change include the 227 drug products most widely used by older
Americans (see Appendix A).
Prepared by the AARP Public Policy Institute and the PRIME
Institute, University of Minnesota, based on data from Truven Health
MarketScan Research Data bases.
Figure 2 shows the percent change in brand name drug prices for
each month compared with the same month in the previous year. This
trend is shown alongside the 12-month rolling average to allow more
detailed examination of the rate and timing of retail brand name drug
price changes over the entire study period. This analysis reveals three
broad trends since implementation of the Medicare Part D program:
The retail price of brand name drug products has steadily
increased over time since 2006;
Brand name drug price increases at the retail level have
been substantially higher than the rate of general inflation; and
The gap between the rate of brand name drug price change
and the rate of change in general inflation has substantially widened
over the period from 2006 to 2013. This gap has ranged from less than a
twofold difference in 2006 to nearly a ninefold difference in 2013.
Figure 2. Rolling Average and Point-to-Point Changes in Retail Prices
for Most Widely Used Brand Name Prescription Drugs Were Well Above
Inflation from 2006 to 2013
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Note: Calculations of the average annual brand name drug price
change include the 227 drug products most widely used by older
Americans (see Appendix A).
Prepared by the AARP Public Policy Institute and the PRIME
Institute, University of Minnesota, based on data from Truven Health
MarketScan Research Data bases.
Retail prices for 97 percent (219 of 227) of the most widely used
brand name prescription drug products had price increases in 2013
(Figure 6). Prices for 96 percent (217 of 227) of the most widely used
brand name prescription drug products increased faster than the rate of
general inflation (1.5 percent) in 2013.
Among the 87 percent (197 of 227) of brand name drug products with
annual retail price increases of more than 5.0 percent--or more than
three times the rate of inflation--in 2013:
Nearly one-half (49.4 percent or 112 drug products)
increased between 5.0 percent and 14.9 percent--that is, five to ten
times the rate of general inflation in the economy; and
More than one-third (37.6 percent or 85 drug products) had
an annual increase of 15.0 percent or more which is ten or more times
the rate of general inflation in the economy.
Figure 3. Retail Prices Increased by More than 10 Percent in 2013 for
Almost Two-Thirds of the Most Widely Used Brand Name Drugs
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Note: Calculations were made using brand name drug price change
from December 31, 2012 to December 31, 2013, and the analysis included
the 227 brand name drug products most widely used by older Americans
(see Appendix A).
Prepared by the AARP Public Policy Institute and the PRIME
Institute, University of Minnesota, based on data from Truven Health
MarketScan Research Data bases.
Eight of the widely used brand name drug products in this study had
unusually high 8-year cumulative price increases (i.e., the end of 2005
to the end of 2013). The brand name drug products with unusual price
increases were:
Uroxatal 10 mg tablets are a drug product used to treat
prostatic hypertrophy. This brand name drug product had a price
increase of 512.7 percent--more than a sixfold increase--over the 8-
year study period ending in 2013.
Solaraze Gel 3 percent is a transdermal topical drug
product used to treat a severe skin condition. This brand name drug
product had a price increase of 445.9 percent--more than a fivefold
increase--over the 8-year study period ending in 2013.
Humulin R U-500--used to treat diabetes--had an 8-year
price increase of 361.0 percent over the entire 8-year study period
ending in 2013. This retail price increase shows more than a fourfold
jump in price over 8 years.
It is notable that the vast majority of this increase
took place over the past 3 years (i.e., 2011 to 2013). Since
insulins are biological products they currently do not have
generic competition but they are likely to face entry from
biosimilar products within the next few years.\20\
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\20\ L.S. Rotenstein, N. Ran, J.P. Shivers, M. Yarchoan, and K.L.
Close, ``Opportunities and Challenges for Biosimilars: What's on the
Horizon in the Global Insulin Market?'' Clinical Diabetes, Vol. 30(4)
(2012): 138-150.
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Prandin 2 mg tablets--another drug for diabetes--had an 8-
year price increase of 295.3 percent over the entire 8-year study
period. This retail price increase is nearly a fourfold jump in price
from 2006 to 2013.
Atrovent HFA 17 mcg/actuation--a respiratory inhaler and
bronchodilator--increased in retail price by 252.4 percent over the 8-
year study period. This retail price increase is more than a threefold
jump in price over 8 years from 2006 to 2013.
Benicar 40 mg tablets--used to treat hypertension--had a
price increase of 207.1 percent over the 8-year study period ending in
2013. This retail price increase is more than a threefold growth in
price over 8 years.
Lunesta 3 mg tablets (and Lunesta 2 mg tablets)--drug
products used for sedation--had an 8-year retail price increase of
203.7 percent. This retail price increase represents a threefold price
jump in 8 years.
Generic Drug Price Trends for 2013. The trends reported here are
annual price changes based on the 12-month rolling average for the
period from December 31, 2012 to December 31, 2013. So let's examine
preliminary findings from the generic drug price trend analysis for
2013. In the past several years (i.e., 2006 to 2012), the average
generic price for widely used drugs decreased with the amount ranging
from 6-7.2 percent to ^14.5 percent. While the final data for 2013 has
not yet been completed, the generic price effect for 2013 is also
expected to be a decrease, but not as much of a decrease as seen in the
previous years of the study (i.e., 2006 to 2012).
The generic market basket included 280 drug products widely used by
older Americans. Nearly one-third (32.5 percent) of these generic drug
products (91 of 280 drug products) had an annual price increase rather
than a price decrease in 2013 (i.e., December 31, 2013 versus December
31, 2012). Fifty-four (about 20 percent) generic drug products had an
increase of 15 percent or more in 2013 and 27 (about 10 percent)
generic drug products had an increase of 50 percent or more in 2013.
This market basket was based on outpatient prescription drugs widely
used by older Americans. A list of the generic drug products with price
increases in 2013 is attached as Appendix A.
More than one-half of the widely used generic drug products had an
average cost per day of therapy of less than $0.50. (See Figure 4). The
good news is that the number of lower cost generics has increased. And,
the bad news is, as noted above, that one-third of the widely used
generic drugs products had price increases.
Figure 4. Percent of Generic Drug Products by Retail Price per Day of
Therapy: (December 31, 2012 vs. December 31, 2013)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Expected Generic Drug Price Trends. The importance of A-rated
generic competition can hardly be overstated. Since the FDA has
determined that A-rated generics are identical in all material respects
(``pharmaceutically equivalent'' and ``bioequivalent,'' and thus
``therapeutically equivalent'') to a particular brand name drug and
these generics can therefore be substituted for the brand name drug by
the pharmacist (unless explicitly prohibited) without the intervention
of the physician. When a consumer presents a brand name prescription to
a pharmacist, mandatory and permissive State drug substitution laws
(present in all U.S. States and territories) allow, encourage, and
often require the pharmacist to substitute an FDA-approved, A-rated
generic version for the brand name drug prescribed. Effective price
competition for drug products within a drug molecule market, does not
typically begin until substitutable, A-rated generic versions of that
same molecule enter the market. FDA-approved, A-rated generics
typically are priced substantially below their brand name counterparts.
Once an A-rated generic enters the market unimpeded, a large share of
purchases of the brand to which the generic is A-rated switches to the
generic almost instantaneously, because the generic is identical to the
brand, substantially less-expensive, and easily and routinely
substitutable by the pharmacist without the intervention of the
physician.
Both the price differential between the brand and its A-rated
generic equivalents, and the proportion of the market for the
``molecule'' (typically the brand and its A-rated generic equivalents)
captured by the A-rated generics, generally increase rapidly over time,
and follow a predictable pattern. This pattern has been extensively
studied and is generally accepted as an inherent feature of the
pharmaceutical industry.\21\
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\21\ See footnote 10.
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The prices of A-rated generic drugs drop even further as additional
generic competitors for a given drug molecule enter the market. The
first A-rated generic competitor generally prices at a level of
approximately 15 percent to 25 percent below the brand name price. As
more A-rated generic products enter into the market, the prices of
generics typically continue to decline both in absolute terms and in
relation to the brand name price, a trend that typically persists for 5
years, or more. Generic prices eventually reach as low as 10 percent to
20 percent, if not lower, of the pre-generic entry brand name price
when an equilibrium, or market-clearing, price point is finally
reached.
When A-rated generic competition is unimpeded, the brand name drug
rapidly loses sales because the lower-priced, A-rated generic(s) are
being routinely substituted by pharmacists, often with the
encouragement of private and public managed care organizations (through
which more than 85 percent of prescriptions in the United States now
flow). There are two primary mechanisms by which managed care
organizations encourage A-rated generic substitution: (1) by
establishing a lower member copay for A-rated generic drug products;
and, (2) by setting a maximum allowable cost (MAC) for the drug product
reimbursement that pharmacies will be paid for A-rated generic drug
products.
Observed Generic Drug Price Trends in 2013. The pattern of generic
drug prices over time for the widely used drug products in the 2013
market basket was examined at the individual drug product level. First,
we found that there were a number of generic drug products whose prices
performed as expected in the market. That is, the generic drug product
enters the market at a price 10 percent to 25 percent below the brand
name price and then the generic price rapidly declines over time until
a market leveling price is reached. For example, Figure 5 show
Tamsulosin 0.4 mg capsules which entered the market with an actual
retail transaction price \22\ of about $3.55 per day of therapy (16
percent below the AWP) and the price rapidly declined to under $0.50
per day or about 10 percent of the AWP (average wholesale price--a list
price) and very close to the WAC (wholesale acquisition price--another
benchmark price). A number of the widely used generic drug products had
this expected pricing pattern.
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\22\ See footnote 15.
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A variant on the expected generic pricing pattern was also observed
for generic drug products that had some form of formal or functional
exclusivity in the market from one or more of the following: (1) an FDA
granted exclusivity period; (2) entry of an authorized generic licensed
from the NDA holder; (3) an FDA granted 180-day generic exclusivity
period; (4) an at-risk generic launch while a patent challenge is on-
going in the courts; (5) a pay-for-delay generic situation; or (6)
other reasons for delay of more than one true generics entering the
market. For example, see Figure 6 (Sertraline HCl 50 mg tablets,
Greenstone). This generic entered the market and was able to hold near
its entry level price for about 6 months. In this case, the generic
sertraline is marketed by Greenstone, which is a generic firm
affiliated with Pfizer--the original marketer of the brand version of
sertraline known as Zoloft.
A second example of delayed generic competition can be seen in
Figure 7 (Pantoprazole Sodium 40 mg tablet DR, Teva Pharmaceuticals).
The delay in generic price competition for this drug product was
secondary to the at-risk launch of several generic versions before the
patent had expired and during the time in which the patent challenge
was on-going in the courts. Note that the delay in effective price
competition was about 3 years (Dec. 2007 to Jan. 2011). Once, the
challenged patent did expire; then, the typical rapid price decline
expected from generic drug products was observed.
There were several generic drug products whose price rose over time
after generic entry. See Figures 8, 9 and 10. The generic drug products
presented in these figures include an oral suspension, an ophthalmic
solution, and a delayed release tablet formulation. In many ways the
price pattern of these generic drug products exhibits the traits
commonly seen for a brand name drug product. Often generic drug
products that are unique dosage forms (e.g., oral liquids; topical
ointments, creams, and patches; ophthalmic products; injectable
products; or other unique dosage forms) will have pricing behavior like
a brand name drug product. Even though a generic drug product market
for oral solid dosage forms (i.e., tablets or capsules) may be able to
support entry of several generic firms, the market demand for these
more unusual dosage forms is often quite limited and may only be able
to support one firm in the market. Consequently, the one firm in the
market may be able to function as if it had market exclusivity, even
though it does not formally have any exclusivity. This functional
market exclusivity may allow a generic drug product to raise its price
at one point in time or over time.
As noted earlier, nearly 20 percent (27 of 280) of the widely used
generic drug prices saw an annual price increase of 50 percent or more
in 2013. At the top of the list of generic drug products with
extraordinary price increases were doxycycline hyclate 100 mg capsules
(West-Ward) (see Figure 11) and doxycycline 100 mg tablets (West-Ward)
with annual increases of 2,048 percent and 1,897 percent, respectively
in 2013. One strategy to thwart generic substitution is to change the
dosage form (i.e., tablet to capsule, or tablet to tablet extended
release), since different dosage forms of the same drug molecule cannot
be substituted without the doctors express written permission.
Other generic drug products with extremely high annual price hikes
in 2013 were: digioxin 0.125 mg tablets (Lannett) (Figure 12) with an
increase of 103 percent and digioxin 0.25 mg tablets (Lannett) with an
increase of 82 percent; divalproex sodium 500 mg tablets (Mylan)
(Figure 13) with an increase of 432 percent; prednisolone acetate
suspension 1 percent suspension (Sandoz) (Figure 14) with an increase
of 349 percent; levothyroxine sodium at 9 different strengths (Mylan)
(Figure 15) with annual increases ranging from 44 percent to 63
percent; and glipizide 5 mg tablets (Mylan) (Figure 16) with an
increase of 94 percent. Not all of the large price increases among the
widely used generic drug products occurred in 2013. For example,
hydralazine HCl 50 mg tablets (Par) (Figure 17) and meclizine HCl 25 mg
tablets (Par) (Figure 18) each had increases of more than 100 percent
in 2005 and 2008, respectively.
While there are a number of generic drug products with very large
price increases, this is not a new phenomenon. In July 2008, I prepared
a report for the Joint Economic Committee of Congress that was
presented by my colleague (Madeline M. Carpinelli). This report titled
``Extraordinary Price Increases in the Pharmaceutical Market.'' \23\ In
this report, we identified drug products that had experienced one or
more ``extraordinary'' price increases.\24\ Our study of 35,143 drug
products (at the NDC level) found that 13.5 percent of them had
experienced one or more extraordinary price increases in the period
1988 to 2008. While a few of these extraordinary price increases
occurred in the 1990s, the vast majority were found in the 2000s.
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\23\ Madeline M. Carpinelli and Stephen W. Schondelmeyer, Statement
on Extraordinary Price Increases in the Pharmaceutical Market,
presented to the Joint Economic Committee of the U.S. Congress, by
Madeline M. Carpinelli, PRIME Institute, University of Minnesota, July
24, 2008, 11 pp.
\24\ The term ``extraordinary'' price increase was defined as ``any
price increase that is equal to, or greater than, 100 percent at a
single point in time.''
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Clearly, the generic drug product price increases shown in these
figures as a red line (the actual retail drug price per day of therapy)
were dramatic. These price increases were passed on to the ultimate
payer (commercial or government programs) and did increase the amount
of their expenditure for these generic prescriptions.
signals of market failure in the pharmaceutical market
The market for drugs does not operate in the same way as most other
markets in the United States, where the consumer freely chooses a
product. Various aspects of the market for prescription drugs make it
unique, including the fact that certain drugs, i.e., prescription drug
products must be prescribed by one set of market players (physicians),
dispensed by another market player (pharmacists), paid for by a third-
party or market player (employers or the government via insurers or
benefit managers, and sometimes partially by the consumer), and then
ultimately consumed by the end user (the patient). One must understand
and take into account the differing roles of each of these players, in
order to understand how competition functions in the market for drugs.
The pharmaceutical market possesses institutional structural features
and related behaviors that result in an inefficient economic market as
evidenced by the unusually large price increases for generic drug
products and the extremely high initial prices of brand name drug
products.
The marketing of patented, single source drug products in the
United States is a very unique market and has a number of atypical
structural features. The patent for a drug molecule alone (and other
related patents and exclusivities) creates a monopoly for a drug
molecule (and related drug products) and will generate sales
specifically for that molecule and related drug products, even if there
are other similar molecules (and their related drug products) in the
same therapeutic class. This unique market structure for
pharmaceuticals is due largely to the fact that a prescription must be
written by the doctor for a specific drug product and the consumer
(patient) is not free to choose the drug product to be purchased, even
if there are other drugs in the class that would work as well, or even
better. The patient (consumer) must have the doctor's permission slip
(i.e., prescription) and the pharmacist must dispense the exact drug
product prescribed by the doctor, unless an FDA-approved
therapeutically equivalent generic version of the drug product is
available on the market--typically as a lower cost substitute.
