[Senate Hearing 117-176]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 117-176
 
                       WHY DOES THE U.S. PAY THE
                      HIGHEST PRICES IN THE WORLD
                        FOR PRESCRIPTION DRUGS?

=======================================================================

                                HEARING

                               BEFORE THE

         SUBCOMMITTEE ON PRIMARY HEALTH AND RETIREMENT SECURITY

                                 OF THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS

                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                                   ON

    EXAMINING WHY THE U.S. PAYS THE HIGHEST PRICES IN THE WORLD FOR 
                           PRESCRIPTION DRUGS

                               __________

                             MARCH 23, 2021

                               __________

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                                Pensions
                                
                                
                                
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             U.S. GOVERNMENT PUBLISHING OFFICE 
46-756PDF           WASHINGTON : 2022 
        
        
        
        
        
          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

                    PATTY MURRAY, Washington, Chair
BERNIE SANDERS (I), Vermont          RICHARD BURR, North Carolina, 
ROBERT P. CASEY, JR., Pennsylvania       Ranking Member
TAMMY BALDWIN, Wisconsin             RAND PAUL, M.D., Kentucky
CHRISTOPHER S. MURPHY, Connecticut   SUSAN M. COLLINS, Maine
TIM KAINE, Virginia                  BILL CASSIDY, M.D., Louisiana
MAGGIE HASSAN, New Hampshire         LISA MURKOWSKI, Alaska
TINA SMITH, Minnesota                MIKE BRAUN, Indiana
JACKY ROSEN, Nevada                  ROGER MARSHALL, M.D., Kansas
BEN RAY LUJAN, New Mexico            TIM SCOTT, South Carolina
JOHN HICKENLOOPER, Colorado          MITT ROMNEY, Utah
                                     TOMMY TUBERVILLE, Alabama
                                     JERRY MORAN, Kansas

                     Evan T. Schatz, Staff Director
               David P. Cleary, Republican Staff Director
                  John Righter, Deputy Staff Director
                                 ------                                

         SUBCOMMITTEE ON PRIMARY HEALTH AND RETIREMENT SECURITY

                 BERNIE SANDERS (I), Vermont, Chairman
ROBERT P. CASEY, JR., Pennsylvania   SUSAN M. COLLINS, Maine Ranking 
TAMMY BALDWIN, Wisconsin                 Member
CHRISTOPHER S. MURPHY, Connecticut   RAND PAUL, M.D., Kentucky
TIM KAINE, Virginia                  LISA MURKOWSKI, Alaska
MAGGIE HASSAN, New Hampshire         ROGER MARSHALL, M.D., Kansas
JACKY ROSEN, Nevada                  TIM SCOTT, South Carolina
BEN RAY LUJAN, New Mexico            JERRY MORAN, Kansas
PATTY MURRAY, Washington (ex         BILL CASSIDY, M.D., Louisiana
    officio)                         MIKE BRAUN, Indiana
                                     RICHARD BURR, North Carolina (ex 
                                         officio)
                                         
                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                        TUESDAY, MARCH 23, 2021

                                                                   Page

                          Subcommittee Members

Sanders, Hon. Bernie, Chairman, Subcommittee on Primary Health 
  and Retirement Security, Opening statement.....................     1
Collins, Hon. Susan, Ranking Member, a U.S. Senator from the 
  State of Maine, Opening statement..............................     4

                               Witnesses

Kesselheim, Aaron, M.D., JD, MPH, Professor of Medicine, Brigham 
  and Women's Hospital and Harvard Medical School, Boston, MA....     6
    Prepared statement...........................................     7
    Summary statement............................................    19
Persaud, Nav, M.D., MA, Canada Research Chair in Health Justice, 
  University of Toronto, ON, Canada..............................    21
    Prepared statement...........................................    22
Spates, Elia, Derby, VT..........................................    26
    Prepared statement...........................................    28
Brill, Alex, Resident Fellow, AEI, Washington, DC................    30
    Prepared statement...........................................    31

                          ADDITIONAL MATERIAL

Statements, articles, publications, letters, etc.
Burr, Hon. Richard:
    Statement for the Record.....................................    56
National Council on Disability:
    Statement for the Record.....................................    57
    Quality-Adjusted Life Years and the Devaluation of Life with 
      Disability.................................................    59


                       WHY DOES THE U.S. PAY THE

                      HIGHEST PRICES IN THE WORLD

                        FOR PRESCRIPTION DRUGS?

                              ----------                              


                        Tuesday, March 23, 2021

                                       U.S. Senate,
    Subcommittee on Primary Health and Retirement Security,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:03 a.m., in 
room 430, Dirksen Senate Office Building, Hon. Bernie Sanders, 
Chairman of the Subcommittee, presiding.
    Present: Senators Sanders [presiding], Casey, Baldwin, 
Murphy, Kaine, Hassan, Rosen, Collins, Murkowski, Marshall, 
Cassidy, and Braun.

                  OPENING STATEMENT OF SENATOR SANDERS

    The Chairman. Let me call this hearing to order.
    Let me thank Senator Collins and her staff for helping to 
put on this hearing, and thank all of the Subcommittee Members 
who will be participating, and the panelists who will be with 
us virtually in a few minutes.
    There is an interesting debate among the people of this 
Country about which powerful special interest has the most 
clout on Capitol Hill. Some people think it may be Wall Street. 
Some people may think it's the military-industrial complex. 
Some people think it's the fossil fuel industry.
    I myself may be wrong, but I would give the nod to the 
pharmaceutical industry, an industry which charges the American 
people, by far, the highest prices in the world for 
prescription drugs and has managed to create a situation where 
they can raise their prices to any level they want any day of 
the week.
    Today, people are walking into a drug store, walking into a 
pharmacy, the pharmacist is telling them, ``Sorry, the price of 
your medicine has substantially gone up.'' That's what the drug 
companies have done.
    Drug companies are an industry which year after year make 
huge profits, and they pay their CEOs incredibly large 
compensation packages. It is an industry which is significantly 
responsible for the fact that in the United States we pay the 
highest prices in the world for health care, almost double what 
any other country pays. It is an industry which has an 
incredibly opaque pricing system which charges one branch of 
government a very different price than it charges another for 
the same drug, the same exact drug. Medicare will pay a price, 
Medicaid will pay a price, the Veterans' Administration will 
pay a price, community health centers will pay a different 
price, all for the same exact drug, and that's true for 
hospitals, for nursing homes, and for individuals. It's very 
hard to know what they are charging anybody else.
    This is an industry that has paid $32 billion in fines for 
a variety of illegal actions over the last 20 years, including 
price fixing, overcharging Federal, state, and local 
governments for their products, bribery, collusion, fraud, and 
deception. And yet, this is an industry which keeps going on 
its merry way virtually untouchable, year after year after 
year.
    Now, how do they get away with that? And it is not hard to 
understand. During the last 23 years, the drug companies have 
spent $7.6 billion on lobbyists, $7.6 billion over the last 23 
years, including the former leadership of the Democratic and 
Republican parties. They have more than 1,500 lobbyists here in 
Washington. There are 435 Members of the House and Senate. They 
have 1,500 lobbyists here in Washington, as well as lobbyists 
in virtually every state capital in this Country. Since 1990 
they have spent nearly $730 million on campaign contributions 
which have gone to many, many hundreds of Members of Congress, 
including both political parties.
    Let's be clear: the pharmaceutical industry is not 
particularly sympathetic to the Democratic Party or the 
Republican Party. They try to buy both parties. In fact, I 
think it's fair to say that it is not Congress which regulates 
the drug companies but the drug companies which regulate 
Congress, and that has got to change. Congress finally, after 
years and years and years of talk, finally has got to summon up 
the courage to take on the drug companies and lower 
prescription drug prices in America. That is what the American 
people want, and that is what we need to do.
    Last year, one out of five Americans could not afford to 
buy the medicine prescribed by their doctor. How crazy is that? 
Walking into a doctor's office, getting a diagnosis, getting a 
prescription drug, but you can't afford to fill it.
    Meanwhile, while Americans are dying or getting sicker than 
they should because they cannot afford the medications they 
need, nine large drug companies made over $58 billion in 
profits last year, $58 billion in profits, nine companies, 
while just six pharmaceutical industry CEOs made $564 million 
in total compensation over the past 3 years, not too shabby.
    Every day in my office, and I'm sure every congressional 
office, we hear stories from Americans unable to afford the 
prescription drugs they need. Today we will hear from Ms. Elia 
Spates from Derby, Vermont, who will tell us how the 
outrageously high price of insulin in America has impacted her 
life. And, of course, she is not alone. In 2018, one out of 
every four Americans with Type 1 diabetes were forced to ration 
insulin because they could not afford it. Do you believe that? 
One out of four Americans with diabetes forced to ration 
insulin.
    Let's be clear: insulin is not a new drug. It was invented 
nearly 100 years ago by Canadian scientists who sold the patent 
rights for insulin for just $3.00, because they believed it 
should be accessible to everyone who needed it. And yet over 
the past decade, the price of insulin has gone up by over 300 
percent.
    Yet, 50 miles from my home in Vermont, you can purchase 
insulin in Canada at about one-tenth the price that we pay in 
this Country. And let's be clear: prescription drug prices in 
Canada are also high compared to other countries around the 
world. According to a recent study by Rand, a standard unit of 
insulin costs $98 in the United States, $12 in Canada, $11 in 
Germany, $9 in France, $7.52 in the U.K., and $6.94 in 
Australia. And it's not just insulin. A one-month prescription 
of Entocort to treat Crohn's disease costs $830 in the U.S., 
$81 in Canada. One asthma inhaler, Flovent Diskus, costs $242 
in the U.S., $27 in Canada. Two EpiPens cost $686 in the United 
States, $278 in Canada. And on and on and on it goes, the same 
medications manufactured by the same companies in the same 
factories, all available in countries around the world at a 
far, far lower price than here in the United States.
    In my view, we can no longer tolerate a system that allows 
the former CEO of Gilead to become a billionaire by charging 
$1,000 for a hepatitis C drug called Sovaldi that costs just 
one dollar to manufacture and can be purchased in India for $4. 
We can no longer tolerate a system that allows the Chairman of 
Mylan, Robert Coury, to receive $164 million compensation 
package in 2016 after his company jacked up the price of EpiPen 
by 550 percent over a nine-year period.
    All over this Country the American people are asking a 
simple question: How many people need to die, how many people 
need to get unnecessarily sicker before Congress is prepared to 
take on the greed of the pharmaceutical industry? The American 
people are demanding that Congress listen to their concerns and 
not cower before the power of the pharmaceutical companies.
    In order to begin to address this issue, I have introduced 
three bills with many of my colleagues in the Senate and the 
House that would substantially reduce prescription drug prices 
in this Country and also save the Federal Government 
significant sums of money.
    The first bill is the Prescription Drug Price Relief Act, 
which would cut prescription drug prices in half by pegging the 
price of medicine in the United States to the median price in 
five major countries--Canada, the United Kingdom, France, 
Germany, and Japan.
    The second bill is the Medicare Drug Price Negotiation Act, 
which would direct the Secretary of Health and Human Services 
to negotiate lower prices for prescription drugs under Medicare 
Part D. Every other major country on earth, in one form or 
another, negotiates drug prices, and the time is long overdue 
for Medicare to do that as well. According to a recent study, 
if this bill became law, the U.S. Government could save more 
than $345 billion over the next decade.
    The third bill, the Affordable and Safe Prescription Drug 
Importation Act, would allow patients, pharmacists, and 
wholesalers to legally purchase safe, low-cost medicine from 
Canada and other major countries. We import all kinds of stuff, 
food and everything else. There's no reason why we cannot 
safely reimport prescription drugs.
    With that, the bottom line is we have been talking about 
this issue for decades. It is time to act.
    Senator Collins.

                  OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you, Mr. Chairman, for holding our 
very first Subcommittee hearing on an issue where I hope that 
Democrats and Republicans can find common ground, and that is 
improving the affordability of prescription drugs.
    When a doctor prescribes a needed medication, an 
insurmountable barrier to taking it should not be its cost. 
More than half of Americans and an overwhelming majority of our 
seniors take at least one prescription drug each month. For 
many, access to these medicines not only is critical to their 
well-being but also can literally be a matter of life or death.
    During my recent tenure as Chairman of the Senate Aging 
Committee, one of my top priorities was to uncover the reasons 
for spikes in pharmaceutical drug prices and to help make 
medicines more affordable for more Americans. I led a 
bipartisan investigation with then-Senator Claire McCaskill of 
Missouri on sudden price spikes of off-patent drugs and the 
manipulation of the market by people like the infamous Martin 
Shkreli.
    I also worked with Senator Bob Casey to investigate various 
entities in the opaque market for pricing of prescription drugs 
such as pharmacy benefit managers.
    Our committee also held hearings on the price of insulin 
and drugs to treat rheumatoid arthritis, listening closely to 
patients and other witnesses.
    The answers that the Aging Committee received from its 
inquiries, investigations, and hearings resulted in several 
bills being signed into law. For example, the Making 
Pharmaceutical Markets More Competitive Act provides more 
transparent and open application process for generics. It 
expedites the timeline for FDA to review and approve 
applications.
    Since enactment of this law, not only are we seeing more 
applications, but approvals are up considerably, with 28 
priority generics and 35 competitive generic therapies approved 
in Fiscal Year 2020 alone.
    The Patient Right to Know Drug Prices Act and the Know the 
Lowest Price Act banned pharmacy gag clauses. They prohibited 
pharmacists from telling their customers if their prescription 
would cost less if they actually paid for it out-of-pocket 
rather than using their insurance plans. This legislation also 
required the disclosure of settlements reached between biologic 
and biosimilar developers to the Federal Trade Commission. This 
has been required of generic drug developers since 2003.
    At the end of 2019, Congress passed legislation that will 
improve and streamline the FDA approval process for new forms 
of insulin, which should usher in more competition into a 
category that has seen huge and unwarranted price increases.
    At an Aging Committee hearing on the cost of insulin in 
2018, a father from New Gloucester, Maine, testified that 
insulin for his 13-year-old son with Type 1 had tripled in 
price, forcing him to purchase from Canada at a lower cost, 
very similar to what the Chairman has described.
    The cost of insulin is among the most prominent examples, 
and I'm grateful that a constituent of the Chairman is here 
today to share her own story.
    As co-chairs of the Senate Diabetes Caucus, which I founded 
in 1998, Senator Jeanne Shaheen and I introduced legislation in 
the last Congress to create a new pricing model for insulin, 
which, as the Chairman pointed out, was first isolated a 
century ago in Canada and yet has soared in price in recent 
years. Recently, we have seen some nascent steps on insulin 
affordability. More than 1,700 Part D and Medicare Advantage 
plans have agreed to cap monthly co-pays for insulin at $35 
this year. Additionally, manufacturers are adding more 
affordable options such as Eli Lilly's $35 co-pay program, 
which has been available during the pandemic.
    These are good first steps, but I hope we can do much more.
    Another focus area is biosimilar competition. Later this 
spring, along with my colleague Senator Tim Kaine, I will 
reintroduce the Biologic Patent Transparency Act to prevent 
drug manufacturers from gaming the patent system. Time is money 
when it comes to abusing the patent system to thwart 
competition. There are reports that AbbVie, the manufacturer of 
Humira, filed 247 patent applications for this drug, and one 
patent that could have protected the medicine for up to 39 
years from any competition from a biosimilar. In fact, the 
price of Humira in the United States increased by an additional 
6.2 percent in January 2019 to offset price reductions from 
biosimilar competition overseas.
    Mr. Chairman, in the last Congress three committees--the 
HELP Committee, the Finance Committee, and the Judiciary 
Committee--all advanced bipartisan bills to reform our broken 
drug pricing system. I was a co-sponsor of the Grassley-Widen 
bill the last Congress, as were several Members of this 
Subcommittee. HHS Secretary Becerra and I spoke about drug 
prices at length during his nomination process.
    Let's bring this bill to the Senate floor as separate 
legislation so that we can have full and open debate and 
amendment to come up with the best solutions. We want new 
medicines to reach consumers and for pharmaceutical companies 
that invest in the research and take the risks necessary to 
develop these drugs to see a fair return on their investment. 
But we must do more to ensure that these essential medicines 
are more affordable and their prices transparent. I hope that 
today's hearing will help us craft policies to strike that 
balance.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Collins.
    We have an outstanding group of panelists. Let me begin by 
welcoming our first panelist, Dr. Aaron Kesselheim, who is a 
Professor of Medicine at Harvard Medical School and a faculty 
member in the Division of Pharmacoepidemiology and 
Pharmacoeconomics in the Department of Medicine at Brigham and 
Women's Hospital.
    Dr. Kesselheim created and leads the program on regulation 
and more, an interdisciplinary research program focusing on 
prescription drugs and medical devices, patient health 
outcomes, and regulatory practices and the law. He has authored 
over 450 publications in peer-reviewed medical and health 
policy literature.
    Mr. Kesselheim, thanks very much for being with us.

  STATEMENT OF AARON KESSELHEIM, M.D., JD, MPH, PROFESSOR OF 
  MEDICINE, BRIGHAM AND WOMEN'S HOSPITAL AND HARVARD MEDICAL 
                       SCHOOL, BOSTON, MA

    Dr. Kesselheim. Thank you, Chairman Sanders, Ranking Member 
Collins, and Members of the Committee. We're here today because 
the U.S. spends far more on drugs per capita than any other 
industrialized nation, over $1,200 in 2018, while the OECD 
average was less than $600.
    U.S. prices are primarily driven by spending on brand-name 
drugs, most of which have been on the market for many years, 
during which time they're subject to astonishing price 
increases. We compared drugs that accounted for the highest 
Medicare Part B spending with Japan, Germany, Switzerland, and 
the U.K., and found prices 46 to 60 percent lower in those 
places.
    How is this possible? I want to focus on three reasons and 
their solutions.
    First, the U.S. allows drug makers to set prices after FDA 
approval at any level they want, and then require Medicare and 
Medicaid to pay no matter what the drug's clinical utility.
    Second, we allow manufacturers to raise those prices each 
year beyond inflation.
    Third, manufacturers extend their patent-protected market 
exclusivity by building a thicket of dozens or even hundreds of 
patents to delay generic entry. Other industrialized nations, 
even some states and payers in the U.S., have strategies that 
address these issues.
    The first step to address excessive drug prices would be to 
evaluate and negotiate. The Defense Department isn't forced to 
buy every new weapon at the price Raytheon conceives of. It 
determines the usefulness and negotiates. The approach in other 
countries begins after regulatory approval with a process known 
as health technology assessment, in which independent 
organizations help determine a fair price based on how well the 
new drug performs against other available treatments. Only if a 
drug provides more benefit to patients should it cost more than 
other options. The U.S. needs to establish a publicly funded 
body that would determine a price for a drug based on its 
clinical benefit.
    In Germany, drug evaluation and negotiation occurs during a 
drug's first year when a non-profit, non-governmental research 
organization assesses its therapeutic benefits. In review of 
outcomes in that market, we found that no drugs providing 
important benefit left the German market, while cancer drug 
prices substantially declined and were more closely aligned 
with clinical benefit. States like New York and Massachusetts 
have now initiated such a review process for their Medicaid 
programs.
    My second major recommendation is to limit drug price 
increases. In the U.S., Gleevec was introduced in 2001 for a 
list price of $26,000 a year and increased to more than 
$120,000 by 2016. Many brand-name drugs provide rebates to 
commercial payers and Medicare Part D plans, but those only 
offset some of these price increases. By contrast, in other 
countries, agreements between the government or payers and 
manufacturers restrict price increases. We found that spending 
per unit for the cancer drug lenalidomide in the U.S. increased 
from 2010 to 2018 from about $400 a unit to nearly $700 a unit, 
while during that same period of time the drug in France 
decreased from $239 a unit to $202 a unit. One model would be 
to extend the drug price inflation rebate penalty currently in 
place for Medicaid. Bills were introduced in the prior Congress 
with bipartisan support for this plan, as Ranking Member 
Collins mentioned.
    A final component would be to arrange for more efficient 
transition to a competitive market. Generic or biosimilar entry 
is often delayed in the U.S. because of patent thickets 
covering trivial attributes of the drug. Here again, lessons on 
how to improve the experience in the U.S. can come from other 
countries. Results from foreign patent offices suggest that the 
U.S. Patent Office could reduce the number of wrongly issued 
patents by allocating greater resources to ensure patent 
quality. In addition, we could leverage the Patent Trial 
Appeals Board set up by the 2001 America Invents Act to weed 
out invalid patents before they get caught up in litigation by 
reviewing patents listed by the FDA.
    There is my prescription, informed by successful policy 
initiatives in other countries and U.S. states. Independent 
therapeutic evaluation leading to price negotiation, limits on 
price increases, and efficient generic entry at the end of 
market exclusivity.
    The industry may contend that any drug pricing reform will 
have reduced innovation, but meaningful innovation need not 
decline. Large pharmaceutical manufacturers invest only about 
10 to 20 percent of their revenues in R&D. To ensure new 
therapeutic insights, we must augment support of the NIH since 
transformative drug innovation often emerges from publicly 
funded research and development, as it recently did for COVID-
19 treatments and vaccines.
    In reality, these policies are likely to actually improve 
meaningful innovation. In the last decade, only one-third of 
new drugs in the U.S. were rated by one of these international 
independent organizations as having even moderate therapeutic 
benefit. If drug prices more adequately reflected the clinical 
benefits that they offer to patients, this would incentivize 
more meaningful pharmaceutical innovation and there would be 
less investment in making trivial changes to existing products 
and more investment in meeting unmet medical needs. Generous 
rewards would still be provided for creating important new 
medicines.
    Most importantly, with the changes I've proposed, 
policymakers can rest assured that more patients will be able 
to access these vital products at an affordable price.
    Thank you very much.
    [The prepared statement of Dr. Kesselheim follows:]
                 prepared statement of aaron kesselheim
    Chairman Sanders, Ranking Member Collins, and Members of the 
Committee:

    My name is Aaron Kesselheim. I am an internal medicine physician, 
lawyer, and health policy researcher and a Professor of Medicine at 
Harvard Medical School in the Division of Pharmacoepidemiology and 
Pharmacoeconomics of the Department of Medicine at Brigham and Women's 
Hospital in Boston, one of the main Harvard teaching hospitals. I lead 
its Program On Regulation, Therapeutics, And Law (PORTAL), an 
interdisciplinary research group that studies the intersections between 
prescription drug affordability and use, laws and regulations related 
to medications, and the development and cost of drugs. PORTAL is one of 
the largest and most prolific non-industry funded research centers in 
the country that focuses on pharmaceutical law, use, and economics. I 
am honored to have been invited today to talk to you about brand-name 
drug prices in the U.S.: both why they are so high and what you can 
actually do about it.

    I will start by reviewing the problem of high drug prices, touching 
on why prices are so high in the U.S. and what the implications are of 
high drug prices for patients and the health care system. I will then 
describe a three-pronged approach to ensuring that U.S. patients pay 
fair prices for new therapeutics: negotiating with brand-name drug 
manufacturers, ensuring that prices cannot rise excessively over time, 
and ensuring a timely and efficient transition to generic competition 
at the end of the market exclusivity period. For each of these major 
categories, I will compare the U.S. approach to other industrialized 
countries (and some cutting-edge U.S. states) to provide points of 
contrast and pathways forward for policymaking by Congress. Finally, I 
will address some important counter-arguments that are sometimes made 
in opposing plans to address high U.S. drug prices. I will conclude by 
explaining the problems with these arguments, and suggest how they can 
be addressed in any policy changes that are made.
                   I. The Problem of High Drug Prices
    The U.S. spends far more on prescription drug prices per capita 
than any other industrialized nation. Total prescription drug spending 
here jumped from $427 billion in 2015 to $511 billion in 2019. \1\ 
According to the World Health Organization, the U.S. spent $1,011 per 
capita on retail pharmaceuticals in 2015, which increased to $1,229 in 
2018, far outpacing all other OECD countries: the next highest, 
Switzerland, came in at $894, and the OECD average was far lower, at 
$562. \2\ One government report estimated that about 17 percent of the 
U.S. health care spending goes to prescription drugs, although some 
payors have reported that pharmaceuticals account for closer to 25 
percent of spending overall.
---------------------------------------------------------------------------
    \1\  Tichy EM, Schumock GT, Hoffman JM, et al. National trends in 
prescription drug expenditures and projections for 2020. American 
journal of health-system pharmacy. 2020;77(15):1213-1230.
    \2\  Kesselheim AS, Hwang TJ, Avorn J. Paying for Prescription 
Drugs in the New Administration. JAMA 2021;325(9):819-820.

