    [Senate Hearing 117-809]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 117-809

                       PRESCRIPTION DRUG PRICE INFLATION:
                            AN URGENT NEED TO LOWER
                            DRUG PRICES IN MEDICARE

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

                                    HEARING

                                   before the

                              COMMITTEE ON FINANCE
                              UNITED STATES SENATE

                        ONE HUNDRED SEVENTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 MARCH 16, 2022

                                   __________

                     [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                Printed for the use of the Committee on Finance

                                   ______

                     U.S. GOVERNMENT PUBLISHING OFFICE

    54-519 PDF                WASHINGTON : 2024

                              COMMITTEE ON FINANCE

                          RON WYDEN, Oregon, Chairman

    DEBBIE STABENOW, Michigan            MIKE CRAPO, Idaho
    MARIA CANTWELL, Washington           CHUCK GRASSLEY, Iowa
    ROBERT MENENDEZ, New Jersey          JOHN CORNYN, Texas
    THOMAS R. CARPER, Delaware           JOHN THUNE, South Dakota
    BENJAMIN L. CARDIN, Maryland         RICHARD BURR, North Carolina
    SHERROD BROWN, Ohio                  ROB PORTMAN, Ohio
    MICHAEL F. BENNET, Colorado          PATRICK J. TOOMEY, Pennsylvania
    ROBERT P. CASEY, Jr., Pennsylvania   TIM SCOTT, South Carolina
    MARK R. WARNER, Virginia             BILL CASSIDY, Louisiana
    SHELDON WHITEHOUSE, Rhode Island     JAMES LANKFORD, Oklahoma
    MAGGIE HASSAN, New Hampshire         STEVE DAINES, Montana
    CATHERINE CORTEZ MASTO, Nevada       TODD YOUNG, Indiana
    ELIZABETH WARREN, Massachusetts      BEN SASSE, Nebraska
                                         JOHN BARRASSO, Wyoming

                        Joshua Sheinkman, Staff Director

                    Gregg Richard, Republican Staff Director

                                      (II)

                                C O N T E N T S

                                  ----------

                               OPENING STATEMENTS

                                                                       Page
    Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee
      on Finance.....................................................     1
    Crapo, Hon. Mike, a U.S. Senator from Idaho......................     3

                                   WITNESSES

    Conti, Rena, Ph.D., associate professor, Department of Markets,
      Public Policy, and Law, Questrom School of Business, Boston
      University, Boston, MA.........................................     6
    Holtz-Eakin, Douglas, Ph.D., president, American Action Forum,
      Washington, DC.................................................     7
    Ezell, Stephen J., vice president, global innovation policy,
      Information Technology and Innovation Foundation, Washington,
      DC.............................................................     9
    Stern, Steffany, MPP, vice president of advocacy, National
      Multiple Sclerosis Society, Minneapolis, MN....................    11

                   ALPHABETICAL LISTING AND APPENDIX MATERIAL

    Conti, Rena, Ph.D.:
        Testimony....................................................     6
        Prepared statement...........................................    49
    Crapo, Hon. Mike:
        Opening statement............................................     3
        Prepared statement...........................................    56
    Ezell, Stephen J.:
        Testimony....................................................     9
        Prepared statement...........................................    57
        Responses to questions from committee members................    81
    Holtz-Eakin, Douglas, Ph.D.:
        Testimony....................................................     7
        Prepared statement...........................................   111
        Responses to questions from committee members................   120
    Stern, Steffany, MPP:
        Testimony....................................................    11
        Prepared statement...........................................   139
        Responses to questions from committee members................   147
    Wyden, Hon. Ron:
        Opening statement............................................     1
        Prepared statement...........................................   148

                                 Communications

    AARP.............................................................   151
    Alliance for Retired Americans...................................   153
    American College of Clinical Pharmacy............................   155
    American College of Physicians...................................   157
    American Consumer Institute......................................   163
    American Diabetes Association....................................   165
    American Federation of Teachers, AFL-CIO.........................   167
    American Hospital Association....................................   168
    American Pharmacy Cooperative, Inc...............................   171
    Association for Accessible Medicines.............................   173
    Association of Community Cancer Centers..........................   183
    Center for Fiscal Equity.........................................   184
    Chronic Care Policy Alliance.....................................   189
    ERISA Industry Committee.........................................   189
    Fresenius Kabi USA, LLC..........................................   190
    Health Equity Collaborative......................................   192
    Healthcare Leadership Council....................................   193
    Jack Kemp Foundation.............................................   195
    National Association of Chain Drug Stores........................   197
    National Breast Cancer Coalition.................................   200
    National Community Pharmacists Association.......................   202
    National Council on Disability...................................   204
    National Taxpayers Union.........................................   205
    PharmacyChecker..................................................   207
    R Street Institute...............................................   211
    Texas Rare Alliance..............................................   213
    Taxpayers Protection Alliance....................................   219

                       PRESCRIPTION DRUG PRICE INFLATION:
                            AN URGENT NEED TO LOWER
                            DRUG PRICES IN MEDICARE

                                  ----------

                           WEDNESDAY, MARCH 16, 2022

                                           U.S. Senate,
                                          Committee on Finance,
                                                        Washington, DC.
        The hearing was convened, pursuant to notice, at 10 a.m.,
    via Webex, in Room SD-215, Dirksen Senate Office Building, Hon.
    Ron Wyden (chairman of the committee) presiding.
        Present: Senators Stabenow, Carper, Cardin, Brown, Bennet,
    Casey, Whitehouse, Hassan, Cortez Masto, Warren, Crapo,
    Grassley, Cornyn, Portman, Toomey, Cassidy, Lankford, Daines,
    and Young.
        Also present: Democratic staff: Raghav Aggrawal, Detailee;
    Shawn Bishop, Chief Health Advisor; Michael Evans, Chief Health
    Advisor; Anne Kaltenboeck, Senior Health Advisor; and Joshua
    Sheinkman, Staff Director. Republican staff: Kellie McConnell,
    Health Policy Director; Connor Sheehey, Health Policy Advisor;
    Gregg Richard, Staff Director; and Jeffrey Wrase, Deputy Staff
    Director and Chief Economist.

       OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR FROM
                 OREGON, CHAIRMAN, COMMITTEE ON FINANCE

        The Chairman. We meet this morning because there is nothing
    in our health-care system as broken as the way Americans pay
    for their lifesaving medicines like insulin. This failed system
    has forced millions of Americans daily to make gut-wrenching
    decisions between medicines or other necessities of life.
        The drug companies have Americans over a barrel, with
    Medicare barred from negotiating better prices. This program
    that represents tens of millions of seniors, and even more
    taxpayers, has to take on big pharma with both hands tied
    behind its back. The consequences are clear when you contrast
    the prices Americans pay with the prices in other countries.
        In preparation for this hearing, the Finance Committee, our
    investigators, looked at pricing data for several of the most
    commonly prescribed brand-name drugs in Medicare. We looked at
    the prices of top-selling drugs in the United States and
    comparable Western countries, and we compared the figures from
    2015 and 2020.
        The list includes medications for conditions such as
    arthritis, diabetes, and cancer. In every case, colleagues, the
    U.S. price in 2015 started higher than the international price.
    In every case from 2015 to 2020, the U.S. price went up, while
    the international price remained flat.
        In 2015, Americans had been paying two, three, even four
    times as much as international patients paid for these
    medications. By 2020, that gap has roughly doubled for many of
    the most expensive drugs
        Here is a specific example. I have a Humira pen. It
    contains one dose--one dose of a treatment for rheumatoid
    arthritis, Crohn's disease, and other autoimmune conditions--
    painful diseases that afflict millions of Americans. Patients
    typically inject one of these pens every 2 weeks. As of 2020,
    the price per pen in Quebec, Canada, was $563. List price in
    the United States was $2,778.
        Americans see this infuriating price gouging, and it is
    clear that big pharma is treating Medicare like they have
    cracked an ATM. Prescription drugs in Medicare may be the only
    case across the entire government where negotiating a better
    price is actually legally prohibited. It is long past time for
    that to change.
        Democrats have a plan that would finally allow Medicare to
    negotiate for lower prices for brand names and refocus on the
    costliest products, the ones that monopolize the market. In
    addition, our plan would cap co-pays for insulin at $35 a
    prescription. It would set a $2,000 out-of-pocket cap for
    seniors' medications in Medicare Part D and spread those costs
    over the year, instead of front-loading them all in January. It
    also would create tough new price-gouging penalties for drug
    companies that raise prices faster than inflation, and there
    are a lot of companies that did that early this year.
        A number of these ideas were developed in this committee
    with bipartisan support, and that remains. However, there is
    just no substitute, none, for the number one reform, which is
    allowing Medicare to negotiate like any other payer. Without
    negotiation, the job is just not done.
        For example, setting out-of-pocket caps without negotiation
    just passes the price on to somebody else, and that is usually
    taxpayers. That is not sustainable. It just puts more pressure
    on Medicare's finances in the long run.
        Unfortunately for American patients, Mitch McConnell has
    blocked any changes--even the proposals that had bipartisan
    support--and repeated big pharma's talking points against real
    reform.
        The drug companies say that allowing negotiation--and you
    will hear this today--is bad for the market; Western
    civilization is pretty much going to end; it will not be
    possible to have pharmaceutical innovation any longer. That
    claim does not hold up to scrutiny, and we will be looking at
    it today. First of all, it is true that pharmaceutical
    companies do develop breakthrough treatments. It is also true
    that most of the so-called new drugs released at higher and
    higher prices are actually older drugs, but they have just been
    repackaged in new ways. A relatively minor tweak to an old
    drug, say a different syringe or a change in dosage, just keeps
    the profits rolling in.
        And second, a large and growing percentage of American
    seniors ration their medications or skip them entirely because
    they are just too expensive. Almost half the cancer patients,
    many of them on Medicare, burn through all their savings within
    2 years.
        If the prescription drug market prices out millions of
    patients and bankrupts many others, how can anybody say that is
    healthy or functional for our country? I am here to tell you
    the scandal is what is legal. Today big pharma has a legal
    right to set whatever prices they wish and expect Medicare to
    pay them.
        Drug companies can game the system and maintain monopolies
    and protect their best cash cows. Without fail, the Republican
    leadership controlling the agenda for their party and Congress
    is out there protecting the status quo. That is a recipe to
    stifle innovation, not promote it.
        As we meet this morning, there are people all over the
    country who know that they are going to get mugged every time
    they show up at the pharmacy counter. High drug prices force
    people to have to make terrible choices. Far too often,
    choosing your health also means choosing hunger.
        I am going to close with this. The American people have
    waited too long for action. This has been the longest-running
    battle since the Trojan War. And the country has heard and told
    us what this is all about.
        So, it is time for action. Democrats have a plan. We need
    to act quickly.
        I want to thank our witnesses, and of course our friend
    Senator Crapo will be recognized now for his opening remarks.
        [The prepared statement of Chairman Wyden appears in the
    appendix.]

                 OPENING STATEMENT OF HON. MIKE CRAPO,
                       A U.S. SENATOR FROM IDAHO

        Senator Crapo. Thank you, Mr. Chairman, and thank you to
    all of our witnesses for being here today.
        Congress plays an important role in ensuring access to
    affordable prescription drugs for Americans from all walks of
    life. To that end, last year I reintroduced the Lower Costs,
    More Cures Act. This comprehensive legislation contains dozens
    of concrete proposals aimed at lowering out-of-pocket costs at
    the pharmacy counter, in addition to strengthening supply chain
    oversight, and combating foreign freeloading.
        With inflation at 40-year highs straining family finances
    for far too many Americans, the Lower Costs, More Cures Act
    would bring peace of mind to seniors across the Nation by
    placing a hard cap on out-of-pocket drug spending under
    Medicare Part D.
        Our bill would allow beneficiaries to access additional
    Part D plan choices, including low-deductible and reduced cost-
    sharing options, as well as plans that pass more discounts on
    directly to consumers at the pharmacy counter.
        For seniors with diabetes, we would build on the work of
    the Trump administration, which established a game-changing
    program that guarantees access to insulin at no more than $35 a
    month. Our legislation would permanently protect and extend
    this initiative, which already covers more than two in every
    five seniors enrolled in Part D.
        Nearly 2 decades ago, I joined bipartisan majorities in
    both chambers in voting to enact Medicare's prescription drug
    benefit. Since then, Part D has achieved incredible success,
    coming in at half of its projected cost, with stable premiums,
    high satisfaction rates, and more than 50 plan options for the
    average enrollee.
        The Lower Costs, More Cures Act would build on these
    successes, advancing scores of pro-patient solutions for
    Medicare and the broader prescription drug market. Our
    legislation would strengthen cost-comparison tools, remove
    disincentives for prescribing lower-cost medications, enlist a
    Chief Pharmaceutical Negotiator to drive better trade deals for
    Americans, and facilitate outcomes-based arrangements for
    cutting-edge therapies, to name just a few provisions.
        Importantly, all of these solutions could pass both
    chambers of Congress with overwhelming support. Virtually every
    provision in the Lower Costs, More Cures Act reflects a
    bipartisan proposal with broad buy-in across the political
    spectrum.
        This bill, if allowed to advance, could head to the
    President's desk within days, delivering meaningful relief to
    Americans. Unfortunately, all signs seem to indicate a partisan
    path forward on drug pricing based on the deeply problematic
    policies included in the House-passed Build Back Better Act.
        These proposals would impose bureaucratic government price
    controls with a host of bad consequences for consumers,
    patients, and small businesses. According to a recent study
    from the University of Chicago researchers, innovative R&D
    would decline by nearly one-fifth under these proposed price
    controls, leading to a staggering 135 fewer new drug approvals
    in the next 2 decades.
        Another report found that Medicare payments for physicians
    and other front-line health-care providers would also fall
    under the proposed government price-setting program with add-on
    payments slashed by an average of 40 percent for those
    targeted.
        These policies, which borrow from the failed experiments of
    the past, would do nothing to tame inflation. In fact, they
    would trigger a launch price increase for new medications. By
    enacting these drug price controls, we would hand a competitive
    edge to our global rivals, including the Chinese Communist
    Party.
        At home, we would see fewer new treatments and cures,
    higher prices for new drugs, more health-care provider strain
    and burnout, and an alarming expansion of the Federal
    bureaucracy, giving Washington, DC more control again over our
    health-care system.
        We have a responsibility to pursue solutions that reduce
    out-of-pocket drug spending, particularly for seniors. The
    Lower Costs, More Cures Act provides a practical blueprint for
    this type of initiative, leveraging targeted policies with
    bipartisan backing to address the needs of Americans at the
    pharmacy counter, the hospital, and the doctor's office.
        In the weeks ahead, we should move toward consensus-driven
    legislation with broad buy-in, rather than partisan price
    controls likely to double down on the most deficient aspects of
    our health-care system. We also need to identify policies that
    tackle the root causes and drivers of inflation, which rose to
    a staggering 7.9 percent year over year last month.
        This means reducing our crippling deficit, unleashing
    American energy, streamlining costly regulations that have
    strained small businesses, and protecting the tax reforms
    implemented under the Tax Cuts and Jobs Act of 2017, which led
    to record-high levels of business investment, historic lows in
    unemployment and poverty, and record-high incomes during the
    past administration.
        With that, I thank our witnesses again for joining us to
    testify today, and thank you, Mr. Chairman.
        [The prepared statement of Senator Crapo appears in the
    appendix.]
        The Chairman. I thank my colleague. I am just going to make
    one quick point and go to the witnesses.
        Our colleague talked about Part D of Medicare being the
    answer. I was one of the Democrats who crossed the aisle and
    voted for Part D. I took a lot of flak for it too. The problem
    was, and why we are here, it tied the government's hands behind
    its back to be able to negotiate better prices. We're glad to
    get the coverage. Today is about getting price relief to those
    seniors from sea to shining sea who are getting clobbered with
    these prices that go through, whether it is Humira, insulin, or
    a variety of others.
        Let's go to our witnesses. Let me introduce them briefly.
    Professor Rena Conti, Ph.D., is associate professor of markets,
    public policy, and law in the School of Business at Boston
    University. She has done extensive research in the economics of
    the prescription drug market. She is a co-director of the
    Technology Policy and Research Institute, and between 2006 and
    2018, Professor Conti was faculty at the University of Chicago.
        The committee's next witness will be Dr. Douglas Holtz-
    Eakin, president of the American Action Forum. Prior to
    founding the organization, he was the Chief Economist of the
    President's Council of Economic Advisors, and he also served
    there as a senior staff economist. He was also Director of the
    Congressional Budget Office and has done extensive research in
    economic policy in a variety of areas.
        Then we have Mr. Stephen Ezell. He is the vice president of
    global innovation at the Information Technology and Innovation
    Foundation. He focuses on science and technology policy, and
    has also studied the practice of innovation in a variety of
    industries.
        Finally, Steffany Stern, MPP, is currently the National
    Multiple Sclerosis Society vice president of advocacy. She
    works in this role with volunteers across the country to make
    sure that folks with MS are heard. The Society is the largest
    private organization supporting MS research globally, and
    provides a range of services for people affected by MS. And I
    know how valuable that is, having just talked with your mother
    as well about having to navigate the Byzantine system of trying
    to get help, and we will discuss that.
        Let's go right to our witnesses, and we will make your
    prepared remarks a part of the record in their entirety.
        And why don't we begin with you, Dr. Conti?

    STATEMENT OF RENA CONTI, Ph.D., ASSOCIATE PROFESSOR, DEPARTMENT
        OF MARKETS, PUBLIC POLICY, AND LAW, QUESTROM SCHOOL OF
                BUSINESS, BOSTON UNIVERSITY, BOSTON, MA

        Dr. Conti. Thank you so much. Chairman Wyden, Ranking
    Member Crapo, and members of the committee, it is my honor to
    speak with you today.
        I am Rena Conti. I am an economist at Boston University's
    Questrom School of Business. I have studied and taught the
    pharmaceutical industries for the better part of 2 decades.
        I am here to explain to you why proposals to reduce drug
    prices will not harm innovation. Prior debates on how to make
    drugs more affordable have been weighed down by unproven
    industry claims that reducing drug prices will also reduce the
    number of new cures. These claims are greatly exaggerated,
    particularly for negotiation. Our system balances innovation
    with competition. Negotiation will modestly reduce revenues for
    companies selling a small number of very high-priced and old
    drugs. These drugs are targeted for negotiation because their
    companies took excessive price increases for years, have harmed
    patients, and have forestalled competition. These behaviors go
    directly against the fundamentals of our system.
        Here is why the industries' claims do not hold.
        First, the independent Congressional Budget Office
    estimates that under reforms currently discussed, the number of
    drugs that would be introduced into the U.S. market would be
    reduced by one in the 1st decade, approximately four in the
    subsequent decades, and approximately five over the decade
    after that.
        In the same time period, under current law approximately
    1,300 new drugs will be approved. Thus, proposed reforms will
    result in a minimal loss of new drugs amounting to less than a
    tenth of 1 percent under conservative assumptions.
        Second, new drugs are not the same as new breakthroughs.
    Yet CBO's score counts all new drugs the same, without regard
    for improvements in disease symptoms, quality of life, or
    survival benefits.
        Third, new breakthroughs come from new science. Taxpayers
    support the type of new science that empirical research
    demonstrates brings new, transformative drugs to market. These
    include Gleevec, tezeplumab, and paclitaxel, which have all
    transformed the lives of persons living with cancer.
        Taxpayers also support robust financing to develop new
    drugs. The pandemic is expected to pump another $80 billion
    into this industry in excess of pre-pandemic production. Last
    week's omnibus increased the NIH budget too. Current proposals
    do not reduce funding to the NIH, basic science carried out by
    universities, nor will they reduce support for university
    spinouts or company startups.
        Consequently, paying jobs in the world's most successful
    biotech corridors such as Boston, New Jersey, and Pennsylvania,
    should remain stable.
        Fourth, pharmaceutical companies strongly prefer to launch
    new drugs in the U.S., where they fetch the highest prices.
    Yet, inflated prices on existing drugs simply pad corporate
    balance sheets. They do not relate to the public's better
    health.
        Why should Americans continue to pay more for their
    prescriptions as a consequence of such bad behavior? The
    reforms that members of the committee are considering would
    reestablish the social compacts between the American public and
    pharmaceutical companies. They are pro-innovation and pro-
    consumer.
        The pharmaceutical industry is the most profitable sector
    of the U.S. economy. They are staffed with exceptional
    scientists. Thus, you should feel confident knowing that when
    these companies are forced to compete by innovating, they rise
    to the moment. Look at COVID.
        Change has come to this industry in the past, and they have
    thrived. Under the proposed reforms, the U.S. will remain the
    most highly supportive of innovative activity and the largest
    market for pharmaceuticals in the world.
        Under proposed reforms, it will remain the most profitable
    sector in our economy. In other words, contemplated reforms are
    likely to have the opposite effect on innovation.
        Finally, detractors of reform minimize that real drug
    prices have real consequences for real seniors. Without reform,
    a third of Americans will remain unable to afford the drugs
    they need to stay alive, locked out of the benefits of existing
    innovation.
        The proposed reforms will also benefit taxpayers, saving
    approximately $160 billion over the next 10 years. As a
    consequence, more than 80 percent of voters across the aisle
    want Congress to act now.
        In sum, proposed reforms, including Medicare negotiation,
    inflation caps, and pricing redesign, represent a modest but
    decisive step towards limiting the economic burden of inflated
    drug prices placed on patients. With these reforms, Congress
    will restore the social compact between pharmaceutical
    companies and the American public so that we can all benefit
    from the fruits of innovation without going broke.
        Thank you so much for your attention.
        [The prepared statement of Dr. Conti appears in the
    appendix.]
        The Chairman. Thank you very much.
        Let's go to Dr. Holtz-Eakin.

     STATEMENT OF DOUGLAS HOLTZ-EAKIN, Ph.D., PRESIDENT, AMERICAN
                      ACTION FORUM, WASHINGTON, DC

        Dr. Holtz-Eakin. Chairman Wyden, Ranking Member Crapo, and
    members of the committee, thank you for the privilege of being
    here today.
        Let me make a few points at the outset. Number one is that
    one should not conflate high prescription drug prices, or the
    pricing of pharmaceuticals in general, with the economy-wide
    consumer price inflation which we are experiencing right now.
        First of all, prescription drugs are not the driver of the
    economy-wide consumer price inflation. Prescription drugs went
    up year to year 2.4 percent in the Consumer Price Index.
    Overall, it was up 7.9 percent year over year. The kinds of
    policies we are discussing today would have a one-time impact
    on the level of prescription drug prices, and not impact the
    overall growth rate over a long period of time. And most of the
    proposals would be phased in over time and would have no
    immediate impact in 2022, little impact in 2023, and those are
    the years that matter for households who are facing a combined
    8.4-percent increase in the food, energy, and shelter
    components of their budgets, and that is over 50 percent of
    most household spending.
        So this hearing is not really about that problem. It is
    about prescription drugs.
        The second point is that the idea of negotiation by the
    government for Part D, I think, is an important issue. I was
    the CBO Director during the passage of the Medicare
    Modernization Act, and I wrote letters, and my successors wrote
    letters, indicating that in the absence of something else,
    giving the Secretary of HHS the power to, quote, ``negotiate''
    would have little impact on the overall level of prescription
    drug prices in Part D.
        That something else you needed was a formulary and thus,
    telling America's seniors they cannot have some drugs, or
    another instrument of some sort. The instrument in this case is
    a Draconian tax of up to 95 percent on the domestic revenues of
    those firms that are somehow not negotiating in good faith,
    where the Secretary gets to decide when that is. That is not a
    negotiation, and no one should confuse this with negotiation.
        This is a government price-setting mechanism that will
    reach into every corner of the health-care sector, and
    government price-setting mechanisms have a long track record of
    having unintended consequences and being detrimental.
        In this case--and this is the third point--I will politely
    disagree with Dr. Conti. These would be counterproductive
    proposals. Drug development is an extremely risky business.
    Only about 80 percent of those drugs that enter trials ever
    make it to market. It takes 10 years and about $3 billion to
    develop the drug. And if you cut off the payoff to development
    of those drugs, you will get less drug development.
        The only question is, how much less. But the direction is
    unmistakable. And the notion of inflation taxes, which would,
    again in the commercial market as well as in the Medicare and
    Medicaid spaces, just lead to higher launch prices, and
    perversely, at the moment--with prescription drug inflation at
    2.4 percent, and overall inflation at 8 percent--it is an
    invitation for drug companies to raise the prices more than
    they would otherwise. I do not think that is what we want. A
    classic case of unintended consequences.
        My final point is that there are things about which there
    is agreement across the aisle and among those who have studied
    this area, and which would provide some benefits. And they are
    Part D redesigns. The redesigns share some key features; number
    one, for the first time, we would cap the exposure of seniors'
    out-of-pocket expenses. That is a very desirable thing to do.
        Number two, we can protect the taxpayer from picking up the
    bulk of the cost in the Part D program by shifting
    responsibility in the reinsurance area to the manufacturers and
    the prescription drug plans. That has the additional benefit of
    giving them incentives to keep seniors from getting into that
    region of the benefit. That means lower prices. That means
    utilization management. And it gives you an incentive for
    stronger price negotiations among the private firms, which has
    been the foundation of Part D's success over the years.
        This is a benefit that everyone points out came in cheaper
    than I thought it would be by 40 percent. That is true. And it
    has been a tribute to the power of the private negotiations.
    Strengthening those incentives would be a good thing to do at
    this time.
        So I think the risk of dramatic changes with unintended
    consequences is real. We could make a Part D redesign and see
    what we can get from that--it is a big chunk of the national
    drug spend--and then do further reforms for targeted problems
    as they arise.
        Thank you for the chance to be here, and I look forward to
    your questions.
        [The prepared statement of Dr. Holtz-Eakin appears in the
    appendix.]
        The Chairman. Thank you.
        And just very, very briefly on one point. Dr. Holtz-Eakin
    says that CBO has indicated negotiation does not save money.
    Now the old analysis, this outdated analysis, seemed to
    indicate that there would be modest savings. That study,
    however, is completely out of date. And what our new effort
    does--and this is the heart of the case--is we have enforcement
    in it, and our plan for Medicare negotiation now has real teeth
    to keep drug companies at the negotiating table. And what is
    relevant, so that the committee understands it, is not the
    outdated estimate of savings that Dr. Holtz-Eakin has talked
    about, but CBO is now estimating very, very substantial
    savings, billions of dollars in terms of negotiation.
        Mr. Ezell?

         STATEMENT OF STEPHEN J. EZELL, VICE PRESIDENT, GLOBAL
       INNOVATION POLICY, INFORMATION TECHNOLOGY AND INNOVATION
                       FOUNDATION, WASHINGTON, DC

        Mr. Ezell. Good morning, Chairman Wyden, Ranking Member
    Crapo, and members of the committee. I appreciate the
    opportunity to testify this morning.
        The United States leads the world in biopharmaceutical
    innovation. In fact, over the past 2 decades, drug companies in
    America have delivered just under half of the world's new
    drugs. It is therefore imperative we preserve the broad policy
    environment that has been so successful in making America the
    world leader, especially at a time when we are looking to turn
    the page on a 3-year pandemic and gear up for a Cancer
    Moonshot.
        To that end, I would like to address three themes this
    morning: first, the contention that drug prices are rising
    significantly; second, that drug prices constitute a major
    contributor to inflation; and third, that drug price controls
    would not harm new drug development or patients' access to
    medicines.
        First, drug expenditures for retail prescriptions as a
    share of America's total health expenditures have been roughly
    stable for the past 2 decades at about 9 percent of total
    health-care cost. Projections suggest they will remain stable
    for the rest of this decade. Moreover, U.S. pharmaceutical
    spending as a share of total health expenditures is right in
    line with those of OECD nations, and in fact, most others are
    higher. Nor are prices rising significantly. In fact, the
    Bureau of Labor Statistics finds that over the past 15 years,
    American consumer expenditures on health care overall almost
    doubled, but their expenditures on drugs actually went down by
    8 percent. Likewise, drug prices are not driving today's
    inflation.
        Over the past year, prescription drug prices have risen
    only 2.4 percent, just one-third of the increase in the
    Consumer Price Index. Meanwhile, drug innovation is becoming
    ever more risky, expensive, difficult, and transformative.
    Deloitte reports that the average cost of creating a new drug
    has doubled over the past decade, now surpassing $2.5 billion.
        Yet, despite the fact that America's biopharmaceutical
    sector--the world's single most R&D-intensive industry--plowed
    24 percent of its revenues back into R&D every year, the
    sector's R&D productivity has been steadily declining. That is
    because these companies are working to tackle still unsolved
    challenges at the frontiers of biomedical science, such as
    trying to develop solutions for diseases like Alzheimer's,
    Parkinson's, and pancreatic cancer.
        Life sciences companies depend on revenues earned from one
    generation of innovation to finance investment towards the next
    generation of innovation. Yet drug price controls constrain the
    ability to earn those revenues. This is why virtually all
    academic studies find that a reduction in drug revenues leads
    to decreases in future research and new drug discoveries. For
    instance, one study found that a 1-percent reduction in revenue
    leads on average to a 1.5-percent decrease in R&D investment.
    Applying that to the drug price control provisions in the Build
    Back Better Act, it suggests that America may have as many as
    135 fewer new drugs by 2039.
        Americans consistently enjoy access to innovative drugs
    earlier and more extensively than citizens of countries
    employing extensive drug price controls. For instance, of about
    350 new medicines launched globally since 2011, 310 are
    available to American patients. But less than half are
    available to Canadians. In other words, if you are a Canadian,
    your medicine cabinet is just half as full as if you are an
    American.
        Now that is similar in Germany, France, and Japan. And
    speaking of those nations, the extensive drug price controls
    they implemented in the 1980s and 1990s decimated their
    biopharmaceutical industries. That is one reason why Japan's
    share of the global pharmaceutical industry cratered by 70
    percent over the past 25 years.
        Instead of applying broad price controls, policymakers
    should focus on promoting affordability, especially through
    mitigating out-of-pocket costs for individuals, especially
    seniors. That is why ITIF supports many of the Medicare Part D
    cost-control proposals, including implementing a $2,000 cap on
    beneficiaries' annual out-of-pocket costs, as well as monthly
    caps on patient expenses for drugs treating chronic conditions,
    like insulin for diabetes.
        Further, the Federal Government needs to focus on costs,
    not just prices. Here it would do well for policymakers to
    consider how to help increase R&D and production efficiencies,
    including by launching a significant new effort to assist the
    private sector in increasing their efficiency in drug
    discovery, development, and manufacturing.
        In conclusion, while there are some issues to address
    regarding drug pricing, what is needed is reform, not wholesale
    transformation. Widespread drug price controls would almost
    certainly reduce America's biopharmaceutical competitiveness
    against China, and slow the rate of new drug developments.
        Thank you.
        [The prepared statement of Mr. Ezell appears in the
    appendix.]
        The Chairman. Thank you very much.
        Ms. Stern?

     STATEMENT OF STEFFANY STERN, MPP, VICE PRESIDENT OF ADVOCACY,
          NATIONAL MULTIPLE SCLEROSIS SOCIETY, MINNEAPOLIS, MN