The choice of the prescription drug product is driven by various
types of ``directed demand'' including physicians who must prescribe
the drug product; pharmacy benefit managers (PBMs) who establish
formularies and manage networks of pharmacies to dispense
prescriptions; pharmacies and pharmacists who must dispense single
source drugs when prescribed and who chose the manufacturer source from
among available FDA-approved, therapeutically equivalent generic
versions of an off-patent drug; insurers and managed care organizations
who have risk for providing health care for a prepaid premium; and
employers who bear most of the cost for the prescriptions provided to
their employees or government programs (e.g., Medicare and Medicaid)
who bear most of the cost for the prescriptions provided to the
recipients of these programs.
In recent years, the high prices for the new drug therapies has
come under criticism for being excessive, unaffordable and
unsustainable.\25\ The issue of high drug prices has been raised by
patients, doctors, health plans, insurers, and by government programs
such as Medicare and Medicaid.\26\ The various payers for drug therapy
are not only complaining about the high price of individual drugs, but
they are also beginning to raise concerns about the long term
sustainability of the pricing patterns seen for innovative drug
therapies.
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\25\ Lee, Jaimy. Sovaldi fuels triple-digit rises in Gilead revenue
and profits. Modern Healthcare. October 28, 2014.; see also, Silverman,
Ed. `Financial Toxicity:' Who's Really to Blame for High Cancer Drug
Prices? The Wall Street Journal, October 7, 2014.
\26\ Comments on pricing by patients, doctors, health plans,
insurers, and by government programs such as Medicare and Medicaid.
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There has been an explosion of concern (and articles about) very
high drug prices for new and, sometimes, innovative drugs introduced in
the United States. One recent story in the Wall Street Journal detailed
the reaction of physicians at Memorial Sloan Kettering in New York when
faced with a new drug whose price was almost double the standard
therapy, yet was not appreciably safer or more effective.\27\ Not only
were the physicians upset by the exorbitant pricing of this new cancer
drug, but also private insurers and the Federal Medicare program have
expressed concerns.\28\ In October 2014, ``Medicaid chiefs from red and
blue States are urging Congress to stem the cost of revolutionary new
drugs for hepatitis C, cancer, and other diseases.'' \29\ A recent New
York Times editorial argued that ``Medicare should consider withdrawing
coverage for high-priced cancer drugs that have ``modest'' benefits.
\30\ Some have argued that the high prices are needed to fuel the fire
of innovation, but others have suggested that ``the market is telling
us the opposite: that prices have become the prize.'' \31\
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\27\ Silverman, Ed. `Financial Toxicity:' Who's Really to Blame for
High Cancer Drug Prices? The Wall Street Journal, October 7, 2014.
\28\ Herper, Matthew. Could High Drug Prices Be Bad for Innovation?
Forbes, Oct. 23, 2014.
\29\ Associated Press. States Ask Congress to Intervene on Drug
Prices. ABC News. Oct. 26, 2014. Found at this website: http://
abcnews.go.com/Health/print?id=26524476 11/.
\30\ Howard, Paul. High-Priced Cancer Drugs: Are They Worth It? The
New York Times. July 8, 2011.
\31\ Herper, Matthew. Could High Drug Prices Be Bad for Innovation?
Forbes, Oct. 23, 2014.
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One of the more recent drugs to enter the market at an astronomical
price is Sovaldi--used to treat patients with hepatitis C. Solvadi
costs about $84,000 per course of therapy in the United States, while
in other countries the price is as low as $900 to $2,000 per course of
therapy.\32\ Gilead Sciences, the company that markets Sovaldi, had a
triple digit rise in profits in early 2014 after introduction of its
new drug.\33\ Another drug therapy for hepatitis C has just been
approved by FDA (October 2014). This new hepatitis C drug, Harvoni, is
also marketed by Gilead Sciences and has an even higher price tag--
$94,500 for a 12-week course of treatment.\34\
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\32\ Whitman, Debra B., Executive Vice President for Policy,
Strategy and International Affairs, AARP. Expensive New Hepatitis C
Drug Raises Alarms. Huffington Post, 05/27/2014.
\33\ Lee, Jaimy. Sovaldi fuels triple-digit rises in Gilead revenue
and profits. Modern Healthcare. October 28, 2014.
\34\ Lee, Jaimy. Sovaldi fuels triple-digit rises in Gilead revenue
and profits. Modern Healthcare. October 28, 2014.
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The high price of Sovaldi has had such a dramatic impact that
``many payers and pharmacy benefit managers have begun to push back
against Sovaldi's price, with some threatening to stop using the drug
once a rival medicine is approved in the United States. State Medicaid
directors have also raised concerns, saying that taxpayers will have to
shoulder much of Sovaldi's costs since many hepatitis C patients get
their health care from the government.'' \35\
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\35\ Whitman, Debra B., Executive Vice President for Policy,
Strategy and International Affairs, AARP. Expensive New Hepatitis C
Drug Raises Alarms. Huffington Post, 05/27/2014.
---------------------------------------------------------------------------
The debate surrounding the price of Sovaldi is part of a much
larger issue related to escalating specialty drug prices that are
widely viewed as unsustainable. ``Specialty drugs now account for 28
percent of total drug spending in the United States even though they
make up less than 1 percent of all prescriptions.'' \36\
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\36\ Whitman, Debra B., Executive Vice President for Policy,
Strategy and International Affairs, AARP. Expensive New Hepatitis C
Drug Raises Alarms. Huffington Post, 05/27/2014.
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In fact, high price is the most frequently cited characteristic
defining the new class of drugs that we call ``specialty drugs.'' \37\
In addition, to being high cost, the specialty drugs also have a high
rate of patient cost-sharing. Specialty drugs are placed by commercial
and by Medicare Part D plans in a separate ``Tier 4'' or specialty
tier. The specialty tier usually uses a percentage co-insurance rather
than a fixed rate copay. \38\ The percentage of coinsurance as a cost
share of the total prescription price may range from 20 percent to 50
percent and it is not unusual for a specialty prescription to cost
$1,000 to more than $50,000 per prescription.
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\37\ EMD Serono Specialty DigestTM, 10th Edition, Managed Care
Strategies for Specialty Pharmaceuticals, 2014, p. 10.
\38\ EMD Serono Specialty DigestTM, 10th Edition, Managed Care
Strategies for Specialty Pharmaceuticals, 2014, p. 10.
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Another new drug in the past few years, Alexion Pharmaceutical's
only drug, Soliris, has proved effective at treating the rare disease,
atypical Hemolytic Uremic Syndrome (aHUS). This drug therapy has a
price tag of one-half a million dollars per patient per year. \39\ As
the Forbes reporter said, ``That's not a typo. By my reckoning Soliris
is the priciest drug in the world.'' (See: Herper, Matthew. The World's
Most Expensive Drugs, Forbes, 02-22-10). There are at least nine other
drugs on the Forbes list that cost more than $200,000 a year for the
average patient who takes them. Most of these very high cost drugs
treat rare genetic diseases that afflict fewer than 10,000 patients.
Since there are no other therapies for these diseases, the ``biotech
companies can charge pretty much whatever they want.'' \40\
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\39\ Herper, Matthew. $500,000-A-Year Drug Is Bright Light for
Phrma. Forbes. Oct. 21, 2010.
\40\ Herper, Matthew. $500,000-A-Year Drug Is Bright Light for
Phrma. Forbes. Oct. 21, 2010.
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The battle over high drug prices is pitting large insurers against
the drug companies. ``The insurance lobby, America's Health Insurance
Plans, has criticized drugmakers for spiraling medicine prices.'' \41\
``Whenever the high price of pharmaceuticals is in the news, drugmakers
try desperately to change the subject and distract from the issue,''
said a spokesman for the insurer lobby. The cost of medication in the
United States might be higher than in other countries where there's
negotiated prices and trade agreements.\42\
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\41\ Wayne, Alex. Cancer Patients Assail Insurer Policies on Costly
Drugs. Bloomberg. Jun 11, 2014.
\42\ Wayne, Alex. Cancer Patients Assail Insurer Policies on Costly
Drugs. Bloomberg. Jun 11, 2014.
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New brand name drugs have much higher prices in the United States
than in other countries and their prices have been increasing at supra-
competitive prices. Brand name drug prices in 2013 increased last year
by 21.2 percent, while brand-name drug use dropped by 15.5 percent.\43\
Given the growing frustration of payers and concern about overall
sustainability of drug price levels, at least two major consulting
groups have released reports suggesting a new payment model for
pharmaceuticals is needed. One of the consulting groups described that
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\43\ Evans, Melanie. Healthcare prices are up, and patients are
buying less. Modern Healthcare, October 28, 2014.
``Makers of brand-name pharmaceuticals are competing over a
shrinking piece of the prescription drug pie . . . Several
forces are changing the way pharmaceutical companies and other
health organizations engage with one another and how they
attach value to medications.'' \44\ The second consulting group
explained that ``It is well established that large
pharmaceutical companies tend not to compete on price,
particularly in the largest market, the United States (U.S.).''
\45\ The consulting report went on to say, ``By competing on
price publicly, this would lower the cost of treatment for
consumers, while arguably generating greater revenue for the
company than received currently for these marginalized
agents.'' \46\
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\44\ Health Research Institute, PWCHealth. Unleashing value. The
changing payment landscape for the United States pharmaceutical
industry. May 2012
\45\ Gorkin, Larry. Time for pharmaceutical companies to compete on
price regarding Non-Differentiated (``Me-Too'') Drugs. Eye for pharma.
2012.
\46\ Gorkin, Larry. Time for pharmaceutical companies to compete on
price regarding Non-Differentiated (``Me-Too'') Drugs. Eye for pharma.
2012.
The market for pharmaceuticals appears to be failing when it comes
to efficient resource use. The United States is the world's largest
drug market, yet the United States pays the world's highest prices for
prescription drugs. The PBMs who manage drug benefit programs for
employers often make more revenue from drug manufacturer rebates and
other payments than they make from administrative fees to their clients
(i.e., employers or health plans). This raises serious issues of
fiduciary responsibility and conflict of interest. The drug prescribers
(i.e., physicians) are not necessarily price-conscious or price-
sensitive when it comes to prescribing drugs. Consumers are told to
engage in consumer-driven choice of health care, yet the price of
prescription drugs is not readily available when the consumer is ready
to make a decision about purchasing a prescription. Even if the
physician and the consumer want to make price-conscious decisions, the
real net cost of prescription drugs is hidden and is not transparent
and available.
In summary, the high price of drugs, whether brand name or generic,
is a critical issue. Most payers are signaling that they cannot afford
the level of resources needed, individually and collectively, to pay
for new and innovative therapies at the prices that are being charged.
Payers are accustomed to saving money by encouraging patients to
appropriately use generic prescriptions. Now these payers are nervous
because they see that generic drug prices are increasing by 100's and
1,000's of percents a year. Old generic drugs are being re-purposed
therapeutically and their prices are increasing dramatically. These
troubling trends in pharmaceutical spending indicate failures in the
market for pharmaceuticals. A growing number of observers in the
pharmaceutical market are calling for a new approach to pharmaceutical
decisionmaking and to the pricing model for drug therapy.
In other words, the market for pharmaceuticals is out of balance.
Prices are not transparent. Without actual price data, it is not
possible to make true value-based decisions. Certainly price is not the
only issue in a value-based decision, but price is always an issue in
value-based decisions. In many ways the pharmaceutical market is very
asymmetric--the seller knows a lot more about the product than does the
buyer. For example, drug manufacturers know much more about the safety,
effectiveness, and cost of their drugs than does the physician, the
PBM, the employer, or the consumer. Three Americans received the Nobel
prize in economics in 2001 for their work defining the market for
lemons.\47\ No; their work was not about little yellow fruits, but
rather about the market for used cars and the effect of the imbalance
in information between the buyer and the seller.\48\ Their work found
that markets don't work when there is asymmetry of information--that
is, when the seller knows a lot more than the buyer, the seller can
take advantage of that buyer. Since then, Joseph Stiglitz and some of
his colleagues have developed much further the concepts of asymmetric
markets, market signals, and their economic impact. If there was ever a
market that was asymmetric, it is health care and especially
pharmaceuticals. The lessons we can learn from these Nobel Prize
winners are that: (1) the imperfect markets are not ``all-knowing and
self-correcting,'' (2) ``imperfect information corrupts markets,'' (3)
``markets, when confronted with imperfections, may not be the best way
to allocate resources,'' and (4) ``government must play a strong role
in a market system, to prevent damage from imperfect information.''
\49\
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\47\ Uchitelle, Louis, ``3 Americans Awarded Nobel for Economics,''
The New York Times, October 11, 2011.
\48\ Akerlof, George, ``The Market for `Lemons': Quality
Uncertainty and the Market Mechanism,'' The Quarterly Journal of
Economics, Vol. 84, No. 3 (Aug., 1970), pp. 488-500, Oxford University
Press, URL: http://www.jstor.org/stable/1879431.
\49\ Louis Uchitelle, ``3 Americans Awarded Nobel for Economics,''
The New York Times, October 11, 2001.
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Policymakers and legislators continue to call health care a
market--and in one sense health care is a market; however, health care
is replete with imperfect information. While health care has some
structural features that appear to be a market, the information in this
market is very asymmetric. With so much ``imperfect information''
throughout health care, efficient and effective policy decisions will
not necessarily follow. We must recognize and address the issues of
imperfect information in health care and assure that accurate,
transparent, and useful information is available in the market in order
for more effective market-based decisions to be made.
The advice of the Nobel Prize winners is that ``government must
play a strong role in an imperfect market.'' Government doesn't have to
run or dominate health care, but government has to set the rules for
the game to correct for the many types of imperfect information.
Government has to put some boundaries on the health care market so that
it begins to function like an economically efficient market again.
Finally, the health care market is very asymmetric for a whole lot of
reasons, such as the isolating effect of directed demand, and the
insulating effect of insurance coverage. Insurance is a great thing,
but in some ways it takes away the market function. Health insurance
programs give the appearance of having a fairly low cost when one only
focuses on the amount of copays made at the time of service. The
consumer only sees the impact of the full cost of their health care a
year later when the premiums increase, or when the employer does not
provide a wage increase because health care cost went up.
There are many forms of imperfect information about prescription
drugs including, but not limited to, hidden prices, rebates, and
discounts; undisclosed relationships and transactions; and complex
technical products. This imperfect information may inhibit, or even
prevent, value-based decisions at every level of the pharmaceutical
market.
conclusions
The prices and change in prices of both brand name and generic drug
products have a direct impact on the costs borne by individual
consumers and by all other payers. Brand name and generic drug price
increases often result in higher out-of-pocket costs for beneficiaries
at the pharmacy, especially for those who pay a percentage of drug
costs rather than a fixed copayment. Higher brand name and generic drug
prices are also passed along to consumers, or the end payer, in the
form of increased premiums, higher deductibles, and other forms of cost
sharing.\50\
---------------------------------------------------------------------------
\50\ D.I. Auerbach and A.L. Kellermann, ``A Decade of Health Care
Cost Growth Has Wiped Out Real Income Gains for an Average U.S.
Family,'' Health Affairs, Vol. 30(9) (2011): 1630-36.
---------------------------------------------------------------------------
Prescription drug price increases also affect taxpayer-funded
programs like Medicare and Medicaid. For example, the Medicare Payment
Advisory Commission recently attributed the majority of ``excess''
growth in Medicare Part D spending to growth in the average price of
drugs provided to beneficiaries. Higher government spending driven by
large drug price increases will eventually affect all Americans in the
form of higher taxes, cuts to public programs, or both. If recent
trends for brand name and generic drug prices and related price
increases continue unabated, the cost of drugs will prompt increasing
numbers of older Americans to stop taking necessary medications. \51\
This will lead to poorer health outcomes and higher health care costs
in the future.\52\
---------------------------------------------------------------------------
\51\ H. Naci, S.B. Soumerai, D. Ross-Degnan, F. Zhang, B.A.
Briesacher, J.H. Gurwitz, and J.M. Madden, ``Medication Affordability
Gains Following Medicare Part D Are Eroding among Elderly with Multiple
Chronic Conditions,'' Health Affairs, Vol. 33(8) (2014): 1435-43.
\52\ Z.A. Marcum, M.A. Sevick, and S.M. Handler, ``Medication
Nonadherence A Diagnosable and Treatable Medical Condition,'' Journal
of the American Medical Association, Vol. 309(20) (2013): 2105-6.
---------------------------------------------------------------------------
The expansion of health care and prescription drug coverage has
provided more Americans with access to important and valuable drug
therapies. Given the expansion of the number of people with coverage
for prescription drugs,\53\ without effective measures to evaluate and
manage the appropriateness, utilization, and price of drug therapies--
Congress has essentially written a blank check to the pharmaceutical
firms. It is unclear what factors are driving the price levels and the
continued price increases of brand name and generic prescription drugs.
