[Senate Hearing 115-355]
[From the U.S. Government Publishing Office]
. S. Hrg. 115-355
THE COST OF PRESCRIPTION DRUGS: HOW THE
DRUG DELIVERY SYSTEM AFFECTS WHAT PATIENTS PAY
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HEARING
OF THE
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
ON
THE COST OF PRESCRIPTION DRUGS: FOCUSING ON HOW THE DRUG DELIVERY
SYSTEM AFFECTS WHAT PATIENTS PAY
__________
JUNE 13, 2017
__________
Printed for the use of the Committee on Health, Education, Labor, and Pensions
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Available via the World Wide Web: http://www.gpo.gov/fdsys/
U.S. GOVERNMENT PUBLISHING OFFICE
25-920 PDF WASHINGTON : 2018
COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
LAMAR ALEXANDER, Tennessee, Chairman
MICHAEL B. ENZI, Wyoming PATTY MURRAY, Washington
RICHARD BURR, North Carolina BERNARD SANDERS (I), Vermont
JOHNNY ISAKSON, Georgia ROBERT P. CASEY, JR., Pennsylvania
RAND PAUL, Kentucky AL FRANKEN, Minnesota
SUSAN M. COLLINS, Maine MICHAEL F. BENNET, Colorado
BILL CASSIDY, M.D., Louisiana SHELDON WHITEHOUSE, Rhode Island
TODD YOUNG, Indiana TAMMY BALDWIN, Wisconsin
ORRIN G. HATCH, Utah CHRISTOPHER S. MURPHY, Connecticut
PAT ROBERTS, Kansas ELIZABETH WARREN, Massachusetts
LISA MURKOWSKI, Alaska TIM KAINE, Virginia
TIM SCOTT, South Carolina MAGGIE HASSAN, New Hampshire
David P. Cleary, Republican Staff Director
Lindsey Ward Seidman, Republican Deputy Staff Director
Evan Schatz, Minority Staff Director
John Righter, Minority Deputy Staff Director
(ii)
C O N T E N T S
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STATEMENTS
TUESDAY, JUNE 13, 2017
Page
Committee Members
Alexander, Hon. Lamar, Chairman, Committee on Health, Education,
Labor, and Pensions, opening statement......................... 1
Murray, Hon. Patty, a U.S. Senator from the State of Washington,
opening statement.............................................. 3
Cassidy, Hon. Bill, a U.S. Senator from the State of Louisana.... 40
Casey, Hon. Robert P., Jr., a U.S. Senator from the State of
Pennsylvania................................................... 43
Young, Hon. Todd, a U.S. Senator from the State of Indiana....... 44
Franken, Hon. Al, a U.S. Senator from the State of Minnesota..... 46
Collins, Hon. Susan M., a U.S. Senator from the State of Maine... 48
Bennet, Hon. Michael F., a U.S. Senator from the State of
Colorado....................................................... 50
Murkowski, Hon. Lisa, a U.S. Senator from the State of Alaska.... 52
Baldwin, Hon. Tammy, a U.S. Senator from the State of Wisconsin.. 55
Warren, Hon. Elizabeth, a U.S. Senator from the State of
Massachusetts.................................................. 56
Hassan, Hon. Maggie, a U.S. Senator from the State of New
Hampshire...................................................... 58
Murphy, Hon. Christopher, a U.S. Senator from the State of
Connecticut.................................................... 60
Sanders, Hon. Bernard, a U.S. Senator from the State of Vermont.. 61
Whitehouse, Hon. Sheldon, a U.S. Senator from the State of Rhode
Island......................................................... 62
Witnesses
Mendelson, Dan, President, Avalere Health, Washington, DC........ 6
Prepared statement........................................... 8
Coukell, Allan, Senior Director, Health Programs, The Pew
Charitable Trusts, Washington, DC.............................. 16
Prepared statement........................................... 18
Howard, Paul, Ph.D., Director and Senior Fellow, Health Policy,
Manhattan Institute, New York, NY.............................. 22
Prepared statement........................................... 24
Anderson, Gerard, Ph.D., Professor of Medicine, Johns Hopkins
University School of Medicine, Baltimore, MD................... 28
Prepared statement........................................... 29
ADDITIONAL MATERIAL
Statements, articles, publications, letters, etc.
John Rother, Executive Director, The Campaign for Sustainable
Rx Pricing (CSRxP)......................................... 67
Lobbying Registration Form Submitted by Senator Franken...... 73
Response to questions of Senator Alexander by:
Dan Mendelson............................................ 76
Allan Coukell............................................ 77
Paul Howard.............................................. 80
Gerard Anderson.......................................... 82
(III)
Response by Dan Mendelson to questions of Senator Isakson.... 83
Response to questions of Senator Sanders by:
Dan Mendelson............................................ 83
Paul Howard.............................................. 83
Gerard Anderson.......................................... 85
THE COST OF PRESCRIPTION DRUGS: HOW THE DRUG DELIVERY SYSTEM AFFECTS
WHAT PATIENTS PAY
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TUESDAY, JUNE 13, 2017,
U.S. Senate,
Committee on Health, Education, Labor, and Pensions,
Washington, DC
The committee met, pursuant to notice, at 10:07 a.m. in
room SD-430, Dirksen Senate Office Building, Hon. Lamar
Alexander, chairman of the committee, presiding.
Present: Senators Alexander, Collins, Cassidy, Young,
Murkowski, Scott, Murray, Sanders, Casey, Franken, Bennet,
Whitehouse, Baldwin, Murphy, Warren, Kaine, and Hassan.
Opening Statement of Senator Alexander
The Chairman. Good morning.
The Senate Committee on Health, Education, Labor, and
Pensions will please come to order.
Today's hearing is about how Americans pay for prescription
drugs and where that money goes. This is a bipartisan hearing,
which means Senator Murray and I have agreed on the topic, and
we have agreed on the witnesses.
Senator Murray and I will each have an opening statement,
and then we will introduce the witnesses. We hope you will
summarize your remarks in about 5 minutes each, which will
leave Senators time to engage in a conversation with you.
Senators will have about 5 minutes of questions as we go
around.
The committee is having this hearing in response to a
bipartisan request from a number of members of the committee.
That request was led by Senator Cassidy and Senator Franken,
but it included Senators Collins, Baldwin, Murkowski,
Whitehouse, Capito, Sanders, Enzi, and Warren. All suggested we
should have this hearing.
This will be the first of three hearings we plan to hold on
prescription drug costs. The purpose of this first hearing is
to see if we can better understand a complex subject and agree
on some basic facts. Americans want to know who pays for
prescription drugs and where that money goes.
Next month, the committee will hold a second hearing to
hear about the process, beginning with the manufacturer's
development of a drug, the different steps through which the
drug travels before arriving in a patient's hands, how this is
paid for, and what the costs are at each step along the way.
In the fall, we will hold a third hearing to hear from Norm
Augustine and consider a report that he is leading from the
National Academy of Sciences. The report is the outcome of a
project called, ``Ensuring Patient Access to Affordable Drug
Therapies.''
The United States leads the world in innovative biomedical
and pharmaceutical research and development, and American
patients benefit from having access to most lifesaving drugs
first.
Our country produces more than 20 percent of the world's
wealth, and it is well known that we spend a large share of
that wealth on our health, a much larger share than many other
advanced countries.
In 2015, according to the Centers for Medicare and Medicaid
Services, healthcare spending totaled nearly 18 percent of our
country's Gross Domestic Product. Prescription drugs were about
10 percent of that spending and closer to 15 percent when you
consider prescription drugs administered in hospitals and
doctors' offices.
At around the same time in 2014, the World Bank showed the
United Kingdom was spending 9.8 percent of its domestic product
on health care, Germany 11.1 percent, and Finland 9.6 percent.
More than 4 billion prescriptions are written for drugs
each year for Americans who then receive these drugs at 60,000
drug stores, from doctors or hospitals, or from online
pharmacies. The total cost to the overall health system of
these prescriptions each year is $450 billion to be paid by
taxpayers, by patients, by hospitals, and insurers, among
others.
Many of these are truly miracle drugs. They cure Hepatitis
C, keep cancer at bay, stop a stroke, and prevent heart
attacks.
According to the Centers for Disease Control and
Prevention, Americans are living on average 10 years longer
than their life expectancy in the 1950s. Access to innovative
drugs is a major reason why.
In 2003, Congress passed the Medicare Part D Prescription
Drug program, which provides drugs to about 41 million
Americans over 65 years of age. The Congressional Budget Office
estimates that prescription drugs from those on Medicare will
cost taxpayers and patients about $94 billion this year.
While safe prescription drugs have become an integral part
of American family lives today, all of this is relativity new.
In 1906, Congress passed the Federal Food and Drug Act,
which added regulatory responsibilities to the Food and Drug
Administration's scientific mission by prohibiting interstate
commerce in misbranded and adulterated food, drugs, and drinks.
In 1938, this was updated to require a manufacturer to show
that each new drug must be safe before it comes to the market,
starting a new system of drug regulation.
It was only in 1941 that the Food and Drug Administration,
in response to the Insulin Amendment, first began to require
that a drug be tested and certified for purity and potency, the
first being insulin for the treatment of diabetes. During the
next decade and beyond came approval of mass produced
penicillin, other antibiotics, and a broader range of drugs.
Developing and approving a drug today is a lengthy and
costly process. According to the Tufts Center, from the
beginning of the research and development phase through FDA
approval, developing a new drug takes, on average, 10 to 15
years and can cost close to $2.6 billion. Let me say that
again. According to the Tufts Center, from beginning the
research and development phase through FDA approval, developing
a new drug takes, on average, 10 to 15 years and can cost close
to $2.6 billion.
Success is far from guaranteed. Fewer than 12 percent of
drugs that make it to Phase I clinical trials are finally
approved by the FDA.
According to Research!America, the United States spent $159
billion on medical health and medical research and development
in 2015. The National Institutes of Health funded roughly 19
percent of that; 8 percent was funded by universities and
independent research institutes; 5 percent came from other
Federal and State governmental entities; 4 percent from
foundations and professional societies; 15 percent, or $24
billion, was funded by the medical device industry and other
non-biopharma private industry. The largest share of this
research, 49 percent or $78 billion, was funded by the
biopharmaceutical industry.
It is from these investments that we can expect to see the
medical miracles that NIH Director Francis Collins has
predicted will occur during the next decade: Artificial
pancreas for those with diabetes; new cancer cures; a vaccine
for Zika; a vaccine for HIV/AIDS; and a universal flu vaccine;
medicines to identify individuals at risk for Alzheimer's
before symptoms as well as provide effective therapies to slow
or even prevent the disease.
Over the years, this committee in a bipartisan way has
produced important laws to reduce the cost of drugs before they
are approved by the FDA.
For example, last year's 21st Century Cures legislation;
the Hatch-Waxman Act, which created the generic drug industry;
and multiple FDA User Fee Agreements, which have helped fund
the FDA and modernize our drug and device approval process.
Our focus today is different. It is on what happens to the
cost of the drug after it is approved by the FDA. We will
examine the path an approved drug takes from the manufacturer
to patient, and how this affects what the patient pays.
We hope to agree on some basic facts such as whether
prescription drug prices are going up or down, and by how much?
We want to know as prescription drugs move from FDA
approval through a complex process and into the hands of
patients, where does the money go?
What are rebates and what is their impact on consumers?
Who actually pays the cost of prescription drugs?
This is a discussion that affects the well-being of every
American family. It is important that we work together to
conduct this fact finding in a bipartisan way.
Senator Murray.
Opening Statement of Senator Murray
Senator Murray. Well, thank you, Chairman Alexander.
As I have made clear, the burden of prescription drug costs
is a huge problem. I hear about it from far too many families
in my home State and across the country.
I am glad we are having this discussion today. It is
something Democrats on this committee have wanted to do for a
very long time, and I am pleased that we are working on some
additional hearings. I am hopeful this work can lead to some
real bipartisan progress.
I want to express my appreciation, in particular, to
Senator Franken, who has been underscoring the importance of
hearing from actual patients about the struggle they face in
affording the medication they need. Our work on this committee
is strongest when patients' and families' voices are part of
this process. I agree, we should make sure that that happens as
our discussion on this continues.
I also want to note that today's hearing, on a topic
central to families' experience with our healthcare system,
takes place in the midst of a pivotal and deeply concerning
moment for our healthcare system as a whole.
My colleagues on the other side of the aisle appear to be
dead set on jamming their version of Trumpcare through the
Senate in a matter of days. They have held no hearings, engaged
in no public debate, and provided no information for people
across the country to understand what this all-male, Republican
working group has in store for their health and financial
security.
For comparison, during the debate on the Affordable Care
Act, we held 57 bipartisan meetings, hearings, roundtables, and
walkthroughs on the text in this committee alone, and another
53 in the Finance Committee. There were 25 consecutive days of
debate on the Senate floor.
Mr. Chairman, I just have to say this morning, I cannot say
how strongly enough, how unacceptable this is, and I will be
very loud and vocal about this, and continue to push for
hearings and open debate on the Senate version of the Trumpcare
bill.
In fact, given this committee's long track record of
bipartisan successes, I have to say I am really surprised and
disappointed that we are allowing this to happen. I know you
are part of the process that is going on in secret.
I just have to tell you, people deserve public debate about
the future of our healthcare system especially since all Senate
Republicans' promises to the contrary, it unfortunately sounds
like this legislation is based on the very same principles as
the disastrous House Trumpcare bill, including higher costs for
families, especially seniors and people with pre-existing
conditions.
Millions of people will be kicked off Medicaid. Insurance
companies, once again, will be allowed to charge people more
for basic healthcare like maternity care or mental health
services, or as we are talking about today, the expensive, but
essential prescription drugs they need. All to give a massive
tax break to special interests in the health industry and hand
President Trump a hollow political win.
Let us be clear, as many of my democratic colleagues have
said, this is not a healthcare bill. It is an attack on
families, and health, and financial security.
What I really do hope is over the next several weeks as
Republicans hear from many people across the country who would
be devastated by this bill that they choose to change course.
I will say again, Democrats are ready, like we always have
been, to work together on continuing to fix our healthcare
system in ways that make our healthcare system more affordable
while preserving quality of care and getting more people
covered.
We cannot begin that conversation until Republicans reverse
course and stop trying to take our healthcare system backward
with a reckless repeal effort and politically motivated
sabotage that is creating damaging uncertainty in our markets
and driving up our families' costs.
I sincerely hope that this effort is backed off because
there are urgent challenges like the one we are talking about
today that really deserve our attention.
Today's astronomically high prescription drug prices are an
unsustainable burden on our healthcare system as a whole and
especially on the patients and families that we represent. I
have heard from far too many families who are forced to choose
between high-priced medication, paying the bills, or putting
food on the table. That really is no choice at all. So as I
said before, it is well past time for this conversation and for
progress on this issue.
As we discuss the reality of the high prices too many of
our constituents are paying for prescription drugs, I do think
it is important to note that President Trump is wrong to point
the finger at the FDA.
Over two-thirds of new drugs are now launched in the United
States, more than triple the rate in the early 1990s, when the
first user fee programs were enacted. The Agency has reduced
the backlog of generic applications to help get competitive,
cheaper drugs to patients.
I am pleased this committee took steps in the FDA
Reauthorization Act to increase transparency and foster more
competition in the generic market, thanks to the work of
Senators McCaskill, Collins, and Franken.
We should always look for ways to get more safe, effective
treatments to patients as quickly as possible. The FDA approval
process is the wrong place to look if we really want to tackle
high drug prices.
I am proud that a number of Democrats on this committee
have put forward a number of ideas to get at the root of the
problem, which are the high prices set by drug manufacturers.
Democrats have introduced legislation, including bipartisan
legislation, to demand more transparency from pharmaceutical
companies about what is behind the soaring drug prices, allow
Medicare to negotiate fair prices for prescription drugs, and
to prevent manufacturers from engaging in price gouging and
more.
I am grateful to all the members of this committee who have
worked together, and across the aisle, to advance these
polices, which would make a real difference to the patients and
families we serve.
Mr. Chairman, I am glad to hear that today's conversation
on the burden of prescription drug prices will not be the last
on this committee, but there is a lot more we can do and should
do together to tackle this issue.
Again, it is deeply disappointing that instead of working
with Democrats to bring down the price of prescription drugs
for families, and the other challenges that so many people face
in the healthcare system, my Republican colleagues are very
focused on a partisan, political, and damaging effort to enact
Trumpcare within the next few weeks without any public
scrutiny.
I really hope that instead of working to jam Trumpcare
legislation through, according to an independent CBO analysis,
is a direct threat to the lives, and health, and financial
security of millions of people. That you all will reconsider,
reverse course, and work with us on solving problems.
If you do, if you drop your efforts to sabotage the
healthcare system and enact Trumpcare, and if you are ready to
tackle the challenges by bringing down the healthcare costs for
families, we are at the table. We are ready to work and we want
to do that.
Thank you very much, Mr. Chair.
The Chairman. Thank you, Senator Murray.
I will repeat. This is a hearing requested by Democrats as
well as Republicans on drug prices. It is a bipartisan hearing
and it is one in which Senator Murray and I have agreed on the
witnesses.
We welcome the witnesses. I will introduce you now. Each
witness will have up to 5 minutes to give his testimony. We are
going to go from left to right, but let me introduce them this
way.
Dan Mendelson is the first witness we will hear from. He is
the president of Avalere Health, a leading healthcare
consulting firm specializing in strategy, policy, and data
analysis for life sciences, health plans, and providers. Prior
to founding Avalere in 2000, he served as Associate Director
for Health at the White House Office of Management and Budget.
Next, we will hear from Allan Coukell, senior director of
health programs at The Pew Charitable Trusts. The Trusts is an
independent, nongovernmental organization that conducts
analysis to provide useful data on issues and trends in public
policy. Mr. Coukell oversees initiatives at The Pew related to
drug and medical device innovation and safety, the
pharmaceutical supply chain, FDA, specialty drugs, as well as
other efforts related to health costs and delivery.
Third, Dr. Paul Howard is senior fellow and director of
health policy at the Manhattan Institute. Dr. Howard has
written on a wide variety of medical policy issues including
FDA reform, biopharmaceutical innovation, consumer-driven
healthcare, Medicare and Medicaid reform.
Last, we will hear from Dr. Gerard Anderson, professor of
health policy and management at the Johns Hopkins University
Bloomberg School of Public Health and Medicine. Dr. Anderson is
also director of the Johns Hopkins Center for Hospital Finance
and Management. He is currently conducting research on drug
pricing, chronic conditions, comparative insurance systems in
developing countries, medical education, and healthcare payment
reform.
Mr. Mendelson, let us start with you and go down the line.
Welcome.
STATEMENT OF DAN MENDELSON, PRESIDENT, AVALERE HEALTH,
WASHINGTON, DC
Mr. Mendelson. Thank you very much.
Chairman Alexander, Ranking Member Murray, members of the
committee, thank you for the invitation to discuss how the
healthcare delivery system affects what consumers pay for
prescription drugs.
I also want to thank the incredible team at Avalere Health
whose passion to be the essential voice improving healthcare is
being realized today. Of course, my comments are my own and do
not reflect the views of my organization or our parent company,
Inovalon.
My full testimony has plenty of detail about the current
system, including trends in pricing that address a lot of the
initial questions that you asked, Senator Alexander.
I have chosen to focus my comments today on three items--
aspects of the delivery system that are within the purview of
this committee. First, let us focus on benefit design.
In recent years, payers have been under increasing pressure
to meet consumer demand for constrained premium growth.
Deductibles and cost sharing for medications have increased
substantially across both commercial and Government payment
systems.
Growth and exposure to cost by consumers is seen across
traditional employer plans, Government plans, as well as high
deductible plans. Cost sharing for drugs is typically higher on
a percentage basis from that for hospital or other medical
care. It is not uncommon that you will see a patient paying
more for a chronic medication than they would for a surgery,
even though the surgery costs the healthcare system more.
One other thing to consider is that cost sharing is
typically calculated on the basis of the full price of the drug
before accounting for rebates or discounts offered by the
manufacturer. There are some exceptions to this. For example,
CVS Health can adjudicate rebates at the point of sale and give
the consumer a net price.
There is a question, why should an individual with a
chronic illness, who needs a high cost medication, not benefit
from the price concessions given by a pharmaceutical company on
that particular product in the competitive class?
We also need to think carefully about the incentives that
benefit designs give patients. For example, if a patient with
Multiple Sclerosis, rheumatoid arthritis, or anemia has to use
a drug in its class and the only drugs available have a 35
percent co-pay, why should they have to pay that percentage co-
pay even though the only reason that they are doing it is
because they have this particular condition? Why should a
patient have to pay more than the cost of a generic drug for a
generic drug in a design?
These are all questions that, I think, are important.
My second area of focus is competition. Speeding the
approval of second and third branded drugs to market would
dramatically expedite competition and result in price
concessions from manufacturers.
You saw this with the second drug in the Hepatitis C
category when it was approved. The net prices of these products
were reduced dramatically.
A second area, that I know is a strong interest and within
the purview of this committee, is generic pharmaceuticals where
approving generics on an expedited basis in various places does
create dramatic consumer surplus. Then finally, biosimilar
competition and expediting these drugs to market.
All of these are really very important and an important
facet of the delivery system because it is in this competition
that drug prices actually come down over a period of time.
My final area of focus is value-based contracting. We are
in the midst of a very dramatic transformation in healthcare
from pay for volume to pay for value. This is of direct
relevance, I believe, to the cost of pharmaceuticals. We see
this in Medicare Advantage.
For example, Medicare Advantage plans have to do well on
their quality metrics in order to have a viable business. A lot
of these quality metrics are being driven by things like the
prescription of generic cholesterol lowering medications.
In fact, we see many plans actually paying substantial
amounts of money to create programs to get patients to take
these medications. That is the kind of design that, benefits
the program and the kind of design that is important in the
future.
One other aspect that I would like to mention is data.
Using the patient's data to identify gaps in care, doing
analytics on that basis, and then ensuring that the patient
that actually needs the medication is getting what they need,
also has tremendous promise to reduce total health system
costs, and merits the focus of this committee.
There are many regulations right now that actually prevent
manufacturers and health plans from entering into the kinds of
arrangements that can actually reduce cost for consumers, and
they do merit the focus of the committee.
I want to close with one comment about process. Underlying
all of our work is the view that collaboration is absolutely
critical to fashioning good policy. So in the work that we do,
we are always looking for solutions that will be embraced by a
broad array of policies. We are a nonpartisan, nonpolitical
organization and try to focus in that way as well.
I am excited to continue supporting this discussion as it
evolves over the course of the three hearings.
Thank you very much.
[The prepared statement of Mr. Mendelson follows:]
Prepared Statement of Dan Mendelson
summary
The focus of this testimony is how the healthcare delivery system
affects what consumers pay for prescription drugs. Consumer exposure to
drug costs is determined by benefit design, the competitiveness of drug
classes, and approaches to provider payment, among other factors.
Health system change, including outcome-based payment and value-based
contracting, has potential to incent better alignment between consumers
and providers.
benefit design
In recent years, payers have been under increasing pressure to meet
consumer demand for constrained premium growth through changes to
benefit design. Deductibles and cost sharing for medications have
increased substantially across government and commercial payers,
leading many consumers to pay more out-of-pocket for drugs.\1\ For
medications subject to the deductible or coinsurance, consumer cost
sharing is typically calculated on the full cost of the drug before
accounting for rebates or discounts offered by the manufacturer to the
health plan or pharmacy benefit manager. Of course, consumer costs are
also importantly determined by the pricing decisions made by
pharmaceutical companies prior to entry of product into the supply
chain.
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\1\ Avalere Health, ``Consumer Costs Continue to Increase in 2017
Exchanges,'' January 18, 2017, http://avalere.com/expertise/life-
sciences/insights/consumer-costs-continue-to-increase-in-2017-
exchanges.
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market competition
Increased competition in the pharmaceutical markets holds promise
for substantially reducing costs. Speeding the approval of the second-
and third-branded drugs in a therapeutic class would expedite
competition and lead to more rapid price concessions. Ensuring a
continued robust market for generic pharmaceutics is vital for
effective cost management and improvement of population health
outcomes. Finally, there is much promise for consumers in effective
biosimilar competition as patents on key biologics expire.\2\
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\2\ Avalere Health, ``Five Obstacles to Competition in the United
States Biologics Market,'' http://avalere.com/expertise/life-sciences/
insights/five-obstacles-to-competition-in-the-united-states-biologics-
market.
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market driven solutions
As payers strive to link payment to value, healthcare stakeholders
must agree on how to define and measure the value of any given product
or service. Importantly, in addition to reflecting patient perspectives
on what constitutes value, assessments of value should consider not
only cost of the medication but also total cost of care, including
pharmacy and medical spending.
Outcomes-based contracts also represent a significant opportunity
to shift away from prescription drug list pricing toward value-based
reimbursement models. Avalere recently found that 70 percent of health
plans have favorable attitudes toward outcomes-based contracts, and
one-half of health plans indicate they have outcomes-based contracts
already in place or are actively negotiating them.\3\ Existing
regulatory barriers, including standards related to government price
reporting and the Anti-Kickback Statute, presently hamper further
development of this trend.\4\
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\3\ Avalere Health, ``Health Plans are Actively Exploring Outcomes-
Based Contracts,''
May 30, 2017, http://avalere.com/expertise/life-sciences/insights/
health-plans-are-actively-
exploring-outcomes-based-contracts.
\4\ Eli Lilly and Company and Anthem, ``Promoting Value-Based
Contracting Arrangements,''
January 2016. https://lillypad.lilly.com/WP/wp-content/uploads/
LillyAnthemWP2.pdf.
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Health system change is increasingly assigning value to
improvements in population outcomes for common medical conditions, and
many of these outcomes can be effectively achieved through better use
of medication. Further alignment of stakeholder interests around the
use of pharmaceuticals holds promise to benefit consumers as payment
systems evolve toward value-based designs.
______
introduction
The prices that consumers pay for drugs are determined jointly by
health system design, pharmaceutical company pricing, and decisions by
health plans, pharmacy benefit management (PBM) practices, and other
transactions involving distributors and pharmacies along the supply
chain. As the healthcare system moves from volume- to value-based
payments, the incentives underlying many of these market-based pricing
decisions are also changing rapidly. The purpose of this testimony is
to elucidate how these factors ultimately determine the prices paid by
the consumer for drugs.
how net prices to the consumer are determined
The pharmaceutical supply chain is the means through which
prescription medicines are delivered to patients (Figure 1).\5\ Drugs
typically originate in manufacturing sites; are transferred to
wholesale distributors; stocked at retail, mail-order, and other types
of pharmacies; subject to price negotiations and processed through
quality and utilization management screens by PBMs; dispensed by
pharmacies; and ultimately delivered to and taken by patients. There
are many variations on this basic structure, as the players in the
supply chain are constantly evolving, and commercial relationships vary
considerably by geography, type of medication, and other factors. The
pharmaceutical supply system is complex and results in price
variability across different payers and consumers.
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\5\ Avalere Health (formerly The Health Strategies Consultancy),
``Follow the Pill: Understanding the US Commercial Pharmaceutical
Supply Chain,'' Kaiser Family Foundation, March 2005.
Figure 1. Retail, Pharmacy Benefit Product and Reimbursement Flow
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
drug spending trends
Drugs dispensed in the pharmacy and medical benefit account for
approximately 13 percent of total U.S. healthcare costs.\6\ This
frequently cited figure uses total national health expenditures as a
basis for calculating the percentage. Other experts sometimes use a
subset of national health expenditures or total medical claims as the
denominator, which accounts for the range of percentages often cited in
this context. In recent years, new innovations have increased spending
on specialty medications, which now account for $384 of the $895 per
person per year spent on drugs.\7\ These trends particularly impact the
Medicare program, in which the Medicare Trustees project that Part D
spending will grow at an average annual rate of 9.2 percent from 2016-
25.\8\
---------------------------------------------------------------------------
\6\ Centers for Medicare & Medicaid Services, National Health
Expenditure Data. NHE Tables.
December 2016. https://www.cms.gov/Research-Statistics-Data-and-
Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/
NationalHealthAccountsHistorical.html; Altarum Institute Center for
Sustainable Health Spending, ``A Ten Year Projection of the
Prescription Drug Share of National Health Expenditures Including Non-
Retail,'' May 2017 (Addendum II).
\7\ Quintiles IMS Institute. ``Medicines Use and Spending in the
US,'' May 2017.
http://www.imshealth.com/en/thought-leadership/quintilesims-institute/
reports/medicines-use-and-spending-in-the-us-review-of-2016-outlook-to-
2021#form.
\8\ Medicare Trustees. ``2016 Annual Report,'' June 2016. https://
www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-
reports/reportstrustfunds/downloads/tr2016.pdf.
---------------------------------------------------------------------------
Over the past 5 years, list prices for protected pharmacy benefit
drugs have increased 11.5 percent, while net prices have increased 6.1
percent (Figure 2).\9\ The difference is the result of rebates and
other discounts from manufacturers to public and private payers. These
considerable differences between list and net pricing trends show the
power that competition and payer negotiation have on drug prices. As
multiple products for a given indication come to market, plans and PBMs
may negotiate rebates from manufacturers in exchange for preferred
formulary placement and improved access. Typically, payers use these
price concessions to reduce overall premiums, but the rebates are not
shared directly with patients at the point of sale. As a result, most
patients who fill a prescription are paying cost-sharing based on list,
rather than net, price.
---------------------------------------------------------------------------
\9\ Quintiles IMS Institute. ``Medicines Use and Spending in the
US,'' April 2016,
http://www.imshealth.com/en/thought-leadership/quintilesims-institute/
reports/medicines-use-and-spending-in-the-us-a-review-of-2015-and-
outlook-to-2020.
Figure 2. List vs. Net Price Growth, Protected Pharmacy Benefit Drugs,
2011-2015
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
benefit design
Insurance benefit designs increasingly expose consumers to the full
cost of their medicines through percentage co-payments for drugs.
Further, consumer exposure to out-of-pocket costs has increased as
deductibles have grown across benefit programs.
In recent years, payers have been under increasing pressure to meet
consumer demand for constrained premium growth through changes to
benefit design. In particular, the financial crisis accelerated
adoption of high deductible health plans (HDHPs) among employers.\10\
In addition, the patient protections put in place under the Affordable
Care Act (ACA) required payers to focus on benefit design as a way to
offer competitive premiums in an environment where price-sensitive
consumers focus on monthly costs. Consumers are therefore paying more
out-of-pocket for prescription drugs as deductibles increase and use of
coinsurance for drugs becomes more common. Of course, other factors
unrelated to the delivery system effects that are the focus of this
hearing are also responsible for increased payment by consumers--such
as the cost of newly launched products and the increases in list prices
over time referenced in cost sharing.
---------------------------------------------------------------------------
\10\ Bureau of Labor Statistics. ``Consumer-Driven Health Care:
What Is It, and What Does It Mean for Employees and Employers?''
October 2010. https://www.bls.gov/opub/mlr/cwc/consumer-driven-health-
care-what-is-it-and-what-does-it-mean-for-employees-and-employers.pdf.
---------------------------------------------------------------------------
Health plan deductibles have grown steadily over time. Among
individuals with employer coverage, average deductibles increased 49
percent over the last 5 years, rising to $1,478 in 2016.\11\ For
individuals enrolled in coverage through exchanges, 2017 unsubsidized
silver plans had average deductibles of $3,703--a 20 percent increase
from 2016 and a 49 percent increase from 2014 levels.\12\ Importantly,
56 percent of exchange consumers receive cost sharing reduction
subsidies (CSRs), which lower deductibles to between $243 and $3,070 on
average based on consumer income. The American Health Care Act (AHCA)
would repeal the CSRs.\13\
---------------------------------------------------------------------------
\11\ Kaiser-HRET. ``2016 Employer Health Benefits Survey,''
September 2016. http://www.kff
.org/health-costs/press-release/average-annual-workplace-family-health-
premiums-rise-modest-3-to-18142-in-2016-more-workers-enroll-in-high-
deductible-plans-with-savings-option-over-past-two-years/.