        Ms. Stern. Chairman Wyden, Ranking Member Crapo, and
    members of this committee, my name is Steffany Stern, and I am
    the vice president of advocacy for the National Multiple
    Sclerosis Society.
        I joined the Society as a staff member 7 years ago, but I
    have been part of the MS community since I was a year old in
    1981 when my mom was diagnosed with MS. Until 1993, there were
    no treatment options for MS. All my mom could do was try to
    take care of herself and hope that her relapses did not take
    away too much from her life.
        While we now have effective treatments, people with MS and
    their families, like my parents, struggle with drug prices. My
    parents moved to a smaller house, replaced their cars with less
    expensive options, and have cut every possible corner to make
    ends meet.
        My dad is 69 years old, and he has his own health
    challenges. And he has had to get a job driving a city bus in
    town just to pay the bills. Without the charitable assistance
    that they receive, they could not pay the $2,400 they owe for
    her medication month after month.
        It just seems wrong to us that people with health-care
    coverage still need charitable assistance. And my parents are
    not alone. It is extraordinarily personal to publicly share
    one's personal financial and health challenges, but person
    after person has given me permission to do so because they want
    you to understand and to change the status quo. And I sit here
    in front of you representing all of them.
        The first, most troubling fact that I want to share with
    you is that 40 percent of people with MS surveyed by the MS
    Society alter the use of their disease-modifying therapies,
    which we call DMTs, due to cost, including stopping, skipping,
    or delaying their treatments.
        For example, Laurie Lee from Oregon changed her MS
    medication twice after joining Medicare because the price would
    have bankrupted her and her husband. During these changes,
    Laurie's MS symptoms increased substantially and she
    transitioned from the relapsing form of MS to the progressive
    form of the disease.
        Therese Humphrey Ball in Indiana was forced to change the
    DMTs after her costs soared to $6,000 a month. But the next DMT
    she went on did not work for Therese. Her MS progressed,
    bringing lingering cognitive issues among other problems.
        And Bob Miller in Minnesota made the difficult decision to
    stop taking his MS drug altogether because he did not want to
    financially devastate his family, even though he has Medicare.
        These kinds of choices are terrifying for people with MS.
    Any gaps in their medication could mean disease progression,
    and that could mean a permanent loss of mobility or cognitive
    function.
        A significant percentage of people with MS report stress or
    emotional impacts, and they make lifestyle sacrifices to afford
    their DMT. Medicare out-of-pocket medication expenses for Lisa
    McRipley in Michigan average a debilitating $9,000 a year. She
    often uses her charge cards to cover the costs and relies on
    her family to pay for food and other expenses.
        Wayne Harven in South Carolina has to take $13,000 out of
    his 401(k) every year to cover his share of Medicare costs. I
    could be here all day telling stories.
        Early and ongoing treatment with a DMT is the best way to
    manage MS and prevent the accumulation of disabilities. More
    than 20 MS DMTs have transformed the treatment of MS over the
    last 29 years. Or more accurately, they have transformed the
    treatment for those who can afford it.
        We call on this committee to bring forth legislation to
    enact a Medicare out-of-pocket cap and smoothing mechanism to
    spread patients' costs throughout the year. But just those
    policies are not enough.
        The first medication my mom took in the mid-1990s was
    priced at $11,000. Today the price of that same DMT is over
    $111,000. Her current medication has a list price of nearly
    $104,000 per year. This medication's price has increased 5.7
    percent in the last year, and 35 percent over the last 5 years.
        In February 2022, the median annual price of brand MS DMTs
    was close to $94,000, an increase of nearly $34,000 in less
    than 10 years. Six of the MS DMTs have increased in price more
    than 200 percent since they came on the market. Nine are now
    priced over $100,000. Medications on the market for more than
    20 years still have annual price increases. Patients are not
    only paying out of pocket but more in premiums for their drug
    coverage due to the costs of their medications.
        The current system is not working in the best interests of
    people with MS and other chronic conditions. It is
    unconscionable that in 2022 people with MS and other health
    conditions who cannot pay for their medications would be in the
    same position my mom was in in 1982 with no treatment options.
        We strongly believe that Medicare negotiation and
    inflationary rebates, along with out-of-pocket caps, strike
    that right balance between creating affordability and
    maintaining incentives for manufacturers to innovate.
        We look forward to working with this committee as you work
    to address the high price of medications.
        Thank you.
        [The prepared statement of Ms. Stern appears in the
    appendix.]
        The Chairman. Thank you very much, Ms. Stern. I really
    appreciated talking to your mom as well, because I walked away
    and said your mom's only sin was to get sick in a country where
    big pharma has never lost a fight. And we are going to be
    changing that. We are going to change that.
        Let's start with Dr. Conti. Dr. Conti, you said Medicare
    negotiations and penalties for price inflation would not be
    harmful to consumers or the economics of the pharmaceutical
    industry. Your seat-mate there, Dr. Holtz-Eakin, obviously
    feels differently--big difference of opinion.
        What evidence do you have, Professor Conti, that Medicare
    negotiations and stopping price gouging when they are just
    scoring prices way above inflation, would not be harmful to
    consumers or the economics of the pharmaceutical sector?
        Dr. Conti. Thank you so much for the question. There are 2
    decades of economic research suggesting that taxpayer support
    for basic science, intellectual property protections, and the
    financial market drive innovation, including work by Harvard-
    based economist Scott Stern and Berkeley economist Bronwyn
    Hall.
        Taxpayer support for basic science, university labs,
    startup companies, et cetera, and the best financial ecosystem
    for investment in new products also do not change with this
    legislation.
        We know from some of the work of Daniel Lee at MIT and my
    colleague at BU, Iain Cockburn, that with these types of
    continuing investments, innovation will follow. In addition,
    the U.S. supports Americans' access to drugs, the largest
    market for these products in the world--and the best-paying
    through insurance provisions. Insurance provisions such as Part
    B and Part D have clearly benefited consumers. Insurance
    provisions also drive innovation, according to the work of MIT-
    based economists Amy Finkelstein and Pierre Azoulay. Indeed,
    much of CBO's score on the impacts of this reform is based on
    an economic model of Part D implementation, where they find
    that expansions in insurance drive new product innovation.
        David Dranove at Northwestern and Amy Finkelstein at MIT
    suggest that most of the new products that came from the
    expansion of Part D were not breakthroughs, but rather slight
    modifications of existing products in already-crowded
    therapeutic classes.
        Professor Finkelstein's work, now validated by others,
    suggests that companies just simply took products off the shelf
    after the change.
        The Chairman. Thank you, Dr. Conti.
        Ms. Stern, let me go to you, because I thought all night--
    and I have been doing this since my days as director of the
    Gray Panthers, and I cannot recall a situation more infuriating
    than hearing your mom basically describe how you all have to
    beg charities to give you some extra help so she can pay her
    share of the $111,000 price tag that the manufacturer charges
    for the drug.
        So you say to yourself, it's the company that escalates the
    prices way beyond what the rest of the world is paying, but
    then they are going to say to you and your mom, you guys have
    to beg--and she describes the situation where if she does not
    get the begging going at the right time, then things go by the
    boards and her husband is driving a bus. I mean, what in the
    hell is going on here?
        This is not the debate of a technical issue. Something is
    way out of whack when people like your mom are begging for a
    little bit of help, which really is a lifeline for us. Tell the
    committee exactly how this works, and how--I mean, here you
    are. You are a professional in the field, and you are helping
    your mom. I ran a legal aid program for the elderly, the Gray
    Panthers, so I could help people. What are people going to do
    here, other than just beg and beg and beg to be able to get a
    lifesaving drug, or at some point I guess people just give up
    and pass.
        Ms. Stern. Yes; so yes, it is a terrible situation. It is
    very common for people with MS, like my mom, to have to rely on
    some kind of financial assistance to afford their costs. Our
    studies show around 70 percent of people rely on financial
    assistance just so they can pay their out-of-pocket. But a lot
    of people are shocked when they transition to Medicare and they
    find they cannot get assistance from the drug companies
    anymore. They have to rely on these charitable funds. And the
    charitable funds are so hard to get into. They run out of money
    all the time. Last year they only opened four times for a total
    of 25 days. So you can call and call and call and still not get
    the help you need. And we have a lot of stories from people,
    like Ms. Dixon in Ohio in my testimony, who cannot navigate the
    process and go off of their meds.
        It is a very draining process, and people with MS have a
    lot of fatigue and cognitive challenges. It is just
    unbelievable to have this system where people who have health
    coverage still have to chase down that financial help to afford
    their life-changing medication. And just as you said, my mom
    described it as just begging every year.
        The Chairman. Yes. What is always striking is, members of
    this committee always hear from the industry that we need
    certainty and predictability. I certainly share that view. But
    it is time to give some certainty and predictability to folks
    like your mom who are going to know that they are not going to
    have to go through this water torture exercise just to get
    their medicine.
        Thank you.
        Senator Crapo?
        Senator Crapo. Thank you, Mr. Chairman. It is becoming
    obvious that the whole focus here of the difference between us
    on how to proceed with regard to prescription drug pricing is
    over this notion of government price negotiation. I know that a
    number of my colleagues and other advocates of this approach
    call it Medicare negotiation. The reality is, it is government
    price controls. And we need to understand that.
        I do not think that there is any disagreement that we need
    to strengthen the negotiation process over our drug pricing.
    There is an impression created by some that there is no
    negotiation going on with the drug companies, which is just
    flatly untrue. The negotiations today, though, are occurring in
    the private sector between the insurance plan providers and the
    drug producers and drug companies. And those negotiations need
    to be strengthened and improved so that we can really put true
    private-sector negotiation power into the development of price
    in our prescription drug markets, not the imposition of Federal
    price controls.
        What we have seen right now, for those who want to have the
    government step in and control, is just what we saw when we
    did, under Obamacare, put so much more Federal control in place
    over the insurance industry, the plan providers. And what do we
    have now? We have very limited plan options. We have people
    with massive deductibles and copays. Their costs are being
    driven through the roof because there is not a truly functional
    private-sector approach to developing the best type of plans.
    And we are going to see the same type of thing in the
    prescription drug market if we go there.
        I would like to direct my question to you, Dr. Holtz-Eakin.
    You mentioned that we do need to reform our negotiation system
    and have truly effective and powerful negotiation over drug
    prices. But that does not mean having government price
    controls--or that is what I heard you say.
        And I referenced my legislation, the Lower Costs, More
    Cures legislation, which does exactly that. It seeks to try to
    reform the incentives and develop a pressure point so that we
    can move back toward having true, powerful, functional
    negotiations going on in the prescription drug system.
        Could you discuss that a bit? And if you would like to, I
    invite you to respond, if you want to, to the chairman's
    comments about your reference to CBO's scoring.
        Dr. Holtz-Eakin. On the CBO scoring, the scoring was of
    genuine negotiations, telling the Secretary that he or she
    could call the manufacturer and start negotiating a price. That
    is not what I have seen in, for example, the House-passed Build
    Back Better Act, which begins with a statutory maximum of 40 to
    75 percent of the average manufacturing price. A genuine
    negotiation does not start with a statutory price control. And
    then it is augmented by the quite Draconian sales tax of up to
    95 percent, which just gives the Secretary disproportionate
    leverage. They are the judge and jury as to whether the
    negotiation is going well, and they can threaten the domestic
    markets for that firm. That does not strike me as negotiation.
    That is price controls.
        With Part D, it would be a good idea, I think, to
    strengthen the private-sector negotiations, which have worked
    well, but which I think have been undercut a bit with
    developments over the years.
        We have seen, over time, that taxpayers are picking up the
    bulk of the cost, especially for very expensive patients. And
    so let's put the manufacturers and the prescription drug plans
    on the hook for those catastrophic costs so they have
    incentives to keep people out of the catastrophic region
    through managing the quantity and also the price of those
    prescription drugs. And certainly, having a maximum out-of-
    pocket for seniors solves a lot of the price problems we heard
    about from Ms. Stern.
        I mean, this is a situation where you really can do a
    tremendous amount of good, and genuinely have it operate like
    an insurance product should. Those with extreme costs are
    protected, and those costs are distributed across a large
    population. That is what the Part D reforms, yours included,
    would do. And I will not pick favorites when I am out in front
    of you, but yours is great. And any of them, I think, will be a
    step in the right direction.
        Senator Crapo. Well, thank you for that.
        And I will just conclude with a comment rather than another
    question. Again, I want to focus on the notion--there has been
    an effort to try to make it look like this is a debate over
    whether we should have negotiations in prescription drug
    pricing. That is not the issue.
        We have negotiations now. They are not as good as they
    should be, and we need to provide the appropriate incentives in
    the private sector for those negotiations to work exactly as an
    insurance market should work and move those costs not only away
    from the taxpayer, but away from the seniors with provisions
    like those that are in the legislation I suggested--which I
    remind everybody has broad, bipartisan support.
        We have got to get past this notion of having the
    government be put in charge of everything, including insurance
    policies--and how did that work for us--and pricing of
    prescription drugs. And it is not going to work for this,
    either. What will work is when we put the proper market
    incentives in place for the proper negotiation of drug pricing,
    and then include some of those caps on seniors out-of-pocket,
    and protections such as we have seen for the successful insulin
    drug pricing programs that we are already working on and are
    already working, as we talked about.
        So, I just conclude with that, and thank you very much, Mr.
    Chairman.
        The Chairman. Before we move to Senator Stabenow--and I
    will just be very brief--let's make sure we are clear on what
    is going on here.
        Number one, the old analysis at CBO is no longer relevant.
    We have new estimates that indicate billions of dollars would
    be saved.
        Two, all we are talking about is saying that it is wrong
    for Medicare in this one area to be the only outlier to not be
    able to negotiate. Everybody else is negotiating. That I what
    this is about.
        Senator Stabenow?
        Senator Stabenow. Well, thank you very much, Mr. Chairman
    and Ranking Member. And I have to say, I wish we had hours to
    debate this, because we are hearing the same old, same old
    about how we have to pay the highest prices in the world as
    Americans. And it just does not add up.
        And in fact, Americans do pay the highest drug prices in
    the world. And it is not even close. We pay three times more
    for brand-name drugs, and every year it gets worse. That is a
    fact. According to AARP, over the past 15 years the price of
    the most common brand-name drugs has risen 300 percent. Yes. We
    are not talking about inflation; we are talking about way
    beyond what would be considered inflation.
        Just since January, drug companies have increased the
    prices of nearly 800 different drugs. This is devastating for
    the financial and physical health of American families,
    especially our seniors. Imagine if other prices rose as fast as
    prescription drug prices over the last 15 years. Gas would be
    more than $12 a gallon--it is already too high. A movie ticket
    would be about $25. A gallon of milk would be more than $13.
    That is what's happening with prescription drugs. We would not
    accept that in any other area of the economy. Why in the world
    do we accept it from the drug companies?
        The good news is, it does not have to be this way. You are
    going to hear a lot today from my Republican colleagues who say
    there are ways to cut costs, and negotiation is going on. I
    would suggest, based on the incredibly high prices, they are
    pretty bad negotiators. In the end, their proposals are all
    about one thing: protecting the drug companies' profits at the
    expense of American consumers.
        What we are proposing is very straightforward: allow
    Medicare to really start negotiating drug prices, like the VA
    does--and they pay 40 percent less for veterans; put in place a
    $2,000 out-of-pocket cap for seniors in Medicare Part D, a cap
    on insulin at $35 a month for everyone; penalize drug companies
    that raise prices faster than inflation. That is the plan. We
    will make sure seniors can afford the prescription drugs they
    need, and we will preserve and even strengthen the great engine
    of innovation in the country.
        So, a simple question, Ms. Stern--and thank you so much for
    being here and representing people who really need a voice in
    this discussion. You said the first MS drug your mom used costs
    $100,000 more today than it did 30 years ago. Does the drug
    work any better today than it did 30 years ago?
        Ms. Stern. No. It is my understanding that it is the same
    medication. I have heard they have made small tweaks to the
    injector, making it an auto-pen, but, no, it is the same
    medication.
        Senator Stabenow. Yes, and that is true in so many areas.
    Insulin was actually discovered and developed 100 years ago--
    100 years ago.
        So, Dr. Conti, let me just say first, thank you for being
    here, thank you to all of you. American taxpayers provide
    billions in research funding, as you said, for new treatments
    and cures every year, with tremendous results. And I support
    that strongly. In fact, taxpayer-funded research contributed to
    every single drug approved in the last decade. A House
    Oversight Committee investigation recently found that the
    leading 14 drug companies spent $577 billion on stock buy-backs
    and dividends--$56 billion more than they spent on research and
    development--between 2016 and 2020. The top 10 companies also
    paid their executives more than $2.2 billion--billion dollars--
    over the same period.
        Dr. Conti, if we pass the reforms that I outlined, will
    there be less investment in innovation and treatments and
    cures?
        Dr. Conti. Thank you----
        The Chairman. I don't think that mic is working. Can you
    speak right into it?
        Dr. Conti. I can. I am from Brooklyn, so I will just talk
    loud.
        The industry tries to separate public investments in
    research and development from the activities that they perform.
    However, this is just simply not the case. New drugs come from
    new science, and nothing about this proposal is going to alter
    the public support for new science. The transformative drugs
    that we have seen over the past 2 decades, their source is the
    NIH. These include, but are not limited to Gleevec, Avastin,
    paclitaxel, PrEP for HIV, and the new hepatitis C drugs, which
    are virtual cures.
        Conversely, lost drugs do not mean lost therapies, as I
    stated before. The COVID vaccines and therapeutics are
    paradigmatic. We spent $39 billion bringing these products to
    the American consumer and ensuring that anyone who wants them
    can get them for free. Imagine, just 24 months ago they did not
    exist. We were locked in our homes.
        Public Citizen among others has demonstrated that all of
    the science behind the MRNA vaccine for COVID-19 was supported
    by U.S. taxpayers. Much of it dates back to investments in the
    human genome project and continuing work for the next 20 years.
        The reason the infection itself was so swiftly identified
    is because of the existence of open science pioneered by the
    U.S. Government. The vaccines have IP protections guaranteed by
    the U.S. Government, including their base ingredients.
        Private money poured in. Why? Because the U.S. Government
    assures that that investment will get paid back. It is less
    risky than it otherwise would be.
        The Chairman. Thank you very, very much, professor, for
    making those important points.
        Senator Grassley?
        Senator Grassley. I am going to submit my questions for the
    record, and speak only.
        [The questions appear in the appendix.]
        Senator Grassley. First of all, I thank you very much for
    holding this hearing, the first of this Congress. I am
    disappointed that the entire Senate is not moving on a
    bipartisan bill that will get 60-plus votes.
        Three years ago, I led an effort on this committee to lower
    drug costs. We brought in pharmacy CEOs, PBMs, and insurance
    executives and advocates and experts. And we did it to discuss
    this problem and to seek solutions. We introduced bipartisan
    legislation. We marked that legislation up and, throughout the
    last Congress, we continued to make improvements in that
    legislation. And I suppose we could still say that there are
    some improvements that can be made.
        Our bill contains stuff I liked, and it contains stuff that
    I didn't like, but that is the way the bipartisan process
    works. When we first passed the Medicare Modernization Act, we
    did it in a bipartisan way. Twelve Democrats in the Senate
    voted for it, including two members currently on this
    committee. At the time, this was the first major improvement in
    the Medicare program in nearly 40 years. Today, 49 million
    seniors have prescription drug coverage.
        Eighteen years later, we have a growing problem:
    prescription drug affordability. AARP says brand-name drugs are
    going up more than twice the rate of inflation. Estimates
    suggest 3\1/2\ million seniors are having difficulty affording
    their prescription drugs. The Kaiser report says 50 percent of
    the Part D drugs and 48 percent of the Part B drugs had price
    increases greater than inflation.
        At our July 2019 Wyden-Grassley markup, Senator Wyden said
    this, quote: ``Who is going to come first, patients and
    taxpayers or the pharmaceutical giants?'', end of quote. That
    is still a legitimate statement.
        If the majority keeps debating partisan ideas, however, on
    the issue of drug pricing, we will get nowhere. And then what?
    Pharma will win, and patients and taxpayers will lose.
        I urge my colleagues to work with me to pass Wyden-
    Grassley. It caps out-of-pocket expenses at $3,100. It
    eliminates the donut hole. It caps rising drug prices in
    Medicare at the inflation price index, ending uncapped
    taxpayer-funded subsidies to big pharma. It brings more
    sunshine and accountability as well.
        It saves $72 billion for seniors, $95 billion for
    taxpayers. Each one of these things is a very big deal. I share
    my colleague's passion for solving high insulin costs. I have
    investigated insulin makers, and Wyden was right there with me
    when we did it together. We also investigated PBMs and worked
    to hold all of these accountable.
        If we want to settle the high drug costs of insulin, we
    have to pass comprehensive reform like Wyden-Grassley. Let's
    work to advance a bipartisan drug pricing bill that can pass
    with 60-plus votes. I continue to meet with Democrats and
    Republicans to advance Wyden-Grassley. I will work with anyone
    who wants to pass this bipartisan legislation.
        Just to show you that, while the Democrats were trying to
    pass prescription drug bills as part of Build Back Better--
    which now obviously, according to Manchin, is dead--I met last
    year with Pelosi, and I met last year with the House problem
    solvers group of 50 people. I met with the 10 Democrats who
    sent Pelosi a letter saying we need a bipartisan bill, not a
    partisan approach. I met with McCarthy. I met with Peter Welch,
    a leader in that area. I met with McMorris Rodgers, and I
    think, in all of these efforts I said to them, you know, Wyden-
    Grassley is out of business if Democrats can pass a bill with
    50 votes. But if you cannot pass the bill, I want you to know
    what is around that we can get through the United States
    Senate.
        If we can get it through the U.S. Senate, you ought to be
    able to get it through the House of Representatives.
        So we need to be working on it, just on the chance--and I
    hope this happens--that we have a Republican Congress next
    time. But I think you suggested the difficulty of passing
    something like this in a Republican Congress. So you have an
    opportunity to do it right now, when Democrats and Republicans
    can work together to accomplish this. If we want to reduce drug
    prices, then we need to do it now.
        Thank you.
        The Chairman. I thank my colleague. And I am going to be
    very brief on this. There is no question that the committee
    came together in the last Congress and came up with a number of
    constructive, bipartisan reforms--period, full stop.
        The problem is, if that is all you do--let's say you do not
    do anything other than the out-of-pocket cap. If you do not
    have the reform that we are talking about, the key reform, the
    ability to negotiate, what happens is, with an out-of-pocket
    cap, everything just gets shifted to everybody else,
    particularly the taxpayers.
        So what we need to do is what everybody else in America
    does, which is hardball negotiation. And my colleague probably
    remembers, this country is overwhelmingly in favor of people
    being able to negotiate. Sometimes when I am home and I ask
    people, ``Anybody here opposed to negotiation?'', I walk away
    and say that anybody who opposes it in my home State must be in
    a witness protection program, because I cannot find anybody who
    is against negotiation.
        So that is what this debate is about. We have the
    bipartisan reform from before, but if we do not have
    negotiation, then we have what we pursued in the last session,
    and the cost-shifting will be massive and taxpayers and
    consumers will get hurt.
        Senator Cornyn?
        Senator Cornyn. One person's negotiation is another
    person's price controls. Dr. Holtz-Eakin, why shouldn't we have
    price controls on prescription drugs? Isn't that a way to solve
    the cost problem?
        Dr. Holtz-Eakin. It will solve the cost problem in the near
    term, but it will have detrimental effects down the road,
    particularly on the innovation and competition in the
    pharmaceutical sector.
        A great example of this debate is a $35 cap on insulin,
    which would end the innovation in insulin tomorrow. We would
    not see any advancements in insulin versus what we are seeing
    right now with one biosimilar, two authorized generics, and
    insulin prices down 6.2 percent over the past 3 years.
        So create entry, create competition, and lower cost. That
    is the solution.
        Senator Cornyn. Senator Stabenow mentioned the VA, but I
    note that the Veterans Administration leverages a closed
    formulary. In other words, they do not have the broad range of
    drugs that are available to seniors under Medicare Part D.
    Apparently, the VA would cover just about 52 percent of the top
    200 Part D drugs, while Part D plans cover nearly three-
    quarters of that, on average. And that is the benefit of
    competition, as opposed to price controls. Is that correct,
    Doctor?
        Dr. Holtz-Eakin. I think that is right. The formulary has a
    powerful impact on the negotiations. There is no question about
    that. And people talk a lot about how other countries' prices
    are lower, but in many cases those countries simply say ``no,''
    and the drugs are not available. So you either pay in the form
    of a financial price or you pay in the form of a lack of access
    to modern therapies. But there is no cheap way through this.
        Senator Cornyn. Well, I am amazed, as I think most
    Americans are, by American science and the ability of the drug
    companies to innovate. Operation Warp Speed produced a vaccine
    in a historically short period of time and helped us start
    bending the curve on COVID-19. And hopefully, it will
    ultimately restore us to some semblance of normalcy. So there
    is no question that we all benefit from the great science and
    innovation in the drug industry. And of course we grant, under
    our patent laws, we grant exclusive rights to a drug that
    somebody comes up with for a period of time. But then of
    course, that patent expires, and then it is open to generic or
    other competition.
        I think there are things we could do that would enhance the
    competitive nature of the generic drug market if we could just
    beat back some of the gamesmanship when it comes to the patent
    system.
        Senator Wyden mentioned Humira, which has, to my knowledge,
    more than 120 different patents designed to create what has
    come to be known as a ``patent thicket.'' And that makes it
    less likely that competitive generic companies can compete with
    that drug as they do, for example, in Europe today to the
    benefit of the consumers.
        Senator Blumenthal and I had a bill called the Affordable
    Prescriptions for Patients Act, which addressed the patent
    thicket issue, and the product hopping, which is another aspect
    of it where you tweak the formula a little bit and then
    basically it prevents generic competitors from competing with
    that drug.
        Unfortunately, we tried last year before the general
    election to get that passed in the Senate several times, since
    it did have broad bipartisan support, and for some reason
    unbeknownst to me, Senator Schumer objected to the unanimous
    consent request in the Senate. Unfortunately, it seems like we
    end up talking about problems more than we do trying to solve
    the problems.
        But let me ask you, Dr. Holtz-Eakin, one of the other
    aspects of our drug pricing system that just is mystifying, I
    think to most of us, is the rebate system and the perverse
    incentives that can be created. So you have a list price, but
    then the drug company will actually kick back some money, and
    so the actual price is lower and presumably will help lower the
    insurance premium for the plan that covers that drug.
        For example, insulin prices have been noted. The list
    prices have been growing over the years, and the net price has
    stayed stable or fallen because of higher rebates by PBMs to
    get on formulary. But for example, Sanofi has noted that in
    2021 49 percent of their gross sales were given back in
    rebates. At the same time, Viatris launched an interchangeable
    biosimilar to Sanofi's Lantus and needed to have two price
    points, one to get on formulary and a significantly lower price
    for the uninsured. But it seems like that is a perverse
    incentive for manufacturers to continue to raise list prices to
    continue patient access.
        Can you talk briefly--because my time is up, Dr. Holtz-
    Eakin--about other misaligned incentives in this space that
    contribute to higher drug prices?
        Dr. Holtz-Eakin. Well, I certainly would be happy to give
    you a longer answer for the record, but I think, briefly, there
    was a debate about passing those rebates through to consumers,
    which would have some real advantages. You would be
    negotiating, not over the list and rebates, but over the net
    price to the consumer. And that is what the coinsurance and the
    copays are coming off of. That would be beneficial, but it
    would have the detrimental effect, in the eyes of some, of
    raising premiums. But again, you are shifting the cost from a
    very few seniors with extremely high drug bills to the broad
    population. That is what insurance is supposed to do.
        So, directing indirect remunerations the same way, rebates,
    you can either redesign the insurance contracts--we have seen
    what it is like for the government to manage the insurance
    designs--or you could change the nature of the competition
    between the PBMs and the manufacturers.
        Senator Cornyn. It still seems like a shell game, Mr.
    Chairman. Thank you.
        The Chairman. Again, as I laid out with Senator Grassley,
    we tried in the last Congress to get sensible bipartisan
    reforms. Mitch McConnell opposed those. Now we have the chance
    to end the shell game, to really stop, say, when you limit out-
    of-pocket expenses, having the cost shifted.
        So I am for getting rid of the shell game, and that is what
    we are doing in our legislation.
        I believe our next questioner will be Senator Cardin.
        Senator Cardin. Thank you, Mr. Chairman. I just really want
    to underscore the point that you have made. We always look to
    work together to solve problems on this committee, and I
    appreciate the leadership of our chairman and ranking member,
    who have worked to try to bring us together on these issues.
        I must tell you, on prescription drugs I am baffled,
    because the United States is an outlier. What we pay for the
    cost of medicines is just out of step with the industrial
    world. And it defies common sense, as the chairman has pointed
    out, that the Federal Government is the largest payer for
    prescription drugs--we have the largest market share--and
    Medicare, which is the largest program, cannot negotiate price.
    That just does not make sense.
        If I am a business owner and I have a market share that I
    can leverage for price, I leverage it for price. That is how
    the free market works. And we are now restricting the free
    market from operating the way the free market is supposed to
    operate by a prohibition from Medicare to be able to use that
    market share to negotiate price.
        It is just counterintuitive and makes no sense whatsoever.
    And then we hear the argument on innovation. And we take a look
    at the amount of funds that go into research in this country to
    develop new drugs, and the Federal Government is one of the
    largest providers of research dollars, over $40 billion a year.
    And the pharmaceutical industry--and they make their own
    judgments--spends more on advertising than they do on research.
    So I just do not get the argument.
        And lastly on this issue, Mr. Chairman, if a consumer
    cannot get access to a drug because it is high-priced and they
    cannot afford it, they are not getting the benefits of
    innovation.
        So, for all those reasons, I think it is just common sense
    that we need to unleash the power of the government to
    negotiate fair prices, and no longer for the United States'
    consumers to be outliers as far as the costs of medicines go.
        I want to ask a different question, though, on an area that
    has me baffled also, and that is drug shortages. The
    pharmaceutical industry makes a lot of money. There is a lot of
    money spent in America. We manufacture the drugs here. And yet
    we have drug shortages, and not inconsequential drugs. A lot of
    the sterile injectables are in short supply. We had shortages
    in the prescription drops that are put in a newborn baby's eye
    in order to prevent infection. They were not available for a
    while. BCG, which is a treatment for bladder cancer, an
    inexpensive drug, is not available because of various factors.
    As I understand it, it is mostly single-sourced, and it is not
    a very profitable drug. That is, it does not cost a lot of
    money, so therefore they use the manufacturing capacity to make
    more money, causing a shortage of essential drugs here in
    America.
        And considering that the Federal Government programs are
    the largest single source of funds going into the
    pharmaceutical industry, can't we at least guarantee to
    American consumers that we will have adequate supplies here to
    leverage the government participation in the programs?
        So I welcome any thoughts. Let me start with Dr. Conti;
    your thoughts on this issue as to how we can reform the way
    that we deal with prescription drug costs and also make sure
    that there is adequate supply in this country.
        Dr. Conti. Thank you so much for that question. As you
    know, I spent a long time studying this issue. Drug shortages
    are indeed a problem for American consumers, and they are also
    problems for the other persons in the supply chain, most
    notably hospitals. They impose costs on people in many
    different ways.
        I think we have an issue related to supply chain resilience
    in the U.S. for low-cost generic drugs that do not have much
    supply left. And there is a series of recommendations to
    support increasing the U.S. drug supply resiliency, which
    includes reshoring and near-shoring drug supply into the U.S.,
    making sure that these products are made in the U.S. so that
    the products can be better accessed.
        We also may have to support more innovative manufacturing
    for these products. We already have some new companies coming
    into the market to do so. And then lastly, we simply may have
    to pay more to ensure that these products are adequately
    supplied.
        Senator Cardin. Thank you.
        Thank you, Mr. Chairman.
        The Chairman. I thank my colleague. I think we are waiting
    for others to come.
        I just want to come back to what constitutes a negotiation
    and innovation. I think Dr. Conti said it very well. But let me
    even simplify this.
        A negotiation, a Medicare negotiation, is just that. It is
    a negotiation process, not some sort of price control. It is a
    market-based approach to come to a price between purchaser,
    Medicare, and a producer. And it is not setting prices. What we
    are doing is, we are asking manufacturers to prove their
    product's value, and to earn their keep. That is what this is
    about.
        So I have seen, particularly some of my colleagues on the
    other side, go to considerable labors to say that every
    negotiation is some kind of nefarious price control. My friend
    has his mic on, so I think probably he wants to say something.
        But the point really is, what I have tried to spell out, is
    a
    market-based approach to get to a price--purchaser, Medicare,
    producers, manufacturers. It is a negotiation. Come on in.
    Prove your product's value. Earn your keep. And let's get this
    done, and do what everybody else in the Western world is doing.
        Senator Crapo wants to talk.
        Senator Crapo. Yes, I would like to respond, Mr. Chairman.
    You know, the notion that the Federal Government, quote,
    ``negotiating'' prices is not a price control is just hard to
    understand. The fact is, you know, we were told back during the
    Obamacare debate this very type of thing. You know, we are
    going to have the Federal Government step in and control the
    plans the insurance companies can provide for our health care.
    And that is going to drive down the cost of health-care
    insurance, and everybody is going to be happier and better off.
        Now what do we have? Most Americans can only get a choice
    between a couple of different types of plans. Those are all
    really expensive plans. Their costs have gone up through the
    roof. Not only that, but their deductibles and copayments have
    skyrocketed as well. And there are other private-sector types
    of plans that could be put into place, that insurance companies
    would provide, like low-deductible, high-risk plans, and
    different things like that, that could fit very well into a
    marketplace and help reduce the cost of insurance.
        My point is simply this. I think that the debate here is
    not over whether we need to have robust negotiations over
    prices in the prescription drug industry, in the world; the
    debate is over how should those negotiations be incentivized
    and strengthened by this committee and by this Congress? And I
    think there may be some ways, if we can get past the notion
    that the Federal Government gets to be the one that sets the
    price.
        Now I know you are not saying that. Although I am hearing
    you say that, I think the proposal that is in the Build Back
    Better Act is clearly that. If there is a way we can create
    some reforms to the negotiations that do exist today--there are
    negotiations today, but they can be strengthened and reformed
    and made more open, where the risk and the price of the cost of
    these drugs is placed in the private sector, where we then have
    the private sector incentivized to negotiate these prices
    down--we can enhance and strengthen the negotiation system.
        But it is all the question as to whether the Federal
    Government is going to set the price, or whether a market will
    set the price. And I think we ought to be able to find a way to
    get to that.
        The Chairman. Let me just respond briefly, because I think
    our colleagues are coming back, and we want to give all of them
    a chance to be heard.
        What my colleague is talking about is a different type of
    negotiation. My view is, you would have to change Federal law
    to do it, because right now the Federal Government is barred
    from negotiating. It was barred in a legal process in Part D. I
    was one of the people who voted for Part D, knowing that it did
    not do as much as was urgent to hold down costs.
        Now we have Ms. Stern's mom begging to get some charity to
    help her pay for her medicine. So what is being done today is
    not working. And I say that as somebody who voted for the
    program that my colleagues on the other side were talking
    about. And the reality is, there are places where negotiation
    works. One of them is Canada, which is what Ms. Stern told me
    about the huge price differential on her insulin.
        So, my colleagues on the other side have ideas for
    negotiations. I am all ears. Right now what we are focused on
    is, big pharma has won and won and won some more on the notion
    that in Washington, DC, they are the people who never lose.
    And, shoot, they even fought what Senator Grassley is talking
    about. They were relentless in fighting what Senator Grassley
    is talking about and has been for 2 years.
        So today is the time to get the job done right. And apropos
    of what we did in the last Congress--which I was for--it is not
    enough. Because, if you put a cap over here and you are not
    negotiating and doing what everybody else does, and what
    Medicare does in everything else, we are continuing to have
    cost shifting that hurts taxpayers, and it hurts seniors.
        The discussion will certainly continue.
        Senator Brown, I think, is next, and he is with us in
    cyberspace. Senator Brown?
        [No response.]
        The Chairman. Senator Brown? Do we have Brown's staff here?
    All right, let's go with--Senator Brown, are you out there?
        Senator Brown. I'm trying.
        The Chairman. You're good. You're in.
        Senator Brown. Is it working? Okay.
        Thanks, Mr. Chairman, and I throw in with exactly what you
    said and what Senator Cardin from Maryland said earlier. And it
    is clear that it is not working. It is clear that big pharma
    has immense power in this institution. Just yesterday, we saw
    the power that Senator Whitehouse has talked about of dark
    money in the oil industry, whether it is killing a nomination
    or stopping legislation.
        And we know that Americans are concerned about the cost of
    living. We know it with oil prices, with drug prices. Dr. Conti
    noted in her testimony that spending in pharmaceuticals has
    risen 20 percent over the past 10 years. AARP recently released
    their study that showed that more than 250 brand-name
    prescription drugs widely used by older American rose twice as
    fast as overall inflation. Drug companies, like oil companies,
    like shipping companies, like meat-packing companies, sense
    opportunity in times of inflation to inflate and raise their
    prices, because they can.
        I am not going to ask a question. I always do in these
    hearings, but I wanted instead to share a couple of letters I
    got from Ohio constituents, because I think they show the issue
    the chairman was talking about and the inability of Congress to
    do something because of the power of the drug industry, of big
    pharma. And I sense the frustration of members on both sides on
    that. You talked about Chairman Grassley--and certainly Senator
    Whitehouse and Senator Wyden and all of us, and Senator Cardin,
    share that frustration.
        Two notes I will quickly share, and I will stay within my 5
    minutes, Mr. Chairman. Gary from Montgomery County in the
    Dayton area shared with me that he takes medicine for his blood
    cancer. When first diagnosed, he had employer-sponsored health
    insurance coverage that covered most of his out-of-pocket drug
    costs. So he had to pay about $30 a month for his medicine.
    Today he relies on Medicare for his health insurance, and
    because the cost of his drugs increased and Medicare is
    prohibited--this is a choice, this is Medicare by Federal law,
    because of drug company lobbying. Medicare is prohibited from
    negotiating for better prices. The chairman said, ``Look at
    Canada. Look at the VA.'' Gary faces an annual out-of-pocket
    cost of $8,500 for a single medication. That makes no sense.
        Jeff from Delaware County, just north of Columbus, wrote:
    ``Senator Brown, I retired 4 years ago. My drug prices through
    my employer's insurance ran $68 per year. On Medicare, they
    continue to rise. Last year my out-of-pocket cost was $3,500.
    Is anything being done to help with senior citizens'
    prescription drug costs?''
        We know what is not working. We know what would work. Look
    at Canada. Look at the VA. It is important we do that. We know
    how to lower costs for Americans like Gary and Jeff. We need a
    plan to do this. Let Medicare negotiate this. This is the free
    market working. It is not Federal price controls.
        We penalize companies that price-gouge. We cap out-of-
    pocket costs. That makes so much sense when the cost of living
    is hitting retired Americans on fixed incomes particularly
    hard. Now it is time to get that job done.
        So, Mr. Chairman, thanks for this hearing. Thank you to our
    witnesses, and for speaking out on an issue that is so clear to
    the public. It is only not so clear to members of Congress who
    seem interested more in what the drug companies think than what
    the public needs.
        Thanks, Mr. Chairman.
        The Chairman. Thank you, Senator Brown, and for your years
    of advocacy.
        Our next four will be Cantwell, Toomey, Bennet, and
    Cassidy.
        Okay; Senator Cantwell?
        Senator Cantwell. Okay; thank you, Mr. Chairman. And thank
    you for this important hearing. I think really at the heart of
    it is just how many constituents we have all heard from on the
    high prices of things like insulin. It is just heartbreaking
    for seniors, or so many individuals who just cannot afford the
    price of prescription drugs. And this is really about trying to
    figure out solutions. And so I appreciate all the witnesses.
        Dr. Holtz-Eakin, I would like to focus on a couple of
    things with you, if I could. You know, I definitely believe in
    market forces. I definitely understand the problem. I explain
    to people--I worked in software for a while, and you build and
    ship a product and it only takes about 18 months, so it is
    pretty easy to get capital for something like that. To get
    capital for something that takes 18 years is a lot harder--and
    having people buy into that. But I still think that you should
    be able to use market forces once that product is developed,
    and one of those market forces is, if you buy in bulk, you
    should get a discount. And that is where I feel like States, or
    individuals who are part of a larger organization, or plans,
    just as we do with the VA, should get a discount.
        So I am a big believer in getting a discount for buying in
    bulk. I see in your testimony that PBMs and market
    concentration are two things that you think we should spend a
    little more time understanding. To me, it is just a little
    ironic that if the PBM can negotiate a discount, why can't a
    State negotiate that?
        You mentioned the formularies. My State has had a plan for
    several years called the basic plan, and that is exactly what
    the State did. Hey, you want to get access to these 40,000
    people? Let's negotiate on the formulary. And yes, there were
    choices there, but it worked out pretty well; again, for those
    companies too, because they have access to 40,000 people that
    they would not have otherwise been able to bundle up. So they
    were the low end of the market: people who worked for employers
    who did not provide insurance.
        So I want to know what you think about focusing on the
    PBMs, and particularly you mentioned the Federal Trade
    Commission. I do worry that this concentration within the
    market--I care immensely about the pharmacists. I think they
    are part of the health-care system. I think they are part of
    the delivery system. I do not want to see them go away.
        I worry that we are going to have a concentration of this
    market that is so deep that not only is it going to be a few
    people providing prescription drugs by mail, but it will end up
    undermining the pharmacy system overall. And I believe that
    they do provide information to the people right at the window
    when they are filling prescriptions.
        So this point that you made about how we should look to the
    FTC to prevent what is described as them being anticompetitive
    or deceptive or unfair, I wholeheartedly believe in that. I
    would like you to expound on that, and also on PBMs and what
    oversight that we should have on the PBMs because of their
    market power.
        Dr. Holtz-Eakin. So first off, on the FTC. In general, as
    in other parts of the economy, we ought to care deeply about
    the quality of competition and the nature of competitive
    practices to make sure that there is good monitoring of
    effective market competition. And the FTC opened a narrow
    investigation into PBMs and decided not to pursue it. My
    understanding is that some of the Commissioners would like to
    restart that process with a broader investigation, and we will
    see if that goes forward. But I think everyone should welcome a
    good, solid investigation.
        Senator Cantwell. Great. And just to that point, Senator
    Grassley and I are trying to work on this together, but I
    definitely believe that this notion of deceptive or unfair
    practices should be the issue.
        Thank you.
        Dr. Holtz-Eakin. More generally with PBMs, PBMs exist
    because their's is a valuable service. They are essentially
    managed operations risk: if the insulin costs too much, or the
    market might not be broad enough, you do not get the
    penetration you would like. And so, that was their economic
    function.
        You could get that economic function with just the insurers
    paying them with an incentive contract of some sort. ``We need
    this much to control our drug spend. We need this much for
    generic substitution. You get rewarded for that.'' We do not
    have that now. They get part of their money back in
    manufacturers' rebates, in this direct and indirect
    remuneration, in pharmacy negotiations, and so one could easily
    imagine changing the rules on rebates. We had a discussion
    about that in past years. We could imagine changing the rules
    around the DIR.
        But we should recognize that if we do that, it is not in a
    vacuum. We are not going to get it for free. We are going to
    have to get that service which is managing the drug spend
    somehow.
        Senator Cantwell. But you do not think that they should be
    able to negotiate a rebate and then pocket a big portion of it
    themselves.
        Dr. Holtz-Eakin. That was never the intent, no.
        Senator Cantwell. But do you think some of them are doing
    that? Because it feels like they are. It looks like they are.
        Dr. Holtz-Eakin. I honestly do not know, and that is what I
    am hoping the FTC will tell us.
        Senator Cantwell. Thank you.
        Thank you, Mr. Chairman.
        The Chairman. I thank my colleague also. Having spent years
    and years on this, I appreciate her efforts.
        Okay, I believe Senator Toomey is next, and then Senator
    Bennet and Senator Cassidy.
        Senator Toomey?
        Senator Toomey. Thank you, Mr. Chairman. Can you hear me
    okay?
        The Chairman. Yes.
        Senator Toomey. Terrific. Well, I think we need to talk
    about how the Democrats' government price-setting proposals
    will impact research and development, or what that means for
    improving treatment options going forward.
        We have a very good example of a segment of the market
    where there is universal coverage and a government set price,
    and that is dialysis. When someone experiences kidney failure
    and is diagnosed with end-stage renal disease, they become
    eligible for Medicare, which provides coverage for dialysis. It
    has been that way since 1972. By the way, Medicare is set up to
    pay for dialysis and encourages multiple extended weekly
    visits. There has historically been very little innovation in
    this space. Dialysis appointments at a dialysis center, every
    other day for 2- or 3-hour treatments, that remains the default
    for patients facing kidney failure.
        The former Chief Technology Officer of HHS said, and I
    quote, ``dialysis was a miracle therapy for its time, but it
    hasn't changed in 60 years,'' end quote. So contrast that to
    the innovation that we have seen in a product that does not
    have price controls, say insulin. I know some of my colleagues
    want Medicare to negotiate the price of insulin, but what they
    really mean is they want Medicare to be able to set the price
    and cap the out-of-pocket expenses at $35.
        And it seems as though this is because, in their world
    view, insulin was invented in the 1920s and a price control
    could have been implemented back then and would have made it
    affordable ever thereafter. But this completely ignores how the
    product has changed over time, and how it has improved because
    incentives for drug companies enable that improvement.
        If you do not care that much about the improvements in
    insulin, there is an option too. Think about Walmart; just a
    few years ago it was selling insulin at less than $25 per vial.
    Now that is a version of insulin that was state-of-the-art in
    the 1980s. If you are satisfied with that, it is available at
    $25 a vial.
        But because we actually do not control prices, we have had
    tremendous innovation in the insulin space. Products over the
    last few decades have changed dramatically, and that innovation
    is what patients happen to choose: synthetic insulin, longer-
    lasting products, rapid-acting formulations, accurate doses
    administered via insulin pens. The list goes on and on. These
    are not the same insulin products of decades ago. And as I
    said, patients have shown they prefer the newer, better
    products, and for good reasons.
        Some like to point out the original patent for insulin sold
    for $1 in 1923. But I know most insulin-dependent diabetes
    patients do not want to go back to the insulin of the 1980s,
    much less the insulin of the 1920s.
        What astonishes me is the inability of some of our
    colleagues to appreciate the impact that our actions today
    could have for the innovation of patients in the next 20, 30,
    or 40 years in the future; or like the case of Medicare
    coverage for dialysis, maybe we would be freezing a lack of
    innovation for 60 years or more.
        So my question for Dr. Holtz-Eakin is, could you just
    reflect briefly on how reimbursement and pricing actually make
    innovation possible and what we can expect to have happen if
    government just dictates pricing as a normal routine matter?
        Dr. Holtz-Eakin. Well, I think Dr. Conti gave a great
    description of the ecosystem that goes into the development of
    new drugs and therapies, and that is an ecosystem that has
    venture capitalists and other financial market players. It has
    small firms that are developing a drug which they hope to sell
    to a larger firm as the way they get a return on their
    investment and pay off their venture capitalists.
        We have the larger manufacturers that everyone has talked
    so much about. But in the end, that entire system is driven by
    the ability to recoup the return on a risky investment, if it
    turns out. And it turns out very rarely--92 percent of them
    fail and do not get to market.
        And so these are very risky bets. They take a long time to
    develop. And if what you get at the end of the day is the
    promise that the money will not be there, the money at the
    beginning will dry up. The small firms will not exist. And the
    big firms will not have access to new therapies and drugs to
    sell.
        So that is a long process, but it is one that relies on the
    markets that have served us well, and to intervene dramatically
    in that is going to be a recipe for problems.
        Senator Toomey. Thank you.
        Let me just take my remaining time with a quick observation
    here. The most recent 12-month print on inflation overall is
    7.9 percent. Food is up 7.9 percent. Gasoline, 38 percent.
    Electricity, up 9 percent. Natural gas, almost 24 percent.
    These are hugely problematic for ordinary Americans whose wages
    are not rising nearly as fast.
        What is so ironic is the same CPI data shows that
    prescription drugs and medical care services have had an
    increase too. It is 2.4 percent. It is less than a third the
    overall rate of inflation. And yes, we have Democratic
    colleagues who are using the general inflation, the inflation
    in everything other than prescription drugs, as a rationale for
    imposing price controls where the inflation is not nearly as
    problematic. It is a misdiagnosis, Mr. Chairman.
        The Chairman. Just to be very brief in a response, Senator
    Toomey was citing dialysis. Well, dialysis payment is part of a
    rate-setting process. There is not any negotiating. What we are
    proposing in our bill is negotiation where the manufacturer has
    a say in the price Medicare is going to pay. And by that
    theory, higher-value products get higher prices, and generally
    Americans think that is fair. And if my friend from
    Pennsylvania--and he and I can talk about these issues for
    hours--thinks everything is hunky dory with medicine, tell it
    to Ms. Stern's mom who is begging charity for a little bit of
    help with a $111,000 expense for that insulin.
        Senator Bennet, you are next.
        Senator Bennet. That is the issue, Mr. Chairman, that we
    are facing and hearing from our constituents. I have had so
    many calls and so many stories, but the other day there was one
    of a parent at the pharmacy window at the local grocery store
    who was there to get drugs for their kid. And they got the
    prescription, and they looked at the price, and they walked
    away from those drugs that their kid needed. And you know,
    parents in other industrialized countries do not have to do
    that. They do not have to walk away from the pharmacy window.
        And seniors in other countries do not have to cut their
    pills in half, or decide whether they are going to take their
    medicine or feed themselves, or skip a day. So I think we want
    to have an aspiration of living in a country where we do not
    have to do that stuff either. I think that is why we are here
    today.
        Dr. Conti, in Colorado we have a lot of access to data
    through our All-Payer Claims Database to look at the rising
    cost of drugs and services in the health sector. According to
    data analysis funded by the Colorado Health Foundation and the
    Colorado Trust, health costs rose overall for patients in
    health plans. But when you break it out by services, you see a
    few things.
        From 2013 to 2019, prescription drugs rose in Colorado by
    87 percent. Lots of other things rose, but much less than that.
    And I mean, I feel strongly--Dr. Holtz-Eakin raised this. I
    respect him, and I actually agree with him. I think we need to
    have a lot more transparency of data available to better
    understand the entire drug supply chain, including pharmacy
    benefit managers and distributors, on top of what we are
    talking about today.
        But, Dr. Conti, could you talk about the need to focus on
    prescription costs--as we are sitting here today--to lower
    costs for Americans, recognizing that there is more to be done
    in other parts of the health-care system as well?
        Dr. Conti. Yes. Thank you so much for the question.
    Patients pay the prices that pharmaceutical companies set for
    their products at the pharmacy counter. It is clear that
    patients are crippled by the increasing costs of these products
    and are making decisions about whether they are going to pay
    for these products or pay for rent, homes, schools, and other
    things that they absolutely need.
        Negotiation and the other proposed reforms will reduce the
    prices that people pay at the pharmacy counter, providing very
    substantial relief for people who are insulin-dependent, for
    people with cancer. The reforms will also reduce the cost of
    taxpayers currently.
        Senator Bennet. Could you also--and when you have finished,
    I would love to hear Dr. Holtz-Eakin on this as well. When you
    look at the historic investment in drug development for
    innovative products, I think there is a lot to be proud of.
        In Colorado we have a robust biotechnology sector working
    on vaccines and cancer drugs and other important therapies. We
    have more work to do, and we need, for example, novel
    antibiotics. And I am glad that my colleague, Senator Young, is
    working with me on the PASTEUR Act to create that, and to put
    the United States in a place to actually lead on a global
    problem that we need to find a way to address on the front end,
    not on the back end--as we learned with the pandemic.
        But the question is, are we seeing the kind of innovation
    that we need? And are the revenues in the industry ones that
    are generated by truly innovative drugs like the ones that we
    have all worked on together, the breakthrough therapy-
    designated drugs for example, that people need? Or is the
    revenue coming from marginally improved innovation? Could you
    give us a perspective on that, Dr. Conti?
        Dr. Conti. Sure. So we are very fortunate that we live in a
    country where innovation happens and we can benefit from it.
    Clearly there are drugs that come to market, breakthroughs as
    you say, that have transformed people's lives. And yet there
    are many other products out there that are really marginal
    improvements over existing products that do not provide much
    value, and yet we spend very significant amounts of money on
    them.
        Really, the proposed legislation is intended to address a
    market failure, and that is, that the companies do not want to
    compete. They want to forestall competition, and they want to
    take advantage of our system by continuing to raise prices.
        That is what we need to address, and these proposals will
    help do that.
        Senator Bennet. I am out of time. I don't know, do you have
    anything, Dr. Holtz-Eakin?
        Dr. Holtz-Eakin. I guess I would say two things. First, I
    would be quite cautious about the dangers of sort of ``me-too''
    or similar drugs coming on the market because--think about
    hepatitis C. The first drug comes on the market, and there is
    an uproar about what it costs and State Medicaid budgets. Then
    you get two more drugs that are me-toos, like all they do is
    cure hep C, but prices come down by 50 percent. There is
    effective competition. So everyone wants lower prices. The way
    to get lower prices is to have more supply and greater
    competition.
        And so, finding ways to rule out new therapies that look
    like things you have is a way for high prices too. I would
    worry about that.
        Senator Bennet. I will say--I know I am out of time--I will
    say that the PASTEUR Act that I have with Senator Young, that
    deals with an abject market failure that we have to address. If
    we do not address it, we are going to be in really bad shape.
    So, thank you.
        The Chairman. Good work on that legislation with Senator
    Young.
        Senator Cassidy?
        Senator Cassidy. Thank you, Senator Wyden.
        First a couple of things. Senator Wyden has said on several
    occasions, with all due respect, that the Wyden-Grassley bill
    passed by this committee in 2019 merely shifted costs to
    taxpayers. That is incorrect. It saved $94 billion, per the
    CBO. And in a Part D redesign, we shifted the cost away from
    the consumer, from the taxpayer, to the PBM and the
    pharmaceutical company. We capped out-of-pocket costs to
    $3,200. And we allowed an amortization of payments over 12
    months.
        Senator Cornyn had a bill that, unfortunately, had to go
    through Judiciary that addressed the patent thicket. But if we
    addressed the patent thicket, then drugs like Humira would
    actually encounter competition within 12 years. As best as I
    can tell, this bill would allow them to maintain their high
    price for 13 years.
        So we can actually work within the existing system if we
    take back up the bill we passed in 2019 on a bipartisan basis--
    and achieve $94 billion in savings, et cetera.
        With that said, I enjoyed all your testimony, but I will
    focus upon Dr. Conti--nice to see you, Dr. Conti--and Dr.
    Holtz-Eakin. It somehow seems like I see you sometimes with
    facial hair and sometimes without. So now, without.
        Dr. Conti, you mentioned that negotiations would not harm
    innovation. But some drugs are going to be particularly
    purchased by Medicare, over which Medicare would have monopsony
    power. And if it is an Alzheimer's drug, or certain cancers
    that tend to occur in older folks, is it only theoretical that
    if Bernie Sanders was President he would not kind of use this
    power to kind of squeeze down upon, you know, just kind of the
    total distrust of the profit motive, and would squeeze down
    upon innovation and all the venture capital and major investors
    required for that? You know where I am going with that: that
    the capital would dry up in the initial stages of development.
    Is that not an issue?
        Dr. Conti [off microphone].
        Senator Cassidy. Can you come a little closer to the
    microphone, please?
        Dr. Conti. The connection to the U.S. market is a
    privilege. I know that Mr. Ezell and Dr. Holtz-Eakin and the
    industry would love to call this price controls. It is not.
        We pay the highest prices in the world, and we are the
    largest market in the world. With access to our markets comes
    requirements, such as the FDA's imposing safety and efficacy
    requirements on the companies. If the companies do not do that,
    they face penalties.
        Senator Cassidy. Yes, that is in your testimony. I guess my
    question is, though, is monopsony power here not going to be
    operative?
        Dr. Conti. I am getting there.
        Senator Cassidy. I have limited time.
        Dr. Conti. No problem. So negotiation as proposed sets up a
    similar structure. It protects consumers and at the same time
    sets up a real negotiation. Pharma companies get access to this
    product, and in exchange, they should set their prices
    reasonably. All negotiation is doing is setting a process for
    doing it.
        Senator Cassidy. Is there no possibility of the Federal
    Government being particularly onerous, depending upon what the
    administration is, in attempting to squeeze prices in a way
    that would send a signal to investors not to invest in the
    early stage?
        Dr. Conti. I do not see that. And that is because, again,
    pricing is voluntary. And so many pharmaceutical companies
    price reasonably on their own. What we should expect is that
    companies will do the same here, and if anything, negotiation
    will occur in a very few set of products, if at all.
        Senator Cassidy. Dr. Holtz-Eakin, I think Dr. Conti makes
    an interesting case that our current structure encourages
    companies not to innovate but rather to tweak in order to
    squeeze a little bit more juice out of a product which is
    actually, frankly, mature, setting up patent thickets so as to
    extend the profitability of something long after patents have
    expired. Is there validity to that argument?
        Dr. Holtz-Eakin. So, well, the key here is exclusivity, and
    we want to provide exclusivity as an incentive for people to
    have genuine innovation. It is the job of the Patent and
    Trademark Office to only provide patents for novel innovations
    which are genuinely new. And so, if they are doing their job,
    that should not be a pervasive problem.
        Nevertheless, concerns remain, and I know Senator Cornyn
    had some, and I am sympathetic for looking at specific
    instances where that practice might be detrimental. The thing I
    am concerned about is that the innovation we rely on is generic
    entry to control prices. And under the proposed Build Back
    Better legislation, if you are thinking of making a generic
    alternative to a brand-name drug, you do not know if the
    Secretary is going to designate that drug at some point in the
    future to suddenly have its price cut down to 40 or 75 percent
    of ANP at a minimum, perhaps lower. That is in the legislation.
    That is not a negotiation.
        And so, are you going to make the investments so that you
    can enter that market? We just made actual generic competition
    harder, not better.
        Senator Cassidy. Can I ask a follow-up? Now, that could
    happen with the biologic follow-ons. I would say that. But let
    me ask you this. I had eye surgery. They prescribed a
    nonsteroidal for my eye pain, and it was going to cost me 50
    bucks. I had to take it twice a day, or something like that. It
    has been a while. It turns out they had discontinued my
    product. It was the same product, now it is given not twice a
    day, but once a day, and I had to pay $400 for a vial. Is that
    innovation? Or is that--technically it is innovation, but the
    tweak made me pay $350 more, an amount that someone else might
    not be able to afford. Are there different classes of
    innovation? And should we treat those different classes
    differently?
        Dr. Holtz-Eakin. The way the market would solve that
    problem is that we would have both side by side----
        Senator Cassidy. But if the same producer stopped----
        Dr. Holtz-Eakin. I hear you. So that is how you decide in a
    genuine market setting. The consumer gets to pay $50, $400,
    once, twice--I get to pick. So the issue of these hard product
    hops, where you withdraw one, is an issue that has come up.
    There is a related issue, which is, you leave them both on the
    market and you make it very hard to get the $50 version.
        Senator Cassidy. But if somebody is making both, and they
    decide to take their machinery and not make the cheap one but
    make the expensive one----
        Dr. Holtz-Eakin. Then that product is not even there for a
    generic entry, in many cases, and that is an issue.
        Senator Cassidy. But then at that point, it is protected
    for however many years.
        Dr. Conti, really quickly?
        Dr. Conti. Yes, thank you. So the legislation, as proposed,
    actually protects innovation that is truly innovative, and that
    includes products that are orphan, products that are for rare
    disease, products that are made by very small biotech
    companies.
        So I think the thought of the legislation is actually
    thoughtful about this issue, protecting and making a
    distinction between things that are real innovation from things
    that are me-too.
        Senator Cassidy. I yield back. Thank you.
        The Chairman. I thank my colleague. And let's be clear what
    we are talking about. What Professor Conti is talking about,
    and what I am talking about is, the bottom line here is, these
    companies can charge whatever they want--whatever they want--
    which is why Ms. Stern's mom is paying $111,000 dollars and is
    out there begging for people to try to give her a hand with
    medicine. I think it is just disgraceful.
        Senator Cassidy. Mr. Chairman----
        The Chairman. Hang on, if I could just finish. And apropos
    of the companies being able to charge whatever they want, we
    are going to have money moving every which way--cost shifting
    in all kinds of different directions.
        And I have to move on with my colleague. I gave my friend
    extra time. We will continue this discussion.
        Our next Senator is, I believe, Senator Casey.
        Senator Casey. Mr. Chairman, thanks very much for this
    hearing, and I want to thank our witnesses.
        I will start with Ms. Stern, and then I will have a
    question as well for Dr. Conti. But, Ms. Stern, I wanted to
    start with you and start with gratitude for your willingness to
    testify and share your mother's story and the stories of so
    many other MS patients.
        I think you spoke for a lot of families across the Nation
    with your testimony and your appearance today. When you combine
    so many costs in the lives of families that are very high with
    the cost of prescription drugs, it is like a bag of rocks on
    someone's shoulder--every day on that individual and their
    family. And we have--obviously it is not simply prescription
    drugs. We have other heavy costs that people carry around.
        The cost of care is a big one that we do not talk about
    enough, the cost of child care, which is just crushing families
    and literally preventing them from getting back to work. And we
    have not done nearly enough about the cost for care of an older
    adult, a family member, or the cost of care for people with
    disabilities.
        So you have all these bags of rocks on the shoulders of so
    many families, all at the same time, weighing people down every
    day. And if you have Medicare, it prevents you from making the
    kind of choices you would like to make about how to spend the
    dollars you have.
        On page 4 of your testimony, Ms. Stern, you list eight
    areas where people make sacrifices to more easily afford
    prescription medications, including postponing paying other
    bills they have, or postponing retirement itself, or spending
    less on their families.
        So if Congress passes reforms to cap out-of-pocket costs,
    what type of financial relief would that bring for people with
    Medicare?
        Ms. Stern. Thank you so much, Senator. It is such an
    important question. An out-of-pocket cap would be nothing short
    of life-
    changing for the MS community. I hear day in and day out from
    people with MS like my mom that they cannot afford their costs.
        Our most recent study showed people are paying an average
    of $7,000 a year just for their disease-modifying therapies.
    Even when they get to the catastrophic phase, they are paying
    $352 a month. So those numbers are so high, even people working
    in really good jobs would struggle to pay that kind of burden.
    And people who are seniors who are on fixed incomes, people
    with chronic health conditions and disabilities, they find
    those costs insurmountable.
        So we do have people making all kinds of really difficult
    decisions like not paying their bills, postponing retirement,
    putting their groceries on their credit cards. You know, I do
    not believe that our intent was ever for seniors with health
    conditions to choose between taking their meds and paying other
    bills. It is just the unfortunate outcome.
        So yes, it would be a huge step for the MS community, and
    so many other patient communities, to address out-of-pocket
    costs.
        Senator Casey. Thanks very much.
        Dr. Conti, I had a question for you, but I wanted to ask,
    are you a resident of Montgomery County, PA?
        Dr. Conti. I am.
        Senator Casey. That is great. Well, I hope you stay there.
    We need you in Pennsylvania. But I want to thank you for your
    testimony, and in particular on the basic question of high
    costs and what we can do about them.
        On page 13 of your testimony you noted, quote, that ``29
    percent of Americans either can't afford their drugs or are
    rationing their drugs,'' unquote. And I have heard this from
    countless people in Pennsylvania, that they are skipping or
    rationing their medications, or taking other steps to ease that
    financial burden.
        We had a hearing in the Aging Committee back in 2019, and
    Barbara Cisek--she is from southwestern Pennsylvania--said she
    needed to manage her costs every month, and would be paying
    over $1,500 a month if she was taking all of the medications
    prescribed.
        In her testimony, Barbara said that she was not only
    speaking on behalf of herself, but on behalf of other seniors.
    She said, quote, ``We've had to stand at the pharmacy counter
    and leave something behind,'' unquote. And that is a lot to
    leave behind with what they're paying.
        So we all believe, no matter where we stand on this issue,
    that no one should be rationing or choosing not to take
    medication rather than putting food on their table.
        So my question is, can you discuss how permitting Medicare
    to negotiate would enable people on Medicare to afford not only
    the medications, but also the basic bare necessities of their
    lives?
        Dr. Conti. Yes. People have been dealing with price
    inflation on the drugs they need to stay alive for years. This
    hurts their finances and their health. Medicare negotiation
    will directly improve the access to care. It will likely
    improve outcomes. The people who will be helped will
    disproportionately be women, Black and Brown Americans, and
    consequently, this is also going to improve equity.
        Senator Casey. Thanks very much, Doctor.
        Thank you, Mr. Chairman.
        The Chairman. Thank you, Senator Casey.
        Senator Lankford is next.
        Senator Lankford. Mr. Chairman, thank you. Thanks to all of
    our witnesses. Obviously, it is an exceptionally important
    topic today in talking through what we are going to do on drug
    pricing.
        This does affect a lot of people. I am the primary
    caretaker for my mom, who has Parkinson's and has exceptionally
    expensive medications, and I will continue to be able to
    monitor her medications in tracking this process with her.
        So all of us have stories of our families and what we are
    doing, and of individuals who are around us in the process on
    this.
        Dr. Holtz-Eakin, I want to pick up on a conversation you
    had started a while ago on generics. It is an issue that you
    and I have talked about before. In 2011, 71 percent of the
    generics were actually listed on the generic pricing tier. That
    was in 2011. Now, in 2021, 10 percent of the generics are on
    the generic tier.
        So your comment was, the way to solve some of this is to
    get more generics out there, more competition that drives the
    price down significantly. The problem with this is, the drug
    companies and the pharmacy benefit managers are working
    together to be able to keep generics off the generic tier. So
    let me give you just two examples.
        The generic of Desogen, the acquisition cost for that
    generic is $45, but the price set by the PBM is $319. The
    copayment is $105 because it is not on the generic tier. Though
    it is a generic, it is not being listed on the generic tier.
    Another example is the generic Gleevec; acquisition cost: $431
    for the generic. It is very expensive. The PBM price for it is
    $4,620. The copay then is $1,521 because it is not on the
    generic tier.
        So that should be on the generic tier, but it has been
    negotiated by the PBMs and the drug companies not to be able to
    do this. This is an issue that has rapidly accelerated in the
    last 10 years, that generics do not end up on the generic tier.
    The consumer pays much more for that.
        How do we attack that?
        Dr. Holtz-Eakin. So first, just to reiterate the importance
    of generic competition in the U.S., over 90 percent of scripts
    that get filled are generics. And U.S. generics are cheaper
    than generics around the world. So----
        Senator Lankford. Yes, 90 percent of the scrips that are
    filled are generics, but only 22 percent of the total cost for
    prescriptions are generics. So they are overwhelmingly cheaper.
        Dr. Holtz-Eakin. I am with you on that. So here's the
    issue. We all think that this is the result of the rebates from
    manufacturers to the PBMs for different tiers of placement.
        So my position as an economist is that pharmacy managers
    must provide value. We know that managed care organizations
    provide value, and we hire them. An insurance plan might want
    to hire someone to manage the benefit, and they could pay them
    for that service. So the issue is the reimbursement through the
    manufacturers' rebates and/or the DIR from the pharmacies.
        So we have discussed for years in this town the notion of
    passing that rebate through to the ultimate purchaser at the
    point of sale. That means that co-insurance and out-of-pocket
    costs are driven off net prices, not list prices. That takes
    away the tier discounts that you are talking about. That would
    be one way to go.
        And my only caution is that, given that there is a value
    that has to be paid for, it means that insurance probably has
    to pay the PBMs, and it will show up in premiums.
        Senator Lankford. Yes, but the challenge is, if the larger
    drug companies are giving a benefit to the PBM to be able to
    say they will put the generic competition on the higher-priced
    tier, then the consumer goes to the counter and says, ``Hey,
    this is my script. Is there a generic for this?'' And they say,
    ``Yes, there is. It is the same price as the brands.'' And they
    will say, ``Okay, well then, just give me the brand,'' which
    drives out the generic from the market. Then the generics
    cannot compete in that space, and eventually they drop out and
    stop producing, and we lose the benefit of it.
        If a generic is not put on the generic tier, they do not
    get the benefit of the lower price. If they get a benefit on
    that in their particular prescription plan, the consumer does
    not get it. The PBM gets the kickback on it coming from the
    pharmaceutical company saying, ``Okay, thank you very much for
    helping us out on that,'' but the consumer does not see that.
        Dr. Holtz-Eakin. And so, passing it through the PBM to the
    consumer so that the PBM cannot recoup anything from that
    rebate is one solution to that problem.
        Senator Lankford. It would be very, very significant.
        Dr. Conti, you wanted to say something on that?
        Dr. Conti. I did. The problem with passing the rebate all
    the way to the consumers is that premiums are going to rise,
    and therefore disparities are going to grow. While I believe
    that there is cause for concern, particularly the
    anticompetitive practices of the PBM, we simply need more
    information.
        The story that you just told, that there are branded
    pharmaceutical companies that are placing their products on a
    lower tier than the generics, it may happen, but it appears to
    be rare. We need more information to understand exactly what is
    happening in this market--what are the benefits, what are the
    costs of the current configuration--in order to move forward.
        Senator Lankford. I would only say that 10 years ago, 71
    percent of the generics were on generic tiers. Now 10 percent
    are. There is definitely something happening in the last 10
    years. And when Humira has generic competition starting next
    year, when there are 7 that are coming out on it, we will all
    be watching very closely to see if those end up on generic
    tiers, or if those end up on higher-priced tiers for the
    consumer.
        The Chairman. The time of the gentleman has expired.
        Senator Carper?
        Senator Carper. Thanks, Mr. Chairman.
        One of the concerns I hear most frequently from the folks I
    represent in the State of Delaware deals with the high costs--
    not of all prescription drugs, but too many. I have three or
    four principals I lean on and am guided by when it comes to
    drug pricing legislation. They are pretty simple, and I just
    want to mention them here as I start.
        One of those is, I believe we need to lower costs for
    American families. I believe we need to lower the costs for
    taxpayers in this country, for the Federal Government, if you
    will. We need to encourage innovation, and I think we need to
    improve transparency. And it not just one thing we need to do
    but a number, and those are foremost in my mind.
        We came close to achieving these aims about 3 years ago, in
    2019. Frankly, I was deeply disappointed that we were unable to
    pass legislation that this Finance Committee developed in the
    last Congress, even though I felt that the current Chairman,
    Senator Wyden, and our previous chairman, Senator Grassley, did
    a very masterful job in developing the bill with bipartisan
    support.
        While I would prefer to pass a bipartisan bill, we cannot
    just wait for that relief for patients to meet the needs that I
    just outlined. And so I see a clear path forward to deliver
    drug pricing reform for the American people in a way that is
    balanced and in a way that is fair, and I am confident that
    these policies can pass through Congress and be signed into law
    even today--even today.
        We can cap the price Americans pay, for example, for
    insulin at $35 per prescription. We can establish the first-
    ever out-of-pocket cap for seniors in Medicare Part D. We can
    institute a price inflation penalty where drug companies would
    pay a penalty to Medicare for raising their prices faster than
    inflation. And we can allow Medicare to negotiate for lower
    drug prices, not for every drug under the sun, but some of the
    most costly products that monopolize the market and do not have
    much competition.
        We know that scientific innovation is driven by American
    biotech companies that responsibly invest in R&D, and they
    develop new treatments to improve the lives of people suffering
    from any number of debilitating conditions. Yet these products
    are out of reach for too many people. There are so many factors
    that contribute to rising drug costs beyond the actions of the
    industry--among them the opportunistic practices of pharmacy
    benefit managers--that Congress must take a holistic approach
    to curb costs.
        Dr. Conti, here is my question: in your view, how would
    policies we are debating today walk the line between curbing
    costs and encouraging innovation? What further steps can
    Congress take to ensure that our approach is balanced and fair
    across the sector? Thank you.
        Dr. Conti. Thank you so much for the question. Negotiation
    is the [audio interruption]. Negotiations also [audio
    interruption] expire anyway. I support negotiations with these
    guard rails in place to preserve these incentives for
    innovation. Thanks you for your question.
        Senator Carper. Unfortunately, I could not hear your
    answer. You were cutting in and out. Just repeat your answer,
    please. Thank you. Hopefully I can hear it.
        Dr. Conti. I am so sorry.
        Negotiation is modest and thoughtful. It exempts the most
    innovative products and the most innovative companies from
    negotiation. Negotiation is also only an option well after
    product launch, well after monopoly prices were already
    supposed to expire anyway. Therefore, this set of proposals
    walks a line between being pro-innovation and pro-consumer.
        Senator Carper. All right.
        Is there any question you were not asked today that you
    wish you had been asked? What would it be?
        Dr. Conti. Again, I think that this is not price control,
    and this is not profit control. These are thoughtful proposals
    that will lower out-of-pocket costs for seniors today and
    preserve the incentives for innovation that we have currently.
        Senator Carper. That was not a question, but thank you for
    saying that nonetheless. Thank you.
        And thank you, Mr. Chairman.
        The Chairman. Thank you, Senator Carper.
        [Audio interruption.]
        The Chairman. I have to now go and vote. Here's what we are
    going to do. We will now have Senator Hassan in the chair,
    after we have the issues with the microphones eliminated. And,
    Senator Hassan, the order now will be Senator Daines and then
    you, and I will go vote and come right back.
        Okay; Senator Daines?
        Senator Daines. Chairman Wyden, thank you.
        Inflation is the worst we have ever seen now in 40 years.
    In a State like Montana, it is up a jaw-dropping 9.7 percent.
    Families cannot keep up.
        Americans everywhere are feeling the sting of these higher
    prices. And those who can afford it the least, sadly, they are
    truly feeling it the most and hurting the most. The seniors in
    Montana, its workers, are really hit the hardest.
        My colleagues on the Republican side of the aisle and I
    have been calling for common-sense solutions to address
    inflation. We look at the big picture here: restoring energy
    independence, supporting all the energy portfolio. When you
    look at energy, it is not trading one for the other, it is like
    an additive. Let's continue to add all of the above in the
    portfolio. That is the way we continue to drive market forces
    and drive prices down.
        We need to get our fiscal house in order and address the
    issue of the reckless spending we are seeing--deficit spending
    creates $3 trillion in debt--as well as supporting our small
    businesses across the country so American workers can thrive.
        Sadly, as we watch what is happening, our friends on the
    other side of the aisle are attempting to resurrect a dangerous
    and
    innovation-stifling set of policies from this Build Back Broke
    agenda. It is staggering to think that they will still be
    driving that in a moment when so much is going on in the world,
    so much going on here in our economy.
        This bill would not only make inflation worse, but it would
    reduce patient access to lifesaving medication. It would also
    undermine American competitiveness with countries like China
    and strengthen their own pharma sector. We must do better for
    all of America. We must do better for the people I serve back
    in Montana.
        Today I would urge my friends across the aisle to publicly
    ditch the BBB and focus on bipartisan policies like capping
    seniors' out-of-pocket costs in order to provide real relief to
    Americans who are struggling. Now is the time to get serious
    and truly come together in trying to find a way to help lower
    prescription drug costs for our seniors.
        Dr. Holtz-Eakin, Democrats have claimed that tax and spend
    policies in BBB are fully paid for. According to the Biden
    administration, and I quote, ``It would actually ease
    inflationary pressures.''
        As the sixth Director of the CBO, you provided budgetary
    and policy analysis to Congress. How would you respond to the
    Biden administration's claims when you estimate the impact that
    BBB might have on inflation?
        Dr. Holtz-Eakin. Well, the version that came out of the
    House, taken at face value, which is to say believing that all
    of the spending programs would sunset at the dates in the
    legislation----
        Senator Daines. Do you believe that?
        Dr. Holtz-Eakin. The public statements have been that they
    want these programs to be permanent, so I think there is good
    reason to doubt that.
        Senator Daines. Yes.
        Dr. Holtz-Eakin. And there has been no comparable public
    statement about future pay-fors. So the sort of imbalance
    between 10 years of spending and 10 years of taxes is in the
    trillions of dollars, a huge structural deficit on top of the
    one we already have.
        Senator Daines. Wouldn't it seem to you, or somebody who
    understands the details of a policy like this in your past
    experience, that it is gaming the system and these sunsets are
    just a way here to try to make it all fit? Frankly, it is smoke
    and mirrors.
        Dr. Holtz-Eakin. And the evolution of the legislation, as
    it went through the House, they tried to scale down the
    spending. They essentially cut out the tail years of spending,
    and they front-loaded the spending and added 10 years of pay-
    fors. So it is front-loaded spending, back-loaded pay-fors;
    that is a stimulus bill. And so that is not what the U.S.
    economy needs at this moment. It has already developed a very
    bad inflation problem in part due to the $1.9 trillion in the
    American Rescue Plan, which was a major policy error.
        So another round of that is not a good idea. As it came out
    of the House, it would be $150 billion in the first year. So
    that is not nearly the scale of the American Rescue Plan, but
    it is directionally the wrong way to go.
        Senator Daines. I remember having spirited debates, pushing
    back on that $1.9-trillion stimulus bill when we had nearly a
    trillion dollars unspent in COVID dollars at the end of 2020.
    These numbers here are numbing. And we said, if you launch a
    $2-trillion spending bill in the midst of additional supply
    chain constraints, you have stimulated demand in a constrained
    type of environment as relates to supply, and this is a recipe
    for inflation fire. We said that. You go back and look at the
    transcripts; we have warned the American people and our
    colleagues that this was a bad idea.
        And then, furthermore, when you talk about the dollars--I
    think there was one reputable analysis that said it was $5
    trillion of spending, and would add approximately $3 trillion
    of debt.
        Lastly, Mr. Ezell, in your testimony you mentioned how the
    prescription drug policies in BBB would curtail future
    innovation--I should say could curtail--and undermine American
    competitiveness. Can you explain how BBB would advantage
    countries like China that are seeking to bolster their own
    biopharma industries?
        Senator Hassan [presiding]. And I will just ask the witness
    to be relatively brief, because you are over time, Senator.
        Mr. Ezell. Mr. Daines, in 1995, European-headquartered drug
    companies invented twice as many new-to-the-world drugs as
    American ones. Today, it is reversed. We innovate the vast
    majority of the world's new medicines. That is because we have
    created an environment that supports innovation, but we have
    squared the circle better than any country in the world in
    terms of being able to innovate new drugs, get them to the
    patients first, support a competitive biomedical industry, and
    create pathways for companies to have more time to manage drug
    costs.
        So that is what is at stake in the international
    competition for leadership in this industry. China certainly is
    the country that has, for the past 2 decades, seen its share of
    the global pharmaceutical industry value-added grow by
    threefold, while ours has shrunk by a third. Competition from
    China is real.
        And if we do not maintain the conditions needed to sustain
    innovation in the United States, China is ready to nip our
    heels. And if you look at solar panels, for instance, in the
    year 2008, China produced 2 percent of the world's solar
    panels. Today, they produce over 70 percent. China brings every
    resource to bear to wrest industrial leadership from other
    countries, and that is why we have to take the challenge
    seriously.
        Senator Daines. Thank you.
        Senator Hassan, thank you.
        Senator Hassan. Thank you. I want to thank the chair and
    ranking member for this hearing, and I want to thank all of the
    witnesses for being here today. And I really want to get back
    to the topic at hand. Because while Americans struggle to
    afford lifesaving medications, pharmaceutical companies
    continue to raise the prices.
        Allowing Medicare to negotiate drug prices is a common-
    sense solution that will strengthen Medicare and bring relief
    to Granite State families, and families all across the country.
    We also need to penalize the companies that arbitrarily make
    large price increases. And Congress needs to act quickly to
    pass drug pricing reforms. Patients and families cannot wait
    any longer, and this is an immediate way to lower costs for
    families all across this country.
        So, Dr. Conti, I want to start with a question to you. The
    pharmaceutical industry has burdened Americans with one
    arbitrary price increase after another. These increases fall
    especially hard on patients using specialty drugs which treat
    their complex chronic conditions. A Medicare beneficiary from
    Wilmot, NH with stage one Parkinson's disease contacted me last
    week. She spent $2,100 last year on copayments for just one of
    the drugs that she takes.
        Dr. Conti, how would allowing Medicare to negotiate prices
    make specialty drugs more affordable for patients like her?
        Dr. Conti. Thank you so much for the question. Negotiation
    and inflation caps will directly benefit consumers at the
    pharmacy counter. They will find immediate price relief for the
    drugs that they need to stay alive. This will help them afford
    their medicines, and hopefully it leads to better outcomes.
        Senator Hassan. Thank you. I agree, and that is why it is
    so essential that we allow Medicare to negotiate prices and
    pass a drug pricing reform package.
        Another question to you, Dr. Conti. As prices skyrocket,
    Granite Staters have also shared their struggle to pay for
    insulin. While New Hampshire has taken steps as a State to cap
    the cost share for insulin products, the State law leaves
    unprotected the estimated 300,000 Medicare beneficiaries in New
    Hampshire. The law also does not encompass many individuals who
    are covered by
    employer-sponsored insurance, since that insurance is regulated
    by the Federal Government.
        To ease their burden, my colleagues and I introduced the
    Affordable Insulin Now Act, which would cap out-of-pocket costs
    for insulin at $35 per month.
        Dr. Conti, why are Federal reforms like this one needed?
        Dr. Conti. Thank you. There are 2.3 million seniors who use
    insulin daily, and these reforms will result in measurable
    savings immediately at the pharmacy counters. American workers
    and others who are non-Medicare-insured will also benefit from
    this change.
        Senator Hassan. Thank you very much.
        Ms. Stern, first of all, I just want to thank you for your
    very moving testimony, and thank you for being here.
        Several Granite Staters who have multiple sclerosis
    recently visited my office to share the financial toll of high
    drug prices on their families. According to the National
    Multiple Sclerosis Society, the median price of certain
    medications for MS is close to $94,000 per year, an increase of
    almost $25,000 since 2015. These Granite Staters also discussed
    the strain of worrying about how they will afford to fill their
    next prescription.
        So, Ms. Stern, how do high drug prices exacerbate the
    stress of managing a chronic condition like yours?
        Ms. Stern. That is a great question. First of all, I should
    point out that these high prices really do translate to real-
    life impacts for people with MS, and people who are relying on
    Medicare payment co-insurance for their MS disease-modifying
    therapy. So they are paying 25 percent, or whatever percent of
    the cost of that drug, and that can be a huge amount of money.
        MS is a condition that is exacerbated by stress, like so
    many other conditions. Having to navigate the system through MS
    symptoms such as chronic fatigue and sometimes cognitive
    issues--it represents a huge burden for the person with MS, for
    their family, for their support system.
        Senator Hassan. Thank you very much. And again, thank you
    for being here. It is not always easy sharing your personal
    experiences in a hearing, but it is really important.
        The chair is back, so I will turn it back to him.
        The Chairman. I thank my colleague. It is a busy day.
        Let's go to Senator Cortez Masto.
        Senator Cortez Masto. Thank you, Mr. Chairman. I want to
    thank you for this important hearing today, and thank you to
    the panelists for the discussion.
        What I have heard this morning is, we all know that there
    are major market failings in the health-care sector right now.
    We can see that in really the huge profits that we are talking
    about today that the pharmaceutical industry rakes in. And that
    is why Medicare does need tools to negotiate for fair prices
    from pharmaceutical companies, prices that will let drug
    companies continue to innovate without gouging seniors or
    Federal taxpayers.
        That is not a popular opinion, unfortunately, among some
    drug manufacturers. What I have heard today is that it will
    somehow--they have said it is government price control, and
    that it will stifle innovation. There is a lot of fear-
    mongering going on out to the general public, and you have to
    kind of question why that is happening.
        And so let me just put a couple of things on the record
    here, because I think it is important. This is not price
    control. And, Dr. Conti, I am going to have you touch on that.
    What is price control--and you touched on this--is when
    pharmaceutical companies set the prices and we cannot negotiate
    lower prices for taxpayers, for Americans across the country.
    That is price control.
        ``Government price control'' really is a tactic, from what
    I am hearing from some of my colleagues, to scare people.
    Because, quite honestly, if we want to talk about what the
    government does to lower costs, we have a perfect example in
    the GSA, which literally--the U.S. Government GSA awards
    contracts to vendors who want to do business with Federal
    agencies, because there are a lot of Federal agencies, and they
    are allowed to do that business based upon pricing that is fair
    and reasonable and would provide the best value at the lowest
    overall cost.
        So the Federal Government is already doing this to get the
    best price, and in this instance we are looking at negotiation
    under Medicare to get the best price for people who are in the
    program. It just astounds me that there is so much fear-
    mongering going on around here.
        So really what I hear on government price controls, what I
    am hearing is that pharmaceutical companies are afraid for the
    free market to take place, and negotiations to take place to
    lower the costs. That is one.
        Two, there was conversation about a bill that we passed on
    July 25, 2019, out of this committee, the Prescription Drug
    Pricing Reduction Act of 2019. Not only did it pass out of this
    committee in a bipartisan way--and unfortunately at the time,
    there were nine Republicans who did not support it--but it
    passed under a Republican administration and Republican
    leadership. It went nowhere. It was not passed on the floor of
    the Senate, but it should have been.
        And I agree, not only should that piece of legislation,
    which we passed out of this committee, get passed on the floor
    of the Senate and get to the President's desk for signature,
    but we should also be passing drug price negotiation in
    Medicare so that we can lower costs for so many people across
    this country.
        It is not working. I mean, just listen to the general
    public. It is not working right now. It is the number one issue
    I hear when I am at home. Something is going on.
        So, Dr. Conti, can you once again talk about how false this
    is that somehow if we allow prescription drug negotiation that
    it is going to inhibit innovation?
        And by the way, let me just add, if you are concerned that
    somehow it is going to inhibit it because it is going to reduce
    profit for the pharmaceutical companies, then let me add to
    their profit line. Stop doing those commercials on TV. Let our
    doctors decide the drugs and prescriptions that patients need
    and not advertise all over the television with all of these
    commercials. That could save dollars for the pharmaceutical
    companies that they could put back into R&D and innovation.
        But, Dr. Conti, please tell me. Is it true that it is going
    to stifle innovation?
        Dr. Conti. It is not true. Nothing about our current
    ecosystem, which is the envy of the world where we bring the
    most drugs to market and the most innovative drugs to market,
    will change after this legislation is passed.
        And at the same time, consumers will be able to pay for the
    products that they need to stay alive, stay well, stay working,
    and stay to take care of their families.
        Senator Cortez Masto. Thank you.
        And let me say, Ms. Stern, thank you for being here. Thank
    you. I have a cousin, a year younger than I am, with MS. And he
    is in a wheelchair. And the worst thing that I can see is not
    only how my aunt and he have to manage the costs for their
    drugs with everything else that they have to do--food on the
    table, and pay their bills, and a roof over their head--but
    here is the other thing.
        Can you talk about the anxiety that comes with worrying
    about prescription drug costs, and what toll that takes on a
    patient who is really having challenges already with their
    health? What kind of impact does it have on their mental
    health?
        Ms. Stern. Yes. So I would say these are excruciating
    decisions, right? These are impossible. And I said in my
    testimony I think it is one of the most compelling findings we
    have had in the last decade. Forty percent of the people with
    MS are altering the use of their medications. And they are
    making those choices, you know, depending on what they are
    being charged for their meds and what money they have.
        So, they might be skipping doses. They might be going off
    their meds altogether. And with that, you worry about what is
    going to happen to my disease. Is my MS going to progress? Am I
    going to lose mobility or cognition or something like that? And
    will it ever come back?
        So I mean, it is anxiety that really compounds the
    difficulty, as you said, of living with a disease that is
    already a challenge.
        Senator Cortez Masto. Thank you. I know my time is up.
        Thank you, Mr. Chairman.
        The Chairman. I thank my colleague, and she has been such
    an advocate--Attorney General, in so many sectors--we really
    appreciate her leadership.
        Next is Senator Young.
        Senator Young. Thank you, Mr. Chairman. I welcome the
    witnesses.
        My State of Indiana has a robust life sciences industry. We
    are very proud of that. The pipeline for new drugs and cures is
    growing because of alignment between innovators and regulators
    that recognizes the benefit of innovative therapies.
        I am concerned that policies included in the partisan Build
    Back Better Act will have significant long-term impacts on
    investment and discoveries to improve, save, and extend lives
    that are currently being made in this country.
        So my question is for Dr. Holtz-Eakin. Doctor, you led the
    Congressional Budget Office years ago, and there are some
    differing analyses of the impact BBBA policies will have on new
    drugs.
        Now the Congressional Budget Office and the University of
    Chicago, for example, are widely differing in their
    assessments. Can you explain how the CBO has a perception that
    the Build Back Better Act proposals are more modest and less
    threatening to drug development compared to other studies?
        Dr. Holtz-Eakin. Well, I cannot speak for the CBO any
    better than they can speak for themselves, so I would direct
    you to the publications they have. They have a publication on
    their modeling of the drug industry and the development
    process.
        As with most issues in economics, there is often a range of
    findings in the research literature. And I think the message to
    those making policy is, you should move slowly and cautiously
    in those circumstances where there are such large and divergent
    differences in the estimates of the impacts on innovation.
        I will just point out that there is no one who believes
    that this is going to put more money into the drug development
    ecosystem. And so, at best it is zero. And most people conclude
    that it is negative, and the only question is, how negative?
        Senator Young. Yes. And in light of the very serious
    implications that one might expect through passage of the Build
    Back Better Act, one would think that we would move slowly and
    cautiously towards, first adoption of the legislation, and then
    implementation. And this committee, the Committee on Finance,
    did not even hold a hearing on the Build Back Better Act. So I
    think that is troubling.
        I am glad we are holding this hearing today, as it relates
    to some of the facets that we can touch on. The research and
    development tax credit is something I would like to turn to
    next.
        Senator Hassan and I have introduced the bipartisan
    American Innovation and Jobs Act to support R&D investments by
    companies large and small. This bill will restore full and
    immediate deduction of R&D investments. It will expand the
    refundable R&D tax credit for our startups by raising outdated
    credit caps.
        I know there is a lot of bipartisan support for this
    effort, and I think people recognize that, now more than ever,
    we have to find bipartisan solutions to stimulate our economy,
    get Americans back to work, and ensure we maintain our global
    competitiveness on the economic stage.
        I recently led a letter, relatedly, with Senator Hassan to
    Senate leadership to prioritize R&D in any upcoming
    legislation. And so, Dr. Holtz-Eakin, I ask you: can tax
    incentives like section 174 and the R&D refundable tax credit
    for small businesses help in the development of innovative
    prescription drugs and keep costs down in the long term?
        Dr. Holtz-Eakin. I think the evidence is very clear that
    this is something that has been beneficial for R&D in the U.S.
    I think it is poorly understood that most R&D is done in the
    private sector. Our support for that R&D, where there is a
    clear economic case that not every firm gets the full benefit
    of the R&D--there are spillovers to the rest of the economy.
    Our credits are low by international standards and could be
    more generous. I think it is a big mistake to move to
    amortizing the R&D. We should be fully expensing it. And the
    quicker we can reverse that, the better.
        Senator Young. Yes.
        Mr. Ezell?
        Mr. Ezell. Thank you for the leadership on that issue,
    Senator Young. And to Dr. Holtz-Eakin's point, the United
    States really invented this instrument as a motivator of
    innovation in 1981, and for decades America had the world's
    most generous R&D tax credit.
        Today we have fallen to 24th out of 32 OECD countries in
    R&D tax credits. In countries like Brazil and India, you have a
    tax credit three times more generous than ours.
        Brazil and India have a tax credit three times more
    generous. That is instructive and a powerful example. Where is
    communist China in terms of their incentives they offer? Well,
    of course that is an opaque system, but at least what is on
    paper is actually more generous than ours. It is more generous
    than ours.
        Senator Young. Okay.
        Thank you so much, Mr. Chairman.
        The Chairman. I thank my colleague. And just to be clear, I
    think my colleague said there had not been any hearings and
    markups on matters relating to Build Back Better. I think my
    colleagues know that with respect to the centerpiece, which is
    the Clean Energy for America legislation, we had hearings. We
    had a long, long markup, and it was actually reported out.
        So I just want the record to be clear on that.
        Senator Warren?
        Senator Warren. Thank you, Mr. Chairman.
        Earlier this month you and several others on this committee
    joined me in sending a letter to PhRMA about two studies that
    reveal troubling increases in drug prices. The studies showed
    that in January alone, 1 month, manufacturers raised prices for
    16 of the 20 top-selling Medicare Part D drugs, and increased
    prices for brand-name drugs by an average of over 5 percent.
        Now, in their response to our letter, PhRMA revealed that
    there is no rationale other than industry price gouging for
    raising prices. And I would like to share some of what we have
    learned in evaluating PhRMA's weak attempt to justify these
    price increases.
        First, PhRMA claimed that drug manufacturers were not
    increasing prices at all, that back-door rebates and discounts
    have caused the average prices of medicine to actually decline.
    But they very carefully cherry-picked the data on this. In
    fact, according to the Congressional Budget Office, quote,
    ``Brand-name drugs have experienced substantial growth in
    average prices.''
        Dr. Conti, what do you think about PhRMA's claim that
    prices are secretly declining?
        Dr. Conti. Thank you. It is fiction. PhRMA sets the prices
    of their products, and we are seeing over and over again that
    the prices of, particularly specialty drugs have increased both
    overall, but also for specific consumers at the pharmacy
    counter.
        Senator Warren. Thank you, Dr. Conti.
        You know, I think the data are clear on this. Brand-name
    drug prices are rising, not falling. And it is absurd to claim
    otherwise. So let's go to their second argument.
        Next, PhRMA claimed that their price increases were not
    really hurting consumers at the pharmacy counter. Ms. Stern,
    you represent patients who are forced to pay high drug prices.
    What do you make of PhRMA's argument that increases in list
    prices do not actually hurt consumers?
        Ms. Stern. You know, I would say right off the bat that
    that does not reflect the lived experiences of people with MS,
    and seniors, and people with chronic health conditions across
    the country who are telling us that they cannot afford their
    drugs, that they are going off of their drugs, that they are
    skipping doses. And we do hear, you know--I think I have shown
    that the MS medications have gone up exponentially and that the
    patients are paying a percentage of that cost in their co-
    insurance.
        But it is not just our medication. A lot of medications are
    going up dramatically. And it is like you said, you can kind of
    cherry-pick those statistics, but that does not mean that
    people are not faced with the choice of buying their groceries
    or taking their medication.
        Senator Warren. Okay, so prices are going up. And people
    are feeling it when they go to fill a prescription.
        Let's take a look at PhRMA's third argument. PhRMA blamed
    everyone but themselves for higher prices. They claimed that
    middlemen like pharmacy benefit managers, pharmacies, insurance
    companies, were more to blame than the manufacturers.
        And do not get me wrong. I know there are some serious
    problems with the middlemen, but none of those problems absolve
    big pharma for their part in the price increases.
        So, Dr. Conti, when you think about brand-name drugs,
    especially the very expensive ones, is it fair to say that
    brand-name drug manufacturers collect more revenue from drug
    sales and have higher profit margins than the middlemen that
    PhRMA is trying to blame for the price increases?
        Dr. Conti. Yes, absolutely. Research shows that the
    industry itself is benefiting off of the high list prices they
    are setting and the year-over-year price inflation they are
    experiencing on these products.
        The only way that the PBMs are enriched by that is if there
    is competition in these markets. There is no competition in
    these markets, and therefore there is no rebate, and therefore
    the PBMs are not benefiting.
        It is the companies themselves that are benefiting from the
    high prices and price increases that they are setting. The
    companies own documents support this claim.
        Senator Warren. Thank you. And I appreciate your analysis
    of the data here.
        You know, what we have happening in the drug industry is
    exactly what is happening throughout the economy. Big drug
    manufacturers have outsized market power, and they face little
    or no competition for their brand-name drugs. So basically,
    they are free to increase prices exactly as much as they want
    to.
        That hurts patients. It drives up inflation. And it needs
    to stop. And that is why we need to pass legislation that lets
    Medicare negotiate for lower prices and cut costs for
    beneficiaries. And it is why the administration also needs to
    use its existing authorities such as compulsory licensing and
    march-in rights to rein in drug prices immediately.
        We know what the solutions are. We just need to put them in
    place and get it done. Thank you.
        Thank you, Mr. Chairman.
        The Chairman. Thank you, Senator Warren. And we have been
    at it for 3 hours at this point, and I think we know what the
    bottom line here is. Pharma can charge whatever it wants,
    period, full stop. And we now have watched over the last 3
    hours the bookends, where Ms. Stern describes how her mom, with
    her help, is out there begging for a good chunk of the year to
    be able to cover a bit of the $111,000 that her mom has to pay
    for medicine.
        So what is the response from some of my colleagues sitting
    over here? They say, ``Oh, my goodness. We care about prices
    too, but if you do anything to really negotiate, oh, it is
    going to be horrible. We will not get innovation. We are not
    going to be able to make progress with the cures we all want.''
        So along comes Dr. Conti, who is a professor, a
    distinguished professor, and she lays out very clearly how when
    you negotiate in the right ways--and she described our bill as
    doing that--it is not price control, and it is not going to
    destroy innovation.
        So that is where we are, folks. And to me, it is a serious
    problem right now. And the staff went out and found that the
    problem is getting worse. The differential between the
    international and domestic prices is getting worse.
        So my message is--I am heading home this weekend for four
    town meetings. I have one in every one of my counties open to
    everybody. I had 1,000 of them. I am going to tell them what I
    said pretty much today. I am going to do everything in my power
    to make sure this Congress does not wrap up until the patients
    whom we have been talking about today get a fair shake, and
    pharma has not been able once again to derail real reform.
        Everybody always bets on pharma because they are so
    powerful, and they have always been able to hold off change, to
    stiff-arm it, saying it is going to hurt innovation, and it is
    this, and it is that. Well, as I said earlier, this has been
    the longest-running battle since the Trojan War. This is the
    time now for the people of this country who have said
    overwhelmingly, we think it is just common sense for Medicare
    to be able to negotiate the price of medicine, because
    everybody negotiates everything else. It is just common sense
    to get that done.
        And I want to say ``thank you'' to all of you. There are
    differences of opinion on this panel, and it has been a good
    debate. But I just want to make sure that the word to everybody
    in this country who is following this issue is, we are the
    committee that is in charge of it, and I am determined that
    this is going to be the time when there is real change, and
    finally the consumer gets a fair shake and is in a position to
    afford medicine and does not have to beg, and we follow Dr.
    Conti's counsel that we do it in a way that does not discourage
    innovation.
        With that, the Finance Committee is adjourned.
        [Whereupon, at 12:49 p.m., the hearing was concluded.]