Policymakers interested in reducing the impact of brand name and
generic prescription drug prices should focus on options that balance
the need for pharmaceutical innovation with the need for improved
health and the financial security of consumers and taxpayer-funded
programs like Medicare and Medicaid.
---------------------------------------------------------------------------
\53\ A.M. Sisko, S.P. Keehan, G.A. Cuckler, A.J. Madison, S.D.
Smith, C.J. Wolfe, D.A. Stone, J.M. Lizonitz, and J.A. Poisal,
``National Health Expenditure Projections, 2013-23: Faster Growth
Expected with Expanded Coverage and Improving Economy,'' Health
Affairs, Vol. 33(10) (2014): 1-10.
---------------------------------------------------------------------------
appendix a
Actual Transaction Price Changes at the Retail Level for Widely
Used Generic Drugs in 2013 (December 31, 2012 vs. December 31, 2013)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
appendix a--continued
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
appendix b
Actual Transaction Prices at the Retail Level for Widely Used Generic
Drugs (January 1, 2005 to December 31, 2013)Case Studies of Selected
Drug Products
Figure 5. Tamsulosin HCl 0.4 mg Capsule (Zydus Pharmaceuticals) Price
per Day of Therapy: (January 1, 2005 to December 31, 2013)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Figure 6. Sertraline HCl 50 mg Tablet (Greenstone) Price per Day of
Therapy:
(January 1, 2005 to December 31, 2013)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Figure 7. Pantoprazole Sodium 40 mg Tablet DR (Teva Pharmaceuticals)
Price per Day of Therapy: (January 1, 2005 to December 31, 2013)
Figure 8. Budesonide 0.5 mg/2ml Suspension (Teva Pharmaceuticals) Price
per Day of Therapy: (January 1, 2005 to December 31, 2013)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Figure 9. Brimonidine Tartrate 0.15 percent Ophthalmic Solution
(Sandoz) Price per Day of Therapy: (January 1, 2005 to December 31,
2013)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Figure 10. Potassium Chloride 10 MEQ Capsule ER (Watson Labs) Price per
Day of Therapy: (January 1, 2005 to December 31, 2013)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Figure 11. Doxycycline Hyclate 100 mg Capsule (West-Ward) Price per Day
of Therapy: (January 1, 2005 to December 31, 2013)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Figure 12. Digoxin 0.25 mg Tablet (Lannett) Price per Day of Therapy:
(January 1, 2005 to December 31, 2013)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Figure 13. Divalproe Sodium 500 mg Tablet ER 24 Hr (Mylan) Price per
Day of Therapy: (January 1, 2005 to December 31, 2013)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMA]
Figure 14. Prednisolone Acetate 1 percent Suspension (Sandoz) Price per
Day of Therapy: (January 1, 2005 to December 31, 2013)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Figure 15. Levothyroxine Sodium 175 mcg Tablet (Mylan) Price per Day of
Therapy: (January 1, 2005 to December 31, 2013)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Figure 16. Glipizide 5 mg Tablet (Mylan) Price per Day of Therapy:
(January 1, 2005 to December 31, 2013)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Figure 17. Hydralazine HCl 50 mg Tablet (Par) Price per Day of Therapy:
(January 1, 2005 to December 31, 2013)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Figure 18. Meclizine HCl 25 mg Tablet (Par) Price per Day of Therapy:
(January 1, 2005 to December 31, 2013)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Sanders. Thank you very much.
If you could, please, keep your remarks to 5-6 minutes,
because we want to leave time for questioning.
Our next panelist is Robert Frankil. Mr. Frankil is a
pharmacist and owner and president of Sellersville Pharmacy in
southeastern Pennsylvania. He is a member of the National
Community Pharmacist Association and past president of the
Pennsylvania Pharmacist Association.
Mr. Frankil, thank you so much for being with us.
STATEMENT OF ROBERT FRANKIL, RPH, PRESIDENT, SELLERSVILLE
PHARMACY, INC., SELLERSVILLE, PA
Mr. Frankil. Thank you, Chairman Sanders and Ranking Member
Burr, for conducting this hearing and providing me the
opportunity to share my thoughts and observations regarding the
puzzling skyrocketing cost of common generic drugs.
As Chairman Sanders said, my name is Robert Frankil. My
business is in southeastern Pennsylvania, consists of a
traditional community pharmacy and a long-term care pharmacy,
closed door, on the campus of a mental institution. We serve
the elderly, underserved, and needy. I'm also a member of NCPA,
which represents nearly 23,000 independent pharmacies that
provide 40 percent of all the prescription drugs dispensed. I
also serve on many boards in Pennsylvania as well as the State
Board of Pharmacy.
You have my written testimony, so I'll keep it short here
and only give you a few highlights.
Just a little background. Approximately 86 percent of all
prescriptions dispensed are for generic drugs. Historically,
this represents huge savings for both patients and payers,
including the Federal Government. Therefore, it was quite
concerning when, about a year ago, community pharmacists began
to see a dramatic price increase in generic drugs. NCPA
conducted a survey and showed that prices spiked as much as
2,000 percent, or more, on some generic drugs. We've heard
plenty of that already. These spikes usually happen overnight,
with little or no notice. All drug classes were affected. And
I've got a list of examples here that mirrors everyone's
examples, but I want to stress to you that I am the buyer and
seller of these prescription drugs. I am seeing it in real
dollars and cents, in black and white, on my invoices when I
buy drugs, and I am seeing it on the receipts when I sell
prescriptions to patients. We're talking about increases of
2,000, even 8,000, percent. I'm not going to list the drugs
again. They've been discussed already. But, it's not just
those, it's many more, as you previously said.
One of the things this hearing is for is to find out why
this is happening. It will be debated whether it's due to raw-
material problems, production problems, FDA issues, or a
reduction in competition among manufacturers. We can speculate
why. And there should be a full-blown investigation on that.
And there is. In my opinion, it seems to be more than a
coincidence that, when manufacturers exit the marketplace for a
specific drug, leaving fewer competitors, there's often a spike
in the price of the drug. But, I don't believe in coincidences.
But, I'm here to tell you what's happening in pharmacies
across the country. As I mentioned, these spikes happen
overnight. I can pay $100 for a bottle of drug today and $1,000
for the same bottle tomorrow, and I have no advance notice.
Pharmacy benefit managers, or PBMs, are the entities that--
and the middlemen--in the majority of all prescription drug
claims in the United States, and typically set reimbursements
to pharmacies. Even though PBMs have immediate, realtime
knowledge of these drastic price spikes, they continue to
reimburse pharmacies at the pre-spike price, putting pharmacies
underwater on these drugs, often for months at a time. That
puts pharmacy in a position between choosing to lose money,
turning the patient away, or going back to the prescriber to
see if there's another medication that can be used. Since
pharmacists are sworn to take care of patients first and pay
the bills later, we usually lose money and fill the script.
This is an unfair position to put pharmacists and pharmacies
in.
This problem is not limited to independent pharmacies. It's
my understanding that national chains that are not connected
with a PBM, and most grocery-store chains, are also affected.
Patients also feel it big-time, as we all know. A real
example. A patient of mine bought his Digoxin while he was in
his coverage gap or his donut hole in 2013, and paid about $15
for it. This year, he came in, in his coverage gap, and paid
over $120 for it. He accused me of price-gouging. I don't set
the price of the drug, and I don't do anything to set the
reimbursement terms. This was a pretty bad situation at the
pharmacy counter, if you can imagine. I had nothing to do with
the price spike, and I couldn't do anything about it.
Payers are also affected. The Federal Government, as I
said, is the largest buyer of prescription drugs in the
country, and, inevitably, there is eventually a trickle-down to
the taxpayers, who fund the Medicare and Medicaid plans.
Thank you for inviting me to this hearing today on a
critical issue. This is a big problem that must be addressed.
Unprecedented spike prices on generic medications are now
commonplace, and it is wreaking havoc on patients, pharmacists,
and healthcare payers alike. In addition, payment lags are
jeopardizing the ability of independent pharmacies to remain
viable and to continue to provide critical medications to
patients.
Thank you very much.
[The prepared statement of Mr. Frankil follows:]
Prepared Statement of Robert Frankil, RPh
Chairman Sanders, Ranking Member Burr and members of the
subcommittee, thank you for conducting this hearing and for providing
me the opportunity to share my thoughts and observations regarding the
recent skyrocketing costs of many common generic medications. My name
is Rob Frankil, pharmacist and owner/president of Sellersville
Pharmacy, Inc., DBA as two locations: Sellersville Pharmacy, a
traditional community pharmacy, and Sellersville Pharmacy at Penn
Foundation, a closed door pharmacy serving a mental health foundation.
Both locations serve primarily elderly, needy and underserved patients.
I am also a member of the National Community Pharmacists Association
(NCPA) that represents the pharmacist owners, managers and employees of
nearly 23,000 independent community pharmacies across the United States
that provide approximately 40 percent of all community-based
prescriptions. I am also the past president of the Pennsylvania
Pharmacist Association (2012-13), and serve on many boards in
Pennsylvania including the Philadelphia Association of Retail
Druggists, Bucks-Mont Pharmacists Association, and the PA State Board
of Pharmacy.
generic price spikes and ncpa survey
The IMS Institute for Healthcare Informatics recently reported that
approximately 86 percent of all prescriptions filled in the United
States are for generic drugs. Historically, generic drugs have provided
significant cost savings to payers and consumers alike by providing
safe and effective alternatives to typically more costly brand name
drugs. Therefore it was extremely concerning when about a year ago;
pharmacies began noticing a rash of dramatic price increases for many
common, previously low-cost generic drugs. In response, NCPA conducted
a member survey on this issue in January of this year to try to gauge
the prevalence of generic price spikes. NCPA received an overwhelming
response from more than 1,000 members who reported instances of generic
drugs that had spiked by as much as 600 percent, 1000 percent or more.
Seventy-seven percent of pharmacists reported 26 or more instances
of a large upswing in a generic drug's acquisition price over the past
6 months. Nearly all (86 percent) said that it took the pharmacy
benefit manager (PBM) or other third party payer between 2 to 6 months
to update its reimbursement rate to pharmacies (putting these critical
health care providers ``underwater'' on these medications). In other
words, pharmacists are filling prescriptions and are being reimbursed
significantly less than what it cost them to acquire the drug. In
addition, 84 percent of pharmacies said that the acquisition price
spike and associated lagging reimbursement trend was having a ``very
significant impact on their ability to remain in business to continue
serving patients.'' In some instances, community pharmacies were faced
with having to refrain from filling prescriptions that would have
resulted in losses of $40, $60, $100 or more per prescription filled.
The generic drugs most frequently cited in the survey included
drugs from virtually every therapeutic category and included Benazepril
(high blood pressure); Clomipramine (antidepressant); Digoxin (controls
heart rate); Divalproex (treats seizures and psychiatric conditions);
Doxycycline (antibiotic); Budesonide (asthma); Haloperiodol (psychotic
disorders); Levothyroxine (hypothyroidism); Methyl-
phenidate (ADHD); Morphine (pain); Nystatin/Triamcinolone (fungal skin
infections); Pravastatin (high cholesterol); and Tizanidine (muscle
relaxant).
The prevalence of these generic drug price spikes has not abated
since the initial survey was completed and NCPA has been unable to
identify any definitive cause for these price increases. There has been
speculation that these spikes may be due to manufacturing delays,
production problems, shortages of raw materials and a dwindling number
of manufacturers of these products.
impact of generic price spikes on patient cost and access to medication
These severe disruptions in the market are having a profound effect
on patients--particularly the elderly and those that are either
uninsured or are enrolled in a prescription drug plan with a high
deductible. Medicare beneficiaries enter the coverage gap or ``donut
hole'' when the accumulated costs of both their co-pays and the charges
to their drug plan reach a certain threshold. After a Medicare
beneficiary exhausts the initial coverage of the prescription drug
plan, the beneficiary is financially responsible for a higher cost of
prescription drugs until he or she reaches the catastrophic-coverage
threshold. Precisely because of this dynamic, many pharmacist
responders to the NCPA survey reported instances in which Part D
beneficiaries were either refusing to refill their prescriptions or
were planning to take less than the prescribed dose of their medication
in an attempt to ``stretch'' their remaining supply and in order to
avoid having to go into the donut hole.
Patients without prescription drug coverage are solely responsible
for the entire cost of the drug and also may ultimately decide not to
fill needed prescriptions. Patients with a high deductible prescription
drug plan are in a similar situation as they are solely responsible for
the cost of medications until such time as they reach a certain
monetary threshold. Patient non-adherence to prescribed medications for
any reason can often trigger more serious health conditions that may
require emergency room visits or hospitalizations--that are ultimately
more costly to both the patient and health care system as a whole.
Ultimately, everyone pays for these cost increases, now or later.
Insurance plans aren't likely to simply just absorb these higher costs,
so even those with generous insurance plans will pay the price in
higher future premiums.
A recent example from my own experience is the price of Digoxin--a
drug used to treat heart failure. The price of this medication jumped
from about $15 for 90 days' supply, to about $120 for 90 days' supply.
That's an increase of 800 percent. One of my patients had to pay for
this drug when he was in the coverage gap in 2014. Last year, when in
the coverage gap he paid the old price. This year he paid the new
price. Needless to say, the patient was astounded, and thought I was
overcharging him. The patient called all around to try to get the
medicine at the old, lower price, but to no avail. This caused him lots
of stress and time, and caused us lots of stress and time in explaining
the situation, reversing, and rebilling the claim. This example is
typical of how these price spikes put consumers and pharmacists in a
bad position, often grasping at straws for explanations. And all the
while, everyone pays more, including the patient, the pharmacy, and the
insurer (often the Federal Government).
impact of generic price spikes on federal government costs
In addition to the potential negative effects that this situation
is having on health outcomes for the Nation's seniors, the financial
impact to the Federal Government itself cannot be ignored. The Federal
Government pays for more than a third of all prescription drug costs in
America. In fiscal year 2014, the Centers for Medicare and Medicaid
(CMS) will serve almost 116 million Medicare, Medicaid and CHIP
beneficiaries, more than one-in-three Americans. In addition to CMS,
other Federal prescription drug programs impacted by this situation
include the Department of Defense TRICARE program, the Veterans Health
Administration (VHA), the OPM Federal Employees Health Benefit Plan
(FEHBP) and the Indian Health Service (IHS). These generic drug price
spikes that we are seeing are perhaps one of the most egregious
examples of hyperinflation in the United States health care system at
the present time and must be addressed.
negative impact of generic price spikes and reimbursement lags on
community pharmacy
When the price of these common generic medications increase so
dramatically and insurance middlemen known as pharmacy benefit managers
(PBMs) do not correspondingly update their reimbursement rates to
pharmacies--community pharmacies are put in the untenable position of
having to absorb the difference between the large sums of money that
they spent to acquire the drugs and the lower amounts that they are
paid by the PBM (that are still ``stuck'' on the lower (pre-spike)
prices).
In this era of instant communication, it is indefensible for PBMs
to wait weeks or even months before updating their payment benchmarks
in the wake of these price spikes--without reimbursing pharmacies
retroactively. Pharmacists' appeals to PBMs are consistently denied or
ignored, and this situation is untenable particularly for small
business community pharmacies. This trend also raises a troubling
fiscal question for employers, government agencies and health plan
sponsors. Are PBM middlemen taking advantage of these price spikes by
reimbursing pharmacies low, charging health plans high and pocketing
the difference? This practice of ``spread pricing'' was examined in a
recent Fortune magazine article entitled ``Painful Prescription.'' \1\
---------------------------------------------------------------------------
\1\ http://money.cnn.com/2013/10/10/news/companies/pbm-pharma-
management.pr.fortune/#sthash.osxYRm7O.dpuf.
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On a practical level, when we (pharmacists) process a claim and are
reimbursed at below our cost, the computer flags it and we are
notified. At this point, the claim must be initialed and processed.
This happens in about 1 out of every 10 claims. With independent
pharmacies on average producing over 90 percent of their revenue from
prescription sales, this really hurts. I have a file about two inches
thick of unresolved underpaid claims (appeals with PBMs) where we lost
money. I do not send in appeals where we lose less than $50. If I did,
I would not have time to take care of patients. Specifically,
Carbamazepine used for seizure disorders, spiked in price about 6
months ago. One of the largest PBMs in the country is still reimbursing
at the old price (new price is $60 per 100 tablets; old price was $4
per 100 tablets). I appealed this price and got an answer last week.