\12\ Avalere Health, ``Consumer Costs Continue to Increase in 2017
Exchanges,''
January 18, 2017, http://avalere.com/expertise/life-sciences/insights/
consumer-costs-continue
-to-increase-in-2017-exchanges.
\13\ Avalere Health, ``AHCA Will Remove Low-Cost Sharing Guarantees
for Low-Income
Individuals,'' May 16, 2017. http://avalere.com/expertise/managed-care/
insights/ahca-will-
remove-low-cost-sharing-guarantees-for-low-income-individuals.
Figure 3. Average Combined Deductibles for Exchange Plans by Metal
Level in 2017 Compared to Employer Plans in 2016\14\
---------------------------------------------------------------------------
\14\ Avalere PlanScape, a proprietary analysis of exchange plan
features, December 2016
and Kaiser-HRET, ``2016 Employer Health Benefits Survey.'' Avalere
analyzed data from the FFE Individual Landscape File released October
2016 and the California and New York State exchange websites.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
For drugs dispensed in the deductible, consumers pay the full cost
of the drug based on the price negotiated by the pharmacy or provider.
This price does not reflect rebates or discounts offered by the
manufacturer to the health plan or PBM.\15\ As a result, patients who
choose plans with significant deductibles and also use specialty and
high-cost medications can face large bills for these drugs early in the
calendar year, which may cause them to forego care or prevent them from
complying with prescribed drug regimens. Research shows that high out-
of-pocket costs reduce medication adherence and use.\16\ Indeed, only 9
percent of patients without a deductible abandon prescriptions, while
patients with a deductible abandon medications at a rate of 23 percent
and 27 percent for brand and specialty drugs respectively.\17\
---------------------------------------------------------------------------
\15\ Negotiated price does not reflect rebates or post point-of-
sale price concessions. Discounts knowable at the point of sale are
included in negotiated price.
\16\ Goldman DP, Joyce GF, Zheng Y. Prescription drug cost sharing:
Associations with medication and medical utilization and spending and
health. Jama. 2007;298(1):61-9. Kirkman MS, Rowan-Martin MT, Levin R,
et al. Determinants of adherence to diabetes medications: Findings from
a large pharmacy claims database. Diabetes Care. 2015;38(4):604-9. Li
P, Schwartz JS, Doshi JA. Impact of Cost Sharing on Therapeutic
Substitution: The Story of Statins in 2006. Journal of the American
Heart Association. 2016;5(11).
\17\ Quintiles IMS Institute. ``Medicines Use and Spending in the
US,'' May 2017.
http://www.imshealth.com/en/thought-leadership/quintilesims-institute/
reports/medicines-use
-and-spending-in-the-us-review-of-2016-outlook-to-2021#form.
---------------------------------------------------------------------------
Once consumers spend through the deductible, they continue to pay
cost-sharing as they access products and services. Increasingly for
prescription drugs, this cost sharing takes the form of coinsurance, in
which individuals pay a percentage of the cost of the drug rather than
a fixed dollar copayment. Coinsurance is calculated based on the
negotiated, rather than net, price.
As the number of specialty medications on the market has increased,
so too has the use of specialty drug tiers. In 2016, 43 percent of
employer plans had separate tiers for these products. Among those
plans, 46 percent charge coinsurance averaging 26 percent.\18\ This
trend is more pronounced in the exchange markets where 84 percent of
all 2017 silver plans charge coinsurance for specialty drugs with
average coinsurance amounts of 37 percent of the drug cost (Figure
4).\19\
---------------------------------------------------------------------------
\18\ Kaiser-HRET. ``2016 Employer Health Benefits Survey,''
September 2016. http://www.kff
.org/health-costs/report/2016-employer-health-benefits-survey/.
\19\ Avalere PlanScape, a proprietary analysis of exchange plan
features, December 2016. Avalere analyzed data from the FFE Individual
Landscape File released October 2016 and the California and New York
State exchange websites.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Notably, the ACA implemented a maximum out-of-pocket limit that
caps consumer costs across all healthcare services. This limit offers
important protection for chronically ill individuals against
catastrophic healthcare costs, but does not extend to Medicare
beneficiaries. In addition, as benefits expose consumers to increasing
costs, use of copay assistance has also risen. IMS reports that 19
percent of commercial brand drug claims in 2016 included the use of a
copay coupon to reduce out-of-pocket costs, with significant variation
across therapeutic classes.\20\
---------------------------------------------------------------------------
\20\ Quintiles IMS Institute. ``Medicines Use and Spending in the
US,'' May 2017.
http://www.imshealth.com/en/thought-leadership/quintilesims-institute/
reports/medicines-use
-and-spending-in-the-us-review-of-2016-outlook-to-2021#form.
---------------------------------------------------------------------------
Across all forms of insurance, consumer out-of-pocket burden is not
evenly distributed among covered benefits. Outpatient prescription
drugs are covered at lower percentage rates than some other services.
One study, using data from 2014, showed that for all drugs covered by
insurance in the United States, consumers paid 13 percent of every
dollar compared to 3 percent for hospital stays, 7 percent for
emergency care, and 14 percent for physician office visits.\21\ These
data demonstrate the role of benefit design in shaping consumer
perception of cost.
---------------------------------------------------------------------------
\21\ Avalere analysis of Medical Expenditure Panel Survey, 2014,
from the U.S. Department of Health and Human Services, Agency for
Healthcare Research and Quality. https://meps
.ahrq.gov/mepsweb/. Accessed February 2017. Analysis includes all
individuals with any source of health care coverage, including public
and private.
---------------------------------------------------------------------------
market competition
Consumer experience with drug costs is importantly determined by
the competitiveness of drug classes. Increased competition in a class--
whether through the introduction of a generic or a competitive branded
product--typically results in substantial net price reductions,
particularly for legacy products.
Health plans and PBMs play an important role in negotiating drug
rebates and discounts on behalf of employees, individual market
consumers, and government programs. This role is exemplified when a
second-to-market brand medication enters the market. While underlying
data is proprietary, recent experience associated with the Hepatitis C
market suggests competition among brands led to significant reductions
in net prices for innovative medicines.\22\ In addition, managed care
entities incent use of lower cost alternatives, including generics.
Health plans and self-
insured employers expect that their PBMs will effectively manage cost--
and often compensate on that basis.
---------------------------------------------------------------------------
\22\ Humer, Caroline, ``HCV price war will save an estimated $4
billion,'' Reuters, January 2015.
http://www.reuters.com/article/us-express-scr-hepatitisc-
idUSKBN0KV26X20150122.
---------------------------------------------------------------------------
In addition to managed care stakeholders, drug approval and
exclusivity processes introduce competition into the marketplace. For
traditional, small-molecule drugs, the generic approval system created
under the Drug Price Competition and Patent Term Restoration Act of
1984 (known as the Hatch-Waxman Act) has been effective at maintaining
commercial incentives for drug development through market exclusivity,
while creating strong pricing pressure through generic competition
later in the product lifecycle. Despite concerns during the passage of
Hatch-Waxman, the number of approved New Drug Applications (NDAs) has
remained relatively constant in over three decades since its enactment,
and generic drugs now comprise 89 percent of all drugs dispensed in the
United States.\23\ On average, drug prices decrease by 51 percent
within 12 months of generic comptetion and decrease by nearly 80
percent within 6 years. In the past 10 years, cost savings from
generics are estimated at $1.68T.\24\
---------------------------------------------------------------------------
\23\ FDA. ``Summary of NDA Approvals & Receipts, 1938 to the
present.'' 2011.
https://www.fda.gov/aboutfda/whatwedo/history/productregulation/
summaryofndaapprovals
receipts1938tothepresent/default.htm. Last accessed 2 May 2017.
\24\ Ostroff, Stephen. ``Building a Modern Generic Review
Process.'' Food and Drug
Administration. FDA, 4 Feb 2016. Web. 28 April. 2017. https://
blogs.fda.gov/fdavoice/index
.php/2016/02/building-a-modern-generic-drug-review-process/.
---------------------------------------------------------------------------
There are a few exceptions where competition does not produce
dramatic cost savings for patients in today's environment. First, is
the case of generics with limited or no competition, in which the
traditional competitive pricing pressures do not always apply.\25\ FDA
Commissioner Scott Gottlieb has already indicated his support of
initiatives to focus on speeding entry of second-to-market
generics.\26\ For products that have not yet reached the end of their
exclusivity, the FDA may also be able to accelerate approval of the
second product to market to encourage more rapid competition and price
concessions from branded drugs.
---------------------------------------------------------------------------
\25\ Government Accountability Office. ``Generic Drugs under
Medicare,'' August 2016.
http://www.gao.gov/assets/680/679022.pdf.
\26\ Edney, Anna, ``Drug Prices Become Target for FDA as Chief
Expands Purview,''
Bloomberg, June 2017. https://www.bloomberg.com/news/articles/2017-06-
05/drug-prices-
become-target-for-fda-as-chief-expands-agency-s-view.
---------------------------------------------------------------------------
Biologics are another area of focus for improved competition.
Biologics have grown to represent 79 percent ($11.5B) of Medicare Part
B (Figure 5) and 21 percent ($8.7B) of Medicare Part D spending for the
top 20 drugs in each program.\27\
---------------------------------------------------------------------------
\27\ Avalere Health, ``Five Obstacles to Competition in the United
States Biologics Market,''
http://avalere.com/expertise/life-sciences/insights/five-obstacles-to-
competition-in-the-united-
states-biologics-market.
---------------------------------------------------------------------------
Figure 5: Medicare Top 20 Part B Spending Trends
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
In 2010, a biosimilar approval pathway was created with an
expectation that a multi-source competitive market could offer
potential savings for the U.S. health system.\28\ However, obstacles
remain that may limit the pricing benefits of a truly competitive
biologics market--including both innovator and biosimilar products:
---------------------------------------------------------------------------
\28\ The biosimilar pathway was created by the Biologics Price
Competition and Innovation Act (BPCIA) as Title VII of the Patient
Protection and Affordable Care Act in 2010. Available at:
http://www.fda.gov/downloads/Drugs/
GuidanceComplianceRegulatoryInformation/UCM21614
6.pdf.
1. Complexity of Development: While generics typically experience a
3-5 year development timeline and a cost of $1-5 million, biosimilar
development requires 8-10 years and potentially costs $200 million or
more due to the complexity of the molecules involved.\29\ As a result,
it is unlikely that biosimilars pricing will ever match the level of
savings in the generic pharmaceutical market.
---------------------------------------------------------------------------
\29\ DiMasi, Joseph A., Henry G. Grabowski, and Ronald W. Hansen.
``Innovation in the pharmaceutical industry: New estimates of R&D
costs.'' Journal of Health Economics 47 (2016): 20-33. Federal Trade
Commission. Emerging health care issues: Follow-on biologic drug
competition. June 2009 Report. Available at: http://www.ftc.gov/os/
2009/06/P083901biologicsreport
.pdf.
---------------------------------------------------------------------------
2. Prescribing Patterns: Patient and provider reticence to switch
from a reference biologic to a biosimilar may also hamper market
competition, though this manifests itself differently in different
therapeutic areas.
3. Interchangability: As of yet, the FDA has not issued final
guidance on how products would be designated as interchangeable, which
limits the potential for automatic substitution and associated cost
savings.
4. Physician Reimbursement Model: Within Medicare Fee-For-Service,
the Average Sales Price (ASP) payment methodology may limit competition
by paying physicians the same plus 6 percent add-on payment for either
the innovator or the biosimilar product, which does not encourage
providers to prescribe the biosimilar.
5. Consumer Out-of-Pocket Costs: Within Medicare Part D, the
current benefit structure results in beneficiaries paying substantially
more out-of-pocket for biosimilars relative to the innovator
product.\30\
---------------------------------------------------------------------------
\30\ Avalere Health. ``Patient Out-of-Pocket Costs for Biosimilars
in Medicare Part D''. Avalere Health, April 2016. Web. 19 May 2017.
Available at: http://go.avalere.com/acton/attachment/
12909/f-02c0/1/-/-/-/-/
20160412_Patient%20OOP%20for%20Biosimilars%20in%20Part%20D
.pdf.
---------------------------------------------------------------------------
market-driven interventions
As payers strive to link payment to value, healthcare stakeholders
must agree on how to define and measure the value of any given product
or service. In 2015, a series of new public-facing value frameworks
emerged to address this question--attempting to balance clinical
benefits of a given product against the system-wide costs. Many of
these frameworks failed to adequately consider patient preferences in
their assessments.
In 2017, Avalere and FasterCures launched the Patient-Perspective
Value Framework that assesses the benefits and costs of different
healthcare options in the context of patients' personal goals and
preferences, including things like symptom relief, complexity of
regimen, and cost to the patient's family. This sort of holistic
assessment of value that is broader than clinical outcomes and
customized to reflect individual patient perspectives will be crucial
for continuing to evolve our drug payment and delivery system to reward
value.
Importantly, assessments of value should consider not only cost of
the medication but total cost of care, including pharmacy and medical
spending. Unfortunately, in many instances, public program structures,
contractual relationships, and data limitations prevent effective
assessments of value based on total cost of care. For instance, the
Medicare Part D program is inherently structured to encourage lower,
more competitive premiums for drugs by reducing pharmacy benefit
spending--even if higher spending on medications could reduce costs in
Medicare Parts A and B.
Outcomes-based contracts also represent a significant opportunity
to shift away from prescription drug list prices toward value-based
reimbursement models. A recent survey conducted by Avalere found that
70 percent of health plans have favorable attitudes toward outcomes-
based contracts, and one-half of health plans indicate they have
outcomes-based contracts already in place or are actively negotiating
them.\31\ Unfortunately, existing regulatory barriers, including
standards related to government price reporting and the Anti-Kickback
Statute, presently hamper further development of this trend.\32\
---------------------------------------------------------------------------
\31\ Avalere Health, ``Health Plans are Actively Exploring
Outcomes-Based Contracts,'' May 30, 2017, http://avalere.com/expertise/
life-sciences/insights/health-plans-are-actively-exploring-out
comes-based-contracts.
\32\ Eli Lilly and Company and Anthem, ``Promoting Value-Based
Contracting Arrangements,'' January 2016, https://lillypad.lilly.com/
WP/wp-content/uploads/LillyAnthemWP2.pdf.
---------------------------------------------------------------------------
Effective outcomes-based contracts require next-generation data
analysis and interventions that enable payers and manufacturers to
identify patients eligible for treatment, target outreach to ensure
appropriate adherence and quality improvement, and measure product
performance against pre-agreed-upon outcomes on an ongoing basis.
Consumer benefit can be substantially enhanced through data-based
engagement around pharmaceuticals, including:
1. Data Aggregation and Management: Facilitating data sharing
between a health plan and manufacturer to enable real-time contract
management and ongoing evaluation of results.
2. Patient Identification: Designing algorithms to proactively
identify patients most likely to benefit from a given therapy based on
their demographics, geography, treatment type, and insurance coverage.
Conducting statistical modeling to predict patient outcomes and
potential benefit from the product.
3. Patient and Provider Engagement: Conduct targeted outreach to
providers and directly to patients with interventions intended to
improve adherence and achieve desired outcomes.
As more manufacturers and health plans embark on these data-driven
partnerships, the market will evolve away from historical pricing
models and toward new, innovative ways to reward outcomes.
conclusion
The focus of this testimony is how the healthcare delivery system
affects the pharmaceutical prices faced by consumers. Consumer exposure
to drug costs is determined by benefit design, the competitiveness of
drug classes, and approaches to provider payment. As benefit design
evolves, deductibles and cost sharing for medications have increased
across government and commercial payers, increasing out-of-pocket
spending. Of course, consumer costs are also importantly determined by
the pricing decisions made by pharmaceutical companies prior to entry
of product into the supply chain, and the level and type of rebates and
discounts granted.
Active management of the pharmaceutical benefit is vital to
establishing a competitive pricing dynamic and achieving optimal
patient outcomes. However, it is critical to ensure that benefit
designs are achieving their promise, and not effectively serving as
barriers to good medical and cost management. The value of
pharmaceuticals should always be assessed in the context of total
medical costs, and unfortunately, many government programs and employer
benefit strategies fail to integrate the pharmaceutical expense line
into the context of overall medical management.
Increased competition in the pharmaceutical markets holds promise
for substantially reducing costs. Speeding the approval of the second-
and third-branded drugs in a therapeutic class would expedite
competition and lead to more rapid price concessions. Ensuring a
continued robust market for generic pharmaceutics is vital for
effective cost management and improvement of population health
outcomes. Finally, there is strong potential for consumers in growing
biosimilar competition.
Health system change is increasingly assigning value to
improvements in population outcomes for common medical conditions, and
many of these outcomes can be effectively achieved through better use
of medication. A patient-oriented perspective on value is key to
ensuring that the American healthcare system continues to evolve toward
the consumer. Further alignment of stakeholder interests around the use
of pharmaceuticals holds promise to benefit consumers as payment
systems evolve toward value-based design.
The Chairman. Thank you, Mr. Mendelson. Mr. Coukell,
welcome.
STATEMENT OF ALLAN COUKELL, SENIOR DIRECTOR, HEALTH PROGRAMS,
THE PEW CHARITABLE TRUSTS, WASHINGTON, DC
Mr. Coukell. Thank you, Chairman Alexander, Senator Murray,
and members of the committee, for holding this important
hearing.
Drugs are the fastest growing segment of healthcare
spending and are projected to remain so. Indeed, net spending
on pharmaceuticals increased 42 percent over the past decade
and more than two-thirds of that was in the last 3 years.
This creates a challenge for individual patients who face
high out-of-pocket costs and three-quarters of Americans say
that drug prices are unreasonable. It also represents a
challenge for any individual or business that pays taxes or
insurance premiums which cover most of the cost of drugs.
The best way to establish prices is usually a free and
competitive market, but the market for drugs is complex and
deeply influenced by public policy. Effective competition is
limited in a number of ways.
For example, new drugs and some older drugs have monopoly
pricing power or lack competition. There are misaligned
incentives at many points in the system and historically, we
have paid for new therapies, whatever the cost and however
modest the benefit.
Before I get to policy options, I would like to spend a
moment on the main drivers of drug spending.
The upward trend is largely the result of the rising cost
of new medicines, especially high-cost biologics or specialty
drugs. These are used by only 1 or 2 percent of the population,
but account for more than 40 percent of costs.
Launch prices for new drugs are at unprecedented levels and
year-on-year increases in brand drug prices fuel further
growth. In contrast, generic drugs create significant savings
despite sharp increases in the price of some individual generic
products.
Generic competition has long been the main tool used to
manage drug spending in the United States. When there is no
competing product, the FDA prioritizes its review of new
generics, but there are factors that delay generic entry in
some cases, including the misuse of REMS programs and reverse
payment or pay-for-delay agreements, both factors that Congress
could address.
As I have noted, the main driver of spending growth is
biologic drugs where Congress has granted 12 years of monopoly
protection. That is more than double the 5 years of protection
typical for a small molecule drug.
Another consideration is the increasing share of high-
priced drugs that come to market with taxpayer subsidies and
other benefits through the Orphan Drug Act. It is important to
support the development of products for rare diseases, but
Congress may wish to ensure that the program does not have
unintended costs when the drugs are used in larger populations
than the Act originally considered.
For drugs that do not have generic competition, but where
there are multiple competing products that meet a similar
clinical need, here there are tools that are widely used in
commercial insurance, but are absent from some public programs,
especially Medicare Part B.
For example, Part B lacks a formulary and any process for
utilization management or prior authorization. Indeed, Part B
is designed in such a way that physicians and other providers
receive greater reimbursement when they choose higher priced
drugs over lower cost alternatives.
Similarly, in Medicare Part D, there are a number of
situations where plans are required to cover every drug in a
class, such as antidepressants, and this reduces the Plan's
leverage to negotiate prices.
Most of our national drug spend accrues to drug
manufacturers. Estimates vary and we do not have great numbers,
but at least 70 percent. Several other entities including
pharmacy benefits managers, pharmacies, and wholesalers also
each retain a share.
The crucial question for a self-insured employer or a plan
sponsor is whether they could possibly obtain lower cost if the
PBM's cut were smaller. This is a matter that largely sits in
the negotiations between private parties, but it is a question
that Congress could address as it pertains to public programs
such as Part D.
Finally, let me turn to the issue of value. Fundamentally,
the debate about drug prices is a debate about value. Is the
cost of the drug justified by the clinical outcomes that it
produces? Value-based or outcomes-based contracts between
manufacturers and purchasers are an attempt to formalize this
understanding and sometimes to tie the level of payment
directly to the results achieved.
Such agreements may play an important role for some
products, though to date, they remain relatively rare and their
effect on healthcare costs has been limited. They are unlikely
to become ubiquitous in the future, not least because they are
costly to negotiate and monitor.
In the larger sense, however, better alignment around value
is needed. We should take into account health benefits that do
not show up in the drug budget, but also recognize that the
market only works when the potential purchaser has the ability
to decide not to cover drugs when the cost is not justified.
We live at a time of exciting biomedical innovation. We owe
it to patients and taxpayers to ensure that the cost of drugs
is sustainable into the future.
Thank you and I welcome your questions.
[The prepared statement of Mr. Coukell follows:]
Prepared Statement of Allan Coukell
summary
Net spending on pharmaceuticals has increased 42 percent since
2006, with more than two-thirds of that growth occurring since 2013.
Indeed, prescription drug spending is now the fastest growing share of
health spending, and projected to remain so. This creates challenges
for patients, who face high out-of-pocket costs, as well as American
taxpayers and businesses, which pay the bulk of the cost of drugs
through taxes and insurance premiums.
The main driver of increased drug spending is the rising cost of
new medicines, particularly high-cost specialty products used by a
small share of the population, but which account for more than 40
percent of spending. As more and more innovative medicines come to
market, the growth in launch prices and the growing share of the
population that could potentially rely on these products looks
unsustainable.
Rising drug spending is a challenge for policymakers. While a
competitive market is generally the best way to establish prices, the
market for drugs is complex and deeply influenced by public policy, and
effective competition is limited in a number of ways.
Potential policy responses to address drug spending include:
Increasing competition from generic and biosimilar
products,
Increasing competition among existing drugs,
Incorporating the value into coverage and payment
decisions, and
Improving transparency in drug benefit contracting.
As Congress seeks to manage the challenge of rising drug spending,
it should look at the range of challenges and policy solutions to
achieve a balance between access to innovative medicines and the
equally important need to constrain cost-growth in health care.
______
Chairman Alexander, Ranking Member Murray, members of the
committee, thank you for holding this hearing and for the opportunity
to present testimony.
I direct health programs at The Pew Charitable Trusts, a nonprofit,
nonpartisan research and policy organization. One of our focus areas is
the challenge of rising drug spending.
Net spending on pharmaceuticals has increased 42 percent since
2006, with more than two-thirds of that growth occurring since 2013.\1\
Indeed, prescription drug spending is now the fastest growing share of
health spending, and projected to remain so.\2\ Currently
pharmaceuticals account for 16.7 percent of total expenditures.\3\ This
creates challenges for:
---------------------------------------------------------------------------
\1\ QuintilesIMS Institute, ``Medicines Use and Spending in the
U.S.: Review of 2016 and Outlook to 2021,'' May 2017, Available at:
http://www.imshealth.com/en/thought-leadership/quin
tilesims-institute/reports/medicines-use-and-spending-in-the-us-review-
of-2016-outlook-to-2021.
\2\ The Centers for Medicare & Medicaid Services projects that
prescription drug spending
growth will continue to outpace overall health care cost increases over
the next decade. Source: Centers for Medicare & Medicaid Services,
``National Health Expenditure Projections 2016-2025,'' Available at:
https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-
Trends-and-Reports/NationalHealthExpendData/Downloads/proj2016.pdf.
\3\ Health and Human Services Assistant Secretary for Planning and
Evaluation, ``Observations on Trends in Prescription Drug Spending,''
March, 2016, Available at: https://aspe.hhs.gov
/system/files/pdf/187586/Drugspending.pdf.
Individual patients, who face high out-of-pocket costs.
Surveys show that three-quarters of Americans think drug prices are
unreasonable.\4\
---------------------------------------------------------------------------
\4\ Kaiser Family Foundation, ``Kaiser Health Tracking Poll:
September 2016,'' September 2016,
Available at: http://kff.org/health-costs/report/kaiser-health-
tracking-poll-september-2016/.
---------------------------------------------------------------------------
American taxpayers and businesses, which pay the bulk of
the cost of drugs through taxes and insurance premiums.
Rising drug spending is a challenge for policymakers, too, because
while a competitive market is generally the best way to establish
prices, the market for drugs is complex and deeply influenced by public
policy, and effective competition is limited in a number of ways. These
include:
Monopoly pricing for new drugs,
Lack of competition for some older drugs,
Misaligned incentives and incomplete information for
stakeholders, including payers, providers and patients at many points
in the system, and
A historical willingness to cover new therapies without
ensuring that their clinical benefits justify the price.
In discussing potential policy options, it is important to
understand the main drivers of increased drug spending. This trend is
largely the result of the rising cost of new medicines, particularly
high-cost specialty products (including biologics),\5\ which are only
used by a small share of the population, but account for more than 40
percent of drug spending.\6\ Today, fewer than 2 percent of
prescriptions account for over one-third of retail drug spending.\7\
Some of these products are exciting therapeutic advances--true
breakthroughs--but some are not. And they are reaching market at ever-
higher launch prices. Net prices (i.e., prices after rebates) are also
increasing. These products will typically not face generic competition
for years. Increased volume of sales and year-on-year price increases
for brand drugs that do not face competition are also a driver of
spending. As more and more innovative medicines come to market, the
growth in launch prices and the growing share of the population that
could potentially rely on these products looks unsustainable.
---------------------------------------------------------------------------
\5\ Examples include medicines for cancer, multiple sclerosis, and
autoimmune conditions.
\6\ QuintilesIMS Institute, ``Medicines Use and Spending in the
U.S.: Review of 2016
and Outlook to 2021,'' May 2017, Available at: http://
www.imshealth.com/en/thought-leadership/quintilesims-institute/reports/
medicines-use-and-spending-in-the-us-review-of-2016-outlook-to-2021.
\7\ QuintilesIMS Institute, ``Medicines Use and Spending in the
U.S.: Review of 2016
and Outlook to 2021,'' May 2017, Available at: http://
www.imshealth.com/en/thought-leadership/quintilesims-institute/reports/
medicines-use-and-spending-in-the-us-review-of-2016-outlook-
to-2021.
---------------------------------------------------------------------------
While new brand drugs drive spending growth, generic drugs create
significant savings. In 2016, about 90 percent of prescriptions
dispensed were for generics, but total spending on these medications
actually fell,\8\ despite sharp increases in the prices of some
individual products.
---------------------------------------------------------------------------
\8\ QuintilesIMS Institute, ``Medicines Use and Spending in the
U.S.: Review of 2016 and Outlook to 2021,'' May 2017, Available at:
http://www.imshealth.com/en/thought-leadership/quintilesims-institute/
reports/medicines-use-and-spending-in-the-us-review-of-2016-outlook-to-
2021.
---------------------------------------------------------------------------
Net pharmaceutical manufacturer revenue from U.S. sales reached
$323 billion in 2016.\9\ This represents the large majority, but not
the total of U.S. drug spending, because other entities, including
pharmacy benefit managers, wholesalers and pharmacies, also each retain
a portion of total spending on drugs.
---------------------------------------------------------------------------
\9\ QuintilesIMS Institute, ``Medicines Use and Spending in the
U.S.: Review of 2016 and Outlook to 2021,'' May 2017, Available at:
http://www.imshealth.com/en/thought-leadership/quintilesims-institute/
reports/medicines-use-and-spending-in-the-us-review-of-2016-outlook-to-
2021.
---------------------------------------------------------------------------
potential policy responses
Increased Competition From Generic and Biosimilar Products
Competition from generic drugs has long been the main tool used to
manage drug spending in the United States.\10\ Currently, the FDA
prioritizes the review of first generics, as well as generic
applications for drugs for which there is only one manufacturer;\11\
however, other policy responses could facilitate generic entry,
including:
---------------------------------------------------------------------------
\10\ Generics are now nearly 90 percent of all prescriptions
filled, but less than 30 percent
of drug spending. QuintilesIMS Institute, ``Medicines Use and Spending
in the U.S.: Review of 2016 and Outlook to 2021,'' May 2017, Available
at: http://www.imshealth.com/en/thought-leadership/quintilesims-
institute/reports/medicines-use-and-spending-in-the-us-review-of-2016-
outlook-to-2021.
\11\ FDA Center for Drug Evaluation and Research, Manual of
Policies and Procedures 5240.3.
Rev 2. Prioritization of the Review of Original ANDAs, Amendments, and
Supplements, 2016,
http://www.fda.gov/downloads/AboutFDA/CentersOffices/
OfficeofMedicalProductsandTobacco
/CDER/ManualofPoliciesProcedures/UCM407849.pdf.
Policies to ensure that manufacturers of brand name drugs
cannot block generic developers' access to sample products required for
bioequivalence testing,\12\ and
---------------------------------------------------------------------------
\12\ Barriers to generic entry exist when brand drug manufacturers
prevent generic companies
from obtaining their products in order to carry out the testing
necessary to develop a generic version of a drug. In some cases, FDA
orders a manufacturer to develop a program to ensure safe use of a
high-risk product, such as a requirement that a drug can only be
acquired through select providers, or the manufacturer may
independently opt for a restricted distribution network. However, some
generic manufacturers allege that these provisions are used to restrict
generic company access. Litigation to obtain samples for comparative
testing often takes years to conclude. Source: The Pew Charitable
Trusts, ``Policy Proposal: Improving Generic and Biosimilar Developer
Access to Brand Pharmaceutical Samples,'' May 2017, Available at:
http://www.pewtrusts.org/en/research-and-analysis/fact-sheets/2017/05/
policy-proposal-improving-
generic-and-biosimilar-developer-access-to-brand-pharmaceutical-
samples.
---------------------------------------------------------------------------
Policies to limit so-called ``reverse payment''
settlements that can, in some cases, be anti-competitive by delaying
generic market entry.\13\
---------------------------------------------------------------------------
\13\ Brand and generic companies frequently strike ``reverse
payment'' or ``pay-for-delay''
settlements that involve a brand pharmaceutical manufacturer paying one
or more potential generic competitors to resolve patent infringement
lawsuits and agree upon a date by which the generic product can come to
market. Both the brand and generic company benefit under such
agreements, while the public pays higher prices than it would if the
generic is available sooner. In 2015, for example, the Federal Trade
Commission (FTC) reached a $1.2 billion settlement with Cephalon, Inc.
for illegally blocking generic competition to its blockbuster sleep-
disorder drug Provigil, driving up costs for consumers, insurers, and
pharmacies. FTC and the Congressional Budget Office have estimated that
banning or otherwise limiting these agreements would generate
significant savings for consumers and taxpayers. However, any policy
should also consider that some such settlements may be pro-competitive.