                                A P P E N D I X

                  Additional Material Submitted for the Record

                                  ----------

         Prepared Statement of Rena Conti, Ph.D., Associate Professor,
       Department of Markets, Public Policy, and Law, Questrom School of
                          Business, Boston University
                               summary of remarks
        There is an urgent need for Congress to reform how Medicare pays
    for prescription drugs. Proposals to reduce drug prices, such as
    proposed in the recently passed House bill (H.R. 5376), will not harm
    pharmaceutical innovation and will improve affordability for the
    American public. I review the strong empirical evidence base supporting
    these claims.
                          my background and expertise
        I am Rena M. Conti, Ph.D., associate professor of markets, public
    policy, and law in the Questrom School of Business, and co-director of
    the Technology Policy and Research Institute, a joint program of Boston
    University's Business and Law Schools. Between 2006 and 2018, I was
    faculty at the University of Chicago. I am a graduate of Harvard
    University's Interfaculty Initiative in Health Policy, concentration
    economics.

        My research interests are in the economics of the pharmaceutical
    industry. I have published over 100 peer reviewed articles, many in top
    economics, policy and medical journals. I have taught health economics
    and strategy in the pharmaceutical industry for 2 decades.

        My research work is supported by grants, including from the
    National Cancer Institute, the Leukemia and Lymphoma Society, the
    American Cancer Society and Arnold Ventures.
                overview of proposed reforms and likely savings
        There is a social compact between the American public and
    pharmaceutical companies: the industry is supported by taxpayer
    investments to benefit their health at an affordable price.\1\ It does
    so by supporting all aspects of innovation and competition. Yet, some
    pharmaceutical companies are breaking the social compact.
    Pharmaceutical companies set prices of prescription drug which are so
    high they impose financial toxicity on the American public. Twenty-nine
    percent of Americans either can't afford their drugs or are rationing
    their drugs.\2\ Instead of seeking the next breakthrough, companies
    delay competition to maintain exceptional revenue.
    ---------------------------------------------------------------------------
        \1\ Gruber J., Johnson S., ``Jump-starting America: How
    breakthrough science can revive economic growth and the American
    dream.'' NY: Public Affairs, 2019.
        \2\ Kirzinger A., Lopes L., Wu Bryan, Brodie M., ``KFF Health
    Tracking Poll--February 2019: Prescription Drugs.'' March 2019.
    ---------------------------------------------------------------------------
    Reform Provisions Address These Challenges in Several Ways \3\
    ---------------------------------------------------------------------------
        \3\ Conti R.M., Frank R.G., Gruber J., ``Regulating Drug Prices
    while Increasing Innovation.'' New England Journal of Medicine.
    385(21): 1921-1923. November 2021.
    ---------------------------------------------------------------------------
        First, by imposing penalties on pharmaceutical companies to ensure
    that prices do not increase greater than inflation. These changes will
    reduce the number of prescriptions Americans don't fill or currently
    ration due to their expense.

        Second, by extending new authority for the Federal Government to
    negotiate Medicare prices for selected drugs.\4\ Negotiation will only
    target of drugs that have frequently manipulated the FDA rules and
    patent policy to extend exclusivity far beyond the intent of the
    legislation that created our patent system.
    ---------------------------------------------------------------------------
        \4\ U.S. House of Representatives. ``Drug Price Investigation. Lost
    Savings: How Prohibiting Medicare Negotiation Has Cost Taxpayers.''
    Staff Report, Committee on Oversight and Reform. September 2021.

        Third, by redesigning seniors' pharmacy coverage to cap out of
    pocket costs.
    Reforms Will Generate Significant Savings for the American Public Over
            the Next Decade \5\
    ---------------------------------------------------------------------------
        \5\ Congressional Budget Office. ``CBO's Simulation Model of New
    Drug Development.'' Working Paper Series 2021-09. August 2021.

        For example, reform proposals aim to cap seniors' out of pocket
    costs for insulin at $35 dollars per prescription. For the 2.27 million
    seniors who use insulin daily, this will result in measurable
    savings.\6\ American workers will also benefit from this change.
    ---------------------------------------------------------------------------
        \6\ Turner A., Conti R.M., Hughes-Cromwick P., ``Strategies to
    Advance Insulin Affordability in the United States.'' Altarum's Center
    for Value in Health Care. September 2020.

        With access improvements, better health will likely follow.\7\
    ---------------------------------------------------------------------------
        \7\ Chandra A., Flack E., Obermeyer Z., ``The Health Costs of Cost
    Sharing.'' National Bureau of Economic Research Working Paper 28439.
    February 2021.