The PBM refused to make an adjustment, and offered no explanation.
In recognition of this problem, earlier this year CMS finalized a
provision in the Part D Final Rule that will require PBMs to update
generic pricing benchmarks (otherwise known maximum allowable cost
(MAC) lists) in the Medicare Part D program beginning in plan year
2016. However, this rule does not address any of the other Federal
health care programs or any of the many commercial health plans
currently in operation in the United States. I feel strongly that
pharmacists deserve to be fairly compensated for the medications and
associated patient counseling that they provide. To that end, I urge
your support for the bipartisan legislation known as The Generic Drug
Pricing Transparency Act, H.R. 4437, introduced by Reps. Doug Collins
(R-Georgia) and Dave Loebsack (D-Iowa). The proposal would allow a
pharmacy to know how its individual maximum allowable cost (MAC)
reimbursement rates for multisource generic drugs would be determined
and would also require that payments be updated more frequently to keep
pace with actual market costs. To date, 16 States have passed similar
legislation recognizing the value of ensuring that critical pharmacy
care providers are able to provide needed medications and related
patient care services to patients.
conclusion
Thank you for inviting me to testify today on this critical issue.
The current situation in which unprecedented spikes in previously
inexpensive generic medications are becoming commonplace is one that
cannot be allowed to continue. These prices are wreaking havoc on
patients, pharmacists and health care payers alike. In addition, the
associated payment lags on these medications are jeopardizing the
ability of small business pharmacies to remain viable and continue to
provide critical medications and related care to patients. I am pleased
to answer any questions that you may have.
Senator Sanders. Thank you very much.
Our next panelist is Carol Ann Riha, of West Des Moines,
IA.
Ms. Riha, thank you so much for being with us.
STATEMENT OF CAROL ANN RIHA, WEST DES MOINES, IA
Ms. Riha. Thank you, Senator Sanders, for the honor and
opportunity to testify before this subcommittee. Thank you,
distinguished panel members, for taking the time to address
this important issue which affects millions of Americans.
My name is Carol Ann Riha. I and my husband, both early
retirees, live in West Des Moines, IA. I was laid off in 2011
from the Associated Press, where I was Iowa bureau chief. After
leaving AP, I worked a couple of years at the Des Moines
Register, and retired last year after 38 years in journalism.
My husband left Nationwide Insurance in 2009, at the peak of
the recession, and was unable to find subsequent employment. We
live on a monthly limited withdrawal from my 401(k). My husband
receives a pension of $273 a month.
Senator Sanders invited consumers to share their stories,
and I posted on his website my story about a generic medication
I take, Pravastatin. It's a preventative that addresses
problems with lipids and cholesterol to prevent heart disease.
I switched, a few years ago, from a similar medication called
Simvastatin after having some side effects--confusion and
short-term memory loss. My doctor prescribed Pravastatin, a
proven drug developed decades earlier, with lessened risk of
side effects.
At the time I made the switch, my tablets, 10 milligrams,
made by Teva Pharmaceuticals, sold for $4 a month at the Target
pharmacy. Then earlier this year, my $4-a-month prescription
suddenly turned into $18.73. That's with health insurance. I
asked about the increase, and the Target pharmacist had no
explanation. Target's retail price for the drug is $25.99, so
insurance saved me $7.26, but the price I pay is now four and a
half times more. Since it's a simple compound that has been
produced for decades, I don't understand the increase. I would
think a drug that's prevalent would eventually become as cheap
and readily available as aspirin.
A couple of years ago, my hormone replacement therapy
pills, then sold under the brand name FemHRT and made by Warner
Chilcott, suddenly became unavailable, without warning. The
patent had expired. Teva was making a higher-dose generic, but
there was a gap until the low-dose version became available. I
was able to track down this information online, following news
reports and releases. But, I've been unable to track down any
information about why my other prices have increased so much
recently.
As I explained to Senator Sanders' office, I consider
myself lucky. I have good credit and have a steady income from
my 401(k). I absorb the price increase simply by putting it on
my credit card. Obviously, it has to be paid at some point, but
I think about the millions of Americans trying to make cuts
elsewhere because they are tapped out.
My Pravastatin wasn't the only budget-buster this year. My
Lansoprazole, an acid-reducer I've taken for years after an
ulcer, was made an over-the-counter drug. Another $4 generic,
it's now available on store shelves, and that's great for
availability. And I'm sure millions more Americans will now
avail themselves of the drug. That's good, right? However, a
14-day package of 15-milligram capsules now sells for $7.39,
and I take two a day. That's an increase, a month, from $4 to
$29.56. There is no copay, and over-the-counter drugs aren't
tax-deductibles.
The cost of my hormone replacement therapy, Jinteli, varies
month to month. In September, a 28-day supply cost me $40 after
insurance. The retail cost was $97.49. In November, I paid
$101.86 after insurance. The retail cost was $116.99.
How can anyone on a fixed income deal with these vagaries
in the system? You sure can't budget for costs that change
month to month. And it's not just a few pennies, as you can
see. These are significant percentages.
The bright spot? My daily 40-milligram dose of Citalopram,
which manages depression and anxiety, has not changed and is
still just $4 per month. Last year, I spent $849 on
prescription medications. This year, after going back to do the
math, I anticipate that my out-of-pocket costs will exceed
$1,700. Like many Americans, I've just been slapping these
extra costs on my credit card. I had no debt when I retired,
and was making plans to move to sunny Sequim, WA, where I have
a sister living. Now those plans are on hold until we can
whittle down our debt.
I thank you again for the opportunity to speak to you
today. I look forward to hearing what the drug companies have
to say about generic drug pricing. And I do want them to know
that their decisions have a significant impact on real people.
[The prepared statement of Ms. Riha follows:]
Prepared Statement of Carol Ann Riha
Thank you Senator Sanders for the honor and opportunity of inviting
me to testify before this subcommittee. Thank you distinguished panel
members for taking the time to address this important issue, which
affects millions of Americans. I consider it a great privilege to be
here.
My name is Carol Ann Riha. I and my husband, both early retirees,
live in West Des Moines, IA. I was laid off in 2011 from The Associated
Press, where I was Iowa Bureau Chief. In my 27 years with AP, I also
worked in Detroit and Portland, OR. After leaving AP, I worked a couple
of years at The Des Moines Register and retired last year after 38
years in journalism. My husband left Nationwide Insurance in 2009 at
the peak of the recession, and was unable to find subsequent
employment. We live on a limited monthly withdrawal from my 401(k). My
husband receives a pension of $273 a month.
Senator Sanders invited consumers to share their stories and I
posted on his website my story about a generic medication I take--
pravastatin. It is a preventive that addresses problems with lipids and
cholesterol to prevent heart disease. I switched a few years ago from a
similar medication called simvastatin after having side effects--
confusion and short-term memory loss. My doctor prescribed pravastatin,
a proven drug developed decades earlier with a lessened risk of side
effects.
It was sold under the brand name Pravachol and was made a generic
drug in 2006. At that time, the FDA said in a news release: ``This
approval is another example of our agency's endeavor to counter rising
health care costs by approving safe and effective generic alternatives
as soon as the law permits.'' The FDA release also said that in 2005,
Pravachol was the 22d most widely used drug in the United States, with
sales of $1.3 billion. Reading that, I figured R&D costs were paid off
and companies would recoup further expenses through volume. Millions of
Americans are taking this drug every day.
At the time I made the switch, my 10 mg tablets, made by Teva
Pharmaceuticals, sold for $4 a month at the Target pharmacy. Then,
earlier this year, my $4-a-month prescription suddenly cost me $18.73.
That's with health insurance. I asked about the increase and the Target
pharmacist had no explanation. Target's retail price for the drug is
$25.99, so insurance saved me $7.26, but the price I now pay is more
than 4.5 times more.
Since it's a simple compound and has been produced for decades, I
don't understand the increase. I would think a drug this prevalent
would eventually become as cheap and readily available as aspirin.
A couple of years ago, my hormone replacement therapy pills, then
sold under the brand name FemHrt and made by Warner Chilcott, suddenly
became unavailable without warning. The patent had expired. Teva was
making a higher dose generic, but there was a gap until the low-dose
version became available. I was able to track down this information
online, following news report and releases. I've been unable to track
down information about why the price has increased so much recently.
As I explained to Senator Sanders' office, I consider myself lucky.
I have good credit and I have a steady income from my 401(k). I
absorbed the price increase simply by putting it on my credit card.
Obviously it has to be paid at some point, but I think about the
millions of Americans trying to make cuts elsewhere because they're
tapped out.
My pravastatin wasn't the only budget buster this year. My
lansoprazole, an acid reducer I've taken for years after an ulcer, was
made an over-the-counter drug. Another $4 generic, it's now available
on store shelves. That's great for availability. I'm sure millions more
Americans will now avail themselves of the drug. That's good, right?
However, a 14-day package of 15 mg capsules now sells for $7.39 and
I take 2 a day. That's an increase from $4 a month to $29.56. There's
no copay and over-the-counter drugs aren't tax deductible.
The cost of my hormone replacement therapy, Jinteli, varies month
to month. In September, a 28-day supply cost me $40 after insurance.
The retail cost was $97.49. In November, I paid $101.86 after
insurance. The retail cost was $116.99.
How can anyone on a fixed income deal with these vagaries in the
system? You sure can't budget for costs that change month-to-month. And
it's not a few pennies, as you can see. These are significant
percentages.
The bright spot? My daily 40 mg dose of citalopram, which manages
depression and anxiety, has not changed and is still just $4 a month.
Last year, I spent $849 on prescription medications. This year,
after going back to do the math, I anticipate that my out-of-pocket
costs will exceed $1,700.
Like many Americans, I've just been slapping these extra costs on
my credit card. I had no debt when I retired and was making plans to
move to sunny Sequim, WA, where I have a sister living. Now, those
plans are on hold until we can whittle down our debt.
I thank you again for the opportunity to speak to you today. I look
forward to hearing what the drug companies have to say about generic
drug pricing. I do want them to know that their decisions have a
significant impact on real people.
Senator Sanders. Thank you very much, Ms. Riha.
Senator Burr will introduce Dr. Scott Gottlieb.
Senator Burr. Thank you, Mr. Chairman.
I am pleased to introduce to the committee and the panel
Dr. Scott Gottlieb. Dr. Gottlieb is a practicing physician and
resident fellow at the American Enterprise Institute. Dr.
Gottlieb is regarded as an expert on drug policy and FDA
issues. He served as the Deputy Commissioner for Medical and
Scientific Affairs at the Food and Drug Administration from
1905 to 1907. Prior to that, 1903 and 1904, he was a senior
advisor to the FDA Commissioner and served as FDA's Director of
Medical Policy Development. In between those two stints at the
FDA, in 2004 Dr. Gottlieb worked on the implementation of the
Medicare Drug Benefit as a senior advisor to the administrator
of the Centers of Medicare and Medicaid Services. Currently,
Dr. Gottlieb is an editorial board member of the journal Value-
Based Cancer Care, the Food and Drug Law Institutes Policy
Forum, is a member of the Board of Advisors of Cancer Commons.
Dr. Gottlieb has published columns in the Wall Street Journal's
clinical assistant professor at New York University School of
Medicine. He completed a residency in internal medicine at
Mount Sinai Hospital in New York and is a graduate of Mount
Sinai School of Medicine and of Wesleyan University, where
studied economics.
Dr. Gottlieb, thank you for your contributions to these
important issues.
STATEMENT OF SCOTT GOTTLIEB, M.D., RESIDENT FELLOW, AMERICAN
ENTERPRISE INSTITUTE, WASHINGTON, DC
Dr. Gottlieb. Thanks for having me. Thanks, Mr. Chairman,
Mr. Ranking Member.
I want to offer some observations on some of the discussion
that's gone on here today.
One of those observations is that the data that looks at
the price increases on generic drugs isn't corrected for script
volume. I think we really need to do that. It could just be
that the low-volume drugs are the ones that are taking the
price increases. And that would seem to make sense as
manufacturers enter the market and as script volume declines
overall. Once you're down to one or two manufacturers, you're
going to see price increases. Now, that doesn't diminish the
impact on the patients, but it does suggest that the overall
cost of generic drugs to the system and to consumers generally
is probably declining. And the data that I have would seem to
suggest that. So, even though you've seen some price increases,
and some exorbitant price increases on some very low-volume
drugs, drugs that do less than $10 million in total revenue,
overall generic drug costs to the system are actually still
declining.
I think it's going to absolutely be the case that, for low-
volume drugs, as drugs fall out of favor clinically, as
utilization is diminished, there are going to be fewer
manufacturers for those drugs, and, as fewer manufacturers
remain in the market, they're going to take price increases, in
part to take advantage of their market position, also in part
because they have to amortize the cost of manufacturing those
drugs over fewer patients. There's a fixed cost to
manufacturing a drug. You have to cover your fixed costs, in
most cases, although generic companies do lose money on a lot
of drugs.
I think the question before us is--this should be self-
correcting. So, as the revenue increases that the manufacturers
are earning off these drugs, it should become an attractive
market for other manufacturers to enter. And the rule of thumb
always was that, once a market reached around $10 million in
revenue, it became attractive to other generic manufacturers.
That rule of thumb arguably was the rule of thumb we used when
I was at FDA a number of years ago. I suspect it's a lot more
right now, that a category needs to generate more revenue than
that to really become attractive to a number of manufacturers.
But, I think the problem is that there are higher barriers
to entry, and it's harder for generic manufacturers to enter a
space. So, you're seeing these product categories persist with
one or two manufacturers for longer periods of time, or
sometimes in perpetuity. And I think that's owed to the fact
that the barriers to entry are significantly higher these days
than they used to be. And that's antithetical to the spirit of
Hatch-Waxman. Filing a generic application, doing the BE/BA
studies for a generic application, used to cost about a million
dollars, now it would cost upwards of $5 million even for a
simple generic. And, as I noted, use of generics as a category,
used to see vigorous competition at $10-15 million of total
revenue for a category. Now it's much higher.
I would observe that a lot of the drugs on the list that--
Senator, that you've collected--are low-revenue products.
Doxycycline, for example, does $6.9 million in total revenue
annually, so it's not at the threshold where we would see
bigger--more brisk competition.
I think, as big of a problem as we're observing here today,
and you've rightly called attention to, if not a bigger
problem, is the overall cost structure in the generic drug
industry. And it's going up. And, while that's not responsible,
certainly, for the price increases of these individual drugs
that the committee has noted, it is going to result in price
inflation eventually. We have not seen that yet, but we have to
be concerned that we'll see inflation in the overall generic
space as a result of the rising cost structure.
Some of that owes to rising cost of goods. The biggest
single input in general manufacturing is energy input costs.
Energy costs have gone up. But, we can't discount the fact that
there is much higher manufacturing costs. There's many more
manufacturing hurdles imposed by new regulatory requirements
that either keep generic manufacturers out of the market or
make it more expensive for those who have been in the market.
And, while I'm not debating, and it's beyond the scope of our
discussion here to debate, the merits of those regulations, I
do think they have been imposed in a rather abrupt manner, and
that has caused some dislocations in the market.
I think, in conclusion, a concern for all of us as we look
at these individual cases where generic drug prices have gone
up significantly for select drugs, an as-big concern, if not
bigger concern, should be looking at the barriers to entry. If
barriers to entry do continue to increase in this space, it's
going to affect most--mostly, and initially, the low-volume
drugs. Those are the ones that are going to be most vulnerable
to it. And that may be what we're seeing. We may be seeing the
canary in the coal mine to rising costs of goods overall.
Thanks a lot, Senator.
[The prepared statement of Dr. Gottlieb follows:]
Prepared Statement of Scott Gottlieb, M.D.
In our economy for medicines, the dual principles of market-based
rewards that attract entrepreneurship and deep value once patents have
lapsed are longstanding features of our system. The competition between
branded and generic drug makers has enabled remarkable advances in
science, and vibrant competition on price.
The compromises struck in the Hatch-Waxman legislation decades ago,
have endured even as the market has changed. Generic drug makers have
grown more sophisticated at challenging patents and unlocking new value
for consumers. At the same time branded drug makers--recognizing this
competition--have moved into new areas of science where resulting
products are more specialized, unique, and beneficial. The competitive
interplay between branded and generic firms, and the benefits that it
affords, grows more relevant as the industries continue to evolve.