However, the agency alone cannot address the challenge of
escalating drug costs. In particular, it should be noted that biologic
drugs are one of the most significant drivers of increased spending and
they represent 9 of the 10 highest expenditure products in Medicare
Part B.\14\ Any policy that hastens access to biosimilars and increases
competition among these products would reduce spending.\15\ This
includes better aligning biologic and small-molecule exclusivity
periods. Congress gave new biologics 12 years of monopoly, free of
competition from biosimilars, which is more than double the 5 years of
protection typically granted to new small molecule drugs.
---------------------------------------------------------------------------
\14\ Medicare Payment Advisory Commission, ``Report to the
Congress, Medicare and the Health
Care Delivery System,'' June 2016, Available at: http://www.medpac.gov/
docs/default-source/reports/june-2016-report-to-the-congress-Medicare-
and-the-health-care-delivery-system.pdf?sfvrsn
=0.
\15\ There is a substantial difference in the duration of market
protection provided to makers
of biological drugs, which are derived from living cells, and that
given traditional pharmaceuticals. Reducing the period of guaranteed
exclusivity for biologics from the current 12 years to 7 years would
bring them more in line with traditional drugs. Such a change could
generate more than $4 billion in savings to Medicare and other Federal
health care programs over 10 years. Source: Kaiser Family Foundation,
``Summary of Medicare Provisions in the President's Budget for Fiscal
Year 2016,'' February 2015, Available at: http://kff.org/Medicare/
issue-brief/summary-of-Medicare-provisions-in-the-presidents-budget-
for-fiscal-year-2016/.
---------------------------------------------------------------------------
In addition, an increasing share of drugs comes to market with the
benefit of taxpayer subsidies and other benefits established through
the Orphan Drug Act (ODA). While important to incentivize the
development of products for rare diseases, in some circumstances, these
products are used much more widely than the ODA intended.\16\ Congress
may wish to evaluate a number of policy options to ensure the
appropriate balance, including:
---------------------------------------------------------------------------
\16\ Daniel MG, Pawlik TM, Fader AN, et al. The Orphan Drug Act:
Restoring the Mission
to Rare Diseases. Am J Clin Oncol. 2016 Apr;39(2):210-3.
Limiting the 340B carve-out for products with an orphan
designation, and
Considering the potential to cap the value of public
subsidies.
Increased Competition Among Existing Drugs
In cases where there are multiple competing, but non-identical
brand drugs on the market, there are a range of tools that payers can
use to manage spending while protecting patient access. These include
formulary placement, prior authorization, and step therapy. While these
approaches are well-established in commercial insurance, they are
absent or limited in parts of the Medicare program. For example,
reimbursement policies in Medicare Part B, which pays for the use of
physician-
administered drugs, creates a financial incentive for clinicians to
choose high-priced drugs over lower cost alternatives of similar
effectiveness.\17\ In Medicare Part D, the private plans that
administer the outpatient prescription drug benefit are required to
cover all drugs on the market in six protected classes.\18\ This
mandate limits the ability of Part D plans to negotiate discounts for
drugs in these classes. To increase competition among existing drugs in
Medicare, consideration could be given to policies that would:
---------------------------------------------------------------------------
\17\ Health and Human Services Assistant Secretary for Planning and
Evaluation, ``Medicare Part B Drugs: Pricing and Incentives,'' March
2016, Available at: https://aspe.hhs.gov/system/files/pdf/187581/
PartBDrug.pdf.
\18\ Current law requires Medicare drug plans to cover every
medication within six broad
classes, including antidepressants and antipsychotics. Giving greater
flexibility to private Part D plans in how they design their drug
benefits could improve their ability to negotiate lower drug prices on
behalf of Medicare beneficiaries and the Federal Government. Source:
Lee T, Gluck A, Curfman G, ``The Politics of Medicare And Drug-Price
Negotiation (Updated)'',
Health Affairs Blog, September 19, 2016, Available at: http://
healthaffairs.org/blog/2016/09/19/the-politics-of-Medicare-and-drug-
price-negotiation/.
Increase competition within the Medicare Part B
program,\19\
---------------------------------------------------------------------------
\19\ The Medicare Part B program spends some $25 billion each year
for drugs administered
in clinics and physician offices. Policies to manage biosimilar drugs
similar to the current approach for generics could create greater
competition. Source: The Pew Charitable Trusts, ``Can Biosimilar Drugs
Lower Medicare Part B Drug Spending?'' January 2017, Available at:
http://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2017/01/
can-biosimilar-drugs-lower-Medicare-part-b-drug-spending.
---------------------------------------------------------------------------
Increase competition within Medicare Part D,\20\ and
---------------------------------------------------------------------------
\20\ Medicare price negotiation (which is currently prohibited by
statute) would achieve savings
only if combined with new authority for Medicare to design its own
formulary or preferred drug list, similar to how private plans
prioritize certain drugs among equally effective therapies. Source:
Shih C, Schwartz J, Coukell A, ``How Would Government Negotiation of
Medicare Part B Drug Prices Work?'', Health Affairs Blog, February 1,
2016, http://healthaffairs.org/blog/2016/02/01/how-would-government-
negotiation-of-Medicare-part-d-drug-prices-work/.
---------------------------------------------------------------------------
Shift some drugs from the medical to the pharmacy benefit.
An Increased Focus on Value
Value-based or outcomes-based contracts (OBCs) between
manufacturers and purchasers--contracts that tie the price of a drug to
specified outcomes--may play an important role for some products,
though their impact on health care costs has been limited to date. A
recent survey of 45 health plans found that 24 percent of them have an
outcomes-based contract in place today, and an additional 30 percent
are in negotiations to enter into one.\21\ However, just one-third of
plans with an OBC in place reported cost savings. There are numerous
challenges in setting up these contracts, and their utility may be
limited by their cost to negotiate and the need for sophisticated data
systems to monitor success.\22\ However, policymakers could examine to
what extent Federal law or regulations pose potential barriers for
establishing OBCs. For example, the Centers for Medicare & Medicaid
Services could consider whether Medicaid Best Price rules may impede
these agreements and develop additional guidance, if warranted.
---------------------------------------------------------------------------
\21\ Avalere, ``Health Plans Are Actively Exploring Outcomes-Based
Contracts,'' Available at:
http://avalere.com/expertise/life-sciences/insights/health-plans-are-
actively-exploring-outcomes-based-contracts.
\22\ Garrison LP, Carlson JJ, Bajaj PS, et al. ``Private Sector
Risk-Sharing Agreements in the
United States: Trends, Barriers, and Prospects.'' American Journal of
Managed Care, September 2015, Available at: http://www.ajmc.com/
journals/issue/2015/2015-vol21-n9/Private-Sector-Risk-Sharing-
Agreements-in-the-United-States-Trends-Barriers-and-Prospects.
---------------------------------------------------------------------------
Nevertheless, policymakers should consider additional strategies to
incorporate the value of a drug into coverage and payment decisions.
Factoring value into coverage decisions--including the choice not to
cover drugs whose cost is not justified--would help reduce overpayment
for marginal clinical gains. Alternatively, policies to limit the price
of drugs based on assessments of their value when comparable
alternative therapies exist are strategies that have the potential to
lower spending on pharmaceuticals in public programs.
Opportunities To Improve Transparency in Drug Benefit Contracting
Pharmacy benefits managers--the intermediaries that insurers and
employers pay to both administer prescription drug benefits and
negotiate discounts from drug companies--play a crucial role, using
their large sales volumes and their ability to create formularies to
spur drug manufacturers to offer price concessions. However, a share of
the savings accrues to the pharmacy benefit managers themselves, and
their contracts can be extremely complex, making it difficult even for
sophisticated benefits administrators to determine whether they have
achieved optimal savings.
Congress could consider requiring greater transparency of contract
terminology and definitions between payers and pharmacy-benefit
managers,\23\ as well as mandating the ability for payers to audit
these deals, and ensuring that entities that advise purchasers on PBM
contracts do not also have financial relationships with the PBMs
themselves.
---------------------------------------------------------------------------
\23\ More than two dozen of the largest U.S. corporations,
including American Express,
Coca-Cola, IBM, Marriott, and Verizon, have proposed greater
transparency in these contracts. Source: Silverman E, ``The `gouge
factor': Big companies want transparency in drug price negotiations,''
STAT News, August 2, 2016. Available at: https://www.statnews.com/
pharmalot/2016/08/02/drug-price-transparency-pharmacy-benefits-manager/
---------------------------------------------------------------------------
conclusion
As Congress seeks to manage the challenge of rising drug spending,
it should look at the range of challenges and policy solutions to
achieve a balance between access to innovative medicines and the
equally important need to constrain cost-growth in health care. I thank
you for holding this hearing, and welcome your questions.
The Chairman. Thank you, Mr. Coukell.
Dr. Howard, welcome.
STATEMENT OF PAUL HOWARD, Ph.D., DIRECTOR AND SENIOR FELLOW,
HEALTH POLICY, MANHATTAN INSTITUTE, NEW YORK, NY
Mr. Howard. Thank you.
Chairman Alexander, Ranking Member Murray, members of the
committee.
I would like to thank you for the opportunity to testify
today about, ``The Cost of Prescription Drugs: How the Drug
Delivery System Affects What Patients Pay.''
I am truly honored to be speaking to you as part of such a
distinguished panel.
My testimony today is derived from my research and
experience as director of health policy and a member of the
Manhattan Institute's Project FDA.
I believe our focus in this area should try to achieve
three goals. To broadly promote innovation for the American
patient; to reduce rent-seeking in the drug delivery system,
and realign provider incentives to match the best treatment to
the most appropriate patient; and finally, to continue our
broad shift of reimbursement away from volume and toward value.
The United States has become the unquestioned global leader
in medical innovation over the last several decades thanks to a
virtual cycle of innovation where older generic drugs compete
very effectively with branded drugs once those patents expire.
Inexpensive generic competition--accounting for close to 90
percent of retail drugs sold in the United States--forces
branded companies to press the frontiers of science and
innovation, and develop new medicines that can offset other
components of healthcare spending including unnecessary
hospitalizations, physician visits, and nursing home use.
Innovation benefits patients by extending and improving
health, but it also benefits the economy by creating more jobs
and attracting more investment to the United States. This is a
social and economic contract that has worked remarkably well
for the most part. In fact, it is no exaggeration to say that
we stand on the precipice of a Golden Age of medicine.
New treatments could allow us to attack diseases at the
molecular and genetic roots. We can finally begin to speak of
lasting remissions, sharply reduced disability, and even true
cures for once dreaded diseases like cancer. Even more powerful
approaches, like regenerative medicine and gene therapy will
undoubtedly be approved by the FDA over the next 5 to 10 years.
The outlook for innovation has never been brighter even as
the industry is embroiled in a wave of product pricing
controversies.
However, while most prescriptions in the United States are
broadly affordable--in fact about 30 percent of all
prescriptions have $0 co-pays--there are real challenges facing
patients, particularly patients with serious, chronic illnesses
who are facing too much cost sharing from benefit designs
through high co-insurance and deductibles, largely for what are
called specialty medicines.
This is a serious challenge that must be addressed. High
out-of-pocket costs can lead to lower patient compliance,
increased financial stress, worse health outcomes, and even
higher costs overall.
Without abandoning the current market-based paradigm, we do
need to update it to meet the challenges of the 21st century
and to take full advantage of new technological tools that can
enable us to more rapidly match the right patient to the right
medicine at the right time and at an affordable price for both
patients and society.
I have three specific recommendations for Congress today.
First, reduce renting-seeking in the drug delivery system.
This effort should begin with fixing the 340B Drug Discount
Program. 340B drug sales have become a major source of hospital
revenues and account for as much as 50 percent of infused
oncology products.
The shift of treatments into the 340B environment has
increased the cost of cancer medicines, increased the cost of
treatment for patients with both commercial insurance and
Medicare Part B co-
insurance, and has changed the mix of treatments toward more
expensive therapies.
Congress should reform 340B and return it to its original
intent to assist hospitals that largely serve indigent and
uninsured populations, and ensure that its rebates are extended
to the most vulnerable patients, like the uninsured.
Second, we should promote value-based arrangements that
give innovative companies, physicians, and hospitals equal skin
in the game to match patients to treatments that work.
Regulators can help accelerate the transition to these
contracts by removing regulatory barriers that discourage
companies from testing the full potential of indication and
outcomes-based contracts to improve patient outcomes and match
the performance of medicines to their real world outcomes.
Finally, I would encourage Congress to consider a broader
menu of reforms that would allow payers to take a longer term
view of the value and costs of new medicines. Such reforms
would include encouraging the uptake of value-based designs
within high deductible health plans; new financing tools for
State Medicaid programs that would allow them to purchase
curative technologies like Hepatitis C drugs upfront, but
spread the costs over longer periods of time; and multiyear
private insurance contracts that may align payers' incentives
with patients' long term health.
In conclusion, for the last 30 years, the United States has
benefited from arrangements that have put us on the cusp of
tremendous new medical achievements. The system is under strain
today because the pace of the innovation is accelerating while
our healthcare system is still divided into payment silos that
create the appearance of a zero sum game between stakeholders.
I am confident that policymakers can work together on a
bipartisan basis to update and improve America's virtual cycle
of innovation and affordability for the next 30 years.
Thank you.
[The prepared statement of Dr. Howard follows:]
Prepared Statement of Paul Howard, Ph.D.
summary
An effective balance between strong upfront patent rights and rapid
generic competition has helped make the United States the unquestioned
global leader in medical innovation, while also assuring broad
affordability, for the last several decades. However, there are real
challenges facing the health care system today, specifically for
patients with serious chronic illnesses who face high coinsurance or
deductibles.
The U.S. health care system is in dire need of competition to
reduce wasteful and ineffective care. However, addressing drug prices
directly, in a silo, is inadvisable because we want technology to
substitute for labor, something that happens only through innovation.
The Centers for Medicare and Medicaid Services (CMS) expects that
medicine's share of total health care costs will closely track overall
health care spending growth over the next decade. However, costs
attributable to expensive specialty medicines are rising significantly
faster than for traditional drugs, with the result that a small
fraction of all prescriptions account for a disproportionate share of
all out-of-pocket spending on prescription medicines.
Fortunately, there are promising signs that payers and
manufacturers are edging toward agreement that patients with serious
diseases facing coinsurance should have access to PBM-negotiated
discounts. There is also growing agreement that contracts for high-
cost, high-value medicines should reflect evidence of their real-world
performance.
Congress, CMS, and FDA have important roles to play in encouraging
the market to shift to new arrangements that lower barriers to patient
access.
First, Congress should reform the 340B program and return it to its
original intent to assist hospitals serving largely indigent and
uninsured populations. The current system instead encourages profit
skimming and hospital consolidation.
Second, HHS and FDA should coordinate on creating safe harbors from
Federal regulations that would allow stakeholders to experiment with
new contractual arrangements. This allows manufacturers to bear
financial risk for new medicines, without discouraging innovation.
Finally, Congress should consider opportunities to encourage using
value-based insurance designs, new financing tools for State Medicaid
programs, and longer-term insurance contracts that better align payers'
incentives with patients' long-term health.
______
Chairman Alexander, Ranking Member Murray, members of the
committee, I would like to thank you for the opportunity to testify
today about ``The Cost of Prescription Drugs: How the Delivery System
Affects What Patients Pay.'' I am truly honored to be speaking to you
today.
Bipartisan support for medical innovation, including strong support
for FDA user fee agreements, an encouraging environment for translating
basic medical research into promising new treatments, and an effective
balance between strong upfront patent rights and rapid generic
competition once those patents expire has made the United States the
unquestioned global leader in medical innovation for the last several
decades.\1\
---------------------------------------------------------------------------
\1\ For a fuller discussion, see Biopharmaceutical Policy for
American Leadership 52 in the 21st Century, Peter Huber & Paul Howard.
https://nationalaffairs.com/storage/app/uploads/public
/doclib/20161209_UnleashingOpportunityInnovationPolicyBooklet.pdf.
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Broadly speaking, robust generic competition, along with the advent
of large and sophisticated payers, has kept the relative share of
health care costs attributable to medicines broadly stable, even as new
medicines have become a cornerstone of treatment for acute and chronic
illness.\2\
---------------------------------------------------------------------------
\2\ Total U.S. health care spending in 2015 was $3.2 trillion.
Approximately two-thirds of those costs are attributable to hospital
care (roughly 30 percent) and physician services (around 25 percent).
Outpatient prescription drug spending has held steady at around 10
percent of total expenditures for decades. Adding in hospital
administered drugs raises that share to 14-15 percent. Fein, Adam J.,
The 2017 Economic Report on U.S. Pharmacies and Pharmacy Benefit
Managers, Drug Channels Institute, 2017.
---------------------------------------------------------------------------
However, there are real challenges facing the health care system
today, specifically for patients with serious chronic illnesses who are
facing high coinsurance or deductibles largely for what are called
``specialty'' medicines, and that challenge needs to be addressed.
Ironically, part of that challenge is due to the advent of highly
effective new treatments for hepatitis C, cystic fibrosis, some
cancers, and rheumatoid arthritis. A wave of even more powerful
treatments, including gene therapies, new immune-
oncology therapies, and regenerative medicine approaches are already on
the horizon and likely to be approved by the FDA over the next 5 to 10
years. The outlook for innovation has never been brighter, even as the
industry has become a lightning rod for product pricing
controversies.\3\
---------------------------------------------------------------------------
\3\ Many critics point to European drug price controls as the
solution--ignoring the outsized role
that the U.S. market plays in global innovation generally. See To Lower
Drug Prices, Innovate, Don't Regulate. https://www.nytimes.com/
roomfordebate/2015/09/23/should-the-government-impose-drug-price-
controls/to-lower-drug-prices-innovate-dont-regulate.
---------------------------------------------------------------------------
I would remind critics that having too many effective therapies is
an enviable problem to have, and can largely be addressed by enhancing
market competition and creating new financing and reimbursement tools
that allow payments for treatments to be pegged to their real-world
outcomes--like lowering costs elsewhere in the health care system,
improving patient survival or quality of life, or simply delivering a
comparable outcome to existing technologies less expensively.\4\
---------------------------------------------------------------------------
\4\ For a fuller discussion of the role of analytics, diagnostics,
and outcomes-based payments see Precision Medicine in the Era of Health
Care Reform. https://www.manhattan-institute.org/sites/default/files/R-
PH-0416.pdf.
---------------------------------------------------------------------------
The U.S. health care system is in dire need of competition to
reduce wasteful and ineffective care, and new technological platforms
can allow the rapid analysis of large volumes of patient data--enabling
competition not only between medicines, but among providers and
different payment platforms. In short, Congress should create
incentives that reward providers who use medicines (both generic and
branded) and technology to deliver care as efficiently as possible,
while also empowering patients with the information they need to
identify high quality providers.\5\
---------------------------------------------------------------------------
\5\ As researchers in a Health Affairs blog wrote in 2015:
Adherence to treatment guidelines and quality remain highly
variable across providers in a wide variety of oncology domains,
including end-of-life care, prostate cancer, ovarian cancer, and
colorectal cancer screening.
Problems range from underuse of highly effective therapies and
procedures to overuse of ineffective ones. Thus, while today's typical
cancer patient is likely better off than her counterpart from earlier
years, not all patients are receiving the most effective care. . . .
Rewarding physicians for patient health improvement moves physician
incentives closer to the values and needs of patients.
---------------------------------------------------------------------------
Fixing drug prices in a silo is inadvisable because we want
technology to substitute for labor, including unnecessary
hospitalizations, doctor's visits, or debilitating stays in a nursing
home.\6\ Bending the curve of health care cost growth and delivering
state-of-the-art care can, and must, go hand in hand if we are to meet
America's most pressing health care challenges.
---------------------------------------------------------------------------
\6\ See Michael Mandel, Rising Labor Costs Accounted for 47 percent
of Increased Personal Health Care Spending in 2015. http://
www.progressivepolicy.org/blog/rising-labor-costs-accounted-47-percent-
increased-personal-health-care-spending-2015/.
---------------------------------------------------------------------------
There is no accounting or discount scheme that will enable us to
grapple with the scourge of Alzheimer's short of medicines that delay,
or perhaps even prevent it entirely. Innovation is our best hope for
lowering costs and improving outcomes.
With that in mind, I would like to frame my remarks with some
observations that I hope will guide our discussion today.
We stand at the precipice of a Golden Age of medicine, with new
treatments that allow us to treat diseases at their molecular and
genetic roots, where we can begin to speak of lasting remissions,
sharply reduced disability, and even true cures--as from gene therapy.
Nonetheless, broadly speaking, the vast majority of prescriptions
in the United States today are highly affordable, with roughly 30
percent having a $0 copay. Most Americans who take prescription drugs
regularly say they are affordable. In fact, close to 90 percent of all
retail prescriptions in the United States today are for generics,\7\
which have saved payers hundreds of billions of dollars over the last
decade.
---------------------------------------------------------------------------
\7\ Fein, Exhibit 2: Unbranded and Branded Generics, Share of U.S.
Prescriptions, 2005-21.
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Apart from a sharp surge in drug spending in 2014, when a new class
of highly effective medicines for hepatitis C were introduced, drug
price growth has been moderate, especially when we disaggregate price
increases from increased utilization. A growing number of Americans are
taking medicines, which is unsurprising given that age is one of the
leading risk factors for developing a chronic illness. Payers, however,
have been able to leverage large purchasing networks to increase
manufacturer rebates as a share of gross revenues.
As a result, the Centers for Medicare and Medicaid Services (CMS)
expects that medicine's cost growth will closely track overall health
care spending growth over the next decade.\8\
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\8\ Howard and Feyman, Drug Price Controls Hurt Patients Most.
https://www.manhattan
-institute.org/html/issues-2016-drug-price-controls-hurt-patients-most-
7949.html.
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When we drill down into the market, however, costs attributable to
so-called specialty medicines are rising significantly faster than for
traditional drugs, and today constitute close to 30 percent of all drug
revenues. Prices for these medicines are rising significantly faster
than other costs, although they also treat especially serious chronic
diseases. They also face less generic competition, including, at least
for now, from biosimilars.
That overall drug spending has not risen faster is a testament to
the success of insurers and pharmaceutical benefit managers (PBMs) cost
containment strategies. They have employed utilization management tools
like prior authorization, drug tiering and coinsurance, and larger
deductibles for non-preferred medicines manage the uptake of specialty
drugs.
To retain formulary access for specialty medicines, companies often
offer quite substantial rebates. One PBM, Express Scripts, noted in the
last year that it held price increases for its members to under 3
percent.
How is it possible, then, that payers can complain about a drug
pricing crisis, while pharmaceutical firms note that drug spending, and
especially net pricing after accounting for rebates and utilization
increases, are fairly stable?
The he-said, she-said debate can be resolved by simply noting that
there are an increasing number of patients with high deductible plans,
where medicines are part of a single combined medical and pharmacy
deductible, and of patients with traditional insurance who are
prescribed medicines where they pay coinsurance based on the list
prices of these medicines, and thus do not benefit from PBM-negotiated
discounts.
For patients who may need a medicine that is excluded from the PBMs
formulary entirely, short of manufacturers' patient assistance
programs, they may have to bear the full costs of these medicines
themselves. (PBMs respond that they pass along these rebates to
employers and other payers, helping to keep overall health insurance
increases lower than they would otherwise be.)
To summarize: Patients with serious chronic illnesses may find
themselves caught between the hammer of rising cost control efforts at
a time of rapid therapeutic innovation.
There are some promising signs that payers and manufacturers
recognize that the status quo is unsustainable, and are edging toward
agreement that patients with serious diseases should have access, at
the point of purchase, to PBM-negotiated discounts.
There is also growing agreement that reimbursement contracts for
high-cost, high-value medicines should reflect evidence of their real-
world performance, which may be very different than outcomes generated
in clinical trials used for FDA approval--or for an entirely new
indication, where evidence may be lacking at the time of approval.
Congress, HHS, and FDA have critical roles to play in encouraging
the market to shift to new arrangements that lower barriers to patient
access and encourage greater collaboration in getting the right
medicine to the right patient at the right time--and at a price that is
sustainable for patients, payers, and innovators.
I have three recommendations for Congress today.
First, fix the 340B drug discount program. 340B was
originally designed to assist hospitals serving indigent patients, but
has expanded to cover approximately 50 percent of the market for
infused oncology medicines.
While hospitals acquire these drugs at large mandatory discounts,
several studies suggest that they are billing commercial insurers a
percentage of allowable charges, which is significantly higher than
their acquisition price. As a result, such sales have become a major
source of hospital revenues and an inducement for vertical hospital
consolidation--i.e., for hospitals to acquire oncology practices and
then charge far higher prices than standalone oncology practices (who
charge Medicare ASP+6 percent).
Commercially insured patients and Medicare Part B patients thus may
find themselves paying coinsurance on these highly inflated prices.
Congress should reform 340B, returning it to its original intent to
assist hospitals that largely serve indigent and uninsured populations,
and ensure its rebates are extended to vulnerable patients (like the
uninsured), and commercially insured and Medicare Part B patients who
may be treated at these hospitals and find themselves paying
coinsurance. Reducing the financial arbitrage available to hospitals
would also reduce the incentive for hospitals to acquire oncology
practices, reduce pricing pressures on oncology payers and patients,
and reduce pricing distortions in other parts of the market.
Second, stakeholders also seem to be in broad agreement
that novel reimbursement contracts should reflect medicines' value,
both through indication- or outcomes-based designs. Regulators should
help accelerate the transition to these contracts by removing
regulatory barriers that discourage companies from testing the waters.
Specifically, HHS and FDA should coordinate on creating safe
harbors from Federal regulations that would allow stakeholders to
experiment with innovative new contractual arrangements. These might
allow for reimbursement to track a medicine's real-world performance,
or for pricing to evolve as the weight of evidence evolves.
For instance, recently Eli Lilly and Anthem petitioned HHS and the
FDA to grant them safe harbor from regulations, like Medicaid Best
Price and Stark anti-kickback rules, which prohibit them from
experimenting with these types of contracts.
With the FDA at the table, regulators could also create standards
for the collection of real-world evidence that would allow the agency
to update a drug's label to reflect new information on safety and
efficacy, expand to new label indications, and generally support the
development of a ``health care learning system.'' This system uses
information on patient outcomes, medication regimens, and even delivery
system reforms to create a rapid feedback loop that helps ensure that
the right medicine reaches the right patient at the right time--and all
in a framework pushing every dollar spent on patient care to be used as
efficiently as possible.
And finally, I would encourage Congress to consider a
broader menu of reforms that would allow payers to take a longer
perspective on the value and costs of new medicines. Such reforms would
include encouraging the uptake of value-based insurance designs; new
financing tools for State Medicaid programs to purchase curative
technologies rapidly, but spread the costs over longer periods of time;
and multi-year private insurance contracts that may align payers'
incentives with patients' long-term health. Congress should also
continue to empower patients with more information about both provider
pricing and outcomes for specific indications--helping the market to
reset on a competitive basis.
In conclusion, once we start asking questions about how to deliver
better value to patients, to society, and to future generations, we are
apt to look far past our current drug pricing debates--and toward the
future of precision medicine.
For the last 30 years, the United States has benefited from
arrangements that have put us on the cusp of tremendous new medical
achievements. The system is under strain because the pace of innovation
is accelerating, while our health care system is still divided into
payment silos, with a short-term framework that undervalues the long-
term impact medicines can play in resolving our most pressing health
care challenges--including cancer, major depression, diabetes, and
Alzheimer's.
Rather than pointing fingers, I hope that Congress can construct
arrangements that will serve patients better for the next 30 years,
unleashing the full potential of precision medicine to improve and
lengthen patients' lives, here and around the globe.
Thank you, and I would be happy to answer any questions you may
have.
The Chairman. Thank you, Dr. Howard.
Dr. Anderson, welcome.
STATEMENT OF GERARD ANDERSON, Ph.D., PROFESSOR OF MEDICINE,
JOHNS HOPKINS UNIVERSITY SCHOOL OF MEDICINE, BALTIMORE, MD
Mr. Anderson. Thank you, Chairman Alexander, Senator
Murray, and members of the HELP committee today.
This summer, I will have the opportunity to teach 250 of
our new MPH students and I am fortunate enough to have Barbara
Mikulski as one of my professors in the class.
I do not receive any financial support from pharmaceutical
companies, entities involved in the pharmaceutical supply
chain, or health insurers.
My main concern today is that healthcare prices are
limiting access to essential drugs. Innovation is absolutely
wonderful, but all Americans need to be able to afford these
innovative drugs.
In my written testimony, I focus on four categories of
people with the most problems accessing drugs. Almost one-
quarter of all Americans have a chronic condition and one-
quarter of them have two or more chronic conditions. In my
testimony, I talk about a woman with multiple chronic
conditions with insurance who has monthly bills of $1,700.
The second category of patients are those who are
prescribed very expensive prescriptions drugs. One of my
physician colleagues at Johns Hopkins came to me very upset
last year. He treats babies with neuromuscular defects and was
thrilled to learn that the FDA has approved a new drug to help
these babies. A month later, he learned that the drug company
had set the price at $750,000 for the first year of treatment
and $375,000 in subsequent years.
Who wants to hear that your new baby has a genetic defect
that will make them incompetent of doing most anything, and
then to learn the drug that treats them costs $750,000? In
Baltimore, you can buy a mansion for $750,000.
A third category is people taking off-patent drugs where
the price has increased dramatically because there are no
competitors. This is what Martin Shkreli did. The Senate Aging
Committee, led by Senator Collins, did a wonderful report on
this topic recently.
The fourth category is public programs that cannot afford
to pay for drugs. We are working with Louisiana to help them
find ways to fund Hepatitis C drugs for the 35,000 Louisianans
with Hepatitis C. Hepatitis C is the infectious disease that
kills more people than any other infectious disease including
AIDS.
The drug costs over $20,000 even with several competitors
and Louisiana simply does not have the $764 million at current
prices to treat everyone with Hepatitis C.
The next part of my drug testimony discusses drug pricing.
Drug pricing is exceedingly complex. I wore my tie with the
writing of Leonardo da Vinci as a reminder of how complicated
drug pricing systems have become. I am not even sure Leonardo
da Vinci could understand drug pricing today.
It begins, though, with a drug company setting a list price
for their drug. It is important to recognize that the
Government gives that branded drug company patent and market
exclusivity periods. These are government-given monopolies that
protect the intellectual capital of the drug company and make
it profitable for the drug company to engage in research and
development.
However, as any economist can tell you, when a company has
a monopoly, it sets the price that maximizes its profits. The
monopoly price is not the price that allows everyone to get
access to the drug.
The Senate Finance Committee did a very nice report on how
Gilead had set the price for their Hepatitis C drug assuming
that most people would not get access to the drug.
Few people have argued that the list price is irrelevant
because few people actually pay the list price. However, the
list price is used to determine the amount of cost sharing that
many patients pay. Thus, patients are harmed when the list
price increases.
Other experts in this panel have discussed the
relationships between the drug companies, the PBM's, the
wholesalers, and the pharmacies. It is important to recognize,
however, that the process begins with the drug company setting
the price.
The last portion of my testimony discusses several options
for the committee to discuss, and I only have time for two of
them right now.
One is a policy that would keep people like Martin Shkreli
from putting a drug into something called limited distribution
chain. Limited distribution chains prevent competitors from
getting access to the drug, establishing bioequivalence,
submitting an ANDA to the FDA, and then competing. So it is
very anti-competitive.
Most drugs are paid on a fee for service basis. Putting
drugs, as some of the others have talked about, into value-
based purchasing--like bundled payments and accountable care
organizations--would allow the physicians to decide which drugs
are necessary for the patient taking into account the cost of
the drug and alternative approaches. This would fundamentally
change the drug purchasing system by putting physicians, not
PBM's and health insurers, in charge of the process.
I am happy to answer any questions.