    High U.S. drug prices are primarily driven by spending on brand-
name drugs, which make up only about 10 percent of prescriptions, but 
account for about 75 percent of spending. Most of this spending is not 
for the newest drugs approved in the last year or two, but from brand-
name drugs that have been on the market for many years, during which 
time they have been subject to substantial promotion to physicians and 
direct-to-consumer advertising. Many of them have been subjected to 
astonishing price increases from year to year, even with no changes in 
the drug itself. For example, in 2019, Medicare Part D--the Federal 
Government's outpatient prescription drug insurance program for 
patients over age 65--topped its list of greatest spending with three 
drugs: the anticoagulants apixaban (Eliquis), which has been on the 
market for 8 years, and rivaroxaban (Xarelto), on the market for 10 
years, and the cancer treatment lenalidomide (Revlimid), which has been 
on the market for 15 years. These three drugs accounted for about $16 
billion in gross spending for Medicare Part D alone just in 2019 (or 
approximately $10 billion in net spending). In Medicare Part B--which 
covers hospital-or physician-administered drugs for older patients--
top-spending drugs in 2019 included the ophthalmologic drugs 
aflibercept (Eylea, $2.9 billion total spending, 9 years on market) the 
anticancer drug rituximab (Rituxan, $1.7 billion, 23 years), and the 
pegfilgrastim (Neulasta, $1.2 billion, 19 years). High spending and 
prices are not indicators of innovation reaching patients but of a 
system that allows manufacturers to freely set and raise prices while 
---------------------------------------------------------------------------
preventing effective competition.

    Among the most concerning examples of high drug prices relate to 
drugs that have been available for multiple decades, including products 
like insulin, the opioid reversal agent naloxone, and epinephrine for 
potentially fatal allergic reactions. In a study led by Dr. William 
Feldman in our group, we studied data on Medicare Part D drug spending 
to examine injectable insulin products. We found that in 2017, Medicare 
Part D spent about $7.8 billion (even after assuming large rebates) on 
31 different insulin products. \3\ Unfortunately, the availability of 
multiple brand-name products does not consistently lead to substantial 
reductions in prices, as might be expected, because they are not 
interchangeable, reducing the possibility of price competition. \4\
---------------------------------------------------------------------------
    \3\  Feldman WB, Rome BN, Lehman LS, Kesselheim AS. Estimation of 
Medicare Part D spending on insulin for patients with diabetes using 
negotiated prices and a defined formulary. JAMA Internal Medicine 
2020;180(4):597-601.
    \4\  Sarpatwari A, DiBello J, Zakarian M, Najafzadeh M, Kesselheim 
AS. Competition and price among brand-name drugs in the same class: a 
systematic review of the evidence. PLoS Medicine 2019;16(7): e1002872. 
See also Luo J, Avorn J, Kesselheim AS. Trends in Medicaid 
Reimbursements for Insulin From 1991 through 2014. JAMA Internal 
Medicine 2015;175 (10):1681-1686.

    The prices paid for these same brand-name drugs are much lower in 
other industrialized countries than they are in the U.S.. In one study 
led by Thomas Hwang in our group, we evaluated the prices of 75 brand-
name drugs that accounted for the highest Part B expenditures in fee-
for-service Medicare beneficiaries in 2016, compared to the prices for 
the same drugs in four comparator high-income countries: Japan, 
Germany, Switzerland, and the UK. In virtually all cases, the U.S. paid 
more for these drugs than the median of prices in comparator high-
income countries. Overall, drug prices in high-income countries were 
46-60 percent lower than those in Part B, taking rebates into account. 
\5\
---------------------------------------------------------------------------
    \5\  Hwang TJ, Jain N, Lauffenburger JC, Vokinger KN, Kesselheim 
AS. Analysis of proposed Medicare Part B to Part D shift with 
associated changes in total spending and patient cost-sharing for 
prescription drugs. JAMA Internal Medicine 2019;179(3):374-380.

    Brand-name prescription drug prices are so high in the U.S., and 
much higher than in other comparable countries, because in the U.S. we 
allow brand-name pharmaceutical manufacturers to charge whatever they 
want during their periods of government-granted market exclusivity--a 
condition not seen in any other developed nation. At the same time, 
numerous laws and rules require coverage of many high-priced drugs by 
government or private payors. As a result, brand-name manufacturers set 
drug prices in the U.S. at levels far exceeding prices for the same 
drugs made by the same companies for use in other high-income countries 
around the world, because they can, and then raise those prices each 
year at rates much higher than the rate of inflation. \6\ As a final 
step, manufacturers also take numerous steps to extend their market 
exclusivity periods as long as possible by building a ``thicket'' of 
patents designed to delay generic entry. \7\
---------------------------------------------------------------------------
    \6\  Kesselheim AS, Avorn J, Sarpatwari A. The high cost of 
prescription drugs in the United States: origins and prospects for 
reform. JAMA 2016;316(8):858-871; Ways and Means Committee Staff. A 
Painful Pill to Swallow: U.S. vs. International Prescription Drug 
Prices. Washington, DC September 2019.
    \7\  Vokinger KN, Kesselheim AS, Avorn J, Sarpatwari A. Strategies 
that delay market entry of generic drugs. JAMA Internal Medicine 
2017;177(11):1665-1669.

    These high prices have important implications for patients. 
Americans struggle to afford their prescriptions, and three in ten 
report not taking a medication as prescribed by their doctor because of 
the cost. \8\ Non-adherence to important medications can lead to 
increased patient mortality. \9\ Drug costs passed on to consumers and 
patients through insurance premium increases make such insurance less 
affordable, and can force people off of their insurance plans. High 
drug prices have spillover implications for other aspects of health 
care and social spending, since public and private spending on 
prescription drugs is not available to meet other needs. Medicaid 
programs, for example, have had to respond to expanding drug budgets by 
cutting coverage for other services and limiting access to drugs. \10\
---------------------------------------------------------------------------
    \8\  ``Three in ten of all adults (29 percent) also report not 
taking their medicines as prescribed at some point in the past year 
because of the cost.'' Kirzinger A, Munana C, Wu B, Brodie M. Data 
Note: Americans' Challenges with Health Care Costs. KFF. 2019. https://
www.kff.org/health-costs/issue-brief/data-note-americans-challenges-
health-care-costs/. 11 June 2020.
    \9\  Gagne JJ, Choudhry NK, Kesselheim AS, Polinski JM, Hutchins D, 
Matlin OS, Brennan TA, Avorn J, Shrank WH. Comparative effectiveness of 
generic and brand-name statins on patient outcomes. Annals of Internal 
Medicine 2014;161:400-407.
    \10\  Galewitz P. States Cut Medicaid Drug Benefits to Save Money. 
Kaiser Health News July 24 2012. https://khn.org/news/Medicaid-cuts-
sidebar/.

    I am optimistic that this hearing, among the first held by the HELP 
Committee, indicates a new commitment by the new leadership in the 
Senate to make progress on the issue of unaffordable drug prices and 
their harmful effect on patients and the U.S. economy. Progress on 
excessive drug prices in the U.S. has been stymied before by the 
pharmaceutical industry and its well-funded and powerful lobbying 
clout. In the past, both Republicans and Democrats have responded to 
that pressure by staying away from taking evidence-based and 
enforceable steps to bring pharmaceutical spending in line with other 
industrialized nations. In the last 4 years, the Trump Administration 
continued this tradition by doing little to address drug prices in a 
meaningful way. However, I believe bold action now will be rewarded at 
the polls. There is clear evidence that most Americans favor action to 
help them with the high drug prices faced by them and their family. In 
a national survey leading up to the 2020 election, the second-ranked 
domestic priority for Democrats and Republicans alike was lowering the 
cost of prescription drugs, following just behind access to affordable 
health care. \11\
---------------------------------------------------------------------------
    \11\  Harvard T.H. Chan School of Public Health & Politico, 
Americans' Domestic Priorities for President Trump and Congress in the 
Months Leading Up to the 2020 Election (Feb. 2020), https://
cdn1.sph.harvard.edu/wp-content/uploads/sites/94/2020/02/
PoliticoFeb2020.pdf.

    Below, I describe a three-pronged practical approach that Congress 
could implement to address high drug prices, drawing on lessons from 
other countries--and from a few states that have begun to enact such 
thoughtful reforms.
     II. A Three-Pronged Solution to Ensure Fair Prices in the U.S.
    A comprehensive approach to address high U.S. brand-name drug 
prices must account for the several major components of the U.S. market 
that sustain those high prices: (1) brand-name manufacturers can freely 
set prices for new drugs at the time of FDA approval at any level they 
wish, unlike what is seen in other countries, and important payors such 
as Medicare are required to accept those prices and to cover nearly all 
such products, whether they represent an increase in patient benefit or 
not; (2) brand-name manufacturers are permitted to freely raise prices 
to any level they choose during government-protected market exclusivity 
periods; and (3) these companies can use patents and other government-
enforced tools to delay effective generic or biosimilar competition as 
long as possible.

    A multi-pronged solution to ensure fair prices is therefore 
grounded in negotiating fair prices for brand-name drugs, ensuring that 
brand-name manufacturers cannot raise prices over time beyond inflation 
unless they make meaningful improvements to their drugs, and providing 
an efficient transition to a competitive generic market after 
exclusivity periods ends. Most other industrialized nations already 
have strategies that address each of these components.
               A. Negotiating Prices of Brand-Name Drugs
    While other countries have implemented a variety of effective price 
negotiation and review tools, U.S. legislators have not directly 
addressed drug prices and instead allow manufacturers to freely set 
prices while enforcing purchases by public sector programs and allowing 
for prolonged extension of government-granted monopolies. This 
situation is different from the purchase of nearly all other goods and 
services in our free-enterprise marketplace economy. The markets for 
prescription drugs are served by a patchwork of public and private 
payors that are unable in many cases to negotiate effectively, and/or 
are prohibited from declining to cover drugs that do not add anything 
meaningful to available treatment options. Medicare is forbidden by law 
from negotiating prices with drug manufacturers, despite the fact that 
it negotiates or sets the price for every other medical service it 
covers. Medicare Part B pays for all drugs at their average sales price 
(plus an additional percentage that acts as a dispensing fee), while 
the individual plans that offer coverage through Medicare Part D are 
forced to buy all drugs in several ``protected'' classes and cannot 
exclude any from their formularies, whether or not they add benefit or 
are severely overpriced. This situation--uniquely different from nearly 
all other Federal procurements--limits their ability to negotiate 
effectively. Medicaid programs receive a guarantee that they will get 
the best price being offered in the commercial market, but generally 
cannot negotiate any further since they are required to list virtually 
all FDA-approved drugs on their formularies.

    In the private sector free from Medicare restrictions, commercial 
insurers can refuse to pay for particular costly drugs that have 
equivalent less expensive alternatives; they may also impose high co-
payments to discourage patient demand for such lower-value medications. 
Unfortunately, such negotiation may not necessarily be based on the 
clinical benefit of the drug but on the extent of rebates, the 
financial goals of the pharmaceutical benefit manager (PBM) that often 
controls the negotiation, and other arrangements the PBM may have with 
it. Manufacturers, through PBMs, do negotiate prices but these other 
issues are central to the negotiation, rather than the extent of 
clinical benefit. The approach is also counteracted by manufacturer 
coupons to patients and patient assistance programs, as well as state 
laws that require coverage of certain drug products.

    One most direct way to address excessive drug prices would be for 
the government to negotiate the price of drugs for taxpayer-supported 
drug benefit programs, just as the Defense Department negotiates the 
prices of armaments it purchases. The prevailing approach to 
negotiating brand-name drug prices in other industrialized countries 
begins after regulatory approval with a process known as Health 
Technology Assessment (HTA). Numerous other countries have health 
technology assessment organizations that assess a newly approved drug's 
actual clinical benefit and help determine a fair price based on how 
well the new drug is expected to perform against other available 
treatments. These publicly funded organizations conduct assessments of 
the effectiveness, safety, and cost of new drugs compared with other 
interventions to evaluate what price the payor should agree to 
reimburse.

    Germany, for example, launched a major drug pricing reform law in 
2011 (Arzneimittelmarktneuordnungsgesetz, or AMNOG) to align prices and 
reimbursement more closely with expected treatment benefits. Under this 
law, called AMNOG, the manufacturer sets prices freely during a drug's 
first year on the market. During this time, the Institute for Quality 
and Efficiency in Health Care (IQWiG), a nonprofit, nongovernmental 
research organization, assesses its possible additional therapeutic 
benefits relative to existing standards of care (rating drugs as 
having: major, considerable, minor, or no or not quantified benefit). 
For drugs without sufficient clinical evidence of therapeutic benefit 
that surpasses the standard of care, payors will not reimburse prices 
higher than the existing standard of care. A 2018 analysis showed that 
of 139 drugs reviewed in the clinical benefit pricing procedure, only 
22 were later withdrawn by the manufacturer from the market, and of 
those 22 all but one had received a rating of no additional clinical 
benefit; the remaining drug had a non-quantifiable benefit and was 
withdrawn from all European markets. \12\
---------------------------------------------------------------------------
    \12\  Spuleucel-T (Provenge) received a benefit rating of ``not 
quantifiable'' and was scheduled to be re-reviewed but was withdrawn 
from European markets before then. Staab TR, Walter M, Mariotti 
Nesurini S, et al. ``Market withdrawals'' of medicines in Germany after 
AMNOG: a comparison of HTA ratings and clinical guideline 
recommendations. Health Economic Review 2018;8(1):23.

    In France, the Economic Committee for Health Products (CEPS) 
primarily judges the value of a new prescription drug based on the 
added clinical benefit that a drug provides to patients in comparison 
to available alternatives. This added benefit is classified as major 
(I), substantial (II), moderate (III), mild (IV), or absent (V). CEPS 
is composed of representatives from the health and finance ministries, 
the country's national health insurer, and private insurers. It 
negotiates drug prices with manufacturers on that basis. Drugs with 
major, substantial, or moderate added benefit are guaranteed to have a 
list price similar to those in the United Kingdom, Germany, Spain, and 
Italy. \13\
---------------------------------------------------------------------------
    \13\  Rodwin MA. Pharmaceutical Price and Spending Controls in 
France: Lessons for the United States. International Journal of Health 
Sciences. 2020;50(2):156-165.

    As these examples show, in Germany and France--as well as in other 
countries like Australia, Japan, and Canada--the primary tool for 
leveraging lower drug prices is to rigorously assess the clinical 
benefit of new drugs against pre-existing therapies or comparators. If 
a new drug does not have clinical evidence to show it is more effective 
than other drugs already available to treat a condition, then payors 
should not pay more for it than they do for those pre-existing drugs, a 
mainstay of all market-based transactions. \14\ The basic logic is that 
if a drug costs more than other options, it should provide more benefit 
to patients. Benefit is usually evaluated with patient-relevant 
outcomes, including evidence of effectiveness on life-extension, 
improvements in quality of life, and/or other clinical outcomes. 
Additional benefit can be translated into health economic terms and 
cost-effectiveness to determine whether a proposed price is defensible. 
Alternatively, clinical benefit can be plotted as an ``efficiency 
frontier'' to determine whether a price is in line with the degree of 
benefit, an approach which does not set any values of cost-
effectiveness. \15\ These evaluations inform an anchor price for 
negotiations with manufacturers. \16\ Other countries have either a 
government or independent agency that reviews the manufacturer's 
evidence of clinical effectiveness and the proposed list price. \17\ 
This process does not occur in the U.S., making it difficult for value-
based assessments to drive medication use and cost. Currently, several 
smaller public and private entities, like the Institute for Clinical 
and Economic Review, take on this role on a voluntary basis.
---------------------------------------------------------------------------
    \14\  Pharmaceutical Benefits Advisory Committee. Guidelines for 
preparing a submission to the Pharmaceutical Benefits Advisory 
Committee. September 2016; IQWiG. General Methods. Koln 10 July 2017. 
https://www.iqwig.de/en/about-us/methods/methods-paper/; Shiroiwa T, 
Fukuda T, Ikeda S, Takura T. New decision-making processes for the 
pricing of health technologies in Japan: The fiscal year 2016/2017 
pilot phase for the introduction of economic evaluations. Health 
Policy. 2017;121(8):836-841; https://www.canada.ca/content/dam/pmprb-
cepmb/documents/consultations/draft-guidelines/2020/PMPRB-
Guidelines2020-en.pdf. The French Haute Autorite de Sante, its national 
health authority, rates drugs on two scales: first, whether the new 
drug provides clinical benefit, which determines whether it will be 
reimbursed. The second, is whether the new drug provides additional 
benefit compared to available therapies, and the amount or degree of 
additional benefit determines the extent to which its price may be 
higher than comparator therapies. Haute Autorite de Sante. Pricing & 
Reimbursement of drugs and HTA policies in France. Haute Autorite de 
Sante. https://www.has-sante.fr/jcms/c-1729421/en/transparency-
committee. Published 2015. Updated 29 January 2021.
    \15\  For example, the Australian and Canadian health technology 
assessment bodies (PBAC and CADTH, respectively) translate clinical 
benefit into health economic measures of cost-effectiveness. By 
contrast, the German health technology assessment body (IQWiG) plots an 
efficiency frontier using the most significant clinical outcome or a 
combination of net health benefits and extrapolates an appropriate 
price from this. Pharmaceutical Benefits Advisory Committee. Guidelines 
for preparing a submission to the Pharmaceutical Benefits Advisory 
Committee, version 5.0; CADTH. Guidelines for the Economic Evaluation 
of Health Technologies: Canada. Ottawa March 2017. IQWiG. General 
Methods. Koln 10 July 2017. https://www.iqwig.de/en/about-us/methods/
methods-paper/.
    \16\  See e.g., Patented Medicines Prices Review Board https://
www.canada.ca/content/dam/pmprb-cepmb/documents/consultations/draft-
guidelines/2020/PMPRB-Guidelines2020-en.pdf; Pharmaceutical 
Reimbursement and Pricing in Germany. June 2018. https://www.oecd.org/
health/health-systems/Pharmaceutical-Reimbursement-and-Pricing-in-
Germany.pdf; Transparency Committee. Principles of medicinal product 
assessments and appraisal for reimbursement purposes. 2 December 2020.
    \17\  Emanuel EJ, Zhang C, Glickman A, Gudbranson E, DiMagno SSP, 
Urwin JW. Drug Reimbursement Regulation in 6 Peer Countries. JAMA 
Internal Medicine 2020; See also Rand LZ, Kesselheim AS. An 
International Review of Health Technology Assessment Approaches to 
Prescription Drugs and Their Ethical Principles. Journal of Law 
Medicine, and Ethics 2020;48(3):583-594.

    Thus, my first recommendation is for the U.S. to establish similar 
publicly funded body that would determine a verifiable, evidence-based 
price for a drug based primarily on the clinical benefits it would 
provide. This effort should start with some of the brand-name or 
single-source drugs that account for the greatest spending or have the 
highest prices. Eventually, this body would be charged with reviewing 
all new drugs within the first year after approval; until then, 
manufacturers could be permitted to charge the price they believe is 
appropriate. This approach is analogous to the Drug Efficacy Study 
Implementation (DESI), a program that Congress mandated in the 1960's 
through the 1980's, to assess existing drugs for evidence of efficacy 
once that became a requirement for marketing. In determining a rational 
price, this body could also consider information about the cost of 
development, cost of failure, overall health care budget, extent of 
government funding in its development, and other relevant factors. 
Drugs that do not show benefits over other products would be offered 
the same price as the pre-existing alternatives. The advantages of such 
a reference pricing system are two-fold: first, at market entry, the 
prices for new drugs will be more consistent with their clinical 
benefits, and second, it incentivizes manufacturers to invest in 
research and development that will bring new drugs to market that 
meaningfully improve upon pre-existing therapeutics or address unmet 
needs. Manufacturers would also be incentivized to conduct the research 
needed to demonstrate comparative effectiveness. This system does 
provide extra rewards to drugs that offer no or minimal improvements on 
---------------------------------------------------------------------------
pre-existing therapies.

    Past legislative efforts to establish such a body in the U.S. to 
review drugs' clinical benefits and determine their cost-effectiveness 
have been derailed by the political process. At different points, the 
Office of Technology Assessment, the Agency for Healthcare Research and 
Quality, and the Patient-Centered Outcomes Research Institute have all 
been proposed as the centers of such an effort. More recently, a few 
states have successfully initiated such review boards. For example, the 
New York legislature delegated the new authority for drug assessments 
and negotiation to an existing agency within the state Department of 
Health to review the cost-effectiveness and clinical benefit of 
prescription drugs that the state's Medicaid program purchases. \18\ 
The board primarily relies on third-party organizations, such as the 
Institute for Clinical and Economic Review, and evaluates the following 
factors: publicly available pricing information, information supplied 
by the state Department of Health, value-based pricing analyses 
provided by third parties, the severity and prevalence of the treated 
condition, utilization data, the effectiveness of the drug, the extent 
to which the drug improves patient health or quality of life, the 
likelihood that use of the drug will reduce patients' utilization of 
other medical services, the post-rebate cost of the drug to Medicaid, 
the availability of therapeutic alternatives, the number of 
manufacturers that produce the drug (in the case of generics), and 
information supplied confidentially by the manufacturer to the board. 
After the board agrees on a fair, value-based price for the drug, New 
York's Medicaid program uses this price as a benchmark in negotiations 
with the drug's manufacturer for additional supplemental rebates. The 
board has completed three full reviews to date and successfully exacted 
additional discounts for at least two reviewed drugs. Such an effort 
would not be excessively costly. Though a New York-specific fiscal 
analysis is not available, the Maryland prescription drug affordability 
board is expected to fully fund its activities by assessing $1,000 fees 
on the approximately 1,400 corporations in the prescription drug supply 
chain in Maryland (generating a yearly operating budget of $1.4 
million).
---------------------------------------------------------------------------
    \18\  For a full description of the New York process, as well as 
processes created in Massachusetts and other states, see Bendicksen L, 
Rome BN, Avorn J, Kesselheim AS. Pursuing value-based prices for drugs: 
a comprehensive comparison of state prescription drug pricing boards. 
Milbank Quarterly 2021 [in press].

    Such value-based price negotiations can be effective at reducing 
prices. In France, the government takes clinical benefit into account 
in pricing negotiations and additional factors, such as the price of 
alternatives that treat the same or similar conditions, and the number 
of people eligible to use the drug: products that treat conditions that 
affect more people are priced lower because manufacturers can make the 
same profits with lower margins given increased volume. The French 
system has been very effective; in the 1970's and 1980's, the U.S. and 
France were among the OECD countries with the highest spending on 
pharmaceuticals, but in France, the rate of spending began to slow with 
implementation of new regulations, and was only $638 per capita in 
2018--half the amount the U.S. spent per person ($1,229). \19\ The 
House's Elijah E. Cummings Lower Drug Costs Now Act (H.R. 3), 
introduced in 2019, included a provision for direct negotiation of drug 
prices in Medicare and was expected to save $448 billion in direct 
Medicare spending. \20\
---------------------------------------------------------------------------
    \19\  Raimond VC, Feldman WB, Rome BN, Kesselheim AS. Why France 
spends less than the United States on drugs: a comparative study of 
drug pricing and pricing regulation. Milbank Quarterly 2021 [in press]
    \20\  Congressional Budget Office. 2019. Budgetary Effects of H.R. 
3, the Elijah E. Cummings Lower Drug Costs Now Act. Washington, DC: 
Congressional Budget Office.