Recently, questions have been raised whether this competitive
landscape is giving way to new economic features that erode some of the
original intent of Hatch-Waxman. Market observers have made note of the
substantial price increases observed with a select number of drugs,
even though these medicines have been long subject to generic price
competition. Yet in observing these cases, there is no one discernable
feature, or policy shortcoming, that explains the events. In each case,
there are some unique features that led cost of goods to rise, or
competition to temporarily erode. At the same time, market-wide generic
drug prices continue to decline when you look across all of the drugs.
So what is one to conclude?
America indeed has a challenge when it comes to the original
compact that gave us a vibrant market for low-priced generic drugs. But
it is largely not revealed by the anecdotal cases where a select number
of drugs have undergone exorbitant price increases. These situations
stem from unique circumstances, many of which will be hard to solve
through policy alone because the situations are exceptional, and more
likely than not, temporary, as market dynamics work to correct
themselves.
On the contrary, a more pervasive and concerning trend relates to
market challenges and policies that are slowly raising overall generic
cost of goods. Some of these policies are borne of appropriate
compromises. Others are not as well thought out. While focusing on the
anecdotal cases where some prices have undergone sharp increase,
Congress should also take note of the broader underlying trends.
While generic drug prices, on the whole, continue to decline, that
is by no means a sure thing. If this deflation eventually reverses, it
won't be as a consequence of the small number of cases where select
drugs underwent substantial price increases. It will likely be a result
of more pervasive increases in industry wide COGS.
overall generic prices continue to fall
The increasing use of generic medications has helped mitigate
growth of health care spending in the United States over the last
decade. According to a recent report by the Government Accountability
Office, on average, the retail price of a generic drug is 75 percent
lower than the retail price of a brand-name drug.\1\ \2\ Until the
early 2000s, drug spending was one of the fastest growing components of
healthcare spending. However, since that time, the rate of increase has
declined each year. These reductions are attributable, in part, to the
greater use of generic drugs and more competition between generic drug
makers that lowers the cost of generic drugs.
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\1\ GAO-12-371R Savings from Generic Drug Use http://www.gao.gov/
assets/590/588064.pdf.
\2\ CBO, ``Effects of Using Generic Drugs on Medicare's
Prescription Drug Spending,'' September 2010.
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That same GAO report condensed a series of studies conducted for
Generic Pharmaceutical Association by IMS Health that estimated the
total savings generic substitution provided to the overall U.S. health
care system. The studies looked at the 12-year period 1999 through
2010.\3\ These reports found that during this period, generic
substitution saved the U.S. health care system more than $1 trillion.
In 2010 alone, generic substitution generated more than $157 billion in
savings.\4\
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\3\ GPhA, Savings: An Economic Analysis of Generic Drug Usage in
the U.S. (September 2011); GPhA, Savings Achieved through the Use of
Generic Pharmaceuticals, 2000-2009 (July 2010); GPhA, Economic
Analysis: Generic Pharmaceuticals 1999-2008--$734 Billion in Health
Care Savings (May 2009).
\4\ GPhA, Savings: An Economic Analysis of Generic Drug Usage in
the U.S. (September 2011).
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These studies, however, don't answer the question before us today:
What is happening to the prices of individual generic drugs? Here
again, the news is encouraging. Data reported in the Express Scripts
Prescription Price Index show that generic drug prices have been halved
since 2008.\5\ Thompson Reuters reported that generic dose prices in
certain markets, especially in the United States,
---------------------------------------------------------------------------
\5\ Express Scripts. ``Express Scripts Prescription Price Index.''
Drug Trend Report. (2014).
``have gone into a downward spiral, squeezing margins for
generic dose companies and often for API manufacturers as well.
Contributing to this pricing pressure are an increase in the
number of generic dose players, availability of low-cost active
ingredient from India and China, incumbents' desire to maintain
market share.'' \6\
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\6\ Industrial Pharmacy, September 2006, Issue 11 http://
thomsonreuters.com/business-unit/science/pdf/ls/pharma/
challenges_generics.pdf
This doesn't negate the fact that the price of select number of
generic drugs has gone up, in some cases substantially. This has put
pressure on some pharmacies and consumers. There are concerns that it
could be the start of a broader trend. But it is important to note that
the prices of generic drugs are constantly fluctuating. When shortages
of certain drugs or active ingredients exist, or manufacturers exit the
market (leaving less competition for the sale of specific medicines)
prices rise. When the maximum allowable cost limits that pharmacies
agree to in their contracts don't keep pace with rising generic
acquisition costs, these cost increases can squeeze pharmacies'
profits. Over time, the MACs will catch up, and pharmacies often
benefit when this same phenomenon works in reverse. Once prices start
declining again, pharmacies benefit because higher reimbursement lags
behind the lower acquisition costs. In the cases of the drugs that
underwent price increases, the higher prices serve to attract
additional generic competitors, and costs decline.
Indeed, some of the articles pertaining to the rising cost of some
generic drugs seem to prove out this point in trying to make the
opposite case, that generic prices are going up more sharply and
unexpectedly than in the past. For example, the Wall Street Journal
recently noted, in one such article, that pharmacies are paying more
money for 37 percent of all generics than they did in the previous
quarter. But that would imply that they paid the same or less for the
other 63 percent of generic drugs. This would seem to follow a basic
rule of thumb that, at any time, about a third of generic prices are
going up, a third are staying the same, and a third are declining. This
is the dynamic long observed in this highly competitive market.\7\
During an August 5th conference call to discuss financial results, CVS
Health President and CEO Larry Merlo appeared to dismiss the notion
that a broader generic inflation is underway.
---------------------------------------------------------------------------
\7\ Ed Silverman. To the moon: will rising prices for some generic
drugs never end? The Wall Street Journal, November 14, 2014.
``While the cost of goods inflation does exist on some
generic items, it is not material in the context of our overall
purchasing volume and again was generally within our
expectations,'' he told investors. ``On balance, the
deflationary nature of the generic pharmaceutical market
remains intact and overall, our pharmacy margins' increase this
quarter for multiple reasons were in line with our
---------------------------------------------------------------------------
expectations.''
But recently, the cost increases appear to be larger and more
frequent, attracting notice. Yet there is no data to suggest that this
is part of a broader trend. In fact, as I noted, the aggregate data
points to the opposite conclusion. Over any time period, there are
always subsets of drugs that undergo substantial price increases as a
result of many factors, often related to disruptions in raw materials.
However, as I will conclude later, there is reason to be concerned that
the cost of goods for generic drugs, more generally, could rise if we
are not careful in how we implement some new policies. That's true even
if, for now at least, it would appear that in the aggregate, brisk
competition continues to hold down overall generic drug costs.
what do the big price hikes tell us?
Notwithstanding the favorable trends, some lawmakers have noted
that there are examples where some generic drugs have undergone
substantial price increases. A key question is whether there are
common, underlying reasons for these price increases. Whether these
anecdotes point to a larger failure of policy or markets?
Consider first, the 10 drugs that have been recently cited by
lawmakers from both the House and Senate as examples where old generic
medicines underwent substantial price increases over the last 2 years.
These 10 drugs include doxycycline hyclate, albuterol sulfate,
glycopyrrolate, divalproex, pravastatin, neostigmine, benzapril/
hydrochlorothiazide, isuprel, nitropress, and digoxin.
Yet in looking at the circumstances surrounding the price rises,
these drugs don't lend to any consistent, shared observations. In many
cases, the active pharmaceutical ingredient used to manufacture a drug
was in shortage because of plant closures. This was the case with
doxycycline and perhaps some of the sterile, parenteral drugs included
in this list. Some drugs have seen their use decline as a consequence
of patient preference for other competing generic medicines in the same
class. As a consequence, manufacturers have not maintained production
of the less popular alternatives. This has the effect of creating
temporary shortages. This appears to be the case, for example, with
pravastatin sodium.
In some cases, there are temporarily fewer competitors in the
market for certain generics as companies exited for business or
regulatory reasons. This appears to be the case with digoxin. In the
case of digoxin, as of January this year, there were two companies
actively manufacturing and marketing the drug--Lannett and Impax. In
January, Covis Pharmaceuticals also entered the market. One of the key
events was the elimination of one of the manufactures of the API for
Digoxin as a result of tightened FDA oversight of that manufacturing
facility. In this case, the company (Westwood) had to curtail its
supply of both API as well as its own, tableted version of the drug.
It's worth noting that Digoxin is also difficult to formulate,
especially at low dosage forms.\8\ Once a category is split between
just two or three manufactures, it will follow that price will
temporarily rise as competition declines.
---------------------------------------------------------------------------
\8\ http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1381504/.
---------------------------------------------------------------------------
How do we know this? It is well documented that significant generic
drug price breaks of about 40 percent off the cost of the branded
alternative are not achieved until there are at least four generic
companies competing to manufacture the same drug. Prices don't fall to
a sustainable and low equilibrium of about 20 percent of the cost of
the branded drug until about seven manufactures enter the market.
Moreover, the often-cited statistic that a generic drug is priced at
just 10 percent of the cost of its branded alternative (or less) is not
achieved until there are about 15 generic manufactures competing to
market one particular generic medicine.\9\ It should follow suit that,
if the market is competitive, these same economic principles will work
in reverse. As generic manufacturers come in and out of the market for
certain drugs, when competition falls, prices will rise until new firms
enter the market. This is one of the principles that makes this market
competitive, and self-correcting.
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\9\ U.S. Food and Drug Administration, Generic Competition and Drug
Prices. http://www.fda.gov/AboutFDA/CentersOffices/
OfficeofMedicalProductsandTobacco/CDER/ucm129385.htm.
---------------------------------------------------------------------------
A critical question is whether the market for generic drugs is
still self-correcting, or have other forces impeded the entry of new
generic competitors into some of these categories. It has been said
that generic drug mergers have reduced the number of generic
manufacturers. While it's true that big generic companies have gotten
larger, the market for generic drug makers is still vibrant. It is
marked by literally thousands of different generic drug manufactures
globally. But is the U.S. market still highly accessible to these
companies? Is it still relatively straightforward, and inexpensive, to
enter the market with a generic drug? In some cases, policies pursued
by the U.S. have raised the cost of market entry for new generic
manufacturers. This could reduce competition, and raise prices in the
long run.
concerns for the future of generic pricing
There are some gathering signs that the underlying cost structure
in the generic drug industry is indeed rising, in a manner that could
raise barriers to entry and increase the cost of goods in the long run.
I believe we should focus more attention on this challenge. One factor
is rising COGS in the generic drug industry. Some of this is driven by
input costs. For example, commodities are part of the raw ingredient of
certain drugs. On a broader scale, in most cases the single costliest
input into the manufacturing of active pharmaceutical ingredients is
the energy costs. As the price of energy has gone up in recent years,
so will the underlying cost of the API.
Another reason is regulatory costs. In recent years, FDA has
increased its oversight of generic manufacturing. The merits of FDA's
oversight are beyond dispute. The balance struck between safety and
access by FDA's sometimes-abrupt imposition of these new standards is
beyond the scope of this discussion. But the fact remains that new
standards were sometimes imposed with little notice or accommodation,
leading to plant closures while facilities were remediated. Product
shortages resulted. It's reasonable to ask whether, in cases where
there was no imminent risk, facilities could have been remediated under
close FDA supervision while they continued to produce key medicines,
reducing the likelihood of shortages. This, however, has not been the
policy. The bottom line is that COGS in this sector have gone up as a
result. The higher manufacturing costs, and the tighter scrutiny
applied to new manufacturing facilities, have increased the entry costs
for new generic drugs and generic drug makers. How much costs have
risen is difficult to fully quantify.
Competition is also diminished because FDA continues to be plagued
by a backlog of generic applications. While generic drug user fees were
intended to work this backlog off, it has actually increased. Moreover,
FDA is now issuing refuse to receive letters, basically telling some
generic sponsors that the agency won't even file their applications
because of deficiencies. In some cases, these deficiencies are largely
clerical in nature. By refusing to receive certain generic
applications, it could have the effect of understating the actual
functional backlog of generic approvals. A key question is how many of
the generic drugs being cited for taking large price increases are
faced with competition that now sits in FDA's backlog?
Generic manufacturers are also facing higher costs as a result of
increased product liability risks as a result of ``failure to warn''
claims that they are being exposed to for the first time. A new
regulation FDA crafted, in part with this understanding and purpose in
mind, will impose on generic manufacturers a requirement to
unilaterally change their labels without FDA review and approval--which
they are currently prohibited from doing. By placing this burden on
generic drug makers, the effect of FDA's new regulation would expose
generic firms to the same large torts that are targeted to branded drug
firms. The action may undermine some of the key public health benefits
that generic drugs provide by substantially raising the industry's
costs, in the process reducing access to low cost generic
medicines.\10\
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\10\ Scott Gottlieb, Alex Brill, and Robert W. Pollock. Proposed
FDA generic drug regulation: Higher prices, no public health benefit,
American Enterprise Institute Health Policy Outlook. March 12, 2014
http://www.aei.org/publication/proposed-fda-generic-drug-regulation-
higher-prices-no-public-health-benefit/.
---------------------------------------------------------------------------
The generic drug makers are also subject to user fees for the first
time. These fees will help underwrite the investments needed to make
sure the efficiency of FDA's generic drug approval process continues to
improve. Nonetheless, the direct costs of these fees raise the barriers
to generic entry, raise the cost of goods, and are ultimately passed on
to consumers. These fees are not trivial. They include an application
fee of $58,730 for each ANDA, a $29,370 fee for each new prior approval
supplement (PAS) to an approved ANDA, a one time $26,720 fee for the
drug master files, a $41,926 annual fee for domestic API Facilities, a
$56,926 annual fee for foreign generic drug API Facilities, a $247,717
Annual fee for domestic finished dosage form facilities, and a $262,717
annual fee for foreign FDF facilities.\11\
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\11\ David Lennarz. FDA Updates Generic Drug User Fee Rates, FDA
News. August 4, 2014. http://fda-news.registrarcorp.com/2014/08/fda-
generic-drug-user-fee/.
---------------------------------------------------------------------------
In addition to these user fees, generic manufacturers face some
other fees. For one thing, many generic applications are not filed
under the generic ANDA pathway, which falls under 505(j); but under
another pathway referred to as 505(B)2. When a generic application is
filed under 505(b) it faces full, branded drug user fees (which are
much higher than generic drug user fees). Moreover, these drugs are
also subject to the drug fees created under the Affordable Care Act as
a way to close the Medicare Part D ``doughnut hole.'' This was the gap
in drug coverage that seniors experienced as their drug costs fell in
between the lower and upper boundary of coverage limits. The ACA said
only that these fees would apply to drugs approved under 505B, which
ends up including generic applications filed under 505(b)2.
Other, expenses are getting loaded onto the generic drug supply
chain. While each may be small, they start to add up. For example,
under new regulations, generic companies are required to do many more
validation batches before they file ANDAs. Even shipping costs have
increased. And a growing number of drugs need to be stored at more
precise temperatures (an area of increased enforcement by FDA).
One of the central tenets of the generic drug framework was the
idea that there would be low barriers to entry. Generic manufacturers
have long faced substantially lower entry costs when compared with
branded counterparts. Historically, enrolling a single patient in a BE/
BA study as part of the ANDA required for a generic filing, on average,
about $1,000. Today, the average cost per subject ranges closer to
$5,000-$6,000. In most cases, a BE/BA trial would enroll fewer than 50
patients to satisfy the requirements of the ANDA. Even that number has
risen.
In addition, it had long been said that filing a generic
application would cost about $1 million, and a branded or specialty
drug would become subject to generic competition once it reached $10
million in revenue. It goes without saying that this $10 million ``rule
of thumb'' figure is substantially higher now. Recent data suggests
that bringing a generic drug to the market can cost up to $5 million
per filing for a section viii filing, and another $5-$15 million for a
paragraph IV filing. The amount of revenue or scripts a category must
generate, before it attracts robust generic competition, has also
increased beyond that $10 million figure. That is another factor behind
some of the very large price increases we have seen with a select
number of older, generic drugs. For example, in 2014 the total sales of
the generic doxycycline formulations that have been called into
question were about $6.9 million.\12\ These drugs, while expensive on a
per pill basis, do not generate sufficient aggregate revenue to offset
the investment needed to attract many competitors. That is why the
market has not corrected more quickly in some of these cases.