[The prepared statement of Dr. Anderson follows:]
Prepared Statement of Gerard Anderson, Ph.D.
summary
High drug prices are causing access problems. Patients in four
categories are having the greatest difficulty accessing drugs:
1. Patients with chronic diseases who cannot afford all of their
medicines.
2. Patients prescribed very expensive specialty drugs.
3. Patients prescribed off-patent drugs whose prices have recently
skyrocketed due to a lack of competition.
4. Patients on public programs where the public program cannot
afford to purchase the drug.
In my written testimony, I provide examples of people in each of
these situations.
how drug prices are set and why this matters to patients
1. It begins with a drug company setting a list price for the drug.
No regulatory or market forces constrain the list price.
2. Branded drug companies have government-issued monopolies
(patents and market exclusivity periods).
3. The list price matters because it is often used to determine the
amount of cost sharing that patients pay.
4. Pharmaceutical benefit managers (PBMs) earn their profits
primarily by negotiating discounts off of the list price. The greater
the list price, the greater the spread between the list price and the
actual transaction price and the greater the profit the PBM earns. As a
result, there is a financial incentive for the PBMs to try to get the
drug company to increase the list price. This in turn increases the
amount of cost-sharing the patient pays.
5. Wholesalers bring the drug from the manufacturer to the pharmacy
or hospital and earn a small profit doing so.
6. Pharmacies and hospitals sell the drug to the patient after they
negotiate a price with the drug manufacturer and add a dispensing fee.
7. Most patients pay something out-of-pocket for the drug that is
based on their insurance.
8. All of this information is confidential and the patient cannot
understand how the cost-sharing amounts are set.
9. Sometimes the patient would pay less if they ignored their
insurance coverage and paid cash.
policy recommendations
Finally, I briefly present a series of recommendations about how to
increase the level of competition in the supply chain for
pharmaceuticals and lower pharmaceutical prices while still providing
incentives for innovation.
Two policy recommendations warrant special considerations:
1. Preventing companies from putting drugs into limited
distribution chains that keep generic companies from accessing the
drug, testing for bioequivalence, and submitting applications to the
FDA.
2. Placing drugs into value-based purchasing arrangements like
bundled payments and ACOs. This is a disruptive system putting doctors
in charge.
______
Chairman Alexander, Ranking Member Murray and members of the HELP
Committee, my name is Gerard Anderson. I am a professor at Johns
Hopkins Schools of Public Health and Medicine and director of the Johns
Hopkins Center for Hospital Finance and Management.
This summer, I will have the opportunity to teach our 250 entering
MPH students a course on public health policy, and Senator Barbara
Mikulski will be giving them a lecture based on her years of experience
on the HELP committee.
I do not receive any financial support from pharmaceutical
companies; entities involved in the pharmaceutical supply chain, or
health insurers. I am also not testifying on behalf of Johns Hopkins
University, but in my role as a professor at Johns Hopkins University.
Today, I will cover three topics.
First, my main concern about high drug prices is that they are
limiting access to essential drugs. Innovation is wonderful, but people
need to be able to afford the innovative drugs. I begin by showing how
high drug prices are affecting access to care. I will focus on four
areas where people are having the greatest difficulty accessing drugs.
1. Patients with chronic diseases who cannot afford all of their
medicines.
2. Patients prescribed very expensive specialty drugs.
3. Patients prescribed off-patent drugs whose prices have recently
skyrocketed due to a lack of competition.
4. Patients on public programs where the public program cannot
afford to purchase the drug.
Second, I will attempt to summarize how drug prices are set and how
this process can affect patients' access to these medications.
And third, I briefly present a series of recommendations for
increasing the level of price competition, revising regulations and
legislation, lowering pharmaceutical prices, and improving patients'
access to essential drugs, while still providing healthy returns and
incentives for innovation.
how high drug prices affects access to care
While many patients have some level of difficulty paying for their
drugs, patients taking a large number of drugs or very expensive drugs
face an even greater health challenge.
Almost half of all Americans have one or more chronic conditions.
Perhaps less well known is that one-quarter of all Americans have
multiple chronic conditions, and there are about five million Medicare
beneficiaries with five or more chronic conditions. Many of these
chronic conditions require people to take multiple drugs, and having
access to the drugs to treat these conditions is critical for patients
to remain healthy.
The problem is that many people taking these drugs cannot afford to
fill their prescriptions. As a result, they are forced to make choices
between paying the rent, purchasing food, caring for their children and
being able to afford the drugs that will keep their chronic illnesses
from becoming even worse. A December 2016 Kaiser Family Foundation poll
found that one in five Americans did not fill a prescription last year
because of cost and one in six Americans cut pills in half or skip
doses in the prior year. This is rationing based on price.
I am working with an organization called Patients for Affordable
Drugs, an organization that has been collecting stories from over 7,000
people who are having difficulty paying their prescription drug bills.
Its founder, David Mitchell, told me that the most challenging stories
that he gets every day are from people with chronic conditions that
cannot afford to purchase their drugs or need to split pills or skip
doses in order to have the prescription last longer. High drug prices
are impeding their access to essential medicines that directly affects
their health.
A woman from Schenectady, NY wrote him:
``I am a 53-year-old diabetes patient who was diagnosed with
bipolar disorder. I have also suffered 8 strokes in the last 20
years. As I have gotten older, controlling my blood sugar has
become harder and harder. I had never had a problem paying for
my daily medications until a year and a half ago. The diabetes
supply that I need are [she lists five drugs] and other
supplies such as a blood meter, needles, test strips, etc.
Combine that with the costs of the other 10 drugs I take to
control my other medical issues, co-payments, [and] hospital
tests needed; I am unable to afford these increasing monthly
costs. Under my Part D coverage with Medicare and Humana, my
monthly supply of these drugs will cost me approximately $1,700
monthly.''
She is one of the millions of patients who are unable to afford
drugs to treat chronic conditions in spite of having health insurance
coverage.
Other patients struggle to afford their treatment because they have
been prescribed an extremely expensive specialty drug. Recently, a
number of very effective new drugs have entered the market offering
complete cures or ways to maintain a high level of functioning. These
are the kinds of innovations that will improve health status and
increase life expectancy. The problem is that many of these drugs are
so expensive that most people cannot afford them.
One of my colleagues at Johns Hopkins who treats babies with
genetic neuromuscular defects was thrilled when he learned that the FDA
had approved the first drug to help these babies. The drug, a new
molecular entity, essentially repairs the genetic defect and will allow
the baby to live a normal life. The treatment is only truly effective
if it is given immediately following birth before the generic defect
leads to muscular deterioration. A month later, the doctor was
mortified to learn that the drug company set the price at $750,000 for
the first year of treatment, and $375,000 per year after that for the
rest of the child's life. Who wants to hear that your newborn has a
genetic defect and then learn that your young family will need to raise
$750,000 in the next 2 weeks in order for your infant to progress
normally? If the insurance company initially denies the payment, then
the appeal will almost always require more than 2 weeks. It is hard to
imagine the stress that young families feel when faced with this
situation.
The Senate Finance Committee conducted a study of the pricing of
one of these specialty drugs. Gilead was the first drug company to
develop a cure for hepatitis C. This was a major clinical innovation
offering a cure for an infectious disease. Hepatitis C is the
infectious disease responsible for the greatest number of deaths in the
United States every year--even more than HIV/AIDS. However, the drug
company set a price that few could afford, and Gilead did this knowing
that not every one with hepatitis C would be able to afford the drug.
Let me simply quote one line from the executive summary of the Senate
Finance Committee's report:
``Gilead's own documents and correspondence show its pricing
strategy was focused on maximizing revenue--even as the
company's analysis showed a lower price would allow more
patients to be treated.''
While we do not have exact numbers of the percent of people with
hepatitis C that have been treated, the best estimate is that less than
20 percent of people with hepatitis C have been treated for a
potentially fatal, but curable infectious disease. Even after the drug
has been on the market for 3 years and two additional competitors have
entered the market, still less than 20 percent of hepatitis C patients
have received treatment.
Apparently, simply having competition for branded drugs is not
sufficient to bring the price down to a level that most people can
afford. The United States should have prices that allow everyone to
have access to these life saving drugs. While we need innovation, we
also need access and high drug prices set by the drug companies should
not ration access.
The Kaiser Family Foundation conducted a study of Medicare
beneficiary cost sharing for specialty drugs. For Medicare
beneficiaries with Part D coverage, out-of-pocket costs averaged $7000
for drugs to treat hepatitis C, $6000 for drugs to treat multiple
sclerosis, $4000 for drugs to treat rheumatoid arthritis and $8000 for
drugs to treat certain types of cancer. For a social security recipient
earning $26,000 per year, these out-of-pocket costs represent 16
percent to 32 percent of the person's total income for the year and
clearly are prohibitively expensive. At these prices, it is not
surprising that many Medicare beneficiaries with Part D insurance
cannot afford these drugs.
Even for off-patent drugs, high prices can still create access
problems. Much of the recent attention has focused on the rapid
increases in prices of off-
patent drugs that do not have any competitors. The generic drug
industry works reasonably well when there are three or more competitors
selling the same drug. Since the drugs are interchangeable, competition
works to keep prices affordable.
However, problems occur when there are no competitors (or even just
one or two). When there is little competition for off-patent drugs,
companies can raise the prices without fear that consumers will choose
a lower priced competitor. This is exactly what Martin Shkreli did with
his drug. He took an off-patent drug that had been on the market for
many years, raised the price by 3,500 percent, and created mechanisms
to prevent other competitors from entering the market.
Analysis by Senator Susan Collins and the Senate Aging Committee
staff showed how Martin Shkreli and others have been able to keep
competitors from entering the market.
First, the company acquired a ``sole-source drug, for which there
was only one manufacturer, and therefore faces no immediate
competition, maintaining monopoly power over its pricing.''
Second,
``The company ensured the drug was considered the gold
standard--the best drug available for the condition it treats,
ensuring that physicians would continue to prescribe the drug,
even if the price increased.''
Third,
``The company selected a drug that served a small market,
which were not attractive to competitors and which had
dependent patient populations that were too small to organize
effective opposition, giving the companies more latitude on
pricing.''
Fourth, the company created a closed distribution system to stifle
competition. As the report notes,
``The company controlled access to the drug through a closed
distribution system or specialty pharmacy where a drug could
not be obtained through normal channels, or the company used
another means to make it difficult for competitors to enter the
market.''
Without access to the drug, a competitor cannot conduct
bioequivalence studies in order to submit a drug application to the
FDA. Increasingly, drug companies are using these closed distribution
systems to stifle competition. This is an area that Congress could
address, as I will discuss later.
The Senate Aging Committee concluded by stating,
``Lastly, the company engaged in price gouging, maximizing
profits by jacking up prices as high as possible. All of the
drugs investigated had been off-patent for decades, and none of
the four companies had invested a penny in research and
development to create or to significantly improve the drugs.
Further, the committee found that the companies faced no
meaningful increases in production or distribution costs.''
There have been hundreds of stories written about the problems
created by these rapid price increases in off-patent drugs without
competition. Let me quote from another email that Patients for
Affordable Drugs received: My wife ``has seen [her drug's] price
increase by over 3,600 percent since 2014.'' Again, this is for an off-
patent drug.
``Today her medications cost $283,000 per year or about $200
per dosage--from the 1980s to 2006 [drug name eliminated for
confidentiality reasons] was $1.00 per dose/$1,500 per year.''
People simply do not have the resources to afford these drugs and
often the cost sharing is prohibitively expensive.
Finally, public programs cannot afford these expensive drugs.
States and the Federal Government have budget constraints and high
prices are forcing public programs to make very difficult life or death
decisions.
For example, the State of Louisiana wants to expand treatment for
hepatitis C, but cannot afford to offer the care to everyone at current
prices. According to the Secretary of Health in Louisiana, it would
cost $764 million at current prices to cover the 35,000 uninsured and
Medicaid recipients with hepatitis C, in the State. Louisiana simply
does not have these resources, without dramatically reducing spending
for things like education or public safety.
We, at Johns Hopkins, are working with the Secretary of Health in
Louisiana to help her develop ways so that Louisiana can afford to
purchase the drugs and prevent the spread of an infectious disease.
Similar concerns about the affordability of certain drugs have been
expressed by other States and by Federal agencies such as the Veterans
Administration and the Indian Health Service.
A woman from Alabama writes to Patients For Affordable Drugs:
``My husband and I are currently doing without needed
medication because of the cost. We recently lost our health
coverage. With the high cost of medication, we simply cannot
afford to fill our prescriptions. My daughter is in the same
position, however she is on Medicaid. She has numerous health
conditions and without her needed prescriptions, which Medicaid
won't cover due to the cost, she ends up being forcibly
hospitalized for treatment.''
States must make difficulty choices. Simply telling them to cover
everyone that needs a drug ignores the fiscal realities.
how drug prices are set and why this matters to patients
The establishment of the initial drug price, how this then gets
translated into the price that the pharmacy or hospital pays to acquire
the drug, and how it ultimately impacts the price that the patient pays
to obtain the drug is extremely complicated. Much of the process is not
transparent. My summary by necessity is an oversimplification of the
process. A full description would consume a book.
It begins with a drug company setting a list price for the drug.
There are no regulatory or market forces that determine the list price
that the brand name drug company can set, and the drug company has full
discretion and market power to set whatever list price it chooses when
the drug is launched or to change the list price at any point of the
life cycle of the drug.
It is important to recognize that the branded drug company has
patent and market exclusivity periods that prevent other drug companies
from manufacturing the drug. These are government given monopolies that
protect the intellectual capital of the drug company and make it
profitable for the branded drug company to engage in research and
development.
However, any economist can tell you the dangers when a company has
a monopoly; the drug companies are able to set the price that maximizes
their profit. The monopoly price is not the price that allows everyone
to get access to the drug. They set a price that is much higher than
they would set in a competitive environment.
There are a number of factors that go into the drug company setting
the list price. One factor is the cost of research and development.
However, the list price is typically not based on the research and
development that went into developing that specific drug; instead, the
company looks at their entire portfolio of drugs to determine the
profits they will require to create the next generation of drugs. Even
using the pharmaceutical industry's own data, it is clear that branded
drug companies typically spend less than 25 percent of their revenues
on research and development, and far more on advertising and marketing.
Many people have argued that the list price is irrelevant because
few entities actually pay the list price. However, the list price is
often used to determine the amount of cost sharing that many patients
will pay. Since the list price is the only price that is publicly
announced, it becomes the basis for many cost-sharing agreements. Thus,
patients are harmed when the list price goes up.
Most people with health insurance have their drug benefits
determined by pharmaceutical benefit managers (PBMs), who negotiate
prices with drug companies on behalf of health insurers or large
employers. Only three PBMs control 80 percent of the market, which is
troubling from a competitive vantage point.
Increasingly, it is being reported that PBMs are responsible for
some or even most of the price increases. While they do have a role in
the price increases, PBMs also serve to negotiate lower prices because
of their tremendous buying power.
PBMs earn the majority of their profits by negotiating rebates off
of the list price. The greater the list price, the greater the
difference between the list price and the actual transaction price, and
the greater the profit the PBM can earn. As a result, there is a
financial incentive for the PBMs to try to get the drug company to
increase the list price to show the insurance company or the large
employer that they are getting a larger discount. However, this also
serves to maximize the PBM's own rebates. For example, if the list
price is $100 instead of $50, and if the actual transaction price is
$30, then the discount appears much greater when the list price is
$100. Also the PBM's rebate might be greater. Neither the size of the
rebate nor the actual transaction price is transparent. Congress might
want to use its subpoena power to investigate.
The fact that a higher list price can result in greater sales for
the drug company is contrary to all economics principles. In nearly all
markets, sales decline when prices increase. However, for drug pricing,
higher list prices and the greater rebates can help drugs get better
placement on the formulary and hence more sales. The challenge is to
change the rebate structure for PBMs a topic that I discuss later in
the testimony.
Wholesalers bring the drug from the manufacturer to the pharmacy or
hospital. The profit margins of the large wholesalers add only 1-2
percent to the price of the drug.
Pharmacies and hospitals sell the drug to the patient after they
negotiate a price with the drug manufacturer and add a dispensing fee.
Doctors, pharmacies and hospitals can get rebates from drug companies
for using their drug as well. These rebate arrangements are almost
never disclosed to patients.
Most patients pay something out-of-pocket for the drug. The exact
amount is based on their insurance coverage. Insurance companies and
PBMs determine the price that the patient will pay out-of-pocket by
placing drugs on different tiers with different levels of cost sharing.
PBMs and the branded drug companies negotiate aggressively on tier
placement and this also helps determine the amount of the rebate.
Again, all of these negotiations are confidential and the patient
cannot understand how the cost sharing amounts are set. As a result,
there have been calls for greater transparency in the pharmaceutical
supply chain.
What we have recently learned is that some PBMs have instituted gag
clauses with the pharmacy that prevent the pharmacy from telling their
patient that if the patient paid cash instead of using their insurance
card the price would be lower. Placement of the drug on a cost-sharing
tier where the drug has a very high list price and low transaction
price could mean that paying the cost sharing based on the list price
is greater than the cash price. Pharmacies have reported this occurs
quite often.
However, it is important to note that it all starts with the drug
company setting the list price. Brand name drug companies have complete
discretion on the price that they set and can raise it at any time. The
government does not determine or limit the price. In fact, the
government gives the branded drug company a government issued monopoly
to set the price. Off-patent drugs face market competition if there are
multiple competitors. The problem in the off-patent market occurs when
there is only one or two off-patent drug companies making a drug.
policy options to increase competition, decrease drug spending, and
improve patient access while encouraging innovation
We are examining policy options for the HELP committee to consider.
We have divided them into two categories:
1. Policies that increase the level of competition.
2. Policies designed to increase access to pharmaceuticals.
initiatives to increase the level of competition
1. Curb Use of Limited Distribution Networks that Restrict Ability of
Generic Companies to Copy Drugs and Submit ANDAs to FDA
Generic drug companies need access to brand and off-patent drugs in
order to demonstrate bioequivalence to the FDA for abbreviated new drug
applications (ANDAs). However, some brand and off-patent drug companies
are putting their drugs in limited distribution networks, making it
virtually impossible for a generic drug company to access the drug.
Hearings at the Senate Aging Committee and House Government Oversight
Committee have shown how Martin Shkreli and others have used this
tactic to stifle competition for old and off-patent drugs. Requiring
drug companies to make their drugs easily available to generic firms
would accelerate the introduction of generic drugs in the market and
could save $2.8 billion, according to the Congressional Budget Office.
2. Include Drugs in Bundled Payments and ACOs
This is a potential game changer. Most drugs are still paid under a
fee-for-service model. Payment reform is moving toward value-based
purchasing; however, drugs are typically not included in these
approaches. Including drugs in reforms like bundled payments and
Accountable Care Organizations (ACOs) would allow the physicians and
other providers to make allocation decisions that include tradeoffs
between a drug and other treatment modalities. Including drugs in
bundled payments and ACOs would fundamentally disrupt the drug
purchasing process and lead to more transparent pricing and put doctors
in charge of deciding which drugs the person receives instead of the
PBM or insurer. The doctor would have the financial incentive to make
the decision that is in the best interest of the patient. Drugs are
already included in the Medicare DRG payment that hospitals receive;
this would simply expand the scope to value-based purchasing
arrangements.
3. Eliminate Rebates in PBMs and PDPs
PBMs earn most of their profit by getting rebates from the drug
companies. The rebate is based on the difference between the list price
and the transaction price. Increasing the list price therefore results
in greater rebates, which totally distorts the pricing system. The
higher list price also means greater cost-sharing for patients because
cost-sharing is typically based on the list price. Forcing the PBMs and
indirectly the prescription drug plans (PDPs) to pass on all of the
rebates to the government, health plan or self-insured company would
eliminate the market distortions, reduce prices, and should be used to
reduce premiums or patient cost-sharing. The PBMs would earn a fee for
their services instead of a portion of the rebate. Giving the rebate to
the patient--although it sounds good in principle--serves to distort
the market since the patient would no longer be affected by the price
and the drug company could increase the price even further. Some ``skin
in the game'' for patients is needed to keep prices down, as long as it
does not prevent access.
4. Restrict Pay for Delay Behavior
Branded drug companies have used a variety of mechanisms to prevent
generic drug companies from entering the market, including paying them
to delay the introduction of a competitor generic drug. While the
courts have continually said this is illegal, some abuses continue.
Litigation is time-consuming and allows the branded drug company to
continue to earn substantial profits while the case is still being
litigated. An alternative is to penalize the generic company that
applies to be the first entrant into the market after the patent
expires, but then does not actually manufacture the drug. Congress
could, for example, give the FDA the authority to keep the generic
manufacturer from making an ANDA application for a second drug until it
has actual sales on its first application. Generic drug companies would
be motivated to get the drug to market as soon as possible and pay for
delay would be eliminated.
5. Restrict Use of Patient Assistance Programs
While public programs like Medicare and Medicaid do not permit drug
coupons, they do permit patient assistance programs that provide
billions of dollars in financial support to Medicare and Medicaid
beneficiaries. Some of the largest foundations in the United States are
now patient assistance programs sponsored by drug companies, with
several of them giving out almost a billion dollars a year. The problem
with patient assistance programs is that they allow drug companies to
raise prices while keeping patients immune from all cost sharing. A
recent Wall Street Journal analysis suggests for every $1 million
funneled to patient assistance programs by drug companies resulted in
$21 million in increased drug sales. This is problematic considering
the IRS considers patient assistance program donations to be charitable
deductions. Again, some ``skin in the game'' for patients is necessary,
as long as it does not harm access.
6. Reduce Abuse of Orphan Drug Designations
Some branded drugs have multiple orphan drug approvals that extend
their period of market exclusivity and give them significant tax
advantages. While the Orphan Drug Act had good intentions, the
legislation needs revision to prevent companies from applying for
multiple orphan drug designations and receiving multiple approvals and
therefore market exclusivity extensions for the same drug. Revision of
the law would lower prices by moving branded drugs to the generic
market sooner.
7. Restrict Mergers of Generic Drug Companies
The Hatch Waxman Act effectively controls drug prices for generic
drugs when there are three or more generic competitors manufacturing
the drug. However, the generic industry has undergone a series of
mergers that have reduced the number of competitors and lessened price
competition. Recently, the largest and the third largest generic
manufacturers merged. Because generic drugs are responsible for almost
90 percent of drug sales in the United States, Congress and the FTC
need to take a careful look at the level of competition in the generic
market to make sure there are more than three competitors for all
generic drugs. The recent mergers have lessened the level of
competition in the generic market.
additional initiatives to improve access to pharmaceuticals
1. Revise Medicare Catastrophic Drug Spending Rules
The main reason for the rapid increase in Medicare Part D spending
is the advent of the high-priced specialty drugs costing more than
$7,000, for which the Medicare program pays 80 percent of the cost. In
spite of paying 80 percent of the cost, Medicare is prohibited from
negotiating these drug prices. MedPAC has proposed shifting 80 percent
of the cost to the PDPs and dropping the Medicare proportion to 20
percent so that the PDPs have a greater incentive to negotiate lower
drug prices for these specialty drugs. However, this could cause the
PDPs to discriminate against people with multiple chronic conditions
(who take lots of drugs). Instead, Medicare should be able to negotiate
prices directly for these high-priced specialty drugs. If negotiation
fails, Medicare could use reference pricing, binding arbitration or
value-based pricing to set prices.
2. Enact Price Gouging Legislation
This year, the State of Maryland enacted bipartisan legislation to
empower the Attorney General to take legal actions against drug
companies enacting ``unconscionable'' price increases for off-patent
drugs with fewer than three competitors. It is designed to keep people
like Martin Shkreli from raising prices on an off-patent drug for which
there is the only one manufacturer. It is the first legislation to
address the problem of rapid price increases for off-patent drugs.
Congress could consider similar legislation to stop actions by people
like Martin Shkreli.
3. Allow One Single Federal Agency To Negotiate Drug Prices
Currently many different government agencies negotiate drug prices,
with each Federal agency paying very different rates with different or
no formularies. Looking at those 30 drugs for which we can directly
compare prices, the Medicare program pays 30 percent higher prices than
the DoD. Considering the similarities in the drugs needed by these
agencies, the Federal Government would have a better procurement
process if there was only one Federal agency purchasing drugs. Because
the prices are highest in the Medicare program and Medicare
beneficiaries pay the highest cost-sharing, Medicare beneficiaries are
the biggest losers when government agencies pay different prices. While
some Federal agencies might pay more in one price arrangement, the
entire Federal Government could pay less. Savings would be dependent on
where the single Federal entity set the price--at the highest level
(Medicare), the lowest (DoD), or at the weighted average.
4. Use 1498 Authority To Negotiate Drug Prices
The Federal Government has the existing authority (28 U.S.C. 1498)
to take away the patent of a company, such as a pharmaceutical company;
provide reasonable compensation to the drug company for the use of the
patent, and allow a generic manufacturer to manufacture the drug. The
Department of Defense, the National Gallery of Art and many other
Federal agencies have used this authority to purchase patented
materials at reasonable prices. Health and Human Services Secretary
Tommy Thompson threatened to use 1498 authority to purchase Cipro
following 9/11 and Bayer lowered its price in response. The State of
Louisiana is currently considering asking Secretary Price to use his
authority under 1498 so that Louisiana can purchase hepatitis C drugs
for the uninsured and Medicaid populations.
The Chairman. Thank you, Dr. Anderson.
Thanks to all of you; very interesting testimony.
We will now begin a round of 5-minute questions. At about
11:20, I am going to ask Senator Cassidy to come over and chair
the committee so that I can attend another hearing for a few
minutes.
One purpose of this hearing is to see if we can establish
some base facts. Let me ask this question and if you can answer
it as close to yes or no as possible, I would appreciate it.
I have heard drug spending accounts for roughly 15 percent
of health spending. Of that 15 percent, 10 to 11 percent is on
drugs purchased at the pharmacy or ordered online, and 4 or 5
percent is spent on drugs given in the hospital and the
doctor's office.
Is that correct? Does anyone disagree with that?
[Panel nods in assent.]
Thank you.
Dr. Howard, you said, I believe, that 30 percent of branded
generic prescriptions had a zero out-of-pocket cost for the
patient in 2016. In other words, that when the patient picked
up the prescription at the drugstore, 30 percent of the
prescriptions cost zero. Dr. Adam Fein has said that as well in
a meeting that we had here.
Is that an accurate reflection of what you said?
Mr. Howard. Yes, it is.
The Chairman. Does anyone disagree with that of the panel?
[No audible response.]
Thirty percent of the prescriptions, brand and generic,
picked up at the pharmacy or online costs the patient zero.
Mr. Mendelson, you observed, if I heard your testimony
correctly, that patients are bearing more of the cost of
prescription drugs out-of-pocket in an effort to keep monthly
premiums low.
Is it accurate to say, and I would ask this of other panel
members as well, that in some situations or many situations
consumers are paying more for drugs while insurance companies
and employers are paying less for drugs.
Did I say that right or how would you characterize it?
Mr. Mendelson. I would characterize it as saying that
changes in benefit design are resulting in consumers paying
more.
The Chairman. Changes in benefit design. Now, what does
that mean to the untutored of us?
Mr. Mendelson. As the cost sharing associated with a drug
goes up, you are paying more of the portion of that price.
The Chairman. Then who is paying less if the patient is
paying more?
Mr. Mendelson. It depends on whether the cost--I know you
do not like the word ``depends,'' no Senator ever does--but it
depends on whether the cost is going up as a result of a rise
in the price of the drug or just the change in the benefit
design.
What is happening is that patients are being asked to pay a
larger and larger percentage of the cost of the drugs that they
take.
The Chairman. That would mean someone is paying less. Is
that right?
Mr. Mendelson. That is right. It could be reducing the
premium.
The Chairman. It would be the employer or the insurance
company. Right?
Mr. Mendelson. Or it could be reducing the premiums to the
consumer.
That is the other thing that is important, which is that if
a health plan can reduce premiums to the consumer, they want to
do that, and part of the way they are doing that is by putting
higher prices for drugs to consumers at the same time.
The Chairman. To lower the price of the premium.
Any other comment on that? Dr. Anderson.
Mr. Anderson. Essentially what we are seeing in the private
insurance market and the PBM's, is about a 3 percent growth
rate in drug expenditures. What we have is if the price----
The Chairman. A 3-percent growth rate.
Mr. Anderson. The expenditures by the health insurers, by
the employers, by people. It is not that the prices are going
down for the employer; they are just not going up as fast.
What we have is a balloon here. What happens when the price
increases are people, the insurance companies, squeeze the
balloon a little bit to keep their price increase by only going
up by 3 percent. Somebody else has to pay part of that increase
and that is the consumer.
When the employers squeeze the balloon, the consumer pays.
The Chairman. Who else had a comment? Dr. Howard.
Mr. Howard. Yes, I am sorry. I just wanted to comment.
What happens when the person goes to the pharmacy to pick
up their prescription, the pharmacy does not know the rebate.
They are reimbursed based on what is called, I think, the
average wholesale cost.
The coinsurance that a patient is paying is based on the
price that the pharmacy has. That rebate is given to the PBM. I
think Dan commented that that rebate is then, at least some
portion of it, passed along to the employer. The patient is
experiencing a co-insurance based on a list price and that is a
problem. That is what we are honing in on now.
As Express Scripts said last year, it held cost growth for
its commercial clients to under 3 percent, but more of that
cost is being shifted to patients buying these specialty
medicines.
The Chairman. I am afraid I am out of time, but I am going
to submit to each of you two or three questions, if I may in
writing. One of them is going to be if we should not focus on
the list price, then what should we focus on instead in trying
to understand pricing?
Senator Murray.
Senator Murray. Thank you very much, Mr. Chairman.
Before I ask the witnesses any questions, I wanted, since
you are going to be leaving, to ask you a question. I really do
appreciate you having this hearing, prescription drug prices is
extremely important. I appreciate this and it is an important
topic. I will have questions.
You have not yet scheduled a hearing on the Republican
Trumpcare bill. I know you are a part of the discussion. You
know what is in it. We have no idea. We have not seen it. The
people we represent do not have any idea. Senator McCaskill
raised this at a hearing, powerfully, last week and I want to
raise it here too.
Do you intend to have any hearings before the bill comes to
the floor?
The Chairman. I have none planned, Senator Murray, but let
me respond to that in two ways.
No. 1 is that bill, if you are referring to the House bill,
would be referred to the Finance Committee, not this committee.
So you might take it up with Chairman Hatch.
No. 2, I had a hearing in late January, early February. We
had terrific witnesses. My hope was to focus on the individual
market and changes that we might agree on in a bipartisan way.
Most Senators came to the meeting and made their Obamacare
speeches that they have been making for the last 7 years.
I would summarize it by saying that the witnesses did very
well at the hearing. The Senators did very poorly.
If we are not able to focus in a bipartisan way when we
have a bipartisan hearing, I do not think there is much promise
for a bipartisan result.
Which leads me to my third point, which is that this is a
hearing that you asked for----
Senator Murray. Right.
The Chairman [continuing]. That other Democrats asked for,
and that Senator Cassidy and Republicans asked for. We agreed
on who the witnesses should be. We have exceptional witnesses
today. It is a chance to address drug pricing, which is
important to every American family.
I would think that this committee is a group of grown-up
adults who are able to do more than one thing at a time.
We could discuss Obamacare, if you would like, but today we
are trying to discuss drug pricing which is up to 15 percent.
You brought up the issue.
Senator Murray. I just asked you a question.
The Chairman. You asked me the question about Obamacare,
which is not the subject of today's hearing.
Senator Murray. I agree.