        Reform will benefit the American public in other ways. Reform will
    benefit taxpayers. One government estimate suggests reform will
    generate $160 billion in savings over the next decade.
                        reform will not harm innovation
    What These Proposals Will Not Do Is Harm Pharmaceutical Innovation
        Prior debates on how to make drugs more affordable have been
    weighed down by concerns about how reducing any drug prices will reduce
    the number of new ``cures.'' A particularly colorful version of this
    claim include the head of PhRMA, the industry lobby group, threatening
    reform would cause a ``nuclear winter'' for innovation.\8\
    ---------------------------------------------------------------------------
        \8\ U.S. House of Representatives, Committee on Oversight and
    Reform. ``Drug Pricing Investigation: Majority Staff Report.'' December
    2021.

        Those claims are not empirically based.
    First, CBO Reports That the Proposed Legislation Would Have Very Little
            Impact on the Number of New Drugs Produced
        The non-partisan Congressional Budget Office's report suggests that
    an earlier version of the latest House proposal would not result in
    material reductions in innovation in the next decade and would have
    small effects over 30 years--1 less drug over the next decade and 4
    less drugs over the subsequent decade.

        Even then, the CBO report may have overstated reform's impact on
    innovation. CBO's estimate does not account for the coincident
    increases in profits the pharmaceutical industry has realized in the
    past 2 years and is expected to increase in the next 5 years.\9\ CBO
    assumes pre-COVID-19 growth in revenues derived from pharmaceutical
    sales. It does not account for the expected effects of pharmaceutical
    company revenue increases from COVID-19 therapeutics and vaccine sales,
    and outsized revenues from new product launches in oncology and
    immunology.
    ---------------------------------------------------------------------------
        \9\ IQVIA. ``Global Medicine Spending and Usage Trends: Outlook to
    2025.'' April 2021.
    ---------------------------------------------------------------------------
    Second, New Drugs Are Not the Same as New ``Cures''
        In the context of reform, the key policy question for assessing the
    trade-off is not how many new drugs maybe lost (i.e., absolute quantity
    of new drugs), but what is the likely impact on breakthrough treatments
    by reducing prices for a limited number of older high-cost drugs (i.e.,
    quality of new drugs)?

        Most of the evidence on which all sides base their claims come from
    the same ``natural experiment'', the expansion of Medicare to include
    the drug benefit or Medicare Part D implemented in 2006.\10\ The
    research consistently showed that the number of new drugs grows as the
    market increased.
    ---------------------------------------------------------------------------
        \10\ Blume-Kohout M.E., Sood N., ``Market Size and Innovation:
    Effects of Medicare Part D on Pharmaceutical Research and
    Development.'' Journal of Public Economics. 97: 327-336. January 2013.

        Yet, on the question of quality, the story is different. Research
    by Dranove and colleagues shows that the new launches following Part D
    implementation were almost entirely in areas where there were already
    existing therapies (5 or more, rather than 2 or fewer).\11\ They also
    found that few were truly innovative. Figure 1 from the paper
    highlights this point clearly.
    ---------------------------------------------------------------------------
        \11\ Dranove D., Garthwaite C., Hermosilla M., ``Pharmaceutical
    Profits and the Social Value of Innovation.'' NBER Working Paper 20212.
    June 2014.

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    Figure 1. Number of New Indications by Medicare Market Share Less
    ---------------------------------------------------------------------------
                  Than or More Than Five Existing Treatments.

        Research by Amy Finkelstein \12\ provides some insight into the
    possible mechanisms behind this. Her work argues that the companies
    took existing products that were ``on the shelf'' but not sufficiently
    profitable with the smaller market and launched them as the market
    grew.
    ---------------------------------------------------------------------------
        \12\ Finkelstein A., ``Static and Dynamic Effects of Health Policy:
    Evidence From The Vaccine Industry.'' The Quarterly Journal of
    Economics. 119(2): 527-564. May 2004.

        Research by Byrski and colleagues extends this line of
    analysis.\13\ They examine the same data on the impact of the creation
    of Part D and then looked at the impact of the market expansion on new
    drugs, new patents, and new published science. What they found was that
    they could replicate the increase in new drugs found by prior studies
    and there was no overall evidence of increases in patenting or new
    published science.
    ---------------------------------------------------------------------------
        \13\ Byrski D., Gaessler F., Higgins M.J., ``Market Size and
    Research: Evidence from the Pharmaceutical Industry.'' National Bureau
    of Economics Research Working Paper 28858. May 2021.

        In addition, most of the new pharmaceutical products (excluding
    generics) approved by the U.S. FDA are not new drugs at all. Data on
    FDA approvals from 2011 through 2021 show that of all brand name drug
    products approved only 32 percent were new molecular entities. The rest
    represent new version of old drugs. This is reflected in industry SEC
    filings and public testimony showing large R&D investments in new
    ---------------------------------------------------------------------------
    formulations for existing blockbuster drugs.

            Bristol-Myers spent a large part of its 2018-2019 R&D dollars
    for line extensions for Opdivo and Yervoy existing blockbusters.

            Sanofi testified in the Senate that only 33 of its 81 R&D
    projects were for new chemical entities.
    Third, New Breakthrough Treatments Come From New Science
        Drug innovation that is truly transformative for human health often
    emerges in large part from taxpayer supported research and development,
    even though this is rarely reflected in the pricing of the resulting
    drugs, nor in commensurate ``payback'' to the funding agencies that
    made them possible.

        While the industry often plays an important role in bringing new
    drugs to market, all drugs brought to market in the U.S. can trace
    their discovery back to NIH-
    supported basic and translational science.\14\
    ---------------------------------------------------------------------------
        \14\ Kesselheim A.S., Tan Y.T., Avorn J., ``The Roles of Academia,
    Rare Diseases, and Repurposing in the Development of the Most
    Transformative Drugs.'' Health Affairs (Millwood). 34(2):286-93.
    February 2015.

        Current reforms will not alter the American public's support for
    ---------------------------------------------------------------------------
    these investments.

        Therefore, as long as Congress continues funding the National
    Institutes of Health and university-based scientists, then we can be
    assured that the next generation of important new treatments will be in
    the pipeline.
    Fourth, Additional Drivers of Innovation Will Not Be Altered by Reform
        The pharmaceutical industry wouldn't exist without the support of
    the American public in many additional ways. These include:

            Patents and other types of intellectual property protections
    offer the potential for economic rewards to invention of new
    treatments.\15\
    ---------------------------------------------------------------------------
        \15\ Lerner J., ``150 Years of Patent Protection.'' American
    Economic Review. 92(2): 221-225. May 2002.

            Public support is also linked to the later-stage development
    of many transformative drugs at university labs or spin-off small
    companies before being acquired by large manufacturers.\16\ For
    example, the public supports private sector investments into orphan
    diseases, antibiotics, COVID-19 therapeutics and vaccines.\17\
    ---------------------------------------------------------------------------
        \16\ Nayak R.K., Avorn J., Kesselheim A.S., ``Public sector
    financial support for late stage discovery of new drugs in the United
    States: Cohort study, BMJ. 367(l5766). September 2019.
        \17\ Congressional Research Service. ``Operation Warp Speed
    Contracts for COVID-19 Vaccines and Ancillary Vaccination Materials.''
    March 2021.

            Robust financial markets which affect both the existence and
    pace of innovation.\18\
    ---------------------------------------------------------------------------
        \18\ Hall B., Lerner J., ``The Financing of R&D and Innovation.''
    Chapter 14 in Handbook of the Economics of Innovation, vol. 1: pp. 609-
    639. 2010.

        The American public also supports policies that protect consumers
    from companies taking advantage of this support. For example, the U.S.
    Food and Drug Administration establishes the level of testing for
    safety and efficacy that pharmaceutical companies must conduct to avoid
    patient harm. Policies such as The Drug Price Competition and Patent
    Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act,
    support innovation and competition.
    Finally, Proposed Reforms Are Further Targeted to Mitigate Potential
            Harms to Innovation
        Empirical evidence suggests even many of the most expensive drugs
    make in revenue the full costs of research and development within 5
    years post-launch.\19\ Under currently discussed reforms, drugs are
    only eligible for Medicare price negotiation after being on the U.S.
    market for more than a decade. Therefore, the proposed reforms give
    manufacturers plenty of time to make profits on new drugs while
    reducing the incentives companies currently face to forestall
    competition. Reform's focus on older drugs a decade or more post-launch
    for negotiation obviates another extreme argument the industry
    propounded earlier in the debate, that companies will refrain from
    launching their products in the U.S. if they are subject to
    negotiation.
    ---------------------------------------------------------------------------
        \19\ United States Government Accountability Office. ``Drug
    Industry: Profits, Research and Development Spending, and Merger and
    Acquisition Deals.'' GAO-18-40. November 2017.
    ---------------------------------------------------------------------------
       there is a strong evidence base for the reforms currently proposed
    U.S. Pharmaceutical Spending Levels and Trends
        There were 6.3 billion prescription dispensed in the U.S. market in
    2020. Older Americans use most dispensed prescription drugs and
    polypharmacy is common. Nearly 7 in 10 adults aged 40-79 used at least
    1 prescription drug in the past 30 days in the United States (69.0
    percent) and around 1 in 5 used at least 5 prescription drugs (22.4
    percent).\20\
    ---------------------------------------------------------------------------
        \20\ Hales C.M., Servais J., Martin C.B., Kohen D., ``Prescription
    drug use among adults aged 40-79 in the United States and Canada.''
    NCHS (National Center for Health Statistics) Data Brief. 347. August
    2019.

        U.S. pharmaceutical spending currently represents approximately 14
    percent of overall health-care spending,\21\ including 4 percent of
    spending in non-retail outpatient clinics and hospital settings.
    Spending on pharmaceuticals has risen by 20 percent over the past 10
    years; an average of 2 percent per year.\22\
    ---------------------------------------------------------------------------
        \21\ Conti R.M., Turner A., Hughes-Cromwick P., ``Projections of US
    Prescription Drug Spending and Key Policy Implications.'' JAMA Health
    Forum. 2(1): e201613. January 2021.
        \22\ IQVIA Institute. ``The Use of Medicines in the United
    States.'' May 2021.

        U.S. spending on pharmaceuticals is forecast to grow 0-3 percent
    CAGR over the next 5 years. To put these figures in broader context,
    industry reports expect global medicine spending through 2025 to amount
    to about $1.6 trillion. Projected global spending on pharmaceuticals by
    IQVIA, the industry gold standard, is $88 billion higher than their
    ---------------------------------------------------------------------------
    pre-COVID outlook.

        Two types of on patent ``branded'' pharmaceuticals contribute
    substantively to drug spending growth: new drugs and the expanded use
    of existing drugs. Also notable is that specialty drugs, including
    those in the protected Part D categories of oncology and immunology,
    have been increasing as a share of spending. In 2020, specialty drugs
    comprised 47 percent of spending, up from 24 percent 10 years earlier.
    Specialty drug spending is expected to increase to 60 percent of total
    pharmaceutical spending in the U.S. by 2025.

        According to a recent analysis by the Kaiser Family Foundation,
    half of all Part D covered drugs (50 percent of 3,343 drugs) and nearly
    half of all Part B covered drugs (48 percent of 568 drugs) had price
    increases greater than inflation between July 2019 and July 2020, which
    was 1.0.\23\ Moreover, 23 of the top 25 Part D drugs and 16 of the top
    25 Part B drugs had price increases above inflation between 2019 and
    2020.\24\ See Figure 2 for details.
    ---------------------------------------------------------------------------
        \23\ Cubanski J., Neumann T., ``Prices Increased Faster Than
    Inflation for Half of all Drugs Covered by Medicare in 2020.'' KFF
    Issue Brief. February 2022.
        \24\ Annual price increases are also inconsistent with the notion
    that prices are optimized for profit maximization at launch and appear
    unrelated to approval of supplemental indications, additional
    information about the benefits associated with treatment, and potential
    increases in manufacturing costs. See Bennette C.S., Richards C.,
    Sullivan S.D., Ramsey S.D., ``Steady Increase in Prices for Oral
    Anticancer Drugs after Market Launch Suggests a Lack of Competitive
    Pressure.'' Health Affairs (Millwood). 35(5):805-12. May 2016.

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    Figure 2: Price Trends Paid by Medicare Beneficiaries Outpace
                                   Inflation.

    High Pharmaceutical Prices and Price Inflation Are a Result of
            Pharmaceutical Companies Breaking the Social Compact With the
            American Public
        Paying high prices for new pharmaceuticals is one way among many
    the American public encourages innovation. The counterweight to paying
    high prices is competition. Our system relies on competition after
    patents and other exclusivities expire on pharmaceuticals to bring down
    prices and reduce spending. We expect companies to move onto innovate
    the next opportunities.

        Yet, there is mounting empirical evidence that this social contract
    has been violated by some pharmaceutical companies.\25\ New reports
    released by the U.S. House of Representatives' Oversight Committee
    details drug companies egregious and widespread manipulation of our
    system to delay competition from lower-priced generics and biosimilars
    of such drugs a decade or more after launch.
    ---------------------------------------------------------------------------
        \25\ For an explanation and summary of activities, see Statement by
    Michael A. Carrier to House Judiciary Committee (Subcommittee on
    Antitrust, Commercial, and Administrative Law). House Subcommittee of
    House Judiciary Committee hearing. April 27, 2021.

        Price inflation is the direct result of pharmaceutical companies
    ensuring their profitability in drugs by delaying competition.\26\ The
    House Oversight's recent report on Copaxone, an MS drug, suggests Teva
    played many games to forestall competition, while raising prices.\27\
    Celgene and Bristol Myers Squibb's Revlimid,\28\ a drug that treats
    blood cancers launched in the U.S. in 2005, and Abbvie's Humira, a drug
    that treats arthritis and other inflammatory diseases launched into the
    U.S. market in 2002 has only recently faced competition. The pricing of
    these drugs in the U.S. has also increased since launch. A 1-month
    supply of Revlimid pills now costs approximately $23,000 and a 1-month
    supply of Humira injections costs approximately $10,000.
    ---------------------------------------------------------------------------
        \26\ See for example, U.S. House of Representatives. ``Drug Pricing
    Investigation AbbVie--Humira and Imbruvica.'' Staff Report, Committee
    on Oversight and Reform. May 2021.
        The report states ``New documents show that these settlements
    allowed AbbVie to delay competition far beyond what its own internal
    assessments of the strength of its patent portfolio predicted. In 2014,
    AbbVie's executives estimated that three to five biosimilar competitors
    would enter the market by the first quarter of 2017. AbbVie ultimately
    entered into settlement agreements with four of these competitors,
    delaying their entry into the market until 2023.''
        \27\ U.S. House of Representatives. ``Drug Pricing Investigation
    Teva--Copaxone.'' Staff Report, Committee on Oversight and Reform.
    September 2020.
        \28\ U.S. House of Representatives. ``Drug Pricing Investigation
    Celgene and Bristol Myers Squibb--Revlimid.'' Staff Report, Committee
    on Oversight and Reform. September 2020.

        Moreover, the significant revenues reaped from these activities by
    the pharmaceutical companies are not primarily directed into research
    and development efforts. Instead, high prices, price increases and
    significant profits lead to higher executive compensation, dividend
    payments to stockholders and stock buybacks.\29\
    ---------------------------------------------------------------------------
        \29\ U.S. House of Representatives. ``Industry Spending on
    Buybacks, Dividends, and Executive Compensation.'' Staff Report,
    Committee on Oversight and Reform. July 2021.
    ---------------------------------------------------------------------------
    Why Should Americans Always Have to Pay the Highest Prices for
            Pharmaceuticals?
        The U.S. is the largest market for prescription drugs in the
    world.\30\ Approximately 40 percent of all prescription drug sales is
    in the U.S. market.\31\ Corporate profits off the sale of prescription
    drugs are expected to reach over $1.3 trillion in 2021 and the top
    pharmaceutical companies are more profitable than those in non-
    pharmaceutical industries, including the technology giants Apple and
    Amazon.\32\
    ---------------------------------------------------------------------------
        \30\ International Federation of Pharmaceutical Manufacturers and
    Associations. ``The Pharmaceutical Industry and Global Health. Facts
    and Figures 2021.'' April 2021.
        \31\ United States Government Accountability Office. ``Drug
    Industry: Profits, Research and Development Spending, and Merger and
    Acquisition Deals.'' GAO-18-40. November 2017.
        \32\ Ledley F.D., McCoy S.S., Vaughan G., Cleary E.G.,
    ``Profitability of Large Pharmaceutical Companies Compared With Other
    Large Public Companies.'' JAMA. 323(9): 834-843. March 2020.

        Pharmaceutical companies strongly prefer to launch new drugs in the
    U.S. where they fetch the highest prices.\33\ Unlike other OECD
    countries, U.S. payers place no limits on the prices pharmaceutical
    companies can charge for drugs while they are protected from
    competition by patents and market exclusivities. These features lead
    drug companies to set high prices well above standard measures of
    clinical and economic benefit and pursue price increases that greatly
    exceed the general rate of inflation.\34\ In fact, evidence suggests
    pharmaceutical companies target U.S. payers for drug price increases,
    while at the same time decreasing prices in other countries. Celgene's
    Revlimid and Teva's Copaxone took significant price increases to
    increase revenue in the U.S. at the same time as cutting prices in
    other countries. In a new study of cancer drugs, pharmaceutical
    companies are observed to increase prices in the U.S. that exceed
    inflation, while at the same time prices stayed stable or declined in
    Germany and Switzerland.\35\ When Abbvie pursued price increases on
    Humira, it claimed it did so because it was being ``forced'' to reduce
    prices in other countries. While it may make common sense for firm to
    offset ``losses'' with gains, this pricing behavior by pharmaceutical
    companies controverts the companies' own statements to Congress
    suggesting the prices of prescription drugs in the U.S. are untethered
    to those in other countries.\36\
    ---------------------------------------------------------------------------
        \33\ National Academies of Sciences, Engineering, and Medicine.
    ``Making Medicines Affordable: a National Imperative.'' Washington, DC:
    National Academies Press. 2018.
        \34\ Schondelmeyer S.W., Purvis L., ``Rx Price Watch: Brand Name
    Drug Prices Increase More than Twice as Fast as Inflation in 2019.''
    AARP Public Policy Institute. November 2019.
        \35\ Vokinger K.N., Hwang T.J., Carl D.L., Laube Y., Ludwig W.-D.,
    Naci H., Kesselheim A.S., ``Price changes and within-class competition
    of cancer drugs in the USA and Europe: A comparative analysis.'' The
    Lancet Oncology. March 2022.
        \36\ Pharmaceutical company executives have dismissed this as a
    possibility, stating repeatedly that there is no direct relationship
    between U.S. drug prices and foreign prices. See U.S. House of
    Representatives. ``Drug Pricing Investigation AbbVie--Humira and
    Imbruvica.'' Staff Report, Committee on Oversight and Reform. May 2021;
    and PhRMA. Complaint, in Litigation Challenging Legality of the
    Administration's Most Favored Nation Rule. December 4, 2020.

        While many expensive biologics remain without competition in the
    U.S., inexpensive biosimilars have been available since 2006 within
    Europe. In 2021, biologics represented 34 percent of spending in Europe
    on pharmaceuticals.\37\ Despite 2020 being impacted by the COVID-19
    pandemic, the volume of biosimilar prescribing in the EU is estimated
    to have generated a record high in savings from biosimilar competition,
    of =5.7 billion (about $6.8 billion USD) in savings versus the pre-
    biosimilar cost of the originator by 2020.
    ---------------------------------------------------------------------------
        \37\ IQVIA. ``The Impact of Biosimilar Competition in Europe.''
    December 2021.

        When reforms reduce the option for companies to pursue such
    behavior, pharmaceutical companies will move onto seek revenue by
    investing in innovative treatments. When the Supreme Court ruled that
    companies could no longer pay to delay generic entry, the companies
    that were doing that instead started to pour money into research and
    development.\38\
    ---------------------------------------------------------------------------
        \38\ Li X., Lo A.W., Thakor R.T., ``Paying Off the Competition:
    Market Power and Innovation Incentives.'' NBER Working Paper 28964.
    June 2021.
    ---------------------------------------------------------------------------
    American Public ``Financial Toxicity'' Related to High and Growing
            Pharmaceutical Prices
        Expanded pharmaceutical insurance coverage has benefited many. Yet,
    too many seniors are locked out of the promise of pharmaceuticals
    currently available. The prices of some drugs seniors need to stay
    alive--such as Tysabri and Rebif for MS and Revlimid and Imbruvica for
    cancer--are now so high that they exceed the costs of a private
    university education. A recent survey suggests 18 million Americans
    can't pay for the drugs they need.\39\ The substantial costs of cancer
    care on patients are now so common they are termed ``financial
    toxicity,'' a play on the commonly encountered medical toxicities
    patients experience with chemotherapy.\40\
    ---------------------------------------------------------------------------
        \39\ Witters D., ``In U.S., an Estimated 18 Million Can't Pay for
    Needed Drugs.'' Gallup. September 21, 2021.
        \40\ National Institutes of Health, National Cancer Institute.
    ``Financial Toxicity Associated with Cancer Care--Background and
    Prevalence.''

        My own work on this topic focuses on the blood cancers, multiple
    myeloma (MM) and chronic lymphocytic leukemia (CLL), which represent a
    small percentage of all cancers, but for which treatment costs are
    among the highest. Treatment advances in both cancer types have
    resulted in greater survivorship and improved quality of life for
    patients. Nevertheless, my research group has found that close to half
    of the blood cancer patients we surveyed report financial difficulties
    associated with cancer treatment. Reports of financial burden commonly
    include an inability to pay for basic necessities such as food and
    utility bills, the presence of medical debt and high out of pocket
    ---------------------------------------------------------------------------
    burdens relative to income.

        There is also underuse. In my study, reports of financial burden
    are associated with worrisome deficits in care--medication non-
    adherence including skipping medication, taking less medication or not
    filling recommended prescriptions at all. In other work, while new
    drugs have transformed calls for the elimination of HIV \41\ and the
    hepatitis C virus by 2030 \42\ into tangible goals, these drugs remain
    underused.
    ---------------------------------------------------------------------------
        \41\ U.S. Department of Health and Human Services. ``HIV National
    Strategic Plan: A Roadmap to End the Epidemic for the United States
    2021-2025.'' 2021.
        \42\ Hofmeister M.G., et al. ``Estimating Prevalence of Hepatitis C
    Virus Infection in the United States, 2013-2016.'' Hepatology. 69:
    1020-1031. November 2018; Centers for Disease Control and Prevention.
    ``CDC Estimates Nearly 2.4 Million Americans Living with Hepatitis C.''
    Press Release. November 2018.

        The status quo also imposes costs on taxpayers. Finally, these
    behaviors harm workers in the form of higher health insurance premiums
    and lower wages.
                                  conclusions
        In summary, the consequences of continued congressional inaction on
    pharmaceutical prices are simply untenable. Currently, 29 percent of
    Americans either can't afford their drugs or are rationing their drugs.
    Proposed reforms will not harm innovation. Proposed reforms will not
    alter the American public's substantial support for basic science,
    product development, strong universities, nor a highly favorable
    funding environment. Proposed reforms will not alter patents or market
    exclusivities pharmaceutical companies selling their products to
    American consumers currently enjoy nor reduce insurance coverage for
    these products.

        After reform, the U.S. will remain the largest market for
    pharmaceuticals in the world. After reform, the U.S. pharmaceutical
    industry will remain the most profitable sector in our economy. After
    reform, the U.S. economy will remain the most highly supportive of
    innovation activity globally. Consequently, pharmaceutical companies
    will continue to invest in innovative products and investors will
    remain invested in this sector.

        What these reforms do represent is a modest step towards limiting
    the economic burden placed on Americans from pharmaceutical companies'
    manipulations of our system. In doing so, they help restore the social
    compact between pharmaceutical companies and the American public.

                                     ______

                    Prepared Statement of Hon. Mike Crapo,
                           a U.S. Senator From Idaho
        Thank you, Mr. Chairman, and thank you to all of our witnesses for
    being here today.

        Congress plays an important role in ensuring access to affordable
    prescription drugs for Americans from all walks of life. To that end,
    last year, I reintroduced the Lower Costs, More Cures Act.

        This comprehensive legislation contains dozens of concrete
    proposals aimed at lowering out-of-pocket costs at the pharmacy
    counter, in addition to strengthening supply chain oversight and
    combating foreign freeloading. With inflation at 40-year highs,
    straining family finances for far too many Americans, the Lower Costs,
    More Cures Act would bring peace of mind to seniors across the Nation
    by placing a hard cap on out-of-pocket drug spending under Medicare
    Part D.

        Our bill would allow beneficiaries to access additional Part D plan
    choices, including low-deductible and reduced cost-sharing options, as
    well as plans that pass more discounts directly to consumers at the
    pharmacy counter. For seniors with diabetes, we would build on the work
    of the Trump administration, which established a game-changing program
    that guarantees access to insulin at no more than $35 a month. Our
    legislation would permanently protect and extend this initiative, which
    already covers more than two in every five seniors enrolled in Part D.

        Nearly 2 decades ago, I joined bipartisan majorities in both
    chambers in voting to enact Medicare' prescription drug benefit. Since
    then, Part D has achieved incredible success, coming in at half of its
    projected cost, with stable premiums, high satisfaction rates, and more
    than 50 plan options for the average enrollee.

        The Lower Costs, More Cures Act would build on these successes,
    advancing scores of pro-patient solutions for Medicare and the broader
    prescription drug market. Our legislation would strengthen cost-
    comparison tools, remove disincentives for prescribing lower-cost
    medications, enlist a Chief Pharmaceutical Negotiator to drive better
    trade deals for Americans, and facilitate outcomes-based arrangements
    for cutting-edge therapies, to name just a few key provisions.

        Importantly, all of these solutions could pass both chambers of
    Congress with overwhelming support. Virtually every provision in the
    Lower Costs, More Cures Act reflects a bipartisan proposal with broad
    buy-in across the political spectrum. This bill, if allowed to advance,
    could head to the President' desk within days, delivering meaningful
    relief to Americans.

        Unfortunately, all signs seem to indicate a partisan path forward
    on drug pricing, based on the deeply problematic policies included in
    the House-passed Build Back Better Act. These proposals would impose
    bureaucratic government price controls with a host of bad consequences
    for consumers, patients, and small businesses.

        According to a recent study from University of Chicago researchers,
    innovative R&D would decline by nearly one-fifth under these proposed
    price controls, leading to a staggering 135 fewer new drug approvals in
    the next 2 decades.

        Another report found that Medicare payments for physicians and
    other front-line health-care providers would also fall under the
    proposed government price-setting program, with add-on payments slashed
    by an average of 40 percent for those targeted. These policies, which
    borrow from the failed experiments of the past, would do nothing to
    tame inflation. In fact, they would trigger higher launch prices for
    new medications.

        By enacting these drug price controls, we would hand a competitive
    edge to our global rivals, including the Chinese Communist Party. At
    home, we would see fewer new treatments and cures, higher prices for
    new drugs, more health-care provider strain and burnout, and an
    alarming expansion of the Federal bureaucracy, giving Washington, DC
    more control over our health-care system.

        We have a responsibility to pursue solutions that reduce out-of-
    pocket drug spending, particularly for seniors. The Lower Costs, More
    Cures Act provides a practical blueprint for this type of initiative,
    leveraging targeted policies with bipartisan backing to address the
    needs of Americans at the pharmacy counter, the hospital, and the
    doctor' office.

        In the weeks ahead, we should move toward consensus-driven
    legislation with broad buy-in, rather than partisan price controls
    likely to double down on the most deficient aspects of our health-care
    system.

        We also need to identify policies that tackle the root causes and
    drivers of inflation, which rose to a staggering 7.9-percent rate, year
    over year, last month. This means reducing our crippling deficit;
    unleashing American energy; streamlining costly regulations that have
    strained small businesses; and protecting the tax reforms implemented
    under the Tax Cuts and Jobs Act of 2017, which led to record-high
    levels of business investment, historic lows in unemployment and
    poverty, and record-high incomes during the past administration.

        With that, I thank our witnesses again for joining us and
    testifying today. Thank you, Mr. Chairman.

                                     ______

        Prepared Statement of Stephen J. Ezell, Vice President, Global
      Innovation Policy, Information Technology and Innovation Foundation
                                  introduction
        Chairman Wyden, Ranking Member Crapo, and members of the Senate
    Finance Committee, thank you for inviting me to share the views of the
    Information Technology and Innovation Foundation (ITIF) on the issue of
    the U.S. life-sciences innovation ecosystem and the relationship
    between drug prices and patient costs in the U.S. Medicare and broader
    health-care system.

        ITIF is an independent, nonpartisan research and educational
    institute focusing on the intersection of technological innovation and
    public policy. As the world's leading science and technology policy
    think tank, ITIF's mission is to formulate and promote policy solutions
    that accelerate innovation and boost productivity to spur growth,
    opportunity, and progress.

        While there is a need to reform the Medicare Part D program--
    notably by capping out-of-pocket patient costs and reforming rebate
    policies--the reconstructive surgery of drug price controls envisioned
    in the Build Back Better Act (BBBA), the H.R. 3 legislation before it,
    or the prior administration's International Price Index (IPI) is not
    the ideal way to manage America's drug prices.

        This testimony begins by contending that U.S. prescription drug
    expenditures have been broadly stable and consistent over time--and
    expected to continue to be so in the future--while broadly in line with
    those of international peers. It will show that prescription drug
    prices are, in fact, not a contributor to increased U.S. inflation
    rates and that, overall, consumer prescription drug expenditures have
    risen at a much lower rate than the increase in total health-care
    expenditures since 2005.\1\ It will contend that to the extent
    policymakers wish to reform drug pricing challenges, they need to
    consider the costs that are introduced by all actors across the
    pharmaceutical supply chain and compare profits in all relevant
    sectors, where the drug industry has lower profits than most other
    health-care subsectors. It will then examine the impact America's
    biopharmaceutical sector has on the U.S. economy and examine the
    significant value of the medicines and therapies the sector produces on
    Americans' quality, longevity, productivity, and the economic impacts
    thereof. It will contend that stringent drug price controls are not
    only unnecessary and unwarranted but actually quite damaging in a
    number of ways, including by inhibiting drug research and development
    (R&D), actually impeding patients' access to innovative medicines, and
    potentially undermining nations' biopharmaceutical competitiveness, as
    drug price controls have in other nations. It concludes with policy
    recommendations to better manage drug prices, including policy actions
    that could increase the R&D efficiency of America's biopharmaceutical
    innovation system and reforms to assist seniors at the pharmacy
    counter.

        America is fortunate to be home to the world's leading
    biopharmaceutical industry--one that leads the world in R&D spending
    and the introduction of innovative, often breakthrough drugs that
    improve, extend, and save lives. That America has become the leader as
    a result in part of intentional and conscientious public policy choices
    over the past 4 decades to make it so: robust public and private R&D
    investments, investment incentives like the R&D tax credit, and strong
    technology transfer and commercialization systems. American
    policymakers should be proud of this industry and have as their
    foremost consideration policies that could further enhance its
    innovation and productivity potential, such as increased National
    Institutes of Health (NIH) R&D funding, expansion of public-private
    industrial R&D programs such as the National Institute for Innovation
    in Manufacturing Biopharmaceuticals (NIIMBL) that seek to enhance the
    cost-effectiveness of drug discovery and manufacturing practices, and
    building up America's biomedical STEM (science, technology,
    engineering, and mathematics) talent pipeline.

        On February 2, 2022, President Biden announced an aggressive,
    revitalized cancer moonshot that seeks to reduce the death rate from
    cancer by at least 50 percent over the next 25 years while improving
    the experience of people and their families living with and surviving
    cancer, thus trying to ``end cancer as we know it today.''\2\ While
    these are certainly laudable and needed aspirational goals, the last
    thing policymakers should be doing is introducing stringent drug price
    controls that would hinder investments needed to meet the challenge.\3\
    Moreover, this is at a time when competitors, especially China, are
    seeking to overtake America's lead in the biopharmaceutical
    industry.\4\

        Policymakers should proceed very cautiously before drastically
    reforming a successful system that has enabled America to lead the
    world in biomedical innovation, to get innovative drugs to patients
    first, to support a vibrant and competitive domestic biopharmaceutical
    industry, and to do so while maintaining stable prescription drug
    expenditures (as a share of total health-care expenditures) over time
    through a system that marries incentives for innovation and conditions
    for competition with pathways to introduce cheaper generic and
    biosimilar drugs.
                  drug expenditures have been stable over time
        Critics contend that drugs have experienced ``skyrocketing costs,''
    are rapidly rising, and are a major contributor to U.S. inflation.\5\
    However, the data suggests that, broadly, U.S. drug expenditures have
    been roughly stable over time.\6\ For instance, according to the
    Peterson Center on Healthcare and Kaiser Family Foundation, the
    percentage of total U.S. health-care spending going toward retail
    prescription drugs was consistent from 2000 to 2017, at mostly under 10
    percent, and even dipped slightly to 8 percent in 2020.\7\ (See Figure
    1.)

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        Moreover, the prescription drug share of national health
    expenditures is expected to remain stable and consistent going
    forward--just as it has over the past 2 decades. In fact, in a 2020
    report, research firm Altarum found that the share should remain
    roughly stable in the 9 percent range through most of this decade, with
    non-retail expenditures also roughly stable in the 4.5- to 4.9-percent
    range over that period. (See Figure 2.) Prescription medicines account
    for approximately 14 percent (as of 2018, 13.7 percent) of total U.S.
    health-care spending, with that overall share also looking to remain
    consistent throughout this decade.\9\

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        It should also be noted that America's expenditures on
    pharmaceuticals are well in-line with those of international peers. The
    Organisation for Economic Co-operation and Development (OECD) provides
    internationally comparable data on OECD members' expenditures on
    pharmaceutical drugs as a percentage of their total health spending.
    For 2020, the United States stood right in line with peer nations, with
    its 12.6 percent of expenditures (as calculated by the OECD's
    methodology) just slightly more than Austria, France, Ireland, and
    Switzerland's 11.9 percent and below Australia and Germany's 13.8 and
    14.3 respectively.\11\ Sweden's substantially lower share at 9.7
    percent and Japan's reportedly higher share at 17.8 percent may well
    reflect population health peculiarities: Sweden having one of the
    world's more physically fit populations, Japan a more elderly one that
    requires more prescriptions. But the broader point stands: on this
    indicator, as with many others, U.S. pharmaceutical spending as a share
    of national health spending is quite in line with peer nations and far
    from out of balance. Moreover, for a roughly equivalent level of
    national investment, America's life-sciences system gives it so much
    more, including the ability to field the world's most competitive
    biopharma industry and lead the world producing innovative medicines
    and getting them to citizens first.

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        Thus, both historical and international expenditure trends
    demonstrate that U.S. prescription drug spending cannot be termed
    ``skyrocketing'' or abnormally high. Drug expenditures have largely
    been stable, suggesting that the historical rate of increase in drug
    prices has not been excessive compared to other health-care costs.

        Moreover, prescription drugs are in no way a significant
    contributor to the increased inflation the United States is presently
    experiencing. In fact, over the past 12 months, prescription drug
    prices increased just 2.4 percent, well below the average consumer
    price index (CPI) increase of 8 percent and less than other parts of
    the U.S. health-care system, such as health insurance, which
    experienced a 4.1-
    percent increase. (See Figure 4.)

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        Nor is this recent trend unique. In fact, as calculated by the
    U.S. Bureau of Labor Statistics, from 2005 to 2020, Americans' reported
    expenditures on health insurance increased by over 160 percent, and
    total health-care expenditures increased 94 percent, while consumer
    expenditures on drugs actually fell by almost 9 percent. (See Figure
    5.) Of course, this does not necessarily mean overall drug expenditures
    fell because health insurance and hospitals also purchase drugs, but it
    does address consumers' out-of-pocket costs.

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        While drug expenditures have grown at moderate rates in recent
    years, an increasing share of those expenditures goes not to the
    manufacturer but to other actors in the supply chain. When payment is
    made for a prescription drug at the point of sale, only a portion of
    that payment accrues to the drug manufacturer. The rest accrues to non-
    manufacturer stakeholders in the supply chain--pharmacy benefit
    managers (PBMs), health plans, hospitals, the government, and
    pharmacies in the form of rebates, discounts, fees, and other
    payments.\15\

        Over time, drug manufacturers have lost a growing share of drug
    expenditures to other members of the drug supply chain, such as PBMs,
    health plans, hospitals, the government, and pharmacies. Since 2013,
    the share of drug expenditures going to manufacturers has decreased by
    13 percent. Thus, while total expenditures on brand drugs grew by $268
    billion between 2013 and 2020, only 31 percent of the increase accrued
    to the manufacturers, while 69 percent accrued to other stakeholders.
    By 2020--for the first time ever--over half of drug expenditures
    accrued to non-manufacturers. (See Figure 6.)

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        Indeed, particular attention must be paid to the role played by
    rebates and discounts. Discussion of drug prices tends to focus on the
    annually announced increase in the list prices for prescription drugs.
    However, sales of prescription drugs are subject to substantial
    manufacturer rebates and discounts, leading to a considerable reduction
    in manufacturer earnings. Researchers at the University of Pittsburgh
    School of Pharmacy and Medicine estimate that while the average annual
    increase in the list price for prescription drugs between 2007 and 2018
    was 9.1 percent, the net increase in drug prices after rebates was only
    4.5 percent.\17\

        In recent years, as list prices have been growing at a slower pace,
    the volume of discounts and rebates has increased. For example, in
    2020, list prices grew at an average rate of 4.4 percent, but net
    prices decreased by 2.9 percent.\18\ As The Wall Street Journal, citing
    data from the SSR Health Report, notes, ``[A]verage U.S. list prices
    for prescription medicines rose in the past decade, but net prices--
    after rebates and discounts--rose less sharply and have recently
    declined.''\19\ (See Figure 7.) In fact, one study found that more than
    one-third of drug list prices were rebated back to pharmacy benefit
    managers and other entities in the supply chain. As that report
    describes, ``Pharmaceutical spending estimates that omit rebates and
    discounts do not fully reflect the underlying competitive dynamics of
    the pharmaceutical sector and provide a misleading impression of drug
    spending.''\20\

        Fees charged by intermediaries also subtract from drug manufacturer
    revenues. PBMs nearly quadrupled the fees they charge biopharmaceutical
    companies--such as administrative and service fees--between 2014 and
    2016. Total fees charged to biopharmaceutical companies by these
    middlemen increased from $1.5 billion in 2014 to $2.6 billion in 2015,
    and then doubled to nearly $5.6 billion in 2016. Along with rebates,
    these fees--which are typically based on the list price of a medicine--
    contribute to a system of misaligned incentives where middlemen make
    more money when the list prices of medicines increase.\22\

        Despite an increase in the share of negotiated rebates shared with
    health plan and employer clients, total PBM revenue increased between
    2014 and 2016. That's in part due to the increasing administrative fees
    they charged biopharmaceutical companies. But PBMs aren't just charging
    biopharmaceutical companies more than ever before--they also brought in
    a record total of $22.4 billion in revenue in 2016 by charging more to
    others in the supply chain, such as health plans and pharmacies.\23\

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                               profitability
        America's life-sciences innovation sectors are not enjoying
    consistently outsized returns, particularly when compared to other
    actors in America's health-care system. For example, Deloitte's ``2020
    Global Life-sciences Outlook'' report finds that drug intermediaries
    and retailers--notably pharmacies, wholesalers, and PBMs--generally
    earned higher returns on investment over the years 2011 to 2017 than
    the biopharmaceutical and medical device manufacturers who are actually
    innovating new-to-the-world, life-saving or life-improving drugs and
    medical devices.\24\ By 2017, pharmacies and wholesalers continued to
    enjoy substantially higher returns on capital (RoC), while PBMs and
    health plans realized slightly larger returns than pharmaceuticals.
    (See Figure 8.)

        In fact, the report found that of the U.S. health-care sectors it
    studied (as shown below), life-sciences manufacturers (pharmaceuticals
    and medical technology) actually experienced the largest drop in
    returns on capital (ROC), from 17 percent in 2011 to 11 percent in
    2017.\25\ In other words, the often-made claim that drug prices are too
    high because of limited competition and excess profits does not hold up
    to the evidence.

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        Researchers at the University of Southern California have
    sought to estimate excess returns (the extent to which a firm's profits
    are higher than expected given the risk associated with their
    investments) for manufacturers and middlemen in the pharmaceutical
    supply chain. They found that the rate of return on investments of
    large firms in the pharmaceutical industry between 2013 and 2018 was
    just 1.7 percent once adjusted for the risk premium paid for capital
    and the more logical treatment of R&D expenditures as long-term
    investments rather than current costs.\27\ For comparison, the overall
    S&P 500 had an excess rate of return of more than double--3.6 percent--
    over this period.

        In an article in the International Journal of Health Economics and
    Management, Sood et al. found that other players in the pharmaceutical
    supply chain realized higher excess returns. Specifically, for the
    period 2003 to 2018, they found that wholesalers earned excess returns
    of 8.1 percent and that insurers, PBMs, and retailers collectively
    earned excess returns of 5.9 percent. The authors did find that the
    cohort of biotechnology firms in their study realized the highest
    excess returns of any group, at 9.6 percent, though they note this was
    in part driven by several blockbuster drugs introduced from 2013-2015,
    notably new hepatitis C drugs, and that by 2018 the sector's excess
    rate of return had fallen to under 9 percent. More importantly,
    however, the authors note that, ``In contrast with middlemen, monopoly
    power in the pharmaceutical and biotech sectors--derived through the
    U.S. patent system--provides [an] incentive for innovation that might
    not happen otherwise.''\28\ In other words, as the subsequent section
    elaborates, society enjoys high-value impacts in terms of quality,
    productivity, and longevity of life from the latter sector's returns.
    Sood et al. conclude by fairly noting that ``policies that promote
    competition in all areas of the pharmaceutical supply chain are
    important avenues'' for managing drug spending.

        That said, even modestly higher returns for America's biotechnology
    or pharmaceutical sectors should not be cause for significant concern.
    As a former Congressional Office of Technology Assessment (OTA) study
    pointed out, ``Pharmaceutical R&D is a risky investment; therefore,
    high financial returns are necessary to induce companies to invest in
    researching new chemical entities.''\29\ Or, as Harvard University
    industrial organization economist Scherer writes, ``Had the returns to
    pharmaceutical R&D investment not been attractive, it seems implausible
    that drugmakers would have expanded their R&D so much more rapidly than
    their industrial peers.''\30\

        This is why price controls would be so damaging to the industry. As
    the OTA study found, ``excess returns over R&D costs would be
    eliminated if the annual revenue per compound was reduced by 4.3
    percent over the product's life.'' This is a similar finding to the
    OTA's finding that U.S. drug firms had an average profit rate of just 2
    to 3 percentage points higher per year than the internal rate of return
    in control-group industries.\31\ In other words, efforts to drive down
    profits may yield only small price declines, as compared to generating
    significant R&D reductions, as a subsequent section further
    elaborates.\32\
                       value created by innovative drugs
        The reality is that America derives tremendous value from the 14
    cents on every health-care dollar it spends on prescription drugs.
    First, pharmaceutical innovation boosts longevity, productivity, and
    standards of living. Second, pharmaceutical treatments and therapies
    that can intervene earlier to prevent, effectively treat, or even cure
    diseases can save America's health-care system from incurring
    considerable costs by helping keep patients out of hospitals and
    physicians' offices. For this reason, far from being viewed solely or
    even principally as a cost, medicines (and their prices) should be
    viewed as a key component of the solution to burgeoning overall health-
    care system costs. For example, if the cost of medicines were to
    increase by 10 percent, but this could yield 15- or 20-percent savings
    to the broader health-care system, then surely this would be a tradeoff
    worth making.