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\12\ Gross Doxycycline Hyclate Sales by Calendar Year per IMS:
2012, $13,105,912; 2013, $10,975,295; 2014, $6,937,065.
---------------------------------------------------------------------------
The fact is that generic companies lose money on many of their
offerings. They try and maintain a broad portfolio because it helps
them contract and meet customer demand. So they continue to manufacture
generic drugs even when they break even, or worse, sustain losses. But
entering a category where they know they will lose money from the
outset is another matter. These are not public utilities,
notwithstanding the fact that they provide an important public benefit
by delivering substantial value to consumers. At the end of the day,
they need to remain profitable to continue to provide those benefits.
Firms will take price increases in circumstances where the market will
enable profits. This helps offset all of the situations where other
circumstances create losses. The rising cost of entry increases the
hurdle rate that must be offset for companies to enter new categories.
Consumers have an expectation in recent years that healthcare costs
should start to level off or even decline. They have been promised as
much in recent policy debates. And they have been conditioned to expect
low prices when it comes to their old, generic medicines. So they are
rightly concerned when prices on some old drugs undergo substantial
increases, even if these costs aren't passed directly onto them. They
don't follow the day-to-day headlines concerning supply shortages,
manufacturing snafus, or the like. All they see are their bills.
The underlying cost pressures inside the generic drug industry are
indeed changing. There is a risk that increased barriers to entry,
increased cost of goods, and increased cost of regulatory scrutiny and
manufacturing, can coalesce to lower the competition that this sector
has long enjoyed, and the savings consumers have long appreciated. The
anecdotal cases of substantial price increases that plague a subset of
drug categories are concerning, but don't themselves point to any
uniform trends. Instead, it is the underlying cost pressure that should
merit our policy attention.
Dr. Gottlieb, a physician and Resident Fellow at the American
Enterprise Institute, was FDA Deputy Commissioner from 2005 and 2007,
and worked as a senior official at the Centers for Medicare and
Medicaid Services during implementation of the Medicare Part D drug
benefit. He consults for and invests in branded life science companies.
Senator Sanders. Thank you very much.
Is Senator Warren going to introduce--is she here? Just in
the nick of time. We're up to Dr. Kesselheim, and I think you
want to introduce him.
Senator Warren. Thank you very much, Mr. Chairman.
I'm very proud to be able to introduce the next witness,
from Massachusetts. Dr. Aaron Kesselheim is an associate
professor of medicine at Harvard Medical School and a faculty
member in the Division of Pharmacoepidemiology and
Pharmacoeconomics at Brigham and Women's Hospital, where he
directs the Program on Regulation, Therapeutics, and Law.
Dr. Kesselheim earned his bachelor's degree from Harvard
University and his medical and law degrees from the University
of Pennsylvania. He also earned his master's in public health
from the Harvard School of Public Health, and he's certified in
internal medicine and serves as a primary-care physician at the
Phyllis Gen Center for Primary Care at Brigham and Women's
Hospital.
Dr. Kesselheim's research focuses on the intersection of
law and public health, looking in particular at how
intellectual property laws and FDA regulatory policies impact
drug development, the drug approval process, and the cost and
availability of drugs. He's also investigated how other issues
at this intersection can impact the healthcare system,
including healthcare fraud, expert testimony, and malpractice
cases, and insurance reimbursement practices.
Just last week, Dr. Kesselheim addressed the issue of
generic drug price increases with his colleagues at the New
England Journal of Medicine.
Welcome, Dr. Kesselheim. We are very pleased to have you
here today and to share your expertise.
STATEMENT OF AARON S. KESSELHEIM, M.D., J.D., M.P.H., ASSOCIATE
PROFESSOR OF MEDICINE, BRIGHAM AND WOMEN'S HOSPITAL AND HARVARD
MEDICAL SCHOOL, BOSTON, MA
Dr. Kesselheim. Thank you. Thank you very much.
Chairman Sanders, Ranking Member Burr, Senator Warren,
members of the subcommittee, it's an honor to be here today to
discuss the rising prices of some generic drugs.
Generic drugs are central to patient care. They're the main
way that many patients afford the medications their doctors
prescribe them. Inexpensive generic drugs translate to improved
patient adherence and better patient outcomes. But, generic
drugs are inexpensive because of competition. The cost of a
generic product is closely related to the number of
manufacturers producing it. So, today I want to highlight four
ways that competition fails in the generic market, and six
things that we can do about it.
First, limited competition may occur naturally. Take the
case of Albendazole, a broad-spectrum antiparasitic medication
approved by the FDA nearly 20 years ago. Perhaps because its
indications are so few in the United States, it never attracted
generic competitors. Recently, its rights were sold to a small
company, which raised its price from about $6 for a daily dose
to over $119 for a typical daily dose, exploiting this niche
market and earning a hefty profit, despite investing no money
in research and development of the drug.
Second, reduced competition can also occur because of
market withdrawals. For example, the number of manufacturers
producing Digoxin, used for heart failure, fell from eight to
three from 2002 to 2013. During that time, the price rose by
nearly 650 percent. Such contractions can be related to safety-
related drug withdrawals or manufacturers deciding to pursue
greater profits elsewhere.
Third, competition can be interrupted due to inappropriate
anticompetitive acts, such as generic manufacturers buying out
potential competitors. This is the sort of behavior policed by
the Federal Trade Commission.
Finally, competition can be squeezed out by companies
winning patents or new market exclusivities issued by the FDA.
Thalidomide, for example, first synthesized in the 1950s, has
recently been discovered useful in treating a rare type of
cancer, multiple myeloma. Despite having no remaining patents
on the underlying active ingredient, competing generics have
remained blocked because of patents received on the drug's
distribution pathway.
What can be done? I do not support wholesale changes to the
current system of manufacturing or regulating generic drugs.
But, when generic drug prices skyrocket, there is something
wrong with the market, and the root causes need to be
identified and fixed.
Now I want to turn to six possible solutions:
First, the government needs to be aware of spikes in drug
prices so that it can adequately respond. Therefore, all
increases in multisource drugs of greater than 100 percent
should be reported to the Secretary of HHS so that she can
investigate the rationale for the increase and determine
whether public intervention is necessary. Publication of price
hikes should follow so that physicians and patients can be
warned, as well.
Second, the FDA, under its current authorities, can fast-
track potential generic drug manufacturers to permit the
private market to function more efficiently. The high price in
growing number of prescriptions may now attract additional
entrants to the Albendazole market, which would help bring the
price back down. Substantial increases in an unpatented drug's
price should trigger the FDA to seek new market entrants
proactively, and those responding should receive expedited
reviews of their manufacturing processes and bioequivalence
data. FDA user fees could be waived to further reduce the
barriers to entry for potential competitors.
Third, if a vital generic drug comes to be produced by only
two or three manufacturers or its price rises uncontrollably,
the Federal Government may need to guarantee volume purchases,
which would make companies' investments in producing these
vital products more economically attractive, as it currently
does in the childhood vaccine field. The government's
commitment to purchase a fixed amount at a reasonable cost
would encourage restoration of a competitive market.
Fourth, the FTC should ensure that price changes do not
stem from anticompetitive behavior. The FTC needs greater
resources to help it enforce maintenance of competitive
markets.
Fifth, interventions can also come at the government payer
level. The law creating Medicare Part D, for example, forbids
interference with a negotiation of drug prices or institution
of a price structure in this 80-billion-dollar-per-year
program. If this noninterference provision could be waived for
generic drugs, then CMS would be in a better position to combat
exorbitant increases in drug prices.
Finally, over the long term, reforms to the patent and
market exclusivity system may be warranted. There is a low bar
to obtaining new patents on peripheral aspects of old
unpatented drugs, such as the business method patent at issue
in the Thalidomide case. Minor changes in an old drug's
formulation or other limited alterations should not lead to new
market exclusivity protections.
In conclusion, I want to thank this subcommittee for its
attention to this important issue. Failures in this market are
events we need to take seriously, because they lead to
disruptions in the supplies of lifesaving drugs to patients,
affecting countless lives.
As I was preparing for this hearing, I was chatting with a
physician colleague of mine, who told me about a market
research firm who contacted him in the last week with a survey
from a manufacturer of a decades-old drug that sells for $70
for an entire course of therapy but faces little competition in
the market at present. The final question posed to my colleague
was, Would you still prescribe this drug if the price was
$10,000? As a healthcare system and as a nation, we need to
make sure that question is off the table for generic drugs.
[The prepared statement of Dr. Kesselheim follows:]
Prepared Statement of Aaron S. Kesselheim, M.D., J.D., M.P.H.
summary of major points
Generic drugs are one of the central components of the
health care system. The generic drug industry has a long history of
producing high quality drugs at very reasonable prices, which saves
patients money, promotes adherence, and improves clinical outcomes.
Generic drugs are inexpensive because they can be reliably
synthesized and packaged for pennies per pill and they are made by
manufacturers that can make a profit charging closer to the unit cost
of production because their development costs were low. Competition
among these manufacturers leads prices to approach the unit cost of
production.
Competition among generic or multisource drug
manufacturers can vanish for a number of reasons, including
manufacturers' business decisions, fluctuations in market supply and
demand, anticompetitive behavior from sellers or purchasers, and re-
assertion of patent or market exclusivity rights.
The first solution is greater transparency: all increases
in multisource drug prices of greater than 100 percent should be
reported to the Department of Health and Human Services, which can
investigate the rationale for the increase in price and determine
whether some sort of public intervention is necessary.
The FDA Office of Generic Drugs can responsibly fast-track
potential generic drug entrants into markets where high prices result
from manufacturers exploiting natural monopolies, waiving the user fees
to further reduce barriers to entry for potential competitors.
The Federal Trade Commission requires increased funding to
be able to intervene in the generic drug market to ensure that price
changes do not stem from anticompetitive behavior.
Interventions can also come at the government payor level.
If the Medicare Part D non-interference provision was waived for
multisource drugs, then the Centers for Medicare and Medicaid would be
in a better position to combat exorbitant increases in drug prices.
Over the long-term, reforms to the patent and drug market
exclusivity system may be warranted to help prevent more older drugs
from soaring in price.
______
Chairman Sanders, Ranking Member Burr, and members of the
subcommittee, my name is Aaron Kesselheim. I am an internal medicine
physician, lawyer, and health policy researcher in the Division of
Pharmacoepidemiology and Pharmacoeconomics at Brigham and Women's
Hospital in Boston and an Associate Professor of Medicine at Harvard
Medical School. I lead the Program On Regulation, Therapeutics, And Law
(PORTAL), an interdisciplinary research team studies the intersections
between laws and regulations and the development, utilization, and
affordability of drugs. It is an honor to have the opportunity to share
my thoughts with you about the rising prices of some generic drugs.
Generic drugs are one of the central components of the health care
system. Generic drugs become available after the expiration of the
market exclusivity period for brand-name drugs, and are the main way
that many patients are able to afford the medications their doctors
prescribe for them. The FDA reviews them carefully for purity and
bioequivalence with the brand-name, standards which are almost always
met before the drug is marketed.\1\ Meta-analyses I have led, including
one published in the Journal of the American Medical Association in
2008,\2\ found no evidence of any clinical differences in studies
comparing brand-name and generic drugs, even among the small number of
special ``critical dose'' drugs that have their effective and toxic
ranges separated by relatively small differences.
Having the same effectiveness and safety as their brand-name
counterparts, generic drugs can provide reliable clinical outcomes for
patients. What sets them apart from brand-name drugs is their low cost.
When generic manufacturers market their versions after the end of the
brand-name drug's market exclusivity period, prices can over time be
reduced by as much as 80-90 percent. With low-cost generic drugs
currently making up about 84 percent of all prescriptions, the cost
savings related to generic drug prescribing has saved U.S. patients
over a trillion dollars in the last decade alone.\3\ Inexpensive
generic drugs translate to improved patient adherence and better
patient outcomes. A recent study led by Josh Gagne in my Division
showed that patients initiating a low-cost cholesterol-lowering drug
had better medication adherence and, as a result, an 8 percent
reduction in hospitalization for acute heart disease, stroke, and death
compared to patients initiating a high-cost cholesterol-lowering
drug.\4\
Why are generic drugs inexpensive? They are inexpensive because
most small molecule prescription drugs can be reliably synthesized and
packaged for pennies per pill. Brand-name drugs sell for much more--
recently, the $1,000 per pill cost of sofosbuvir (Sovaldi) for
hepatitis C virus has been widely debated--because they are protected
by government-issued patents and various FDA rules that prevent
competitors from making their own versions of the drug. The government
provides limited periods of market exclusivity for brand-name drugs
because innovative drug development is expensive. These monopoly
periods permit the brand-name manufacturers to charge far above the
unit cost of producing the pill to help compensate for the millions of
dollars in research costs involved in clinical trials and other tests
leading to the development of a new drug. After the market exclusivity
period ends, competition is initiated by other manufacturers that do
not have as high of development costs and can therefore still make a
profit charging closer to the unit cost of production. Competition
leads prices to decrease for these multisource drugs and approach the
unit cost of production.
We take for granted that older drugs are inexpensive, but
competition is the reason why they are reliably inexpensive. This
competition can vanish for a number of reasons, including business
decisions by manufacturers, fluctuations in the supply and demand of
the market, anticompetitive behavior, and re-assertion of patent or
market exclusivity rights. When any of these things happen, prices
skyrocket.
First, generic drug prices can rise because of a confluence of
business decisions and profit-seeking from manufacturers. Take the case
of albendazole, a broad-spectrum anti-parasitic medication first
marketed by corporate predecessors to GlaxoSmithKline (GSK) outside the
United States in 1982 and approved by the FDA in 1996. Albendazole is
rarely used in the United States, and the parasitic infections it
treats usually only occur in poorer populations such as immigrants and
refugees. Though its patents have expired, GSK remained the sole
producer of the drug until the company sold its U.S. marketing rights
to Amedra Pharmaceuticals, a small private firm, in October 2010. In
2011, Teva, the producer of the only potential therapeutically
interchangeable competitor mebendazole (Vermox), discontinued
production of its product for non-safety related reasons. In last
week's New England Journal of Medicine, my co-authors and I reported
that between late 2010 and 2013, the listed Average Wholesale Price for
U.S. patients rose from about $6 to over $119 per typical daily dose.
For a routine 6-month course of therapy, an uninsured patient therefore
faces tens of thousands of dollars in costs. Insurance payors were also
strongly affected, particularly Medicaid, the Federal- and State-funded
health insurance program for the poor. Medicaid spending on albendazole
rose from less than $100,000 in 2008 ($36.10/prescription) to over $7.5
million in 2013 ($241.30/prescription).\5\ In this case, Amedra
exploited an existing monopoly on a niche drug, a tactic that was
successful in part because of the exit of another manufacturer from the
market. It is worth pointing out that companies in these circumstances
can earn high revenues without having made much, if any, investments in
research and development.
Second, competition can languish because of changes in the drug
industry and manufacturing challenges. For example, the number of
manufacturers producing oral digoxin tablets, used for atrial
fibrillation and heart failure, fell from 8 to 3 companies from 2002 to
2013; during that time, the price of digoxin reportedly rose by 637
percent.\5\ The market contraction was thought to be related in part to
safety-related drug recalls and manufacturers deciding to leave the
market. The cost of a generic product is closely related to the number
of generic manufacturers producing it, with the first generic
manufacturer pricing its drug only slightly below the brand-name
manufacturer's price, and the second pricing it at only about half the
price. By the FDA's estimation, it is not until the number of generic
manufacturers reaches more than 5 that the price falls to under 25
percent of the brand-name price.\6\ Shortages from reduced supply or
increased demand can play a role in these circumstances. For example,
hospitals like Brigham and Women's Hospital, where I see patients, have
been struggling with intermittent shortages of normal saline (that's
salt water) and other vital unpatented, multisource basic healthcare
products due to unexpected demand and variations in supply from
manufacturers with production irregularities at their plants. These
changes can sometimes lead to spikes in the price of the products.
