[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
__________
Printed for the use of the Committee on Health, Education, Labor, and
Pensions
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov
______
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
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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?
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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.
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\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
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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\
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\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\
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\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\
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\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\
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\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\
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\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\
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\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\
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\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.
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\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
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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).
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\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\
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\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\
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\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\
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\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.
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\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\
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\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\
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\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\
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\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.
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\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\
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\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.
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\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.
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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.
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\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.
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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.
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Pocket Health Care Costs: A Problem Mainly for Middle-Income Americans
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``Updated Trends in U.S. Brand-Name and Generic Drug Competition.''
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I-MAK. 2020. ``Overpatented, Overpriced Special Edition: Humira.''
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mak.humira.report.3.final-REVISED-2020-10-06.pdf.
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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.
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Prices Have Become More Affordable to Most Patients, says U.S. Medicine
Spending Study from the IQVIA Institute for Human Data Science.'' Press
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become-more-affordable-to-most-patients-says-us-medicine-spending-
study-from-the-iq.
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``Biosimilars in the United States 2020-2024.'' https://www.iqvia.com/
insights/the-iqvia-institute/reports/biosimilars-in-the-united-states-
2020-2024.
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Publishing, https://doi.org/10.1787/4dd50c09-en.
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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.]