        To the first point above, Columbia University professor Frank
    Lichtenberg finds that pharmaceutical innovation accounted for 73
    percent (or 1.27 years of the 1.73-year increase in life expectancy) of
    the increase between 2000 and 2009 in life expectancy at birth across
    30 countries, including the United States.\33\ Another study by
    Lichtenberg found that drugs launched since 1982 have added 150 million
    life-years to the lifespans of citizens of the 22 countries analyzed,
    with the average pharmaceutical expenditure per life-year saved being
    $2,837.\34\ In other words, it would cost just $2,837 to extend life 1
    year. A related study found that if no new drugs had been launched
    after 1981, the number of years of life lost would have been more than
    twice as high as it actually was.\35\

        Consider cancer. Since peaking in the 1990s, U.S. cancer fatality
    rates have fallen by 32 percent.\36\ Approximately 73 percent of
    survival gains in cancer are attributable to new treatments, including
    medicines.\37\ For instance, the development of breakthrough drugs such
    as Imatinib for chronic myeloid leukemia (CML) has increased the 5-year
    survival rate for CML patients to 89 percent, with many CML patients
    now living close-to-normal lifespans.\38\ Such innovations explain why
    American citizens enjoy the highest cancer-survival rates in the world,
    with over 90 percent of U.S. women suffering from breast cancer still
    living 5 years later, something which matters greatly when 1 in 2
    American women, and 1 in 3 men, are likely to receive a cancer
    diagnosis in their lifetime.\39\

        To the second point, drugs further produce health system value well
    above their cost. For instance, Lichtenberg finds that from 1997 to
    2010, ``the value of reductions in work loss days and hospital
    admissions attributable to pharmaceutical innovation was three times
    larger than the cost of new drugs consumed.''\40\ Elsewhere,
    Lichtenberg found that the mean number of lost workdays, lost school
    days, and hospital admissions declined more rapidly among medical
    conditions with larger increases in the mean number of new (post-1990)
    prescription drugs consumed.\41\ He further found that ``the use of
    newer prescription drugs also reduced the ratio of the number of
    workers receiving Social Security Disability Insurance benefits to the
    working-age population, and has had a positive effect on nursing home
    residents' ability to perform activities of daily living.''\42\
    Updating this work in October 2021, Lichtenberg estimated the value in
    2015 of the reductions in disability, Social Security recipiency, and
    use of medical care attributable to previous biopharmaceutical
    innovation. That value, estimated at $115 billion annually, stood
    fairly close to 2015 expenditures, $127 billion, on drug classes that
    were first approved by the U.S. Food and Drug Administration (FDA)
    during the period 1989 to 2006.\43\

        Thus, far from being the leading cause of rising U.S. health-care
    system costs, greater levels of life-sciences innovation will be key to
    limiting the growth of those costs. Indeed, significant economic
    benefits could be achieved if innovative medicines could make progress
    toward addressing some of the most intractable diseases.\44\ For
    instance, even just a 1-percent reduction in mortality from cancer
    would deliver roughly $500 billion in net present benefits, while a
    cure could deliver $50 trillion in present and future benefits.\45\
    Likewise, the financial impact of Alzheimer's disease is expected to
    soar to $1 trillion per year by 2050, with much of the cost borne by
    the Federal Government, according to the Alzheimer's Association report
    ``Changing the Trajectory of Alzheimer's Disease.''\46\ However, the
    United States could save $220 billion within the first 5 years and a
    projected $367 billion in the year 2050 alone if a cure or effective
    treatment for Alzheimer's disease were found. Overall, the potential
    economic opportunity associated with curing brain diseases and related
    disorders could be more than $1.5 trillion per year--equivalent to 8.8
    percent of U.S. gross domestic product (GDP).\47\ Of course, these
    kinds of returns aren't limited to the life-sciences industry; they're
    indicative of the economic value returned by America's innovation
    industries in general, which is why Yale economist William Nordhaus
    found that, ``Inventors capture just 4 percent of the total social
    gains from their innovations,'' while the other 96 percent spills over
    to other companies and society as a whole.\48\
            economic impact of america's biopharmaceutical industry
        America is fortunate to host the world's leading biopharmaceutical
    industry. In 2017, America's biopharmaceutical industry produced $560
    billion in direct economic output, with the ripple effect of this
    production throughout the economy generating an additional $589 billion
    in output from suppliers and other economic sectors, bringing the
    sector's total economic output to over $1.1 trillion. Also, in 2021,
    the U.S. pharmaceutical industry accounted for $78 billion of
    exports.\49\

        In 2017, the U.S. biopharmaceutical industry employed 811,000
    workers directly, with this employment further supporting approximately
    3.2 million additional U.S. jobs through the supplier base and from the
    additional economic impacts stemming from industry and worker
    spending.\50\ In total, the sector supports over 4 million well-paying
    U.S. jobs. On average, wages for biopharmaceutical workers topped just
    over $140,000 in 2019, compared with $58,200 for all U.S. workers.\51\
    The industry also supports a number of high-wage manufacturing and
    construction jobs; in fact, analysis by the Pharmaceutical Industry
    Labor-Management Association and the Institute for Construction
    Economic Research (ICERES) shows the biopharma and biotech industry
    contributed to more than $774 million in union wages for construction
    workers between 2015 and 2020.\52\
      r&d and innovation intensity of america's biopharmaceutical industry
        America's biopharmaceutical industry leads the world in innovation,
    thanks largely to its world-leading investments in R&D and risk capital
    (supported by robust intellectual property rights, investment
    incentives, and effective technology transfer and commercialization
    mechanisms) as the following sections articulate.
    Innovation
        While the economic impact of America's biopharmaceutical industry
    is vitally important, its most important contribution comes in that
    America's biopharmaceutical industry leads the world in creating new
    drugs and therapies that are improving, saving, and extending human
    lives. This was nowhere more on display than during the COVID-19
    pandemic, when the industry was able to bring novel vaccines and
    therapeutics to U.S. and global citizens within just over a year of the
    virus's discovery. The tremendous bench strength of American talent,
    scientific research and knowledge base, and biomedical infrastructure--
    the product of decades of robust private and public investment alike--
    explains how Gilead Sciences could provide an effective COVID-19
    therapeutic, remdesivir, a mere 123 days after the virus was first
    detected in a patient sample and how the Pfizer-BioNTech vaccine could
    arrive 347 days after the virus's first detection.\53\ Moderna
    delivered the first doses of its COVID-19 vaccine to the National
    Institutes of Health for testing on February 24, 2020, a mere 6 weeks
    after Chinese scientists put the genetic sequence of the novel
    coronavirus online on January 11, 2020.\54\ To put the incredibly rapid
    COVID-19 vaccine development timeline in context, a GlaxoSmithKline
    representative had explained in 2017 how, ``It can take up to $1
    billion and 20-50 years to create and fully distribute a vaccine at
    scale.''\55\

        But that's just one example. In the 2000s, U.S.-headquartered
    biopharmaceutical enterprises generated more new-to-the-world drugs
    than companies from the next five nations combined.\56\ Indeed, in
    every 5-year period since 1997, the United States has produced newer
    chemical or biological entities than any other country or region. And
    from 1997 to 2016, U.S.-headquartered enterprises accounted for 42
    percent of new chemical or biological entities introduced throughout
    the world, far outpacing relative contributions from European Union
    (EU) member countries, Japan, China, or other nations.\57\ Put simply,
    over the past 2 decades, U.S.-headquartered biopharmaceutical
    enterprises accounted for almost half of the world's new drugs. Among
    others, these have included effective breakthrough oncological
    treatments or therapies for breast, lung, cervical, colorectal, and
    skin cancer; childhood leukemia; cystic fibrosis; lupus; and even a
    cure for hepatitis C. Captopril (1981), Prozac (1987), trastuzumab
    (1998), sirolimus (1999), adalimumab (2002), pembrolizumab (2014),
    Kymriah (2017), and Luxturna (2017) are just some of the headline
    biopharma breakthroughs developed by American life-sciences companies
    over the past 50 years.\58\

        Moreover, amidst the COVID-19 pandemic, several impressive biotech
    and biopharma breakthroughs went unnoticed. In 2021, the FDA advanced
    several disease-modifying drugs used to treat the underlying biology of
    Alzheimer's rather than the symptoms, including by awarding a
    breakthrough therapy designation to donanemab developed by Eli
    Lilly.\59\ Gingko Bioworks' groundbreaking research on synthetic
    biology and the Brigham and Women's Hospital's CRISPR research are on
    the frontlines alongside mRNA for potential designer treatments.\60\
    Harvard University's research into identifying brain biomarkers is also
    a game-changer for potentially predicting and treating
    neurodegenerative diseases.\61\
                                      r&d
        The United States leads the world in biomedical innovation in no
    small part because it invests more in biomedical R&D than any other
    nation. According to Research America, total U.S. medical and health
    research and development investment reached $245 billion in 2020, an
    11-percent increase since 2019, which included $162 billion (roughly
    two-thirds) invested by industry and $62 billion by Federal departments
    and agencies.\62\ Indeed, the United States has clearly been the
    world's largest global funder of biomedical R&D investment over the
    past 2 decades, a share that some analyses suggested reached as high as
    70 to 80 percent over that time period.\63\

        Moreover, the U.S. biopharmaceutical industry is both America's and
    the world's most R&D-intensive industry of any kind. As the U.S.
    Congressional Budget Office (CBO) explains, ``Over the decade from 2005
    to 2014, the industry's R&D intensity averaged 18 to 20 percent per
    year. That ratio has been trending upward since 2012, and it exceeded
    25 percent in 2018 and 2019.''\64\ This level of R&D investment is
    substantially more than any other U.S. industry. As the CBO observes,
    ``By comparison, average R&D intensity across all [U.S.] industries
    typically ranges between 2 and 3 percent'' and even ``R&D intensity in
    the software and semiconductor industries, which are generally
    comparable to the drug industry in their reliance on R&D, has remained
    below 18 percent.''\65\ (See Figure 9.) America's biopharmaceutical
    sector accounts for 18 percent of total U.S. business R&D
    investment.\66\ Importantly, the CBO notes that while ``Consumer
    spending on brand-name prescription drugs has risen, [the industry's]
    R&D has risen more quickly.''\67\

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        Lastly, it's important to note that 23 percent of the American
    biopharmaceutical industry's workforce can be found at the lab bench in
    R&D jobs seeking to create new cures, giving the industry a share of
    employment dedicated to R&D three times higher than the national
    average.\69\ Moreover, the sector alone employs over one-quarter of
    America's total R&D workforce. Many of these R&D workers will invest
    their careers searching for innovative new drugs that never see the
    light of day. The point is that America's biopharmaceutical industry is
    fundamentally research-driven and innovation-focused, dedicated to the
    discovery and development of innovative drugs for the betterment of
    human society.

        As ITIF has written extensively elsewhere, it should be briefly
    noted here that America's life-sciences innovation ecosystem is also
    ably supported by an effective set of policies that facilitate the
    transfer and commercialization of technology (in the life sciences,
    often molecular compounds) originally developed in private research
    institutions, universities, or national labs to the private sector for
    development into innovative drugs to be tested through clinical trials
    and brought to market.\70\ Indeed, academic technology transfer enabled
    by the Bayh-Dole Act has facilitated the development of approximately
    300 new drugs and vaccines that are now protecting public health
    worldwide.\71\

        Another key strength of America's life-sciences innovation system
    has been creating a financial-markets environment capable of both
    valuing and marshaling the tremendous amount of capital necessary to
    finance investment in risky biopharmaceutical innovation.\72\ Indeed,
    nearly three-quarters of worldwide venture capital investments in
    biopharmaceutical companies are made in the United States.\73\ Over the
    past 2 years, the U.S. biopharmaceutical sector has attracted over $50
    billion of risk capital investment.\74\ While certainly most of these
    investments will fail, venture capital investors undertake these risky
    investments in the hope that successes will yield commensurate returns,
    a bet that would be undermined if stringent drug price controls were
    applied to the relatively few successful drugs that result.
                    dynamics of biopharmaceutical innovation
        As drug innovation becomes more difficult and expensive, companies
    increasingly depend upon the profits from one generation of biomedical
    innovation to fund investment in the next, a dynamic that would be
    undermined if policymakers choose to implement stringent drug price
    controls, as the following section explains.
    Drug Innovation Becoming More Difficult, Risky, and Expensive
        As companies try to solve heretofore intractable and unsolved
    challenges at the frontiers of biomedical science, the challenge gets
    ever-more difficult. Indeed, the biopharmaceutical industry must be so
    R&D-intensive precisely because bringing innovative new drugs to market
    represents a risky, time-consuming, and expensive process. On average,
    as many as 5,000 to 10,000 compounds may be screened to get to
    approximately 250 promising molecular compounds that can enter
    preclinical testing, with 5 entering actual clinical testing.\75\ And
    that's just getting to the clinical trial stage, as less than 12
    percent of candidate medicines that even make it into Phase I clinical
    trials are ultimately approved by the FDA.\76\

        Overall, it takes 11.5 to 15 years of R&D and clinical trials to
    develop an innovative new drug, with the average cost of doing so
    almost doubling during the prior decade, increasing from $1.19 billion
    in 2010 to $2.17 billion by 2018, according to the Deloitte Center for
    Health Solutions. (Other estimates place the figure as high as $2.87
    billion). As a Deloitte report notes, ``The average cost to develop an
    asset, including the cost of failure, has increased in 6 out of 8
    years.''\77\ The 2019 version of the report concludes that the average
    cost of bringing a new biopharmaceutical drug to market has increased
    by 67 percent since 2010 alone.\78\ At the same time, Deloitte finds
    that forecast peak sales per asset have already more than halved since
    2010. Perhaps most significantly, the biopharma industry has
    experienced a downward trend in returns to pharmaceutical R&D: Deloitte
    found that the rate of return to R&D in 12 large-cap pharmaceutical
    companies declined from 10.1 percent in 2010, to 4.2 percent in 2015,
    and then to 1.8 percent in 2019.\79\ This is evidence that genuinely
    new biopharmaceutical innovation is becoming more difficult as
    companies try to tackle more difficult maladies previously
    unsuccessfully solved by biomedical science: challenges such as
    pancreatic cancer, Alzheimer's, rare diseases, etc.
    Companies Depend Upon Profits to Sustain Biopharmaceutical Investments
        That's why there exists a direct link between the expensive and
    risky process of drug development and the need to earn commensurate
    returns on successful drugs to sustain the process. This explains why
    the CBO estimates that, because of the high failure rates,
    biopharmaceutical companies need to earn a 61.8-percent rate of return
    on their successful new drug R&D projects in order to match a 4.8-
    percent after-tax rate of return on their investments (i.e., a risk-
    free rate they could readily attain in public markets).\80\

        Indeed, the claim that any individual drug generates very high
    profits cannot be viewed in isolation. All the drugs that did not make
    it through clinical trials to the marketplace by definition generated
    no profits, only losses. But even many drugs that make it to the market
    do not cover their costs. In a 1990 article, Grabowski and Vernon found
    that 70 percent of new drugs made less than their R&D costs. Entities
    in the third most profitable decile barely broke even; those in the
    second decile had discounted profits nearly twice discounted R&D
    costs.\81\ Fifty-five percent of industry revenues came from the top 10
    drugs, whose average discounted profits exceeded discounted R&D costs
    by a factor of five. In an updated article released in 2010, Vernon,
    Golec, and DiMasi found that 80 percent of new drugs made less than
    their capitalized R&D costs. Entities in the second most profitable
    decile barely broke even; those in the first decile had discounted
    profits more than twice their discounted R&D costs.\82\ Other studies
    have found that of the most successful 10 percent of approved drugs,
    only 1 percent of those that entered clinical trials--maybe three new
    drugs each year--generate half of the profits of the entire drug
    industry.\83\

        This dynamic explains why virtually all academic assessments find
    strong links between industry profits and R&D investments. For
    instance, the OECD has found that ``there exists a high degree of
    correlation between pharmaceutical sales revenues and R&D
    expenditures.''\84\ Indeed, there exists an almost 1:1 correlation
    (0.97) between R&D expenditures and sales in the OECD study. (See
    Figure 10.) Related academic research shows a statistically significant
    relationship between a biopharma enterprise's profits from the previous
    year and its R&D expenditures in the current year.\85\ Likewise,
    Gambardella found that sales revenue from previous periods have a
    significant, positive impact on current-period biopharma R&D.\86\
    Henderson and Cockburn find that the pharmaceutical firms with the
    greatest sales are also the ones with the largest R&D investments.
    Lastly, research by Dubois et al. makes this dynamic crystal clear,
    finding that every $2.5 billion of additional biopharmaceutical revenue
    leads to one new drug approval.\87\

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    Drug Price Controls Inhibit R&D and Drug Discovery
        This explains why academic studies consistently reveal that a
    reduction in current drug revenues leads to a decrease in future
    research and the number of new drug discoveries.\89\ For instance, one
    study found that a real 10-percent decrease in the growth of drug
    prices would be associated with an approximately 6-percent decrease in
    pharmaceutical R&D spending as a share of net revenues.\90\ Similarly,
    Lichtenberg found a 10-percent decrease in cancer drug prices would
    likely cause a 5- to 6-percent decline in both cancer regimens and
    research articles.\91\ Likewise, Golec and Vernon show that if the
    United States had used an EU-like drug pricing system from 1986-2004,
    this would have resulted in a decline in firms' R&D expenditures of up
    to 33 percent and the development of 117 fewer new medicines.\92\
    Maloney and Civan found that a 50-percent drop in U.S. drug prices
    would result in the number of drugs in the development pipeline
    decreasing by up to 24 percent.\93\ Similarly, Abbot and Vernon
    estimate that a price cut of 40 to 45 percent in real terms would
    reduce the number of new development projects by 50 to 60 percent.\94\
    Most recently, 2021 research by Tomas Philipson and Troy Durie at the
    University of Chicago estimates that a 1-percent reduction in
    pharmaceutical industry revenue leads on average to a 1.54-percent
    decrease in R&D investment.\95\

        Applying their research to H.R. 5376 (the Build Back Better Act),
    Philipson and Durie find the legislation would reduce revenues by 12.0
    percent through 2039, with the reduced revenues meaning R&D spending
    will fall by about 18.5 percent, or $663 billion. They find that this
    cut in R&D activity leads to 135 fewer new drugs, while this drop in
    new drugs is predicted to generate a loss of 331.5 million life years
    in the United States.\96\

        Conversely, research by Schwartz et al. found that if government
    price controls in non-U.S. OECD countries were lifted, the number of
    new treatments available would increase by 9 to 12 percent by 2030,
    equivalent to 8 to 13 new drugs in that year. This could potentially
    increase the life expectancy of someone 15 years old today by 0.6 to
    1.6 years on average.\97\ Instead of copying other OECD countries in a
    ``reference-price-race-to-the-bottom,'' U.S. policy should instead
    actually be to encourage peer countries to appropriately value
    innovative medicines.

        Analyses such as these explain why a February 2018 report by the
    President's Council of Economic Advisors found that while lowering
    reimbursement prices in the United States would reduce the prices
    Americans pay now for biopharmaceutical products, it would ``make
    better health costlier in the future by curtailing innovation,'' thus
    failing to meet the goal of reducing the price of health care by
    reducing the incentives for innovative products in the future.\98\
    Drug Price Controls Impede Access to Medicines
        Stringent drug price controls don't only impede R&D and innovation,
    they preclude access to innovative medicines. For instance, the
    Department of Health and Human Services' October 2018 report,
    ``Comparison of U.S. and International Prices for Top Medicare Part B
    Drugs by Total Expenditures,'' analyzed the price and availability of
    27 drugs across 16 comparator countries.\99\ It found that only 11 of
    the 27 drugs examined were widely available in all the comparator
    countries, indicating that patients in these countries were
    experiencing delays in access to innovative treatments. For instance,
    while 95 percent of new cancer drugs are available to patients in the
    United States, this compared to just an average of 55 percent of new
    drugs are available among the 16 reference countries. Further, for the
    cancer drugs available in the reference countries, there appears to be
    a 17-month average lag between the time they are available in the
    United States and their availability elsewhere. This concords with
    research by Cockburn, Lanjouw, and Schankerman finding that countries
    that introduce drug price controls experience ``significantly longer
    lags'' in new drug introduction of 25 to 80 percent.\100\

        A broad range of research suggests that Americans enjoy access to
    innovative medicines earlier than citizens in other nations do.\101\
    For instance, considering the availability of new medicines first
    launched globally from 2011 through year-end 2019, 87 percent were
    available first in the United States, a wide gap over Germany and the
    United Kingdom, at 63 and 59 percent respectively, with percentages
    declining to as low as 46 percent in Canada and 39 percent in
    Australia. Considering the percentage of drugs available within 1 year
    of global first launch, again U.S. citizens enjoyed the greatest
    access, with 80 percent of drugs available to Americans first, followed
    by Germany and the United Kingdom at 47 and 41 percent, respectively,
    and again Canada and Australia trailing at 26 percent and 19 percent,
    respectively. (See Figure 11.) For these medicines, the average delay
    in availability in months from global first drug launch averaged 0 to 3
    months in the United States, 10 in Germany, 11 in the United Kingdom,
    15 in Canada, 16 in Japan, 18 in France, and 20 in Australia.

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        It should be noted that the earlier availability of drugs to
    American citizens applies to virtually every drug type. For instance,
    considering the availability of 356 new medicines introduced since
    2011, 87 percent are now available to U.S. patients, compared to 63
    percent in Germany, and that trend applies across the board, from drugs
    treating cancer on mental illness to those treating rare diseases.

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        Thus, the vast preponderance of evidence suggests that
    Americans enjoy access to innovative medicines earlier than citizens in
    other nations, and that produces tremendous individual and public
    health benefits. That's why drug price control systems that incorporate
    international reference pricing features would import drug availability
    delays every bit as much as they would import lower prices.

        According to the European Union's own data from 2012, nearly
    600,000 European deaths could be avoided each year if the continent's
    health-care systems simply offered ``timely and effective medical
    treatments,'' including access to innovative drugs.\104\ While that
    statistic certainly refers to a wide range of missing therapeutic
    interventions and public health gaps, it also suggests the costs of not
    getting innovative drugs to patients in time to make a difference. The
    United States shouldn't allow itself to find itself in the same
    position.
    Drug Price Controls Undermine Nations' Biopharmaceutical Industry
            Competitiveness
        The stringent drug price controls other regions and nations, such
    as the European Union and Japan, have implemented have seriously harmed
    the competitiveness of those nations' biopharmaceutical industries.

        For instance, in the early 1990s, European and U.S. companies each
    held about a one-third share of the global drug market. But leadership
    began to shift in the 1990s. By 2004, Europe's share would fall to 18
    percent, while the U.S. share jumped to 62 percent.\105\ And from 1990
    to 2017, pharmaceuticals R&D investment in Europe grew 4.5 times, while
    in the United States, it increased by more than 800 percent.\106\ As
    Nathalie Moll of the European Federation of Pharmaceutical Industries
    and Associations (EFPIA) writes, ``The sobering reality is that Europe
    has lost its place as the world's leading driver of medical innovation.
    Today [January 2020], 47 percent of global new treatments are of U.S.
    origin compared to just 25 percent emanating from Europe (2014-2018).
    This represents a complete reversal of the situation just 25 years
    ago.''\107\ As one report explains, ``the heart of pharma's problem in
    Europe is the market's inability to ``liberate the value'' from its
    products.''\108\

        European countries' extensive use of drug price controls began in
    earnest in the 1980s and accelerated in the 1990s. By imposing such
    draconian drug price controls, European regulators have severely
    disrupted the economics of innovation in the European life-sciences
    industry. As the EFPIA explained in a 2000 report, ``Many European
    countries have driven prices so low that many new drugs can no longer
    recoup their development costs before patents expire.''\109\ As the
    report continues, ``These policies, most of which seek only short-run
    gains, seriously disrupt the functioning of the market and sap the
    industry's ability to compete in the long run.'' As industry analyst
    Neil Turner wrote in 1999, those policies ``set in motion a cycle of
    under- investment and loss of competitiveness that's very difficult to
    break out of.''\110\ While Europe's drug price controls certainly lead
    to lower drug prices and charges that Europe ``free rides'' off U.S.
    biopharmaceutical innovation, one report notes, ``Europe's free ride is
    not free'' and shows that Europe's drug price controls actually lead to
    considerable ``social and economic costs in Europe, in the form of
    delayed access to drugs, poorer health outcomes, decreased investment
    in research capabilities, and a drain placed on high-value
    pharmaceutical jobs.''\111\

        2021 research by Schulthess and Bowen confirm that these trends
    continue today, finding that a 10-percent drop in the price of
    medicines in price-controlled European Union markets was associated
    with a 14-percent decrease in total venture capital funding (10 percent
    early stage and 7 percent late); a 7-percent decrease in biotech
    patents; a 9-percent decrease in biotech start-up funding relative to
    the United States; and an 8-percent increase in the delay of access to
    medicines.\112\ As the report observes, ``the continued downward
    pressures on prices in Europe have led to declines in biopharmaceutical
    industry investments in the European Union relative to the United
    States.''\113\ For example, from 2013 to 2019, biotech investments in
    the United States increased sixfold even as they remained static in the
    European Union, while by 2020, the U.S. share of total annual biotech
    start-ups was roughly three times greater than the European share.\114\

        Japan began introducing biennial price controls in the early 1980s,
    beginning with a steep, across-the-board reduction of 18.6 percent,
    with biennial cuts thereafter. As Cardiff University Professor Maki
    Umemura explains, ``The biennial price reductions had a particularly
    severe impact on Japanese pharmaceutical firms' incentives to invest in
    R&D.''\115\ As she continues, ``These reductions incentivized Japanese
    firms to launch a stream of new drugs with short product life and
    little innovative value that could recoup the costs of R&D, rather than
    invest in more substantial innovation. This hindered the industry's
    prospects of launching breakthrough drugs that would have been more
    competitive overseas.''\116\ That's because Japan's severe profit
    controls not only limited the potential profits from biopharmaceutical
    innovation (thus decreasing the incentive to invest), but they further
    limited drug company revenues (thus decreasing the ability to invest).
    Umemura's research suggests that drug prices in Japan decreased by as
    much as two-thirds in the decade from 1981 to 1991.\117\

        Heather O'Neill and Lena Crain examined the relationship between
    Japan's drug prices decreases and drug innovation in their 2005 report,
    ``The Effects of Price Regulation on Pharmaceutical R&D and
    Innovation,'' concluding:

            Japan's government sets prices of new drugs based on older
            comparator drugs. Recently, price premiums have been permitted
            on truly innovative drugs, but even with the premiums in place
            the introductory price is not higher than that of older drugs.
            Following a drug launch, the government decreases the price as
            the product matures; the highest price ever received is the
            first one. Prices fall by as much as two-thirds from the
            original price within 10 years. The low introductory prices,
            coupled with no inflationary price increases, discourage new
            product development.\118\

        O'Neill and Crain developed an econometric model to assess the
    impact of Japanese drug price regulations on pharmaceutical innovation.
    As the authors conclude, ``the regulations in Japan create an
    environment that is not conducive to innovation.''\119\ Their
    econometric model found that, controlling for R&D employment and time,
    Japan approved 7.5 fewer new chemical entities (NCEs) than the United
    States on average in a given year in the years from 1980 to 2002.\120\
    Moreover, not surprisingly, Japan's biopharmaceutical industry has
    faltered significantly, with Japan's share of global value-added in the
    pharmaceutical industry declining by 70 percent, from 18.5 percent to
    just 5.5 percent, from 1995 to 2018.\121\

        In summary, stringent drug price controls have wreaked considerable
    damage on the European and Japanese biopharmaceutical industries and
    would likely do the same to the United States.
                       better ways to control drug prices
        Instead of seeking to implement broad-based and steep drug price
    controls, policymakers should focus on bolstering the R&D and
    innovation efficiency of America's biopharmaceutical system and
    lowering the costs seniors pay at the pharmacy counter.
    Bolster R&D and Innovation Efficiency
        Instead of trying to slash prices on the dubious theory drug
    companies can make do with lower profits, lawmakers should turn their
    attention to the other side of the industry's ledger--the costs of R&D
    and production, especially of large molecule biotech drugs--by spurring
    the kinds of innovations that can significantly improve R&D
    productivity and production process efficiency.\122\ Indeed,
    capitalizing on new technologies to lower the cost of drug innovation
    and production is the only viable way to achieve what everyone wants--a
    long-term trend toward producing more cures (and more ancillary
    economic benefits) at less cost.

        Promisingly, a new slate of technologies including artificial
    intelligence (AI), ``big data,'' CRISPR gene editing, nanotechnology,
    and biologics manufacturing is transforming how new drugs are
    discovered, developed, clinically tested, and produced.\123\ In
    particular, data-driven innovation promises to transform many aspects
    of medicine. In the pharmaceutical industry, better access to data can
    improve drug discovery, clinical review, testing, and post-market
    monitoring. However, these benefits require access to massive amounts
    of data from many people. Congress could ease drug discovery by
    appropriately loosening data restrictions in the health-care market,
    especially because current Federal policy makes the sharing of data
    difficult, even de-identified data individual patients are eager to
    share in order to help find a cure.

        In order to facilitate this improved drug discovery, policymakers
    should enforce the publication of data from clinical trial results by
    directing agencies such as the FDA and NIH to be more aggressive about
    penalizing noncompliance. Congress should direct the Department of
    Health and Human Services (HHS) to create a model for data trusts that
    facilitates data sharing among biopharmaceutical stakeholders involved
    with data-driven drug development. Policymakers should also increase
    the availability of new kinds of data from nontraditional sources, such
    as biometric, lifestyle, and environmental data, while directing the
    FDA to develop best practices for data collection in health care to
    ensure equitable outcomes, such as strategies to increase coverage of
    underrepresented populations.\124\

        Congress should also support investments that could make
    pharmaceutical manufacturing more efficient. One study contends that
    pharmaceutical manufacturing is expensive, inefficient, and non-
    innovative, with firms using outdated production techniques and old
    plants.\125\ The study attributes much of this to high regulatory
    barriers and inefficient intellectual-property protection of
    manufacturing methods. Proposed changes, such as faster regulatory
    approvals for manufacturing innovations that do not affect quality, and
    preventing other companies from immediately copying improvements
    discovered by others either through process patents or by
    administratively denying other companies from copying the innovation
    for a certain period of time, could result in production cost savings
    of $50 billion each year.

        Congress could facilitate this process by expanding Federal support
    for joint
    industry-university research efforts on biopharma R&D efficiency and
    effectiveness, such as funding new programs through the National
    Science Foundation's Industry/University Cooperative Research Centers
    (I/UCRC) program. American universities need more initiatives such as
    MIT's NEW Drug Development ParadIGmS (NEWDIGS) program, which is ``a
    unique collaborative `think and do' tank focused on enhancing the
    capacity of the global biomedical innovation system to reliably and
    sustainably deliver new, better, affordable therapeutics to the right
    patients faster.''\126\ Lawmakers should also expand public-private
    partnerships investing in biomedical R&D and technology
    commercialization, including by significantly expanding investments in
    biomedical-focused Manufacturing USA centers, such as the National
    Institute for Innovation in Manufacturing Biopharmaceuticals
    (NIIMBL).\127\

        Because basic scientific research is the foundation of biomedical
    knowledge, Congress should make it a priority to restore funding for
    the National Institutes of Health to early 2000s levels as a share of
    GDP, which would cost about $12 billion. Lastly, the critically
    important Prescription Drug User Fee Act (PDUFA), which helps fund the
    FDA, is due for renewal in 2022. Congress should work proactively to
    reauthorize the legislation and ensure its innovation-supporting
    aspects are enhanced.\128\
    Medicare Part D Reforms
        ITIF supports Medicare Part D reforms aimed at easing the out-of-
    pocket cost of medications incurred by seniors at the pharmacy counter.
    Part D reforms aimed at realigning plan and drugmaker incentives to
    constrain drug prices and limit beneficiaries' out-of-pocket costs are
    warranted. In particular, ITIF supports the proposal to cap at $2,000
    out-of-pocket prescription drug costs on Part D beneficiaries that
    don't already qualify for cost-sharing protections (i.e., through low-
    income subsidies (LIS)). ITIF also supports the provision in the Build
    Back Better Act which would ``smooth'' beneficiaries' out-of-pocket
    costs over the course of a year so that a beneficiary wouldn't
    potentially have to pay as much as $2,000 in a single month.

        Regarding a $2,000 out-of-pocket cap, a study by the Urban
    Institute estimates that such a cap would benefit more than 860,000
    seniors while increasing Medicare drug spending by less than 1
    percent.\129\ The Urban Institute study found that, in 2019, 18 percent
    of Part D enrollees spent more than $3,500 in out-of-pocket costs, 30
    percent experienced out-of-pocket costs of $2,500 to $3,000, and 40
    percent had out-of-pocket costs above $2,000. The Urban Institute
    estimates such a spending cap would require an additional $199 million
    in beneficiary premium spending and $583 million in Medicare program
    spending in 2019.\130\ ITIF further supports capping monthly patient
    out-of-pocket costs for drugs treating certain chronic diseases, such
    as a $35 monthly cap for insulin for the treatment of diabetes.

        ITIF also supports the proposal to ensure that the rebates insurers
    and PBMs negotiate for Medicare Part D drugs are passed through to
    seniors at the pharmacy counter. The rebates (averaging nearly 30
    percent for Medicare Part D drugs) are usually paid to PBMs in
    consideration of preferred placement on the insurance plan's formulary,
    but the PBMs tend not to share the rebates directly with beneficiaries.
    Changing this rule change could save older Americans as much as $83
    billion at the pharmacy counter over the span of 10 years.\131\

        To be sure, implementing both the out-of-pocket cap and the rebate
    rule would mean some degree of insurance premium increases for seniors;
    however, it would rebalance the current dynamic where those who are
    most ill or have the most health challenges tend to be paying the most,
    while those who are least ill pay less. In a way, the sickest are
    subsidizing the healthiest, turning the principle of insurance on its
    head (i.e., collectively pooling risk and providing resources to those
    who require it in time of need). In ITIF's view, the cap, which would
    require some degree of sacrifice from drugmakers, insurers, taxpayers,
    and Part D enrollees alike, would rebalance cost structures to help
    seniors most in need.

        Moreover, promoting affordability at the pharmacy counter for
    seniors will likely promote medication adherence. That matters greatly
    when patients' failure to adhere to their prescribed medication
    regimens costs our health system $289 billion annually. Moreover, non-
    adherence accounts for about 10 percent of hospitalizations and 125,000
    annual deaths.\132\ Facilitating greater adherence that could help
    reduce hospitalizations and other downstream costs would help circle
    the square with part of the increased costs that would be created by
    implementing the cap. In other words, considering the Urban Institute's
    estimate that a spending cap would require an additional $199 million
    in beneficiary premium spending and $583 million in Medicare program
    spending, if some large portion of that amount could be recaptured
    through reducing the $289 billion resulting from missed prescription
    adherence, then that dynamic produces substantial value and economic
    sustainability for the broader Medicate system while also improving
    patients' lives.

        Getting these issues right is vitally important in the time and
    wake of the COVID-19 pandemic. For instance, according to the National
    Cancer Institute, missed screenings and other pandemic-related impacts
    on cancer care could result in about 10,000 additional deaths from
    breast and colon cancer (which together account for about one-sixth of
    all cancer deaths) alone over the next 10 years.\133\ And that's just
    two types of cancer. COVID-19 has already put America's health-care
    system under tremendous strain, but the downstream effects of the
    pandemic: from long-COVID, from mental stress, weight gain, and lack of
    physical fitness opportunities for even those who never had the virus
    (one study found 42 percent of U.S. adults gained more weight than they
    intended during the pandemic, and of those, the amount they reported
    gaining averaged 29 pounds), and myriad other maladies that weren't
    caught earlier due to missed doctors' visits and screenings means both
    America's health-care and health insurance system will be placed under
    further strain for years to come.\134\
                                   conclusion
        In considering drug price reform, policymakers must walk a delicate
    line between balancing the interests of present and future generations.
    We could certainly have cheaper drugs today, but the inescapable
    reality is that if this is done by imposing price controls (as opposed
    to better drug insurance coverage or other means to increase
    competition in PBMs), this would mean fewer new medicines and likely
    reduced access to them for future generations. That tradeoff is
    inescapable. And the reality is that the system the United States has
    put in place over the past 4 decades has worked more effectively than
    anywhere else in the world.

        On September 14, 2017, the FDA approved Mvasi, the first biosimilar
    for Roche's Avastin, a breakthrough anti-cancer drug for lung,
    cervical, and colorectal cancer. In other words, a drug for forms of
    cancers that scarcely existed 20 years ago is now available as a
    generic. That's emblematic of an effective system of U.S. life-science
    innovation that promotes breakthrough innovation and then facilitates
    generic competition to help manage drug prices.

        As Jack Scannell, a senior fellow at Oxford University's Center for
    the Advancement of Sustainable Medical Innovation (CASMI), frames it,
    ``I would guess that one can buy today, at rock bottom generic prices,
    a set of small-molecule drugs that has greater medical utility than the
    entire set available to anyone, anywhere, at any price in 1995.'' He
    continued, ``Nearly all the generic medicine chest was created by firms
    who invested in R&D to win future profits that they tried pretty hard
    to maximize; short-term financial gain building a long-term common
    good.''\135\

        It's that dynamic that explains why anti-lung cancer drugs that
    simply didn't exist 20 years ago are available on the market at generic
    prices today. And it's that dynamic that enables us to envision a
    future where drugs are available at generic prices in 2042 for a set of
    diseases that have greater medical utility than the entire set
    available to anyone, anywhere, at any price in 2022. But that will only
    be the case if policymakers preserve the conditions that have enabled
    the U.S. life-sciences innovation system that has become the envy of
    the world. In other words, Congress needs to focus on the long-term
    future of Americans, not simply today's outcry by some.

        In conclusion, the United States enjoys a bountiful return on the
    roughly 14 percent of national health-care expenditures it invests in
    prescription drugs each year. America's market-based, private-
    enterprise-led, government-supported biomedical innovation system has
    tremendous strengths. It is both the envy of the world and the source
    of the majority of the world's new drugs benefiting American and global
    citizens alike. To be sure, some reform is needed--notably to address
    the pinch seniors are experiencing in out-of-pocket costs at the
    pharmacy counter--but radical reconstructive surgery in the form of
    stringent drug price controls is not.