Third, competition can be interrupted due to horizontal or vertical
mergers, or inappropriate anticompetitive behavior. These sorts of
activities fall under the oversight of the Federal Trade Commission
(FTC). When the FTC has reviewed mergers of generic drug manufacturers,
it has sometimes ordered the new entity to relinquish control of
certain drug products if the transaction would lead to anticompetitive
effects from a decrease in the number of independent competitors in the
markets at issue.\7\ A more recent case of a potentially anti-
competitive business arrangement supporting high prices for a very old
drug occurred in the case of the 60-year-old drug ACTH, now marketed as
H.P. Acthar Gel, a treatment for hard-to-manage seizures in young
children, as well as severe cases of multiple sclerosis. The medication
used to sell for as little as $40 per vial until a small company called
Questcor bought it in 2001. According to reports in the New York Times,
the manufacturer raised the price immediately to $700 per vial, and
then increased it to $23,000 per vial in 2007.\8\ When another company
sought to bring a lower-cost competing drug named Synacthen into the
market in 2013, Questcor bought the rights to Synacthen.\9\ Synacthen
remains unapproved, while H.P. Acthar Gel cost Medicare more than $141
million in 2012 alone \10\ for a drug first FDA-approved in 1952.
Finally, competition among multisource drug manufacturers can be
squeezed out by companies winning patents or new market exclusivities
issued by the FDA. Thalidomide, for example, is famous for its tragic
role in helping modernize the FDA in the 1960's, and was later
discovered to be effective in treating a rare type of cancer, multiple
myeloma. However, despite the fact that there are no remaining patents
on the underlying active ingredient in thalidomide, competing generic
versions have remained blocked because of patents that the current
manufacturer of the drug received on its distribution pathway.\11\ In
the case of the anti-gout drug colchicine, the FDA sought to bring
production of generic colchicine under its regulatory umbrella.
Versions of colchicine had been available in the United States since
the 19th century and thus it was never formally approved by the FDA as
an individual pill. It was sold by multiple manufacturers at about 9
cents per pill until the FDA formally approved one version of it in
2009 and gave that manufacturer a period of market exclusivity. After
the FDA's action, this manufacturer raised the price to $4.85 per
pill.\12\ Another price jump happened under similar circumstances in
2011 when the FDA approved a synthetic progestin drug called 17 alpha-
hydroxyprogesterone caproate (17OHP), which is used to reduce the risk
of preterm birth in pregnant women, and was available through many
different compounding pharmacies at about $300 per dose.\13\ In 2011,
the FDA approved one manufacturer's version of it. When the
manufacturer raised the price to $30,000 per dose, the FDA--under
pressure from legislators--announced that it would continue to permit
production of the drug from compounded sources.\14\ With competition in
the market re-established, the company could not sustain its intended
exorbitant price.
So what can be done? I do not support wholesale changes to the
current system of manufacturing or regulating generic drugs. The
generic drug industry serves an extremely valuable function in the
health care marketplace, and has a long history of producing high
quality drugs at very reasonable prices, which saves patients money,
promotes adherence, and improves clinical outcomes. But when generic
drugs skyrocket in price, there is something wrong with those markets,
and the root causes of the problems need to be identified and fixed.
Failures in the generic drug market are events that legislators and
policymakers need to take seriously, because they can lead to
disruptions in supplies of lifesaving drugs to patients. Thus, I first
suggest investment into research surveying the extent of high generic
drug prices, as well as a comprehensive examination of their causes. We
need a systematic approach to understanding the problem so that focused
solutions can be developed. If the markups are related to other points
along the drug distribution chain, such as wholesalers or pharmacies,
this should be clarified.
However, because high prices for some generic drugs are already
reaching critical levels, more immediate actions are necessary. It is
critical for the government to be aware of spikes in drug prices so
that it can adequately respond. Therefore, all increases in multisource
drug prices of greater than 100 percent should be reported to the
Secretary of the Department of Health and Human Services so that she
can investigate the rationale for the increase in price and determine
whether some sort of public intervention is necessary. Publication of
these price hikes should immediately follow so that physicians and
patients can be warned about the impending changes. Too often, patients
are not aware of these fluctuations in price until they try to fill a
drug at their pharmacy, which can lead to patients having to choose
between filling their medication and other basic necessities and then
to gaps in medication adherence. Physicians may be able to determine
alternative inexpensive medication regimens for patients, a process
that will be aided by advanced notice of these changes.
In addition to greater price transparency, there are some potential
short-term options to help mitigate high prices. One option would be
for the FDA Office of Generic Drugs to take a more proactive posture
and fast-track potential generic drug entrants into markets where high
prices result from manufacturers exploiting natural monopolies. While
albendazole may not be of interest to many manufacturers at a low
price, its current high price and growing number of prescriptions may
now attract additional entrants, which would help bring the price back
down. The FDA should do everything in its current power to facilitate
these new market entrants as quickly and as safely as possible.
According to the FDA, the standard processing time for a generic
manufacturer's application is about 10 months, which does not include
the time it takes for the generic manufacturer to address any
deficiencies in its proposal. Legislation in 2012 created new generic
drug user fees that promise to reduce such wait times by providing
greater funding for FDA staff. In addition, under its current legal
authority, the FDA can create special pathways that permit the private
market to function more efficiently. Substantial increases in an
unpatented drug's prices should trigger the FDA to issue public
announcements seeking other generic manufacturers of the product and
that those responding to such a request should receive expedited
reviews of their manufacturing processes and bioequivalence data.\5\
Generic drug user fees could be waived in these circumstances to
further reduce barriers to entry for potential competitors.\5\
Ultimately, policymakers might be forced to apply a lesson from the
childhood vaccine field, in which production of needed vaccines
occasionally became threatened in part because manufacturers were not
assured of enough profit to continue. The Federal Government intervened
with guaranteed volume purchases,\15\ which made companies' investments
in producing these vital products more economically attractive. Since
the government is currently the largest single payor of drug bills in
the country, we may need to consider a system that would come into play
if a vital generic drug comes to be produced by only 2 or 3
manufacturers, or its price begins to rise uncontrollably. At that
point, the government, perhaps through the Veterans Administration,
Medicare, or Department of Defense, could issue a commitment to
purchase a fixed amount of this drug at a more reasonable cost over a
certain period of time, to encourage restoration of a more competitive
marketplace for that product.
The Federal Trade Commission also should play an important role in
intervening in the generic drug market to ensure that price changes do
not stem from anticompetitive behavior. The FTC clearly has interest in
this area, but needs greater resources to help it enforce the
maintenance of competitive markets in the generic drug industry on
behalf of both suppliers and purchasers of multisource drugs. The FTC's
work would be aided by greater transparency that might alert it to the
possibility of inappropriate behavior.
Interventions can also come at the government payor level. It is
worth noting that Medicare currently negotiates or sets prices for
basically every health care service it pays for--physician time,
radiology services, laboratory services, hospital stays--but it is
forbidden from negotiating the prices of prescription drugs. A clause
in the statute creating the government's $80 billion per year Medicare
Part D program, for example, explicitly states that the Secretary of
HHS cannot interfere with the negotiations of drug prices or institute
a price structure. If this non-interference provision was waived for
multisource drugs, then the Centers for Medicare and Medicaid would be
in a better position to combat exorbitant increases in drug prices.
Such a change would require congressional action.
Finally, over the long-term, reforms to the patent and drug market
exclusivity system may be warranted to help prevent older drugs from
soaring in price. Under current interpretation of basic patentability
requirements, such as novelty and non-obviousness, there is a
relatively low bar to obtaining new patents on peripheral aspects of
old, unpatented drug products, such as the business method patent at
issue in the thalidomide case. While true research or business
innovations deserve patents, it may be worth clarifying the legal
standards for issuing patents in the pharmaceutical market so that
minor changes in an older drug's formulation or other limited
alterations do not lead to new market exclusivity protections.
Similarly, in the future, the FDA should be wary when its actions lead
to new market exclusivity protection for old and inexpensive products,
knowing that extremely high prices will inevitably result, so that the
colchicine case is not repeated.
In conclusion, I want to thank this subcommittee for its attention
to the very important issue of high generic drug prices, which are
affecting more patients with each passing year. Without timely
intervention from legislators and other government policymakers, this
issue threatens to grow worse, impacting countless lives. As I was
preparing for this hearing, I was chatting with a physician colleague
of mine who told me about a call he received from a market research
firm asking questions on behalf of a manufacturer of a decades-old drug
that currently sells for $70 for an entire course of therapy but faces
little competition in the market at present. After the standard
questions about his perceptions of the drug's clinical utility and side
effects, the final question posed to my colleague was: ``Would you
still prescribe this drug if the price was $10,000?'' As a health care
system and as a nation, we need to keep that question off the table for
generic drugs.
references
1. Davit BM, Nwakama PE, Buehler GJ, Conner DP, Haidar SH, Patel
DT, Yang Y, Yu LX, Woodcock J. Comparing generic and innovator drugs: a
review of 12 years of bioequivalence data from the United States Food
and Drug Administration. Ann Pharmacother. 2009;43(10):1583-97.
2. Kesselheim AS, Misono AS, Lee JL, Stedman MR, Brookhart MA,
Choudhry NK, Shrank WH. Clinical equivalence of generic and brand-name
drugs used in cardiovascular disease: a systematic review and meta-
analysis. JAMA 2008;300(21):2514-26.
3. Government Accountability Office. Drug pricing: research on
savings from generic drug use. http://www.gao.gov/assets/590/
588064.pdf.
4. Gagne JJ, Choudhry NK, Kesselheim AS, Polinski JM, Hutchins D,
Matlin OS, Brennan TA, Avorn J, Shrank WH. Comparative effectiveness of
generic and brand-name statins on patient outcomes: a cohort study. Ann
Intern Med. 2014;161(6):400-7.
5. Alpern JD, Stauffer WB, Kesselheim AS. High-cost generic drugs:
implications for patients and policymakers. New England Journal of
Medicine 2014;371(20):1859-62.
6. Food and Drug Administration. Generic competition and drug
prices. March 1, 2010. Available at: http://www.fda.gov/AboutFDA/
CentersOffices/OfficeofMedicalProductsandTobacco/CDER/ucm129385.htm.
7. Federal Trade Commission. Analysis of agreement containing
consent orders to aid public comment, In the matter of Novartis AG,
File No. 121-0144. July 2012. Available at: http://www.ftc.gov/sites/
default/files/documents/cases/2012/07/120716
novartisanal.pdf.
8. Pollack A. Questcor finds profits, at $28,000 per vial. NY
Times. December 29, 2012.
9. Pollack A. Questcor pays $135 million to acquire rights to a
competitor's drug. NY Times. June 14, 2013.
10. Ornstein C. The obscure drug with a growing Medicare tab.
ProPublica. Aug 4 2014. Available at: http://www.propublica.org/
article/the-obscure-drug-with-a-growing-Medicare-tab.
11. Sarpatwari A, Avorn J, Kesselheim AS. Using a drug-safety tool
to prevent competition. New England Journal of Medicine 2014;370:1476-
78.
12. Kesselheim AS and Solomon DH. Incentives for drug development:
the curious case of colchicine. New England Journal of Medicine
2010;362(22):2045-47
13. Armstrong J. Unintended consequences--the cost of preventing
preterm births after FDA approval of a branded version of 17OHP. New
England Journal of Medicine 2011;364:1689-91.
14. Food and Drug Administration. FDA statement on Makena. March
30, 2011. Available at: http://www.fda.gov/NewsEvents/Newsroom/
PressAnnouncements/ucm249025.htm.
15. Hinman AR, Orenstein WA, Rodewald L. Financing immunizations in
the United States. Clin Infect Dis 2004;38:1440-47.
Senator Sanders. Thank you very much, Dr. Kesselheim.
Let me begin by making this point, then asking a question.
According to Medicare and Medicaid data, between July 2013 and
July 2014, half of all generic drugs went up in price. During
this time period, nearly 10 percent of all generic drugs more
than doubled in price. And that's some 1,200 drugs, not a
handful of drugs. And, in fact, some of these drugs went up by
500-600 percent. So, the concern here is not whatever the
explanation may be for a small number of drugs--maybe low-
volume drugs usually escalating in price, it is a concern that
thousands of drugs may go up. Should we be worried about that?
And what do we do about it?
Dr. Schondelmeyer, why don't you start.
Mr. Schondelmeyer. Absolutely we should be worried. That
data you presented reflects my own experience. I work at the
University of Minnesota, and help manage our drug benefit. And,
just on Monday, we were reviewing the top prescribed drugs in
our plan, and most of those are generics. And, of the generics,
three-fourths of those generics on our top-prescribed list went
up in price. They were on the list of drugs that have had
extraordinary high price increases.
Senator Sanders. Significant increases in prices?
Mr. Schondelmeyer. Yes, sir. These aren't just isolated the
low-volume drug that drug companies think they can slip by and
it won't affect the market that much, people won't worry about
them.
Senator Sanders. You think that consumers all over this
country should be worrying about this trend.
Mr. Schondelmeyer. Absolutely. And the data base we looked
at in the AARP study includes data nationwide for both
commercial payers and Medicare and Medicaid.
Senator Sanders. OK.
Let me go to Mr. Frankil.
Mr. Frankil. Yes, I agree, we should all be concerned about
this.
Initially, consumers don't feel the price right away.
Oftentimes, there's a copay, and maybe not until you get into
your coverage gap or your donut hole do you feel the
difference. There's a delayed reaction by the public. The
public does feel it eventually. I'm surprised that some of the
payers haven't stepped up a little sooner--private payers and
public payers--because they've eventually got to pay the bills.
I also want to mention, as Dr. Schondelmeyer said, that
some of these drugs that are dramatically going up in price are
not low-volume drugs. There's quite a few very high-volume
drugs. Pravastatin is a top-20 drug. Levothyroxine, which has
nearly doubled in price in the past 6 to 9 months, is a top-5
drug. These are high-volume drugs affecting the majority of
America, and we should be concerned. I don't know what agency
it is, but there should be an agency in the Federal Government
that watches over this and has the power to do something about
it, and also monitors the PBMs and the insurance companies to
pay pharmacies appropriately. We shouldn't be put in a position
to lose money.
Senator Sanders. OK.
Ms. Riha, you are not a pharmaceutical expert, you're just
an ordinary human being----
Ms. Riha. Right.
Senator Sanders [continuing]. Struggling economically. What
do these price increases mean to you and, I think, for millions
of other folks?
Ms. Riha. As I said, I charge these on my credit card, so
eventually it will have to be paid off. But, there are millions
of Americans who don't have the wherewithal to do that, so
they're having to make the real choices every week. Do I pay my
prescription or do I let it go? Do I pay for food this week? Do
I pay for gasoline? I don't have Medicare coverage or Medicaid
at this point, because I'm too young, but my health insurance--
and it's Obamacare, thank you very much, and I'm very pleased
with it----
Senator Sanders. Yell that to Senator Burr.
Ms. Riha. Senator Burr, I really love my Obamacare.
[Laughter.]
Senator Burr. Listen, I'm on it, too. I don't share the
cost increase quite as much as you do, but the coverage is
good.
Senator Sanders. All right, no speeches. I gave you a
shout-out here, and you gave me a speech.
[Laughter.]
Ms. Riha. There is some health insurance coverage of many
of these medications, but it doesn't cover the whole cost. And,
as costs go up, people can't pay the additional cost that's not
covered by insurance.
Senator Sanders. OK.
I wanted to ask Dr. Gottlieb--you mentioned low-volume
drugs, but Mr. Frankil and Dr. Schondelmeyer said that it's not
just low-volume drugs. Your response to that?
Dr. Gottlieb. It's a diverse list. A lot of it is low-
volume drugs. And there's examples where there are high-volume
drugs. If we want to get an accurate picture of what's
happening in the market overall, you need to adjust the prices
and the price increases based on script volume.
The other thing is, the list also includes parenteral
drugs, and they've faced a whole other set of regulatory
issues, some very specific issues addressing those. I think to
really get at the root cause, we need to carve up the list a
little bit more finely, because there's very discrete issues
with certain categories of drugs.
Senator Sanders. OK.
Dr. Kesselheim.
Dr. Kesselheim. I think these regulatory issues have been
around for a really long time, and this is a new issue. I can't
see how this is a regulatory problem. I think that we all want
high-quality, safe drugs, and we want the FDA to be monitoring
the safety of our drug supply. And it's been doing that, and
it's continuing to do that. I see this as a market failure, and
a bunch of individual market failures, in some cases. As Dr.
Gottlieb said, I think that there are a diversity of reasons
why these kinds of price jumps happen. We need to look into
quantifying exactly what those are, and then take steps to
specifically address those failures.
Senator Sanders. OK, thank you.
Senator Burr.
Senator Burr. Thank you, Mr. Chairman.
Ms. Riha, since you raised the question, and just so you
know it, my coverage is about the same, from the standpoint of
what it covers. My premium went up $100 a month, and I have a
$3,000 deductible, where I had zero before. My experience with
the coverage has been a fantastic cost increase to me.