The Chairman. If that is the way you want to spend your
time, fine. I do not know why I should call hearings requested
by the Democrats with bipartisan hearings when you will not
focus on the hearing.
Senator Murray. Mr. Chairman, I appreciate that you are
having this hearing. I also would very much appreciate that we
have a hearing on a bill that we are going to see that our
folks have not seen, people across the country have not seen.
When we passed the ACA, we had 57 bipartisan HELP committee
hearings, and meetings, and roundtables. I will just say that
that is disconcerting.
The Chairman. You passed the ACA in the middle of a
snowstorm with 60 votes and crammed it down the throats of
Republicans.
Senator Murray. Well.
The Chairman. If you want to talk about that, we can. Today
we are talking about drug pricing.
Senator Murray. We are talking about drug pricing. It is an
important part of the healthcare program, but I think people in
the country are deeply worried about what is happening to the
healthcare system.
Mr. Coukell, let me go to you first.
Our hearing today is about the supply chain impacts and
costs, and we have heard that the interactions between drug
companies, pharmacies, and payers is a complicated one, but let
me ask you a simple question.
We all know prescription drug prices are harder and harder
for our families to bear. Some Republicans have been blaming
this on the skimpier insurance coverage that forces patients to
pay more out-of-pocket.
If that were the case, the total spending on drugs should
stay constant as just the patient share of the costs would be
increasing.
Based on your testimony, my understanding is that total
spending on drugs is not only increasing, it is increasing
faster than spending on other types of healthcare services.
Is that correct?
Mr. Coukell. That is correct, Senator, and it is projected
to continue increasing at about the current rate through 2021.
Senator Murray. Why is that?
Mr. Coukell. That is based on a combination of high launch
prices of new drugs, and year-on-year increases in the prices
of brand drugs that are on the market. Drug spending is also
being increased, by the increased volume growth as the
population ages and we use more drugs. Those are the three
major drivers of drug spending.
Senator Murray. Dr. Anderson, about 10 to 15 percent of
U.S. healthcare spending goes to pay for prescription drugs. We
established that. That is a cost patients feel every day.
I wanted to ask you in my short amount of time left, how
can we tell if a high-priced new drug--you mentioned some of
the bipartisan report were produced--how can we tell if a high-
priced new drug is actually saving money down the road?
Mr. Anderson. We really cannot in most cases. We have some
methodologies out there that are trying to do that, but it is
exceedingly complicated.
That is why I would rather have the doctor make the
decision as to which drug you get by giving that doctor the
financial incentives to make the choice given the fact that
they have a certain amount of money to spend.
Senator Murray. Thank you very much.
The Chairman. Thank you, Senator Murray.
Senator Cassidy.
Statement of Senator Cassidy, M.D.
Senator Cassidy. Thank you all.
A couple of things. Let me just make a comment at the
beginning. I am a little bit betwixt and between the two sides.
I will say as a physician, when I was a medical student,
one of the most common surgeries was gastric resection, taking
out a part of the stomach for peptic ulcer disease. Along comes
Cimetidine, which is now an over the counter drug, and we just
stopped doing the surgery.
Then when I was a resident and fellow, Crohn's disease
surgery was so common. No one does Crohn's disease surgery any
more because now we have these new drugs that just eliminate
it.
Yet, on the other hand, I will agree. Dr. Anderson, you
made the point and it was made by others, that there are some
drugs that are so priced that some people do not achieve the
benefit.
I always said we have a social contract with pharmaceutical
companies in which we reward them for the risk and the social
benefit they bring. I was on a call the other day and somebody
said, ``Well, our first loyalty is to our stockholder, our
shareholder. We should charge whatever we can.''
It seems like our social contract has now fallen apart. I
just say that as a physician that understands there are
lifesaving medicines which some people cannot access.
Dr. Anderson, you mentioned the Louisiana Hepatitis C. I am
actually working on that. I am a hepatologist. I did a
spreadsheet and saw that we could actually save money on long-
term care--cirrhosis, a better share of the cancer, et cetera--
if we upfront the treatment. The question is how do you pay for
it? I do think that is something that we have to address.
Let me toss out something which is kind of radical.
When I look at the rebates, I am not sure that on net the
rebates are actually bringing benefit to our society. As a
physician, I look at the person paying cash and she is not
benefiting from that rebate unless that is one of the rare
companies, like CVS, I think you mentioned Dr. Howard, that
does a point of sale rebate.
One of you mentioned in your testimony that we are pushing
people more rapidly into the catastrophic portion of their
Medicare Part D by a higher price. Sure, it is rebated, but the
person is paying out-of-pocket. So their true out-of-pocket
cost is inflated. They are moving more rapidly into the
Medicare Part D.
Both for that cash person and their deductible, or with
their health savings account, and the Federal taxpayer who is
pushed more rapidly into the catastrophic portion. It seems
like the rebate is kind of not working as well.
Mr. Mendelson.
Mr. Mendelson. Yes. I would respectfully challenge that. I
think that rebates are benefiting American consumers. They are
benefiting American consumers because they leverage effective
price competition and they ultimately reduce----
Senator Cassidy. Let me interrupt. Why not just have a
price based? When my wife buys jeans, she does not get a rebate
from Levi's or Lee. She actually just gets a net price.
Tell me why that does not just translate into a net price?
Mr. Mendelson. Rebates are a way that pharmaceutical
companies give price concessions.
Senator Cassidy. I accept that. I guess what I am just
stumbling on, why not have a little upfront price which would
be the ultimate concession?
Mr. Mendelson. Because when drugs are first launched, there
is a launch price and then competition comes in. The Hepatitis
C market is a great example of this.
Senator Cassidy. Somehow I think we are talking past each
other.
Mr. Coukell. Senator, may I?
Senator Cassidy. Yes.
Mr. Coukell. If your wife were buying tens of thousands of
pairs of jeans, she would go to the manufacturer of the jeans
and say, ``I do not want to pay list price. I am going to buy a
lot of jeans and let us have a negotiation about what I should
pay.''
Senator Cassidy. I get that, but when you look----
Mr. Coukell. If we do not have that mechanism, then the
question is how do we set a price for drugs? Some other
countries, the Government sets that price.
Senator Cassidy. Mr. Coukell, let me just say, though you
can either do that with a rebate or you can say, ``Give me a
better price upfront.'' If I am buying a fleet of automobiles
from Ford, I say, ``Just knock $1,000 off,'' or I could say,
``Give me $1,000 later.''
The reason I say that is because that manufacturer's price
is factoring in to what the person paying cash is paying and
therefore that inflates their true out-of-pocket costs, moving
them more rapidly into the Medicare Part D.
Mr. Howard.
Mr. Howard. Senator Cassidy, I think you make a very
interesting point, which is companies could shift to a flat
discount, as per CVS has done, make it available at the point
of purchase.
They could also turn to providers and say--the reason they
give the discount is to get on the formulary--but they could go
to providers under some systems and say,
``Here is your mix of patients. These are the
medicines they need. Here is the price we will charge
you and because you are operating in a value-based
contract or a capitation contract as an HMO, you can
save money. We will demonstrate and share our savings
with you.''
There is a different way of thinking about this that
utilizes health technologies and informatics we have at our
disposal and that are coming online to try and make the value
proposition clearer to the provider and the patient.
Senator Cassidy. I get that. It seems like there is a
complexity there which is so incredible, that it is hard for
one side of that to actually fully understand if they are
getting the value that they are promised.
Mr. Anderson. It is absolutely true that it is totally
confidential. What you have got to recognize is the consumers,
if you go to the pharmacy with your insurance card, you might
be paying more because you have insurance than if you did not
have that insurance card. That is because of the rebates and
those activities.
Senator Cassidy. I will say that Louisiana is one of the
few States that has said that pharmacists cannot be gagged.
Meaning that they can inform a patient that she would pay less
if she paid cash as opposed to paying her deductible, and that
may be something we wish to look at.
The Chairman. OK.
Senator Cassidy. Which is a very pro-consumer, pro-patient
perspective.
The Chairman. Thank you, Senator Cassidy.
It is hard within 5 minutes to really dwell into this for
each Senator. We might explore, as time goes on, whether we
want to have a different forum, a roundtable, for example,
where we can have more of a conversation and discussion
between, perhaps, the four of you and Senators who are
especially interested in this issue.
I am open to any kind of discussion that will help us
understand what we are talking about. We talk about list
prices, rebates, et cetera.
Senator Casey.
Statement of Senator Casey
Senator Casey. Mr. Chairman, thank you.
I want to thank you and Ranking Member Murray for having
this hearing, and for those that made it possible. It is a
critically important issue and I know we are going to have more
than one.
I have to say, that stands in contrast to what is not
happening on an even larger issue. This is a big issue, drug
prices and affordability.
The even larger issue of what is going to happen to our
healthcare system because of what the Senate Republican members
are doing right now. I would hope that we would have hearings
on the healthcare proposal just like we are having hearings on
this issue.
In my judgment, there are lots of ways to argue against
what happened in the House and what likely will happen in the
Senate because there is reporting, just last week, that the
Senate bill will be 80 percent of the House bill. So it is
substantially similar.
In that case, just in terms of the Medicaid proposals,
which I do not think will change all that much House to Senate,
it is not repeal and replace. In my judgment it is repeal and
decimate when it comes to children who get their good
healthcare through Medicaid. People with disabilities in my
State over 720,000 people have a disability and receive
Medicaid, and about a quarter of a million seniors cannot get
into a nursing home absent Medicaid.
If we enact what is being proposed in the House bill, if we
enact what is being, credibly assessed as to where the Senate
bill is, a lot of those Pennsylvanians will be hurt. I hope we
have a hearing on that bill as well.
This issue for people in my State is of paramount concern.
Other than questions about national security on the domestic
side of what people are concerned about, and I would say other
than maybe healthcare itself more broadly, I am asked about no
issue more than drug prices.
It is of great concern to people. It is making it very
difficult for people to get the medications they need. Millions
of Americans do not get the medication they need because of
prices.
Dr. Anderson, I will start with you. You heard what I said
about Medicaid and what would happen in the event that a bill
is enacted substantially similar to what has been talked about
and what has been legislated.
Can you discuss high drug prices, especially around
curative treatments like Sovaldi, which can cure someone with
Hepatitis C, but will impact State Medicaid programs under
capped funding?
Mr. Anderson. I would be glad to.
If you have a drug like Hepatitis C, and people have it at
the age of 40 or 50, it makes it difficult for them to work.
Some of them are in prisons, many have been on Medicaid.
However the benefit, in terms of financial benefit, of them
getting ill typically does not accrue to the Medicaid program.
They get ill when they are eligible for Medicare, and so the
State is putting out all of this money, and the Medicare
program is the one that is benefiting.
Figuring out a way for the State to have an incentive to
invest in a curative disease, an infectious curative disease is
absolutely important.
Senator Casey. One of my basic concerns is that one of the
changes that will take place at the State level is to a large
extent, maybe not completely, but to a large extent if the
Medicaid changes that are being proposed were enacted, the
Federal officials would wash their hands of it. State
officials, who have to balance their budgets, would have to
take up and deal with the consequences, I should say, of no
more guaranteed funding for Medicaid.
Mr. Anderson. That is exactly why we are working with
Senator Cassidy in Louisiana to try to do that. We would be
happy to work with Pennsylvania or any State as well.
Senator Casey. I am grateful.
In the remaining time I have, Mr. Mendelson, on Page 5 of
your written testimony, you cite the higher out-of-pocket costs
as a key factor in patients' adherence to prescribed
medications. For Americans with chronic diseases, adherence to
a prescribed medication regimen can reduce unnecessary health
spending such as hospital stays, doctor visits, et cetera.
Can you talk about that part of your testimony?
Mr. Mendelson. Absolutely. Adherence is a key aspect and
especially when a patient is using a medication that is of
critical benefit to them or, frankly, reducing health system
costs like the cardiovascular generics that we discussed
before.
There is tremendous potential in fielding digital
compliance programs where patients are tracked and the plan, or
the Pharmacy Benefit Management company, is able to remind the
patient, make sure that they are adhering to the therapy. Those
are programs that could very well be supported by this
committee.
Senator Casey. My final point and I know I am done. I do
not know how you--even if the result of these hearings over
time ended with lower drug prices--I do not know how that is
benefiting many people when you rip away healthcare to 23
million people, which is the CBO number based upon the House
bill. If you do the math on the Senate bill----
The Chairman. Time is up, Senator Casey.
Senator Casey [continuing]. You have millions of people
without Medicaid coverage.
The Chairman. Senator Young.
Statement of Senator Young
Senator Young. I thank all of our panelists for being here
today. Each of you indicated in your written testimony that you
alluded to the piloting of innovative outcomes-based contracts
by insurers and by biopharma companies. I would like to explore
this idea of outcomes-based contracts with each of you.
Can you first explain how these contracts work and perhaps
what their potential might be to lower drug costs for patients?
Any of you can respond.
Mr. Coukell. There is a vast range of potential ways these
contracts could work.
Some could be purely financial instruments around a volume
of sales and so on. Some could tie reimbursement payment for
the drug to achieving specific outcomes, preventing
hospitalization, or lowering cholesterol to a certain level.
There are a lot of ways they can be structured.
This is still very new territory. There are not that many
of these arrangements in place. Avalere just did an analysis
that Mr. Mendelson could talk about.
There is relatively little in the public domain about how
they are structured. They are complex to negotiate. They
require a lot of data to monitor and followup on, and it is as
yet unclear whether they will reduce spending.
Senator Young. Yes.
Mr. Mendelson. Yes, I am sorry, if I could?
Our analysis actually showed that 70 percent of health
plans were very enthusiastic about initiating these contracts,
and that 40 percent had actually initiated these contracts and
felt they were successful.
I completely agree with Allan's characterization of the
programs, but these are critical programs that are in place
today, and I think really could be facilitated by making a few
small changes to enable better contracts between health plans
and pharmaceutical companies.
Senator Young. To followup on that, are there policy
barriers to implementation of these contracts?
Mr. Mendelson. Yes.
Senator Young. If so, what are they?
Mr. Mendelson. I would point to three.
The first is that certain aspects of the Stark Regulations
prevent the engagement with patients to make sure that some of
the compliance programs--for example, that Senator Casey
mentioned--could actually be adopted.
The second, ironically, is Medicaid best price where
sometimes a pharmaceutical company does not want to enter into
an agreement with a health plan if they think that the price
that they will ultimately grant will go below what they granted
to Medicaid.
It is ironic in the sense that it is really preventing the
healthcare system from moving forward on the basis of the price
floor that was set under Medicaid. So those are two.
Then I think there is a third set of policies around
enabling more digital engagement by plans into the
pharmaceutical area, and I would be happy to followup with more
detail on that for the record.
Senator Young. I will look forward to that.
Can others identify policy barriers to implementation of
these contracts? Or, if you have strong opinions about their
viability and effectiveness as we transition from a fee-for-
service model, I would like to hear your thoughts as well. Yes,
Doctor.
Mr. Howard. Dan is absolutely right.
I just had one thing. From the perspective of the FDA--and
the engagement of companies, providers, and payers--there can
be limitations on what companies can provide in terms of what
is called off-label information on a product's effectiveness or
safety profile that is not contained on the label. It is
gathered through other sources, other clinical sources,
electronic medical records, other studies.
Being able to transmit that information and incorporate it
into these contract designs, testing new value and pricing
arrangements, would be very helpful. The FDA's concern is that
manufacturers would not have an incentive to go back and get
new label indications, or expanded label indications.
The FDA could create safe harbors for these and then
develop the use cases where they could capture that information
and more rapidly expand the label and update the label more
quickly than they do today. That would also allow for drug
repurposing, drugs competing head to head based on their real
world performance, which is another way to drive competition.
Mr. Anderson. What I would be concerned about in this
formula approach is determining the value of a human life.
You really need to do that in most of these formulas and I
do not know how you are going to do that. If you want to try to
do that, go ahead. Also, every single patient----
Senator Young. Would we, perhaps, look to some other areas,
through regulation? We have seen that regulators here at the
Federal level on a daily basis do determine cost value. Whether
it is through auto safety rules, or other decisions over at the
FDA, they do, in fact, determine a cost value, as uncomfortable
as that notion is to all of us, a cost value----
Mr. Anderson. Right.
Senator Young [continuing]. Per life.
Mr. Anderson. So the first thing you would have to do is
that.
Senator Young. Yes.
Mr. Anderson. The second thing is each patient is unique.
Talking about a value for a drug for you is different than for
Senator Collins.
Senator Young. Dr. Howard and Mr. Mendelson, this cost
value, they see that as a red herring based on their facial
expressions.
Mr. Anderson. Right.
Senator Young. I want to get that on the record.
The Chairman. Thank you, Senator Young.
Senator Franken.
Statement of Senator Franken
Senator Franken. Thank you, Chairman Alexander and Ranking
Member Murray for holding today's hearing on prescription drug
costs.
I also want to thank Senator Cassidy and the eight other
Members from both sides of the aisle who joined me in
requesting this hearing. I hope that we can continue this work
together to tackle prescription drug costs and that is why we
are here.
I am also glad that we will have additional hearings on
prescription drugs. The roundtable is a great idea, Mr.
Chairman.
I do agree with the Ranking Member and with Senator Casey
that we do need to have hearings on the current effort in the
Senate to repeal the ACA. I think the fact that we are not,
should show the people of Tennessee, once again, that the
Chairman is a rabid right-wing partisan.
Is that helpful for you?
[Laughter].
The Chairman. Actually, that might get me through the next
election.
Senator Franken. OK.
The Chairman. Thank you for that.
[Laughter].
Senator Franken. Our No. 1 focus today and always needs to
be on patients.
Consider Carol from St. Paul, who has M.S. and has been
denied coverage for her drugs that charge nearly $3,000 for her
co-payments.
Or take Clare, who lives in Stillwater, MN. Clare used to
pay $60 for her Remicade treatment for her rheumatoid
arthritis. My mother had rheumatoid arthritis. But the price
shot up to $1,400 for her prescription. Clare had to choose.
Take her medicine or keep her home. It has been 2 years since
her last treatment, and now she is having trouble holding a
knife and fork.
No one should have to choose between affording their
medications or their home.
Clare is angry. Her condition now interferes with her
ability to do basic tasks and she feels like she is being
robbed of her ability to age gracefully.
Frankly, I am angry too. It is our job, all of us here, to
help people like Clare.
These stories are not unique to Minnesota. I have given all
of you these stories from your constituents and your States. I
hope that you will read them, everyone here, and internalize
them, and make these stories your test of whether what we are
doing here is good enough.
Senator Cassidy has been talking about the ``Jimmy Kimmel
Test,'' and I am glad he has been. For drug prices, let us use
the ``Clare Test.'' Will the proposals we support help Clare
keep her home and get the medicine she needs to hold her knife
and fork.
That is why I worked with 15 of my colleagues, many of them
here today, to introduce comprehensive legislation to bring
down prescription drug prices. This bill includes more than a
dozen policies to increase transparency, improve affordability,
reward high value innovation--I thank the Senator from
Louisiana for bringing that up--and accelerate competition.
I do not expect every member on this committee to endorse
all the provisions in my bill, but I hope we can work across
party lines to build on them.
I would like to turn to my questions.
Skyrocketing drug prices obviously affect Clare, but they
actually affect all of us.
Mr. Coukell, can you describe for Americans who are
listening today who do not take expensive prescription drugs
all the different ways that high drug prices affect them as
well?
Mr. Coukell. Thank you, Senator.
We all pay the cost of prescription drugs. We pay it
through insurance premiums that we pay. We pay it indirectly
through insurance premiums that businesses pay. We pay it
through taxpayer programs that support Medicare, and Medicaid,
and the V.A., and DoD, and all of those programs.
Every prescription that is covered by insurance ultimately
is covered by the American public.
Senator Franken. All of you would agree, right?
[Panel nods in assent.]
I only have 30 seconds left, Mr. Acting Chairman, can I go
to my next question?
Senator Cassidy [presiding]. Yes.
Senator Franken. Thank you.
Reuters recently conducted an investigation on price
increases for the top 10 drugs sold in the United States.
Between 2011 and 2014, all of these 10 drugs had price
increases of at least 50 percent.
Clare's arthritis drug, Remicade, went up 63 percent.
Humira, another arthritis drug, had 126 percent price increase.
M.S. drugs, too, have increased from about $8,000 a year to
upwards of $60,000 a year annually, even though many have been
in the market for years.
Mr. Coukell, or anyone who wants to answer this. How do
drug companies justify these year over year price increases?
For example, are their products improving in any way from year
to year to justify the price? Or, are companies conducting
valuable new research and development on these existing drugs?
If neither of these, what do you think drives these increases?
Again, for anyone, but I will go first to Mr. Coukell.
Mr. Coukell. Thank you, Senator.
It is always important in this space to recognize when we
are talking about list prices or net prices. Both are
important.
Net prices are projected to rise 2 to 5 percent a year over
the next 5 years. So compounded, that is 10 to 30 percent.
List prices are rising much faster and rebates are rising
with them. For the patient who is paying an out-of-pocket share
based on a list price, or something like a list price, that has
huge implications at the pharmacy.
Obviously, once the products are on the market, there are
some ongoing costs for the companies, but if the drug comes to
market at a price that reflects its value, it is unclear why it
would increase faster than medical CPI.
Senator Franken. I am sorry. I will be here for a second
round. Thank you for your indulgence.
Senator Cassidy. Senator Collins.
Statement of Senator Collins
Senator Collins. Thank you.
Dr. Anderson, let me start by saying it is great to see you
here again. You were extremely helpful last year when the
Senate Aging Committee conducted a year-long investigation into
the four drug companies that had acquired decades-old, off-
patent drugs, and then dramatically increased the prices, in
one case by literally 5,000 percent overnight.
What we found in that investigation is that companies were
able to ward off competition by putting their drugs in closed
distribution systems, or specialty pharmacies that made it very
difficult for generic companies to get sufficient quantities of
the drugs to do the bio-equivalency studies that are required
by the FDA.
We particularly found that there were problems with abuses
of the Risk Evaluation and Mitigation Strategies program. That
is what is known as REMS. It is used for drugs with increased
risk factors. Instead, it was being misused to prevent
potential competitors from getting the drugs that they needed
for the bio-equivalency studies. Indeed, Janet Woodcock, from
the FDA, testified that this was a real problem.
Could you elaborate on that issue and what we could do to
ensure that companies do not block access to the quantities of
drugs that are needed for the bio-equivalency studies?
Second, since this is going to be the only question I am
going to get, another idea would be to amend the Medicare Part
D contracts that outline the participation in the formularies
that are covered by Medicare Part D to require companies
participating in Part D to make available sufficient quantities
of their medications for these bio-equivalency exams conducted
by potential competitors.
Could you comment on those two issues?
Mr. Anderson. I will do my best.
Senator Collins. Thank you.
Mr. Anderson. Thank you for those kind words.
It has been great to work with you and your staff over the
last year and a half helping to put together your report, and
then the legislation I know that you have been able to get
through this committee. It has been a great effort, and I
appreciate my little part in that activity.
What is happening right now is you have this REMS program
which is established by the Congress and it is to make sure
that the drugs are safe.
However, what is happening is that companies are using this
idea to block other companies from actually getting access to
the drug. People like Martin Shkreli, which your report showed,
essentially created this entity called a limited distribution
chain to keep everyone from getting access to his drug who was
a competitor to him, so no one could actually get access to the
drug.
There are a number of ways that you and others could deal
with this problem. One of which is to essentially say to every
drug company, ``You have to make that drug available to anybody
who wants to manufacture it.''
I was on a panel with Janet Woodcock over in Government
Oversight a little while ago, and she said,
``I cannot do anything about it. I can say that you
can make it available if it is on REMS, but I cannot
force you to make it available.''
I think only the Congress can essentially say that.
There is about a $3 billion savings that the Congressional
Budget Office has estimated could happen if essentially
Congress were simply to say to the company, ``You have to make
that available.'' There are a number of bills, and you have one
of them, that are about that particular area.
You could amend the Part D activities. You could do a whole
variety of different activities, but essentially the idea here
is to make sure that there is, in fact, competition in the
marketplace.
Senator Collins. Thank you so much. Those are clearly areas
that we need to pursue.
Thank you, Mr. Chairman.
Senator Cassidy. Senator Bennet.
Statement of Senator Bennet
Senator Bennet. Thank you, Mr. Chairman.
I would like to thank the Chairman and the Ranking Member
for holding this hearing on drug pricing.
It is a critical issue for people all across Colorado. I
hear about it regularly and I have heard about it over the last
several weeks as I have held town halls all over my State in
republican and democratic parts of Colorado where people are
expressing their deep concern--I should say to my colleagues on
the other side of the aisle--over the House-passed healthcare
bill.
Based on what we know, 23 million people may stand to lose
health insurance, and those who are older and sicker may be
charged more. The effect of this is going to be felt more in
rural areas than in urban areas.
In Otero County, where I held one of these town halls, the
republican part of my State, 43 percent of the people who live
there depend on Medicaid. I think they have a right to know
what is in the bill, what is in the Senate plan. A right to
know what is being currently drafted behind closed doors. Their
health, the well-being of their families is at stake.
In 2009, while amending the process the Democrats used to
pass the Affordable Care Act, Speaker Ryan said, ``I do not
think we should pass bills that we have not read, that we do
not know what they cost.''
He said,
``Congress is moving fast to rush through a
healthcare overhaul that lacks a key ingredient, the
full participation of you, the American people.''
Speaker Ryan said,
``Congress and the White House have focused their
public efforts on platitudes and press conferences,
while the substance and the details have remained
behind closed doors.''
In 2010, Leader McConnell said,
``When it comes to solving problems, Americans want
us to listen first and then if necessary, offer
targeted step-by-step solutions. Above all, they are
tired of a process that shuts them out. They are tired
of giant bills negotiated in secret then jammed through
on a party line vote in the middle of the night.
``It should be clear now, Americans are tired of
grand schemes imposed from above.''
They said this about a process that took years, literally
years, and provided numerous opportunities to members of both
parties to provide input. Almost countless bipartisan hearings
were held, countless bipartisan roundtables were held. Hundreds
of amendments were considered. Republican amendments were
adopted in the process.
When the bill came to the floor, the Senate spent 25 days
in broad daylight in front of the American people debating the
health reform bill. We have not had a single hearing about this
product, which may be on the floor and voted on next week. Not
a single hearing. What an abusive process. At the very least,
we should meet the standards that Speaker Ryan and Leader
McConnell set for the Affordable Care Act.
I say to my colleagues on both sides of the aisle based on
the hearings that I held, the town hall meetings that I have
held in Colorado. There is going to be a lot of grief that is
going to come to this body if we do not slow down and have the
kind of public discourse we should be having about 16 percent
of our economy and something that affects so materially every
single family in our States.
I am glad we are having a hearing today on drug pricing
because it is one of the things I hear about at every single
one of my town hall meetings. As I mentioned, I think people do
not understand why people in America seem to pay such a higher
price than people around the world do.
I wanted to ask with my remaining time a question of the
panel. It seems to me, based on your testimony and other work
that I have seen, that we really need different solutions to
address different categories of the drugs.
I would like to ask first whether you think my categories
are off-base or on-base. Second, what would you say are the
ways we could most materially affect the price of drugs.
The categories, I would suggest, are specialty drugs which
are innovative treatments and cures that do not have a
competitor, branded drugs that may not have a generic version,
but may face competition with drugs that treat the same
disease, and generic drugs.
I would ask the panel, do you agree? I have 2 minutes left,
so I am just going to go down the row starting with Mr.
Mendelson.
Do you agree with this break down and the need for
different solutions to address the rising costs of each of
these categories? What policy would make the biggest
difference, Mr. Mendelson?
Mr. Mendelson. I agree that different approaches are
necessary for products that have limited competition versus
those that have robust competition.
My view is that the best opportunity is really in
fashioning policies that enhance the competition across all of
these different categories, but it has to be selectively done
in ways that make sense.
I do want to kind of point out one thing from the prior
aspect which is that, as Allan mentioned, drug prices are going
up between 2 and 5 percent in the past period. Overall,
healthcare prices are going up by about 6 percent.
If these different categories are associated with different
levels of price increase and, in fact, for drugs with generic
competition, you see substantial reductions in cost.
I just wanted to kind of address that in the premise of the
question.
Mr. Howard. Just the recognition, to followup on Dan's
point, this is a problem we are going to have about every 10 or
11 years because that is when patents expire.
For the first part of this century through about 2012, in
2012 real drug spending actually fell because about a trillion
dollars worth of branded medicines went generic.
Then we just need to focus on keeping the drugs in the
picture of this is 15 percent of the cost. There is 85 percent
of the rest of the costs that is a more appropriate use of
medicines and a more appropriate reimbursement for outcomes
that includes all of the other pieces of the system can help us
to bend the curve.
I would just caution that. Keep them in sight of all the
other things they do in the system and the ability to promote
competition among other providers.
Mr. Anderson. I would just amend your three categories and
make it four.
Within the generic space, for most generic drugs where
there are three or more competitors, the system works
incredibly well. When there are one or two competitors, the
system is broken and that is when you get the Martin Shkreli's
of the world and that is what Senator Collins and I were
talking about.
I would just make that slight modification to your
groupings.
Mr. Coukell. May I quickly?
Senator Cassidy. Very quickly.
Mr. Coukell. I agree with that taxonomy. I just want to
followup on one point that Dr. Howard made which is this is a
10-year cycle.
The concern here is your first category, which are
specialty drugs. We know now that 1 percent of prescriptions
are 30 percent of spending. If biomedical innovation continues
the way it is going, and let us hope that it does, more and
more diseases will fall into that 1 percent and that is the
trend that looks unsustainable.
Senator Bennet. Thank you.
Senator Cassidy. Senator Murkowski.
Statement of Senator Murkowski
Senator Murkowski. Thank you, Mr. Chairman.
Thank you to the panel.
Many of my constituents back in Alaska live in communities
where there is not a pharmacy in town, or if there is a
pharmacy, it is a very small pharmacy and they likely do not
stock a lot of specialty drugs. Much of what Alaskans receive
by way of pharmaceuticals comes to them through the mail.
A pretty basic question here, then, is if it is going to
come through the mail, why not work to expand that available
market? For many, they look at our closest neighbor, which is
Canada and say, ``Well, why can we not just get our
pharmaceuticals through the mail and through licensed providers
in Canada?''
Obviously, that has been a subject of discussion here in
this committee room.
What is the answer to a situation like Alaska, or many
parts in rural America where you receive your drugs by mail?
How do we work to ensure, not only the safety and the quality--
which of course, we want to do and make sure that the FDA is
regulating appropriately--but really to allow for a level of
access to people in rural America?
I will throw it out to any of you. Dr. Anderson.
Mr. Anderson. We are working and getting a lot of mail
order activities in the drug system. In most of the places in
Alaska, if Federal Express gets there, your pharmaceuticals do.
Senator Murkowski. No Federal Express in a village.
Mr. Anderson. No, I understand that.
Senator Murkowski. Yes.
Mr. Anderson. But in many places.
Senator Murkowski. They would like it.
Mr. Anderson. Exactly. But in many places it is, in fact,
available and they are.
The delivery system is working very well in the system.
Maybe not in the villages in Alaska, but in most parts of the
United States, the distribution system is working as long as if
it is not a very limited distribution system, as Senator
Collins and I were talking about earlier. I think that is it.
The cost increases that are occurring are not occurring in
the distribution system. It is really in the cost of the BPM's.
Senator Murkowski. Right.
Mr. Anderson. It is the cost of the basic pharmaceutical
company. That is where the cost is. I do not think we are going
to be talking a lot about distribution systems here.
Senator Murkowski. Mr. Mendelson.