    It is important that the price identified and negotiated through 
this process be offered to the private market too. The U.S. has a 
fragmented health system with many different payors, each of whom is 
responsible for securing drugs. By contrast, in other countries, a 
single entity is responsible for negotiating the list price for the 
country. This leverages the full market power of the country's payors. 
In some countries, such as the UK, France, and Japan, a government 
department of health carries out negotiations with manufacturers to 
secure a price for a national health insurance system. Within this 
framework in Europe, drug price negotiations can be centralized and 
involve both public and private insurance plans: in Germany, 
centralized negotiations are carried out by a body called the Federal 
Joint Committee and representing more than 100 insurance plans. \21\ 
Prescription drug pricing defaults to reference pricing to comparators, 
but if there is evidence of additional benefit, then the Federal Joint 
Committee negotiates with drug manufacturers to determine a list price 
that will be paid by all the insurers. \22\ If negotiations fail in 
Germany, a price is set by arbitration. In a study we conducted with 
Prof. Ariel Stern at Harvard Business School using data on 57 
anticancer drugs launched in Germany from 2002 to 2017, we found that 
implementation of these negotiations was associated with drug prices 
being more closely aligned with clinical benefit and a 24.5 percent 
decrease in negotiated prices relative to launch prices. \23\ Another 
study found that prior to the introduction of these centralized 
negotiations, U.S. prices in Medicare Part B were 29 percent higher 
than German prices for the same drugs. Following the introduction of 
the centralized negotiations and assessment of clinical benefit in 
Germany, German prices became lower than U.S. prices by a further 29 
percent. \24\
---------------------------------------------------------------------------
    \21\  Gemeinsamer Bundesausschuss (G-Ba), or Federal Joint 
Committee https://www.g-ba.de/english/.
    \22\  https://www.g-ba.de/english/benefitassessment/.
    \23\  Lauenroth VD, Kesselheim AS, Sarpatwari A, Stern AD, Lessons 
from the impact of price regulation on the pricing of anticancer drugs 
in Germany. Health Affairs 2020;39(7):1185-1193.
    \24\  For new drugs authorized between 2004-2018, the average price 
ratio between U.S., Medicare Part B and German prices before 2011 was 
29.2 percent. After the introduction of the German AMNOG law, which 
established the Federal Joint Committee and introduced clinical benefit 
as the basis for price negotiation, the difference between Medicare 
Part B and German prices rose another 28.9 percent. Berkemeier F, 
Whaley C, Robinson JC. Increasing Divergence in Drug Prices Between the 
United States and Germany After Implementation of Comparative 
Effectiveness Analysis and Collective Price Negotiations. J Manag Care 
Spec Pharm. 2019;25(12):1310-1317.

    An alternative approach is to implement price limits and allow 
public and private plans to each negotiate their own prices with 
manufacturers. In Canada, the Patented Medicine Prices Review Board 
(PMPRB) is a quasi-judicial, independent body that was created in 1987 
to protect consumers from excessive prices during brand-name drug 
exclusivity periods. When a patent-holder applies to sell a drug in 
Canada, it must submit information on the labeling of the drug, price, 
information from benefit analyses undertaken, and estimated use by the 
population to the PMPRB. The PMPRB then reviews the proposed price, 
taking into account information that includes reference pricing to 
comparator therapies, market size for the drug, consumer price index, 
and prices charged in other countries. Through this process, the Board 
first establishes an ``Interim Maximum List Price'', which is followed 
by a ``Maximum List Price'' as more information about the drug becomes 
available. If a manufacturer is found to have excessively priced a 
drug, the Board can require that the drug price be lowered and 
introduce clawbacks. \25\ In the Canadian example, an independent body 
protects patients and plans from excessive pricing, and payors then 
have the option to negotiate discounts with manufacturers. \26\
---------------------------------------------------------------------------
    \25\ 25 https://www.canada.ca/content/dam/pmprb-cepmb/documents/
consultations/draft-guidelines/2020/PMPRB-Guidelines2020-en.pdf The 
PMPRB is currently updating its guidelines. Following a court 
challenge, the new guidelines, which are cited here, took effect on 
January 1, 2021.
    \26\  Prescription drugs administered in hospitals are at no cost 
to patients, but for outpatient drugs, plans are responsible. 
Provincial and territorial governments have their own public plans, 
while many Canadians are covered through private plans, such as 
employer-based coverage. (https://www.canada.ca/en/health-canada/
services/health-care-system/pharmaceuticals/access-insurance-coverage-
prescription-medicines.html) Public and Federal plans in Canada formed 
the pan-Canadian Pharmaceutical Alliance (as it is now called) in 2010 
with the objective of combining negotiating powers to achieve greater 
value for publicly funded drug programs and patients. The pCPA takes 
into account health technology assessment (HTA) reports from the two 
Canadian HTA organizations, budget impact analysis and affordability, 
the therapeutic landscape and gaps, and other considerations when 
negotiating with manufacturers. https://www.pcpacanada.ca/negotiation-
process.

    In summary, experience from other countries (and a few U.S. states) 
shows that brand-name drug prices can effectively be lowered by first 
assessing the clinical benefits of a drug and then engaging in 
effective negotiation on that basis, without the artificial limits 
currently placed on U.S. public and private payors. For drugs that 
offer substantial clinical value to patients, this system may lead to 
paying high prices commensurate with the benefit the drug provides. But 
most drugs do not have such high value; in fact, one review we 
conducted of drugs the FDA approved in 2017 found that of those 
reviewed by international health technology assessment organizations 
only one-third were rated as offering more than minor benefit over 
currently available treatments. \27\ Another recent review found that 
of 122 ``ultra-expensive'' drugs in Medicare, those with annual 
spending greater than GDP per capita or $63,000, up to 85 percent were 
rated as having no or low additional value by international health 
technology assessment organizations. \28\ In the U.S., we will be able 
to better afford paying high prices for truly meaningful improvements 
because we will pay far less for drugs that do not offer clear clinical 
benefits.
---------------------------------------------------------------------------
    \27\  Frank RG, Avorn J, Kesselheim AS. What do high drug prices 
buy us? Health Affairs Blog. April 29, 2020.
    \28\  Prices based on 2018 GDP per capita. Average annual spending 
per beneficiary was $174,699 and of these drugs, Germany rated 29 
percent as having no additional value and France rated 31 percent as 
having no additional value. Overall a majority of drugs were rated as 
having low or no additional value: 85 percent in France, 74 percent in 
Germany, and 73 percent in Canada. DiStefano MJ, Kang SY, Yehia F, 
Morales C, Anderson GF. Assessing the Added Therapeutic Benefit of 
Ultra-Expensive Drugs. Value in Health 2021;24(3):397-403.

    Importantly, the U.S. is already implementing an approach with some 
of these features in the Veterans Affairs Health System. Unlike 
Medicare and Medicaid, the VA is allowed to determine which drugs it 
will cover, and can negotiate process with manufacturers on this basis. 
Because of this, prices paid by the VA are substantially lower than 
those in all other U.S. government-financed systems. We have already 
developed this approach to a large extent, and it is working very well, 
so it should not be seen as some kind of exotic ``foreign import.''
          Addressing Price Increases During Market Exclusivity
    In the U.S., drug manufacturers are free to raise the price of a 
drug each year, and often do so, far beyond the cost of inflation. 
Imatinib (Gleevec), a treatment for numerous rare cancers, was 
introduced in 2001 for a list price of $26,400 per year, a price which 
increased to more than $120,000 by 2016. \29\ One study found that 
price inflation of existing brand-name oral drugs rather than market 
entry of new drugs accounts for 87.3 percent of average weighted costs. 
\30\ Many brand-name drugs provide rebates to commercial payors and 
Medicare Part D plans that offset some of the list price increases, and 
while drug-level rebates are confidential, estimates of those rebates 
indicate that they do not keep pace with list price increases. One 
review of list and estimated rebates from 2007-2018 on branded 
pharmaceutical products found that list prices increased by 159 
percent--or 9.1 percent per year--but net prices increased by 60 
percent overall, with discounts offsetting only 62 percent of increases 
in list prices for drugs. \31\
---------------------------------------------------------------------------
    \29\  Johnson CY. This drug is defying a rare form of leukemia--and 
it keeps getting pricier. Washington Post. March 9 2016.
    \30\  Hernandez I, Good CB, Cutler DM, Gellad WF, Parekh N, Shrank 
WH. The Contribution of New Product Entry Versus Existing Product 
Inflation in the Rising Costs of Drugs. Health Affairs 2019;38(1):76-
83.
    \31\  Hernandez I, San-Juan-Rodriguez A, Good CB, Gellad WF. 
Changes in list prices, net prices, and discounts for branded drugs in 
the U.S., 2007-2018. JAMA 2020;323(9):854-862.

    Excessive annual price increases are reflected in higher prices to 
patients. Over 10 percent of people in the U.S. have no drug insurance, 
and often must pay the full list price. One recent study found that 
list prices for the 14 top-selling drugs doubled from 2010 to 2016 
while median patients' out-of-pocket costs increased by 53 percent. 
\32\ A recent review led by Dr. Benjamin Rome in our group found that 
patients with insurance who pay deductibles or co-insurance are 
particularly at risk and are likely to experience substantial increases 
in out-of-pocket spending when drug list prices rise. \33\
---------------------------------------------------------------------------
    \32\  Yang EJ, Galan E, Thombley R, et al. Changes in Drug List 
Prices and Amounts Paid by Patients and Insurers. JAMA Network Open 
2020;3(12):e2028510.
    \33\  Rome BN, Feldman WB, Desai RJ, Kesselheim AS. Correlation 
between Changes in Select Brand-Name Drug Prices and Patient Out-of-
Pocket Costs, 2015-2017. JAMA Network Open 2021 [in press].

    By contrast, in other countries, agreements between the government 
or payors and manufacturers keep price increases in check. In France 
and the UK, manufacturers agree to spending caps, essentially growth 
caps on drug sales, which if exceeded require a portion of excess 
profit to be rebated. \34\ As a result, drug prices in France do not 
increase routinely over time. If France's Transparency Committee lowers 
a drug's effectiveness rating, the price for that drug decreases. For 
example, the rating for insulin glargine was changed from ``moderate 
improvement'' to ``minor improvement'' and then to ``no improvement'' 
as new safety data were documented and market competitors emerged. \35\ 
In one study comparing the six highest spending drugs in Medicare 
between the U.S. and France, we found that the spending per unit for 
lenalidomide in the U.S. increased from 2010 to 2018 from about $400 
per unit to nearly $700 per unit, while during that same period the 
price of the drug in France decreased from $239 to $202 per unit. \36\
---------------------------------------------------------------------------
    \34\  Rodwin MA. Pharmaceutical Price and Spending Controls in 
France: Lessons for the United States. International Journal of Health 
Services 2020;50(2):156-165; The 2019 Voluntary Scheme for Branded 
Medicines Pricing and Access (2018) https://www.gov.uk/government/
publications/voluntary-scheme-for-branded-medicines-pricing-and-access.
    \35\  Raimond VC, Feldman WB, Rome BN, Kesselheim AS. Why France 
spends less than the United States on drugs: a comparative study of 
drug pricing and pricing regulation. Milbank Quarterly 2021 [in press].
    \36\  Id.

    Other countries, including Australia, even require statutory price 
decreases. On the Australian formulary, brand-name drugs that have no 
comparator therapies take a 5 percent price cut after five years. This 
arrangement is part of a five-year agreement made with the drug trade 
group Medicines Australia. \37\ Like using clinical benefit as the 
basis of price negotiations, the Australian plan is intended to 
incentivize the development of new drugs that offer improvements or 
address areas of unmet need. Japan uses a different approach and 
reviews list prices every two years, decreasing them if the actual 
market price paid is lower than the list price. \38\
---------------------------------------------------------------------------
    \37\  ``PBS medicines are divided into two categories for pricing 
purposes. Formulary 1 (F1) is for single brand (generally patented) 
medicines and Formulary 2 (F2) is for medicines (generally off-patent) 
that have multiple brands listed on the PBS. Medicines on F1 currently 
take a five per cent cut in the price paid by the Government after five 
years on the PBS. When a second brand of a medicine is listed on the 
PBS, the medicine moves to F2 and takes a 16 per cent price cut. Under 
this budget measure, F1 medicines will continue to take a five per cent 
price cut after five years on the PBS (extended to 2022), but will also 
take further price cuts of 10 per cent after 10 years and five per cent 
after 15 years. When a medicine moves to F2, the price cut will 
increase from 16 to 25 per cent. Legislation will be required to 
implement the price cuts.'' Grove A. Pharmaceutical Benefits Scheme. 
Parliament of Australia. https://www.aph.gov.au/About-Parliament/
Parliamentary-Departments/Parliamentary-Library/pubs/rp/
BudgetReview201718/PBS.
    \38\  Shiroiwa T, Fukuda T, Ikeda S, Takura T. New decision-making 
processes for the pricing of health technologies in Japan: The fiscal 
year 2016/2017 pilot phase for the introduction of economic 
evaluations. Health Policy 2017;121(8):836-841.

    In each of these countries, the government secures agreement 
between payors and manufacturers: once a price has been negotiated 
between payors and manufacturer, it cannot be raised without re-
reviewing the clinical and economic evidence. By contrast, the U.S. 
government grants drug manufacturers a monopoly through patents and FDA 
exclusivity periods, during which time they can freely set prices, 
including raising list prices. Therefore, my second major 
recommendation is to limit the rate of drug price increases, so that 
the government-granted monopoly does not exploit the patients who rely 
on these medicines. One model for how this would work would be to 
implement the drug price inflation rebate penalty currently in place 
for Medicaid, which contains exorbitant annual increases by requiring a 
higher rebate if drug price increases exceed inflation. Bills were 
introduced in the prior Congress with bipartisan support for extending 
the Medicaid inflation penalty to Medicare Part D: a version of this 
policy was included in the House Elijah E. Cummings Lower Drug Costs 
Now Act (H.R. 3) and the Senate Prescription Drug Pricing Reduction Act 
(S. 2543). According to the Congressional Budget Office, for drugs 
covered under Medicare Parts B and D, limiting annual price increases 
to the rate of inflation is expected to save $36 billion over ten 
years. \39\
---------------------------------------------------------------------------
    \39\  Congressional Budget Office. 2019. Budgetary Effects of H.R. 
3, the Elijah E. Cummings Lower Drug Costs Now Act. Washington, DC: 
Congressional Budget Office.

        C. Ensuring Effective Transition to a Competitive Market
    A final approach to move toward fairer drug pricing is to arrange 
for an efficient transition to a competitive market at the end of a 
brand-name drug's period of market exclusivity. The government provides 
about 6-7 years of guaranteed generic-free marketing periods for new 
brand-name drugs via the Hatch-Waxman Act of 1984. (This has been 
expanded to about 12 years for qualified antibiotics or biologic 
drugs.) Additionally, a drug it is usually protected by numerous 
patents, each lasting up to 20 years, that have started accumulating 
since the drug was originally synthesized or discovered. A study led by 
Dr. Rome in our research group found that patents actually provide 13-
17 years of market exclusivity for new brand-name small-molecule drugs, 
and even more for biologic products, keeping generic manufacturers from 
the market long after the exclusivity period ends. \40\
---------------------------------------------------------------------------
    \40\  Rome BN, Lee CC, Kesselheim AS. Market exclusivity length for 
drugs with new generic or biosimilar competition, 2012-2018. Clinical 
Pharmacology and Therapeutics 2020 July 12.

    Patents perform a very important role in enabling innovators to 
profit from their discoveries for a finite amount of time, and 
rewarding that creativity. But this system has become subject to many 
abuses, with two distinct patent-related problems contributing to 
unjustifiably high drug prices. First, pharmaceutical manufacturers can 
obtain multiple patents--occasionally even hundreds--covering their 
drugs, even for attributes that reflect no meaningful innovation. The 
legal and scientific complexity of drug patent applications, combined 
with the heavy demands on patent assessors who are often not expert in 
the issues at stake, means that personnel in the U.S. Patent and 
Trademark Office (USPTO) sometimes issue patents in error. The fact 
that a patent was improperly granted generally becomes evident only 
following litigation, long after the patent has issued, when far 
greater resources are devoted to their evaluation. \41\ By this time, 
however, the delay in generic competition caused by patents that should 
never have issued can contribute to substantial excess expenditures on 
brand-name drugs by public and private sector payors, and by patients. 
\42\ This "thicket" of additional patents makes it possible for brand-
name manufacturers to introduce new versions of their products that 
provide longer exclusivity with little or no clinical benefit for 
patients. \43\ In one study of drugs approved in 2002, we found that 9 
(53%) were introduced in patentable new formulations in the subsequent 
15 years, with many of these changes clinically trivial. \44\ In 
another study, we found that the proportion of patents listed with the 
FDA that cover drug-related devices tripled between 2000 and 2016 (from 
3% to 9% of all drug-related patents). \45\ These device patents extend 
exclusivity periods even though the patent on the drug itself has 
lapsed. It is important to ensure that such invalid patents are not 
mistakenly issued, because manufacturers can extract substantial 
revenues from patented changes. In a recent study, we found that a 
manufacturer introduced a version of the multiple sclerosis drug 
glatiramer (Copaxone) that could be taken 3 times per week instead of 
daily, providing benefits that were tiny in comparison to the $6.5 
billion in the resulting additional drug expenditures that the U.S. 
spent on the new formulation instead of generics. \46\ A federal 
appeals court ultimately held that the patents protecting the new 
version of glatiramer were invalid, but the payments had already 
occurred.
---------------------------------------------------------------------------
    \41\  Hemphill CS, Sampat B. Drug patents at the Supreme Court. 
Science 2013;339:1386-1387.
    \42\  Dave C, Sinha MS, Beall RF, Kesselheim AS. Estimating the 
cost of delayed generic entry to Medicaid. Health Affairs 
2020;39(6):1011-1017.
    \43\  Amin T, Kesselheim AS. Secondary patenting of branded 
pharmaceuticals: a case study of how patents on two HIV drugs could be 
extended for decades. Health Affairs. 2012;31(10):2286-2294. 
doi:10.1377/hlthaff.2012.0107.
    \44\  Beall RF, Kesselheim AS, Sarpatwari A. New drug formulations 
and their respective generic entry dates. Journal of Managed Care and 
Specialty Pharmacy 2019;25(2):218-224.
    \45\  Beall RF, Kesselheim AS. Tertiary patenting on drug-device 
combination products in the United States. Nature Biotechnology 
2018;36:142-144.
    \46\  Rome BN, Tessema FA, Kesselheim AS. U.S. spending associated 
with transition from daily to three-times-weekly glatiramer acetate. 
JAMA Internal Medicine 2020;180(9):1165-1172.

    Here again, lessons on how to improve experience in the U.S. can 
come from analyzing how other countries handle patents. Results from 
foreign patent offices suggest the USPTO could reduce the number of 
erroneously issued patents by allocating greater resources to ensure 
patent quality. The European Patent Office (EPO) and Japan Patent 
Office (JPO) issue fewer, higher-quality patents despite applying a 
similar legal standard as the USPTO. \47\ The EPO and JPO do this in 
part by spending more time and resources scrutinizing patents, 
retaining high-quality examiners, and having their employees work in 
teams. \48\ In one study, a 50 percent increase in examination time was 
associated with a 10 percent decrease in invalid patents. \49\ As Doni 
Bloomfield and I recounted in a recent Washington Post article, ``The 
problem of weak drug patents has worsened under the Trump 
administration. In the past two years, the PTO has made it even more 
difficult for examiners to reject patent applications. The office 
issued directives that increase the amount of work examiners must do to 
reject certain applications, such as those that seek to patent a 
process found in nature. Predictably, these directives decreased 
examiners' rejections for such ineligibility by more than 25 percent.'' 
Predictably, these directives decreased examiners' rejections for such 
ineligibility by more than 25 percent.''Predictably, these directives 
decreased examiners' rejections for such ineligibility by more than 25 
percent.'' \50\
---------------------------------------------------------------------------
    \47\  Picard PM, Bruno VPDLP. Patent office governance and patent 
examination quality. Journal of Public Economics 2013;104:14-25; Chien 
CV. Comparative Patent Quality. Arizona State Law Journal; 2018; 50:71-
140; Lemley MA, Sampat B. Examiner Characteristics and Patent Office 
Outcomes. Review of Economics and Statistics 2012;94:817-827; Lei Z, 
Brian DW. Why Weak Patents? Testing the Examiner Ignorance Hypothesis. 
Journal of Public Economics 2017;148:43-56.
    \48\  Id.
    \49\  Frakes MD, Wasserman MF. Investing in ex ante regulation: 
evidence from pharmaceutical patent examination. Cambridge, MA: 
National Bureau of Economic Research; July 2020 (https://www.nber.org/
papers/w27579).
    \50\  Bloomfield B and Kesselheim AS. Biden can lower drug prices 
without Congress doing anything. Washington Post Jan 5 2021.

    Thus, my third major recommendation is to closely scrutinize the 
process for issuing drug patents and enforcing them against generic 
manufacturers. This can be accomplished at a number of different 
levels. Without even requiring legislation, the USPTO would benefit 
from greater resources; better agency regulation can give examiners 
more time and administrative leeway to reject ineligible applications, 
reflecting current practices in some patent offices around the world. 
In addition, we could better leverage the U.S. Patent Trial and Appeals 
Board (PTAB), set up by the 2011 America Invents Act. The PTAB could 
help weed out invalid patents before they get caught up in litigation 
if it had the authority to review all patents as soon as they are 
listed with the FDA by a manufacturer. If steps cannot be taken to 
clear out the thicket of patents that threatens transitions to an 
effective competitive market, then we might need to consider automatic 
price reductions for brand-name drugs after a reasonable period of time 
on the market; \51\ one recent analysis of applying this concept to 
biologic drugs predicted potential cost-savings over the next five 
years of $265 billion when compared to the current model of biosimilar 
competition. \52\ At the level of the pharmacy, we could allow closely 
similar drugs to be more easily substituted with each other by 
pharmacists even if they have patentable differences, if the FDA judges 
those drugs to be therapeutically interchangeable. Such a move would 
broaden competitive markets and require manufacturers seeking to 
introduce a slightly changed version of a product to ensure that the 
product really offers important benefits to patients.
---------------------------------------------------------------------------
    \51\  Dudzinski DM and Kesselheim AS. Scientific and legal 
viability of follow-on protein drugs. New England Journal of Medicine 
2008;358:843-849.
    \52\  Bach PB and Trusheim MR. The drugs at the heart of our 
pricing crisis. NY Times. March 15 2021.