Unfortunately, I don't have a hearing in Congress to hear my
complaint.
But, I'm glad you're here. I understand your problem. And,
as a Member of Congress, I'd love to see the problem fixed. I'm
just not sure that it's in the power of us, as legislators.
I want to go to Dr. Kesselheim, because you raised some
really great ideas. If you have a regulatory system that's
responsive to it, you'd have an FDA--and I just go to your
points, and if I missed one of them, let me know--the FDA
should fast-track applications that create competition. We know
an application is now 36 months versus 31 months. Before, we
didn't have user fees. Now we've got user fees, and the
application process has slowed down. You said, ``Waive the user
fees.'' If user fees are what is keeping manufacturers from
putting applications in, and they want to create a generic
competitor that would help to bring costs down, let's waive the
user fees for the company. If I missed another one, I'm sorry.
But, if you were FDA director today, would you be proposing
those actions by the FDA with what we see, as part of the
solution?
Dr. Kesselheim. I think both are reasonable responses to
try to address individual market failures in particular drugs.
Currently, there is a queue for review of new generic drug
applications. If we're seeing prices rise by 500 percent, 1,000
percent, because the market has contracted and we need more
entrants into the market, it makes sense to me that there are
going to be actual patients who are going to be affected by
this who are going to stop taking their medications and have
changes in their healthcare because of it. The FDA should be
nimble enough to respond to that by fast-tracking the
applications to try to respond to that. And if a barrier to
entry might be the payment of a user fee, then, in this
particular field, as we're trying to attract more competitors
to it, waiving the user fee in that particular instance might
be worth it. I think that Congress could step in and increase
the funding to the FDA to make up for any lack of user fees
that comes out because of it.
And I think that the third part of that was that government
payers could also step in to try to establish a more
predictable market by putting out bids for certain amounts of
the drug at a certain reasonable price so that when
manufacturers are coming into the market, they can know that
they have a guaranteed purchaser that'll be there and it's not
just going to all disappear in 3 to 6 months.
Senator Burr. Let me go to Dr. Gottlieb, if I can, for the
two points that you raised which were FDA-centric.
With your experience at the FDA, does the FDA have the
authority to pick and choose what they fast-track and/or choose
to waive user fees under the agreements with the manufacturers?
Dr. Gottlieb. Not to waive user fees right now. The FDA has
limited authority to change the prioritization of how they
review applications. A lot of the existing regulations were put
into place following the generic drug scandals in the 1980s, if
some of us remember that, where FDA pulled back from doing
anything to prioritize how they reviewed applications, other
than first-in/first-out. We did, when I was there, promulgate a
policy to prioritize first-in-class generics. FDA could
promulgate policies to do more prioritization--they do some
right now--of generics, where it's a critical need, where
there's access problems, concerns around limited access because
there's one manufacturer in the market, and there's no
therapeutic substitution of a product.
There are things that the FDA could do along the lines of
what Aaron suggested. I wouldn't prioritize based on price. I
think that would be moving the process in the wrong direction.
Senator Burr. Dr. Gottlieb, would we find agreement between
the three of us if I said the FDA is not nimble and it's not
flexible?
Dr. Gottlieb. I think the FDA would not be as nimble under
its current regulations to do what he's suggesting. They
probably have more authority than they're exercising to
prioritize based on access issues.
Senator Burr. OK.
Let me ask one last question, if I can. If the FDA were to
finalize the generic drug labeling rule, what effect do you
believe that would have on generic drug pricing? I'm not
speaking to the specifics that we've used as examples, but the
overall generic drug pricing.
Dr. Gottlieb. This is another concern that's raising the
cost of goods in the industry overall, is that the industry is
now going to be exposed to the same kind of product liability
for alleged failure to warn cases that plagued the Brandon
industry. And we see how much litigation costs are on the
Brandon side. The generics are ostensibly going to be exposed
to those same costs. It's going to get baked into the price of
the drugs.
Senator Burr. Thank you, Mr. Chairman.
Senator Sanders. Thank you, Senator Burr.
Senator Warren.
Statement of Senator Warren
Senator Warren. Thank you, Mr. Chairman.
And thank you all for being here today.
Dr. Gottlieb, in your testimony you say, among other
things, that increasing FDA oversight of generic manufacturers
is playing a role in increasing the costs of generic drugs. And
you made a similar argument, back in 2011, when you testified
before the Senate Finance Committee and cited increases in FDA
oversight as a factor contributing to drug shortages. So, I'd
like to examine that claim about the FDA's ``tighter scrutiny''
a little bit more closely.
One way that regulatory opponents often track FDA oversight
is by looking at the number of warning letters that the agency
sends out. And these letters basically tell a company to stop
breaking the law, or face the consequences from that. And there
has been a significant increase in FDA warning letters in the
past 2 years, from about 2,000 in 2011 to nearly 7,000 in 2013.
That's almost a 400-percent increase. And it would certainly be
noteworthy if those letters went to drug manufacturers. Do you
know how many of them did, Dr. Gottlieb?
Dr. Gottlieb. The warning letters went to drug
manufacturers----
Senator Warren. Yes.
Dr. Gottlieb [continuing]. For manufacturing violations?
Senator Warren. Well, no--went to drug manufacturers.
Dr. Gottlieb. I would suspect a significant portion of
those letters went to drug manufacturers.
Senator Warren. Actually, my staff checked with the FDA
this week, and it turns out that almost none of those letters
went to drug manufacturers. Most of them were about tobacco
regulations. In fact, in 2013 only 11 of the nearly 7,000 FDA
warning letters were about generic drug manufacturing problems,
and that was down from a grand total of 20 such letters in
2011.
Your testimony states that pharmacies paid about 40 percent
more for generics last quarter than they did the previous
quarter. So, I just want to focus on this part of it. Do you
think it's reasonable to argue that such an increase, a 40-
percent price increase, resulted, even in part, from the FDA
issuing 11 manufacturing warning letters last year?
Dr. Gottlieb. It's hard to analyze that in the abstract,
and I'm not sure that we're talking just about warning letters
or untitled letters. But, you know, it is the case that, when
you look at things like the parenteral drugs, which is what the
2011 testimony was about, I believe, fully 25 percent of the
manufacturing capacity for 20---for parenteral drugs has been
taken out of the market. And that's led to, not only price
increases, because you don't have----
Senator Warren. OK, but I'm----
Dr. Gottlieb [continuing]. As many manufacturers, but
shifting----
Senator Warren [continuing]. I'm trying to focus----
Dr. Gottlieb [continuing]. The compounding--OK, sorry.
Senator Warren. I'm trying to focus on this question about
the letters, because this is often one of the ways that those
who oppose the regulations focus in. And I get it that there
are a lot of other things going on, including other forms of
regulation. But, I've actually taken a look at those, as well,
and the FDA, last year, issued a grand total of five
injunctions against drug companies and one seizure of product.
That's fewer overall concerns. That's 11 warning letters, five
injunctions, and one seizure, compared with a 40-percent price
spike just this year. And so, the question is, Is it reasonable
to try to tie those specifically together--we're talking about
enhanced FDA enforcement--or not?
Dr. Gottlieb. Right. Well, I wouldn't tie warning letters
to the points I was making. I would look more at the 483
findings, if you want to look at the FDA's oversight in
manufacturing, and I would look at what's happened to overall
manufacturing capacity or of it's a result of FDA inspections.
I think that would correlate with competitiveness in the market
if you were trying to find proxies for what was happening----
Senator Warren. But, as I understand it, the forms you're
talking about are down, as well, and we're seeing prices go up.
So, I'm----
Dr. Gottlieb. When FDA does inspections, 483s are issued.
You're saying inspections are down? Inspections----
Senator Warren. Well, I'll tell----
Dr. Gottlieb [continuing]. Are probably up.
Senator Warren [continuing]. We'll talk about inspections
in just a minute. I wanted to stay focused on this part.
I understand that individual enforcement actions may
temporarily affect the price or availability of a particular
drug, but data demonstrating decreasing enforcement over
manufacturers does not justify a price spike of 40 percent. The
numbers just don't line up between the prices and regulatory
enforcement.
Let's go to the inspections for just a minute, since you've
raised that. You also suggest that if there is no imminent risk
from a manufacturing violation, then manufacturing facilities
should be allowed to continue to produce medications, Dr.
Gottlieb. I want to think about what that would mean.
The FDA has noted that roughly 40 percent of the generic
drugs in the United States are now manufactured in India. In
2012, Ranbaxy, a major Indian manufacturer, pled guilty to
seven Federal criminal counts of selling adulterated drugs. And
that same year, they recalled nearly half a million bottles of
generic Lipitor that could have contained tiny glass particles.
In 2013, the FDA imposed an import ban on another Indian
manufacturer named Wockhardt after inspectors found urine
spilling over open drains a few feet from sterile manufacturing
areas and found mold growing in a storage area containing raw
drug materials.
Do you expect us to believe that, after 30 years of
successful cost and quality control in the generic drug market,
that the American public now has to choose between drugs that
are much more expensive and drugs that come from dirty
facilities, possibly contaminated with mold, urine, or glass?
Dr. Gottlieb. Certainly not. What I actually said was that,
rather than issue a public 483, which forces manufacturers
typically to close facilities because of liability risks that
they would face, what we could do in cases where there's not an
imminent risk is allow them to remediate those facilities under
close FDA supervision. And that's exactly what's been done in a
case, for example, under Team Biologics, with vaccine
manufacturers. Now, certainly urine on the floor of a plant
would qualify as something you might want to close the plant
for if you're under close FDA supervision.
Senator Warren. All right. I'm sure there are ways that we
could streamline our oversight of drug manufacturers. But,
let's be clear, India is producing 40 percent of our generic
drugs, and the FDA's supposedly burdensome oversight team in
that entire country consists of 10 full-time employees. That's
10 people to watch over the production of billions of doses of
medicine to make sure that they aren't laced with broken glass
or splashed with urine.
I'm sure that some generic drug manufacturers would like to
blame their price increases on the FDA and its 10 full-time
employees in India, but I think we need a deeper investigation
into the price hikes. Frankly, I think we need more support for
those FDA inspectors who are trying to keep our drugs safe.
Thank you, Mr. Chairman.
Senator Sanders. With that, there are some votes on the
floor right now.
Senator Burr. Mr. Chairman?
Senator Sanders. Yes.
Senator Burr. Could I ask unanimous consent that my opening
statement be included, as prepared?
Senator Sanders. Of course.
Senator Burr. Thank you.
Senator Sanders. Let me thank all of the panelists for
their participation in this discussion of an enormously
important issue. Thank you all very much.
The hearing is ended.
[Additional material follows.]
ADDITIONAL MATERIAL
Prepared Statement of Senator Burr
While I share the concerns regarding the importance of
Americans being able to access affordable health care, I am
also concerned that today's hearing not interfere with the
reported Federal investigation into generic drug prices. It is
my hope that today's hearing will be conducted in a manner
befitting of the Senate and this committee.
Over the past few years, a lot of promises about affordable
health care were made, and a lot of promises have been broken.
When a patient is sick and needs a prescription drug, they are
understandably most concerned about whether that drug is
available and if they can afford it. As we examine the reasons
behind why some generic drugs have experienced price
fluctuations, I hope that the committee does not lose sight of
the important role prescription drugs play in delivering
quality care to patients in need of these therapies. These
life-saving products not only help many Americans to meet their
health care needs, but also improve patients' quality of life.
While we may hear about a few specific drugs and
circumstances, it is important to remember that there are over
13,000 approved generic drugs in the United States. Generic
drugs play a valuable role in helping patients' access
affordable medicines. The IMS Institute for Healthcare
Informatics found that generics saved U.S. consumers nearly
$1.5 trillion over the past decade. In recent years the share
of prescriptions filled with generic drugs has increased,
lowering health care costs not just for patients, but taxpayers
as well. According to the Congressional Budget Office, between
2007 and 2010 the share or prescriptions filled with generic
drugs increased from 63 percent to 73 percent in Medicare Part
D, and this has contributed to this program's success story.
This is further affirmation that when it comes to health care
choice and competition are essential. Consumers know how to
leverage these forces to make the market respond to their
health care needs.
Let's take a look at today's generic drug landscape. Since
2012, the Food and Drug Administration has been implementing
the first Generic Drug User Fee Agreement. Since this agreement
was intended to accelerate the delivery of high-quality, lower-
cost generic drugs, it's worth asking if it has accomplished
that goal. In 2011, the median time for generic approvals was
about 31 months. Two years and hundreds of millions of dollars
in generic user fees later, it is now taking longer for generic
drugs to be approved by the FDA--36 months and counting.
While FDA has taken some initial actions to address the
significant backlog of generic drug applications, the fact
remains that thousands of generic drug products await review by
the Agency. In fact, there are more generic drug applications
awaiting review by the FDA today than before the generic drug
user fee agreement was put in place. In other words, the
regulatory burden has gone up without realizing the full
potential benefit of new generic drugs entering the market to
help lower costs through increased choice and competition.
The FDA has also proposed a generic drug labeling rule that
undermines the core tenet of ``sameness'' under the Hatch-
Waxman Act. This rule will increase the costs of generic drugs
and lead to increased costs for patients. Obamacare's
prescription drug tax is being passed onto patients, not only
raising prescription drug prices, but also increasing premiums.
Instead of cherry picking a handful of examples, we need to
look at what the full picture tells us. Drug shortages remain a
concern. Taxes, fees and regulatory burden are driving up the
costs of doing business. When the costs of doing business go
up, the market responds and adjusts.
We have thousands of generic drug applications awaiting FDA
review. Ultimately, many factors, including the policies
enacted by Congress and this Administration's actions, are
impacting the availability of, access to, and the price of
these life-saving products.
The first rule of medicine is to do no harm. If we are
going to point a finger at why health care costs are increasing
we should start by pointing it at ourselves--the Federal
Government--and asking if the policies that are being
implemented are helping or hurting. When it comes to the health
care law and FDA's actions and inactions, we already know the
answer.
So, Mr. Chairman, by all means let's hold a hearing on drug
pricing. But we are not doing right by the American people if
that's all we look at, and then proceed to ignore the fees
imposed, bureaucracies created, hurdles erected, regulations
unleashed, and other roadblocks constructed by this Congress
and the Federal Government more broadly.
I look forward to hearing from our witnesses here today and
engaging in a constructive dialog.
Prepared Statement of Senator Mikulski
Thank you, Senator Sanders for convening this important
hearing about skyrocketing prices of generic drugs. This is an
issue hurting patients nationwide. I've already heard from
Marylanders who are seeing their drug prices increase
dramatically and unexpectedly. We must do something about it.
Just last week, I received a letter from my constituent,
Rosanne, a Medicare beneficiary from Silver Spring, MD. She has
been taking ursodiol for several years. This is a generic drug
used to treat an autoimmune disease. In June, a 3-month supply
cost Roseanne $159 and in September, the same prescription cost
her $1,659. This drug is her lifeline. She must pay the 1,000
percent increase to stay healthy and live a normal life, but
it's not easy on her checkbook. And many others are simply
unable to afford these price increases.
Generic drugs are supposed to provide people an affordable
alternative, but for many Marylanders and for so many patients,
that is no longer the case. These increases are just one more
squeeze on middle class families that are already working so
hard to make ends meet. They are one more squeeze on seniors
like Roseanne who have fixed incomes. The American people
cannot afford to lose access to lifesaving medications, but
they also cannot afford astronomical, unexpected, and sudden
new costs to their weekly and monthly budgets.
I've also heard from Maryland hospitals who are struggling.
Johns Hopkins University faces $3.75 million in unplanned
generic drug costs this year and the University of Maryland
Medical Center estimates $1 million in unplanned costs. How can
we expect our hospitals to budget properly if they are hit over
and over and over with unexpected and inexplicable new drug
costs that they have absolutely no way to plan for?
I want to thank Senator Sanders again for convening this
hearing on an issue that is negatively impacting Marylanders. I
also want to thank Representative Cummings for testifying
before the committee today and for his work to investigate this
issue on behalf of Maryland patients and Maryland families who
are already struggling to pay the bills.
I look forward to working with my colleagues on the HELP
Committee and with Representative Cummings, so that we can
better understand why these prices are skyrocketing and so we
can do something about it to stop these price increases.
[Whereupon, at 2:15 p.m., the hearing was adjourned.]
[all]