Mr. Mendelson. I agree with the comments about home
delivery that it is a vital aspect, and I do not think that is
going to change, but we will see more and more of that as more
benefit managers encourage those programs.
With respect to the importation issues and this dates back
to when I was running OBM Health under the Clinton
administration and that was also being proposed around that
time. And talking about things that are cyclical, every 3, 4,
or 5 years there is an example of a drug that comes in from
outside our borders and really hurts somebody.
As a result, I know that Congress had essentially put a
certification in front of the FDA Commissioner and said, ``We
need the Commissioner to certify.'' And it had Democrats and
Republicans in those positions and to date, no one has been
willing to certify to the safety of the importation program.
That does give me some level of pause in terms of
essentially abandoning the protections that we have in this
country that are tightly regulated, not only by the Federal
Government, but also by States and essentially kind of adopting
an external regulatory regimen.
Senator Murkowski. Let me ask about the PBM's because you
have raised that and it just seems that we have kind of a self-
reinforcing spiral when it comes to certain drug costs.
First, you have new drugs and they cost more money, and
that drives up the cost of insurance. Then in an effort to
reduce the monthly insurance premiums, insurers offer this
array of plans that expose patients to more out-of-pocket
costs. Then PBM's can negotiate some sort of a discount from
the manufacturer in exchange for certain concessions, but those
savings, then, are not passed on to the patient buying the
drug. Instead, those savings are already built in to the cost
of the patient's insurance premium.
Somebody who has bought only the insurance that they can
afford, cannot afford the steep price of the drug because the
insurance has a co-pay or a high deductible. The higher the
list price of the drug, the more of a discount, then, that the
PBM can negotiate and the more money then that PBM earns.
It seems that you are incentivizing the pharmaceutical
companies to set a list price that is nowhere close to the
actual cost of the drug, even when the R and D factored in and
the cycle starts over again.
What do we do? I understand that Dr. Anderson would either
eliminate the rebates to PBM's and PDP's, or mandate
transparency. How do we get out of this cycle that it clearly
appears that we are in?
Mr. Anderson. What you want to do is pay the PBM a fee for
their services. They are performing a very valuable service.
What you do not want to do is pay them, give them a portion of
that rebate because that gives them the incentive to raise the
price.
Senator Murkowski. Just a flat fee or----
Mr. Anderson. A flat fee or some kind of incentive payment,
but not based upon the price of the drug. You take away that
rebate incentive to do it. If they can negotiate a better
price, they can get a bigger fee, but they do not get a rebate.
Senator Murkowski. Got it.
Dr. Howard.
Mr. Howard. Some employers do just that. I forget what the
exact numbers are off the top of my head. About half of large
employers ask for 100 percent of the rebate to be passed
through to them, so they capture the full value of that, and
then the PBM can be paid on a per member, flat fee basis. You
can ask the other 50 percent of the employers who do not do
that, why they do not do that.
I just wanted to draw attention to some innovative
approaches on the payment end.
There was a study that United Health is trying to replicate
where they tried to bundle physician payment services for
cancer medicines, and for cancer care that physician delivered
in the hospital.
In a nutshell, they found that drug costs went up by, I
think, 136, 139 percent. But total healthcare costs for
treating those cancers fell by 36 percent because the physician
had an incentive to use a regimen at their own discretion that
they felt would prevent other complications, prevent
hospitalizations. They are trying to duplicate that experiment.
That is one way of putting the medicine at the center of a
better outcome that can lower total cost and still force the
manufacturers to demonstrate how they are impacting that
outcome.
Senator Murkowski. Thank you, Mr. Chairman.
Senator Cassidy. Dr. Howard said they put the patient at
the center of that, not the drug.
Mr. Howard. Correct.
Senator Cassidy. Yes.
Senator Baldwin.
Statement of Senator Baldwin
Senator Baldwin. Thank you.
Mr. Chairman, Ranking Member, it is absolutely clear that
we have a problem with drug prices when price increases
accounted for 100 percent of the pharmaceutical industry's $8.7
billion bump in earnings last year.
I fear that it is about to get even worse with the very
partisan healthcare bill that is about to be brought to the
Senate floor, which I believe will make many, many, many
Americans pay a lot more for less care.
I am glad this is a bipartisan hearing. We should be
working on bipartisan solutions to improve costs instead of
pulling the rug out from under so many of our constituents,
like my Wisconsin constituents, who are already struggling to
pay for lifesaving medications.
Wisconsinites like Diane. Diane is from Webster, WI. She
recently had to stop taking her Multiple Sclerosis medication
that costs more $90,000 annually today. She has seen the price
increase over the last 23 years and she has seen her savings be
just completely drained.
It is why I had the opportunity to introduce the Fair Drug
Pricing Act with my colleague, Senator John McCain, to require
basic transparency and accountability--like Research and
Development costs, like marketing and advertising spending--for
drug companies that choose to increase the price of certain
drugs by more than 10 percent a year.
Holding drug companies accountable is a first step to
addressing these dramatic price hikes that are making
healthcare more and more unaffordable for too many families in
Wisconsin.
I believe that the market is broken when people like Diane
have to make that sort of decision and we continue to see these
yearly price increases.
Pfizer has already raised the price of 90 of its existing
drugs by about 20 percent this year. While drug companies often
argue that their price hikes are due to product improvements,
and new R and D, we have absolutely no way to verify this.
What could we do to limit these price increases for
existing drugs? Do we need more information surrounding drug
company pricing decisions to help improve access?
I want to start in answering that question with you, Mr.
Coukell.
Mr. Coukell. Thank you, Senator.
You started with Multiple Sclerosis, and it is an
interesting area where there are a dozen drugs or so, and every
time a new one comes along, the price of all the old ones go
up. So that shows us that the market is not working the way
markets are supposed to be working.
It is absolutely a difficult area to make policy in because
there is such a lack of transparency about who is paying what.
It is very, very complex.
I think the question of whether R and D costs have a direct
relationship to price is an important one and clearly it is an
expensive undertaking to develop a drug. But if two virtually
identical drugs came to market with really different R and D
costs, we would not expect them to have a different price.
Really as the consumer, what I want to buy is a clinical
outcome, and it does not matter to me that much what the R and
D cost is.
Senator Baldwin. Thank you.
Mr. Anderson. Senator Baldwin.
Senator Baldwin. I have a separate question for you, Dr.
Anderson.
Since 2002, three major drug companies have increased the
price of insulin by more than 200 percent. I heard from a
constituent--his name is Greg from Stoddard, WI--who has two
sons and is struggling to afford the costs of their diabetes
and insulin treatment that costs more than $1,000 a month.
I want to know if the drug maker that increases their price
every year considers Greg's sons or any of the other families
who depend on their drugs to function?
Dr. Anderson, can you discuss why companies who make
lifesaving drugs are incentivized to regularly increase their
price or launch new drugs at radically high prices? How much
does the impact of these high prices on real patients factor
into any of their decisions?
Mr. Anderson. I had the opportunity to go to meet with the
investment bankers and the drug companies, and ask pretty much
that same question.
The simple answer is because they can.
Essentially, there is no regulation and because they have a
monopoly, they can set the price at whatever they want to set
it. So they essentially have that ability.
What they have seen from people like Martin Shkreli, who
have done it and gotten away with it, that they should be able
to do it. The investment bankers are often telling them, ``You
should do the same thing as Martin Shkreli did.''
Senator Cassidy. Senator Warren.
Statement of Senator Warren
Senator Warren. Thank you, Mr. Chairman.
I am glad we are having a hearing to talk about the
skyrocketing price of prescription drugs. It is obviously a
massive problem and there are a lot of different things we
could do to help.
Senator Franken and I have a bill with a whole group of
Senators that has a whole menu of options in it.
Senator Sanders and I have a bill with a group of Senators
to allow medicines to be imported, cheaper medicines to be
imported from Canada. Those are things we should be talking
about.
Let us be blunt. It is insane to pretend to have a
bipartisan hearing on lowering drug prices when right now,
today, 13 Republicans are writing a secret bill to kick 23
million people off health insurance and their prescription drug
benefits, and we cannot even get a look at it.
Let us start there. Dr. Anderson, you are an expert in
health policy. Before the Affordable Care Act, if you bought a
plan on an individual market, did it have to cover prescription
drugs?
Mr. Anderson. It did not.
Senator Warren. It did not. And now the ACA requires that
plans sold on exchanges cover prescription drugs as essential
health benefits. Is that right?
Mr. Anderson. Yes, they are essential health benefits
written into the law.
Senator Warren. Yes. All right. Let us talk about a second
part.
Before the ACA, insurance plans could also impose annual
and lifetime limits, meaning that once patients had run up
prescription drug costs to a certain point, the patient, not
the insurer, would be on the hook for all the prescription
costs after that. Is that right?
Mr. Anderson. Absolutely. People were being thrown into
bankruptcy court as a result.
Senator Warren. Let us talk about potentially who gets
especially hurt.
How did those out-of-pocket costs hurt someone with a
disability or a chronic illness?
Mr. Anderson. Well, they are the people that are taking the
most drugs. If you have five or more chronic conditions, which
is about 5 million Medicare beneficiaries, you are filling a
prescription every week and that is just exceedingly expensive.
Senator Warren. Before we had the ACA, we lived in a world
where insurance stopped for those who needed it most and
stopped whenever anyone needed it most.
I know the ACA's coverage of prescription drugs is not
perfect, but if the secret Republican plan is anything close to
the House bill, then millions of Americans will lose their
access to prescriptions. The Republican plan will also gut
Medicaid, which means millions more will not get access to
their medicine.
In fact, I want to ask about Medicaid for a just a second.
While the Federal Government pays for prescriptions through
a lot of different Federal programs, the best deal is Medicaid.
A 2014 GAO study found that TRICARE paid 34 percent more than
Medicaid for brand name drugs. Medicare Part D paid 69 percent
more.
There are a lot of ways that we could lower drug prices. We
could negotiate with Medicare, let Medicare negotiate. We could
import cheaper medicines. And instead, the Republicans are
talking about slashing the one Government program that does a
good job of keeping prescription drug costs low.
My question goes in the other direction. Mr. Chairman, I
assume that you have seen the bill, and I am not asking for
details on this. Can we get some general outlines of the
Republican plan? Will the secret Republican bill let insurance
companies go ahead and drop prescription drug coverage or kick
people off Medicare?
Senator Cassidy. Senator Warren, I cannot answer that.
Senator Warren. I appreciate that and you have been someone
who has really tried to work in a bipartisan way on this issue.
This is just enormously frustrating. We are in here to talk
about the importance of access to prescription drugs and the
need to bring down the costs, at the same time that 13 people
are negotiating in secret to take away prescription drug
coverage from millions of Americans.
There are people who want to be able to work in a
bipartisan way. We have had our differences on this committee
with Chairman Alexander and with others, but we try to sit down
and work in a bipartisan way.
We cannot work in a bipartisan way if we cannot see the
bill.
What is happening right now to deny Democrats and the rest
of the Republicans access to this bill so that we can see the
details, so that we can debate them out in public, so that we
can have experts review them, so the American people can see
them.
To deny the opportunity to see any of that is just flat
wrong. In fact, it is shameful.
That is it for me, Mr. Chairman.
Senator Cassidy. Briefly, Senator Baldwin.
Senator Baldwin. Mr. Chairman, I want to request that
testimony from the Campaign for Sustainable Prescription Drug
Pricing be submitted for the record.
Senator Cassidy. Without objection.
[The information referred to may be found in Additional
Material.]
Senator Cassidy. Senator Hassan.
Statement of Senator Hassan
Senator Hassan. Thank you, Mr. Chair and Ranking Member
Murray.
As is true for all of my colleagues, I think the topic of
today's hearing is incredibly important, and I appreciate the
chance to discuss it.
I would venture to guess that just about every Member of
Congress has heard from their constituents about the rising
cost of prescription drugs. I hear about it from Granite
Staters all the time.
I also right now, am hearing from Granite Staters all the
time about Trumpcare and what the Senate is doing with
Trumpcare.
Mr. Chair, I come from a State with a large citizen
legislature, 424 volunteer legislators, where every single bill
is required to get a hearing. You cannot pass legislation in
New Hampshire if the bill has not had a hearing.
I am new to DC, but I continue to be amazed that we would
not talk about a bill that impacts so many people and one-sixth
of our economy. We hear references to it in the press. We know
it is being worked on in secret, but we do not have even an
outline of that bill for us to be able to examine ourselves or
to get feedback from our constituents about which is what the
other purpose of having hearings is about, so people can see it
and they talk to us about it.
I appreciate this expert panel so much. But we have been
talking today about the nuances of benefit plan design when, in
fact, if Trumpcare passes, a whole lot of our constituents may
not have a plan to begin with.
I join with my colleagues in being so frustrated that we
are needing to spend time today when we want to be talking
about the very important issue of access to lifesaving
prescription medications for our constituents. But we need to
be talking about Trumpcare because if Trumpcare passes in
anything near the form that the House bill is in, and we are
told that the Senate plan is similar to the House bill, this
will be kind of an academic discussion for a whole lot of our
constituents.
I will join with my colleagues in asking the majority party
to please share their plan with us, and to please include us,
and to have a hearing so that our country can collaborate, and
come together, and find a way forward.
One of the things that I am also very concerned about is
that we are hearing that the Trumpcare plan will cut Medicaid.
I think a lot about the people who are covered by Medicaid in
my State with long term disabilities, who do not have the
physical capacity to actually take the medicine themselves. We
need nurses, and licensed nursing assistants, and homecare
workers who can actually help. If Medicaid is slashed again,
access to prescription drug medicine for a lot of our
constituents is an academic issue if there is not somebody who
can help them take it.
That is what I think we should be talking about in a
companion hearing to this one--the overall Trumpcare bill.
I do have a couple of questions about some fundamental
issues that affect drug pricing because, again, I appreciate
the discussion about benefit plan design, but we are still
talking about underlying costs that keep rising very quickly.
As you know, and Dr. Anderson, we began to talk about this
in one line of questioning. Drug manufacturers often point to
high research and development costs to justify high drug
prices.
In December, Health and Human Services released a report
that concluded drug manufacturers set prices to maximize
profits. This finding is obvious, especially for those who
struggle every day to afford their medications. But I want to
point out something from this report that I find interesting
and would ask for you to comment on it.
The HHS report said that the relationship between research
and development costs and drug prices is subject to a number of
misconceptions. In reality, the prices charged for drugs are
unrelated to the development cost. Drug manufacturers set
prices to maximize profits. At the time of marketing, R and D
costs have already occurred and do not affect the calculation
of a profit-maximizing price.
Dr. Anderson, your testimony echoes this finding. I really
am curious to find out from you, as an expert in this field, do
companies spend more on research and development or on
marketing, advertising, and then add to it in the profits they
take?
Mr. Anderson. Thank you for that question.
They spend less on research, and more on marketing and
sales than most of the companies. Essentially, you are correct
that there is no typical relationship between the amount
invested in a particular drug and the price of that drug.
Overall, the companies need the money for R and D, but they
do not actually price on the basis of how much R and D they put
in to a particular drug.
Senator Hassan. Thank you very much for your answer.
Thank you, Mr. Chair.
Senator Cassidy. Senator Murphy.
Statement of Senator Murphy
Senator Murphy. Thank you very much, Mr. Chairman.
My apologies to the panel; I am not going to ask them any
questions. I am not. I think this is a really interesting
discussion, but I think it is totally irrelevant to the most
important discussion that is happening right now, which is not
in this committee. It is not anywhere that the American public
can see.
It is behind closed doors where there are a certain number
of Republican Senators that are perpetuating a fraud on the
American public and they are not here. I mean, Democrats have
been here at this hearing pretty consistently throughout the
morning. Republicans have been in and out.
If you want to believe the Republicans are behind closed
doors writing a healthcare bill that is going to steal
insurance from 23 million American in order to pass along a tax
cut to the richest amongst us. Then this visual is evidence,
potentially, of what is going on right now.
Senator Hassan has it perfect. We can talk all we want
about benefit design, but if 23 million Americans lose their
access to health insurance, then they cannot afford
prescription drugs. So it does not really matter what we do
with respect to adjusting the intellectual property laws, or
trying to differently regulate PBM's.
If there is a massive fall off of the number of people who
have insurance, then nobody can afford the drugs that we are
talking about here today. With all due respect to the chairman,
not the chairman who is sitting there today, but the Chairman
who made opening remarks, what does it matter that the bill was
passed in 2009 in the middle of a snowstorm? What does it
matter what the weather was outside?
There were 25 days of debate in the U.S. Senate before that
bill came up for a vote. The American people had a month to
watch the Senate debate that piece of legislation and offer
amendments. And as the Ranking Member said that was on top of
exhaustive committee processes.
It is just not true that that bill was rammed through. That
is not true. The House and the Senate debated that bill for a
year and a half. It was there for the American public to see.
The reason that we are watching this process play out in
secret, the reason why no one in this country will see this
piece of legislation until it is already passed is because
Republicans learned a lesson from 2009 and 2010. That it did
not accrue to Democrats' benefit to have that process play out
over such a long period of time, so that is why they are going
to keep this secret.
They are going to keep it secret because inside that bill
are massive giveaways for their friends. $145 billion of tax
breaks for health insurers. $28 billion of tax breaks for
pharmaceutical companies. $663 billion of tax cuts, almost none
of which is going to anyone in this country who makes under
$200,000 a year.
There is good reason why there are no Republican Senators
here except for Senator Cassidy. There is good reason why they
are doing this behind closed doors because it is a fraud.
It is a fraud to take insurance from middle class folks,
folks who might be struggling in this country so that you can
muster up enough money to hand another big tax break to people
that do not need it.
I hope eventually we can sit down and have a conversation
about drug pricing that is meaningful and relevant, but this is
not. This is just a distraction from what the real story is,
which is this committee becoming irrelevant as a secret process
unfolds to radically change one-sixth of the American economy.
Senator Cassidy. Senator Sanders.
Statement of Senator Sanders
Senator Sanders. Thank you very much, Mr. Chairman.
I want to talk about prescription drugs, but I want to
concur with Senator Murphy, and Senator Murray, and I suspect
others. We are talking about one-sixth of the American economy
and there will be no public discussion. No committee hearings.
No witnesses coming forward. This is really outrageous.
I want to focus on an issue which is also outrageous and
that is I am hearing from my constituents in Vermont--that I
suspect every other Senator here is hearing from his or her
constituents back home--that they are sick and tired of being
ripped off by the pharmaceutical industry, and they are very
tired of paying by far the highest prices in the world for
prescription drugs.
At a time when drug prices are soaring, millions of
Americans are unable to afford the medicine they need. This is
the United States of America, approximately one out of five
Americans under the age of 64 who gets a prescription from a
doctor cannot afford to fill that prescription.
How many of those people die? We do not know.
How many of those people suffer, become much sicker than
they should have been? We do not know.
How much cost occurs when people end up in the hospital
because they did not take medicine when they should have? We do
not know, but clearly it is many billions of dollars.
Mr. Chairman, there is no rational reason why in the United
States, Gleevec, which is used to treat leukemia, costs over
$10,000 in our country, but $2,100 in Norway.
Why does a drug called Lantus, a diabetes drug, cost $186
in America, but $47 in France?
Why does Crestor, a popular drug for high cholesterol, cost
$86 in the United States, and $29 in Japan?
Why does Advair, used to treat asthma, cost $155 in the
United States, $38 in Germany? On and on and on it goes. We are
not just picking these drugs out. That is all across the board.
Some cases the discrepancy is more, some it is less.
Without exception, we pay the highest prices in the world
for prescription drugs. Why is that? That really should be the
simple question that is debated today, and I apologize. I have
been to other hearings and I hope it has been discussed, but
that is the question.
Why in this country do we pay the highest prices in the
world compared to every other country on earth? The answer is
simple. Follow the money.
Since 1998, the pharmaceutical industry has spent more than
$3 billion in lobbying. This is not some kind of high
technical, medical issue. Three billion dollars in lobbying and
they have spent hundreds of millions of dollars on campaign
contributions.
We have a corrupt campaign finance system. We have a
corrupt lobbying system. The reason we pay the highest prices
in the world is an example of that for prescription drugs.
An incredible example, last year--I was involved in this--
people of California wanted lower prescription drug costs. The
drug companies spent $131 million in one State to prevent the
people of California from lowering drug prices in their own
State.
Meanwhile, while Americans are dying because they cannot
afford the medications they need, the five largest drug
companies in the country made over $50 billion in profits in
2015, while the top 10 pharmaceutical industry CEO's made $327
million in total compensation.
This is not a complicated issue. The drug companies are
enormously powerful. They own much of the U.S. Congress. They
make outrageous profits. Their CEO's earn outrageous levels of
compensation, and yet back in Vermont, we have elderly seniors
cutting their pills in half because they cannot afford the
price.
There are a number of solutions to this problem. They are
fairly obvious. They have been discussed here for a long, long
time. The real issue is whether the Congress has the guts to
take on the very powerful pharmaceutical industry. I must say,
there is not any particular evidence to believe that that will
occur.
What we need right now in this country are people from
coast to coast standing up and fighting back for their own
health, for the health of their children, for the health of
their parents. Demand support for legislation like drug re-
importation.
My colleague, Senator Franken, has issued a very good,
comprehensive piece of legislation and other people have
demanded that Medicare, for example, start negotiating prices
with the pharmaceutical industry.
There are a lot of things that we can do. We know what the
answers are. The question is, will the Congress have the guts
to stand up to one of the most powerful political forces in the
United States of America? That is the pharmaceutical industry.
Thank you.
Senator Cassidy. Senator Whitehouse.
Statement of Senator Whitehouse
Senator Whitehouse. Thank you, Chairman.
I can remember once when our Republican colleagues were so
sensitive to regular order in the Senate that they were
accusing the Affordable Care Act of being a cooked up, closed
door deal even when that was not even true.
We had in this committee, in this very committee, 47
bipartisan hearings, meetings, roundtables, and/or sessions. We
considered 300 amendments. There were 160 Republican amendments
adopted. We sat in that big conference room day, after day,
after day going through huge stacks of amendments.
It looks like what is going to happen here is that the
majority leader is going to call up the wretched House bill on
the floor. If there is an amendment process, it will be a sham
because all amendments will be stripped out because he will
offer a complete replacement, which will be the secret Senate
bill, the first chance anybody will have to see it.
No amendments will then be in order and they will cram it
through on a fixed vote with only then the secret CBO score
being provided. Then they will go off to conference with the
House, which did the original wretched bill. It will obviously
get even worse in conference with the House.
That may be the most disgraceful Senate process in the
history of this body and it is certainly a closed door deal
that bears no comparison to the open, robust process by which
we got to the Affordable Care Act. Let me just make that point.
Let me ask the panel, where there is, in fact, competition
among pharmaceuticals, how does the market tend to work?
Mr. Anderson. There are two answers to your question.
Senator Whitehouse. Make it quick.
Mr. Anderson. When there is generic competition with a lot
of competitors, it works incredibly well.
Senator Whitehouse. OK. Next. Howard.
Mr. Howard. When there are close therapeutic substitutes,
the drugs are very similar, rebates are very large and the
competition is fierce.
Senator Whitehouse. Mr. Coukell.
Mr. Coukell. I agree.
Mr. Mendelson. Agree.
Senator Whitehouse. OK. When there is real competition, it
tends to work.
Next question, how hard is it to determine when a drug
pricing monopoly exists for people who have some familiarity
with this market? Is this, like, a really impossible thing to
figure out?
On a scale of 0 to 10, how hard is it to figure out that a
drug enjoys an effective pricing monopoly?
Mr. Coukell. All brand drugs enjoy a pricing monopoly. Some
have competition from other products. It is a little harder to
tell when a generic has a monopoly, when it is the only product
in the market, but not impossible.
Senator Whitehouse. You can tell. There are some drugs that
clearly do have a monopoly where monopoly rents can be
extracted. Correct?
Mr. Coukell. Yes.
Senator Whitehouse. And that is visible. People can see
that.
Mr. Coukell. Yes.
Senator Whitehouse. Yes? Economists can look at it and say
yes, that is monopolistic behavior. Correct?
Mr. Coukell. Correct.
Senator Whitehouse. Correct. OK.
What do we do as a country when we see that monopolistic
behavior? Who steps in at that point and says, ``But wait a
minute. That is actually an effective monopoly. We are going to
have to do something about this pricing.''
Long pause because nobody does.
That takes me to Senator Sanders' point. As Senator Baldwin
mentioned, the Credit Suisse just found that price increases
have added $8.7 billion in net income to the companies that
they analyzed; $8.7 billion in added net income.
Also, we have this wretched decision called Citizens
United, which allows industries to come in and spend unlimited
amounts of money on influence in Congress.
If you are making an extra $8.7 billion, how much money
might it make sense to spend to try to exert influence in
Congress? The answer is probably around $8.7 billion. Of
course, they do not need to spend that much because we tend to
come cheaper than that.
It is impossible to imagine that we could not solve, in
good faith, the pharmaceutical pricing problem, or at least
take a good whack at it in this country, in a week if it were
not for the special influence operations that control the
Senate and control the House.
It is not just the unlimited money that we see spent. Once
Citizens United let the pharmaceutical industry, and the fossil
fuel industry, and the other big players here spend unlimited
amounts of money. That also allowed them to go to the dark
money channels and blow them out so that they could spend
unlimited dark money so that you do not even see their hands in
operation.
I associate myself with the comments of Senator Murphy,
Senator Baldwin, Senator Sanders, and Senator Murray. This is a
solvable problem except for the fact that we are too in tow to
big special interests.
Look out for the special interest prizes buried in the
secret Senate Republican healthcare bill.
Senator Cassidy. Senator Franken, second set of questions.
Senator Franken. Thank you, Mr. Chairman.
Let me speak to what my colleagues have been speaking to,
which is this Republican process that is going on behind closed
doors.
There is a hope here, which is that they need 50 votes. And
there is the hope that enough of my Republican colleagues do
not vote for a bill that will hurt the American people. These
are colleagues. They are colleagues on the other side of the
aisle, the acting chairman among them, who cares about
patients, who has run a clinic for patients who are in need.
There is hope that there are enough colleagues on the other
side of the aisle that will not allow something to get passed
that will hurt the American people and that will make this
discussion completely moot.
I am here because I go around the State of Minnesota, and
everyone knows that the prices of pharmaceuticals have shot up
in the last 3 years, and they are feeling it.
We have you four here, and I want to use your expertise to
talk about that, and put aside this process that none of us, on
this side, anyway, like--and I suspect that many on the other
side do not like--and use the fact that you are here.
I hope we do have a roundtable with you and I hope we can
do it under maybe different circumstances where we are not
talking just at the margins. We are talking about something
that is very key to the American people and not just on the
margins considering something very bad getting passed.
I want to ask you about this idea of the R and D costs. I
have heard some testimony from both Mr. Coukell and Dr.
Anderson about the R and D. Very often it is said, ``Well, you
have got to let them charge this much because otherwise they
would not be able to develop drugs.''
This is what an article recently published in the Journal
of American Medical Association said,
``Although prices are often justified by the high
costs of drug development, there is no evidence of an
association between research and development costs, and
prices. Rather, prescription drugs are priced in the
United State primarily on the basis of what the market
will bear.''
Do you think JAMA is correct?
Mr. Coukell. Senator, one of the areas we work on is
antibiotics. It is really hard to make money on antibiotics
because when a new one comes to market, it is competing with
old ones that are really cheap. And so that goes to show you
that it is not related directly to the R and D costs. It is
related to what the market is willing to pay based on the
outcomes you get.
Mr. Howard. To put that in a slightly different way, so
that returns on investment are very sensitive to the prices
that drugs command. So that when there is an attractive
environment for investment, more money goes into R and D.
There has been a great deal of econometric work from RAND
and other places that shows when those returns decline, money
going into R and D can decline as well.
The problem is that investors have alternatives. If they
can look at getting the next Snapchat or pick your favorite Web
application that they can make a billion dollars on in a few
years and not face regulatory approval compared to a product
that performs at term.
Senator Franken. Let me ask to that end. What are the
profit margins of pharmaceutical companies versus, say, other
sectors in the economy, say steel?
Mr. Howard. The CBO has found that returns on investment
for the industry are comparable to other high tech industries.
Senator Franken. Other high tech. OK. I said steel. You did
not answer my question.
Mr. Howard. Should we compare them to donuts? We should
compare them to other high R and D industries.
Senator Franken. You should answer my question first.
Mr. Howard. Right. There are lower returns for commodity-
based industries like steel than there are to other returns
like software where there are important I.P. protections and
higher returns as well.
Senator Franken. At least that was an answer. Thank you. I
appreciate that.
I am out of time, but there are so many--can I make a
couple of points?
Senator Cassidy. If you can make them quickly, because I
have to head out.
Senator Franken. We should be able to import from Canada.
We should be able to have a safe path and I think we also pay
with NIH funding; I do not think that is talked about enough.
We should negotiate within Medicare Part D.
I would like to get that roundtable, so we can discuss all
that again.
Dr. Howard, thank you again for your answer.
Thank you.
Senator Cassidy. Senator Murray.
Senator Murray. Thanks very much, Mr. Chairman.
I want to thank all of our witnesses. This is an important
hearing. It is a hearing about a cost to American families that
is dramatically growing that they are deeply concerned about.
We do need to figure out a way to proceed forward in a
bipartisan way.
Mr. Chairman, thank you for your forbearance and patience.
I know you want to go crash the secret meeting, so I do not
want to hold you up too much longer.
Senator Murray. Can I come with you and crash that meeting?
Because I will tell you, people across the country want to know
what is in it because the cost of healthcare is critical to
every family, every business, every community, everyone.
The fact that a Republican Trumpcare bill is going to be
jammed through here in a few weeks without any look at it by
this committee, to me, is really appalling.
We have a responsibility to our constituents to ask
questions, to offer amendments, to be a part of that process
particularly when millions of Americans are going to lose their
coverage, pay higher costs, and feel the impact of that.
I know you want to get to the meeting. I appreciate that. I
will just say we are really appalled that this is being done in
secret, and I hope you pass that onto your colleagues.
Thank you very much.
Senator Cassidy. I will also thank you and what I kind of
draw from our meeting today is that there is a tension between
how do we drive innovative for that antibiotic, for example,
and how do we keep drugs affordable?
Dr. Howard, your point at the end--about drug company
profits are comparable to other high tech R and D--is
appropriate. We cannot ignore the fact that some people cannot
access drugs.
Also my own concern, but I think I heard it here, is that
we are driving some patients into the catastrophic portion of
Medicare Part D which is really increasing the bill for the
Federal taxpayer as well as for that person who is not getting
that point of sale rebate.
Two more things we heard. We need to leverage outcomes data
to identify and reward value. Last, the whole process is
opaque, so pity the poor patient who is trying to make a sense
of it. So if we can get transparency, That could help.
Let me finish by saying the hearing record will remain open
for 10 days. Members may submit additional information for the
record within that time should they wish.
Thanks again for being here.
The committee stands adjourned.
[Additional Material follow.]
ADDITIONAL MATERIAL
Prepared Statement of John Rother, Executive Director, The Campaign for
Substainable Rx Pricing (CSRxP)
Chairman Alexander, Ranking Member Murray, and members of the
Senate HELP Committee, the Campaign for Sustainable Rx Pricing (CSRxP)
thanks you for the opportunity to submit testimony for the record on
the critically important issue of unsustainable growth in prescription
drug prices.
CSRxP is a project of the National Coalition on Health Care Action
Fund. We are nonpartisan coalition of organizations committed to
fostering an informed discussion on sustainable drug pricing and to
developing bipartisan, market-based solutions that improve
affordability while maintaining access to prescription drugs for
American patients and their families. Our members represent
organizations including consumers, hospitals, physicians, nurses,
pharmacists, employers, pharmacy benefit managers and health plans.