              III. Common Counter-Arguments and Responses
    The greatest challenge in enacting these changes will be the 
political strength of the pharmaceutical industry lobby, one of the 
largest in Washington, which will charge that any drug pricing reform 
will reduce innovation. This is a false assertion; much evidence 
indicates that meaningful innovation need not decline. Large 
pharmaceutical manufacturers invest only about 10-20 percent of their 
revenues in research and development, so providing exceedingly high 
profit margins to such manufacturers does not directly translate to 
substantial investment in innovation. A substantial amount of work from 
our research group has documented how transformative drug innovation 
often emerges in large part from publicly funded research and 
development, even though this is rarely reflected in the pricing of the 
resulting drugs, or in commensurate ``payback'' to the funding agencies 
that made them possible. \53\ As long as Congress continues funding for 
the National Institutes of Health, then we can be assured that the next 
generation of important new therapeutics will be in the pipeline. This 
view is bolstered by experiences in other countries. In recent work 
focused on Germany led by my colleague Ariel Stern, we found that for 
drugs found to provide important new patient benefits, none of them 
left the German market, despite price negotiations. \54\ If concern 
arises about insufficient support to bring certain types or classes 
products through clinical testing and regulatory approval--the roles 
dominated in the current system by venture capital and private industry 
funding--the recent evolution of Covid-19 treatments and vaccines has 
shown that public funding and partnerships can help advance highly 
promising new treatments.
---------------------------------------------------------------------------
    \53\  See e.g., Kesselheim AS, Tan YT, Avorn J. The roles of 
academia, rare diseases, and repurposing in the development of the most 
transformative drugs. Health Affairs 2015;34:286-294; Nayak RK, Avorn 
J, Kesselheim AS. Public support for late-stage new drug discovery; 
cohort study. BMJ 2019;367:l5766.
    \54\  Stern AD, Pietrulla F, Herr A, Kesselheim AS, Sarpatwari A. 
The impact of price regulation on the availability of new drugs in 
Germany. Health Affairs 2019;38(7):1182-1187. The oncology drug 
regorafenib (Stivarga) was withdrawn from the market; it received an 
early positive assessment, but was later reassessed by the Federal 
Joint Committee, which failed to confirm its prior positive benefit 
assessment.

    These changes are likely to actually improve meaningful innovation. 
The current system in which brand-name manufacturers are rewarded with 
high U.S. prices for new drugs that have limited clinical advantages 
may even reduce the pressure for them to develop medications that truly 
add clinical value. It is notable that less than one-third of new drugs 
approved in the past decade were rated as providing high clinical value 
compared to existing alternatives, although this has not led to lower 
prices. \55\ If drug prices more adequately reflected the clinical 
benefits they offer to patients, this would incentivize more meaningful 
pharmaceutical innovation, and there would be less investment in making 
trivial changes to existing products and more investment in meeting 
unmet medical needs. If reference pricing and clinical benefit 
assessment formed the basis for price negotiations, new drugs that 
offer improved outcomes to patients would be rewarded with higher 
prices than available options, creating a powerful incentive for 
manufacturers to invest their resources in bringing to market drugs 
that will achieve this price premium rather than products that can be 
priced high but will not offer patients more health. \56\
---------------------------------------------------------------------------
    \55\  Hwang TJ, Vokinger KN, Ross JS, Kesselheim AS. Association 
between FDA and EMA expedited approval programs and therapeutic value 
of new medicines. BMJ 2020;371:m3434.
    \56\  Fojo T, Mailankody S, Lo A. Unintended Consequences of 
Expensive Cancer Therapeutics--The Pursuit of Marginal Indications and 
a Me-Too Mentality that Stifles Innovation and Creativity: The John 
Conley Lecture. JAMA Otolaryngology--Head & Neck Surgery. 
2014;140(12):1225-1236.

    Finally, as described above, more data-driven policies on drug 
pricing need not reduce prices equally across the board; pricing based 
on a product's actual clinical benefits could still lead to substantial 
manufacturer revenue and thus offer a strong incentive for private 
investment in research and development. \57\ Payor drug budgets would 
better be able to account for these situations without being burdened 
by payments for non-innovative expensive drugs and high-priced drugs 
for which competitive generic or biosimilar entry is delayed. 
Particular attention may need to be provided for the rare but 
clinically ideal scenario of an extremely effective drug with 
tremendous long-term clinical benefits, similar to the direct-acting 
antiviral hepatitis C virus drugs when they were introduced in 2015. In 
that case, the high price set by the manufacturer was ultimately cost-
effective, but too expensive for many payors, particularly Medicaid 
programs, in the short-term. In these situations, Congress could 
support Medicaid with support for payments over time assuming ongoing 
clinical benefits, or create a special high-risk pool of Federal 
dollars separate from a patient's insurance, similar to the way in 
which Medicare pays for the medical expenditures of all dialysis 
patients.
---------------------------------------------------------------------------
    \57\  Kesselheim AS, Hwang TJ, Avorn J. Paying for prescription 
drugs in the new administration. JAMA 2021;325(9):819-820.

                             IV. Conclusion
    The high drug prices faced by U.S. patients directly result from 
existing Federal policies that have helped shape the organization of 
the pharmaceutical market in the U.S., in which brand-name 
manufacturers are given years-long government-granted market 
exclusivity periods and near-total freedom to establish prices--with 
nearly half of that expenditure paid by government programs such as 
Medicare and Medicaid. Compounding this situation, the lattice of 
public and private payors in the U.S. are limited by their inability to 
negotiate (as for Medicare Part B) or restrictions that require them to 
cover any FDA-approved drug no matter how useful it is (as for Medicaid 
and Medicare Part D ``protected drug classes'').

    To effectively lower prices, policymakers can adopt three important 
principles currently in place in other industrialized countries to 
better ensure that we are paying prices commensurate with the utility 
offered by new drugs. First, the U.S. needs to set up a system to 
evaluate the clinical benefits of brand-name drugs and help determine 
the basis for reasonable pricing given those benefits. Health 
technology assessment organizations that conduct this work are 
operating effectively in many other countries. The U.S. then needs to 
empower negotiation of prices based on that clinical evaluation process 
and offer negotiated prices to the private market. Second, the U.S. 
must ensure, as other countries do, that brand-name drug prices are not 
increased exorbitantly beyond inflation during a drug's market 
exclusivity period unless the manufacturer makes clinically meaningful 
improvements to the drug. Third, the U.S. needs to provide a rapid, 
efficient transition to a competitive generic market after a product's 
government-enforced monopoly expires. Currently, brand-name 
manufacturers can delay generic entry by obtaining numerous patents, 
many of them for trivial changes, and then leverage them to introduce 
new formulations with only minor clinical effects that can forestall 
direct competition. If the USPTO adopted approaches similar to those 
used by its counterparts in Europe or Japan, protecting drugs with 
invalid or otherwise problematic patents would happen less often.

    Congress can take up this model secure in the knowledge that the 
drug industry's charges that their effects on innovation are overblown. 
Enhanced investment in public funding for research will continue to 
provide the insights needed to develop transformative products, as it 
has done for numerous important drugs and Covid-19 vaccines. Fair and 
even generous rewards would still be provided to drugmakers who create 
important new medications--just not for those that add little or 
nothing to what we can offer patients. With the changes proposed above, 
policymakers can rest reassured that more patients will be able to 
access these vital products at an affordable price that accords with a 
drug's value and cost of development. In fact, better aligning U.S. 
drug prices with their clinical benefits will reward and promote 
innovation because it will better incentivize manufacturers to invest 
in helping develop new treatments that meet unmet medical needs or 
offer meaningful clinical benefits to U.S. patients.
                                 ______
                                 
               [summary statement of aaron s. kesselheim]
          The U.S. spends far more on prescription drug prices 
        per capita than any other industrialized nation--about double 
        that of many wealthy countries. Overall prescription drug 
        spending jumped from $427 billion in 2015 to $511 billion in 
        2019. Even though brand-name drugs account for only 10 percent 
        of prescriptions, they are responsible for about 75 percent of 
        drug spending.

          U.S. prices for the same drugs, made by the same 
        companies, are far higher in the U.S. than in other comparable 
        countries. For example, some drugs covered by the Medicare 
        program cost 40-60 percent less than the prices paid for those 
        same drugs in four other high-income countries.

          Government-granted monopolies in the form of patents 
        allow companies to freely set prices at any level they wish--a 
        situation not seen in any other countries.

          Reforming the U.S. drug pricing system should be 
        based on a three-pronged approach:

                1. The government should engage in direct price 
                negotiation with manufacturers over the medications it 
                purchases (e.g., in the Medicare program), based on the 
                additional clinical benefit that a new drug provides to 
                patients. Other countries evaluate how much additional 
                benefit a new drug offers above existing alternatives; 
                products that provide little or no additional benefit 
                are reimbursed at the same price as the existing 
                therapeutics. Several states are implementing review 
                boards to evaluate evidence to inform such negotiation, 
                but this should be carried out by a centralized body to 
                leverage the market power of the U.S.. Experience in 
                other countries shows that successful, evidence-based 
                negotiations can be conducted by the government or non-
                governmental bodies representing private payors.

                2. In the U.S., manufacturers often raise the list 
                prices of brand-name drugs each year well beyond 
                inflation, placing new financial strains on patients 
                and insurers in the public and private sectors. The 
                Federal Government should prevent price increases well 
                beyond inflation that are not justified by new clinical 
                evidence of improved effectiveness by limiting such 
                increases to the rate of inflation, as is already done 
                in Medicaid. Again, the U.S. is an outlier in allowing 
                these increases, and in most countries they are either 
                prohibited by law or tightly limited.

                3. It will be vital to ensure a competitive market once 
                a drug's basic period of patent-provided exclusivity 
                ends. Drug companies often obtain numerous extra 
                patents to extend their monopoly powers for years 
                longer than originally expected, often for clinically 
                trivial changes. This allows them to move market share 
                to their newer product formulations even if these offer 
                limited or no clinical advantages but can be sold at a 
                high prices. The U.S. Patent and Trademark Office has 
                been undermined in its ability to ensure that all 
                patents issued are legitimate, resulting in lengthy 
                legal battles and delays to the availability of more 
                affordable generic versions as patents are challenged 
                in court.

          The pharmaceutical lobby is large and well-funded and 
        will argue that any reduction in revenues will harm innovation. 
        But most drugs approved each year are not truly innovative and 
        in a review of 2017 new approvals, only a minority of those 
        reviewed by independent expert bodies offered more than minimal 
        clinical advantages over available treatments. In addition, 
        only 10-20 percent of large pharmaceutical manufacturer 
        revenues go to research and development of new drugs, and 
        public funding often plays a key role in financing research 
        that leads to the most innovative new drugs.

          By contrast, these three proposals will actually 
        increase innovation by providing greater incentive to discover 
        truly important medications, an improvement over the current 
        system that incentivizes manufacturers to profit by extending 
        patent life beyond its original duration and developing drugs 
        that offer little clinical benefits but can be priced freely. 
        Negotiations based on additional patient benefit, limited price 
        increases, and stronger patent scrutiny incentivizes what 
        matters most: the development of drugs providing important new 
        benefits to patients and addressing unmet need.
                                 ______
                                 
    The Chairman. Dr. Kesselheim, thank you very, very much.
    Our next witness is Dr. Nav Persaud, who is the Canada 
Research Chair in Health Justice and Associate Professor at the 
University of Toronto. He is a staff physician and scientist at 
St. Michael's Hospital and Unity Health Toronto, where he 
provides care to patients and leads studies as part of the MAP 
Center for Urban Health Solutions.
    Dr. Persaud, thanks so much for being with us.

 STATEMENT OF NAV PERSAUD, M.D., MA, CANADA RESEARCH CHAIR IN 
       HEALTH JUSTICE, UNIVERSITY OF TORONTO, ON, CANADA

    Dr. Persaud. Thank you and good morning.
    In Canada, per capita drug spending is $879, versus over 
$1,200 in the United States. Per capita spending is about 40 
percent higher in the United States largely because of the 
regulation of patented drug prices by the Canadian Patented 
Medicines Prices Review Board. Posted prices for patented 
medicines are approximately three times lower in Canada. The 
Patented Medicines Prices Review Board is slated in July to 
drop the United States from its list of comparative countries 
used to set price ceilings because prices are shockingly high 
in the United States compared with other high-income countries, 
including the United Kingdom.
    The marketing of a raft of patented medicines during the 
1990's boosted per capita spending disproportionately in the 
United States. The larger rise in spending during the 1990's 
was partially due to patented opioid products such as OxyContin 
that was illegally marketed by Purdue Pharma on the lie that 
these medicines were safer than less expensive alternatives. 
Pharmaceutical companies continue to profit from the opioid 
crisis that killed approximately 80,000 Americans in the 
twelve-month period ending in May 2020.
    Pressure and lobbying by pharmaceutical companies have 
undermined reforms in both Canada and the United States. 
Multiple government reports over decades have recommended 
including medicines in Canada's publicly funded single-payer 
system to improve fair access and to save billions each year, 
but this has not happened. So we continue to pay high prices 
relative to comparable countries such as Norway and Australia, 
and inequities persist in Canada.
    America is a superpower, a superpower that has not shown 
its strength in standing up to pharmaceutical companies that 
rip off Americans, as driven by the price differences for 
patented medicines across our border. My colleagues and I have 
conducted a randomized control trial of distributing essential 
medicines, as per international guidance from the World Health 
Organization, to people who report not being able to afford 
them.
    We found improvements in the control of blood pressure and 
diabetes, fewer missed medical appointments, and total health 
care savings that average more than $1,000 per patient per 
year. The biggest benefit was in the ability to make ends meet 
or afford basic necessities such as rent and food. Only 29 
percent in the usual access or control group could make ends 
meet, but 86 percent of those who did not have to pay out of 
pocket for medicines could afford necessities. A farmer in our 
study, for example, was better able to grow food when he had 
his asthma puffers.
    Would publicly funding a list of essential medicines work 
in the United States? It already is working at the United 
States Veterans' Administration. Since its creation in 1997, 
the VA's national formulary has led to improvements in care, 
and its negotiating power has led to impressive price 
reductions.
    The VA's approach of creating a rational list of medicines 
and then using proven methods to negotiate prices accords with 
international guidance. It's a model that could be adapted to 
an even larger scale in the United States.
    There are three key elements of government action to reduce 
drug spending while promoting access and equitable care.
    One, punish abusive pricing of patented medicines by 
creating a new bureau. Create a new bureau to set price 
ceilings for patented medicines. Give that bureau the resources 
and teeth to keep prices low, and empower that bureau to issue 
compulsory licenses when companies price patented medicines 
unreasonably. The new bureau should be able to cut annual drug 
spending by at least $100 billion.
    Two, use negotiating power and open tendering processes to 
secure low prices on a defined set of essential medicines as 
per international guidance. Negotiating power can help to 
ensure equitable access to needed medicines, including off-
patent or generic medicines.
    Three, use existing legislation, and additional political 
will, to discipline the companies currently bloated by high 
medicine prices that illegally market products.
    There is a need for urgent action. Americans are getting 
ripped off by more than $100 billion per year, and this money 
in the wrong hands is used to illegally market medicines that 
kill Americans.
    Thank you.
    [The prepared statement of Dr. Persaud follows:]
                   prepared statement of nav persaud
Canada Regulates the Price of Patented Medicines and Pays Less for the 
                             Same Medicines

    In Canada, per capita drug spending is $879 versus over $1,229 in 
the United States. \1\ Per capita drug spending is about 40 percent 
higher in the United States largely because of the regulation of 
patented drug prices by the Canadian Patented Medicine Prices Review 
Board.
---------------------------------------------------------------------------
    \1\  https://data.oecd.org/healthres/pharmaceutical-spending.htm.

    Posted prices for patented medicines are approximately 3 times 
lower in Canada. \2\ The Patented Medicines Prices Review Board is 
slated, in July, to drop the United States from its list of comparator 
countries used to set ``price ceilings'', because prices are shockingly 
high in the United States compared with other high-income countries 
including the United Kingdom. \3\
---------------------------------------------------------------------------
    \2\  https://www.canada.ca/en/patented-medicine-prices-review/
services/reports-studies/annual-report-2018.html.
    \3\  https://www.canada.ca/en/patented-medicine-prices-review/
services/legislation/about-guidelines/guidelines.html.

    The marketing of a raft of patented medicines during the 1990's 
boosted per capita drug spending more in the United States. \4\ The 
large rise in drug spending during the 1990's was partly due to 
patented opioid products such as OxyContin that was illegally marketed 
by Purdue Pharma on the lie that these medicines were safer than less 
expensive alternatives. \5\ Pharmaceutical companies continue to profit 
from the opioid crisis that killed approximately 80,000 Americans in 
the 12 month period ending in May 2020. \6\
---------------------------------------------------------------------------
    \4\  https://www.commonwealthfund.org/sites/default/files/
documents/-media-files-publications-issue-brief-2017-oct-sarnak-paying-
for-rx-ib-v2.pdf.
    \5\  https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2622774/.
    \6\  https://www.cdc.gov/media/releases/2020/p1218-overdose-deaths-
covid-19.html.

---------------------------------------------------------------------------
                 Change is Possible With Political Will

    Pressure and lobbying by the pharmaceutical companies (and private 
insurers) have undermined reforms in both Canada and the United States. 
Multiple government reports over decades have recommended including 
medicines in Canada's public single-payer system to improve fair access 
and to save billions each year. \7\ But this has not happened, so we 
continue to pay higher prices than comparable countries such as New 
Zealand and Australia and inequities persist. America is a superpower 
that has not shown its strength in standing up to pharmaceutical 
companies that rip off Americans, as proven by the price differences 
for patented medicines across our border.
---------------------------------------------------------------------------
    \7\  https://www.canada.ca/en/health-canada/corporate/about-health-
canada/public-engagement/external-advisory-bodies/implementation-
national-pharmacare.html.

    My colleagues and I have conducted a randomized controlled trial of 
distributing essential medicines, as per international guidance from 
the World Health Organization, to people who report not being able to 
afford them. We found improvements in the control of blood pressure and 
diabetes, fewer missed medical appointments, and total healthcare 
savings that averaged more than a thousand dollars per patient per 
year. \8\ The biggest benefit was in the ability to ``make ends meet'' 
or afford basic necessities such as rent and food: only 29 percent in 
the usual access or control group could make ends meet, but 86 percent 
of those who did not have to pay out-of-pocket for life-saving 
medicines could afford necessities. A farmer in our study, for example, 
was better able to grow food when he had asthma puffers.
---------------------------------------------------------------------------
    \8\  https://jamanetwork.com/journals/jamainternalmedicine/
fullarticle/2752366&cleanmeds.ca.

    Could public funding for a list of essential medicines work in the 
United States? It already is working at the United State's Veteran's 
Administration. Since its creation in 1997, the VA's national formulary 
has led to improvements in care and its negotiating power has led to 
impressive reductions in prices. \9\ The VA's approach of creating a 
rational list of medicines and then using proven methods to negotiate 
prices accords with international guidance. It's a model that could be 
adapted to an even larger scale in the United States.
---------------------------------------------------------------------------
    \9\  https://www.pbm.va.gov/nationalformulary.asp.

---------------------------------------------------------------------------
       Three Ways America--The Superpower--Can Lower Drug Prices

    There are three key elements of government action to reduce drug 
spending while promoting access and equitable care:

    (1) Punish abusive pricing of patented medicines by creating a new 
Bureau. Create a new Bureau to set price ceilings for patented 
medicines, \10\ give that Bureau the resources and teeth to keep prices 
low, and empower that Bureau to issue compulsory licenses when 
companies price patented medicines unreasonably. \11\ The new Bureau 
should be able to cut annual drug spending by at least $100 billion.
---------------------------------------------------------------------------
    \10\  http://pmprb-cepmb.gc.ca/home.
    \11\  https://www.healthaffairs.org/doi/10.1377/hlthaff.2015.1120.

    (2) Use negotiating power and open tendering processes to secure 
low prices on a defined set of essential medicines as per international 
guidance. \12\ Negotiating power can help to ensure equitable access to 
needed medicines including off-patent or generic medicines.
---------------------------------------------------------------------------
    \12\  https://www.who.int/medicines/technical-briefing/tbs/ndp-rdg-
prs/en/.

    (3) Use existing legislation, and additional political will, to 
discipline the companies currently bloated by high medicine prices that 
illegally market products. There is a need for urgent action--Americans 
are getting ripped off by more than $100 billion each year and, in the 
wrong hands, this money is used to illegally market medicines in ways 
---------------------------------------------------------------------------
that kill Americans.

    (1) Punish abusive pricing of patented medicines.

    The Canadian Patented Medicine Prices Review Board was created in 
1987 through an amendment of the Patent Act. The Patented Medicine 
Prices Review Board sets a ``price ceiling'' for patented products 
based in part on the prices paid in comparator countries. Companies 
forgo revenues from excessive pricing. The Patented Medicine Prices 
Review Board is revising its guidelines for setting price ceilings 
including the list of comparator countries and plans to stop using the 
United States (as well as Switzerland) in its list of comparator 
countries.

    The United States Federal Government can create a new Bureau 
empowered to fine companies that sell patented products at excessive 
prices. This Bureau could define abusive pricing based on comparator 
countries that currently pay lower prices for patented medicines 
including Canada and the United Kingdom. Since the purpose of medicines 
is to promote health and save lives (as opposed to supporting a 
specific industry or ``the economy''), prices that prevent people from 
accessing needed medicines should prompt action.

    Patented medicine prices are approximately three times higher in 
the United States compared with Canada (Average Foreign-to-Canadian 
Price Ratios was 3.36 in 2017 for patented products for the United 
States; for comparison it was 1.08 for generic medicines for the United 
States and 0.94 for patented medicines in the United Kingdom in 2017). 
\13\ If per capita pharmaceutical spending in the United States 
equalled that in Canada, there would be savings of over $100 billion 
per year in the United States and this would represent more than 30 
percent of drug spending. The budget of the Canadian Patented Medicine 
Prices Review Board is approximately $15 million annually. The new 
Bureau in the United States should be adequately funded and insulated 
from political influence and lobbying so it can take on large 
multinational pharmaceutical companies.
---------------------------------------------------------------------------
    \13\  https://www.pmprb-cepmb.gc.ca/CMFiles/Publications/
Annual%20Reports/2018/2017-Annual-Report-Final-EN.pdf.

    The new Bureau should be empowered to issue compulsory licenses for 
patented products sold at unreasonable prices. This power will reassure 
Americans that they will not be priced out of life-saving treatments 
---------------------------------------------------------------------------
and also ensure that patentees respect the Bureau.

    (2) Use negotiating power and open tendering processes to secure 
low prices on a defined set of essential medicines as per international 
guidance. \14\ The World Health Organization recommends that countries 
create an essential medicines list that includes the medicines people 
need. Essential medicines meet the priority needs of a population. 
Twenty-one high-income countries, including Portugal and Sweden, have 
registered essential medicines lists with the World Health 
Organization. Essential medicines lists typically include around 300 
medicines that include treatments for cardiovascular disease, cancer, 
infectious diseases, respiratory diseases, joint conditions, mental 
health conditions and other conditions. \15\ There is a procedure for 
adding medicines to the list and a committee usually reviews relevant 
evidence before making a recommendation or decision about whether a 
medicine should be added. My colleagues and I have surveyed 127 
national essential medicines lists and we have created a data base of 
lists in collaboration with the World Health Organization and it is 
available at: essentialmeds.org.
---------------------------------------------------------------------------
    \14\  https://www.who.int/medicines/technical-briefing/tbs/ndp-rdg-
prs/en/.
    \15\  https://www.who.int/bulletin/volumes/97/6/18-222448/en/.

    A national essential medicines list is one important component of 
national medicines policies, and the list should be used in conjunction 
with other policies to ensure access and appropriate use of medicines 
while controlling costs. \16\ Transparency is vital to procurement 
processes to ensure all potential medicine suppliers are treated fairly 
and to maintain confidence in procurement processes. Secretive deals 
between manufacturers and purchasers should be avoided regardless of 
what ``special'' considerations might be offered by companies in 
exchange for secrecy. After a list of needed medicines is established, 
open tendering processes should be used to secure the best prices for 
high-quality medicines. While the main way to curb drug spending is to 
lower prices, a national essential medicines list can also support 
rational medicine selection, for example, toward biosimilar medicines. 
\17\
---------------------------------------------------------------------------
    \16\  https://www.who.int/medicines/technical-briefing/tbs/ndp-rdg-
prs/en/.
    \17\  http://www.pmprb-cepmb.gc.ca/view.asp?ccid=1456.