    End Notes

      [1]  Gabriel Rubin, ``Inflation Reached 7.9 percent in February;
    Consumer Prices Are the Highest in 40 Years,'' Wall Street Journal,
    March 10, 2022, https://www.wsj.com/articles/us-inflation-consumer-
    price-index-february-2022-11646857681.
      [2]  The White House, ``Fact Sheet: President Biden Reignites Cancer
    Moonshot to End Cancer as We Know It,'' February 2, 2022, https://
    www.white
    house.gov/briefing-room/statements-releases/2022/02/02/fact-sheet-
    president-biden-reignites-cancer-moonshot-to-end-cancer-as-we-know-it/.
      [3]  Robert D. Atkinson, ``Op-Art: Drug Price Controls vs. the NIH
    `Cancer Moonshot' Initiative,'' February 21, 2022, https://itif.org/
    publications/2022/02/21/op-art-drug-price-controls-vs-nih-cancer-
    moonshot-initiative.
      [4]  Robert D. Atkinson, ``The Impact of China's Policies on Global
    Biopharmaceutical Industry Innovation'' (ITIF, September 2020), https:/
    /itif.org/publications/2020/09/08/impact-chinas-policies-global-
    biopharmaceutical-industry-innovation.
      [5]  Office of Congresswoman Katie Porter, ``Killer Profits: How Big
    Pharma Takeovers Destroy Innovation and Harm Patients'' (January 2021),
    15, https://porter.house.gov/uploadedfiles/
    final_pharma_ma_and_innovation_report_
    january_2021.pdf.
      [6]  Robert D. Atkinson and Stephen Ezell, ``Five Fatal Flaws in Rep.
    Katie Porter's Indictment of the U.S. Drug Industry'' (ITIF, May 20,
    2021), https://itif.org/publications/2021/05/20/five-fatal-flaws-rep-
    katie-porters-indictment-us-drug-industry.
      [7]  Peterson-Kff Health Systems Tracker, Peterson Center on
    Healthcare and Kaiser Family Foundation (National Health Spending,
    accessed March 12, 2022), https://www.healthsystemtracker.org/health-
    spending-explorer/.
      [8]  Rabah Kamal, Cynthia Cox Twitter, and Daniel McDermott, ``What
    are the recent and forecasted trends in prescription drug spending?''
    (Peterson Center on Healthcare and Kaiser Family Foundation, February
    20, 2019), https://www.healthsystemtracker.org/chart-collection/recent-
    forecasted-trends-prescription-drug-spending.
      [9]  Ibid.
     [10]  Altarum, ``Projections of the Non-Retail Prescription Drug Share
    of National Health Expenditures,'' September 2020, 3, https://
    altarum.org/publications/projections-non-retail-prescription-drug-
    share-national-health-expenditures.
     [11]  Note, the OECD uses a slightly different accounting methodology
    to equivalently compare countries' prescription drug health
    expenditures; the point is meant to be illustrative.
     [12]  Organisation for Economic Co-operation and Development,
    ``Pharmaceutical spending as percent total health spending, 2020 (or
    latest available year),'' https://data.oecd.org/healthres/
    pharmaceutical-spending.htm.
     [13]  Bureau of Labor Statistics, Consumer Price Index (accessed March
    10, 2022), https://www.bls.gov/cpi/.
     [14]  Bureau of Labor Statistics, Consumer Expenditure Survey (Health
    care expenditures, 2005-2020), https://www.bls.gov/cex/.
     [15]  Andrew Brownlee and Joran Watson, ``The Pharmaceutical Supply
    Chain, 2013-2020'' (Berkeley Research Group, 2022), 3, https://
    www.thinkbrg.com/insights/publications/pharmaceutical-supply-chain-
    2013-2020/.
     [16]  Ibid.
     [17]  Inmaculada Hernandez et al., ``Changes in List Prices, Net
    Prices, and Discounts for Branded Drugs in the US, 2007-2018,'' Journal
    of the American Medical Association, Vol. 323, No. 9 (2020): 856,
    https://pubmed.ncbi.
    nlm.nih.gov/32125403/.
     [18]  Ibid., 27.
     [19]  Jared S. Hopkins and Peter Loftus, ``Flip the Script: Drugmakers
    Blame Middlemen for Price Increases,'' The Wall Street Journal,
    February 5, 2019, https://www.wsj.com/articles/flip-the-script-
    drugmakers-blame-middlemen-for-price-hikes-11549364401.
     [20]  Aaron Vandervelde and Eleanor Blalock, ``The Pharmaceutical
    Supply Chain: Gross Drug Expenditures Realized by Stakeholders''
    (Berkeley Research Group, 2017), https://www.thinkbrg.com/media/
    publication/863_Vander
    velde_PhRMA-January-2017_WEB-FINAL.pdf.
     [21]  Hopkins and Lotus, ``Flip the Script: Drugmakers Blame Middlemen
    for Price Increases.''
     [22]  Robert Zirkelbach, ``The PBM story you haven't heard: Hidden
    fees quadrupled in 2 years,'' The Catalyst, March 20, 2019, https://
    catalyst.phrma.org/the-pbm-story-you-havent-heard-hidden-fees-
    quadrupled-in-two-years.
     [23]  Ibid.
     [24]  Greg Reh, ``2020 Global Life-sciences Outlook: Creating new
    value, building blocks for the future'' (Deloitte, 2020), 17, https://
    www.economist.com/search
    ?q=pharmaceutical+industry+returns.
     [25]  Ibid.
     [26]  Ibid.
     [27]  Neeraj Sood, et al., ``Do companies in the pharmaceutical supply
    chain earn excess returns?'', International Journal of Health Economics
    and Management (January 4, 2021): 99-114, https://doi.org/10.1007/
    s10754-020-09291-1. The researchers calculated the ``risk adjusted rate
    of return'' by subtracting capital costs, which vary with the level of
    risk across industries.
     [28]  Ibid., 110.
     [29]  U.S. Congress, Office of Technology Assessment (OTA),
    ``Pharmaceutical R&D: Costs, Risks and Rewards,'' OTA-H-522
    (Washington, DC: U.S. Government Printing Office, February 1993), 2,
    http://ota.fas.org/reports/9336.pdf.
     [30]  F.M. Scherer, ``Pricing, Profits, and Technological Progress in
    Pharmaceutical Industry,'' Journal of Economic Perspectives, Vol. 7,
    No. 3 (Summer 1993): 97-115, http://pubs.aeaweb.org/doi/pdfplus/
    10.1257/jep.7.3.97.
     [31]  U.S. Congress, Office of Technology Assessment, ``Pharmaceutical
    R&D: Costs, Risks and Rewards,'' 24.
     [32]  Robert D. Atkinson, ``Why Life-Sciences Innovation Is
    Politically `Purple'--And How Partisans Get It Wrong'' (ITIF, February
    2016), https://itif.org/publications/2016/02/22/why-life-sciences-
    innovation-politically-purple.
     [33]  Frank Lichtenberg, ``Pharmaceutical Innovation and Longevity
    Growth in 30 Developing and High-income Countries, 2000-2009,'' Health
    Policy and Technology, Vol. 3, Issue 1 (March 2014): 36-58, https://
    www.sciencedirect.com/science/article/abs/pii/S2211883713000646.
     [34]  Stephen Kurczy, ``Calculating the Benefit of Drugs,'' Columbia
    Business School Ideas and Insights, February 12, 2019, https://
    www8.gsb.
    columbia.edu/articles/ideas-work/calculating-benefits-drugs.
     [35]  Stephen Chupaska, ``The Value of a Vaccine,'' Columbia Business
    School Ideas and Insights, March 23, 2020, https://
    www8.gsb.columbia.edu/articles/ideas-work/value-vaccine.
     [36]  Rebecca L. Siegel et al., ``Cancer Statistics, 2021,'' CA: A
    Cancer Journal for Physicians, (Volume 7, Issue 1): 7-33, https://
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    wiley.com/doi/full/10.3322/caac.21654.
     [37]  Seth A. Seabury et al., ``Quantifying Gains in the War on Cancer
    Due to Improved Treatment and Earlier Detection,'' Forum for Health
    Economics and Policy, Vol. 19, Issue 1 (November 2015), https://
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     [38]  C. Gambacorti-Passerini et al., ``Multicenter independent
    assessment of outcomes in chronic myeloid leukemia patients treated
    with imatinib,'' Journal of the National Cancer Institute, Vol. 103,
    Issue 7 (April 2011): 553-561, https://pubmed.ncbi.nlm.nih.gov/
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     [39]  Stephen Ezell, ``Seizing the Transformative Opportunity of
    Multi-cancer Early Detection'' (ITIF, April 2021), https://itif.org/
    publications/2021/04/19/seizing-transformative-opportunity-multi-
    cancer-early-detection.
     [40]  Frank R. Lichtenberg, ``The Impact of Pharmaceutical Innovation
    on Disability Days and the Use of Medical Services in the United
    States, 1997-2010,'' Journal of Human Capital, Vol. 8, No. 4 (Winter
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     [41]  Frank R. Lichtenberg, ``The Benefits of Pharmaceutical
    Innovation: Health, Longevity, and Savings'' (Montreal Economic
    Institute, 2016), 5, https://www.iedm.org/files/cahier0216_en_0.pdf.
     [42]  Ibid.
     [43]  Frank R. Lichtenberg, ``The impact of biopharmaceutical
    innovation on disability, Social Security recipiency, and use of
    medical care of U.S. community residents, 1988-2015,'' National Bureau
    of Economic Research, NB21-02 (October 2021), https://www.nber.org/
    programs-projects/projects-and-centers/retirement-and-disability-
    research-center/center-papers/nb21-02.
     [44]  Stephen Ezell, ``The Imperative of Protecting Life-Sciences
    Innovation in the TPP'' (ITIF, March 2015), http://www2.itif.org/2015-
    life-science-tpp.pdf.
     [45]  Joe Kennedy and Robert D. Atkinson, ``Healthy Funding: Ensuring
    a Predictable and Growing Budget for the National Institutes of
    Health'' (ITIF and United for Medical Research, February 2015), 2,
    http://www2.itif.org/2015-healthy-funding.pdf.
     [46]  The Alzheimer's Association, ``Changing the Trajectory of
    Alzheimer's Disease'' (2015), http://www.alz.org/documents_custom/
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     [47]  Adams Nager, ``A Trillion-Dollar Opportunity: How Brain Research
    Can Drive Health and Prosperity'' (ITIF, July 2016), http://
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     [48]  William Nordhaus, ``Schumpeterian Profits and the Alchemist
    Fallacy'' (working paper, Department of Economics, Yale University,
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     [49]  Trading Economics, ``United States Exports of Pharmaceutical
    Products,'' https://tradingeconomics.com/united-states/exports/
    pharmaceutical-products.
     [50]  TEConomy Partners, LLC and PhRMA, ``Economic Impact of the U.S.
    Biopharmaceutical Industry,'' 5.
     [51]  U.S. Bureau of Labor Statistics, ``Quarterly Census of
    Employment and Wages'' (Employment for NAICS 3254, 541714, 541711).
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    Pharmaceutical and Biotech Industry, 2015-2020'' (Pharmaceutical
    Industry Labor-
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    Research (ICERES), June 2021), https://unionjobs.pilma.org/wp-content/
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    Unwarranted,'' Innovation Files, April 9, 2021, https://itif.org/
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     [54]  Catherine Clifford, ``How the Moderna COVID-19 mRNA vaccine was
    made so quickly,'' CNBC, July 9, 2011, https://www.cnbc.com/2021/07/03/
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     [55]  Peter Wilderford, ``How long does it take to research and
    develop a new vaccine?'', Effective Altruism Forum, June 28, 2017,
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    and-develop-a-new-vaccine.
     [56]  Ross C. DeVol, Armen Bedroussian, and Benjamin Yeo, ``The Global
    Biomedical Industry: Preserving U.S. Leadership'' (Milken Institute,
    September 2011, 5), https://www.lifechanginginnovation.org/sites/
    default/files/files/Global%20Bio_Full%20Report_WEB.pdf.
     [57]  Joe Kennedy, ``How to Ensure That America's Life-sciences Sector
    Remains Globally Competitive'' (ITIF, March 2018), 37, https://
    itif.org/publications/2018/03/26/how-ensure-americas-life-sciences-
    sector-remains-globally-competitive; European Federation of
    Pharmaceutical Industries and Associations, ``The Pharmaceutical
    Industry in Figures, Key Data 2017,'' 8, https://www.efpia.eu/media/
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     [58]  Cello Health, ``15 Breakthrough drug innovations
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     [59]  Matt Fuchs, ``6 Biotech Breakthroughs of 2021 That Missed the
    Attention They Deserved,'' Leaps.org, January 3, 2022, https://
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    they-deserved/new-alzheimer-s-therapies.
     [60]  Ibid.
     [61]  Ibid.
     [62]  Research America and TEConomy Partners, ``U.S. Investments in
    Medical and Health Research and Development, 2016-2020'' (Research
    America and TEConomy Partners, January 2022), 1, https://
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     [63]  Justin Chakma et al., ``Asia's Ascent--Global Trends in
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    1 (January 2014); ER Dorsey et al., ``Funding of US Biomedical
    Research, 2003-2008,'' New England Journal of Medicine 303 (2010): 137-
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     [64]  Congressional Budget Office (CBO), ``Research and Development in
    the Pharmaceutical Industry'' (CBO, April 2021), 4-5, https://
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     [65]  Ibid.
     [66]  TEConomy Partners, LLC and PhRMA, ``Economic Impact of the U.S.
    Biopharmaceutical Industry,'' 7.
     [67]  Congressional Budget Office, ``Research and Development in the
    Pharmaceutical Industry.''
     [68]  Ibid., 5.
     [69]  TEConomy Partners, LLC and PhRMA, ``Economic Impact of the U.S.
    Biopharmaceutical Industry,'' 7.
     [70]  Stephen Ezell, ``The Bayh-Dole Act's Vital Importance to the
    U.S. Life-Sciences Innovation System'' (ITIF, March 2019), 20, https://
    itif.org/sites/default/files/2019-bayh-dole-act.pdf.
     [71]  Association of University Technology Managers (AUTM), ``AUTM
    2020 Licensing Activity Survey'' (AUTM, 2020), 3, https://autm.net/
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     [72]  Stephen Ezell, ``Ensuring U.S. Biopharmaceutical
    Competitiveness'' (ITIF, July 2020), 34-35, https://itif.org/
    publications/2020/07/16/ensuring-us-biopharmaceutical-competitiveness.
     [73]  TEConomy Partners, LLC and PhRMA, ``The Economic Impact of the
    U.S. Biopharmaceutical Industry''; April 2019 analysis of Pitchbook
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     [74]  Jacob Pileth, ``In 2021 it paid to stay private when the chips
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     [86]  Alfonso Gambardella, Science and Innovation: The US
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    Issue 1 April 2005, https://www.jstor.org/stable/10.1086/
    426882?seq=1#page_scan_tab_contents.
     [91]  Frank R. Lichtenberg, ``Importation and Innovation,'' NBER
    Working Paper No. 12539, September 2006, https://www.nber.org/papers/
    w12539.
     [92]  Joseph Golec and John A. Vernon, ``Financial Effects of
    Pharmaceutical Price Regulation on R&D Spending by EU Versus US
    Firms,'' Pharmacoeconomics, Vol. 28, Issue 8 (2010), 625, https://
    pubmed.ncbi.nlm.nih.gov/20617857/. All cost estimates were converted to
    2019 dollars using the consumer price index.
     [93]  Michael T. Maloney and Abdulkadir Civan, ``The Effect of Price
    on Pharmaceutical R&D,'' SSRN Electronic Journal, Vol. 9, Issue 1
    (2009): 1-14, https://ssrn.com/abstract=995175 or http://dx.doi.org/
    10.2139/ssrn.995175.
     [94]  Thomas A. Abbott and John A. Vernon, ``The Cost of U.S.
    Pharmaceutical Price Reductions: A Financial Simulation Model of R&D
    Decisions,'' NBER Working Paper No. 11114 (February 2005), https://
    www.nber.org/papers/w11114.
     [95]  Tomas J. Philipson and Troy Durie, ``Issue Brief: The Impact of
    HR 5376 on Biopharmaceutical Innovation and Patient Health,'' November
    9, 2021, https://cpb-us-w2.wpmucdn.com/voices.uchicago.edu/dist/d/3128/
    files/2021/08/Issue-Brief-Drug-Pricing-in-HR-5376-11.30.pdf.
     [96]  Ibid.
     [97]  Taylor T. Schwartz et al., ``The Impact of Lifting Government
    Price Controls on Global Biopharmaceutical Innovation and Population
    Health'' (Precision Health Economics, 2018), https://tools.ispor.org/
    research_pdfs/58/pdffiles/PHP216.pdf.
     [98]  Executive Office of the President, Council of Economic Advisors,
    ``Reforming Biopharmaceutical Pricing at Home and Abroad'' (Executive
    Office of the President, February 2018), 6, https://www.whitehouse.gov/
    wp-content/uploads/2017/11/CEA-Rx-White-Paper-Final2.pdf.
     [99]  U.S. Department of Health and Human Services, ``Comparison of
    U.S. and International Prices for Top Medicare Part B Drugs by Total
    Expenditures'' (U.S. Department of Health and Human Services, October
    2018), https://aspe.hhs.gov/system/files/pdf/259996/
    ComparisonUSInternationalPricesTop
    SpendingPartBDrugs.pdf.
    [100]  Iain M. Cockburn, Jean O. Lanjouw, Mark Schankerman, ``Patents
    and the Global Diffusion of New Drugs,'' National Bureau of Economic
    Research, Working Paper 20492, https://www.nber.org/papers/w20492.pdf.
    [101]  Kevin Haninger, ``New analysis shows that more medicines
    worldwide are available to U.S. patients,'' The Catalyst, June 5, 2018,
    https://catalyst.phrma.org/new-analysis-shows-that-more-medicines-
    worldwide-are-available-to-u.s.-patients; Patricia M. Danzon and
    Michael F. Furukawa, ``International Prices and Availability of
    Pharmaceuticals in 2005,'' Health Affairs, Vol. 7, No. 1 (January/
    February 2008), https://www.healthaffairs.org/doi/abs/10.1377/
    hlthaff.27.1.221.
    [102]  PhRMA analysis of IQVIA Analytics Link, U.S. Food and Drug
    Administration (FDA), European Medicines Agency (EMA), Japan's
    Pharmaceuticals and Medical Devices Agency (PMDA), Health Canada and
    Australia's Therapeutic Goods Administration (TGA) data. June 2020.
    Note: New active substances approved by FDA, EMA, PMDA, Health Canada
    and/or TGA and first launched in any country between January 1, 2011
    and December 31, 2019.
    [103]  Ibid.
    [104]  Andrew Spiegel, ``The tragic toll of drug price controls,'' The
    Hill, May 5, 2017, https://thehill.com/blogs/pundits-blog/healthcare/
    332145-the-tragic-toll-of-drug-price-controls; European Union,
    ``Eurostats Statistics Explained: Amenable and preventable deaths
    statistics'' (June 2015), https://ec.europa.eu/eurostat/statistics-
    explained/index.php?title=Archive:Amenable_and_prevent
    able_deaths_statistics&direction=next&oldid=237655#cite_note-2;
    Eurostats Statistics Explained: ``Avoidable, amenable and preventable
    mortality in the EU28, 2012 (numbers),'' https://ec.europa.eu/eurostat/
    statistics-explained/
    index.php?title=File:Avoidable,_amenable_and_preventable_mortality_in_th
    e_
    EU28,_2012_(numbers).png. An updated 2021 report found ``A total of 1.0
    million deaths in 2016 of people aged less than 75 years could have
    been avoided in the EU, either through better healthcare systems and/or
    better public health interventions.'' European Union, ``Eurostats
    Statistics Explained: Preventable and treatable mortality statistics
    (2021),'' https://ec.europa.eu/eurostat/statistics-explained/
    index.php?title=Preventable_and_treatable_mor
    tality_statistics.
    [105]  Kimberly Cleaves, ``Imbalanced Innovation,'' Modern Drug
    Discovery (July 2004): 23-24, http://pubsapp.acs.org/subscribe/archive/
    mdd/v07/i07/pdf/704business3.pdf?.
    [106]  Nathalie Moll, ``Would the last pharmaceutical investor in
    Europe please turn the lights out,'' European Federation of
    Pharmaceutical Industries and Associations blog, January 3, 2020,
    https://www.efpia.eu/news-events/the-efpia-view/blog-articles/would-
    the-last-pharmaceutical-investor-in-europe-please-turn-the-lights-out/.
    [107]  Ibid.
    [108]  Neil Turner, ``European Pricing Squeeze,'' PharmaExec.com,
    October 1, 2002, https://www.pharmexec.com/view/european-pricing-
    squeeze.
    [109]  EFPIA, ``The Pharmaceutical Industry in Figures: 2000'' (EFPIA,
    2000).
    [110]  Turner, ``What's gone wrong with the European pharmaceutical
    industry.''
    [111]  Cleaves, ``Imbalanced Innovation.''
    [112]  Duane Schulthess and Harry Bowen, ``The Historical Impact of
    Price Controls on the Biopharma Industry'' (Vital Transformations,
    November 2021), https://vitaltransformation.com/wp-content/uploads/
    2021/11/11.23-The-Impact-of-price-controls_Final.pdf.
    [113]  Ibid.
    [114]  Ibid.
    [115]  Maki Umemura, ``Unrealised Potential: Japan's Post-war
    Pharmaceutical Industry, 1945-2005,'' Thesis Submitted to the
    Department of Economic History, London School of Economics (August
    2008), 89, https://etheses.lse.ac.uk/2172/1/U613404.pdf.
    [116]  Ibid., 90-91.
    [117]  Ibid., 89.
    [118]  Heather M. O'Neill and Lena Crain, ``The Effects of Price
    Regulation on Pharmaceutical R&D and Innovation,'' Business and
    Economic Faculty Publications, Ursinsus College, Vol. 5 (2005), 62,
    https://digitalcommons.ursinus.
    edu/bus_econ_fac/5/.
    [119]  Ibid., 68.
    [120]  Ibid., 67-69.
    [121]  OECD.Stat, ``TiVA: Trade in Value Added Database 2021,''
    accessed via https://stats.oecd.org/
    Index.aspx?DataSetCode=TIVA_2021_C1.
    [122]  Stephen Ezell, ``Congress Should Double Down on Innovation to
    Boost Productivity in Biopharmaceutical R&D,'' Morning Consult,
    November 22, 2021, https://morningconsult.com/opinions/congress-should-
    double-down-on-innovation-to-boost-productivity-in-biopharmaceutical-
    rd/.
    [123]  Joshua New, ``The Promise of Data Driven Drug Development''
    (Center for Data Innovation, September 2019), https://
    datainnovation.org/2019/09/the-promise-of-data-driven-drug-
    development/.
    [124]  Ezell, ``Ensuring U.S. Biopharmaceutical Competitiveness,'' 48.
    [125]  W. Nicholson Price II, ``Making Do in Making Drugs: Innovation
    Policy and Pharmaceutical Manufacturing,'' Boston College Law Review,
    Vol. 55, Issue 2 (2014): 492, https://lawdigitalcommons.bc.edu/bclr/
    vol55/iss2/5/.
    [126]  Massachusetts Institute of Technology (MIT) Center for
    Biomedical Innovation, ``Welcome to MIT NEWDIGS,'' https://
    newdigs.mit.edu/.
    [127]  The National Institute for Innovation in Manufacturing
    Biopharmaceuticals (NIIMBL), ``About NIIMBL,'' https://
    niimbl.force.com/s/about-niimbl.
    [128]  Stephen J. Ezell, ``How the Prescription Drug User Fee Act
    Supports Life-Sciences Innovation and Speeds Cures'' (ITIF, February
    2017), http://www2.itif.org/2017-pdufa-life-sciences-innovation.pdf.
    [129]  Robert King, ``Urban Institute: Part D $2,000 out-of-pocket cost
    cap could benefit nearly 1M seniors,'' Fierce Healthcare, March 2,
    2022, https://www.fiercehealthcare.com/payers/urban-institute-part-d-
    2000-out-pocket-cost-cap-could-benefit-nearly-1m-seniors.
    [130]  Ibid.
    [131]  Blake Pelzer and Paul Spitalnic, ``Proposed Safe Harbor
    Regulation,'' Center for Medicare and Medicaid Services: Office of the
    Actuary, (August 2018), https://aspe.hhs.gov/sites/default/files/
    private/pdf/260591/OACTProposed
    SafeHarborRegulationImpacts.pdf.
    [132]  Golin et al., ``Interventions to Improve Adherence to Self-
    administered Medications for Chronic Diseases in the United States''
    (Annals of Internal Medicine, December 2012), https://
    www.acpjournals.org/doi/10.7326/0003-4819-157-11-201212040-00538.
    [133]  Norman E. Sharpless, ``COVID-19 and Caner,'' Science, Vol. 368,
    Issue 6497 (June 2020): 1290, https://science.sciencemag.org/content/
    368/6497/1290.
    [134]  Caitlin O'Kane, ``Most Americans say the pandemic has been bad
    for their weight,'' CBS News, March 23, 2021, https://www.cbsnews.com/
    news/covid-weight-gain-30-pounds-pandemic/.
    [135]  Scannell, ``Four Reasons Drugs Are Expensive, of Which Two Are
    False.''

                                     ______

             Questions Submitted for the Record to Stephen J. Ezell
                     Questions Submitted by Hon. Mike Crapo
     on problematic claims regarding the house-passed build back better act
        Question. A range of claims advanced in support of the drug price
    controls included in the House-passed Build Back Better Act (BBBA)
    warrant substantial scrutiny and skepticism.

        Some backers of the bill have cited a January 2022 AARP piece
    suggesting that gas and milk prices would be astronomical if they had
    grown at the rate of prescription drug prices for the past 15 years.
    Notably, however, the article in question relies on a June 2021 report
    using a dataset ending in December 2020, thus predating the recent
    surge in general inflation, which has coincided with far lower growth
    in drug prices. Moreover, the study in question focuses only on a
    subset of brand-name drugs, thus excluding the low-cost generics that
    account for 90 percent of the market, and its pricing metric fails to
    account for post-sale rebates and other price concessions. It also uses
    a 15-year window, which masks the recent slowing in even list price
    increases for medications.

        In terms of the current wave of inflation eroding American
    families' finances, between February 2021 and 2022, general inflation
    (CPI-U) rose by 7.9 percent, while the consumer price index specific to
    milk increased by 11.2 percent and the gasoline-specific index surged
    by 38 percent. The prescription drug-specific index (CPI-Rx, which
    includes generics but still excludes post-sale rebates), by contrast,
    grew by just 2.4 percent.

        What metrics and studies provide the most accurate and inclusive
    data on price trends for prescription drugs?

        How does medication price inflation relate to general inflation and
    inflation specific to other goods cited by AARP, such as milk and
    gasoline?

        Answer. The best source for data on drug prices paid by U.S.
    consumers is actually the U.S. Bureau of Labor Statistics (BLS) and its
    Consumer Price Index (CPI). And this data shows that prescription drugs
    have in no way been a significant contributor to the increased
    inflation the United States is presently experiencing. In fact, over
    the past 12 months, prescription drug prices increased just 2.4
    percent, well below the average CPI increase of 8 percent and less than
    other parts of the U.S. health-care system, such as health insurance,
    which experienced a 4.1 percent increase. (See Figure 1.)

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        In fact, among the goods where U.S. consumers have faced
    dramatically increased inflation over the past year, drug prices didn't
    even make it within the top 100-highest price increases among the BLS
    itemized CPI (which tracks over 300 unique consumer expenditure
    categories). Moreover, between 2020 and 2021, BLS recorded zero
    inflation on prescription drugs and only a 0.8-percent price increase
    on non-prescription drugs. In the 12 months ending in February 2022,
    the cost of gasoline in the United States increased nearly 20 times
    more, 38 percent, than the cost of prescription drugs, 2.4 percent.
    Over that period, U.S. food prices increased by 8 percent, including a
    6.9-increase for milk (for the 12-month period ending in January
    2022).\2\ Again, these price increases for food were considerably
    higher than the price increases for prescription drugs.

        Moreover, Americans' out-of-pocket drug expenditures, as a share of
    their personal income, have been consistently dropping over the past 2
    decades. In fact, out-of-pocket drug costs are at an all-time low
    relative to total U.S. health spending. In 1960, out-of-pocket drug
    costs made up 9.5 percent of total U.S. health expenditures; today,
    that number is only 1.1 percent. In fact, consumers have consistently
    paid a lower share of their personal incomes toward out-of-pocket drug
    costs every year since 1960. The share of personal incomes in the
    United States paid toward out-of-pocket drug costs has halved over the
    last 15 years, from 0.53 percent in 2005 to 0.24 percent in 2020. (See
    Figure 2.)

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        Indeed, as calculated by the U.S. Bureau of Labor Statistics,
    from 2005 to 2020, Americans' reported expenditures on health insurance
    increased by over 160 percent, and total health-care expenditures
    increased 94 percent, while consumer expenditures on drugs actually
    fell by almost 9 percent. (See Figure 3.) Of course, this does not
    necessarily mean overall drug expenditures fell because health
    insurance and hospitals also purchase drugs, but it does address
    consumers' out-of-pocket costs. It's reflective of a system that,
    broadly, both supports the creation of innovative drugs and then
    pathways for generic or biosimilar entrants to introduce price-
    decreasing competition.

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        Another good source of data on U.S. health-care expenditures is
    the Peterson-KFF Health System Tracker.\5\ Data from Peterson-KFF show
    that the percentage of total U.S. health-care spending going toward
    retail prescription drugs was consistent from 2000 to 2017, at mostly
    under 10 percent, and even dipped slightly to 8 percent in 2020.\6\
    Other good sources of data on health expenditure trends include
    Altarum's report ``Projections of the Non-Retail Prescription Drug
    Share of National Health Expenditures'' and the report by Inmaculada
    Hernandez et al., ``Changes in List Prices, Net Prices, and Discounts
    for Branded Drugs in the U.S., 2007-2018.''\7\

        Question. In advocating for enactment of the BBBA's drug pricing
    provisions, some have characterized the bill's government price-setting
    program as market-based and fair, providing manufacturers with a say in
    the pricing of their products. These advocates have sought to
    differentiate the program from price controls and rate-setting
    mechanisms.

        In reality, however, the legislation would allow the HHS Secretary
    to set any price of his or her choosing for virtually any product
    selected. Under the bill, noncompliance with any component of the
    price-setting program--including meeting bureaucratic deadlines,
    agreeing to participate in the program, and accepting the price that
    the Federal Government sets, however arbitrary or unrealistic--would
    trigger an unprecedented and seemingly unconstitutional noncompliance
    penalty of up to 95 percent of all gross sales across all markets.
    Manufacturers thus have no choice in the matter and no leverage in the
    process. The proposal would also permanently prohibit judicial and
    administrative review of most elements of the new program, rendering
    any price set by the Secretary as absolutely final and enforceable.

        In short, the bill provides for negotiation in name only.

        Is the government price-setting program created under the House-
    passed BBBA in any way negotiation? Does it, as its backers attest,
    rely on market forces and provide manufacturers with a meaningful say
    in setting prices?

        To your knowledge, has Congress enacted any provision resembling
    the 95-percent noncompliance penalty--nondeductible and applied across
    gross sales for all market segments--in modern political history?

        Answer. The BBBA does not establish a true ``negotiation'' of drug
    prices in Medicare; rather it's more about arbitrary price setting that
    would enable the HHS secretary to dictate prices to manufacturers who
    would have little or no power to truly negotiate. As Doug Holtz-Eakin
    elaborates, ``The BBBA would enshrine a unique and punitive 95-percent
    excise tax on gross profits on a therapy if the manufacturer does not
    agree to the secretary's demands and set a ceiling for a drug's price.
    . . . Given the 95-percent excise tax the secretary would be free to
    wield against noncompliant innovators, `price extortion' would be a
    more honest label for the provision than `price negotiation'.''\8\
    Moreover, unlike past proposals, there would be no floor price below
    which the secretary would be unable to force further concessions. As
    Holtz-Eakin continues:

            While the BBBA would not apply Medicare's negotiated prices for
            drugs to non-Federal programs, the most significant implication
            of the BBBA's
            dollar-for-dollar penalties on price increases that exceed the
            rate of inflation is that, for the first time, the Federal
            Government would be unilaterally capping drug prices
            nationwide, both in Federal programs and in the private market.
            This shift in the Federal Government's posture toward private
            markets, negotiations, and competition cannot be overstated.
            [Thus] . . . significantly under the BBBA the Federal
            Government would cap the price of all drugs throughout the
            entire health-care system by penalizing any manufacturer who
            increases a drug's price faster than the rate of inflation.\9\

        No, I am not aware of any instance in U.S. history where Congress
    has enacted any provision resembling a 95-percent non-compliance
    penalty. There is, however, considerable evidence of the damage that
    punitive excise taxes inflict on biomedical innovation. For instance,
    the Affordable Care Act imposed a 2.3 percent excise tax on the price
    of taxable medical devices sold in the United States from 2013 to 2015.
    A study by the Tax Foundation found that, even in the short time it was
    imposed, the tax resulted in higher prices as well as less research and
    development (R&D).\10\ In fact, the Office of the Actuary for the
    Centers for Medicare and Medicaid Services stated that the medical
    device tax would ultimately increase national health-care
    expenditures.\11\ Moreover, the Tax Foundation found that if the
    medical excise tax had remained imposed as originally envisioned, it
    would likely have resulted in a decline of 21,390 full-time equivalent
    jobs and a reduction in GDP of $1.7 billion.\12\ But even in the mere 3
    years in which the medial device tax was in place, it conflicted
    considerable damage on the U.S. medical device industry.\13\

        The United States also has a broader history with government
    policies that attempt to set aggressive price controls, and their
    effect has generally been deleterious. For instance, in 1971, President
    Nixon's Cost of Living Council, led by Arnold Weber, attempted to quash
    inflation by temporarily blocking for 90 days increases in nearly all
    wages and prices. But it issued rules, such as one attempting to
    control prices in futures markets, that, in Weber's words, were ``so
    contrary to established behavior that the markets simply shut
    down.''\14\ Nixon's price controls failed to stop inflation, reduced
    the value of the dollar by one-third, and were a significant
    contributor to the ensuing 1970s stagflation, as inflation persisted
    throughout the decade at an average annual rate of 8 percent.\15\

        It's certainly true that some patients are paying more than they
    should for drugs at the pharmacy counter. Some reform is needed--
    notably to address the pinch seniors are experiencing in out-of-pocket
    costs at the pharmacy counter--but radical reconstructive surgery in
    the form of stringent drug price controls is not the solution.

        Question. BBBA's defenders sometimes argue that the life sciences
    sector is uniquely and exceptionally profitable and could thus easily
    absorb the costs triggered by the bill's price controls. Others argue
    that biopharmaceutical R&D estimates overstate the sector's commitment
    to innovative research, pointing to studies suggesting that marketing
    and advertising expenses for at least some segments of the industry
    exceed R&D investments.

        Do these arguments accurately characterize the relative
    profitability, R&D intensity, and marketing/advertising expenditures of
    the biopharmaceutical sector? Why or why not?

        Answer. The U.S. biopharmaceutical industry is both America's and
    the world's most R&D-intensive industry--of any kind. As the U.S.
    Congressional Budget Office (CBO) explains, ``Over the decade from 2005
    to 2014, the industry's R&D intensity averaged 18 to 20 percent per
    year. That ratio has been trending upward since 2012, and it exceeded
    25 percent in 2018 and 2019.''\16\ This level of R&D investment is
    substantially more than any other U.S. industry. As the CBO observes,
    ``By comparison, average R&D intensity across all [U.S.] industries
    typically ranges between 2 and 3 percent'' and even ``R&D intensity in
    the software and semiconductor industries, which are generally
    comparable to the drug industry in their reliance on R&D, has remained
    below 18 percent.''\17\ (See Figure 4.) America's biopharmaceutical
    sector accounts for 18 percent of total U.S. business R&D
    investment.\18\ Importantly, the CBO notes that while ``Consumer
    spending on brand-name prescription drugs has risen, [the industry's]
    R&D has risen more quickly.''\19\

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        The notion that America's innovative life-science industry is
    spending more on advertising than R&D is fundamentally specious. For
    that to be the case, the industry would have to be spending more than
    one-quarter of its total revenues on advertising, which it is not.
    According to the CBO, in 2019, the pharmaceutical industry invested $83
    billion dollars in R&D (which, adjusted for inflation, was an amount 10
    times greater than the industry spent per year in the 1980s).\21\ In
    contrast, total pharmaceutical advertising spending reached $6.58
    billion in 2020 (up modestly from the $4.9 billion it was in 2007).\22\

        Moreover this advertising isn't simply zero-sum, designed to gain
    market share over competitors. Rather, much of it is about educating
    consumers--and in the case of biopharma, educating health-care
    providers, too--about choices.\23\ Moreover, the drug industry is
    different than say the soap or car industry where it's relatively easy
    for consumers to find out on their own about new products and the
    differences between products. Some of the marketing expenses are to
    educate doctors and consumers about the value and efficacy of new
    drugs. This is why Frosch et al. find that more than half of physicians
    agree that ads educate patients about health conditions and available
    treatments and nearly 75 percent of patient respondents agree that
    advertisements improve their understanding of diseases and
    treatments.\24\

        The notion that the pharmaceutical industry is ``exceptionally
    profitable'' is also questionable. Researchers at the University of
    Southern California led by Professor Neeraj Sood have sought to
    estimate excess returns (the extent to which a firm's profits are
    higher than expected given the risk associated with their investments)
    for manufacturers and middlemen in the pharmaceutical supply chain.
    They found that the rate of return on investments of large firms in the
    pharmaceutical industry between 2013 and 2018 was just 1.7 percent once
    adjusted for the risk premium paid for capital and the more logical
    treatment of R&D expenditures as long-term investments rather than
    current costs.\25\ For comparison, the overall S&P 500 had an excess
    rate of return of more than double--3.6 percent--over this period.

        The authors also found that other players in the pharmaceutical
    supply chain realized higher excess returns. Specifically, for the
    period from 2003 to 2018, they found that wholesalers earned excess
    returns of 8.1 percent and that insurers, pharmacy benefit managers
    (PBMs), and retailers collectively earned excess returns of 5.9
    percent. The authors did find that the cohort of biotechnology firms in
    their study realized the highest excess returns of any group, at 9.6
    percent, though they note this was in part driven by several
    blockbuster drugs introduced from 2013 to 2015, notably new hepatitis C
    drugs, and that by 2018 the sector's excess rate of return had fallen
    to under 9 percent. More importantly, however, the authors note that,
    ``In contrast with middlemen, monopoly power in the pharmaceutical and
    biotech sectors--derived through the U.S. patent system--provides [an]
    incentive for innovation that might not happen otherwise.''\26\

        But the point here should be the value these industries are
    delivering for society relative to their degree of profitability.
    America's life-sciences innovators are delivering innovative drugs that
    have accounted for 73 percent of the increase between 2000 and 2009 in
    life expectancy at birth across 30 countries, including the United
    States (or 1.27 years of the 1.73-year increase in life
    expectancy).\27\ Moreover, America's life-sciences companies employ
    approximately one-quarter of America's total R&D workforce. Meanwhile,
    23 percent of the American biopharmaceutical industry's workforce can
    be found at the lab bench in R&D jobs seeking to create new cures,
    giving the industry a share of employment dedicated to R&D three times
    higher than the national average.\28\ Those numbers represent
    tremendous returns and value to society, especially relative to
    profitability; PBMs, according to Sood's data, are more profitable than
    pharmaceutical firms and almost as much so as biotechnology ones, but
    they're not nearly employing one-quarter of America's R&D workforce or
    developing products that have tremendous impacts on American and global
    citizens' quality and length of life.

        Lastly, many BBBA proponents assert that America's life-sciences
    innovators aren't focused on breakthrough innovation or just focus on
    ``me-too'' drugs. But the reality is that there are currently 4,500
    medicines under development in the United States, including 560 seeking
    to treat pediatric diseases, 537 for neurological diseases, 362 for
    cell and gene therapies, and hundreds more for mental illness, asthma
    and allergies, and other maladies.\29\ Many of these are potentially
    ``first-in-class'' drugs, including 86 percent for Alzheimer's, 79
    percent for various forms of cancer, 75 percent for psychiatry, 74
    percent for neurology, and 73 percent for cardiovascular disease.\30\
    To assert that the industry, broadly, isn't working to develop
    breakthrough treatments is fundamentally fallacious.

        And trying to make progress in many of these fields is extremely
    difficult. For instance, consider that between 1998 and 2017, there
    were 146 attempts to bring new Alzheimer's treatments to market, but
    just 4 out of those 146 were successful approvals. In other words, 97
    percent proved unsuccessful.\31\ (However, the value of a successful
    treatment would be profound: the United States could save $220 billion
    within the first 5 years and a projected $367 billion in the year 2050
    alone if a cure or effective treatment for Alzheimer's disease could be
    found.)\32\

        The difficulty of innovating safe and effective new drugs is
    further illustrated both by efforts to develop oncology drugs and to
    develop vaccines in response to the COVID-19 pandemic. A 2019 study by
    Wong, Siah, and Lo examining oncology drug development efforts from
    January 1, 2000 to October 31, 2015 found that oncology programs have
    just a 3.4 percent chance of ultimate Food and Drug Administration
    (FDA) approval (and yet companies continue to invest tens of billions
    of dollars trying to tackle oncology challenges).\33\ Similarly, life-
    sciences companies responded with great alacrity in attempting to
    develop COVID-19 vaccines and therapeutics. But thus far, only 2 of 58
    vaccine attempts (3.4 percent) have received final approval (18 are in
    Phase III clinical trials). But already 26 vaccine candidates have
    failed, as well as 54 proposed antiviral medications and 90 different
    therapeutic treatments.\34\

        Question. In making the case for the House-passed BBBA drug pricing
    policies, some have suggested that most new drugs that come to market
    are ``me-too'' products that either make modest changes to existing
    medications or treat conditions that already have numerous therapeutic
    options. These claims seem at odds with the drug development landscape,
    where the majority of the 50 new drugs approved last year were first-
    in-class treatments, and where studies regarding existing therapies can
    lead to new indications and uses, along with improvements that offer
    outsize patient benefits. One drug originally indicated to treat
    chronic lymphocytic leukemia, for instance, received approval as a
    disease-modifying therapy (DMT) for the treatment of multiple sclerosis
    roughly 11 years later, after a far-reaching and costly clinical
    development program. This type of follow-on innovation can result in
    major medical breakthroughs.

        To what extent do we see meaningfully innovative drugs and
    biologics approved each year, and what potential value does follow-on
    innovation offer to patients?

        How would the government price-setting program and other price
    controls included in BBBA impact incentives for follow-in innovations
    like new indications for existing therapies, new formulations (i.e., to
    mitigate or eliminate side effects, to streamline dosing regimens,
    etc.), and other product improvements and changes?

        While the House-passed BBBA technically makes no changes to patents
    and exclusivities with respect to prescription drugs, the government
    price-setting program and multi-market price growth cap policies would
    affect a manufacturer's ability to derive economic value from these
    market protections. How would the bill's price controls impact the
    incentives for innovation currently inherent in patents and
    exclusivities?

        Answer. As just noted, contrary to critics' assertions, America's
    biopharmaceutical industry is an innovation-oriented one, not a me-too-
    oriented one.

        In 2020, the FDA's Center for Drug Evaluation and Research (CDER)
    approved 53 novel drugs.\35\ Of these novel drugs, 21 were considered
    first-in-class and 31 were designated orphan drug status.\36\
    Similarly, the FDA's Center for Biologics Evaluation and Research
    (CBER) approved eight biologics.\37\ The year 2020 also saw the first
    therapeutics for COVID-19 and some forms of premature aging, such as
    progeria.\38\

        Similarly, in 2021, CDER approved 50 novel drugs, and CBER approved
    10 new biologics.\39\ Despite the slight overall decrease in novel
    drugs, 27 were given first-in-class designation, and 26 were granted
    orphan drug status.\40\ Although it is too early in 2022 to provide
    significant data, the FDA lists 10 novel drugs and 2 biologics already
    approved as of April 21, 2022, along with 9 new generics or
    biosimilars.\41\

        And despite critics' assertions the reality is that new drug
    approvals have significantly accelerated over the past 2 decades. The
    FDA's Center for Drug Evaluation and Research's 5-year rolling approval
    average stood at 44 new drugs per year in 2019, double the lowest 5-
    year rolling average of 22 drugs approved, realized in 2009. (See
    Figure 5.) And the number of drugs in development globally increased
    from 5,995 in 2001 to 13,718 in 2016.\42\

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        Yet, as Representative Katie Porter (D-CA) argues in her
    report, ``Killer Profits: How Big Pharma Takeovers Destroy Innovation
    and Harm Patients,'' ``Instead of taking risks to find new, critically
    needed drugs, large pharmaceutical companies are just repackaging the
    same products over and over: In 2018, only 1 in 3 new brand-name drugs
    that drug companies launched were `first-in-class' drugs.''\44\
    Similarly, Rena Conti observed in her Senate Finance Committee hearing
    testimony that ``Sanofi testified in the Senate that only 33 of its 81
    R&D projects were for new chemical entities'' (again, about one-
    third).\45\

        Is 1 in 3 low? In the 1940s and 1950s, when there were few drugs on
    the market and almost all were first in class, 1 in 3 would have been
    low. But as more drugs hit the market, the share of first-in-class
    drugs declined as it became harder to discover new treatments and also
    because of the importance of producing multiple drugs to address the
    same disease. Nonetheless, the share of drugs that are new has risen
    since the 1970s, not fallen.\46\

        Moreover, criticisms of the industry for when it does invest in
    ``me-too'' drugs fails to recognize the significant clinical benefits
    of new drugs complementing existing drugs. Sometimes an existing drug
    does not perform as well as the new drug. Sometimes certain individuals
    have adverse reactions to an existing drug but not the new drug.\47\ In
    addition, follow-on drugs can be better in efficacy or methodology and
    convenience of use and administration. DiMasi and Faden found that 32
    percent of follow-on drugs have received a priority rating from the
    U.S. FDA, indicating that these drugs are likely to provide an
    important improvement over the first-to-market drug.\48\ They
    concluded, ``Overall, these results indicate that new drug development
    is better characterized as a race to market among drugs in a new
    therapeutic class, rather than a lower risk imitation of a proven
    breakthrough.''\49\ Moreover, the Government Accountability Office
    (GAO) found that the introduction of additional drugs lowers
    prices.\50\

        Indeed, follow-on innovations from original innovative drugs
    represent an important aspect of America's life-sciences innovation
    system that can bring important benefits for patients. These can
    include new indications (i.e., applications of an existing drug to a
    new disease), improvements in delivery forms (i.e., providing a
    medication orally as opposed to through an injection), or improvements
    in delivery dosages (i.e., a pill administered once a month as opposed
    to once daily).

        For instance, in 2013, a revolutionary new treatment called Sovaldi
    was released that boosted hepatitis C cure rates to 90 percent. This
    was followed in 2014 by an improved treatment called Harvoni, which
    cures the hepatitis C variant left untouched by Sovaldi. By early 2020,
    an astonishing six new treatments for the disease had received FDA
    approval, opening up a wide range of treatment options that take into
    account patients' liver and kidney status, co-infections, potential
    drug interactions, previous treatment failures, and the genotype of the
    HCV virus.\51\ Moreover, as competitors joined the market, the price of
    Sovaldi was cut in half.\52\

        The provisions in the BBBA would likely have a deleterious impact
    on both follow-on and generic drug innovation. That's in no
    insignificant part because generic or biosimilar drugs depend, by
    definition, on the innovative drugs or biologics that predated them,
    and when drug price controls inhibit the creation of innovative
    medicines in the first place, they tamp down on the capacity to create
    the cheaper generics or biologics of tomorrow, a dynamic that would
    only be amplified by artificially decreasing the price of innovative
    drugs through price controls. As Holtz-Eakin elaborates:

            Ironically, the more successful the HHS secretary is in
            leveraging the BBBA's punitive excise tax to force price
            concessions, the fewer generic and biosimilar products are
            likely to come to market. Follow-on products are able to
            dramatically undercut name-brand drugs and biologics on price
            because they do not have the same R&D expenditures and because
            their lower prices allow them to achieve larger market shares.
            But if the price difference between a name-brand drug, subject
            to the secretary's price controls, and a new generic is
            marginal or even non-existent, the ability of a generic to gain
            market share will be reduced.\53\

        As to the long-term effect of the BBBA on the subsequent number of
    generic drugs, the University of Chicago's Tomas Philipson and Troy
    Durie reach a similar conclusion, writing:

            We looked at the patent life and data exclusivity of the top 20
            drugs by total Medicare Part B and D spending, finding that
            this plan will shorten their market life by 2-4 years on
            average. These drugs will no longer have the advantages of
            exclusivity by having an artificially lower price, but cheaper
            generics still will not be able to be developed while they
            watch the government price them out of the market. This new
            price control scheme will lead to fewer generics and less
            competition which has been shown to lead to effective price
            reductions without undermining innovation.\54\

        Question. Some have claimed that the BBBA's drug pricing provisions
    would exempt startups and other small biotechs from the onerous new
    government price-
    setting program included in the legislation. In reality, however, the
    bill includes only an extremely narrow and time-limited exemption that
    carves certain small biotechs out of the program for 3 years and
    provides them with a pricing floor for the following two, after which
    point the bureaucratic new system would treat these small firms like
    any other companies. Notably, 66 percent of biopharmaceutical companies
    are startups. Moreover, small businesses--many of which would not
    qualify for even the temporary exemption--account for 70 percent of
    pivotal-stage trials, and more than 90 percent of biopharmaceutical
    firms overall are not turning a profit.

        Do the time-limited and narrow small biotech exemptions in the bill
    provide meaningful protection for the startups and other small
    businesses that comprise the majority of the life sciences sector?

        If enacted, how would the government price-setting program and
    other price controls (such as the mandatory multi-market price growth
    cap) impact these small businesses and the prospects of future
    biopharmaceutical startups?

        How might the imposition of the bill's price controls fuel industry
    consolidation, given the diversified product portfolios and compliance-
    related resources and staff that large multinationals often enjoy,
    relative to smaller businesses?

        Answer. Proponents assert that life sciences could easily absorb
    the costs of the BBBA drug price controls. But, while that might be
    easier, though still deleterious, for larger firms, it forgets that
    start-ups account for 66 percent of U.S. biopharmaceutical
    enterprises.\55\ Yet these startups, 90 percent of which are pre-
    revenue, account for 70 percent of drugs in phase III clinical
    trials.\56\ Yet government price controls, even if there is some type
    of carve out for small innovators, would still sharply reduce the
    opportunity to earn a return. One reason is that acquisition by a
    larger company often represents an important, and legitimate and
    meritorious, exit strategy for a smaller company and to the extent the
    BBBA deprives larger firms of revenues, this would reverberate
    throughout the ecosystem. But, overall, such drug price controls would
    harm small and large biopharmaceutical firms alike.

        Question. Therapeutic development relies heavily on high-risk
    investments from diverse sources. While some of the BBBA's backers
    anticipate that the life sciences would remain attractive to investors
    at every level, real-world experience tells a different story. Even
    under current laws and regulations, capital can--and often does--shift
    away from (or simply never flow into) the biopharmaceutical sector.
    According to one Wall Street Journal piece from last December, for
    instance, biotech stocks ``crumbled'' in 2021. Developing a new
    medication can take between 11.5 and 15 years, and only one in every
    1,000 drug formulas ever enters preclinical trials. For the ones that
    do, only eight percent ever receive FDA approval. Unsurprisingly, it
    costs an average of $2.6 billion to develop and gain approval for a new
    medicine. These factors make the biopharmaceutical sector especially
    sensitive to the types of government price controls included in the
    House-passed BBBA, which University of Chicago researchers projected
    would lead to 135 fewer new drug approvals in the next 2 decades.

        How would the price controls included in the BBBA likely impact the
    investment landscape with respect to biopharmaceutical innovation?

        Supporters of the BBBA's government price-setting program sometimes
    cite the Veterans Affairs (VA) Department as a model for Part D. In
    practice, however, the closed formulary leveraged by the VA impairs
    access to many medications. Among the top 200 Part D drugs by overall
    spend, for instance, one study found that Part D plans covered an
    average of nearly three-fourths of the products, while the VA covered
    just over half. Among a sample of 25 first-in-class treatments, Part D
    plans covered more than three in every five, while the VA covered just
    40 percent. The VA also integrates value assessments using quality-
    adjusted life years (QALYs) into its pricing practices, despite
    widespread criticism of these metrics by disability advocates, who
    argue that QALYs devalue individuals with exceptional needs, along with
    older individuals.