We look forward to continuing our work with the committee to
address the unsustainable growth in prescription drug prices, which can
threaten the financial security, health and well-being of American
patients and their families. Below we describe how the current
marketplace enables the brand pharmaceutical industry to engage in
anti-competitive practices that drive up prescription drug prices for
consumers and present market-based, bipartisan solutions that would
allow U.S. patients to continue to access the medicines they need at
prices more affordable than currently available to them.
i. spending growth on prescription drugs far exceeds spending growth
in the u.s. healthcare sector more broadly
U.S. spending on prescription drugs is unsustainable and growing at
a rate faster than the rest of the healthcare sector. In 2015, for
example, while overall growth in U.S. healthcare spending increased by
5.8 percent, growth in spending on prescription drugs increased by 9
percent and outpaced spending on all other medical services.\1\
Medicare has followed a similar trend in recent years, as spending
growth on drugs has exceeded spending growth in other parts of the
program. The Medicare Trustees stated in their 2016 report, for
example, that per capita drug spending in Part D grew faster tha
historical rates in 2015, driven in large part by continued growth in
prescription drug prices and a ``surge'' in spending on expensive
specialty medicines, and they project such accelerated growth will
continue in the future for similar reasons.\2\ Likewise, Medicare Part
B spending on prescription drugs increased at a rapid average annual
rate of 7.7 percent from 2005 to 2014; during that period, specialty
biologic medicines grew at a particularly fast rate, increasing from 39
percent to 62 percent of total spending, with a significant share of
the growth due to price increases rather than number of patients using
the medications.\3\
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\1\ Centers for Medicare and Medicaid Services. ``NHE Fact Sheet.''
See link: https://www.cms.gov/Research-Statistics-Data-and-Systems/
Statistics-Trends-and-Reports/National
HealthExpendData/NHE-Fact-Sheet.html.
\2\ 2016 Annual Report of the Boards of Trustees of the Federal
Hospital Insurance and Federal
Supplementary Medical Insurance Trust Funds, page 108. See link:
https://www.cms.gov/
research-statistics-data-and-systems/statistics-trends-and-reports/
reportstrustfunds/downloads/tr2016.pdf.
\3\ HHS Assistant Secretary for Planning and Evaluation. ``Medicare
Part B Drugs: Pricing
and Incentives,'' page 6. March 8, 2016. See link: https://
aspe.hhs.gov/system/files/pdf/187581
/PartBDrug.pdf.
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ii. the brand pharmaceutical industry is driving excessive drug cost
growth by setting needlessly high list prices for its products and
increasing those prices by amounts that substantially exceed inflation
after they enter the market.
Despite efforts from the brand name drug industry to suggest
otherwise, the pharmaceutical industry is the primary driver of the
unsustainable and needless growth in prescription drug costs that
American patients and their families face today. The industry sets high
initial prices for its products and consistently increases those prices
at rates that typically exceed inflation.
The brand pharmaceutical industry acknowledges that the list prices
it sets represent the majority of the cost that U.S. patients pay out-
of-pocket for their prescription drugs. ``More than half of what
commercially insured patients pay out-of-pocket for brand medicines is
based on the list price,'' the Pharmaceutical Research & Manufacturers
of America States.\4\ In other words, the industry alone sets the lists
price that comprises a majority of the patient's out-of-pocket
spending, meaning that the brand drug industry has significant control
over the excessive and unsustainable costs that U.S. patients and their
families bear in purchasing prescription drugs.
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\4\ Pharmaceutical Research & Manufacturers of America. ``More Than
Half of Patients' Out-
of-Pocket Spending for Brand Medicines Is Based on List Price.'' March
27, 2017. See link:
http://www.phrma.org/graphic/more-than-half-of-patients-out-of-pocket-
spending-for-brand-med
icines-is-based-on-list-price.
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Indeed, the brand industry today is using its ability to set high
list prices for its products--and add to the already unwarranted costs
consumers pay out-of-pocket for the prescription medications they need.
One recent analysis found, for example, that list prices for
prescription drugs grew 9.8 percent in 2016 after a 10.8 percent
increase in 2015.\5\ By way of comparison, the CPI increased by 2.1
percent and 0.7 percent, respectively, in 2016 and 2015.\6\
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\5\ Saganowsky, Eric. ``Report: Price Hikes Are Still Driving
Pharma's Earnings Growth. Who's
Most At Risk?'' Fierce Pharma. April 19, 2017. See link: http://
www.fiercepharma.com/pharma/despite-scrutiny-price-hikes-still-driving-
pharma-s-eps-growth-report.
\6\ Bureau of Labor Statistics. ``CPI Detailed Report. Data for
December 2016,'' page 2. See link:
https://www.bls.gov/cpi/cpid1612.pdf.
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The industry also acknowledges the important role that pharmacy
benefit managers, wholesalers, pharmacies and other intermediaries play
in reducing the list price by negotiating discounts and rebates off
that list price, thereby lowering overall cost of medicines for U.S.
consumers. However, brand drug makers find ways to keep costs
unsustainably high even after these discounts and rebates are
negotiated for consumers by implementing excessive price increases that
typically exceed inflation after a product enters the market.
AARP found, for instance, that retail prices increased in 2015 for
97 percent of the widely used brand name prescription drugs and all of
these increases exceeded the rate of general inflation that year.\7\
Another study showed that prices for 4 of the 10 top-selling drugs in
the United States increased by more than 100 percent between 2011 and
2014 and for 6 of the 10 top-selling drugs in the United States grew by
more than 50 percent during that same period.\8\ The trend appears to
be continuing in 2017, as another analysis determined that there were
40 drug price increases in the first quarter of 2017--up from 33 in
2016.\9\
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\7\ AARP Public Policy Institute. ``Rx Price Watch Report: Trends
in Retail Prices of Brand
Name Prescription Drugs Widely Used by Older Americans, 2006 to 2015,''
page 10.
December 2016. See link: http://www.aarp.org/content/dam/aarp/ppi/2016-
12/trends-in-retail-prices-dec-2016.pdf.
\8\ Humer, Caroline. ``Exclusive: Makers Took Big Price Increases
on Widely Used U.S. Drugs.''
Reuters Health News. April 5, 2016. See link: http://www.reuters.com/
article/us-usa-health
care-drugpricing-idUSKCN0X10TH.
\9\ Tirrell, Meg. ``The Drug Industry Is Addicted to Price
Increases, Report Shows.'' CNBC.
April 20, 2017. See link: http://www.cnbc.com/2017/04/20/the-drug-
industry-is-addicted-to-price-increases-report-shows.html.
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Manufacturers of expensive specialty medications, in particular,
significantly contribute to this critical problem of unsustainably high
list prices and price increases in excess of inflation. AARP
determined, for example, that the average cost of a specialty
medication in the United States was $53,000 in 2013.\10\ In that year,
that amount was more than: (1) The average annual U.S. household
income--$52,250; (2) two times the median income of a Medicare
beneficiary--$23,500; and (3) three times the average Social Security
retirement benefit--$15,526.\11\
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\10\ AARP Public Policy Institute. ``Trends in Retail Prices of
Specialty Prescription Drugs
Widely Used by Older Americans, 2006 to 2013,'' page 8. November 2015.
See link:
http://www.aarp.org/content/dam/aarp/ppi/2016-12/trends-in-retail-
prices-dec-2016.pdf.
\11\ AARP Public Policy Institute. ``Rx Price Watch Report: Trends
in Retail Prices of
Prescription Drugs Widely Used by Older Americans, 2006 to 2015,'' page
1. February 2016.
See link: http://www.aarp.org/content/dam/aarp/ppi/2016-02/RX-Price-
Watch-Trends-in-Retail-Prices-Prescription-Drugs-Widely-Used-by-Older-
Americans.pdf.
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Within specialty medicines, one area of particularly significant
concern is the treatment of patients with cancer. In the United States,
a novel anti-cancer drug routinely costs more than $100,000 per year or
course of treatment and the median launch price of a new oncology drug
has increased in each decade from the 1960s to today from $100 to
$10,000 per month of treatment.\12\ Similarly, a separate analysis
demonstrated that the inflation-adjusted price of an anti-cancer
medicine often increases after launch, by as much as 44 percent over
the course of the decade.\13\ These rapidly growing and excessive
oncology drug costs represent potentially significant barriers for
patients in accessing lifesaving and life-sustaining treatments who
simply may not be able to afford them.
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\12\ Prasad, et. al. ``The High Price of Anticancer Drugs: Origins,
Implications, Barriers
and Solutions.'' Nature Reviews Clinical Oncology. 2017. Advanced
Online Publication, page 1.
\13\ Ibid.
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In analyzing this extreme and rapid growth in cancer drug costs,
researchers emphasized how these costs both hurts patients, who in many
cases may not be able to afford these expensive medications, and
society at large, which simply will not be able to financially bear the
unsustainable burden of excess drug cost growth over the long-term:
``Not only are launch prices high and rising, but individual
drug prices are often escalated during exclusivity periods.
High drug prices harm patients--often directly through
increased out-of-pocket expenses, which reduce levels of
patient compliance and lead to unfavorable outcomes--and harms
society--by imposing cumulative price burdens that are
unsustainable.''\14\
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\14\ Ibid.
iii. drug manufacturers suggest that research and development justifies
high drug prices--but data show that the excessive amounts charged to
u.s. patients in aggregate exceed the industry's global r&d budget
A recent analysis concluded that the drug prices paid by U.S.
consumers create significantly more revenue for the brand
pharmaceutical industry than the amount the industry expends globally
on research and development. Specifically, the analysis found that 15
drug companies that manufactured the 20 best-selling drugs worldwide in
2015 made $116 billion in excess revenue from U.S. drug prices.\15\
\16\ Meanwhile, brand drug makers only spent $76 billion--or $40
billion less--on global research and development that same year.\17\ As
one author of the analysis Dr. Peter Bach, director of Memorial Sloan
Kettering Cancer Center's Center for Health Policy and Outcomes,
clearly said: ``the math doesn't work out.''\18\
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\15\ Note that this study looked at net prices--not list prices--
that U.S. consumers paid for
prescription drugs. Net prices reflect discounts and rebates that
pharmacy benefit managers, wholesalers, pharmacies, and other members
of the supply chain negotiate with drug manufacturers to lower the list
price initially set.
\16\ Yu, Nancy et. al. ``R&D Costs for Pharmaceutical Companies Do
Not Explain Elevated US
Drug Prices.'' Health Affairs Blog. March 7, 2017. See link: http://
healthaffairs.org/blog/2017/03/07/rd-costs-for-pharmaceutical-
companies-do-not-explain-elevated-us-drug-prices/.
\17\ Ibid.
\18\ Sagonowsky, Eric. ``High U.S. Drug Prices Cover Pharma's
Global R&D--And a Whole Lot More, Study Finds.'' Fierce Pharma. March
10, 2017. See link: http://www.fiercepharma
.com/pharma/high-u-s-drug-costs-pay-for-pharma-s-global-r-d-plus-more-
study-finds.
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Moreover, brand drugs with the highest prices sometimes are the
ones that are the least costly to develop, indicating that a drug
maker's R&D budget does not necessarily justify the setting of high
drug prices or excessive price increases. In other words, as one recent
study found, high prices do not necessarily correlate with the
innovative R&D that the pharmaceutical industry maintains it is
supporting in part through excessive drug cost growth.\19\
Specifically, the study explains that the
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\19\ Roy, Avik. ``The Competition Prescription: A Market-Based Plan
for Making Innovative
Medicines Affordable,'' page 7. See link: http://www.csrxp.org/wp-
content/uploads/2017
/05/The-Competition-Prescription1.pdf.
``costliest drugs to develop are those which require large
phase III clinical trials involving tens of thousands of
patients, such as drugs for diabetes, high blood pressure, and
heart disease. . . . But in fact, new drugs in these areas have
little pricing power, because doctors have the ability to
prescribe effective and inexpensive generics for these
conditions.'' \20\
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\20\ Ibid.
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By contrast, the
``cheapest drugs to develop are those which require small
clinical trials involving dozens of patients, such as drugs for
ultra-rare, or `ultra-orphan' conditions. . . . Phase III
trials for these conditions, which only affect several thousand
people in the United States, run in the tens of millions. But
manufacturers have generated billions in revenues from them.''
\21\
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\21\ Ibid.
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iv. excessive drug prices paid by american patients and families enable
the drug industry to pay for needless advertising and marketing--and
contribute to drug makers' bottom lines
If the drug industry does not spend all of the money it receives
from U.S. consumers on its products on R&D as shown above, the question
arises as to where the industry actually spends those excessive
revenues. It turns out that brand manufacturers are using a significant
portion of those funds for marketing and advertising--and to increase
their bottom lines.
First, many members of the brand drug industry spend more on
advertising and marketing than R&D; one analysis determined that 9 of
the 10 largest drug companies spent more on marketing than they did on
research in 2013.\22\ A separate analysis found that drug makers
specifically are increasing their spending on television advertising in
the United States, spending $6.4 billion on TV consumer advertising in
2016--an increase of 5 percent over 2015 and of 62 percent since
2012.\23\ Along those same lines, in 2016, drug advertising represented
the sixth largest category of TV advertising, accounting for 8 percent
of total TV advertising revenue and increasing six places from twelfth
place in the category in 2012.\24\
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\22\ Swanson, Ana. ``Big Pharmaceutical Companies Are Spending Far
More on Marketing than Research.'' The Washington Post. February 11,
2015. See link: https://www.washington
post.com/news/wonk/wp/2015/02/11/big-pharmaceutical-companies-are-
spending-far-more-on-marketing-than-research/'utm--term=.916fc28032c9.
\23\ Appleby, Anne and Horovitz, Bruce. ``Prescription Drug Costs
Are Up; So Are TV Ads
Promoting Them.'' The USA Today. March 16, 2017. See link: https://
www.usatoday.com/story/money/2017/03/16/prescription-drug-costs-up-tv-
ads/99203878/.
\24\ Ibid.
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Importantly, while drug makers suggest marketing and advertising
help inform patients and their providers of treatment options, these
industry tactics also drive up health care costs for all consumers--not
just those that take prescription drugs. Television advertisements
often induce unnecessary demand, encouraging patients and their
families to ask physicians for drugs they may not need.\25\ Similarly,
drug makers' direct marketing to physicians informs prescribers about
the availability of specific treatment options--and not necessarily
those treatments that are the most effective and least costly for the
patient. Both cases needlessly and unfairly increase healthcare costs
for all Americans--not just those using prescription medicines--by
unnecessarily increasing spending on prescription drugs overall,
thereby driving up overall insurance premiums for all U.S. consumers.
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\25\ Ibid.
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Second, and very importantly, brand drug manufacturers depend on
these unsustainable high drug prices to help support their bottom line
growth; price increases now are replacing a decline in prescription
volume that the industry is facing for at least certain types of
medications. To this point, one recent analysis found that between 2011
and 2014, sales from the top 10 drugs increased 44 percent even though
prescriptions for the medications decreased by 22 percent.\26\
Likewise, another analysis determined that drug price increases
contributed $8.7 billion to net income for 28 companies analyzed,
representing 100 percent of earnings growth for those companies in
2016.\27\ Hence, it seems very unlikely that many brand drug makers
have much incentive to curb the unsustainable and excessive drug price
growth absent bipartisan action to change these unfair pricing
practices that hurt American patients and their families.
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\26\ Humer, Caroline. ``Analysis: Drugmakers Take Big Price
Increases on Popular Meds in
U.S.'' Scientific American. See link: https://
www.scientificamerican.com/article/analysis-drug
makers-take-big-price-increases-on-popular-meds-in-u-s/.
\27\ Tirrell, Meg. ``The Drug Industry Is Addicted to Price
Increases, Report Shows.'' CNBC. April 20, 2017.
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vi. rules embedded in the u.s. regulatory system permit the brand drug
industry to engage in anti-competitive practices that block affordable
generic competition and keep drug prices high, driving up prescription
drug costs for patients and families and all u.s. consumers
The brand drug industry often manipulates the current U.S.
regulatory system in an anti-competitive manner to limit and restrict
patient access to the affordable medications they need.
First, the Orphan Drug Act introduced a range of incentives--most
importantly 7 years of market exclusivity with no competition--to
encourage the development of medications to treat rare diseases, or
those diseases that affect fewer than 200,000 patients. Since passage
of the Orphan Drug Act, hundreds of orphan drugs have been approved.
Many of these medications are helping patients who previously had no
treatment options.
However, an increasing number of orphan drugs have achieved
blockbuster status, with billions of dollars in sales annually.
Oftentimes in these cases, drug manufacturers have secured a single
``orphan'' indication for a drug's use and then, after FDA approval,
patients use the drugs off-label far more broadly beyond that single
indication use. In effect, manufacturers benefit from having the
special orphan exclusivity period that restricts competition but allows
their products to be used off-label for treatments of other types of
disease--and oftentimes at very high prices for patients. To this
point, a recent analysis found that 7 of the top 10 best-selling drugs
in the United States in 2014 came on the market with an ``orphan''
designation.\28\
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\28\ `` `Orphan Drug' Loophole Needs Closing, Johns Hopkins
Researchers Say.'' November 19, 2015. See link: http://
www.hopkinsmedicine.org/news/media/releases/orphan_drug_loop
hole_needs_closing_johns_hopkins_researchers_say.
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Second, brand name drug companies are using FDA regulations to
engage in anti-competitive behavior that blocks competition of certain
drugs that require additional safety protections. For specific drugs
with specific safety risks, FDA requires manufacturers to develop
detailed Risk Evaluation and Mitigation Strategies (REMS) prior to
entering the market. While this type of information creates additional
safety information for patients and offers safeguards for providers,
brand drug manufacturers have manipulated REMS to block generic
manufacturers from obtaining samples of brand drugs under the guise of
addressing patient safety concerns. This practice restricts competition
in the market and often leaves patients with fewer choices for their
medications. As a result, patients may be at the mercy of a single drug
company for the medication they need to stay healthy, and that company
is free to set the price for that medication indiscriminately. This
practice stifles the introduction of generic competition, thus
preventing lower-priced options from being available to patients and
increasing costs for everyone. Bipartisan legislation has been
introduced in both the Senate and the House--the CREATES Act and the
FAST Generics Act--that would stop this anticompetitive practice. We
therefore encourage the committee to consider bipartisan legislation
that addresses these abuses by prohibiting companies from restricting
access to samples.
vii. market-based solutions can help rein in excessive drug cost growth
for u.s. patients and families.
CSRxP supports adoption of bipartisan, market-based solutions to
help curb the excessive and unsustainable growth in prescription drug
spending for U.S. patients and their families. To that end, CSRxP
strongly urges the committee to support and adopt the following
policies that promote transparency, foster competition, and incentivize
value in the marketplace, making drugs more affordable and accessible
for the patients who need them.
1. Promote Transparency
Drug manufacturers should release details of a drug's unit
price, cost of treatment, and projection on Federal spending before FDA
approval. Given the significant impact pharmaceuticals have on overall
health care spending, manufacturers should be required to disclose
information on the estimated unit price for the product, the cost of a
course of treatment, and a projection of Federal spending on the
product.
Drug makers should annually report increases in a drug's
list price. Similar to requirements already in place for other entities
like health plan issuers, hospitals and nursing facilities,
pharmaceutical companies should report increases in drug's list price.
Furthermore, HHS should provide an annual report to the public that
includes the top 50 price increases per year by branded or generic
drugs; the top 50 drugs by annual spending and how much the government
pays in total for these drugs; and historical price increases for
common drugs, including those covered by Medicare Part B.
Manufacturers should disclose drug R&D costs. Drug makers
should be required to disclose how much drug research was funded by
public entities like the National Institute of Health (NIH) or other
academic entities or by other private companies, so that regulators and
taxpayers can properly weigh return on investment.
We encourage the committee to consider bipartisan legislation, the
FAIR Pricing Act, sponsored by Senators Baldwin and McCain that would
bring great transparency to the pharmaceutical industry.
2. Foster Competition
Speed FDA approval of generic drug applications--
especially for lifesaving drugs and for drugs with no or limited
generic competition. The FDA faces a backlog of nearly 4,000 generic
drug applications, yet approval times can be 3 or more years. The FDA
should receive the resources necessary to clear this backlog and
prioritize generic drug approval applications, especially for
lifesaving drugs and drugs with no or limited generic competition.
Reduce drug monopolies by incentivizing competition for
additional market entrants. Several FDA programs are intended to
expedite review of new drugs that address unmet medical needs for
serious or life-threatening conditions. Incentives should drive
competition for expensive treatments where no competitors exist and
encourage a second or third market entrant.
Strengthen post-market clinical trials and surveillance.
Currently, expedited drug approvals often involve small clinical trials
with a narrow patient population and trials are not regularly reported
publicly. Once a drug enters the market, research into the long-term
efficacy and side effects should continue within specific timeframes
and reporting requirements. Even if a product is not approved,
manufacturers should be required to report data for all trials that
summarizes non-identifiable demographics and participant
characteristics, primary and secondary outcomes results, and adverse
event information.
Target exclusivity protections to the most innovative
products. Currently, pharmaceutical manufacturers can extend market
exclusivity protections by seeking approval for a ``new'' product that
is essentially the same as the original. Prohibiting such tactics will
bring consumers more options and lower prices more quickly. Anti-
competitive pricing schemes should be closely monitored by Federal
agencies and prosecuted if violations of antitrust law are found.
Curb misuse of REMS. As we noted above, the FDA uses REMS
to allow products with potential safety issues to enter the market.
Drug manufacturers often manipulate REMS to block generic drugs from
obtaining samples of brand drugs under the guise of addressing patient
safety concerns, effectively preventing them from pursuing the research
needed to bring generic drugs to market. Bipartisan legislation has
been introduced in both the Senate and the House--the CREATES Act and
the FAST Generics Act--that would stop this anticompetitive practice.
CSRxP encourages the committee to consider this bipartisan legislation
that addresses these abuses by prohibiting companies from restricting
sample access.
Promote a robust biosimilars market. Regulatory policies
should encourage market entry and uptake of biosimilars, as they have
significant potential to expand treatment options and reduce costs by
increasing competition in the marketplace. For example, one study found
that 11 biosimilars already approved for sale in Europe and elsewhere
could generate approximately $250 billion in savings over 10 years if
they were available in the United States.\29\ We urge the committee to
consider provisions--such as reducing the market exclusivity period for
brand name biologics--that would help support the development of a
robust biosimilar market and help ensure that patients have access to
lower cost alternatives to existing, expensive biologics.
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\29\ Express Scripts. ``The $250 Billion Potential of
Biosimilars.'' April 23, 2013. See link:
http://lab.express-scripts.com/lab/insights/industry-updates/the-$250-
billion-potential-of-bio
similars
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3. Incentivize Value
Increase funding for private and public research efforts
like the non-profit Institute for Clinical and Economic Review (ICER)
to test the value of medical tests and treatments. Investment in
objective information is critical for physicians, patients and payers
as more and more high-price drugs enter the healthcare system.
Require drug makers to conduct comparative effectiveness
research (CER) studies of new versus existing drug products. Through
CER studies, manufacturers should have to demonstrate that their
product is better than others, so that physicians and patients can make
smart decisions about the value of different treatments, particularly
those with very high costs. Many other countries currently require drug
manufacturers to provide CER studies; they should be expanded in the
United States to reduce spending on unnecessary or ineffective
treatments.
Expand value-based pricing in public health programs like
Medicare and Medicaid. Currently Medicare and Medicaid purchase
prescription drugs for their beneficiaries, but not generally in a
manner to accommodate value-based payment models. Steps should be taken
to ensure these programs can best take advantage of recent developments
in value-based purchasing to ensure all parts of the U.S. healthcare
system benefit from market-based negotiating efforts to lower drug
prices.
viii. conclusion
In conclusion, CSRxP appreciates the leadership from the committee
and again thanks the committee for the opportunity to submit testimony
for the record to address the unsustainable and excessive growth in
prescription drug costs in the United States. The Campaign looks
forward to continued work with the committee in the future in
developing market-based policies that promote competition,
transparency, and value to make prescription drugs more affordable for
all American patients and their families while at the same time
maintaining access to the treatments that can improve health outcomes
and save lives.
______
Lobbying Registration Form Submitted by Senator Franken
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Response by Dan Mendelson to Questions of Senator Alexander
Question 1. To confirm feedback received at the hearing, I have
heard that drug spending accounts for roughly 15 percent of health
spending. Of that 15 percent, 10 to 11 percent is on drugs purchased at
the pharmacy or ordered online, and 4 to 5 percent is spent on drugs
given in a hospital or at the doctor's office.
Do you agree, that is how much is spent on drugs in the United
States?
Answer 1. Those statistics are generally accurate, though estimates
vary based on source and spending categories analyzed. According to the
Centers for Medicare and Medicaid Services, National Health Expenditure
Data, drugs dispensed in the pharmacy and medical benefit account for
approximately 13 percent of total U.S. healthcare costs. This
frequently cited figure uses total national health expenditures as a
basis for calculating the percentage. Other experts sometimes use a
subset of national health expenditures or total medical claims as the
denominator, which accounts for the range of percentages often cited in
this context.
Question 2. In 2015, 89 percent of all prescriptions picked up at
pharmacy or online were low-cost generic drugs. According to Adam Fein,
an expert on drug spending and the delivery system, nearly 30 percent
of brand and generic prescriptions had a $0 out-of-pocket cost for the
patient in 2016, up from 11 percent in 2011. So there appears to be a
growing number of prescriptions available at no cost to a patient when
you pick up your prescription at the drug store. Do you agree with that
statement?
Answer 2. I agree that the majority prescriptions filled at the
pharmacy or online are generic drugs and that generic drugs typically
have lower associated cost sharing for patients.
Question 3. Would it be accurate to say a drug list price does not
accurately reflect costs to patients? What should we as Congress be
focusing on, instead of list prices?
Answer 3. Generally, a drug's list price and actual patient costs
differ based on a series of negotiations and decisions. Specifically,
as multiple products for a given indication come to market, plans and
PBMs may negotiate rebates and other price concessions from
manufacturers in exchange for preferred formulary placement and
improved access. Typically, payers use these price concessions to
reduce overall premiums, but the rebates are not shared directly with
patients at the point of sale. As a result, most patients who fill a
prescription are paying cost-sharing based on a price that is generally
not reflective of rebates negotiated by a health plan or PBM.
Question 4. Can you comment on whether the costs for drugs have
gone up, down, or remained steady in the last 5 to 10 years?
Answer 4. Like spending for all medical services, spending on
prescription drugs has increased over time as innovation has enhanced
capabilities. In recent years, new innovations have increased spending
on specialty medications, which now account for $384 of the $895 per
person per year spent on drugs. However, list prices (11.5 percent)
have increased more slowly than net prices (6.1 percent) over the past
5 years.
Question 5. We hear quite a bit about a need to have more
transparency around drug prices and within the drug delivery system. Do
you think transparency would help, and if so, where?
Answer 5. The impact of transparency proposals depends on how they
are constructed. In some areas, price transparency causes consumers to
make better competitive decisions, which could potentially result in
lower costs. On the other hand, certain types of transparency
requirements can present challenges, and have the potential to inhibit
competition and create market distortions. For example, the
Congressional Budget Office (CBO) estimates that disclosure of drug
rebate information ``would facilitate tacit collusion among those
manufacturers, which would tend to raise drug prices.''
Question 6. We hear a lot about passing on rebates directly to
consumers. What is your perspective on this proposal and what would be
the impact on costs (for drugs or their premium) to patients?
Answer 6. Rebates have been growing in recent years, and generally
are not passed on to consumers in the form of lower copays, but rather
used to reduce premiums in the context of competitive markets. There is
good potential to find ways to use rebates to reduce patient-cost
sharing. While this type of proposal may lead to a small increase in
premiums, the impact of the proposal on patient-cost sharing will
depend on the structure of the policy and the healthcare needs of a
particular patient. Undoubtedly, patients with chronic illnesses would
benefit from this type of change, and point-of-sale adjudication/
estimation of rebates is technically feasible.
Question 7. Can you comment on what tools are available within the
delivery system to directly reduce patient costs?
Answer 7. Increased competition in the pharmaceutical markets holds
promise for reducing costs. Speeding the approval of the second- and
third-branded drugs in a therapeutic class would expedite competition
and lead to more rapid price concessions. Ensuring a continued robust
market for generic pharmaceutics is vital for effective cost management
and improvement of population health outcomes.
In addition, outcomes-based contracts also represent a significant
opportunity to shift away from prescription drug list prices toward
value-based reimbursement models. Effective outcomes-based contracts
require next-generation data analysis and interventions that enable
payers and manufacturers to identify patients eligible for treatment,
target outreach to ensure appropriate adherence and quality
improvement, and measure product performance against pre-agreed-upon
outcomes on an ongoing basis. Consumer benefit can be substantially
enhanced through data-based engagement around pharmaceuticals.
Question 8. What do you think of the suggestion that concerns
related to drug costs have grown as patients have been forced
personally to take on more and more of the drug costs?
Answer 8. Insurance benefit designs increasingly expose consumers
to the full cost of their medicines through deductibles or percentage
coinsurance for drugs, as payers have been under pressure to meet
consumer demand for constrained premium growth. Of course, other
factors also contribute to increased consumer payments, such as the
cost of newly launched products and the increases in list prices over
time.
Response by Allan Coukell to Questions of Senator Alexander
Question 1. To confirm feedback received at the hearing, I have
heard that drug spending accounts for roughly 15 percent of health
spending. Of that 15 percent, 10 to 11 percent is on drugs purchased at
the pharmacy or ordered online, and 4 to 5 percent is spent on drugs
given in a hospital or at the doctor's office. Do you agree, that is
how much is spent on drugs in the United States?
Answer 1. The Office of the Assistant Secretary for Planning and
Evaluation (ASPE) estimates that pharmaceuticals accounted for almost
17 percent of U.S. personal health care services, or $457 billion, in
2015--retail and mail order prescription drugs accounted for 12 percent
of personal health care services, while nearly 5 percent was for
pharmaceuticals given in the hospital, physician's office and other
non-retail settings.\1\ The Altarum Institute, a nonprofit health
organization, estimates that retail and non-retail prescription drug
spending totaled $450 billion in 2016, or 14 percent of health
expenditures.\2\ Of total health expenditure, 10.1 percent was for
retail spending on pharmaceuticals, and 4.3 percent was for non-retail
spending.\3\ *
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* While Altarum and ASPE use similar methodologies, Altarum
utilizes total health expenditure as a denominator, and ASPE uses
personal health care expenditure. Personal health expenditure
represents spending on medical care and excludes government spending on
administration, public health, and investment into medical research.
Personal health expenditure in 2015 was $2.72 trillion.
\1\ Health and Human Services Assistant Secretary for Planning and
Evaluation, ``Observations on Trends in Prescription Drug Spending,''
March 2016, Available at: https://aspe.hhs.gov/system/files/pdf/187586/
Drugspending.pdf.
\2\ C. Roehrig, ``Center for Sustainable Health Spending Data
Brief: A Ten Year Projection of the Prescription Drug Share of National
Health Expenditures Including Non-Retail,'' Altarum (Updated May 2017),
http://altarum.org/publications/a-10-year-projection-of-the-
prescription-drug-share-of-national-health-expenditures-including.
\3\ Ibid.
Question 2. In 2015, 89 percent of all prescriptions picked up at
pharmacy or online were low-cost generic drugs. According to Adam Fein,
an expert on drug spending and the delivery system, nearly 30 percent
of brand and generic prescriptions had a $0 out-of-pocket cost for the
patient in 2016, up from 11 percent in 2011. So there appears to be a
growing number of prescriptions available at no cost to a patient when
you pick up your prescription at the drug store. Do you agree with that
statement?