    Medicines are excluded from Canada's publicly funded single-payer 
healthcare system. The Canadian Parliamentary Budget Office has 
estimated that including medicines in our single-payer publicly funded 
healthcare system would save approximately $4.2 billion while improving 
access. \18\ We know from experiences in the province of Quebec that 
the answer to excessive drug costs is not expanding or mandating 
private insurance plans. This has predictably fuelled an increase in 
drug spending with minimal improvements in access and no measured 
improvement in health (8.8 percent cost-related non-adherence in Quebec 
versus 10.7 percent for Canada and 6 percent in comparator countries). 
\19\ Some are paying into private insurance plans that they do not 
access due to the deductibles. While Canada is doing better than the 
United States and reigning in the prices of patented products by 
regulating price ceilings, Canada spends more on drugs per person than 
comparable high-income countries such as the United Kingdom, Australia 
and Sweden. Although essential health care services are included in our 
single-payer publicly funded health care system, medications are 
excluded and instead covered by a loose patch work of private and 
public plans that leaves out millions of Canadians. Private spending 
represents the majority of total drug spending in Canada and private 
employer-based drug insurance plans welcome high drug prices because 
private insurance companies take a percentage of each claim. While 
Canadians pay less, in general, for patented products compared with 
Americans, we pay similar or higher prices for generic products 
compared with Americans and those in most other high-income countries. 
Attempts to reduce generic prices have largely failed. When, generic 
companies were faced with the prospect of an open tender process in 
Canada in 2017 and 2018, companies that should be competing with each 
other came together and offered ``rebates'' worth at least $6.5 billion 
to provincial governments purchasing medicines for social assistance 
recipients and, in exchange, provincial governments agreed not to 
implement open tendering processes. The Canadian Competition Bureau 
studied the generic pharmaceutical sector in 2007 and 2008 and found 
that competition was not lowering prices as expected in Canada, but 
these reports are largely ignored and Canadians continue to overpay for 
generic medicines. \20\
---------------------------------------------------------------------------
    \18\  https://www.pbo-dpb.gc.ca/web/default/files/Documents/
Reports/2017/Pharmacare/Pharmacare-EN-2017-11-07.pdf.
    \19\  https://www.cmaj.ca/content/189/40/E1259.
    \20\  https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/
03026.html.

    While some get rich, others die. Cost-related non-adherence to 
medicines--not taking pills as instructed due to the cost--is more 
common in Canada (8 percent) and the United States (17 percent) than in 
comparable high-income countries where it is typically below 5 percent. 
\21\ The Centers for Disease Control and Prevention estimated that all-
cause mortality was 15 percent to 22 percent higher among Americans 
with chronic diseases such as diabetes who cannot afford their 
medicines compared with those who could afford them. \22\ Drug pricing 
is a life and death issue.
---------------------------------------------------------------------------
    \21\  https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5293866/.
    \22\  https://www.cdc.gov/pcd/issues/2020/20-0244.htm.

    The distribution of the burden is inequitable. Medicine access is a 
highly racialized issue in both Canada and the United States. Taxi 
drivers, factory workers and food servers are among the Canadians who 
pay taxes that support the private drug plans--that enjoy public 
subsidies--and that exclude many ``blue collar'' workers with dark 
skin. Part of the legacy of enslaving Black people in North America is 
inequitable access to health care including to life-saving medicines, 
and opposition to ensuring access for everyone is rooted in racism. 
Downloading medications costs into people's pockets means that those 
who face discrimination in the workplace, including women, are harmed 
---------------------------------------------------------------------------
twice, first by the pay gap and then at the pharmacy.

    We have studied the effects of the free distribution of essential 
medicines and found health improvements and substantial improvements in 
financial well-being: CLEANmeds.ca.
    https://jamanetwork.com/journals/jamainternalmedicine/fullarticle/
2752366

    (3) Pursue and discipline the bloated pharmaceutical companies 
created by bloated drug prices.

    The high prices Americans pay for patented medicines help make 
pharmaceutical companies so big and powerful that they openly engage in 
illegal marketing, as they can easily shrug off billion-dollar fines as 
the cost of doing business. Other companies watched Purdue Pharma 
almost literally get away with murder in creating the opioid crisis 
that has killed more than 500,000 Americans over more than twenty 
years. \23\ Purdue invested hundreds of millions of dollars in 
spreading lies about long-acting opioid products and it was rewarded 
with billions in profits. Other companies saw how Purdue profited from 
its illegal conduct, despite tiny penalties, and decided to join in and 
share the spoils. This is just one example of high prices for patented 
medicines fuelling illegal marketing. Billion-dollar fines have been 
paid by GlaxoSmithKlein, Pfizer and Eli Lilly for illegal marketing 
practices. Tens of billions of dollars are spent on advertising and 
marketing of pharmaceutical products in the United States each year, 
and this marketing is fuelled by the high prices Americans pay for 
patented medicines.
---------------------------------------------------------------------------
    \23\  https://www.cdc.gov/drugoverdose/epidemic/index.html.

    Most inappropriate marketing practices violate existing laws in 
most countries including the United States where it is illegal to make 
false claims about pharmaceutical products. But authorities apparently 
often lack the will to pursue and prosecute offenders. This lack of 
willingness to hold pharmaceutical companies to account is rooted in 
concerns about harming an industry that plays an important societal 
role, undue influence of pharmaceutical companies and private insurers 
over authorities they lobby, and fear of investing resources in an 
investigation or prosecution that will fail to secure a conviction. 
Authorities often assume a meek posture and seek voluntary undertakings 
and settlements with pharmaceutical companies that are ``too big to 
---------------------------------------------------------------------------
jail''.

    In concert with efforts described above to limit the resources 
companies have to fuel illegal marketing campaigns, authorities must 
also promptly discipline companies that break the law. The opioid 
crisis shows that delays in holding companies to account can cost, not 
just $100 billion dollars per year, but also hundreds of thousands of 
lives.

                            Acknowledgements

    I thank Danielle Martin, Marc-Andre Gagnon, Joel Lexchin and 
Matthew Herder for helpful comments. I thank the staff of the Patented 
Medicine Prices Review Board including Douglas Clark, Elena Lungu and 
Nevzeta Bosnic for a helpful meeting. I thank Lorenzo Moja of the 
Department of Essential Medicines and Health Products at the World 
Health Organization for a helpful discussion. The CLEAN Meds trial was 
funded by the Canadian Institutes of Health Research, the Ontario SPOR 
Support Unit, the St Michael's Hospital Foundation and the MAP Centre 
for Urban Health Solutions. I receive salary support through the Canada 
Research Chairs program, the University of Toronto Department of Family 
and Community Medicine and the Department of Family and Community 
Medicine at St Michael's Hospital in Unity Health Toronto. Of course, 
this testimony reflects my views and I am responsible for the content.
                                 ______
                                 
    The Chairman. Thank you very much, Dr. Persaud.
    Next we have Ms. Elia Spates, who lives in Derby, Vermont, 
who was diagnosed with Type 1 diabetes when she was 18. Her 
struggles to manage the disease and the associated costs have 
transformed her into an advocate for lower drug prices and 
better health care.
    Ms. Spates, thanks so much for being with us.

              STATEMENT OF ELIA SPATES, DERBY, VT

    Ms. Spates. Thank you. My name is Elia Spates. I was 
diagnosed with Type 1 diabetes 23 years ago, and quickly my 
parents and I got a crash course in the world of insurance and 
the serious expense of diabetes.
    The insulin that I take now costs over $2,000 out of pocket 
per month. The rise that I have seen in this price in the last 
23 years is astronomical. In fact, from 2002 to 2013 the cost 
of insulin tripled. When you pay over $800 per month for an 
individual in insurance premiums, and pay an additional $2,000 
per month until your deductible is met, your family starts to 
feel a financial pinch. The only way you see to cut back on the 
spending is to cut back on the insulin. Before you know it, 
your diabetes is out of control, your blood sugars swing 
dramatically, seizures happen, and you are even found 
unresponsive. It's time to treat the disease seriously. The 
financial side of diabetes is as much or more a burden as the 
disease itself.
    I am certainly not the only diabetic out there who has 
rationed insulin to help fend off a steadily accumulating debt. 
In fact, 45 percent of diabetics at one time or another will 
compromise their care to cut their costs. However, what is 
happening is that those who are not as fortunate as I land 
themselves in the hospital, in traumatic circumstances, and may 
even die. Seven-and-a-half million Americans rely on insulin; 
1.5 million of those are Type 1 diabetics.
    A few years ago my doctor suggested going to Canada. I live 
just four miles from the Canadian border, so this was logical, 
until you give it just one ounce of thought. I pay over $10,000 
a year in insurance premiums so that I can go buy my insulin in 
another country and it doesn't count toward my deductible? It 
is completely asinine to think that I would go to another 
country to buy inexpensive medication and yet pay for a health 
care plan in my own country that is only compounding my 
diabetic problems.
    Twice I have arrived at the pharmacy to pick up medication 
that had been prescribed by my doctor, and both times I was 
told that my insurance company was no longer going to cover 
that brand without prior authorization. However, they were 
happy to cover another suggested brand that was biosimilar but 
not bioequivalent. With this medication it had taken me over a 
year to get it approved by the insurance company, and I was 
finally having success using it, and now it was being 
disallowed?
    It is infuriating to know that in one fell swoop your 
perfect combination can be undone by the companies that produce 
the medication and the pharmacy benefits managers who market it 
to the insurance companies who now give it preferred status on 
their health care formularies.
    Just six months later an insulin I had been on for over 
four years became no longer an option. Once again, it needed a 
prior authorization, but there was a similar medication that I 
could have. Now, had this been the difference in brand name to 
generic, I could have understood. However, this was from one 
name brand insulin to another. And, in fact, it was $5 more out 
of pocket for me. It doesn't take a genius to figure out that 
this was happening because of how the money passes between the 
hands of the producers of the insulin, the PBMs, and the 
insurance companies.
    I appreciate being a part of a good business deal when I 
see one, and as a woman in business I fully understand supply 
and demand. I was raised in the humanitarian principles of 
achieving success. Doing things ethically and watching the 
bottom line to make a profit is essential. It is, however, 
unethical, unscrupulous, and completely wrong to gouge people, 
particularly so at the expense of their health.
    To think that we are outpricing our own citizens and 
virtually holding out of reach scientific marvels to those who 
need it is an embarrassment.
    We have seen a 300 percent rise in our cost of insulin in 
just a matter of years, yet in the same amount of time Canada 
has seen virtually no rise in cost at all. Three major 
producers of insulin have all had the same price hikes over 
that time. It is interesting that pharmaceutical companies 
provide amazing rebates on these products, yet the bulk of the 
rebates are cashed in by the PBMs and not the consumers. This 
practice provides preferred status on the insurance company 
formularies for the pharmaceutical companies, hardly an arms-
length transaction. Rebates alone have risen from 2 percent in 
2013 to 56 percent in 2018.
    One hundred years after the invention of insulin there are, 
of course, generic insulins out there which have been 
formulated. My understanding is that they sit on a dark and 
dusty shelf in the back of the room titled ``Pay for Delay.'' 
This is that devious little plan in which Big Pharma companies 
pay off the generic companies to delay the release of their 
product. Big pharma gets to keep the largest part of their 
sales, the generic company makes even more than if they put it 
out on the market, and I continue to pay top dollar. Any middle 
school student working their vocabulary list can tell you that 
is a perfect description for collusion.
    There are days that it is almost impossible to contemplate 
the unethical, immoral American healthcare and pharmaceutical 
system that has been created out of greed. I have to believe 
that those who perpetuate it probably haven't been burned by 
it. It is more than likely that they don't feel the initial 
pressure of the extreme insurance premiums because they don't 
have to pay them. Those participating probably don't drop 
thousands in deductibles either. And I am certain that they 
aren't showing up at the pharmacy counter to find out that the 
medication that had finally put them in good health is now not 
allowed because their insurance company has a different option 
for them, one not discussed with them or their doctor. Those 
perpetuating this travesty are probably also benefiting from 
some of Big Pharma's slice of the financial pie.
    When we ask the question ``Why does the U.S. pay the 
highest prices in the world for prescription drugs?'', the 
answer should really be given by our elementary school children 
because it is that simple. It is simply because of greed. We 
are fooling ourselves and the citizens of this Country by 
behaving like we don't know why we pay more. We all know. The 
question just becomes who is going to fix it? Who is going to 
put themselves out there? Who is going to take the high road 
and not the handout? Who is going to say lives are at stake 
here and for once put yourself in those shoes and do what you 
would want done for you, your parents, your wife, your brother, 
your son, your daughter.
    This is a bipartisan issue. Make it one. Do what's right, 
do it quickly, and then sleep well at night knowing you chose 
to help the people who, by voting, entrusted you with their 
well-being.
    Thank you.
    [The prepared statement of Ms. Spates follows:]
                   prepared statement of elia spates
    My name is Elia Spates. I was diagnosed with type 1 diabetes 23 
years ago and quickly my parents and I got a crash course in the world 
of insurance and the serious expense of diabetes.

    The insulin that I take now costs over $2000.00 out of pocket per 
month. The rise that I have seen in this price in the last 23 years is 
astronomical. In fact from 2002 to 2013 the cost of insulin tripled. 
When you pay over $800 per month, for an individual, in insurance 
premiums and paying an additional $2000 per month until your deductible 
is met your family starts to feel a financial pinch. The only way you 
see to cut back on the spending is to cut back on the insulin. Before 
you know it your diabetes is out of control, your blood sugars swing 
dramatically, seizures happen and you are even found unresponsive. It 
is time to treat the disease seriously. The financial side of diabetes 
is as much or more a burden as the disease itself.

    I am certainly not the only diabetic out there who has rationed 
insulin to help fend off a steadily accumulating debt. In fact 45 
percent of diabetics at one time or another will compromise their care 
to cut costs. However, what is happening is that those who are not as 
fortunate as I land themselves in the hospital, in traumatic 
circumstances, and maybe even die. 7.5 million Americans rely on 
insulin and 1.5 million of those are type 1 diabetics.

    A few years ago my doctor suggested going to Canada. I live just 4 
miles from the Canadian border so this was logical . . . until you give 
it just an ounce of thought. I pay over $10,000 a year in insurance 
premiums, so that I can go buy my insulin in another country and it 
doesn't count toward my deductible?! It is completely asinine to think 
I would go to another country to buy inexpensive medication and yet pay 
for a health care plan in my own country that is only compounding my 
diabetic problems.

    Twice I have arrived at the pharmacy to pick up medication that had 
been prescribed by my doctor and both times I was told that my 
insurance company was no longer going to cover `that brand' without 
prior authorization, however they were happy to cover another suggested 
brand that was biosimilar NOT bioequivalent. With this first medication 
it had taken me over a year to get it approved by the insurance company 
and I was finally having success using it and now it was being 
disallowed?

    It is infuriating to know that in one fell swoop your perfect 
combination can be undone by the companies that produce the medication, 
and the pharmacy benefits managers who market it to the insurance 
companies who now give it preferred status on their health care 
formularies.

    Just six months later an insulin I had been on for over 4 years 
became no longer an option. Once again it needed a prior authorization, 
BUT, there was a similar medication I could have. Now had this been the 
difference in brand name to generic I could perhaps have understood. 
HOWEVER, this was from one name brand insulin to another and in fact it 
was now $5 more out of pocket for me. It doesn't take a genius to 
figure out that this was happening because of how the money passes 
between the hands of the producers of the insulin, the PBM's and the 
insurance companies.

    I appreciate being a part of a good business deal when I see one 
and as a woman in business I fully understand supply and demand. I was 
raised in the humanitarian principles of achieving success. Doing 
things ethically and watching the bottom line to make a profit is 
essential. It is however unethical, unscrupulous and completely wrong 
to gouge people, particularly so at the expense of their health.

    To think that we are outpricing our own citizens and virtually 
holding out of reach scientific marvels to those who need it is an 
embarrassment.

    We have seen a 300 percent rise in our cost of insulin in just a 
matter of years yet in the same amount of time Canada has seen 
virtually no rise in cost at all. Three major producers of insulin have 
all had the same price hikes over that time. It is interesting that 
pharmaceutical companies provide amazing rebates on these products yet 
the bulk of the rebates are cashed in by the PBM's not the consumer. 
This practice provides preferred status on the insurance company 
formularies for the pharmaceutical companies, hardly an arms length 
transaction. Rebates alone have risen from 2 percent in 2013 to 56 
percent in 2018.

    One hundred years after the invention of insulin there are of 
course generic insulins out there which have been formulated. My 
understanding is that they sit on a dark and dusty shelf in the back of 
the room titled `pay for delay'. This is that devious little plan in 
which big pharma companies pay off the generic companies to delay the 
release of their product. Big pharma gets to keep the largest part of 
their sales, the generic company makes even more than if they put it 
out on the market, and I continue to pay top dollar. Any middle school 
student working their vocabulary list can tell you that is a perfect 
description for collusion.

    There are days that it is almost impossible to contemplate the 
unethical, immoral American healthcare and pharmaceutical system that 
has been created out of greed. I have to believe that those who 
perpetuate it probably haven't been burned by it. It is more than 
likely that they don't feel the initial pressure of the extreme 
insurance premiums because they don't have to pay them. Those 
participating probably don't drop thousands in deductibles either. And 
I am certain that they aren't showing up to the pharmacy counter to 
find out that the medication that had finally put them in good health 
is now not allowed because their insurance company has a different 
option for them, one not discussed with them or their doctor. Those 
perpetuating this travesty are probably also benefiting from some of 
Big Pharma's slice of the financial pie.

    When we ask the question ``Why Does the U.S. Pay the Highest Prices 
in the World for Prescription Drugs?'' the answer should really be 
given by our elementary school children because it is that simple. It 
is simply because of greed. We are fooling ourselves and the citizens 
of this country by behaving like we don't know why we pay more. We all 
know, the question just becomes who is going to fix it? Who is going to 
put themselves out there? Who is going to take the high road and not 
the handout? Who is going to say, ``Lives are at stake here and for 
once put yourself in those shoes and do what you would want done for 
you, your parents, your wife, your brother, your son, your daughter.

    This is a bipartisan issue. Make it one. Do what's right, do it 
quickly and then sleep well at night knowing you chose to help the 
people, who by voting, entrusted you with their well being.
                                 ______
                                 
    The Chairman. Ms. Spates, thank you very much for your 
remarks.
    Our last panelist is Mr. Alex Brill, who is a Resident 
Fellow with the American Enterprise Institute, the public 
policy think tank in Washington, DC. Previously he served as 
Chief Economist and Policy Director to the House Committee on 
Ways and Means and on the staff of the White House Council of 
Economic Advisors. Mr. Brill has an MA in Mathematical Finance 
from Boston University and a BA in Economics from Tufts 
University.
    Mr. Brill, thank you very much for being with us.

 STATEMENT OF ALEX BRILL, RESIDENT FELLOW, AEI, WASHINGTON, DC

    Mr. Brill. Thank you very much, Chairman Sanders. I must 
confess, the power just went out here in my office, and I hope 
this connection via my cell phone works.
    I appreciate the opportunity to appear before the Committee 
to testify on this important topic. As you mentioned, I'm a 
Resident Fellow with the American Enterprise Institute. My 
written testimony has been submitted to the Committee for the 
record. It offers three broad observations and a series of 
policy recommendations which I'll briefly summarize.
    First, perhaps predictably, is the importance of innovation 
in the pharmaceutical sector. Pharmaceutical innovation plays a 
critical role in improving health and well-being, and never has 
that been more important and more evident than today as 
multiple, highly effective coronavirus vaccines have been 
brought to the market in short order. These vaccines are the 
result not only of work that began after March 2020 but of 
decades of research funded by public and private investment 
and, of course, extraordinary support by the FDA.
    Policies to curb U.S. drug costs must ensure adequate 
reward for future innovation. This is not an endorsement of the 
status quo but a recognition, rather, of the importance of new 
medicines.
    Second, with respect to drug spending, U.S. prescription 
drug spending was $368 billion in 2019, nearly 10 percent of 
national health expenditures. It's important, however, to note 
the drivers of this cost. Biologics are driving much of the 
increase in national drug spending. In inflation-adjusted per 
capita terms, biologic drug spending increased from less than 
$300 to over $400 per capita from the period 2014 to 2018, 
while traditional small-molecule drugs, pills, fell on an 
inflation-adjusted per capita basis during that same time.
    Notably, out-of-pocket spending, the patient's cost, as a 
share of total drug spending has declined significantly over 
the last few decades, from roughly 28 percent to roughly 14 
percent in 2019. Out-of-pocket costs for those with the highest 
expenses who are low-and moderate-income actually fell, and 
out-of-pocket costs for those patients with the highest costs 
rose for higher-income individuals.
    Of course, however, these broad trends are important to 
recognize, but they can also mask high financial burdens 
experienced by some patients, as we've heard already this 
morning.
    Third, the importance of balance. The success of the U.S. 
pharmaceutical market is the result of a dual mandate embodied 
in landmark 1984 legislation commonly known as Hatch-Waxman. 
Hatch-Waxman legislation sought to both allow meaningful 
rewards for new innovative drugs and to encourage a robust 
generic drug industry. Today, we have the pharmaceutical 
innovation that I referenced a moment ago, and a generic 
industry that fills 90 percent of all retail prescriptions yet 
represents just 20 percent of overall drug spending. The 
average co-pay for generics is just $7.
    Our peer nations are not as successful. Across the OECD, 
just over half of all prescriptions are filled with generic 
medicines. There are, however, important opportunities to 
further foster competition and realize additional drug savings 
in the U.S. pharmaceutical market. My written testimony notes 
six areas where I believe bipartisan cooperation can ensure 
more timely entry of generics or biosimilars without 
discouraging the risk-taking innovation of medicines. Let me 
briefly highlight just three.
    First, biosimilars. Biosimilars have already yielded 
roughly $37 billion in savings to the U.S. health care system, 
but more can be done. One approach would be to align the 
incentives of prescribers with payers and patients. This could 
be achieved with a proposal considered by the Finance Committee 
for ASP+8 for biosimilars or the demonstration operated for 
Medicare Part B.
    Second, the importance of complex generic medicines and 
their approval here in the United States. Congress should 
ensure that the FDA has the incentives and the resources to 
promptly review and approve complex generic applications. In 
some recent work, I have estimated that seven such products 
were not available here but are available in Canada or Europe, 
and bringing them to the United States could save $1.3 billion 
a year annually.
    Finally, patent thickets, as noted earlier. Innovative drug 
companies are building patent thickets around lucrative 
products by obtaining myriad overlapping patents, many of those 
patents submitted after the launch of the initial product. To 
deter generic challenges or biosimilar challenges is the pure 
intent of these efforts. Without policy reform, these tactics 
will become the playbook for all innovator companies in the 
future.
    Thank you for the opportunity to testify, and I look 
forward to your questions.
    [The prepared statement of Mr. Brill follows:]
                    prepared statement of alex brill
    Chairman Sanders, Ranking Member Collins, and Members of the 
Subcommittee.

    Thank you for the opportunity to testify on this important topic. 
My name is Alex Brill, and I am a resident fellow at the American 
Enterprise Institute, a public policy think tank here in Washington, 
DC. The views and opinions I offer today are mine alone and do not 
represent those of my employer or necessarily those of my colleagues at 
AEI.

    In my testimony today, I will make three broad points:

        1. The United States is a large market that offers substantial 
        rewards to successful innovators. This structure encourages the 
        development of valuable medicines.