        Answer. Life-sciences companies depend on profits from one
    generation of biomedical innovation to fund investment in the next.
    Research by Dubois et al. makes this dynamic crystal clear, finding
    that every $2.5 billion of additional biopharmaceutical revenue leads
    to one new drug approval.\57\ Related academic research shows a
    statistically significant relationship between a biopharma enterprise's
    profits from the previous year and its R&D expenditures in the current
    year.\58\ Likewise, Gambardella found that sales revenue from previous
    periods have a significant, positive impact on current-period biopharma
    R&D.\59\ Henderson and Cockburn find that the pharmaceutical firms with
    the greatest sales are also the ones with the largest R&D
    investments.\60\ Drug price controls would harm future investments in
    biomedical innovation.

        Question. Is the VA drug pricing system an appropriate model or
    exemplar for Part D? Why or why not?

        Answer. The VA approach doesn't provide a satisfactory exemplar for
    Medicare Part D, that's especially because, unlike Medicare Part D, the
    VA employs a ``one-size-fits all' approach that limits access to
    medicines. It's a closed formulary. In particular, ``the VA employs a
    narrow, exclusionary formulary to generate savings, and comparisons of
    coverage between the VA and Medicare demonstrate that the VA offers
    fewer choices, particularly of the most cutting-edge and innovative
    medicines.''\61\ For instance, considering the top-200 Part D brand
    medicines, a July 2020 study found that, while 74 percent were covered
    by Medicare, just 52 percent were covered by the VA formulary.
    Likewise, the VA National Formulary covers just 40 percent of first-in-
    class Part D medicines, compared with more than 62 percent in Medicare
    Part D.\62\ As the GAO explains, while ``the VA can steer utilization
    toward a limited number of drugs within a given therapeutic class;
    Medicare Part D plans, on the other hand, generally have broad networks
    of pharmacies and as such may have broader formularies than VA's.''\63\
    Moreover, because of limitations on the VA formulary, to acquire access
    to the medicines they need, more than half of all veterans supplement
    their VA benefits with other sources of health coverage, including Part
    D.\64\ The VA's use of QALYs also discriminate against the disabled,
    seniors, the chronically ill and communities of color; for instance, a
    QALY for a patient with multiple sclerosis can be worth half as much as
    a healthy, young individual, and a person over the age of 70 is worth
    approximately 30 percent, simply due to their age.

        Question. In defending the government price-setting program and
    multi-market price growth cap policies in the BBBA, some policymakers
    have contended that under current law, manufacturers enjoy maximal
    price-setting power and can charge whatever they want, while purchasers
    and consumers lack any leverage. In practice, however, all three of the
    largest pharmacy benefit managers (PBMs) exclude between 400 and 500
    drugs from their standard formularies, and the number of drugs excluded
    by these formularies increased by 676 percent from 2014 to 2020.
    Moreover, rebates paid by manufacturers have grown substantially in
    recent years, further reducing net prices and demonstrating leverage on
    the part of the payers extracting these price concessions.

        Do drug manufacturers, as many BBBA supporters argue, enjoy
    absolute power to charge whatever they want?

        Answer. No, drug companies do not enjoy absolute power to charge
    whatever they want. Drug companies face many constraints: on the
    innovation side they're constrained by science, which is why, on
    average, as many as 5,000 to 10,000 compounds may be screened to get to
    approximately 250 promising molecular compounds that can enter
    preclinical testing, with 5 entering actual clinical testing.\65\ And
    that's just getting to the clinical trial stage, as less than 12
    percent of candidate medicines that even make it into Phase I clinical
    trials are ultimately approved by the FDA.\66\ It's why oncology drug
    efforts have only a 3.4 percent chance of winning FDA approval.

        When drugs do make it to market, even the ones getting there first
    will often quickly face competition. For instance, as noted previously,
    as competitors joined the market, the price of Sovaldi as not just a
    treatment but an actual cure for hepatitis C was cut in half. Further,
    innovative drugs have a limited period of patent protection, and when
    drugs go off patent, much cheaper generic drugs often come rapidly on
    the scene. As noted subsequently in response to a question from Senator
    Sasse, for instance, once Biogen's multiple sclerosis (MS) drug
    Tecfidera went off-patent, generic competitors entered with drugs well
    over 95 percent cheaper. Lastly, of course, drug makers must negotiate
    with pharmacy benefit managers and other wholesalers to get their drugs
    listed on formularies like Medicare Part D, where the negotiations are
    aggressive. Some argue that there's no negotiation function for
    Medicare Part D, and thus the government needs to take the process
    over. But the issue isn't negotiation or no negotiation. There is
    negotiation, for instance as provided by the PBMs; policymakers should
    focus on helping this market-based process function better, such as
    through increasing scrutiny and transparency on PBMs and ensuring they
    meet their fiduciary obligations.
                              on list price growth
        Question. While net prices for brand-name drugs have fallen for at
    least four consecutive years, according to IQVIA and others, list
    prices for these products have grown--albeit at a slower rate than in
    previous years.

        What are some of the underlying factors driving list price growth
    for prescription drugs?

        Answer. When it comes to the growing disparity between drugs' list
    and net prices, particular attention must be paid to the role played by
    rebates and discounts. Discussion of drug prices tends to focus on the
    annually announced increase in the list prices for prescription drugs.
    However, sales of prescription drugs are subject to substantial
    manufacturer rebates and discounts, leading to a considerable reduction
    in manufacturer earnings. Researchers at the University of Pittsburgh
    School of Pharmacy and Medicine estimate that while the average annual
    increase in the list price for prescription drugs between 2007 and 2018
    was 9.1 percent, the net increase in drug prices after rebates was only
    4.5 percent.\67\

        In recent years, as list prices have been growing at a slower pace,
    the volume of discounts and rebates has increased. For example, in
    2020, list prices grew at an average rate of 4.4 percent, but net
    prices decreased by 2.9 percent.\68\ As The Wall Street Journal, citing
    data from the SSR Health Report, notes, ``[A]verage U.S. list prices
    for prescription medicines rose in the past decade, but net prices--
    after rebates and discounts--rose less sharply and have recently
    declined.''\69\ (See Figure 6.)

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        In fact, one study found that more than one-third of drug list
    prices were rebated back to PBMs and other entities in the supply
    chain. As that report describes, ``Pharmaceutical spending estimates
    that omit rebates and discounts do not fully reflect the underlying
    competitive dynamics of the pharmaceutical sector and provide a
    misleading impression of drug spending.''\71\

        Fees charged by intermediaries also subtract from drug manufacturer
    revenues. PBMs nearly quadrupled the fees they charge biopharmaceutical
    companies--such as administrative and service fees--between 2014 and
    2016. Total fees charged to biopharmaceutical companies by these
    middlemen increased from $1.5 billion in 2014 to $2.6 billion in 2015,
    and then doubled to nearly $5.6 billion in 2016. Along with rebates,
    these fees--which are typically based on the list price of a medicine--
    contribute to a system of misaligned incentives where middlemen make
    more money when the list prices of medicines increase.\72\

        Despite an increase in the share of negotiated rebates shared with
    health plan and employer clients, total PBM revenue increased
    considerably between 2014 and 2016. That's in part due to the
    increasing administrative fees they charged biopharmaceutical
    companies. But PBMs aren't just charging biopharmaceutical companies
    more than ever before--they also brought in a record total of $22.4
    billion in revenue in 2016 by charging more to others in the supply
    chain, such as health plans and pharmacies.\73\

        For further input on the factors driving list price growth in
    medicines, please see the response to Senator Sasse's question on
    insulin pricing which follows subsequently.
                        on public funding and innovation
        Question. NIH and its grantees unquestionably conduct crucial
    foundational research. Through scores of strategic public-private
    partnerships, our current system enables research institutions and job
    creators of all sizes to translate and transform NIH-supported basic
    research into tangible biomedical breakthroughs, from diagnostic tests
    to treatments and cures.

        That being said, proposals to replace private R&D-driven capital
    with taxpayer dollars raise serious concerns. Public and private
    research support should play complementary roles--not conflicting
    ones--and the Federal bureaucracy is no substitute for private-sector
    innovation and expertise.

        According to one study, in fact, when it comes to life-sciences
    research resulting in a new medical innovation, the private sector
    invests as much as $100 in development for every $1 invested by the
    government. Along those lines, a survey of some of the most
    transformational medicines to reach the market in recent years found
    that whereas public funding played a critical role in achieving basic
    science milestones, private industry led the way for milestones related
    to drug discovery, production, and development, often by staggering
    margins.

        Do you see public funding as an adequate substitute for any
    private-sector shortfalls that might result from government-mandated
    price controls?

        Answer. The complementarity between the respective U.S. public and
    private sectors to biomedical innovation has been one of the great
    strengths of the U.S. approach to biomedical innovation. Public funding
    for basic life-sciences research, especially through the National
    Institutes of Health (NIH), funds basic discoveries such as into
    understanding the fundamental processes by which diseases develop and
    are transmitted or identifying novel biomarkers that signal the
    presence of a disease. This creates a body of knowledge which
    represents a platform for innovation by the private sector to try to
    turn novel molecules into safe drugs. Private-sector activity centers
    on applied R&D focused on the discovery, synthesis, testing, and
    manufacturing of candidate compounds intended to exploit biologic
    targets for the purpose of curing medical conditions. As Chakravarthy
    et al., note, ``Without private investment in the applied sciences
    there would be no return on public investment in basic science.''\74\
    Indeed, it's critical to remember that considerable investment is
    required to bring a drug to market even after considerable amounts of
    basic research have been conducted. In fact, one study by Chatterjee
    and Rohrbaugh found that biotechnology companies invest $100 in
    development for every $1 the government invests in research that leads
    to an innovation.\75\

        Public funding would simply not be an adequate substitute for
    private-sector shortfalls that might result from government-mandated
    that price controls. That notion is as misguided as other proposals
    which would call for the government to take over the principal role of
    drug development from the private sector. Nevertheless, in their quest
    to shrink the for-profit drug discovery and development industry, drug
    populist advocates have floated a variety of such proposals, such as:
    having employers pay a medical research fee, which they would allocate
    to any research organization, including government; subjecting firms to
    compulsory licenses (where they must make patented discoveries
    available to other firms) but having the government pay patent holders
    directly to compensate them; having the government buy patents from
    firms through an auction; establishing government-funded corporations
    to develop and sell drugs; using prizes; and, finally, giving NIH the
    task.

        For example, Dean Baker of the Center for Economic Policy Research
    writes, ``We could expand the public funding going to NIH or other
    public institutions and extend their charge beyond basic research to
    include developing and testing drugs and medical equipment.''\76\
    Knowledge Ecology International, a leading drug populist organization,
    has advocated eliminating drug patents and instead having the
    government issue prizes for drug development. It cites proposed
    legislation by Senator Bernie Sanders (I-VT) to create a Medical
    Innovation Prize Fund that would equal 0.55 percent of U.S. GDP, an
    amount greater than $80 billion per year, with the Federal Government
    funding half and private health insurance companies the other half.\77\

        But as the Information Technology and Innovation Foundation (ITIF)
    writes in ``Delinkage Debunked: Why Replacing Patents With Prizes for
    Drug Development Won't Work,'' separating the cost of biopharmaceutical
    research and development from the final market price of medicines would
    misalign incentives, raise bureaucratic costs, and limit
    innovation.\78\ Indeed, while advocates claim that ``delinking'' drug
    prices from R&D investments would make innovative medicines far
    cheaper, the truth is it would almost surely lead to less new drug
    development and slower progress in improving human health.

        For instance, for prizes to work globally, governments would have
    to replace at least $200 billion per year in private medical R&D with
    taxpayer funds, which is unlikely given the budget challenges many
    governments face and the fact many of the benefits would flow to other
    countries.\79\ Consider that as part of the World Health Organization's
    (WHO) push to increase investment in global health R&D, WHO member
    states in 2013 agreed to establish a Global Observatory on R&D to
    monitor spending and set priorities, and also to undertake a number of
    global health R&D demonstration projects. At the World Health Assembly
    in Geneva in May 2017, Marie-Paule Kieny, WHO assistant director-
    general for Health Systems and Innovation, remarked on the chronic
    underfunding of this ``critically important'' agenda, noting that one
    of the demonstration projects (on a nano-based malaria drug delivery
    system) is being canceled unfinished due to a lack of funding.\80\

        According to the WHO, $85 million was needed between 2014 and 2017
    to complete these projects, yet by the end of 2016, only $11 million
    had been committed by only 10 WHO member states, leaving a shortfall of
    $73 million.\81\ WHO's website on the R&D demonstration projects has
    not had any significant updates in several years.\82\ A $73-million
    shortfall is one thing; a roughly $200-billion shortfall would be
    another. Put simply, if WHO members cannot agree among themselves to
    provide the relatively small amounts of funding for even this modest
    agenda, it seems highly unlikely they would stump up the hundreds of
    billions of dollars required to implement advocates' delinkage
    proposals.

        Moreover, the true value of a new medicine is hard to measure
    before it is created, so prizes could be underfunded. That would lead
    to fewer companies taking the risk of investing in expensive R&D, and
    hence to fewer new medicines. Lastly, handing over significant control
    of national or global biomedical R&D flows to government bodies
    represent a recipe for inefficiency and for politicizing drug
    development. The current market-based system of drug development allows
    for experimentation and competition within and between therapeutic
    classes. Thousands of promising leads enter the drug development
    pathway, but only a few make it through the rigorous process of
    clinical trials. The cost of failures and the risks are borne almost
    entirely by the private sector at no cost to taxpayers. As Daniel
    Spulber, Professor of International Business at the Kellogg School of
    Management, Northwestern University, and an award-winning expert on
    innovation policy, concludes, ``There is nothing wrong with awarding
    prizes. But replacing markets for medicines with government prizes
    would destroy one of the most innovative areas in the economy, and stop
    the endless source of life-saving medicines.''\83\
                 on public-private partnerships and innovation
        Question. You have written extensively on the importance of public-
    private partnerships in advancing and ensuring access to innovation, as
    enabled by the bipartisan Bayh-Dole Act. Some advocates and
    policymakers have proposed a radical reinterpretation of this
    framework, arguing that the Federal Government should ``march in'' to
    seize or forcibly license patents to cut costs.

        Both of the Bayh-Dole Act's sponsors spent decades emphatically
    opposing this revisionist rewriting of so-called march-in rights, which
    could prove particularly harmful for patients with unmet medical needs,
    as well as research institutions and small businesses across all of our
    States.

        What was the original intent behind the march-in provisions in
    question, and how would this sweeping reinterpretation impact public-
    private partnerships and American innovation more broadly?

        How does the current ecosystem benefit universities and nonprofit
    research institutions, and how might the aggressive use of march-in
    rights impact their financial standing, particularly with respect to
    royalty income?

        Answer. The 1980 Bayh-Dole Act permits universities to patent their
    researchers' inventions, even if that research was partly funded by the
    Federal Government. The Act has played a pivotal role in catalyzing
    U.S. life-sciences innovation and creating a pathway to realize value
    creation from federally funded research.\84\ Consider that at the end
    of the 1970s, the U.S. government had licensed fewer than 5 percent of
    its 28,000 patents, but the number of patents from government-funded
    research shot up over tenfold in the years since Bayh-Dole, reaching
    more than 40,000 in 2017.\85\ And since its introduction, Bayh-Dole has
    enabled more than 15,000 startups launched from U.S. universities as
    well as 300 new medicines based on patented discoveries.\86\

        The Bayh-Dole Act includes so-called ``march-in rights'' that
    permit the U.S. government, in very limited and specified
    circumstances, to require patent holders to grant a ``nonexclusive,
    partially exclusive, or exclusive license'' to a ``responsible
    applicant or applicants.''\87\ The four circumstance in which the
    government is permitted to exercise march-in rights are:

          1.  If the contractor or assignee has not taken, or is not
    expected to take within a reasonable time, effective steps to achieve
    practical application of the subject invention;
          2.  If action is necessary to alleviate health or safety needs
    not reasonably satisfied by the patent holder or its licensees;
          3.  If action is necessary to meet requirements for public use
    specified by Federal regulations and such requirements are not
    reasonably satisfied by the contractor, assignee, or licensees; or
          4.  If action is necessary, in exigent cases, because the
    patented product cannot be manufactured substantially in the United
    States.\88\

        In other words, lower prices are not one of the rationales laid out
    in the Bayh-Dole Act as a valid justification for the use of march-in
    rights. In fact, as Senators Bayh and Dole have themselves noted, the
    Bayh-Dole Act's march-in rights were never intended to control or
    ensure ``reasonable prices.''\89\ As the twain wrote in a 2002
    Washington Post op-ed titled, ``Our Law Helps Patients Get New Drugs
    Sooner,'' the Bayh-Dole Act:

            Did not intend that government set prices on resulting
            products. The law makes no reference to a reasonable price that
            should be dictated by the government. This omission was
            intentional; the primary purpose of the act was to entice the
            private sector to seek public-private research collaboration
            rather than focusing on its own proprietary research.\90\

        The op-ed reiterated that the price of a product or service was not
    a legitimate basis for the government to use march-in rights, noting:

            The ability of the government to revoke a license granted under
            the act is not contingent on the pricing of a resulting product
            or tied to the profitability of a company that has
            commercialized a product that results in part from government-
            funded research. The law instructs the government to revoke
            such licenses only when the private industry collaborator has
            not successfully commercialized the invention as a product.\91\

        Rather, the Bayh-Dole Act's march-in provision was designed as a
    fail-safe for limited instances in which a licensee might not be making
    good-faith efforts to bring an invention to market, or when national
    emergencies require that more product is needed than a licensee is
    capable of producing. This is why the National Institute of Standards
    and Technology (NIST) report ``Return on Investment Initiative: Draft
    Green Paper'' agrees, noting, ``The use of march-in is typically
    regarded as a last resort, and has never been exercised since the
    passage of the Bayh-Dole Act in 1980.''\92\ The report notes that,
    ``NIH determined that that use of march-in to control drug prices was
    not within the scope and intent of the authority.''\93\ Indeed, march-
    in rights have never been exercised during the now-42-year history of
    the Bayh-Dole Act.\94\

        The argument that Bayh-Dole march-in rights could be used to
    control drug prices was originally advanced in an article by Peter S.
    Arno and Michael H. Davis.\95\ They contended that ``[t]he requirement
    for `practical application' seems clear to authorize the Federal
    Government to review the prices of drugs developed with public funding
    under Bayh-Dole terms and to mandate march-in when prices exceed a
    reasonable level'' and suggested that under Bayh-Dole, the contractor
    may have the burden of showing that it charged a reasonable price.\96\
    While Arno and Davis admitted there was no clear legislative history on
    the meaning of the phrase ``available to the public on reasonable
    terms,'' they still concluded that, ``[t]here was never any doubt that
    this meant the control of profits, prices, and competitive
    conditions.''\97\

        But as John Rabitschek and Norman Latker explain, there are several
    problems with this analysis. First, the notion that ``reasonable
    terms'' of licensing means ``reasonable prices'' arose in unrelated
    testimony during the Bayh-Dole hearings. Most importantly, they note,
    ``If Congress meant to add a reasonable pricing requirement, it would
    have explicitly set one forth in the law, or at least described it in
    the accompanying reports.''\98\ As Rabitschek and Latker continue,
    ``There was no discussion of the shift from the `practical application'
    language in the Presidential Memoranda and benefits being reasonably
    available to the public, to benefits being available on reasonable
    terms under 35 U.S.C. Sec. 203.''\99\ As they conclude, ``The
    interpretation taken by Arno and Davis is inconsistent with the intent
    of Bayh-Dole, especially since the Act was intended to promote the
    utilization of federally funded inventions and to minimize the costs of
    administering the technology transfer policies. . . . [The Bayh-Dole
    Act] neither provides for, nor mentions, `unreasonable prices.' ''\100\

        Simply put, the Bayh-Dole Act does not give the U.S. government the
    right to march in on the intellectual property (IP) of a company that
    has developed a product in whole or in part based on discoveries that
    may have originated in whole or in part from federally funded research
    simply because the government does not like the price of the resulting
    product. The reality is that (mis)using march-in rights or establishing
    new ones in order to control drug prices would result in fewer new
    drugs. Companies would be highly reticent to spend billions developing
    a drug if they knew the government could come in as long as 2 decades
    later and seize or compulsorily license their IP in order to control
    drug prices.

        If the government began to use march-in rights on a regular basis
    to control drug prices, or the prices of other innovations, such as in
    the information technology (IT) or clean energy sectors, it would
    almost certainly have a deleterious impact on U.S. universities and
    their ability to earn royalties as a result of academic technology
    transfer activities. That matters when today many universities list
    technology commercialization as one of their top-five strategic
    priorities and university presidents often mention technology transfer
    as a key differentiator for their universities.\101\ In 2018, U.S.
    universities directly generated approximately $2.94 billion in
    licensing revenue from the process of taking academic inventions to
    market. The Bayh-Dole Act has played a critical catalytic role in
    turning America universities into engines of innovation, a dynamic that
    would certainly be undermined if the government started to actively
    (mis)use Bayh-Dole march-in rights to attempt to control the prices of
    drugs or other products.
                      on global leadership and competition
        Question. The United States has emerged, in recent decades, as the
    global leader on life sciences innovation, with the world's most
    cutting-edge R&D, spearheaded largely by our research universities and
    by small businesses. Government price controls and top-down mandates,
    however, risk jeopardizing our position and enabling our global
    rivals--particularly China--to gain a competitive edge.

        China, which represents the world's second-largest pharmaceutical
    market, has targeted its life sciences sector as a key area for
    strategic growth, singling the industry out in its Made in China 2025
    initiative and undertaking aggressive reforms to shore up its status.
    With respect to active pharmaceutical ingredients, for instance, China
    has already established global dominance, and a range of recent reforms
    have substantially narrowed the country's lag-times for new drug
    approvals and launches.

        Meanwhile, the drug price controls included in the Democrats' tax
    and spending package would slash domestic life sciences R&D by close to
    one-fifth in the years ahead, according to a University of Chicago
    study. In other words, as the Chinese Communist Party works to seize
    our global biopharmaceutical leadership, we seem poised to weaken our
    own sector through bureaucratic new mandates.

        How do you see price controls like the ones proposed in BBBA as
    impacting our global life sciences leadership--particularly in relation
    to China--and what are some of the potential implications--both for
    medicine and for national security?

        Answer. China rejects the foundational WTO principle of comparative
    advantage--that countries should specialize in production of goods and
    services at which they're most efficient--and instead seeks absolute
    advantage--dominance, or at least self-sufficiency, in virtually all
    advanced-technology industries, from aerospace and autos to batteries
    and biotechnology. That China can quickly achieve these goals is
    evident from looking at China's experience in rapidly coming to
    dominate the global market for production of solar photovoltaic cells.
    Indeed, China's global share of production of PV cells, the industry's
    core technology, surged from 14 to 60 percent between 2006 and
    2013.\102\ The massive industrial subsidies China's government
    conferred on the industry--at least $42 billion from 2010 to 2012
    alone--played a key role in helping Chinese solar PV prices decrease by
    85 percent from 2009 to 2017, knocking out hundreds of foreign
    competitors in the process. In other words, U.S. policymakers should be
    under no illusion that U.S. high-tech industries don't face serious
    threats of Chinese ``innovation mercantilist'' practices such as
    massive industrial subsidization and rampant IP theft.\103\

        China certainly has ambitions to likewise become a leading, if not
    the leading, global player in life-sciences industries. In 2018,
    China's value added in the global pharmaceuticals industry was over
    $123 billion, 18.5 times its 1995 level and nearly equal to the
    contribution from the entire European Union.\104\ In fact, from 2002 to
    2018, China's share of the world total of global pharmaceutical
    industry value-added grew over four-fold, from 5.6 to 23 percent, while
    the United States' fell from 34 to 26 percent. (See Figure 7.) China
    has also become the world leader in its share of global research
    publications in the life-sciences, now accounting for over 70,000
    annual biology and biomedicine scientific publications in 2020 and
    surpassing America's contribution.\105\

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        Meanwhile, China has become an indispensable player in the
    production of many active pharmaceutical ingredients (APIs). For
    instance, by volume, China's share of global exports of tetracycline/
    doxycycline reached 86 percent in 2020, and 63 percent for vitamin
    B1.\107\ In fact, at least three WHO-identified essential medicines--
    capreomycin and streptomycin for treatment of Mycobacterium
    tuberculosis and sulfadiazine, used to treat chancroid and trachoma--
    rely on API manufacturers based solely in China.\108\

        But it's not just APIs; China is increasingly trying to compete at
    the frontiers of biomedical innovation. For instance, as of mid-2018,
    25 Chinese companies had applied for approvals for advanced anticancer
    drugs based on biotechnology (PD-1/PD-L1 inhibitors).\109\ Moreover, in
    2017, China had 139 clinical trials with chimeric antigen receptor
    treatment (CAR-T) cell therapy, compared with around 118 in the United
    States.\110\ Of just over 400 CAR-T clinical trials conducted in March
    of 2019, 166 were in China, and 165 in the United States.\111\

        Foreign IP theft has been a critical component of China's efforts
    to catch up in the global biotechnology race. Chinese actors have
    hacked into the IT systems of numerous U.S. biopharmaceutical
    companies, including Abbott Laboratories and Wyeth (now part of
    Pfizer).\112\ Similarly, a report to the U.S. China Economic and
    Security Review Commission notes that Ventria Bioscience,
    GlaxoSmithKline, Dow AgroSciences LLC, Cargill Inc., Roche Diagnostics,
    and Amgen have all experienced theft of trade secrets or biological
    materials perpetrated by current or former employees with the intent to
    sell to a Chinese competitor. And in the academic sector, researchers
    have stolen information or samples from their employers at Cornell
    University, Harvard University, and University of California at
    Davis.\113\ China has also issued compulsory licenses for the IP of
    particular drugs.\114\

        In summary, China poses an increasingly serious threat to U.S.
    innovation leadership in the life sciences, both from policies that are
    legitimate (i.e., investing more in R&D or producing more scientific
    research and researchers) and those that are mercantilist (i.e.,
    pilfering foreign IP or introducing pharmaceutical data exclusivity
    rules that favor companies that first launch in China).\115\ To the
    extent price controls impede U.S. innovators' abilities to earn
    revenues to reinvest in future generations of biomedical innovation (as
    demonstrated here) then the BBBA (like other drug price control
    proposals) would endanger U.S. biomedical innovation leadership and
    open the door to foreign competitors.

                                     ______

                     Questions Submitted by Hon. Ben Sasse
        Question. While we need to rein in the cost of pharmaceuticals, we
    also need to consider access to and creation of new therapeutics that
    can be potentially lifesaving. Multiple sclerosis is a good example of
    a disease that has benefitted from follow-on innovations. In 2020, the
    FDA approved Novartis' Kesimpta as a treatment for MS. This drug was
    originally approved 11 years earlier for the treatment of a rare form
    of leukemia, making this a follow-on product. It is common to find new
    indications for existing drugs, and we want to incentivize research and
    development and the multiple clinical trials that make this possible.

        How would some of the lesser discussed policies in Build Back
    Better actually create disincentives to finding new indications for
    existing drugs? For example, wouldn't the bill make tax changes that
    disincentivize finding new indications for orphan drugs?

        Can you speak to how costly the clinical trial process is, and how
    this might drive up prices? For example, testing a new indication for
    Kesimpta took 10 years and spanned 350 sites across 37 countries. This
    was for a drug that already existed and was approved for another use.

        How might we reform this process to decrease costs?

        Multiple sclerosis unfortunately lacks a cure. How would the price
    controls being suggested by Democrats hurt efforts to find a cure for
    MS?

        Answer. As noted in ITIF's written testimony, a wide variety of
    academic studies, over time and across nations and international
    organizations, find that drug price controls impede biomedical
    innovation. Indeed, virtually all academic studies consistently reveal
    that a reduction in current drug revenues leads to a decrease in future
    research and the number of new drug discoveries.\116\ The Build Back
    Better Act's drug price control policies would introduce the same
    effect.

        Research in 2021 by Tomas Philipson and Troy Durie at the
    University of Chicago estimate that a 1-percent reduction in
    pharmaceutical industry revenue leads on average to a 1.54-percent
    decrease in R&D investment.\117\ Applying their research to H.R. 5376
    (the Build Back Better Act), Philipson and Durie find the legislation
    would reduce revenues by 12.0 percent through 2039, with the reduced
    revenues meaning R&D spending would fall by about 18.5 percent, or $663
    billion. They find that this cut in R&D activity would lead to 135
    fewer new drugs, with this drop in new drugs is predicted to generate a
    loss of 331.5 million life years in the United States.\118\ The authors
    further find that therapies that treat diseases of the endocrine,
    cardiovascular, and respiratory systems along with treatments for
    cancer and neurological diseases would be most impacted by the BBBA's
    policies because they make up a high share of Medicare spending.\119\

        Just as in other areas of life-sciences innovation, U.S. companies
    lead the way in innovating solutions for rare, or orphan, diseases.
    That's in large part because, in 1983, Congress introduced the Orphan
    Drug Act (ODA) and its Orphan Drug Tax Credit (ODTC), a Federal tax
    credit available to pharmaceutical companies working to find cures for
    certain rare diseases that affect patient populations of fewer than
    200,000 individuals.\120\ There are approximately 7,000 rare diseases,
    the majority of which are genetic in nature and which affect between 25
    and 30 million Americans, although approximately 95 percent have no
    effective treatment.\121\ To incent R&D of drugs for such diseases,
    Congress set the ODTC equal to 50 percent of qualified clinical trial
    costs (and also offered a seven-year period of orphan drug
    exclusivity). Since the law's enactment, over 500 orphan products have
    been approved by the U.S. FDA, whereas prior to the law's introduction
    fewer than 40 drugs were approved in the United States to treat rare
    diseases and on average only two new orphan drugs were produced each
    year.\122\ A 2015 study by the National Organization for Rare Disorders
    (NORD) found that at least one-third fewer new orphan drugs would have
    been developed to treat rare diseases over the preceding 30 years had
    the act not been implemented.\123\ Indeed the ODA has been widely
    regarded as a success, as over 600 orphan drugs have been approved
    since the passage of the ODA, in contrast to fewer than 10 medicines
    for rare diseases in the decade prior to its enactment.\124\

        Unfortunately, provisions in the BBBA would likely be deleterious
    for rare disease innovation. As Peter Saltonstall, CEO and president of
    The National Organization for Rare Disorders (NORD), elaborates:

            Section 138141 of the Build Back Better Act would dramatically
            curtail the Orphan Drug Tax Credit for qualified clinical
            testing expenses by removing this critical incentive for all
            but the first approved orphan use of a new drug. The ODTC was
            already diminished in 2017 in the Tax Cuts and Jobs Act when
            Congress reduced the total amount of the tax credit for
            qualifying clinical testing expenses from 50 percent to 25
            percent. Given the significant time it takes to conduct
            clinical trials, the full impact of the changes made by the
            2017 law are still unknown. To further reduce availability of
            the tax credit will hurt rare disease patients and hinder their
            ability to access treatments found to be safe and effective to
            treat their specific condition.\125\

        The question about multiple sclerosis, and the one which follows
    regarding insulin prices, should focus policymakers' attention on the
    increasingly distortive roles that PBMs and other actors in the
    pharmaceutical supply chain are causing for U.S. drug prices. As ITIF
    noted in its written testimony, over time, drug manufacturers have lost
    a growing share of drug expenditures to other members of the drug
    supply chain, such as PBMs, health plans, hospitals, the government,
    and pharmacies. Since 2013, the share of drug expenditures going to
    manufacturers has decreased by 13 percent. Thus, while total
    expenditures on brand drugs grew by $268 billion between 2013 and 2020,
    only 31 percent of the increase accrued to manufacturers, while 69
    percent accrued to other stakeholders. By 2020--for the first time
    ever--over half of drug expenditures accrued to non-manufacturers. (See
    Figure 8.)

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        That matters, because when patients go to the pharmacy, they're
    likely buying their medications from one of three pharmacy benefit
    managers--middlemen insurance companies that determine the final out-
    of-pocket cost for our medicines. In fact, just three PBMs--Caremark,
    Express Scripts, and OptumRx--control 76 percent of all prescription
    drug formularies in the United States.\127\

        Incidentally, this is actually a marketplace where there is
    significant concentration, unlike the pharmaceutical industry, as has
    been asserted by Congress members such as Senator Elizabeth Warren and
    Representative Katie Porter, the latter who cites data asserting that
    ``between 1995 and 2015, 60 pharmaceutical companies merged into just
    10.''\128\ But rather, the reality is that considering the combined
    output for firms in the United States (not imports), the sales for the
    top four in each industry (C4 ratio) in the Pharmaceutical Preparation
    Manufacturing and Biological Product Manufacturing industries (NAICS
    codes 325412 and 325414) increased only modestly from 2002 to 2017,
    from 36 percent to 43 percent, while the C8 ratio increased from 54 to
    58 percent, and the C20 ratio fell slightly from 77 percent to 76
    percent.\129\ In other words, the top 20 firms in this sector have the
    same market share as the three leading PBMs.

        Unfortunately, the PBM system has been designed in a way that is
    the opposite of what was originally intended: PBMs helping to lower
    drug costs at the pharmacy counter. Consider the case of Tecfidera
    (dimethyl fumarate), a blockbuster multiple sclerosis treatment
    manufactured by Biogen which went generic in late 2020. Within months
    of Tecfidera going off-patent, more than ten generic drug makers
    brought competing versions of dimethyl fumarate to market with ``deeply
    discounted prices to Tecfidera.''\130\ Roughly one year post-generic
    launch, aggressive competition from generics manufacturers drove prices
    for a 60-count bottle of the generic equivalent today down to ``a 99
    percent+ discount to the brand's list price.''\131\ However, by Q3
    2021, Medicare Part D plans covering the majority of U.S. seniors
    didn't even make the generic equivalent available to their members,
    instead only offering them brand-name Tecfidera.\132\ Moreover, when
    the generic was made available to seniors, it was largely done so at
    ``negotiated prices'' that far exceeded the lowest cost generic
    equivalent's.\133\

        In other words, here's a case where America's life-sciences
    innovation system worked to support creation of an innovative drug and
    then a subsequent pathway for entry of much-lower-priced generic drugs,
    but it was the middleman system that prevented the cheaper drugs from
    being made available to seniors. Policymakers need to take a much
    closer look at the role of PBMs in America's drug payment system.
    That's why ITIF supports proposals calling for the imposition of
    greater fiduciary obligations on the activities of PBMs. ITIF also
    supports other proposals to increase drug price transparency, including
    removal of pharmacy gag clauses and requiring plan sponsors to provide
    patients information about drug price increases and lower-cost
    options.\134\

        The high and increasing cost of drug R&D does affect the cost of
    drugs. Accordingly, one of the most important ways to better manage
    drug prices would be to enhance R&D efficiency in drug research, in
    other words, to find collaborative ways to work together to make the
    cost of innovating new drugs less expensive.\135\ Most expensive for
    companies are candidate drugs that reach Phase III clinical trials and
    then fail; better success at weeding out those types of drugs earlier
    in the R&D process would make the entire drug discovery process more
    efficient and less expensive. One important step in this regard has
    actually been the PDUFA. By putting in place mechanisms that allow drug
    developers to have frank conversations with regulators about the
    technical and scientific expectations for a drug to clear certain
    clinical trial hurdles, it has streamlined the drug-review process to
    some degree and helped drug developers make better decisions about the
    likelihood of candidate drugs passing the clinical-trial gauntlet.
    Congress's 2017 reauthorization of PDUFA (PDUFA VI) also placed greater
    focus on supporting rare diseases and breakthrough therapies, including
    continued application-fee waivers and advanced reviews for medicines
    that can treat rare diseases, as well as prioritizing the development
    of breakthrough medicines for patients with life-threatening diseases.
    In addition, Federal support for joint industry-university research
    efforts on biopharma R&D efficiency and effectiveness should be
    expanded. For example, see MIT's NEW Drug Development ParadIGmS
    (NEWDIGS) program, which is ``a unique collaborative `think and do'
    tank focused on enhancing the capacity of the global biomedical
    innovation system to reliably and sustainably deliver new, better,
    affordable therapeutics to the right patients faster.''\136\

        In addition to innovative ways to enhance drug R&D efficiency,
    policymakers can also work to enhance drug production efficiency. For
    instance, One study contends that pharmaceutical manufacturing is
    expensive, inefficient, and non-innovative, with firms using outdated
    production techniques and old plants.\137\ The study estimates modern
    biomanufacturing techniques could eliminate as much as $50 billion in
    annual production costs.

        To address this, Congress should significantly expand funding for
    biomedical Manufacturing USA centers, including expanding funding for
    The National Institute for Innovation in Manufacturing
    Biopharmaceuticals (NIIMBL) as well as establishing other centers
    addressing related manufacturing technology challenges. In addition,
    Federal funding should be ongoing and not sunset. No other nation with
    similar industry-university-government precompetitive research centers
    sunsets funding for successful centers.

        In addition, Congress should fund NSF to expand support to
    university-industry research centers working on biopharma production
    technology and potentially establish new centers. For example, the
    Novartis-MIT Center for Continuous Manufacturing is a partnership
    launched to develop continuous production technology.\138\ At the same
    time, Congress should increase funding for NSF's Division of
    Engineering and target much of the increase to the Chemical Process
    Systems Cluster and Engineering Biology and Health Cluster.\139\
    Unfortunately, between 2018 and 2019, Congress increased the
    engineering division's budget by just 1 percent, compared with the
    overall NSF budget by 3 percent.

        In addition, the administration should encourage the creation of
    the biopharma equivalent of the Semiconductor Research Corporation, a
    public-private consortium that, among other things, works on a long-
    term semiconductor technology road map. Industry should collaborate on
    such a production technology innovation road map, and the Federal
    Government should match their funding to research institutes and
    universities on a dollar-for-dollar basis. For example, some firms have
    their own road maps (e.g., GlaxoSmithKline's manufacturing technology
    road map, is focused on the use of continuous techniques).\140\

                                     ______

                   Questions Submitted by Hon. John Barrasso
        Question. As a doctor, I have seen firsthand the value innovative
    medicines provide to folks across Wyoming. When we make policy here in
    Washington, it is critical we preserve the incentives for cutting-edge
    therapies to come to market so folks can live longer and healthier
    lives.

        That being said, I have concerns about the high list prices--
    particularly for long-established drugs. Insulin is one example. This
    is a life-saving drug that has been part of medical practice for
    decades.

        Though negotiated discounts and rebates can reduce the net price
    for drugs like insulin, some patients' copays continue to climb as list
    prices tick higher.

        What are the best solutions to lower the price patients pay at the
    pharmacy counter for insulin?

        Answer. First, it's important to recognize that most Americans are
    able to assess their insulin at affordable prices. In fact, 76 percent
    of U.S. insulin prescriptions cost patients less than $35 out of
    pocket.\141\ In fact, across all patients, the average out-of-pocket
    cost per month for an insulin prescription was $31 in 2019. Companies
    also offer affordable subscription plans for diabetic patients, such as
    Novo Nordisk's My$99Insulin plan, whereby eligible patients pay $99 for
    a monthly supply of any combination of Novo Nordisk insulin
    products.\142\

        However, there are certainly cases where patients are paying too
    much for insulin. Indeed, while just 24 percent of insulin
    prescriptions cost patients more than $35 out of pocket, these
    prescriptions account for 82 percent of total patient spending on
    insulin.\143\ For this reason, as noted in its testimony, ITIF supports
    capping monthly patient out-of-pocket costs for drugs treating certain
    chronic diseases, such as a $35 monthly cap for insulin for the
    treatment of diabetes.\144\

        However, the more fundamental issue, for insulin or many other
    drugs, is that the rebates insurers and PBMs negotiate for Medicare
    Part D drugs need to be passed through to seniors at the pharmacy
    counter. The rebates (averaging nearly 30 percent for Medicare Part D
    drugs) are usually paid to PBMs in consideration of preferred placement
    on the insurance plan's formulary, but the PBMs tend not to share the
    rebates directly with beneficiaries. Changing this rule change could
    save older Americans as much as $83 billion at the pharmacy counter
    over the span of 10 years.\145\

        Indeed, until the rebate system is fundamentally reformed, list
    prices are going to continue to increase at rates well above the actual
    cost of drugs, with insulin a prime example. For instance, a bipartisan
    report by the Senate Finance Committee found that some PBMs have
    secured rebates on insulin as high as 70 percent in recent years.\146\
    In fact, in 2019, PBMs paid $52 for an insulin product that had a list
    price of more than $350.\147\ Manufacturers often sell insulin, an
    essential medicine, to insurers and PBMs at deep discounts. However,
    many patients are forced to make out-of-pocket payments based on
    insulin's irrelevant list price.\148\ For instance, one study found
    that list prices for Sanofi's insulins have grown by 140 percent over
    the past 8 years, while net prices have declined by 41 percent.\149\
    Similarly, over the past 5 years, the list price of Eli Lilly's Humalog
    insulin increased by 27 percent, while its net price declined by 10
    percent.\150\ But as Adam Fein notes, [formulary plan] ``benefit
    designs often mask these declining net prices.'' As Fein notes,
    ``Payers' drug costs and manufacturers' revenues have been dropping for
    the past 4 years. Despite this decline, patients' out-of-pocket costs
    have been rising.''\151\ As Fein concludes, ``Third-party payers'
    benefit designs remain a significant barrier to addressing drug costs.
    Many continue to use the ever-growing rebate dollars of the gross-to-
    net bubble to offset overall plan costs rather than reducing patient's
    out-of-pocket spending.''\152\

        As the Biotechnology Innovation Organization (BIO) writes:

        The vertical consolidation of pharmacy services paired with
    relatively few competitors in the space has led to some markets which
    exhibit monopsonist characteristics--the PBMs can represent the sole
    purchaser of prescription drugs for a majority of covered lives,
    employer plans or fully insured commercial products may have few (or
    no) alternatives to the dominate PBM(s) in their market if they wanted
    to seek out another entity to manage their pharmacy benefit, and the
    complexity of the pharmaceutical supply chain and scale that existing
    PBMs can leverage represent significant barriers for new entrants.\153\

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        A recent study analyzed the hypothetical distribution of $100
    of spending on 32 insulin products across manufacturers, insurers, and
    other supply chain entities from 2014 to 2018. The authors found that
    while expenditures per 100 units of insulin changed little over this
    time, the distribution of spending changed significantly. Over this
    period, the share of spending retained by insulin manufacturers and
    health plans fell (by 33 percent and 24.7 percent, respectively), while
    the amounts retained by supply chain intermediaries increased
    substantially: wholesalers (74.7 percent), pharmacies (228.8 percent),
    and PBMs (154.6 percent).\155\ (See Figure 9.)

        Indeed, America's current drug reimbursement system can lead health
    plans and PBMs to favor medicines with high list prices and large
    rebates, making them reluctant to include lower-cost insulin and
    authorized generics on formularies. In fact, one study found that just
    one in four Medicare Part D beneficiaries, and one in five patients
    with commercial insurance, have access to lower-price authorized
    generic insulin through insurance.\156\ That study finds that sharing
    negotiated rebates would lower Medicare Part D costs for patients,
    estimating that for a prototypical Medicare Part D patient with
    diabetes taking five medicines overall (including insulin), passing
    through those rebates would reduce their out-of-pocket spending by
    nearly $900 annually, while only increasing premiums $3 to $6 per
    month.\157\

        Question. Before coming to the Senate, I practiced orthopedic
    surgery of over 20 years. During my surgical training, I got to know
    many patients with Duchenne muscular dystrophy. These young boys and
    their families made a lasting and personal impact on me. The sad fact
    was when I practiced medicine, there were no approved treatments for
    Duchenne's. This is why I helped host the Jerry Lewis telethon in
    Wyoming for many years.

        In fact, the first FDA approved treatment for Duchenne's did not
    become available until well after I joined the Senate in 2016. For
    families impacted by Duchenne's, this first approval was a beacon of
    hope. Now, thanks to American scientific innovation, there are multiple
    FDA approved therapies for Duchenne's. We have not cured this disease,
    but we are making important progress.

        As a doctor, I am passionate about ensuring the progress continues.
    According to the Food and Drug Administration, there are over 7,000
    rare diseases that impact over 30 million Americans. While we all want
    to lower the price of prescription drugs, we must ensure patients can
    access the next generation of life-changing medications.

        Can you please discuss the importance of maintaining investments in
    scientific research, especially with regard to supporting investments
    in therapies that address conditions that impact smaller patient
    populations?

        Answer. As noted, the United States leads the world in biomedical
    innovation. In fact, over the past 20 years, more than 60 percent of
    all new drugs worldwide have been created in the United States--more
    than in the rest of the world combined.\158\ That's in no small part
    because the United States has clearly been the world's largest global
    funder of biomedical R&D investment over the past 2 decades, a share
    that some analyses suggested reached as high as 70 to 80 percent over
    that time period.\159\ Indeed, there's a direct link between the United
    States being the world's leading investor in biomedical R&D and the
    world's leading producer of innovative drugs.