Answer 2. The growth in the share of prescriptions with no out-of-
pocket costs for patients is driven by generics. An IMSQuintiles
analysis found that last year 26 percent of prescriptions dispensed
were for generic drugs with no out-of-pocket costs.\4\ An additional
3.9 percent of prescriptions were for brand drugs with no out-of-pocket
costs. Insurance plan design determines out-of-pocket costs for any
individual patient, but other policies also contribute. For example,
most Medicaid patients have zero dollar or low out-of-pocket costs and
the Affordable Care Act (ACA) requires generic contraceptives to be
dispensed with no out-of-pocket costs. In addition, the ACA limits
annual patient out-of-pocket spending for covered services in a health
plan, including that of prescription drugs. Prescriptions dispensed for
patients who have surpassed their annual maximum have no out-of-pocket
costs.
---------------------------------------------------------------------------
\4\ QuintilesIMS Institute, ``Medicines Use and Spending in the
U.S.: Review of 2016 and Outlook to 2021,'' May 2017, Available at:
http://www.imshealth.com/en/thought-leadership/quintilesims-institute/
reports/medicines-use-and-spending-in-the-us-review-of-2016-outlook-to-
2021.
---------------------------------------------------------------------------
However, some patients have seen their out-of-pocket costs increase
significantly in recent years. The number of Medicare Part D enrollees
reaching the catastrophic coverage phase reached 3.6 million in 2015, a
53 percent increase since 2010.\5\ Enrollees not eligible for a low-
income subsidy must pay 5 percent of the cost of their prescriptions in
the catastrophic coverage phase, with no limit on annual out-of-pocket
spending. In 2015 patients reaching the catastrophic coverage phase
paid an average of $257 per month for each high cost prescription
drug--defined as medications with an average price of more than $1,000
per month.
---------------------------------------------------------------------------
\5\ Department of Health and Human Services, Office of the
Inspector General, ``High-Price Drugs Are Increasing Federal Payments
for Medicare Part D Catastrophic Coverage,'' January 2017, Available
at: https://oig.hhs.gov/oei/reports/oei-02-16-00270.pdf.
Question 3. Would it be accurate to say a drug list price does not
accurately reflect costs to patients? What should we as Congress be
focusing on, instead of list prices?
Answer 3. List prices are a critical factor in determining out-of-
pocket costs for many patients. This happens in at least three
circumstances. (1) Patients without drug coverage are charged something
close to list price at the pharmacy, even when the price paid by larger
payers is far lower. (2) Patients enrolled in health plans with
deductibles must pay the full cost of their medications until they meet
an annual spending threshold. During this deductible phase, out-of-
pocket payments are typically based on the drug's list price. (3)
Patients in health plans with co-insurance,\6\ which is usually applied
to the most expensive prescriptions medications, typically pay a fixed
percentage (e.g., 30 percent) of the drug's list price.
---------------------------------------------------------------------------
\6\ This differs from copays, under which patients pay a fixed
dollar amount for a prescription.
---------------------------------------------------------------------------
Among commercially insured patients in 2016, over half of patient
out-of-pocket costs for brand prescriptions was based on list prices,
and over 90 percent of patient out-of-pocket spending for specialty
drugs was based on list prices.\7\ While some payers are able to offer
plans that pass on rebates and discounts off the drug list price to
patients at the point of sale,\8\ it is unknown to what extent plan
sponsors are choosing these benefit designs.
---------------------------------------------------------------------------
\7\ QuintilesIMS Institute, ``Medicines Use and Spending in the
U.S.: Review of 2016 and Outlook to 2021,'' May 2017, Available at:
http://www.imshealth.com/en/thought-leadership/quintilesims-institute/
reports/medicines-use-and-spending-in-the-us-review-of-2016-outlook-to-
2021
\8\ CVSHealth, Consumer Transparency Helping Members with High-Cost
Drugs at the Point of Sale, https://payorsolutions.cvshealth.com/
insights/consumer-transparency.
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Congress should focus primarily on overall drug spending,
particularly in public programs. However, drug list prices are not an
accurate measure of total U.S. spending on prescription drugs. Some
organizations have published estimates for total drug spending, but
each uses a different approach, some focusing on pharmaceutical
manufacturer revenue, while others are based on pharmacy claims, which
often do not take into account rebates and other discounts offered by
manufacturers. One challenge in understanding drug spending is the
range of entities involved in the prescription drug supply and payment
chain, including wholesalers, pharmacy benefit managers, pharmacies,
and insurers. Each of these entities retains a portion of total drug
spending and flow of health care payer and consumer dollars throughout
this complex system is little understood.
However, list prices are useful in establishing trend lines for
prescription drug spending, as list and net prices tend to rise in
tandem (though the average gap between list and net prices has
increased slightly in recent years as rebates have increased).
Pew is pursuing additional research that will develop a national
estimate of total spending on drugs, including contributions toward
insurance premiums for drug coverage and a breakdown of what share of
this total each supply chain entity retains.
Question 4. Can you comment on whether the costs for drugs have
gone up, down, or remained steady in the last 5 to 10 years?
Answer 4. The costs for drugs have gone up in recent years. As
discussed, methodologies vary widely, but there is widespread agreement
that spending on drugs has increased significantly. A 2016 report by
the Department of Health and Human Services Assistant Secretary for
Planning and Evaluation found that ``[e]xpenditures on prescription
drugs are rising and are projected to continue to rise in the coming
years as a share of total health care spending.''
IMSQuintiles estimates that drug manufacturer revenue net of
rebates and discounts has increased 42 percent since 2006, reaching
$323 billion in 2016, with more than two-thirds of that growth
occurring since 2013.\9\ They have found that while both drug list
prices and rebates and discounts to payers have increased substantially
year over year, manufacturer net revenue has continued to rise, up 4.8
percent in 2016 alone.
---------------------------------------------------------------------------
\9\ QuintilesIMS Institute, ``edicines Use and Spending in the
U.S.: Review of 2016 and Outlook to 2021,'' May 2017, Available at:
http://www.imshealth.com/en/thought-leadership/quintiles
ims-institute/reports/medicines-use-and-spending-in-the-us-review-of-
2016-outlook-to-2021.
---------------------------------------------------------------------------
New brand drugs have driven the majority of this spending growth
each year since 2014. New drugs are increasingly specialty products,
including biologics, and typically launch at high prices. Year-on-year
increases in the prices of brand drugs that do not yet face generic
competitors also contribute to rising spending. Conversely, spending on
generic drugs decreased slightly in 2016. Generic drugs represent an
ever-growing share of prescriptions dispensed, reaching over 89 percent
in 2016. While there have been some individual generic products with
extraordinary price increases in recent years, generic drugs as a class
generate significant savings.
Question 5. Some have suggested that drug importation could lower
drug prices. What are your views on that strategy?
Answer 5. Brand pharmaceuticals are generally more expensive in the
United States than in other high-income countries, in part because some
countries have implemented policies to limit prices, so allowing the
purchase and importation of prescription drugs from other countries has
the potential to give Americans access to some medicines at lower
prices.\10\ However, it is difficult to estimate the potential savings,
which would have to be weighed against the costs to implement such a
program, the potential safety risks of imported products, and the
overall impact on the security of the U.S.-drug supply chain.
---------------------------------------------------------------------------
\10\ The Pew Charitable Trusts, ``Policy Proposal: Importation of
Prescription Drugs,'' http://www.pewtrusts.org/en/research-and-
analysis/fact-sheets/2017/04/policy-proposal-importation-of-
prescription-drugs.
---------------------------------------------------------------------------
The importation of drugs from foreign sources would bypass current
FDA review processes and could increase safety risks. Federal law
currently provides the Secretary of Health and Human Services the
authority to permit importation of prescription drugs from Canada, if
the Secretary certifies to Congress that they would pose no additional
risk to the public's health and safety, and would result in a
significant reduction in the cost of the drugs to Americans. However,
no certification has ever been made.
To address the potential risks associated with importing unapproved
drugs, FDA would need significant additional resources and capacity. At
a 2004 congressional hearing, FDA's then-commissioner speculated that a
program to ensure the safety of imported drugs could cost hundreds of
millions of dollars annually,\11\ which could reduce the net savings
from importation.
---------------------------------------------------------------------------
\11\ Options for Safe and Effective Prescription Drug Importation:
Hearing Before the Committee on Commerce, Science, and Transportation,
U.S. Senate, 108th Cong. (2004) (statement of Mark McClellan,
commissioner of the U.S. Food and Drug Administration), https://
www.gpo.gov/fdsys/pkg/CHRG-108shrg76522/pdf/CHRG-108shrg76522.pdf.
---------------------------------------------------------------------------
Furthermore, any importation system would need to conform to the
requirements of the Drug Supply Chain Security Act (Title II of the
Drug Quality and Security Act of 2013), which Congress passed to ensure
that counterfeit and diverted drugs do not enter the pharmaceutical
supply chain. This legislation requires pharmaceutical manufacturers
and repackagers to put a unique product identifier on most prescription
drug packages and outlines steps to build a system for electronically
identifying and tracing each individual package of prescription drug as
it is distributed in the United States. Manufacturers must put this
unique code on products beginning November 2017, and by 2023, all
participants in the pharmaceutical supply chain must participate. This
will make it easier to detect when counterfeit or illegal product is
introduced into the system, and will significantly enhance the speed
and accuracy of implementing product recalls. However, if imported
product could be sold into the U.S. system without the product
identifiers necessary to comply with this drug security system, it
would make it difficult for supply chain partners who encounter product
that is not compliant to determine which products are counterfeit or
otherwise illegal, and which are legally imported. As a consequence,
the risk of importation is not only that FDA cannot ensure that the
products being imported are legitimate, but that the introduction of
products that are not a part of the supply chain security system (even
if they are legitimate products) will compromise the ability of the
system to identify counterfeit and diverted products from any source,
thus significantly undermining the protections that Congress put into
place in 2013.
The importation of drugs from abroad could also have unintended
consequences in other countries. The U.S. population far exceeds that
of most other OECD countries and therefore meeting even a portion of
U.S. demand with foreign supplies could strain local markets. To
mitigate decreased U.S. revenue, manufacturers could seek to increase
their prices in foreign markets or restrict foreign entities from
exporting medications to the United States. In addition, the U.S.
market's large size could strain the supply of pharmaceuticals,
resulting in drug shortages in other countries if importation were to
be implemented on a large scale.
Response by Paul Howard to Questions of Senator Alexander
Question 1. To confirm feedback received at the hearing, I have
heard that drug spending accounts for roughly 15 percent of health
spending. Of that 15 percent, 10 to 11 percent is on drugs purchased at
the pharmacy or ordered online, and 4 to 5 percent is spent on drugs
given in a hospital or at the doctor's office. Do you agree, that is
how much is spent on drugs in the United States?
Answer 1. Yes, although the exact numbers vary by source. In 2015,
APSE estimated that prescription drug spending in the United States was
about $457 billion in 2015. That same year, CMS found that U.S. health
care spending totaled $3.2 trillion, which would put total prescription
drug (retail and physician-administered) spending at 14.28 percent for
2015. ASPE also notes that 70 percent of the increase in spending from
2010-14 was due to non-price-related factors (i.e., 10 percent
population growth, 30 percent increase in the number of prescriptions
per person, 30 percent overall, economy-wide inflation). By way of
comparison, in 2016, the Kaiser Family Foundation found that retail
pharmacy sales totaled $379 billion or 11.1 percent of the total health
care spending ($3.4 trillion) in the United States for that year.\1\
\2\
---------------------------------------------------------------------------
\1\ http://www.drugchannels.net/2016/04/key-insights-on-drug-
prices-and.html.
\2\ http://www.drugchannels.net/2016/07/latest-cms-forecast-shows-
big-drug.html.
---------------------------------------------------------------------------
Finally, totally net spending growth has slowed considerably since
2014, according to a May 2017 report from Quintiles/IMS (slide 1).
Question 2. In 2015, 89 percent of all prescriptions picked up at
pharmacy or online were low-cost generic drugs. According to Adam Fein,
an expert on drug spending and the delivery system, nearly 30 percent
of brand and generic prescriptions had a $0 out-of-pocket cost for the
patient in 2016, up from 11 percent in 2011. So there appears to be a
growing number of prescriptions available at no cost to a patient when
you pick up your prescription at the drug store. Do you agree with that
statement?
Answer 2. I agree. The 2017 Quintiles/IMS report shows this (see
slide 5). However, the Quintiles report shows that patient out-of-
pocket spending is highly concentrated among patients with certain
formulary or benefit designs. Quintiles notes that plans with drug
``deductibles and coinsurance set patient out-of-pocket costs based on
list prices and 19 percent of commercial brand prescriptions are paid
in this way, accounting for 52 percent of out-of-pocket costs.''
Specifically, ``patients with a specialty prescription in the
deductible accounted for 2 percent of prescriptions but 32 percent of
out-of-pocket costs.'' It is the concentration of OOP spending in a
relatively small subset of patients that I find worrisome:
``Abandonment rates for brands are 2.5 times higher when the
patient is in the deductible phase of their plan and sees the
full cost of the medicine they have been prescribed.''
As I noted in my testimony, Congress' attention should be focused
on addressing potentially excessive patient-cost sharing that impact
patients' health outcomes.
Question 3. Would it be accurate to say a drug list price does not
accurately reflect costs to patients? What should we as Congress be
focusing on, instead of list prices?
Answer 3. That is correct. Data suggests that, net of rebates, drug
price increases (on average) have been fairly modest. Congress should
focus on insurance designs that increase patient-cost sharing without
reflecting the rebates that manufacturers have negotiated with payers
and PBMS.
Broadly speaking, we also need to ensure that insurers are not
using formulary design (what drugs are covered, and what co-insurance
they face) as a tool for adverse selection. Further, CMS and Congress
should be carefully monitoring Part D plans, 340B, and exchange plans,
to monitor insurance designs for potentially discriminatory impact.
However, this is a problem that will require a multi-stakeholder
solution to further the bipartisan goal of expanding coverage,
improving quality, and slowing cost growth across the health care
system. I believe that Congress and the Administration should consider
how to better encourage plans, manufacturers, and providers to take a
longer term view of the role of medicines in keeping patients
healthier, longer and reducing the use of other health care ``inputs,''
including hospitalizations and emergency rooms visits.
Encouraging the uptake of value-based insurance designs, longer
term (multi-year) insurance contracts, and safe harbors from Federal
regulations like Medicaid Best Price and Stark anti-kickback can help
the market evolve toward competition based on patient outcomes, rather
than short-term price of a pill.
Experts on both sides of the aisle agree that there is hundreds of
billions of dollars in excessive spending that could be cut from the
U.S. health care system, while also improving patient outcomes. The
incentives for collaboration and competition based on delivering best-
in-class outcomes more efficiently for every dollar spent, however,
remain weak.
Question 4. Can you comment on whether the costs for drugs have
gone up, down, or remained steady in the last 5 to 10 years?
Answer 4. Average prescription drug spending steadily decreased
from 2000-14. The 2014 spike in spending is almost entirely
attributable to the entry of highly effective, yet expensive,
treatments for hepatitis C into the marketplace.
Out-of-pocket prescription drug spending decreased from 2005-10,
and remained stagnant through 2015. While out-of-pocket spending is
expected to increase in the coming years, it is also expected to
represent a continuously smaller share of total health care spending.
Many new treatments that are expected to come online in the next
several years, like C-ART for blood cancers, or gene therapies, are
expected to be highly beneficial for patients--and thus highly valuable
for society. Building a sustainable framework for rapid adoption of
curative therapies is both a tremendous challenge, and a tremendous
opportunity.
Question 5. We hear quite a bit about a need to have more
transparency around drug prices and within the drug delivery system. Do
you think transparency would help, and if so, where?
Transparency matters when it encourages patients and physicians to
find the most effective therapy for that patient, given their medical
needs and treatment preferences.
Transparency around list prices isn't helpful, since patient-cost
sharing varies so widely based on plan design, or where the patient is
within their annual deductible.
It also doesn't help us understand the role medicines play in the
wider health care system, where they are a vital tool for managing
serious chronic illnesses that account for roughly 85 percent of U.S.
health care costs.
Given the economics of the industry, we should also expect drug
discounts to vary across payers--just as physician and hospital prices
vary. There is no ``one'' right price for a medicine.
What we should be doing improving patients and physicians' ability
to compare treatment strategies based on real world costs, benefits,
and risks. Real world data on patient outcomes would give us much
greater ability to drive competition across medicines, other treatment
strategies, and providers. We should have a health care system that
rewards the delivery of the best patient outcome, as efficiently as
possible--whether that is through better diet, exercise, medical
management, or a surgical intervention. Transparency in terms of being
able to track and share data on patient outcomes and costs (with
appropriate privacy protections) would save lives and help reduce the
enormous waste and inefficiency we see today across the U.S. health
care system.
Question 6. We hear a lot about passing on rebates directly to
consumers. What is your perspective on this proposal and what would be
the impact on costs (for drugs or their premium) to patients?
To my knowledge, CVS is the only PBM that has embraced this
approach, but I believe it would be helpful to address current patient-
cost sharing burdens. Depending on the rebate--say 20 percent or 30
percent--it could help patients substantially who otherwise find
themselves paying based on the list price.
Ultimately, we need to shift to a different system of paying for
medicines that does not depend on formularies based on the ``bubble''
between the list and net price. This is a step in that direction, but
other approaches should be tried as well, including new insurance
designs and tools for right-sizing patient-cost sharing based on
outcomes (i.e., value-based insurance designs).
Question 7. Can you comment on what tools are available within the
delivery system to directly reduce patient costs?
Manufacturers often offer co-pay/co-insurance assistance programs,
and other means-tested programs that cap the out-of-pocket costs that
patients pay for their medicines. Some PBMs, like Express Scripts, have
begun to offer discounts for uninsured patients who would otherwise pay
list price for their medicines. These programs are a relatively new
phenomenon. Premera Blue Cross/Blue Shield in Washington State has
offered a value-based formulary for employers where co-pays vary not
based on price, but on how effective the medicine is--a very
interesting approach that is, however, data intensive.
Encouraging providers, payers, and manufacturers to routinely
generate and collect more real world data on patients could lower the
cost of implementing these approaches. To do so, however, would require
regulatory safe harbors from some FDA and CMS regulations.
Question 8. What do you think of the suggestion that concerns
related to drug costs have grown as patients have been forced
personally to take on more and more of the drug costs?
Answer 8. There have been dramatic shifts in insurance design over
the last decade, including the rise of high deductible health plans,
and the passage of the Affordable Care Act. Under the ACA, as insurers
have been forced to cover more routine costs without any patient-cost
sharing, and to standardize other benefits (no annual or lifetime cap
on benefits, covering a broader collection of essential health
benefits, greater scrutiny of annual premium increases), and the rise
of maximum caps on annual spending that combine both medical and the
pharmacy deductibles, more drug costs are being shifted onto patients
for certain categories of high cost medicines, even though the long-
term trends are toward lower overall OOP for health care in general.
Response by Gerard Anderson to Questions of Senator Alexander
Question 1. To confirm feedback received at the hearing, I have
heard that drug spending accounts for roughly 15 percent of health
spending. Of that 15 percent, 10 to 11 percent is on drugs purchased at
the pharmacy or ordered online, and 4 to 5 percent is spent on drugs
given in a hospital or at the doctor's office. Do you agree, that is
how much is spent on drugs in the United States?
Answer 1. Yes, I agree with these numbers on drug spending. I would
also add that, according to the Office of the Actuary in the Center for
Medicare and Medicaid Services, prescription drug spending is expected
to grow faster than overall health spending between 2016 and 2025 (an
average of 6.3 percent per year compared to an average of 5.6 percent
per year for overall health spending), which could affect these numbers
moving forward.
As I highlighted in my testimony, these prescription drug costs are
frequently passed onto patients, making it difficult for them to afford
the medications that they need. For example, a Kaiser Family Foundation
study found that for Medicare beneficiaries with Part D coverage, out-
of-pocket costs averaged $7,000 for drugs to treat hepatitis C, $6,000
for drugs to treat multiple sclerosis, $4,000 for drugs to treat
rheumatoid arthritis and $8,000 for drugs to treat certain types of
cancer. For a social security recipient earning $26,000 per year, these
out-of-pocket costs represent 16 percent to 32 percent of the person's
total income for the year and clearly are prohibitively expensive.
Response by Dan Mendelson to Question of Senator Isakson
Question. What would be the anticipated impact of allowing patients
to appeal for lower cost sharing if the drug they need (as determined
by their doctor and following any plan imposed utilization management
procedures) happens to be on a Part D plan's ``specialty tier?''
Because the patient would be paying a total lower out-of-pocket cost,
wouldn't this common-sense policy be good both for the patient (lowered
OOP cost) and for Medicare (slower progression through the benefit and
into catastrophic)?
Answer. There is growing interest in aligning insurance design to
deliver value to patients. In particular, some patients have responses
to medications or genetic makeups that require them to take a drug on
the specialty tier, even if lower cost options are available. While
this proposal represents an opportunity to align benefit design and the
patient experience to such considerations, it could also potentially
have implications for the market. Allowing patients to appeal for lower
cost sharing for specialty tier drugs in Part D would lower patient
out-of-pocket costs for some beneficiaries. This policy also has the
potential to reduce costs to the Medicare program, as patients may take
longer to reach the catastrophic phase of the benefit, where Medicare
pays a greater share of costs. However, such policy would also alter
the costs incurred by health plans, which could impact premiums.
Response by Dan Mendelson to Questions of Senator Sanders
Question 1. Since online pharmacies were created about 15 years
ago, there have been no reported examples of Americans dying by taking
medication bought online from a legitimate and regulated pharmacy in
Canada that requires valid prescriptions. And, this is after tens of
millions of prescriptions have been filled online and internationally.
During the hearing, however, you raised safety concerns when the
topic of drug importation was raised by Senator Murkowski. And, you
stated that there have been cases of Americans being harmed by drugs
they imported.
Can you provide specific instances you referenced generally during
your testimony? Where (both in terms of country and type of
distributor) did these drugs come from? Were they from legitimate,
regulated online pharmacies? Did the patients have a prescription from
a licensed health care provider?
Answer 1. The safety concerns I raised during my oral comments
regarding the importation of medication from outside of the United
States are based on statements from the Congressional Budget Office,
the Food and Drug Administration, and the Federal Bureau of
Investigation.
The Congressional Budget Office stated,
``All products distributed in the United States must be
produced in facilities registered with the FDA for production
of those specific products. Much of existing worldwide sales
volume does not satisfy that criterion, even drugs that
otherwise meet safety and efficacy standards.''\1\
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\1\ The Congressional Budget Office. Would Prescription Drug
Importation Reduce U.S. Drug Spending? April 2004. https://www.cbo.gov/
sites/default/files/108th-congress-2003-2004/reports/04-29-
prescriptiondrugs.pdf.
For example in March 2017, 4 former Food and Drug Administration
commissioners warned Congress that legalizing importation of drugs from
other countries could endanger consumers by exposing them to fake,
substandard, or contaminated drugs. The commissioners were concerned
that there is no reliable way of knowing where imported drugs come
from, particularly since the vast majority of online pharmacies are
fake.\2\
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\2\ https://assets.documentcloud.org/documents/3519007/FDA-
Commissioners-Drug-Reimporta
tion.pdf.
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Recently, the former director of the Federal Bureau of
Investigation, released a report examining the degree to which current
drug importation proposals, if implemented, would impact law
enforcement's ability to protect the public health and ensure the
safety of our drug supply. That report concluded that ``importation
proposals would force law enforcement agencies to make tough
prioritization decisions that leave the safety of the U.S. prescription
drug supply vulnerable to criminals seeking to harm patients.''\3\
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\3\ Freeh, Sporkin and Sullivan LLC, Freeh Group International
Solutions LLC. Report on the Potential Impact of Drug Importation
Proposals on U.S. Law Enforcement. March 2017 http://
freepdfhosting.com/84170a76e7.pdf.
Question 2. In a January 2017 article published in ``Chicago
Business'' you are credited with predicting that GOP legislators would
follow President Trump's lead on drug pricing after the President
commented that prescription drug companies were ``getting away with
murder.'' You also are credited with pointing out that pre-election
poll data showed that Republican voters care more about high drug
prices than they did about repealing Obamacare. In fact, you are quoted
as saying, ``it's a populist issue'' and one that ``Trump is likely to
move on.''
My question is this: What is the best way for this issue to be
addressed to ensure that drug companies do not continue ``getting away
with murder'' and that the interests of the Republican voters you
referenced in your article--lower high drug prices over repealing
Obamacare--are front and center?
Answer 2. There are a range of opportunities to shift toward models
that align drug prices to value, by promoting competition and pursuing
other market-driven solutions. In particular, speeding the approval of
the second- and third-branded drugs in a therapeutic class would
expedite competition and lead to more rapid price concessions. Ensuring
a continued robust market for generic pharmaceutics is vital for
effective cost management and improvement of population health
outcomes.
In addition, outcomes-based contracts also represent a significant
opportunity to shift away from prescription drug list prices toward
value-based reimbursement models. Effective outcomes-based contracts
require next-generation data analysis and interventions that enable
payers and manufacturers to identify patients eligible for treatment,
target outreach to ensure appropriate adherence and quality
improvement, and measure product performance against pre-agreed-upon
outcomes on an ongoing basis. Consumer benefit can be substantially
enhanced through data-based engagement around pharmaceuticals.
Response by Paul Howard to Questions of Senator Sanders
Question 1. Dr. Howard, it is my understanding that the Manhattan
Institute believes very strongly in the value of free trade. As you
know, the United States safely imports lettuce, strawberries, tomatoes,
fish and shrimp, and many other foods from Mexico, Singapore and other
countries in Southeast Asia. For the most part, do you believe these
fruits and vegetable and seafood are safe?
We do believe strongly in the value of free trade and free markets,
and competition as a tool to drive value for consumers and patients.
However, with all due respect, the complexity of the drug supply
chain--as demonstrated by recent scandals with fake or adulterated
medicines originating in China or India--and the risks associated with
patients receiving such fake or adulterated medicines for serious
diseases like cancer are simply an order of magnitude higher than for
foods. The economic incentive for sophisticated counterfeiters to find
ways to slip fake medicines into higher cost markets like the United
States are extraordinarily powerful, and growing. Opening the closed
U.S. drug supply chain would increase these problems dramatically.
Issues with food safety are more easily detectible then in the case
of chronically ill patients who may ingest fake or adulterated drug
products imported from abroad, because they are already in compromised
health. If a patient with high cholesterol or high blood pressure takes
a fake medicine, the results may not be detected without regular
testing--which might not occur for months, leaving the patient at
increased risk of a serious adverse event. The progression of cancer
might also go undetected for some time, and death could be attributed
to the aggressiveness of the disease, rather than the use of
counterfeit medicines.
Opening up the U.S. market to the wholesale importation of
medicines from abroad has never been certified as safe by any FDA
Commissioner from either a Republican or Democratic administration.
Given the much smaller populations in Canada, or the UK, and the need
for those populations to consume medicines for their own market,
implies that extra quantities for the U.S. market would have to be
generated by re-sellers from much farther abroad. This opens up
opportunities for fraud, as has been the case in the EU.
Finally, I would note that attempting to link drug prices in
wealthier countries to lower cost drug sales in poorer countries
(again, as occurs in the EU, under parallel trade, where drugs for the
UK and Germany are imported from poorer countries like Greece) provides
an incentive for manufacturers to delay the launch of new medicines in
poorer countries, or raises the prices lower income nations pay.
Respectfully, I would suggest that this is the wrong way to address
pricing challenges facing U.S. patients. Wealthier countries should pay
higher prices for medicines than poorer countries, and attempting to
arbitrage away the differences will only reduce the total supply of
innovations available to future patients in both wealthy and poor
countries alike. Instead, we should be finding ways to reduce
unnecessary patient-cost sharing in the United States in ways that
actually improve long-term patient health, as has been suggested by
economists at RAND.
Question 2. If Americans can eat food from what some would call
``developing nations,'' then shouldn't Americans be able to import safe
and affordable prescription drugs, from regulated and legitimate
pharmacies, from a ``developed'' nation like Canada? And, do you
agree--yes or no--that Americans should have confidence in the safety
of Canadian drugs much like they have confidence in the safety of
shrimp from Singapore or lettuce and strawberries from Mexico? Please
explain your answer.
Answer 2. Please see my answer to the previous question. I do not
believe that the prices of poorer countries, like Mexico, should be
linked to the sales of medicines in wealthier countries like the United
States.
Differential pricing of medicines in wealthier and poorer countries
is not only economically efficient, it raises the global supply medical
innovations and thus global health.
To put this another way, wealthy countries subsidize drug
development for poorer and middle income countries. Linking these
markets is likely to raise prices for poorer countries beyond their
ability to pay.
The economics and regulation of the pharmaceutical industry are
simply very different than commodities like food. And the different
size of the United States and Canadian markets makes it impossible for
Canada to supply any significant part of U.S. market. As noted earlier,
keeping a closed system would be virtually impossible.
Response by Gerald Anderson to Questions of Senator Sanders
Question 1. Dr. Anderson, you make it very clear in your testimony
that a lack of transparency about drug pricing is a major part of the
drug pricing crisis in the United States. Drug companies do not have to
offer any transparency. In fact, they set a list price without being
regulated or constrained. PBMs also are able to hide behind a zero
transparency climate. In fact, despite what they claim to do, PBMs have
a financial incentive to try to get drug companies to increase their
list prices because they, then, make a greater profit. Wholesalers
bring pharmaceutical drugs to hospitals and pharmacies, and they earn a
profit in doing so without disclosing the amount. And, pharmacies and
hospitals sell drugs to patients, and they make a profit in doing so,
too. At the end of the day, the person who really pays is the patient
and they often do so through higher cost sharing.
Dr. Anderson, as we work to expand transparency and to bring all of
these varying amounts of money out into the open, do you think that we
need to implement a drug importation system so that Americans can
afford the medicines that they need today?
In regards to importation, my concern is that the pharmaceutical
industry would likely adapt to any policy change in this area by
rationing the number of drugs that they send to Canada or other
countries. As a result, U.S. patients could still struggle to obtain
needed medications, while creating access and affordability issues for
patients in these other countries. Additionally, patients could face
increased safety risks by consuming medications from manufacturers and
countries outside of the current FDA-approval system.
However, I do think it is important to allow importation for off-
patent drugs that have three or fewer competitors. I talked about this
issue in my congressional testimony at the Senate Aging Committee and
was a coauthor of a JAMA paper on this topic as well (Greene, Jeremy
A., Gerard Anderson, and Joshua M. Sharfstein. ``Role of the FDA in
affordability of off-patent pharmaceuticals.'' Jama 315.5 (2016): 461-
62.) It turns out that most of these drugs are being manufactured in
other highly industrialized countries and it would be very easy to
import these drugs from other countries without having the drug
companies be able to penalize the other countries.
Instead, I would suggest looking at other policy changes that could
quickly bring down drug prices and increase patients' access to the
medications that they need, such as enacting price gouging legislation
that empowers State Attorneys General to take legal actions against
drug companies, restricting ``pay for delay'' behavior and other
similar tactics that block generic drug companies from entering the
marketplace, or using the Federal Government's current authority under
28 U.S.C. 1498 to provide reasonable compensation to a drug company
for the use of its patent and allow a generic manufacturer to
manufacture the drug.
[Whereupon, at 12:22 p.m., the hearing was adjourned.]