        2. Lowering the cost of medicines to the U.S. healthcare system 
        can be achieved by promoting robust competition, but 
        policymakers should be careful to ensure that adequate 
        incentives remain in place to bring new products to market.

        3. There are multiple existing barriers to robust 
        pharmaceutical competition, and lower drug prices can be 
        achieved by removing these barriers.

    I would like to begin with a brief observation about the current 
pandemic, economic recession, and ongoing recovery.

    The coronavirus pandemic, which hit the U.S. one year ago, has 
resulted in more than 540,000 confirmed deaths, more than 130 million 
probable and confirmed cases, \1\ and tremendous economic upheaval and 
harm. The U.S. suffered a dramatic economic contraction in the second 
quarter of 2020. Though the economy has recovered significantly, total 
employment is down by more than 9 million compared to a year ago. 
Employment in the leisure and hospitality sector is 20 percent lower 
than it was a year ago; nearly 3.5 million jobs in that sector were 
lost.
---------------------------------------------------------------------------
    \1\  This estimate is based on 28.9 million confirmed cases and a 
CDC estimate (CDC, 2021) that approximately 1 in 4.6 total COVID-19 
infections were reported.

    The first coronavirus vaccine was deployed in December 2020, less 
than a year after the pandemic began. Today, three approved COVID-19 
vaccines are being distributed in the U.S., and these products are 
quite literally saving not only our economy but our country. The 
vaccination rate is now near 2.5 million doses per day, and daily new 
---------------------------------------------------------------------------
cases are down nearly 80 percent from the peak.

    The biopharmaceutical industry, including talent and capital from 
around the globe, has accomplished a stunning feat, and I look forward 
to receiving my vaccine as soon as possible. We should be thankful not 
only to those involved in the development and deployment of the 
vaccines but to all who have worked on vaccine development, including 
those whose projects did not yield successful products. Clearly, the 
ability to bring to market these highly effective vaccines is not only 
the result of work that began in 2020 but also the result of decades of 
research supported by both public and private investment.
                     1. U.S. Drug Spending Overview
    To set the stage for policy recommendations to address drug costs 
in the United States, it is worthwhile to put in context the size and 
scale of drug spending at present. In 2019, the most recent year for 
which government statistics are available, U.S. prescription drug 
expenditures were $367.9 billion, 9.7 percent of national health 
expenditures, and $1,128 per capita. Growth in 2019 expenditures (5.7 
percent) was driven by an increase in volume, not prices (CMS, 2020). 
An increasing share of this burden is borne by health insurers, though 
of course their higher costs are reflected in higher premiums. Notably, 
out-of-pocket spending on retail prescription drugs as a share of total 
prescription drug spending has declined significantly over the last two 
decades, from 28.5 percent in 2000 to 14.5 percent in 2019 (CMS, 2020).

    There are, of course, important exceptions to these aggregate 
trends for individual patients who have experienced significant 
hardship. However, on average, out-of-pocket spending for households 
with the highest overall healthcare costs (those in the 95th 
percentile) declined for households below the Federal poverty line 
(FPL) and for households below 200 percent of the FPL from 2006 to 2017 
(Glied and Zhu, 2020). For higher-income households with very high out-
of-pocket costs, those costs have increased (Ibid.). Among those with 
the highest out-of-pocket medical costs across all income groups, 
average out-of-pocket drug costs have declined from near $2,300 in 2006 
to $1,000 in 2017 (Ibid.). Among Medicare Part D beneficiaries, 90 
percent had out-of-pocket pharmacy costs less than $500 (IQVIA, 2020a).

    It is important to note that biologic drug spending is the driver 
behind overall rising drug spending in the United States in recent 
years. Biologics, which are highly complex drugs made from living 
cells, are among the most expensive pharmaceutical products. In 
inflation-adjusted terms, biologic drug spending increased from $291 to 
$435 per capita from 2014 to 2018 while small-molecule drug spending 
fell from $689 to $610 per capita during this period (IQVIA, 2019).
                2. Balancing Innovation and Competition
    The U.S. pharmaceutical market, with a relatively high level of 
prescription drug spending overall as well as a high generic 
utilization rate, reflects the outcome of two complementary policy 
objectives: a system that both offers financial rewards to innovator 
drug companies who launch new drugs and encourages a robust competitive 
marketplace for generic drug manufacturers to sell at dramatic price 
discounts. This is the result of a dual mandate embodied in landmark 
legislation widely known as Hatch-Waxman, which was intended to foster 
both innovation and competition in the prescription drug industry. 
Broadly speaking, this system has worked well for traditional small-
molecule drugs.

    According to research by IQVIA published by the Association for 
Accessible Medicines, 90 percent of retail drug prescriptions are 
filled with a generic, and generics represent 20 percent of total 
prescription drug spending. The average generic prescription copay is 
approximately $7, and 92 percent of all generic prescriptions are 
filled for $20 or less (AAM, 2020). The utilization of generic drugs in 
the United States far exceeds most peer nations. According to the OECD, 
generic drugs are, on average, just 52 percent of the total 
pharmaceutical market in 2017 by volume. Generic utilization varies 
considerably across the OECD. In Canada, generics are reported to be 76 
percent, by volume but in Italy only 25 percent (OECD, 2019).

    Inherent in the broad policy framework in the United States that 
incentivizes both critical new pharmaceutical innovation and a robust 
generic market are several distinct forms of drug competition.

    Brand-Brand Competition. Within a drug class, brand drugs can 
compete with other brand drugs that treat the same condition or 
disease, and this can result in lower prices for all competing 
products. In practice, the mechanism by which this form of competition 
yields price discounts is through rebates--that is, discounts paid to 
pharmacy benefit managers--not through reductions in list prices.

    Generic-Brand Competition. As chemical copies of their brand 
counterparts, generics provide direct competition to brands. While 
research has shown that brand prices do not typically fall when facing 
generic competition, the first generic competitor is, on average, 30 
percent lower than the brand price (Conrad and Lutter, 2019).

    Generic-Generic Competition. The largest price effect arises when 
multiple generics for a product are on the market. Conrad and Lutter 
(2019) find that the generic price discount rises from 30 percent with 
one generic on the market to 55 percent with three generics and 85 
percent with five generics.

    Biosimilar Competition. A fourth type of pharmaceutical 
competition, a hybrid of the three above, is emerging in the U.S. 
biosimilars market. Since the passage and enactment of the Biologics 
Price Competition and Innovation Act (BPCIA), part of the Affordable 
Care Act, an additional regulatory pathway has existed to permit 
competition for biologics. This abbreviated pathway allows for the 
approval of what are known as biosimilars, more affordable versions of 
brand biologic drugs. While this market was somewhat slow to develop at 
first, today there are 29 biosimilars approved by the Food and Drug 
Administration (FDA) and 18 biosimilars available on the U.S. market. 
One favorable but unexpected pricing dynamic in this nascent market is 
that when a biosimilar competes with a reference biologic, we see a net 
price decline of the innovator product (Brill and Ippolito, 2019).
           3. Promoting Drug Competition and Lowering Prices
    In debates about U.S. drug spending, two competing policy 
frameworks exist. In the first, government controls are necessary to 
set drug prices because market failures are causing ``wrong'' prices to 
be paid by public programs, commercial insurance, and individuals. In 
the second, policymakers observe imperfections in the prescription drug 
market (some of which are policy-induced) and seek to adopt reforms to 
improve and strengthen the existing framework established by Hatch-
Waxman and the BPCIA--that is, adequate incentives for innovation in a 
costly and risky industry combined with appropriate incentives and 
relatively little friction for generics and biosimilars to ensure 
robust competition.

    Having spent the last decade studying competition in the U.S. 
pharmaceutical market, I can tell you that several incremental changes 
to our existing framework could make drug competition more robust. 
These changes could yield more small-molecule generics, more complex 
generics, more biosimilars, and more of the savings that competition 
induces.
           Ways That Drug Competition is Stymied in the U.S.
    There are a variety of reasons why there is room for improvement in 
the competitiveness of the U.S. pharmaceutical market, some systemic 
and some due to strategies of drug manufacturers to create excessive 
delays in the market entry of competitors.

    Complex Generics. On delays arising in the system, consider the 
situation around complex generics. These are products with a complex 
molecular base, route of delivery, formulation, dosage form, or 
approval requirement. In Europe and Canada, some complex generics have 
already been approved and launched while applications for these same 
products are delayed at the FDA. By my estimation, generic competition 
for seven complex generics approved in Europe and/or Canada but not in 
the United States would yield annual U.S. savings of between $600 
million and $1.7 billion, with a median savings estimate of $1.3 
billion.

    When Congress reauthorizes the Generic Drug User Fee Amendments 
(GDUFA), it is my hope that the FDA commits to further prioritize the 
approval of complex generics, with objectives focused on outcomes 
rather than process metrics. The delay in the approval of some complex 
generics has already attracted bipartisan interest and concern among 
members of the House Energy and Commerce Committee in a letter to the 
FDA (Energy and Commerce Committee, 2020). Current acting FDA 
Administrator Janet Woodcock has also acknowledged complex generics' 
``outsized potential to increase patient access and lower drug 
spending'' (Woodcock, 2019).

    On strategies intended to delay generic entry, there are various 
tactics that brand drug manufacturers employ to limit or delay the 
availability of lower-cost drugs. These include product hopping, misuse 
of ``orphan'' drug exclusivity and citizen petitions, patent thickets, 
and other tactics that effectively suppress competition. (Below, I 
describe four of these tactics.) There is evidence that the average 
period a brand drug is on the market before generic entry increased by 
more than two years between 1995 and 2014 (Grabowski et al., 2016). 
From my own work, I estimate that if generic entry were to be 
accelerated to pre-1995 rates, the U.S. healthcare system would save 
nearly $32 billion.

    Product Hopping. Product hopping describes the established brand 
strategy of making an inconsequential change to a drug and moving 
patients to this version before the original faces competition. The 
Alzheimer's drug Namenda IR represents a notorious example of product 
hopping. In 2013, before Namenda IR went generic, the manufacturer 
launched an extended-release version that could be taken once a day 
instead of twice a day. In 2014, the manufacturer removed Namenda IR 
from the market entirely. This is what is called a ``hard switch.'' In 
a ``soft switch,'' a manufacturer will leave the original product on 
the market but work to move patients to the slightly altered product, 
even at times intentionally undermining confidence in their original 
product. I have estimated that five instances of specific product hops 
cost the U.S. healthcare system $4.7 billion annually.

    Misuse of Orphan Drug Exclusivity. Orphan drugs, defined as drugs 
treating conditions that fewer than 200,000 people in the United States 
suffer from, are eligible for six extra months of exclusivity from the 
FDA. This creates an incentive for drug manufacturers to develop 
products to treat rare diseases. But brand manufacturers have been 
obtaining orphan drug designations for products that treat much larger 
populations. Daniel et al. (2016) find that 7 of the 10 bestselling 
drugs in the world in 2015 were approved by the FDA as orphan drugs.

    Misuse of Citizen Petitions. Citizen petitions are an important 
safety mechanism created to raise concerns with the FDA about a drug 
whose application is under review. But brand drug manufacturers have 
taken to using this mechanism, often right before facing generic 
competition, to delay generic entry while the FDA reviews the petition. 
A recent study showed that brand manufacturers filed more than 90 
percent of petitions and less than 10 percent were eventually granted 
(Carrier and Shadowen, 2017).

    Patent Thickets. Especially pernicious is a tactic known as a 
patent thicket. Brand manufacturers obtain as many overlapping patents 
as possible on a single product in order to create an impenetrable web 
for potential competitors. These patents are frequently broad and weak 
and often filed after the drug is on the market. Consider the 
blockbuster drug Humira--89 percent of AbbVie's nearly 250 patent 
applications were filed after launch (I-MAK, 2020). While patenting 
strategies of this drug have attracted the most attention, the policy 
concern is much broader as these tactics may serve as a future playbook 
for other drug manufacturers to unduly delay generic entry.
                        A Word about Biosimilars
    As I mentioned earlier, biosimilars represent a relatively new 
arena of drug competition in the United States, as the regulatory 
pathway for these products was established in 2010. According to IQVIA 
(2020b), biosimilar savings in the United States have reached $37 
billion through 2019 and could exceed $100 billion through 2024. 
Despite their enormous cost savings opportunity, biosimilars face 
hurdles in realizing their full potential. These hurdles range from 
lack of education among physicians and patients to contracting 
practices by originator companies to keep competitors from gaining an 
edge. Patent thickets, described above, are very problematic for 
biosimilars because biologics tend to be very lucrative, and 
originators have learned that they can build these thickets in the 
United States largely unchecked.

    It is worth noting that Europe, which preceded the United States by 
nearly a decade in the launch of its first biosimilar, has done well in 
many regards. Many European countries have proactively engaged in 
education campaigns to familiarize patients and healthcare providers 
with biosimilars and have shared the savings from biosimilars with 
patients and providers. But not all European practices should be 
emulated. Some countries have established price controls or held 
winner-take-all tenders. These may have negative effects on the long-
term sustainability of biosimilars.

    Achieving greater uptake of biosimilars in the U.S. market would, 
in the near term, produce lower average spending on biologic medicines. 
In the medium and longer-term, policies that facilitate a larger 
biosimilars market in the U.S. will encourage more biosimilar 
manufacturers to pursue product launches in the United States. Broadly 
speaking, a robust biosimilars market would include both multiple 
competitors to a single reference biologic and more biosimilar entry to 
compete with smaller-market biologics. The approval of interchangeable 
biosimilars may also contribute to the realization of additional 
pharmaceutical cost savings, for biosimilars covered in the pharmacy 
benefit as opposed to the medical benefit.

    To accelerate the adoption of biosimilars, policymakers should 
consider policies to align the incentives of prescribers with the cost 
savings objectives of payers, namely Medicare. Existing legislative 
proposals that could achieve this goal include ASP+8 reimbursement for 
Part B biosimilars or a demonstration run by the Center for Medicare 
and Medicaid Innovation that could establish an incentive to 
prescribers whose patients utilize lower-cost biosimilars. Either 
approach offers the opportunity to achieve cost savings by 
incentivizing the utilization of lower-cost biosimilars.
                             4. Conclusion
    Any inquiry into the cost of medicines in the United States should 
be related closely to a careful review of the quality and quantity of 
pharmaceutical innovation also underway. As a large and prosperous 
market, the United States effectively entices significant investment in 
the private research and development of drugs and publicly funds 
significant amounts of related research. The United States is also a 
global leader with respect to its robust generic drug market, a 
testament to a successful commitment to a competitive marketplace. 
Nevertheless, opportunities to foster competition and realize 
additional cost savings do exist.

    Congress should protect the intent of existing law but pursue 
improvements to facilitate more competition, curtail overly long 
monopolistic periods for brand drugs, and promote the approval of new 
innovative medicines to compete with existing brand drugs. Finally, 
biosimilars have shown initial success and cost savings in the U.S. 
market, and a larger and more robust biosimilars market should be 
encouraged.
                               References
    Association for Accessible Medicines. 2020. ``Securing Our Access & 
Savings: 2020 Generic Drug & Biosimilars Access & Savings in the U.S.'' 
https://accessiblemeds.org/2020-Access-Savings-Report.

    Brill, Alex, and Benedic Ippolito. 2019. ``Biologics are Not 
Natural Monopolies.'' Health Affairs Blog, https://
www.healthaffairs.org/do/10.1377/hblog20190701.349559/full/.

    Carrier, Michael A., and Steve Shadowen. 2017. ``Pharmaceutical 
Product Hopping: A Proposed Framework for Antitrust Analysis.'' Health 
Affairs Blog, https://www.healthaffairs.org/do/10.1377/
hblog20170601.060360/full/.

    Centers for Disease Control and Prevention (CDC). 2021. ``Estimated 
Disease Burden of COVID-19.'' https://www.cdc.gov/coronavirus/2019-
ncov/cases-updates/burden.html.

    Centers for Medicare & Medicaid Services (CMS). 2020. ``National 
Health Expenditures 2019 Highlights.'' https://www.cms.gov/files/
document/highlights.pdf.

    Conrad, Ryan, and Randall Lutter. 2019. ``Generic Competition and 
Drug Prices: New Evidence Linking Greater Generic Competition and Lower 
Generic Drug Prices.'' U.S. Food & Drug Administration, https://
www.fda.gov/media/133509/download.

    House Committee on Energy and Commerce, 116th Cong. 2020. Letter to 
the Commissioner of the U.S. Food and Drug Administration. January 17.

    Daniel, Michael G., et al. 2016. ``The Orphan Drug Act: Restoring 
the Mission to Rare Diseases.'' American Journal of Clinical Oncology 
39 (2): 210-213.

    Glied, Sherry A, and Benjamin Zhu. 2020. ``Catastrophic Out-of-
Pocket Health Care Costs: A Problem Mainly for Middle-Income Americans 
with Employer Coverage.'' Commonwealth Fund, https://doi.org/10.26099/
x0cx-cp48.

    Grabowski, Henry, Genia Long, Richard Mortimer, and Ani Boyo. 2016. 
``Updated Trends in U.S. Brand-Name and Generic Drug Competition.'' 
Journal of Medical Economics 19 (9): 836-44.

    I-MAK. 2020. ``Overpatented, Overpriced Special Edition: Humira.'' 
https://www.i-mak.org/wp-content/uploads/2020/10/i-
mak.humira.report.3.final-REVISED-2020-10-06.pdf.

    IQVIA Institute for Human Data Science (IQVIA). 2019. ``Medicine 
Use and Spending in the U.S.: A Review of 2018 and Outlook to 2023.'' 
https://www.iqvia.com/insights/the-iqvia-institute/reports/medicine-
use-and-spending-in-the-us-a-review-of-2018-and-outlook-to-2023.

    IQVIA Institute for Human Data Science (IQVIA). 2020a. ``Drug 
Prices Have Become More Affordable to Most Patients, says U.S. Medicine 
Spending Study from the IQVIA Institute for Human Data Science.'' Press 
Release. https://www.iqvia.com/newsroom/2020/08/drug-prices-have-
become-more-affordable-to-most-patients-says-us-medicine-spending-
study-from-the-iq.

    IQVIA Institute for Human Data Science (IQVIA). 2020b. 
``Biosimilars in the United States 2020-2024.'' https://www.iqvia.com/
insights/the-iqvia-institute/reports/biosimilars-in-the-united-states-
2020-2024.

    OECD. 2019. ``Health at a Glance 2019: OECD Indicators.'' OECD 
Publishing, https://doi.org/10.1787/4dd50c09-en.

    Woodcock, Janet. 2019. ``Testimony of Janet Woodcock before the 
U.S. Senate Special Committee on Aging.'' https://www.aging.senate.gov/
imo/media/doc/SCA-FDA-Woodcock-06-19-19.pdf.
                                 ______
                                 
    The Chairman. Thank you very much, Mr. Brill.
    Let me start off the questioning, and let me ask a very 
simple question. That is that I recall about a year-and-a-half 
ago I took a trip from Detroit, Michigan into Ontario with a 
number of folks from the Midwest who were diabetic, and we 
purchased insulin, the same product made by the same company, 
for one-tenth of the price, 10 percent of the price.
    Somebody jump in, Dr. Kesselheim, Dr. Persaud. Why is it 
that in Canada, tell us simply, that you can purchase the same 
exact widely used product for one-tenth the price that it costs 
in the United States?
    Mr. Brill. Thanks for the question, Senator.
    Two reasons. First, patented medicines have their prices 
regulated in Canada because there's not going to be 
competition. If you want to pay a reasonable price for patented 
products, you have to regulate the prices. That's what's done 
in other high-income countries, not just in Canada.
    The Chairman. Is there any other country--let me interrupt 
you. I apologize. Is there any other major country on earth 
that does not, in one way or another, regulate the price of 
drugs or allow the companies to charge any price they want? Is 
there any other country, other than the United States, that 
allows that?
    Mr. Brill. No.
    The Chairman. Okay.
    Dr. Kesselheim, did you want to jump in on that?
    Dr. Kesselheim. Sure. No, there is no other country that 
does that. We are unique in the world in allowing the 
pharmaceutical companies to charge whatever price they want. As 
a result, the only type of--the only intervention in the U.S. 
market that actually lowers prices is the availability of 
interchangeable generics which, unfortunately for insulin, we 
don't have any, and as a result prices have not fallen because 
there is no pressure, no market pressure, no governmental 
pressure, no pressure at all on the pharmaceutical companies 
that sell insulin to lower their prices to the same extent that 
there is in Canada.
    The Chairman. Let me ask the doctors another question. It 
is estimated that one out of four Americans cannot afford the 
prescription drugs their doctors prescribe. What does this mean 
for the health of the American people? If I'm sick and I go to 
a doctor, and the doctor writes a script for me, and I can't 
fill it, what impact does that have on health in the United 
States?
    Dr. Kesselheim. I think it has a critically important 
impact. There are numerous studies showing that the high price 
of drugs can lead to non-adherence, which is when patients 
don't fill their prescription or they extend their prescription 
or use less of the medicine in ways that ultimately are harmful 
to them. Some studies led by people in our group here at the 
Division of Pharmacoepidemiology show that when people are 
prescribed higher-cost medicines instead of equally effective 
lower-cost medicines, that can lead to worse patient outcomes. 
So it is truly something that is problematic for patients and 
something that we can fix.
    The Chairman. Let me ask you this. Dr. Persaud, you may 
have done a study on this. Tell me what I'm missing here. If I 
cannot afford my medicine and I get sicker than I should be, 
and maybe I end up in the emergency room, maybe I end up in the 
hospital, is it possible, in fact, that we end up spending more 
on health care because people simply cannot afford the medicine 
that they need?
    Dr. Persaud. Yes, Senator. That's exactly what we found in 
our study. When we provided medicines to people who could not 
afford them, we realized savings of more than $1,000 per year 
per patient, and that was due to avoided hospitalizations, 
avoided emergency room visits. We're talking about life-saving 
medicines, medicines that we know work, treatments for high 
blood pressure and diabetes. So when people are able to take 
their medications, they are healthier.
    We also found that people find it easier to make ends meet, 
to afford their rent and food, healthy housing, healthy foods 
that people need to be healthy, as well.
    The Chairman. What you are saying is that the high cost of 
prescription drugs results in people getting sicker than they 
should and, in fact, ending up costing health care systems more 
money than we should be expending.
    Dr. Persaud. Yes. You're paying at least twice, once the 
higher price for medicines, and second people who land in the 
hospital with a heart attack or stroke.
    The Chairman. Which could have been prevented.
    Dr. Persaud. Absolutely preventable.
    The Chairman. Okay.
    Senator Collins.
    Senator Collins. Thank you, Mr. Chairman. Before I begin my 
questions, I would ask unanimous consent that a statement from 
Senator Burr be submitted for the record.
    The Chairman. Without objection.
    [The information referred to can be found on page 56]
    Senator Collins. Thank you.
    Mr. Brill, you mentioned the role of patent thickets in 
blocking access to more affordable biosimilars. You also talked 
about the fact that biologics are very expensive and are 
consuming an increasing amount of the cost of prescription 
drugs in this Country. Even though there are several 
biosimilars for the best-selling drug in the world, Humira, and 
they've been on the market in the European Union since 2018, 
American patients must wait another two years for them to be 
available here due to the manufacturer's aggressive patent 
thicket strategy of overlapping and late-filed patents.
    Another method of fending off biosimilar competition is 
called a drip-feed strategy, where knowledge broadly disclosed 
in early patent applications is defined much more narrowly and 
specifically in subsequent patent applications, and AbbVie is 
using this strategy for a cancer drug that it has.
    How should Congress ensure that we are recognizing 
innovative science versus rewarding an innovative legal 
strategy that is simply designed to block more affordable 
competitors by gaming the patent system?
    Mr. Brill. Thank you, Senator, for your question. The issue 
of patent thickets and related patenting strategies employed by 
some innovator companies is, I think--should be very concerning 
to policymakers. I think we're in the early innings of what 
will become an evolving set of tools that many innovator drug 
companies may engage with to protect their assets, and this 
runs completely counter to the objectives of competition for 
biosimilars or for other innovative products.
    We have these pathways through the FDA to create and foster 
generic competition, biosimilar competition, and the patent 
system is getting in the way. I know that you have introduced 
in the past legislation with Senator Kaine. Senator Cornyn and 
Senator Blumenthal also have legislation focused on addressing 
these issues, finding ways to protect core patents and 
appropriate patents but to block or prevent the ability of 
innovators to stack patents on top of each other and create 
undue, unnecessary, excessive monopoly powers for their 
products.
    Senator Collins. Thank you. I think this is an area that 
cries out for reform.
    Dr. Kesselheim, the Veterans' Administration has some 
authority to negotiate favorable pricing and deeper discounts. 
But we also hear complaints that they have a national 
formulary, and we get complaints in my state offices from 
veterans who need drugs that are not available on that 
formulary. So how do we come up, if we move to broader use of 
negotiation by the Federal Government, while still ensuring 
that there is patient choice of medications, that their 
physicians can still prescribe and they can get reimbursed 
under the terms of their insurance for the medications that are 
best suited for them?
    Dr. Kesselheim. Senator Collins, that's a great question 
and an important one. I think that the principle that I was 
outlining is really the principle of evaluating effectiveness 
of drugs and negotiating on that basis, not necessarily about 
restricting access to the products but providing coverage to 
products that are extremely effective and not providing the 
same level of coverage to products that don't offer additional 
benefits. That's the model that some states have used, like New 
York and Massachusetts are starting to employ, to try to 
negotiate prices better for their Medicaid programs. It just 
involves evaluating the utility of a drug as compared to 
standard of care, and then paying for the drug if it offers 
more but not providing the same level of coverage if it doesn't 
offer any additional benefits, and those organizations have 
found substantial success thus far in implementing that kind of 
a model.
    Senator Collins. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Collins.
    Senator Casey.
    Senator Casey. Mr. Chairman, thank you for having this 
hearing today. I want to commend you for having the hearing, 
you and the Ranking Member for doing this, because when so many 
of us go home and talk to our constituents, one of several big 
bags of rocks on the shoulders of American families is the cost 
of prescription drugs. We hear it all the time, everyone does, 
no matter where you're from. And the other bags of rocks on 
their backs or their shoulders are the cost of child care or 
higher education or health care generally.
    We have an obligation to act, and I've heard it from folks 
all across Pennsylvania. By way of one quick example, a 
constituent of mine, Barbara Sissick, she's from Rural Ridge, 
Pennsylvania, she testified before our committee, an Aging 
Committee hearing that Senator Collins chaired in 2019. Barbara 
pays as much as $500 per month for multiple medications to 
manage bleeding ulcers, high blood pressure, and more.
    People like Barbara, so many like her across the Country, 
expect us to take action. So I've supported, and I know this is 
true of a number of Senators, legislation to take steps in the 
right direction, whether it's the legislation to allow Medicare 
to use its purchasing power to negotiate prescription drug 
prices, or whether it's legislation like Senator Sanders has to 
allow for the importation of prescription drugs from countries 
like Canada that have similar regulations in place to ensure 
that drugs are safe and effective.
    I also have legislation I've authored to expand low-income 
protection for seniors and people with disabilities to make 
sure they can afford Medicare premiums and out-of-pocket costs.
    With regard to--and I'll direct my question to Dr. Persaud. 
With regard to Senator Sanders' legislation for drug 
importation, allowing Americans to purchase drugs from Canada, 
from countries like Canada that have comparable regulations in 
place, I'd ask you this simple question, doctor. Can you tell 
us, give us an answer to the following question: Do you believe 
that prescription drugs sold in Canada are safe and effective?
    Dr. Persaud. Thank you, Senator. Yes, they're safe and 
effective, and they're the type of medicines that America, the 
superpower, should be able to negotiate reasonable prices for. 
Canada is a relatively small country, with a population around 
37 million, and the United States can implement measures to 
regulate the prices of medicines and negotiate prices for other 
medicines. Between Canada and the United States, there's only 
one superpower, and really it should be Canada hiding behind 
the United States when it takes on pharmaceutical companies.
    Senator Casey. Doctor, one follow-up to that just in terms 
of the types of controls in place, the policies in place the 
Canadian authorities have to make sure the prescription drugs 
are safe and effective for consumers, if you could just walk 
through that in summary fashion.
    Dr. Persaud. Sure. So, first of all, Health Canada 
regulates every product here. Health Canada has the power to 
inspect facilities, including overseas facilities, where many 
medications consumed in Canada are produced. Standards would be 
similar to countries like the United States, similar to other 
countries like the United Kingdom and countries in Europe.
    Senator Casey. Doctor, thanks very much.
    Thanks, Mr. Chairman.
    The Chairman. Thank you, Senator Casey.
    Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman. Thank you for 
this very important hearing.
    This is going to be a question to Dr. Kesselheim, and this 
stems from a story that we had heard from a constituent in 
Wasilla, not too far north from Fairbanks. They have indicated 
that they've been paying $633 for a three-month supply of her 
inhaler. The price of the inhaler increased in January for the 
third year in a row. And like so many, they just don't get it. 
Why do we keep seeing these price increases?
    Dr. Kesselheim, in your experience with these year-to-year 
price hikes on prescription drugs, in your view, what's 
prompting it? Do they usually result from changes or 
improvements to the drug's efficacy? Because I think if it was 
going to improve the drug, we can understand why that might be. 
Or is it because they are resulting from increased 
manufacturing costs or R&D? What do you tell somebody like this 
constituent from Wasilla?
    Dr. Kesselheim. It's a very challenging issue. And, no, it 
doesn't arise from any of those things. It arises because 
manufacturers and pharmaceutical companies have investors that 
they need to maintain their profit margins for, and one of the 
ways they can do that, if they have an approved product, is by 
raising the price on that product year after year. 
Unfortunately, in the case of inhalers, we have a lot of the 
same issues that we have with insulin where manufacturers are 
able to get new patents, not on the underlying medicine itself 
but on the inhaler device, and those patents prevent the FDA 
from approving interchangeable versions of the product that 
might lower the prices. And, of course, we also just don't do 
any negotiation with manufacturers over the prices that they 
charge for their products.
    As a result of all of those things, that gives 
manufacturers substantial freedom to raise their prices far 
beyond inflation on a year-over-year basis and leads to 
problems like you're describing for your constituent.
    Senator Murkowski. Do we have any way to determine whether 
these price hikes are justified? What you just outlined to me, 
I don't think that's going to be satisfactory to this 
individual from Wasilla. How can we know whether or not, when 
you have reformatted the device for the inhaler, that somehow 
or another increases the efficacy? Is there any way to 
determine whether these price hikes are justifiable?
    Dr. Kesselheim. Sure. One of the ways you might do that is 
you might actually conduct a clinical trial in which you tested 
your new version against the old version and showed that one 
was superior. Most pharmaceutical companies don't fund that 
kind of comparative effectiveness research. Instead, they just 
rely on marketing to promote the new, improved product.
    I would also say that if we did have a publicly funded, 
independent organization that evaluated the effectiveness of 
products and helped negotiate prices, if in fact a product was 
substantially improved by virtue of a change in manufacturing 
practice or something like that, then theoretically the 
pharmaceutical manufacturer could submit that information to 
the organization and it could be fairly reviewed, and the price 
could be increased if it was fair to do so.
    Senator Murkowski. Well, Mr. Chairman, we hear these 
stories all the time. This is the reason that we're having this 
hearing this morning. Senator Baldwin and I have reintroduced 
what we call the Fair Drug Pricing Act, which would require the 
manufacturers to actually provide some kind of a justification 
when we see this substantial increase to the list price for the 
medications. I think we recognize that people want to see some 
level of transparency here and accountability when you see 
these really sometimes incredible price hikes year over year 
over year.
    I would hope that we'd be able to advance provisions like 
what Senator Baldwin and I are trying to do, along with 
leadership on this Committee. I thank you.
    The Chairman. Thank you very much, Senator Murkowski.
    Now we go to Senator Baldwin.
    Senator Baldwin. Thank you, Chairman Sanders.
    I want to jump in just where Senator Murkowski dropped off 
with regard to the Fair Drug Pricing Act. But I also want to 
share a constituent experience first.
    I hear all the time from Wisconsinites who cannot afford 
their prescription medication, people like Jackie Trapp, from 
Muskego, Wisconsin, who has terminal cancer. She wrote me that 
``The drug that keeps me alive is also driving my family toward 
bankruptcy. It has doubled in price in the very few years I've 
been on it, and it costs me $15,000 to $21,000 out of pocket 
per year. My husband is worried enough about being left alone, 
and I worry about him having to start over financially and his 
lifetime of savings is being wiped out for one drug, 
Revlimid.'' The price of this drug, Revlimid, has increased 
over 20 times.
    Stories like this one are the inspiration for the 
bipartisan Fair Drug Pricing Act, which I'm reintroducing today 
with my colleagues Senator Murkowski, Senator Smith, Senator 
Braun. The bill requires manufacturers to submit a transparency 
and justification report 30 days before they increase the price 
of a drug by more than 10 percent in one year or 25 percent 
over three years.
    This is a first step, but it's a really important one. For 
the first time it gives taxpayers and patients advance notice 
of price increases, but it brings basic transparency to the 
market for prescription drugs.
    Dr. Kesselheim, why is it important to require 
manufacturers to publicly justify their price increases, 
including by accounting for things like research and 
development costs, net profits attributed to the drug, and 
marketing and advertising spending? And what is the impact of 
transparency requirements when it comes to the list prices of 
medications?
    Dr. Kesselheim. Thank you, Senator. I would say that one of 
the reasons it's important to require companies to disclose 
this information to a board or through some other means is, 
first of all, to give them the incentive to actually generate 
information that would justify the price increase. Right now, 
drug companies can raise prices without any justification and 
without doing any research, and if you required some kind of 
disclosure you could actually incentivize companies to generate 
high-quality research information that could then help guide 
physician and patient choices and provide more usefulness.
    I think another thing to help guide prescribing practices, 
another thing that such a measure could do would be to actually 
dissuade companies from increasing prices when they don't have 
that information or when they don't have a justification, or if 
they don't want to provide insight into their marketing 
budgets, and so it could actually prevent these kinds of price 
hikes from happening in the first place unless they are really, 
truly justified by some kind of change in the supply chain or 
manufacturing practices.
    Senator Baldwin. Thank you. I want to continue in this 
vein. From 2010 to 2019, the FDA approved 356 drugs. Recent 
research from Bentley University finds that NIH funding 
contributed to every single new drug approved, at a cost to the 
taxpayer of roughly $230 billion. In spite of this 
contribution, the NIH is listed on only 27 of those patents. 
This suggests that while taxpayers provide funding for the bulk 
of the early stage research, they do not get patent protections 
supposedly secured by the Bayh-Dole Act. In essence, American 
taxpayers are paying the highest prices in the world for drugs 
that they already paid to help develop.
    Dr. Kesselheim, are American taxpayers getting a fair deal 
for this research investment? And how should we be looking at 
and examining and accounting for the taxpayer contributions, 
and what could this mean ultimately for drug prices if we got 
it right?
    Dr. Kesselheim. Well, I mean, I think Americans are getting 
advantages when the products that are developed by public 
funding end up leading to important new treatments, like, as we 
saw, the COVID-19 vaccines or other transformative drugs. 
Research from our group has shown that, by far, transformative 
drugs are much more likely to come out of public funding and 
NIH resources.
    I think what this shows is that, first of all, the 
limitations of the patent system as a way of assigning credit 
for where products come from, because you can't get a patent 
until you are much closer to the final stages of costs of 
development. And even for those drugs, though, we don't end up 
providing a lot of recognition of the public's support for 
those products in the prices that patients provide, and as a 
result some people argue that patients are paying twice for the 
drugs, first in the research leading up to their discovery, and 
then second in the super-high prices that we pay because we 
don't have any control over the prices in the U.S. market.
    Senator Baldwin. I yield back, Mr. Chairman.
    The Chairman. Thank you, Senator Baldwin.
    Senator Marshall.
    Senator Marshall. Thank you so much, Chairman. I just want 
to emphasize that you and I, both sides of the aisle, agree on 
the same goal here, that we want to figure out affordable 
access to all prescriptions for all people. And just bringing 
some of my insight as a physician to this Committee, I think I 
want to talk about insulin just for a second, and I appreciate 
our testimony on this. This is a prescription I have written 
thousands of times, and it's part of this opaque game. I call 
it the opaque game.
    There's a list price and a net price. The list price of 
insulin has gone up, up, up, thousands of times, percent, and 
that's what the out-of-pocket is based upon. So the person who 
testified today, the Medicare patient, they're paying out-of-
pocket based on the list price. But the net price in many 
instances has gone down since 2007, and this is where the 
opaque process happens.
    As far as I know, this is the only business in America 
that's allowed to have legal kickbacks. So there are legal 
kickbacks from the middlemen to Big Pharma, as well as 
insurance companies and we don't know who else, and that's the 
opaque process. There are claw-backs from community 
pharmacists, and subsequently we're losing more community 
pharmacies than ever before.
    I think there are two simple solutions, and the first one 
is transparency. I think if my parents, 83 years of age, living 
in the home that I grew up in, who balance their checkbook 
every day, don't have a credit card, if they would see where 
those kickbacks are going, they would raise Cain, and I think 
that all of Congress could see that. And I think the second 
step is to eliminate kickbacks, that these kickbacks have to 
stop and all rebates should go to the patient. So those are the 
two solutions I hope we could agree to work upon.
    I want to turn and talk about innovation, though, how 
innovation is important as well, that I think that of the top 
ten drugs that are in the world today over the last four or 
five years were all discovered and made here in America. And I 
think this goes to my point on process. Inhalers is another 
great example. One of our folks talked about that, inhalers, 
something I've written thousands of prescriptions for.
    About five or six years ago I was writing a prescription, 
and it was an OB patient, so she came back in a week and said 
Dr. Marshall, I think you gave the wrong prescription, it went 
from $28 to $168. I said, oh, no, that's a generic, your 
pharmacist must have made a mistake, let me pick up the phone 
and call and talk to him. And sure enough, what we found out is 
the EPA had decided all the dispensers but one were not 
environmentally friendly. It gave one person control of that 
entire market. So I said, well, certainly someone will break 
into the world scene here and make a new dispensing unit. But I 
found out it would take five to ten years and a billion 
dollars, perhaps, to get that certified.
    There are multiple opportunities here to improve that 
process, and I know that some of my colleagues have legislation 
that would do that, as well.
    I really think it's important that we protect innovation, 
and my question is going to go to Mr. Brill on this. As I think 
about the miracles of COVID, in January 2020 I reached out to 
the CDC to tell them my concern about the COVID virus, and they 
weren't quite as concerned as I was, so I immediately turned to 
the private sector. And as the CDC rolled out their testing, I 
asked the private sector to start working on testing, on 
therapeutics, and on vaccines, knowing that this was going to 
be a world problem very, very soon.
    Thanks to those folks a miracle occurred, and we were able 
to develop a vaccine in months. What typically takes five or 
ten years they did in months. We implemented many processes 
that would improve the FDA process of approval that I think 
should be looked at long term, as well.
    Anyway, I think there's this balance between innovation, 
encouraging innovation and not stifling it with government 
price controls, versus not allowing innovation to occur.
    Mr. Brill, I'm just going to give you a second here to kind 
of speak about balancing this innovation and the cost of 
medicines and price controls. What would price controls do to 
innovation in America?
    Mr. Brill. Thank you, Senator, for your question. 
Obviously, policymakers are interested in both of these 
objectives, both ensuring new and innovative medicines, and the 
vaccines that are becoming more and more available every day 
are the clearest example of that. This science was developed 
over years through public and private investments together. We 
want to make sure to nurture and promote and facilitate this 
type of research and these investments over time.
    Quite frankly, the credit goes not only to those 
manufacturers who have successfully brought products to market 
so far, but to all of the researchers who are working on 
vaccines, including those, quite frankly, whose efforts have 
failed. That's the innovative process that we want to foster.
    How to balance that against our desire to keep prices low 
is a challenge, and in my view the answers to those challenges 
are best met by finding ways to create more competition rather 
than more price controls in the market, and that means more 
generics, not just a generic but multiple generics to compete, 
making sure that those generics are allowed onto market in a 
timely fashion.
    The other type of competition that can be important is 
what's referred to as brand-to-brand competition. This often 
doesn't have the kind of effects we would like to see on list 
prices but does and can have that kind of positive effect that 
we're hoping for on net prices, which is an important price in 
the system as well.
    Senator Marshall. Thank you so much, and I yield back.
    The Chairman. Thank you, Senator Marshall.
    Senator Kaine.
    Senator Kaine. Thank you, Mr. Chairman. Thank you for 
holding this hearing, a very important one. And I just want to 
begin by thanking Ms. Spates. I hope I pronounced her name 
correctly.
    I was not here for your verbal testimony because I was in 
two other hearings, but I read your written testimony and it's 
extremely powerful. Your conclusion, that we pay more than 
other nations because of greed, I think is partially accurate, 
but I think the other reason we pay more is because of us, 
Congress.
    If we have a set of rules, people will operate under the 
rules as they exist, and then they'll maximize the money they 
can make. I think we might wish it were otherwise, but we can't 
pretend it is otherwise. So that puts the burden on our 
shoulders, Ms. Spates, to come up with the rules that will lead 
a person like you to not look five miles across the border and 
see people with similar health conditions to you who are not 
taxed to the very edge of their resources to deal with 
diabetes, as you are, living near the Canadian border. So thank 
you for basically encouraging us to do things to get this 
right.
    I'm happy to have been working with Senator Collins on 
legislation dealing with biosimilars and trying to get 
biosimilars to the market quicker, because I think there are 
cost savings in there if we can do that right.
    But let me do a couple of things. And forgive me, Mr. 
Chairman, if I may have missed questions like this when I was 
at the other hearings, but I want to ask Dr. Kesselheim, if I 
could, about international reference pricing.
    I raised with the previous administration the notion that 
we pay so much more than other nations do, and many nations, in 
negotiating for pricing prescription drugs, use international 
benchmarks as a basis of negotiation. I actually thought that 
was one of the things that the Trump administration attempted 
to do that I thought was a really good idea. We don't have to 
pay the same price that a Third World nation does. I understand 
the notion of discounting pricing to nations with a lot of poor 
people so that they can have access to medicines. But when we 
pay dramatically more than other developed nations, I think the 
international reference pricing idea is a good one.
    Dr. Kesselheim, could that be helpful as part of a broader 
pharmaceutical price reduction strategy?
    Dr. Kesselheim. Certainly, Senator Kaine. I think that when 
you engage in international reference pricing, what you're 
doing is you're looking at other countries and asking what are 
the prices that they're paying for the exact same drug that 
you're paying for. In many cases what those countries are doing 
is they are assessing the clinical benefits of the drug and 
determining what a fair price should be.
    Really, when you're doing international reference pricing, 
you're doing the exact same thing that I recommended we do up 
front, which is evaluate and negotiate, except we would just 
not be doing it; we would be relying on other countries doing 
it and then piggybacking on the conclusions that they made.
    I think that international reference pricing might be a 
good fallback. It may be a good way of setting parameters. But 
I really think that the U.S. could and should be able to make 
those same kinds of assessments and negotiations ourselves.
    Senator Kaine. Dr. Kesselheim, it interests me as I see 
pharmaceutical companies oppose this, because to me the notion 
of international reference pricing is kind of like capitalism; 
why wouldn't we want to negotiate? I mean, why wouldn't we want 
to look at the prices that others are paying and try to 
negotiate? I was a lawyer for years, and you'd negotiate a 
provision in a contract, that if you offer a lower price to 
somebody else, I get it too. I mean, that just seems to be 
Basic Bargaining 101. Why wouldn't the U.S. engage in basic 
negotiating tactics in a way that other countries do?
    Dr. Kesselheim. I think you're absolutely right, that they 
should do that, and the U.S. should, given the fact that it's 
such a large market, should be able to leverage the size of its 
market to be able to get lower prices.
    I think that, actually, that raises an interesting point in 
another concern that I have about international reference 
pricing, which is that pharmaceutical companies often give 
other countries secret discounts on top of their list prices. 
So the list price that we see in another country might not 
actually be the real price that country pays. So we would be 
international reference pricing off of maybe not exactly the 
actual price for the product, which again suggests that while 
international reference pricing is a good model, what we really 
should be doing is doing those same kinds of evaluation and 
negotiation here in the U.S.
    Senator Kaine. Then while we're on the negotiation topic, 
I'm sure this has already been raised, but I've just always 
been struck by the fact that the U.S. does not negotiate for 
prescription drug pricing under Medicare Part D, but we do 
allow the VA to negotiate prices of prescription drugs. How 
much might we save in Medicare Part D if the Medicare program 
was able to use the same negotiation strategy that the VA uses?
    Dr. Kesselheim. Great question. We've done a number of 
studies, actually, led by Will Feldman in our group, to look at 
how--what that difference might be, and he found, in looking at 
insulin prices, for example, that Medicare could save billions 
of dollars each year if Medicare was able to negotiate and use 
its leverage in the same way that the VA is able to do that.
    Senator Kaine. That would be billions of dollars in the 
Federal Treasury for deficit relief or whatever else we want to 
do. But it would also be substantial consumer savings, wouldn't 
it?
    Dr. Kesselheim. That's just one drug for one year.
    Senator Kaine. Yes.
    Dr. Kesselheim. If you imagine how much that would be for 
all of the drugs that have been on the market for multiple 
years and have reached really high prices, then, yes, that 
would also translate to improved consumer savings and lower 
prices, lower health care premiums, which might translate to 
higher wages, and I think it would affect the entire economy.
    Senator Kaine. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Kaine.
    Senator Cassidy.
    Senator Cassidy. Hello, folks.
    Mr. Brill, the Orphan Drug Act was supposed to incent and 
has incented the development of drugs for conditions which are 
below prevalence, but we know that some drugs start off for 
those with a low prevalence end up for other conditions with 
the same high price and exclusivity for the orphan drug and 
then translates over to the more common condition. What 
thoughts do you have about how we can address that? We want the 
orphan drug benefit, but we also don't want this kind of 
arbitrage where it then introduces a higher price than it 
should be for something else.
    Mr. Brill. Thank you, Senator Cassidy. As you may know, I 
think seven out of the top ten drugs being sold in the United 
States today were granted orphan drug exclusivities. And as you 
mentioned, the underlying principle here is desirable. There 
are rare diseases for which there may be underinvestment in R&D 
for products to treat those conditions, and some existing 
medicines may help in those smaller patient populations.
    However, the current structure creates this very strong 
incentive to pursue orphan drug designation, thereby extending 
the monopoly power across the sales of all drugs. Policymakers 
need to think about this in careful balance and what is the 
appropriate amount of incentive to provide manufacturers and 
researchers to make sure that they know if their products are 
effective in small populations without extending the monopolies 
over a large----
    Senator Cassidy. I know that. I need some legislation. So 
what's my legislation going to read? How do we thread that 
needle?
    Mr. Brill. Well, I would say that we want to think about 
the standards for which those exclusivities are granted and 
that it shouldn't be just for investigations but for meaningful 
progress and meaningful treatment. We could think about 
engaging with the FDA in helping to make those determinations 
so they're not excessively awarded.
    Senator Cassidy. Dr. Kesselheim, you had mentioned the 
Federal Government negotiating with manufacturers, but this 
would be basically in some cases the U.S. Government would be a 
purchaser of 99 percent of the drug produced. Think of a 
prospective Alzheimer's drug, so-called monopsony power, a 
single purchaser, and certain oncolytics would be basically the 
Federal Government buying and no one else. It seems to me that 
could have a chilling effect upon a company's willingness to 
invest in a drug if they thought the Federal Government was 
going to be able to unilaterally set the price.
    If a President Bernie Sanders decided that we're going to 
go to negotiating drugs, who would invest in developing an 
Alzheimer's drug knowing that the return on investment from 
Medicare would be so poor? Your thoughts on that?
    Dr. Kesselheim. Sure. Thank you, Senator. I would say, 
first of all, there are certainly a lot of scientists out there 
trying to find treatments and effective cures for Alzheimer's 
disease, a disease that we do not have any effective treatments 
for, and I think that their work will continue.
    But I would also say that if we do have a publicly funded, 
independent board that evaluates new products----
    Senator Cassidy. That's not my question. My question is the 
venture capital and the people that fund that translational 
research from the bench to the dedicated scientists to the 
clinical trial, which so far has been very fruitless and very 
expensive, but they're expecting a return on investment, what 
return would they expect again if Bernie Sanders were president 
and you were his chief negotiator? Yes, you could have somebody 
do an independent evaluation, but oftentimes government puts 
its finger on the scale. So how do we avoid that trap of 
squelching innovation when the Federal Government would be 
expected to give a very poor return on investment?
    Dr. Kesselheim. Well, I don't necessarily think the Federal 
Government would be expected to give a poor return on 
investment, because if there is a new drug, especially for a 
condition like Alzheimer's that doesn't have any good 
treatments, if a new drug was out there and it offered an 
extremely substantial benefit to patients with Alzheimer's 
disease, I would think that under this current system we would 
pay a lot of money for that drug because it would help reduce 
so much excess spending on care----
    Senator Cassidy. I'll dispute a little bit because there's 
a New York Times article basically saying we should march in on 
drug companies' technology to make the COVID-19 vaccine, which 
is to say they've invested so much to put out a vaccine so 
quickly, but now we're going to force you to share your 
technology with others. I think there's always going to be this 
populist impulse to give something away for free. Are you 
saying that would not operate, not be operative if there was a 
drug for Alzheimer's?
    Dr. Kesselheim. Well, I think that's true, it does not have 
to operate. In fact, we see in places like Germany, they are 
able to negotiate and get prices out on the market and offer 
prices for which pharmaceutical manufacturers make a 
substantial profit in that market and be able to come to valid 
negotiations without having to go to that extreme circumstance 
of having to march in or do whatever else.
    I think that there is a lot of opportunity to identify what 
an evidence-based, valid price for a product should be, and 
that price would provide substantial incentives for investment, 
because in cases of diseases like Alzheimer's disease where 
there is substantial unmet medical need, that price could be 
quite high. But the system will end up affording the high price 
for that important new drug because we're not paying for all of 
the eighth and ninth products for rheumatoid arthritis that 
don't offer any advantages over what products we already have. 
So we'll save money on that end, and as a result we'll be able 
to pay a lot more money for really meaningful, new innovation 
like the kind that you're describing.
    Senator Cassidy. I'll yield. I'm out of time. I'll just 
finish by saying I think you underestimate a politician's 
tendency to give things away for free, particularly when they 
belong to other people. And second, the German model has been 
criticized for having such a restrictive clinical benefit 
aspect that it's just not fair. With that said, we pay too much 
for drugs. I'm certainly in agreement with that.
    With that, Mr. Chairman, I yield.
    The Chairman. Senator Hassan.
    Senator Hassan. Well, thank you, Mr. Chairman and our 
Ranking Member. I want to thank the witnesses for being here 
today, as well. And to Ms. Spates in particular, thank you for 
true and clear and therefore compelling testimony, and for 
being willing to talk about your own personal situation. It 
makes a real difference.
    Mr. Chairman, I appreciate your work on this issue over the 
years, including on importation and allowing the Federal 
Government to negotiate Medicare drug prices. I believe there 
is bipartisan support in the Senate for legislation that 
meaningfully lowers the cost of prescription drugs, and we need 
to take action this year.
    I want to ask questions to you, Dr. Kesselheim, following 
up on Senator Baldwin's line of questioning.
    Drug companies often try to justify high prices by saying 
that they use this revenue to fund innovation for future 
breakthrough medications, and we all support innovations that 
effectively treat and cure diseases, but we also know that 
American taxpayers subsidize a significant portion of the 
research that leads to these innovations.
    Dr. Kesselheim, let's just make clear who makes the 
majority of investments in the research that leads to 
breakthrough therapies and treatments for unmet health needs. 
Is it the drug companies or the American taxpayer?
    Dr. Kesselheim. Well, I mean, I think there is usually a 
combination of factors that go into these kinds of discoveries. 
Our studies and other studies have shown that a substantial 
amount of basic and translational science, the vast majority of 
basic and translational science is funded by publicly funded 
systems, and then privately funded entities come in later in 
the development process to lead clinical trials and the 
regulatory approval process. So it is a little bit of a 
combination of both forces.
    Senator Hassan. I'm going to just stop you because I want 
to get to other questions, too.
    Dr. Kesselheim. Sure.
    Senator Hassan. But it is a substantial amount of this 
innovation funding that comes from the American taxpayer.
    Dr. Kesselheim. Yes. And the origins, as you mentioned, of 
transformative drugs often comes from publicly funded sources, 
even from concept through the clinical testing of them.
    Senator Hassan. Okay. So now let's move on to the broader 
topic here. Drug companies receive taxpayer support at just 
about every step of their business model, from the time a drug 
is developed to the time a pharmacy dispenses it to a patient. 
We are the only country that subsidizes these companies the way 
we do, yet according to a recent Rand study we are paying up to 
250 percent more for prescription drugs than countries with 
similar GDP.
    Dr. Kesselheim, I want to ask you about some of the tax 
breaks and subsidies the drug companies receive from American 
taxpayers, and I have several examples to get through in a 
limited amount of time, so if you can keep your answers brief, 
that would be helpful.
    Drug companies receive billions of dollars in tax credits 
which subsidize the cost of ads that they run on television, 
online, and in print. Have these tax credits led to lower drug 
prices or more innovation for patients?
    Dr. Kesselheim. No.
    Senator Hassan. Okay. Now, drug companies also establish 
charities that promote the drugs that they sell and receive tax 
deductions when they donate to those charities. A City Research 
report found that every $1 million a drug company donates to 
these charities can return up to $21 million in increased 
revenue.
    Briefly, if you can, Dr. Kesselheim, why are drug companies 
choosing to put billions of dollars into these charities 
instead of simply lowering the price of their drugs?
    Dr. Kesselheim. These charities can help people who have 
high out-of-pocket costs and have no other choices but to take 
that drug. But as a result of helping individual patients with 
their high out-of-pocket costs, drug companies are making a lot 
of money on the payments that insurance companies make that are 
behind the scenes and are able to sustain the high prices so 
that they can charge high prices for other payers.
    Senator Hassan. Right. So they could just lower their 
prices overall, and that would make a difference for the 
patients.
    We do have some transparency, though, through the Medicare 
Open Payments Data base into payments drug companies make to 
prescribers. In 2019, companies gave away $2.3 billion in cash 
payments, free meals, and speaking fees, an average of over 
$3,700 to each prescriber who received a payment, and research 
shows that these payments influenced prescribing.
    Dr. Kesselheim, why are companies choosing to spend 
billions of dollars each year on payments to prescribers 
instead of putting the money toward lowering the price of their 
drugs?
    Dr. Kesselheim. Well, those prices actually increase drug 
prices because they go to encourage physicians to prescribe the 
high-priced products over lower-priced generic drugs because 
generic manufacturers don't advertise their products.
    Senator Hassan. Well, thank you, Dr. Kesselheim.
    These are just a few examples of the uniquely American 
tools that the drug industry has at its disposal. So it should 
be no surprise that the cost of prescription drugs in America 
are uniquely high.
    Thank you again, Mr. Chairman. I look forward to continuing 
this important work with you and our colleagues.
    The Chairman. Thank you, Senator Hassan.
    Senator Rosen.
    Senator Rosen. Thank you, Chairman Sanders, Ranking Member 
Collins, for holding this very important hearing today, and to 
the witnesses for sharing your perspectives on drug pricing. We 
have to do some work in this area, for sure.
    But I'd like to continue the talk about innovation and 
competition and transparency that all of my colleagues have 
been discussing in some form or fashion, because Nevada is home 
to a number of smaller pharmaceutical firms who are developing 
new drugs and medical devices to improve lives, not only in our 
state but across the country. In Southern Nevada one company is 
working on an oral drug to treat lung cancer. In Northern 
Nevada another company is working on a drug to prevent 
Parkinson's and other neurologic diseases. And we know, again, 
research and development, clinical trials, they can take ten 
years or more, and startup costs do remain a significant 
barrier, but the new drugs on the market will ultimately 
increase competition and help reduce costs.
    Dr. Kesselheim, what more can Congress do, or should do, to 
support our smaller, local startup pharmaceutical firms? 
They're taking on significant risk to develop these new, 
innovative drugs and devices that may eventually really help 
increase access and lower costs, not to mention saving lives or 
improving lives.
    Dr. Kesselheim. Well, thank you for the question. I think 
that there are a number of things that government could do. I 
mean, I think that the example that we've seen in the last year 
relating to COVID innovation has shown the power that public-
private partnerships can have when there is funding 
particularly for innovative, really new ideas to try to treat 
lung cancer, in this case, through some novel mechanism.
    I think that a lot of small companies will suggest that 
they, unfortunately, can't get the support that they need to 
try to get these drugs through proof of concept, in part 
because the incentives are not necessarily there to support 
really important new products.
    I think that one of the things that we could do is we could 
provide more up-front support for that. But in those cases I 
think we also need to make sure that when those products then 
do become available, that they're being made available at a 
fair price for consumers.
    Senator Rosen. Thank you. I want to say that I'm really 
interested in the lung cancer drug. My mother passed away from 
lung cancer, and I would not wish that on anyone else. So I 
hope we do see some movement forward on that.
    But I'm also interested in our non-profit pharmaceutical 
company model. So can you talk about your understanding of this 
relatively newer model and some of the challenges of bringing a 
drug or a device to market as a non-profit? And how can the 
success we've seen so far in Congress from this, what can we do 
to support it and help that to grow in the non-profit sector?
    Dr. Kesselheim. The most prominent non-profit drug 
development model is the Drugs for Neglected Diseases 
Initiative in Europe. What they've been able to accomplish 
getting new, effective treatments for neglected tropical 
diseases in countries around the world for relatively meager 
support just shows how effective pharmaceutical development can 
operate on a limited budget. These numbers that we're hearing 
about the cost of drug development are over-inflated in a 
number of different ways.
    I think that based on the success of models like that, 
there have been some efforts in the United States to try to 
develop non-profit drug manufacturers. Mostly those kinds of 
organizations operate to address drug shortages or other older, 
off-patent products for which manufacturers have stopped 
manufacturing it, and we're starting to see some success. But I 
think that is an effective model, potentially an effective 
model for an important new drug that can't get the private 
funding that it needs in order to bring that product to market, 
as well.
    Senator Rosen. Thank you.
    I'd like to move on in the quick time I have left. The 340B 
drug discount program is critical to Nevada. We have a diverse 
population, hundreds of thousands of people living in rural 
communities spread out across our state. Can you talk about the 
importance of the 340B drug discount program, how it's helped 
increase access and affordability, please?
    Dr. Kesselheim. Sure. So, the 340B program is a very 
complicated system that we have to try to provide certain drugs 
at a relatively low cost to safety-net hospitals, and it has 
provided a lot of useful drugs to low-income patients. It has 
expanded over the years, perhaps beyond what was originally 
intended by it, and as a result there have been some 
discussions about to what extent certain hospitals should 
qualify as 340B hospitals or not. But there's no doubt that 
340B pricing is among the best prices that we offer for certain 
high-cost drugs.
    Senator Rosen. Thank you. I really appreciate you being 
here today.
    I yield back.
    The Chairman. Thank you, Senator Rosen.
    Senator Braun.
    Senator Braun. Thank you, Chairman Sanders.
    I'm so glad we're having the discussion on health care 
costs in general, specifically on the high cost of drugs. 
Everybody in our country sooner or later comes across a 
prescription that they wrestle with, have no idea how to attain 
the price in the first place in terms of a fair price. The lack 
of transparency that is systemic throughout our health care 
system is, in my opinion, the main reason why we're here today.
    In building a business over the years, if I had the ability 
to tell my customers what they were buying after the fact, it 
would be a lot different dynamic than what it would be with a 
free market where you've got an engaged consumer.
    That's the other thing we don't talk about. Health care 
consumers have grown--don't blame it on them, it's evolved that 
way--to where they want no skin in the game. It's unaffordable 
in so many cases once you do confront the health care system. 
It's a mess across the board.
    My question is going to be here in a moment for Dr. 
Kesselheim, but I've wrestled with it before I got to the 
Senate. There is no other sector of our economy that has less 
transparency, less competition, more barriers to entry, and a 
disengaged consumer.
    One alternative is to bring government into play. And to be 
honest, I think many CEOs that don't run health care companies 
are going to be for that because the industry is dug in, 
resisting reform that I think needs to take place before you 
bring more government into play.
    But it's clear we've got a broken health care system that 
costs way too much, and we need to figure out how to fix it. If 
the industry is not going to take on some of the reforms, 
you'll get what you deserve, and that's probably the heavy hand 
of government because you're like an unregulated utility when 
it comes to the way you operate.
    Dr. Kesselheim, I'm hoping that I've got the right 
information here, but when it comes to transparency I think 
you've been quoted, ``You might get more than what you've asked 
for,'' that transparency would actually maybe be a negative. I 
think that is so bizarre in the sense that any other aspect of 
our economy where you have everything I talked about--engaged 
consumers, robust competition, full transparency, no barriers 
to entry--things work. Lasik surgery and things even within the 
medical field prove that.
    Why would you have that point of view that it could stymie 
price competition if you put more transparency into the mix? 
That seems to me to be counter-intuitive. I'd love to hear your 
response to that.
    Dr. Kesselheim. Sure, Senator. If all you do is include 
transparency but don't do anything else, then you actually risk 
raising prices because right now those secret back-room deals 
that PBMs arrange is really the only system that we have in our 
country for lowering prices. And if you take that away and you 
make everything fully transparent without doing anything else, 
then you take away one of the greatest tools, the only 
effective negotiators we currently have in the system, which 
are PBMs and insurance companies, for trying to lower prices.
    I would be very much in favor of transparency if you marry 
it with evaluation and negotiation, because then you don't 
really need PBMs. You can just have what a fair price is, and 
you can offer that to private companies, and the value of the 
PBM and the value of the secrecy that they operate in plummets.
    I would say that we could have transparency if we married 
it with some of the proposals that I suggested. But just 
transparency alone, I think that you are taking away the only 
strategy that we currently have in the market for lowering 
prices.
    Senator Braun. I'm glad to hear you say that because I 
agree with you. I think that when you have transparency only, 
you don't have the other tools that go along with it, and that 
would be that employers across the country, as well as 
government, the two stakeholders in paying the bills, need to 
be able to negotiate with more bargaining power. And I think if 
we'd get that right--it happens everywhere else where 
government is able to negotiate. They hide behind the disguise 
that they're a free market. They are not a free market until 
they do the things I said earlier.
    I think what you're talking about, including employers 
getting in the mix, that's how we bring drug prices down, and 
then maybe prices cascading down across the system of Pharma, 
hospitals, insurance, and even practitioners. Thank you.
    The Chairman. Thank you, Senator Braun.
    Senator Murphy.
    Senator Murphy. Thank you very much, Mr. Chairman.
    Thanks, everyone, for this hearing.
    This is a question to either Dr. Persaud or Dr. Kesselheim. 
A 2019 study in the Journal of American Medicine Association 
looked at 15 years of medical marketing in the U.S. and found 
that there was a 70 percent increase in health care marketing 
from 1997 to 2016, including a massive increase in direct-to-
consumer advertising and promotion to physicians.
    Clearly, this enormous surge in marketing and advertising 
provides a benefit to the companies. They wouldn't do it unless 
it led to the sale of more product. And clearly it has to be 
part of the story with respect to the increase in price if 
there's been this incredible surge in marketing and advertising 
spending.
    But my question is, is it a benefit to the health care 
system as physicians, as folks through your conversations with 
colleagues? Does direct-to-consumer advertising provide the 
kind of benefit to patients that the companies would have us 
believe, or is it just a benefit to their bottom line and a 
contributor to the increase in cost?
    Dr. Persaud. Thank you, Senator. The answer is no, it does 
not benefit the public, it doesn't benefit patients. There have 
been studies of whether or not marketing is associated with 
better prescribing of medicines or more appropriate use of 
medicines, and there are no studies that indicate that this 
marketing improves the care that patients receive.
    It is something that patients are paying for, and we are 
all paying for, and in the end it is driving in some cases 
prescribing toward more expensive medicines. So we pay for it 
multiple times, and there isn't a demonstrated benefit of a 
pharmaceutical company providing information either directly to 
consumers or to prescribers.
    Senator Murphy. Dr. Kesselheim.
    Dr. Kesselheim. I agree with Dr. Persaud. I think that one 
of the things that direct-to-consumer advertising does, and I 
can tell you this as a primary care doctor, is it brings people 
to the office asking about medicines that they saw on TV, and 
usually the medicines that are being advertised are the most 
expensive, and they may not offer improvements over other 
therapies that aren't being advertised.
    While direct-to-consumer advertising can alert people to 
the existence of drugs, it does drive prescribing practices in 
ways that aren't evidence driven.
    Senator Murphy. Just to give a sense of how much of the 
cost of the drugs may be determinative of the advertising spend 
for these companies, there's another study suggesting that for 
the big pharmaceutical companies as much as 19 cents of every 
dollar, nearly one-fifth of all of their spending, goes into 
advertising and marketing.
    In my remaining time, Dr. Kesselheim, I was intrigued by 
the time that you spent in your written testimony on the 
question of comparative effectiveness. And I wondered if you 
might give us some suggestions as to how the United States can 
do a better job of making sure that we are getting a true bang 
for our buck. Other countries spend a lot more time making sure 
that they are only paying for drugs that are substantially 
better than other products that are on the market.
    This issue is fraught with peril because for many folks, a 
5 percent increase in effectiveness or the promise of a 
potential 20 percent increase in effectiveness, they're going 
to want that. They're not going to want the government deciding 
whether or not they get access to these drugs. But it's an 
enormous amount of money that we all pay for when some drugs 
are only getting tiny, incremental increases in quality or 
effectiveness. What's your recommendation for how we proceed on 
this topic?
    Dr. Kesselheim. Well, Senator, I think this is an extremely 
important issue, and unfortunately, in the U.S. system, we do 
not invest nearly enough in doing the type of comparative 
effectiveness studies that we need in order to determine which 
drugs are better for which patients, and really this is the 
best way to empower patients to make decisions about their 
care, is to say, look, we've done the studies and we know that 
this drug works X amount better, here are the side effects you 
have to weigh, and between you and your physician you can make 
a decision about the best way forward.
    Unfortunately, we don't have enough of that, and what I 
would suggest that we do is invest more money up front in the 
same way that we invest money in basic science in generating 
this information, because it will actually save money on the 
back end because pharmaceutical companies leverage the lack of 
information in their promotional practices to encourage high-
cost drugs when lower-cost products may be just as effective. 
And then what we do is we just pay many times more on the back 
end.
    If we had more comparative effectiveness research and 
evidence up front, then we would be able to help guide 
prescribing practices and the best way forward for patients.
    Senator Murphy. It doesn't necessarily have to lead to 
drugs being on or off a formulary, just that information 
available to prescribers may end up in better care practices.
    I appreciate the answers from both of you. Thank you.
    The Chairman. Thank you, Senator Murphy.
    I believe that ends our hearing. We have heard from many, 
many Senators, and I want to thank Dr. Kesselheim, Dr. Persaud, 
Elia Spates, and Alex Brill for their participation, as well.
    I think what you have heard from virtually all Senators, 
regardless of their party or political persuasion, is they 
continue to hear from their constituents who are sick and tired 
of paying the highest prices in the world for prescription 
drugs, prices that in many cases they cannot afford. And what 
you have heard is that when people cannot afford the medicine 
they need, they will get sicker. Sometimes they will die. 
Sometimes they will end up in the hospital, at great cost to 
the health care system.
    You have also heard, I think, today that we have been 
talking about the issue of the high cost of prescription drugs, 
not only for years but for decades, and that there is all kinds 
of legislation that has been offered. And yet, at the end of 
the day, the pharmaceutical industry continues to march along 
earning huge profits every year, paying their CEOs exorbitant 
compensation packages, and they continue to provide hundreds 
and hundreds of lobbyists and make all kinds of campaign 
contributions.
    I think the conclusion that I have reached from this 
hearing is that the time is long overdue for the U.S. Congress 
to summon up the courage to take on perhaps the most powerful 
special interest in the United States, and that is the power of 
the pharmaceutical industry.
    Our people are hurting, they want us to act, and now is the 
time to do that.
    With that, let me conclude this hearing and thank again 
everybody for participating.
    The hearing is ended, and people will have time to submit 
questions for the record, and testimony as well.
    Thank you.

                          ADDITIONAL MATERIAL

           statement for the record from senator richard burr
     on why does the u.s. pay the highest prices in the world for 
                          prescription drugs?
    The hearing today is focused on the cost of medications in the 
United States, comparing the price of these drugs to the prices 
available in other countries around the world. The drug pricing debate 
has been underway in the Senate for many years, with numerous 
bipartisan proposals put forward during the 116th Congress. But, I 
would like to remind my colleagues that the COVID-19 pandemic 
fundamentally altered these debates, showing us in Congress, Americans, 
and those around the globe the undertaking associated with biomedical 
research, and the importance of fostering an environment that rewards 
and stimulates innovation so we can bring treatments, therapies, and 
vaccines to market in as timely a manner as possible.

    I agree with my colleagues that the cost of medications is an issue 
that deeply affects Americans, and our payment models in public and 
private health care programs must keep pace with the new products that 
come to market. The new ways in which we are able to address 
devastating diagnoses that, at one time, had no options for care are 
only as good as the ability for Americans to access them. Prior to the 
pandemic, Senator Crapo and I introduced legislation to improve this 
access, while maintaining the incentive to innovate, and encourage and 
foster American innovation.

    The novel coronavirus pushed the American biomedical research 
enterprise to the brink of what few thought would be possible--three 
authorized vaccines in ten months. Not only were these vaccines brought 
through large-scale phase 3 trials, but they were made available to the 
American people immediately upon their authorization by the Food and 
Drug Administration (FDA). This availability was made possible through 
the foundational laws that streamlined the process for making these 
life-saving drugs available to the American people.

    Many of these foundational laws were the result of the work in the 
HELP Committee. The 21st Century Cures Act recognized the critical 
importance of ensuring that the United States remained the global 
leader in biomedical research, and made the investments and policy 
changes necessary to maintain this leadership role. This hearing comes 
at a moment when every American stands to benefit from the efforts of 
the biomedical research community. We have three authorized vaccines to 
combat COVID-19, multiple medicines to reduce hospitalizations and 
deaths, and hundreds of tests to detect the virus.

    As we examine our policies and programs that affect the costs of 
medications in the United States, we must balance the changes that we 
propose against the affects that they will have on the ability for our 
developers to innovate. America's ability to respond to the everyday 
health care challenges we face, as well as the next public health 
threat in the future will impacted by this balance. If we do not get it 
right, we will not have the countermeasures, medicines, and 
technologies we have today to save as many lives as possible, and that 
cost, would be too high.
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    [Whereupon, at 11:58 a.m., the hearing was adjourned.]

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