        And, again, it's important to remember that this wasn't always the
    case. Indeed, the United States once was a global ``also-ran'' in
    biomedical innovation: Europe was once the world's pharmaceuticals
    industry leader. Between 1960 and 1965,
    European-headquartered companies invented 65 percent of the world's new
    drugs, and in the latter half of the 1970s, European-headquartered
    enterprises introduced more than twice as many new drugs to the world
    as did U.S.-headquartered enterprises (149 to 66).\160\ In fact,
    throughout the 1980s, fewer than 10 percent of new drugs were
    introduced first in the United States.\161\ (See Figure 10.)

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        And, as recently as 1990, the industry invested 50 percent more
    in Europe than in the United States.\163\ As Shanker Singham of the
    Institute of Economic Affairs notes, ``Europe was the unquestioned
    center of biopharmaceutical research and development for centuries,
    challenged only by Japan in the post-war period.''\164\ As of 1990,
    European and U.S. companies each held about a one-third share of the
    global drug market.

        As Nathalie Moll of the European Federation of Pharmaceutical
    Industries and Associations (EFPIA) wrote in January 2020:

            The sobering reality is that Europe has lost its place as the
            world's leading driver of medical innovation. Today, 47 percent
            of global new treatments are of U.S. origin compared to just 25
            percent emanating from Europe (2014-2018). It represents a
            complete reversal of the situation just 25 years ago.\165\

        By 2014, nearly 60 percent of new drugs launched in the world were
    first introduced in the United States, an indication both that more
    were being invented in the United States and that drug companies from
    Europe and elsewhere were introducing new drugs in America first
    because that's where they could recoup their investments.

        This dramatic shift away from Europe serving as the ``world's
    medicine cabinet'' did not happen principally due to deficient
    corporate strategy or management. Instead, poor public policy in Europe
    and superior policy in the United States made the difference. This was
    particularly the case when it came to drug price controls. As one
    report explained in 2002, ``the heart of pharma's problem in Europe is
    the market's inability to `liberate the value' from its
    products.''\166\ This was a reference to the ``complex maze of
    government-enforced pricing and reimbursement controls'' that
    ``depressed pharma prices to the point where some companies now believe
    it is just not economical to launch new products in certain European
    countries.''\167\

        Europe offers a case study of the damage drug price controls
    inflict on the competitiveness of a nation's biopharmaceutical
    industry. The United States should not follow its path. Uniquely, the
    United States leads the world in innovating new drug and getting them
    to patients first while sustaining a globally competitive industry and
    over time making drugs broadly affordable in incentivizing competition
    and creating generic pathways. Policymakers should seek to improve upon
    this system where necessary (as ITIF noted in its testimony) but
    wholesale changes in the form of stringent drug policies are not needed
    nor warranted.

        Question. The proposals put forward by congressional Democrats
    ignore the real challenge of ensuring that generics and biosimilars are
    able to launch and gain adoption quickly.

        As a doctor, I strongly support both generics and biosimilars
    because I know they provide the same benefits as the branded products,
    but often at a much lower price.

        What do you believe will be the impact of the policies in Build
    Back Better, specifically regarding the adoption and development of
    future generics and biosimilar medications?

        They will be deleterious. Please see the response offered
    previously to Senator Crapo's question.

    Endnotes

      [1]  Bureau of Labor Statistics, Consumer Price Index (accessed March
    10, 2022), https://www.bls.gov/cpi/.
      [2]  Scott Brown, ``Dairy price inflation lags other foods,'' Hoard's
    Dairyman, February 17, 2022, https://hoards.com/article-31538-dairy-
    price-inflation-lags-other-foods.html.
      [3]  Bureau of Labor Statistics, Consumer Expenditure Survey
    (Healthcare expenditures, 2005-2020), https://www.bls.gov/cex/.
      [4]  Ibid.
      [5]  Peterson Center on Healthcare and Kaiser Family Foundation,
    Peterson-KFF Health System Tracker, ``National Health Spending
    Explorer,'' https://www.healthsystemtracker.org/health-spending-
    explorer/.
      [6]  Peterson-KFF Health Systems Tracker, (National Health Spending,
    accessed March 12, 2022), https://www.healthsystemtracker.org/health-
    spending-explorer/.
      [7]  Altarum, ``Projections of the Non-Retail Prescription Drug Share
    of National Health Expenditures,'' September 3, 2020, https://
    altarum.org/publications/projections-non-retail-prescription-drug-
    share-national-health-expenditures; Inmaculada Hernandez et al.,
    ``Changes in List Prices, Net Prices, and Discounts for Branded Drugs
    in the US, 2007-2018,'' Journal of the American Medical Association,
    Vol. 323, No. 9 (2020): 856, https://pubmed.ncbi.
    nlm.nih.gov/32125403/.
      [8]  Doug Holtz-Eakin, ``Testimony on: The Build Back Better Act's
    Prescription Drug Policies and Their Potential Impacts'' (American
    Action Forum, March 16, 2022), 5-6, 12, https://www.finance.senate.gov/
    imo/media/doc/DHE%20SFC%20Testimony%20BBBA%20Drug%20Policies.pdf.
      [9]  Ibid., 6, 12.
     [10]  Ulrik Boesen, ``Why the Medical Device Tax Should Be Repealed,''
    Fiscal Fact No. 677 (Tax Foundation, November 2019), 1, https://
    files.taxfoundation.
    org/20191203103452/TaxFoundation_FF677.pdf.
     [11]  Department of Health and Human Services, Centers for Medicare
    and Medicaid Services, Office of the Actuary, ``Estimated Financial
    Effects of the `Patient Protection and Affordable Care Act,' as
    Amended,'' April 22, 2010, https://www.cms.gov/Research-Statistics-
    Data-and-Systems/Research/ActuarialStudies/downloads/PPACA_2010-04-
    22.pdf.
     [12]  Boesen, ``Why the Medical Device Tax Should Be Repealed.''
     [13]  Stephen Ezell, ``Affordable Care Act Endangers Innovative U.S.
    Life Sciences Industries,'' Innovation Files, July 3, 2013, https://
    www.innovationfiles.org/affordable-care-act-endangers-innovative-u-s-
    life-sciences-industries/.
     [14]  James R. Hagerty, ``When Nixon Froze Prices, Arnold Weber
    Enforced the Rules,'' The Wall Street Journal, August 27, 2020, https:/
    /www.wsj.com/articles/when-nixon-froze-prices-arnold-weber-enforced-
    the-rules-11598536800.
     [15]  William N. Walker, ``Nixon Taught Us How Not to Fight
    Inflation,'' The Wall Street Journal, August 13, 2021, https://
    www.wsj.com/articles/nixon-fight-inflation-price-controls-stagflation-
    gas-shortages-biden-democrats-reconciliation-bill-federal-reserve-
    11628885071.
     [16]  Congressional Budget Office (CBO), ``Research and Development in
    the Pharmaceutical Industry'' (CBO, April 2021), 4-5, https://
    www.cbo.gov/publication/57025.
     [17]  Ibid.
     [18]  TEConomy Partners, LLC and PhRMA, ``Economic Impact of the U.S.
    Biopharmaceutical Industry'' (TEConomy Partners and PhRMA, December
    2019), 7, https://www.phrma.org/-/media/Project/PhRMA/PhRMA-Org/PhRMA-
    Org/PDF/D-F/Economic-Impact-US-Biopharmaceutical-Industry-December-
    2019.pdf.
     [19]  Congressional Budget Office, ``Research and Development in the
    Pharmaceutical Industry.''
     [20]  Ibid., 5.
     [21]  Ibid.
     [22]  Beth Snyder Bulik, ``The top 10 ad spenders in Big Pharma for
    2020,'' FiercePharma, April 19, 2021, https://www.fiercepharma.com/
    special-report/top-10-ad-spenders-big-pharma-for-2020.
     [23]  Robert D. Atkinson, ``Why Life-Sciences Innovation Is
    Politically `Purple'--And How Partisans Get It Wrong'' (ITIF, February
    2016), 6, https://itif.org/publications/2016/02/22/why-life-sciences-
    innovation-politically-purple.
     [24]  D.L. Frosch, D. Grande, D.M. Tarn., and R.L. Kravitz, ``A Decade
    of Controversy: Balancing Policy with Evidence in the Regulation of
    Prescription Drug Advertising,'' American Journal of Public Health,
    Vol. 100, No. 1 (January 2010): 24-32, https://www.ncbi.nlm.nih.gov/
    pmc/articles/PMC27912
    53/.
     [25]  Neeraj Sood, et al., ``Do companies in the pharmaceutical supply
    chain earn excess returns?'', International Journal of Health Economics
    and Management, Vol. 21 (January 4, 2021): 99-114, https://doi.org/
    10.1007/s10754-020-09291-1. (The researchers calculated the ``risk
    adjusted rate of return'' by subtracting capital costs, which vary with
    the level of risk across industries.)
     [26]  Ibid., 110.
     [27]  Frank Lichtenberg, ``Pharmaceutical Innovation and Longevity
    Growth in 30 Developing and High-income Countries, 2000-2009,'' Health
    Policy and Technology Vol. 3, Issue 1 (March 2014): 36-58, https://
    www.sciencedirect.com/science/article/abs/pii/S2211883713000646.
     [28]  TEConomy Partners, LLC and PhRMA, ``Economic Impact of the U.S.
    Biopharmaceutical Industry,'' 7.
     [29]  PhRMA, ``Chart Pack: Biopharmaceuticals in Perspective, Fall
    2020'' (PhRMA, 2020), 21, https://www.phrma.org/resource-center/Topics/
    Advances-in-Treatment/Chart-Pack-Biopharmaceuticals-in-Perspective-
    Fall-2020.
     [30]  Ibid., 22.
     [31]  PhRMA, ``Why Has Research Into Alzheimer's Disease Been So
    Hard?'', https://innovation.org/en/diseases/neurological/alzheimers/
    why-has-research-into-alzheimers-disease-been-so-hard.
     [32]  The Alzheimer's Association, ``Changing the Trajectory of
    Alzheimer's Disease'' (The Alzheimer's Association, 2015), https://
    www.sciencedirect.com/science/article/abs/pii/S2211883713000646.
     [33]  Chi Heem Wong, Kien Wei Siah, and Andrew W. Lo, ``Estimation of
    clinical trial success rates and related parameters,'' Biostatistics,
    Vol. 20, Issue 2 (April 2019): 273-286, https://doi.org/10.1093/
    biostatistics/kxx069.
     [34]  BIO, ``COVID-19 Therapeutic Development Tracker,'' https://
    www.bio.org/policy/human-health/vaccines-biodefense/coronavirus/
    pipeline-tracker; BIO, ``Response to Federal Trade Commission: Request
    for Information on Merger Enforcement'' (BIO, April 15, 2022), 4.
     [35]  FDA CDER, ``Novel Drug Approvals for 2020'' (January 13, 2021),
    https://www.fda.gov/drugs/new-drugs-fda-cders-new-molecular-entities-
    and-new-therapeutic-biological-products/novel-drug-approvals-2020.
     [36]  Jeff Craven, ``FDA approved more first-in-class drugs, gave more
    accelerated approvals in 2021,'' Regulatory Affairs Professional
    Society (January 27, 2022), https://www.raps.org/news-and-articles/
    news-articles/2022/1/fda-approved-more-first-in-class-drugs-more-with-
    a.
     [37]  FDA CBER, ``2020 Biological License Application Approvals''
    (August 20, 2020), https://www.fda.gov/vaccines-blood-biologics/
    development-approval-process-cber/2020-biological-license-application-
    approvals.
     [38]  Kari Oakes, ``In 2020, all goal dates met for CDER's novel
    approvals'' (January 13, 2021), https://www.raps.org/news-and-articles/
    news-articles/2021/1/in-2020-all-goal-dates-met-for-cders-novel-
    approva.
     [39]  FDA CDER, ``Novel Drug Approvals for 2021'' (January 6, 2022),
    https://www.fda.gov/drugs/new-drugs-fda-cders-new-molecular-entities-
    and-new-therapeutic-biological-products/novel-drug-approvals-2021; FDA
    CBER, ``2021 Biological License Application Approvals'' (December 20,
    2021), https://www.fda.gov/vaccines-blood-biologics/development-
    approval-process-cber/2021-biological-license-application-approvals.
     [40]  Craven, ``FDA approved more first-in-class drugs, gave more
    accelerated approvals in 2021.''
     [41]  FDA CDER, ``Novel Drug Approvals for 2021'' (March 28, 2022),
    https://www.fda.gov/drugs/new-drugs-fda-cders-new-molecular-entities-
    and-new-therapeutic-biological-products/novel-drug-approvals-2022; FDA
    CBER, ``2021 Biological License Application Approvals'' (March 16,
    2022), https://www.fda.gov/vaccines-blood-biologics/development-
    approval-process-cber/2022-biological-license-application-approvals;
    Drugs.com, ``New Drug Approvals'' (accessed April 21, 2022), https://
    www.drugs.com/newdrugs.html.
     [42]  In Vivo: The Business and Medicine Report, Vol. 34, No. 1
    (January 2016), 25, https://invivo.pharmaintelligence.informa.com/
    outlook/industry-data/-/media/marketing/Outlook%202019/pdfs/2016.PDF.
     [43]  Ashley Mullard, ``2019 FDA Drug Approvals,'' Nature Reviews:
    Drug Discovery, Vol. 19 (February 2020): 79, https://www.nature.com/
    articles/d41573-020-00001-7.
     [44]  Office of Congresswoman Katie Porter, ``Killer Profits: How Big
    Pharma Takeovers Destroy Innovation and Harm Patients'' (January 2021),
    6, https://porter.house.gov/uploadedfiles/
    final_pharma_ma_and_innovation_report_
    january_2021.pdf.
     [45]  Rena Conti, ``Statement of Rena Conti: Prescription Drug
    Spending Reform Will Not Harm Innovation and Will Benefit the American
    Public at Senate Finance Committee Hearing Prescription Drug Price
    Inflation: An Urgent Need to Lower Drug Prices in Medicare,'' March 16,
    2022, 6, https://www.
    finance.senate.gov/imo/media/doc/Conti%20SFC%20Final%20Testimony.pdf.
     [46]  Mark Robberson, ``An Empirical Analysis of Innovation in the
    Pharmaceutical Industry by Drug Class: Implications for Regulatory
    Policy'' (Johns Hopkins Bloomberg School of Public Health, submitted
    for the 2019 Center of Excellence in Regulatory Science and Innovation
    and Master of Science in Regulatory Science and Food Safety
    Regulation), https://www.jhsph.edu/research/centers-and-institutes/
    center-of-excellence-in-regulatory-science-and-innovation/
    Mark%20Robberson%20CERSI%20paper%2020190505.pdf.
     [47]  Augustus John Rush and David J. Kupfer, ``Strategies and tactics
    in the treatment of depression,'' in Treatment of Psychiatric
    Disorders, edited by G.O. Gabbard (Washington, DC: American Psychiatric
    Publishing, 2001).
     [48]  Joseph A. DiMasi and Laura B. Faden, ``Competitiveness in
    Follow-On Drug R&D: A Race or Imitation?'', Nature Reviews Drug
    Discovery, Vol. 10, No. 1 (January 2011), http://www.nature.com/nrd/
    journal/v10/n1/abs/nrd3296.
    html.
     [49]  Ibid.
     [50]  United States Government Accountability Office (GAO), Drug
    Industry: Profits, Research and Development Spending, and Merger and
    Acquisition Deals (GAO, November 2017), https://www.gao.gov/assets/gao-
    18-40.pdf.
     [51]  Jocelyn Mason and Kimberly D. Boeser, ``The changing HCV
    treatment cascade,'' Infectious Disease News, October 2017, https://
    www.healio.com/infectious-disease/hepatitis-c/news/print/infectious-
    disease-news/(87b74536-f358-43d3-a804-f37a98402b0b)/the-changing-hcv-
    treatment-cascade.
     [52]  Holtz-Eakin, ``Testimony on: The Build Back Better Act's
    Prescription Drug Policies and Their Potential Impacts,'' 11.
     [53]  Ibid., 8.
     [54]  Tomas J. Philipson and Troy Durie, ``Issue Brief: The Impact of
    HR 5376 on Biopharmaceutical Innovation and Patient Health'' (The
    University of Chicago, November 9, 2021), 20, https://cpb-us-
    w2.wpmucdn.com/voices.
    uchicago.edu/dist/d/3128/files/2021/08/Issue-Brief-Drug-Pricing-in-HR-
    537
    6-11.30.pdf.
     [55]  John Wu and Robert D. Atkinson, ``How Technology-Based Start-Ups
    Promote U.S. Economic Growth'' (ITIF, November 2017), 12, https://
    itif.org/publications/2017/11/28/how-technology-based-start-ups-
    support-us-economic
    growth.
     [56]  Biotechnology Innovation Organization (BIO), ``Research &
    Development: Biopharmaceutical Sector, A Driver of Innovation,''
    https://www.bio.org/sites/default/files/legacy/bioorg/docs/
    BIO_RD_one%20pager%205-9-17.pdf; CBO, ``Research and Development in the
    Pharmaceutical Industry,'' 8.
     [57]  Pierre Dubois, ``Market size and pharmaceutical innovation,''
    The Rand Journal of Economics, Vol. 46, Issue 4 (October 2015): 844-
    871, https://onlinelibrary.wiley.com/doi/full/10.1111/1756-2171.12113.
     [58]  Destrina Grace Simanjuntak and Raymond R. Tjandrawinata,
    ``Impact of Profitability, R&D Intensity, and Cash Flow on R&D
    Expenditure in Pharmaceutical Companies'' (Social Science Research
    Network, April 29, 2011), http://papers.ssrn.com/sol3/
    papers.cfm?abstract_id=1824267.
     [59]  Alfonso Gambardella, Science and Innovation: The US
    Pharmaceutical Industry During the 1980s (Cambridge University Press,
    1995).
     [60]  R. Henderson and I.M. Cockburn, ``Scale, Scope, and Spillovers:
    The Determinants of Research Productivity in the Pharmaceutical
    Industry,'' RAND Journal of Economics, Vol. 27, No. 1 (1996): 32-59,
    https://www.nber.org/papers/w4466.
     [61]  Nicole Longo, ``Five reasons tying VA prices to Medicare Part D
    misses the mark,'' The Catalyst, September 22, 2021, https://
    catalyst.phrma.org/five-reasons-tying-va-prices-to-medicare-part-d-
    misses-the-mark.
     [62]  AmerisourceBergen, ``Potential Access Implications of a National
    Formulary in Part D,'' July 16, 2020, https://www.xcenda.com/insights/
    comparing-the-generosity-of-drug-coverage-in-the-medicare-part-d-and-
    veterans-affairs-programs.
     [63]  GAO, ``Prescription Drugs: Department of Veterans Affairs Paid
    About Half as Much as Medicare Part D for Selected Drugs in 2017''
    (GAO, December 2020), https://www.gao.gov/assets/gao-21-111.pdf.
     [64]  Kevin Stroupe et al., ``Medication acquisition across systems of
    care and
    patient-provider communication among older veterans,'' Am J Health Syst
    Pharm, Vol. 70, Issue 9 (May 2013): 804-13, https://
    pubmed.ncbi.nlm.nih.
    gov/23592363/.
     [65]  Pacific BioLabs, ``Stages of Drug Development,'' https://
    pacificbiolabs.com/stages-of-drug-development.
     [66]  PhRMA, ``Chart Pack: Biopharmaceuticals in Perspective, Summer
    2019'' (PhRMA, 2019), https://www.phrma.org/-/media/Project/PhRMA/
    PhRMA-Org/PhRMA-Org/PDF/P-R/PhRMA_2019_ChartPack_Final.pdf.
     [67]  Hernandez et al., ``Changes in List Prices, Net Prices, and
    Discounts for Branded Drugs in the US, 2007-2018.''
     [68]  Ibid., 27.
     [69]  Jared S. Hopkins and Peter Loftus, ``Flip the Script: Drugmakers
    Blame Middlemen for Price Increases,'' The Wall Street Journal,
    February 5, 2019, https://www.wsj.com/articles/flip-the-script-
    drugmakers-blame-middlemen-for-price-hikes-11549364401.
     [70]  Ibid.
     [71]  Aaron Vandervelde and Eleanor Blalock, ``The Pharmaceutical
    Supply Chain: Goss Drug Expenditures Realized by Stakeholders''
    (Berkeley Research Group, 2017), https://www.thinkbrg.com/media/
    publication/863_Vandervelde_
    PhRMA-January-2017_WEB-FINAL.pdf.
     [72]  Robert Zirkelbach, ``The PBM story you haven't heard: Hidden
    fees quadrupled in two years,'' The Catalyst, March 20, 2019, https://
    catalyst.
    phrma.org/the-pbm-story-you-havent-heard-hidden-fees-quadrupled-in-two-
    years.
     [73]  Ibid.
     [74]  Ranjana Chakravarthy et al., ``Public- and Private-Sector
    Contributions to the Research and Development of the Most
    Transformational Drugs in the Past 25 Years: From Theory to Therapy,''
    Therapeutic Innovation and Regulatory Science, Vol. 50, No. 6 (July
    2016), https://www.ncbi.nlm.nih.gov/pubmed/30231735.
     [75]  Sabarni K. Chatterjee and Mark L. Rohrbaugh, ``NIH Inventions
    Translate Into Drugs and Biologics With High Public Health Impact,''
    Nature Biotechnology 32 (2014): 56, https://www.nature.com/articles/
    nbt.2785?message-global=remove.
     [76]  Dean Baker, ``Malpractice'' (Center for Economic Policy Research
    (CEPR), May/June 2009), http://cepr.net/publications/op-eds-columns/
    malpractice.
     [77]  Mike Masnick, ``Senator Sanders Introduces Medical Innovation
    Prize Bills,'' TechDirt, June 1, 2011, https://www.techdirt.com/2011/
    06/01/senator-sanders-introduces-medical-innovation-prize-bills/.
     [78]  Philip Stevens and Stephen Ezell, ``Delinkage Debunked: Why
    Replacing Patents With Prizes for Drug Development Won't Work'' (ITIF,
    February 2020), https://itif.org/publications/2020/02/03/delinkage-
    debunked-why-replacing-patents-prizes-drug-development-wont-work.
     [79]  Matej Mikulic, ``Total global spending on pharmaceutical
    research and development from 2010 to 2024,'' Statista, January 23,
    2020, https://www.
    statista.com/statistics/309466/global-r-and-d-expenditure-for-
    pharmaceuticals/.
     [80]  Catherine Saez, ``Health R&D Still Underfunded--WHO Members
    Concerned, NGOs Call for More Ambition,'' IP Watch, May 29, 2017,
    https://www.ip-watch.org/2017/05/29/health-rd-still-underfunded-
    members-concerned-ngos-call-ambition/.
     [81]  Ibid.
     [82]  World Health Organization, ``Identification of Health R&D
    Demonstration Projects,'' http://www.whogis.com/phi/implementation/
    phi_gtc_meeting/en/.
     [83]  Daniel Spulber, ``Public Prizes Versus Market Prices: Should
    Contests Replace Patents?'', Journal of the Patent and Trademark Office
    Society, Vol. 97, Issue 4 (2015): 690-735, https://
    www.scholars.northwestern.edu/en/publications/public-prizes-versus-
    market-prices-should-contests-replace-patent.
     [84]  Stephen Ezell, ``The Bayh-Dole Act's Vital Importance to the
    U.S. Life-Sciences Innovation System'' (ITIF, March 2019), https://
    itif.org/sites/default/files/2019-bayh-dole-act.pdf.
     [85]  Lou Berneman, ``There are unintended costs of Federal efforts to
    control drug prices,'' PennLive, March 26, 2022, https://
    www.pennlive.com/opinion/2022/03/there-are-unintended-costs-of-federal-
    efforts-to-control-drug-prices-opinion.html.
     [86]  Ibid.; Association of University Technology Managers (AUTM),
    ``Driving the Innovation Economy: Academic Technology Transfer in
    Numbers,'' https://autm.net/AUTM/media/Surveys-Tools/Documents/FY20-
    Infographic.pdf.
     [87]  John R. Thomas, ``March-In Rights Under the Bayh-Dole Act''
    (Congressional Research Service, August 2016), 7, https://fas.org/sgp/
    crs/misc/R44597.pdf.
     [88]  Ibid., 10.
     [89]  Birch Bayh, ``Statement of Birch Bayh to the National Institutes
    of Health,'' May 25, 2014, http://www.essentialinventions.org/drug/
    nih05252004/birchbayh.pdf.
     [90]  Birch Bayh and Bob Dole, ``Our Law Helps Patients Get New Drugs
    Sooner,'' The Washington Post, April 11, 2002, https://
    www.washingtonpost.com/archive/opinions/2002/04/11/our-law-helps-
    patients-get-new-drugs-sooner/d81
    4d22a-6e63-4f06-8da3-d9698552fa24/?utm--term=.ddbf6876a380.
     [91]  Ibid.
     [92]  National Institute of Standards and Technology (NIST), ``Return
    on Investment Initiative: Draft Green Paper'' (NIST, December 2018),
    30, https://nvlpubs.nist.gov/nistpubs/SpecialPublications/
    NIST.SP.1234.pdf.
     [93]  Ibid, 30.
     [94]  Thomas, ``March-In Rights Under the Bayh-Dole Act,'' 9.
     [95]  Peter Arno and Michael Davis, ``Why Don't We Enforce Existing
    Drug Price Controls? The Unrecognized and Unenforced Reasonable Pricing
    Requirements Imposed upon Patents Deriving in Whole or in Part from
    Federally Funded Research,'' Tulane Law Review, Vol. 75, 631 (2001),
    https://engagedscholarship.csuohio.edu/cgi/
    viewcontent.cgi?article=1754&context=
    fac_articles.
     [96]  Ibid.
     [97]  John H. Rabitschek and Norman J. Latker, ``Reasonable Pricing--A
    New Twist for March-in Rights Under the Bayh-Dole Act,'' Santa Clara
    High Technology Law Journal, Vol. 22, Issue 1 (2005), 162-163, https://
    digitalcommons.law.scu.edu/cgi/
    viewcontent.cgi?article=1399&context=chtlj.
     [98]  Ibid, 163.
     [99]  Ibid. Here, the Presidential Memoranda refers to memoranda
    produced by the Kennedy and Nixon administrations that pertained to
    government policy related to contractor ownership of inventions.
    [100]  Ibid.
    [101]  Dr. Dipanjan ``DJ'' Nag, Antra Gupta, and Alex Turo, ``The
    Evolution of University Technology Transfer: By the Numbers,''
    IPWatchdog, April 7, 2020, http://www.ipwatchdog.com/2020/04/07/
    evolution-university-technology-transfer/id=120451/.
    [102]  David M. Hart, ``The Impact of China's Production Surge on
    Innovation in the Global Solar Photovoltaics Industry'' (ITIF, October
    2020), https://itif.org/publications/2020/10/05/impact-chinas-
    production-surge-innovation-global-solar-photovoltaics.
    [103]  Sherisse Pham and Matt Rivers, ``China Is Crushing the U.S. in
    Renewable Energy,'' CNN Tech, July 18, 2017, http://money.cnn.com/2017/
    07/18/technology/china-us-clean-energy-solar-farm/index.html; Hart,
    ``The Impact of China's Production Surge on Innovation in the Global
    Solar Photovoltaics Industry.''
    [104]  Stephen Ezell, ``Ensuring U.S. Biopharmaceutical
    Competitiveness'' (ITIF, July 2020), https://itif.org/publications/
    2020/07/16/ensuring-us-biopharmaceutical-competitiveness.
    [105]  National Science Foundation, ``Science and Engineering
    Indicators: 2020,'' ``Publications Output: U.S. Trends and
    International Comparisons,'' https://ncses.nsf.gov/pubs/nsb20214/data.
    [106]  National Science Foundation, ``Science and Engineering
    Indicators: 2020,'' Appendix table S6-6 (accessed June 11, 2020),
    https://ncses.nsf.gov/pubs/nsb20205/data.
    [107]  Anna Nishino, ``The great medicines migration,'' Nikkei Asia,
    April 5, 2022, https://asia.nikkei.com/static/vdata/infographics/
    chinavaccine-3/.
    [108]  ``Safeguarding Pharmaceutical Supply Chains in a Global
    Economy,'' before the U.S. House Committee on Energy and Commerce,
    Subcommittee on Health, 116th Congress (October 30, 2019) (statement of
    Janet Woodcock, Director of FDA Center for Drug Evaluation and
    Research), https://www.
    fda.gov/news-events/congressional-testimony/safeguarding-
    pharmaceutical-supply-chains-global-economy-10302019.
    [109]  Jin Zhang, ``The PD-1/PD-L1 Race in China,'' PharmExec.com, June
    1, 2018, http://www.pharmexec.com/pd-1pd-l1-race-china.
    [110]  Fangning Zhang and Josie Zhou, ``What's next for
    pharmainnovation in China?'', McKinsey and Company Pharmaceuticals and
    Medical Products, September 2017, 2, https://www.mckinsey.com/
    industries/pharmaceuticals-and-medical-products/our-insights/whats-
    next-for-pharma-innovation-in-china. With CAR-T treatment, cell-killing
    T-cells are removed from the body and engineered to recognize the
    relevant cancer target. After the edited T-cells (CAR-Ts) are
    reintroduced to the patient, they multiply and attack the target cancer
    cells.
    [111]  Eric Ng, ``Why China is going all out to invent new, stronger,
    cheaper drugs . . . it's not all about challenging the West,'' South
    China Morning Post, October 2018, https://www.scmp.com/news/china/
    society/article/2166462/why-china-going-all-out-invent-new-stronger-
    cheaper-drugs-its-not.
    [112]  Zack Whittaker, ``Justice Department Accuses Chinese Spies of
    Hacking Into Dozens of US Tech and Industry Giants,'' TechCrunch,
    January 2019, https://techcrunch.com/2018/12/20/us-indictment-tech-
    hacks-chinese/; Derek Lowe, ``Chinese Pharma Espionage?'', Science
    Translational Medicine, December 15, 2011, https://
    blogs.sciencemag.org/pipeline/archives/2011/12/15/chinese_
    pharma_espionage.
    [113]  Gryphon Scientific and Rhodium Group, ``China's Biotechnology
    Development: The Role of US and Other Foreign Engagement'' (report
    prepared for the U.S.-China Economic and Security Review Commission,
    February 2019), 104, https://www.uscc.gov/Research/china%E2%80%99s-
    biotechnology-development-role-us-and-other-foreign-engagement.
    [114]  Daniel C.K. Chow, ``Three Major Problems Threatening Multi-
    National Pharmaceutical Companies Doing Business in China'' (working
    paper, Ohio State Public Law and Legal Theory, 2017), https://
    papers.ssrn.com/sol3/papers.cfm?abstract_id=3029347.
    [115]  Robert D. Atkinson, ``China's Biopharmaceutical Strategy:
    Challenge or Complement to U.S. Industry Competitiveness?'' (ITIF,
    August 2019), https://itif.org/publications/2019/08/12/chinas-
    biopharmaceutical-strategy-challenge-or-complement-us-industry.
    [116]  Joe Kennedy, ``The Link Between Drug Prices and Research on the
    Next Generation of Cures'' (ITIF, September 2019), https://itif.org/
    publications/2019/09/09/link-between-drug-prices-and-research-next-
    generation-cures.
    [117]  Philipson and Durie, ``Issue Brief: The Impact of HR 5376 on
    Biopharmaceutical Innovation and Patient Health,'' 3.
    [118]  Ibid.
    [119]  Holtz-Eakin, ``Testimony on: The Build Back Better Act's
    Prescription Drug Policies and Their Potential Impacts,'' 8.
    [120]  Ray Esquivel and Rich Croghan, ``How Pharmaceutical Companies
    Can Claim the Orphan Drug Tax Credit,'' Moss Adams, October 18, 2019,
    https://www.mossadams.com/articles/2019/october/orphan-drug-
    pharmaceutical-credit.
    [121]  National Organization for Rare Disorders, ``Rare Disease Day:
    Frequently Asked Questions,'' https://rarediseases.org/wp-content/
    uploads/2019/01/RDD-FAQ-2019.pdf.
    [122]  Jennifer Huron, ``Impact of the Orphan Drug Tax Credit on
    Treatments for Rare Diseases'' (National Organization for Rare
    Disorders, June 17, 2015), https://rarediseases.org/odtcwhitepaper/.
    [123]  Ibid.
    [124]  U.S. FDA, ``Developing Products for Rare Diseases &
    Conditions,'' http://www.fda.gov/ForIndustry/
    DevelopingProductsforRareDiseasesConditions/default.htm.
    [125]  Rohan Narayanan, ``NORD Response to New Draft of the Build Back
    Better Act,'' press release, National Organization for Rare Disorders,
    October 29, 2021, https://rarediseases.org/nord-response-to-new-draft-
    of-the-build-back-better-act/.
    [126]  Andrew Brownlee and Joran Watson, ``The Pharmaceutical Supply
    Chain, 2013-2020'' (Berkeley Research Group, 2022), 3, https://
    www.thinkbrg.com/insights/publications/pharmaceutical-supply-chain-
    2013-2020/.
    [127]  Alia Paavola, ``Top PBMs by market share,'' Becker Hospital
    Review, May 30, 2019, https://www.beckershospitalreview.com/pharmacy/
    top-pbms-by-market-share.html.
    [128]  Office of Congresswoman Katie Porter, ``Killer Profits''; ``High
    Drug Prices and Monopoly,'' Open Markets Institute, accessed May 10,
    2021, https://www.
    openmarketsinstitute.org/learn/drug-prices-monopoly.
    [129]  Robert D. Atkinson and Stephen Ezell, ``Five Fatal Flaws in Rep.
    Katie Porter's Indictment of the U.S. Drug Industry'' (ITIF, May 20,
    2021), https://itif.org/publications/2021/05/20/five-fatal-flaws-rep-
    katie-porters-indictment-us-drug-industry. Source: United States Census
    Bureau, 2002 Economic Census Tables (accessed May 11, 2021), https://
    www.census.gov/data/tables/2002/econ/census/manufacturing-reports.html;
    United States Census Bureau, 2017 Economic Census Tables (accessed May
    11, 2021), https://www.
    census.gov/data/tables/2017/econ/economic-census/naics-sector-31-
    33.html.
    [130]  Antonio Ciaccia, ``New drug pricing report showcases highs,
    lows, distorted incentives, and brokenness of Medicare Part D,''
    46Brooklyn, December 1, 2021, https://www.46brooklyn.com/news/2021/12/
    1/wreckfidera-now-streaming.
    [131]  Ibid.
    [132]  Ibid.
    [133]  Ibid.
    [134]  Sood, et al., ``Do companies in the pharmaceutical supply chain
    earn excess returns?'', 111.
    [135]  Stephen Ezell, ``Testimony Before the House Oversight Committee
    on Drug Prices, Intellectual Property, and Biomedical Innovation''
    (ITIF, May 2019), 14, https://itif.org/publications/2019/05/16/
    testimony-house-oversight-committee-drug-prices-intellectual-property-
    and.
    [136]  Massachusetts Institute of Technology (MIT) Center for
    Biomedical Innovation, ``Welcome to MIT NEWDIGS,'' https://
    newdigs.mit.edu/.
    [137]  W. Nicholson Price II, ``Making Do in Making Drugs: Innovation
    Policy and Pharmaceutical Manufacturing,'' Boston College Law Review,
    Vol. 55, Issue 2 (2014): 492, https://lawdigitalcommons.bc.edu/bclr/
    vol55/iss2/5/.
    [138]  Rick Mullin, ``Off the drawing board,'' Chemical and Engineering
    News, April 28, 2019, https://cen.acs.org/pharmaceuticals/Off-drawing-
    board/97/i17.
    [139]  National Science Foundation, ``Programs: Directorate for
    Engineering (ENG),'' https://www.nsf.gov/funding/programs.jsp?org=ENG.
    [140]  Mullin, ``Off the drawing board.''
    [141]  PhRMA, ``Prescription Medicines: Insulin Costs in Context''
    (PhRMA, January 21, 2021), 10, https://phrma.org/resource-center/
    Topics/Cost-and-Value/Prescription-Medicines-Insulin-Costs-in-Context.
    Citing: IQVIA, ``Medicine Spending and Affordability in the United
    States'' (IQVIA, August 2020), https://www.iqvia.com/insights/the-
    iqvia-institute/reports/medicine-spending-and-affordability-in-the-us.
    [142]  Novo Nordisk, ``My$99Insulin,'' https://www.novocare.com/
    insulin/my99insu
    lin.html.
    [143]  PhRMA, ``Prescription Medicines: Insulin Costs in Context,'' 10.
    [144]  Stephen Ezell, ``Testimony to the Senate Finance Committee on
    `Prescription Drug Price Inflation' '' (ITIF, March 2022), https://
    itif.org/publications/2022/03/16/testimony-senate-finance-committee-
    prescription-drug-price-inflation.
    [145]  Blake Pelzer and Paul Spitalnic, ``Proposed Safe Harbor
    Regulation,'' Center for Medicare and Medicaid Services: Office of the
    Actuary (August 2018), https://aspe.hhs.gov/sites/default/files/
    private/pdf/260591/OACTProposed
    SafeHarborRegulationImpacts.pdf.
    [146]  Charles E. Grassley and Ron Wyden, ``Insulin: Examining the
    Factors Driving the Rising Cost of a Century Old Drug'' (United States
    Senate Finance Committee, January 2021), https://
    www.finance.senate.gov/imo/media/doc/Grassley-
    Wyden%20Insulin%20Report%20(FINAL%201).pdf.
    [147]  Adam J. Fein, ``Five Top Drugmakers Reveal List vs. Net Price
    Gaps (Plus: The Trouble With Insulin Prices),'' Drug Channels, August
    11, 2020, https://www.drugchannels.net/2020/08/five-top-drugmakers-
    reveal-list-vs-net.html.
    [148]  Ibid.
    [149]  Ibid.
    [150]  Ibid.
    [151]  Adam J. Fein, ``Drug Channels News Roundup, July 2020: Diabetes
    Costs, Regeneron's Copay Support, MA Rethinks Coupons, My Favorite
    Chart Updated, and ABC's Steve Collis,'' Drug Channels, July 29, 2020,
    https://www.drugchannels.net/2020/07/drug-channels-news-roundup-july-
    2020.html.
    [152]  Ibid.
    [153]  BIO, ``Response to Federal Trade Commission: Request for
    Information on Merger Enforcement,'' 14.
    [154]  Ibid.
    [155]  Karen Van Nuys et al., ``Estimation of the Share of Net
    Expenditures on Insulin Captured by US Manufacturers, Wholesalers,
    Pharmacy Benefit Managers, Pharmacies, and Health Plans From 2014 to
    2018,'' Journal of the American Medical Association Health, Vol. 2,
    Issue 11 (November 2021), https://jamanetwork.com/journals/jama-health-
    forum/fullarticle/2785932.
    [156]  PhRMA, ``Prescription Medicines: Insulin Costs in Context,'' 12.
    [157]  Ibid., 15.
    [158]  Association of University Technology Managers (AUTM), ``AUTM
    2018 Licensing Survey'' (AUTM, 2018), 3, https://autm.net/AUTM/media/
    SurveyReports
    PDF/AUTM_FY2018_US_Licensing_Survey.pdf; AUTM and the Biotechnology
    Innovation Organization: ``The Economic Contribution of University/
    Nonprofit Inventions in the United States: 1996-2017'' (AUTM and BIO,
    June 2019), https://autm.net/AUTM/media/About-Tech-Transfer/Documents/
    Economic_
    Contribution_Report_BIO_AUTM_JUN2019_web.pdf.
    [159]  Justin Chakma et al., ``Asia's Ascent--Global Trends in
    Biomedical R&D Expenditures,'' New England Journal of Medicine, 370,
    No. 1 (January 2014); ER Dorsey et al., ``Funding of US Biomedical
    Research, 2003-2008,'' New England Journal of Medicine, 303 (2010):
    137-43, http://www.ncbi.nlm.nih.gov/pubmed/20068207.
    [160]  Neil Turner, ``What's gone wrong with the European
    pharmaceutical industry,'' Thepharmaletter, April 29, 1999, https://
    www.thepharmaletter.com/article/what-s-gone-wrong-with-the-european-
    pharmaceutical-industry-by-neil-turner; David Michels and Aimison
    Jonnard, ``Review of Global Competitiveness in the Pharmaceutical
    Industry'' (U.S. International Trade Commission, 1999), 2-3, https://
    www.usitc.gov/publications/332/pub3172.pdf.
    [161]  John K. Jenkins, M.D., ``CDER New Drug Review: 2015 Update''
    (PowerPoint presentation, U.S. Food and Drug Administration/CMS Summit,
    Washington, DC, December 14, 2015), http://www.fda.gov/downloads/
    AboutFDA/CentersOffices/OfficeofMedicalProductsandTobacco/CDER/
    UCM477020.pdf.
    [162]  Jenkins, ``CDER New Drug Review,'' 23; Ian Lloyd, ``Pharma R&D
    Annual Review 2020 NAS Supplement'' (PharmaIntelligence, April 2020),
    3. https://pharmaintelligence.informa.com//media/informa-shop-window/
    pharma/2020/files/whitepapers/rd-review-2020-nas-supplement-
    whitepaper.pdf.
    [163]  European Federation of Pharmaceutical Industries and
    Associations, ``The Research Based Pharmaceutical Industry: A Key Actor
    for a Healthy Europe'' (EFPIA, 2006).
    [164]  Shanker Singham, ``Improving U.S. Competitiveness--Eliminating
    Anti-
    Market Distortions'' (working paper, International Roundtable on Trade
    and Competition Policy, 2012).
    [165]  Nathalie Moll, ``Would the last pharmaceutical investor in
    Europe please turn the lights out,'' European Federation of
    Pharmaceutical Industries and Associations blog, January 3, 2020,
    https://www.efpia.eu/news-events/the-efpia-view/blog-articles/would-
    the-last-pharmaceutical-investor-in-europe-please-turn-the-lights-out/.
    [166]  Neil Turner, ``European Pricing Squeeze,'' PharmaExec.com,
    October 1, 2002, https://www.pharmexec.com/view/european-pricing-
    squeeze.
    [167]  Ibid.

                                     ______

               Prepared Statement of Douglas Holtz-Eakin, Ph.D.,
                       President, American Action Forum *
    ---------------------------------------------------------------------------
        * The views expressed here are my own and not those of the American
    Action Forum. I thank Christopher Holt, Tara O'Neill Hayes, and
    Margaret Barnhorst for their assistance.
    ---------------------------------------------------------------------------
                                  introduction
        Chairman Wyden, Ranking Member Crapo, and members of the committee,
    thank you for the opportunity to discuss prescription drug prices and
    proposals for lowering them included in the House-passed Build Back
    Better Act (BBBA). In this testimony, I hope to make five main points:

            The BBBA would establish an explicit government price-setting
    regime for pharmaceuticals, reaching into all corners of the U.S.
    health sector, both public and private;

            The BBBA proposals would harm consumers and negatively impact
    health equity through reduced innovation and higher launch prices for
    drugs and therapies;

            The BBBA proposals would harm and endanger the economic
    activity generated by the biopharmaceutical industry in the United
    States;

            There are better ways to lower drug prices than those put
    forward in the BBBA; and

            Reducing drug prices should in no way be framed as addressing
    the consumer price inflation problem in the United States.

        Let me discuss each of these in greater detail.
                                   background
        Annual health-care spending in the United States increased 9.7
    percent in 2020, totaling $4.1 trillion. While the COVID-19 pandemic
    has played a role in recent increases, health-care spending and costs
    have both been growing rapidly for years. In 2020, 19.7 percent of the
    U.S. economy was devoted to health-care spending.\1\ Prescription
    drugs, however, make up a relatively small percentage of total health-
    care spending. According to the Centers for Medicare and Medicaid
    Services (CMS), retail prescription drug spending made up just 8.4
    percent of all U.S. health-care spending in 2020.\2\ While those
    figures do not account for therapies administered by providers in
    hospitals, nursing homes, or similar settings, the consulting firm
    Altarum estimates that non-retail prescription drug spending accounts
    for 4.5 percent of overall health-care expenditures annually.\3\
    ---------------------------------------------------------------------------
        \1\ https://www.healthaffairs.org/doi/10.1377/hlthaff.2021.01763.
        \2\ https://www.cms.gov/Research-Statistics-Data-and-Systems/
    Statistics-Trends-and-Reports/NationalHealthExpendData/
    NationalHealthAccountsHistorical.
        \3\ https://altarum.org/sites/default/files/uploaded-publication-
    files/Altarum%20Projections
    %20of%20the%20Non-Retail%20Dru.pdf.

        Though total spending on prescription therapies is not a large
    share of overall health spending, patients are more likely to bear the
    cost of medication directly due to the high coinsurance and deductibles
    increasingly common to drug coverage. As a result, it is widely
    accepted that drug prices are higher than they reasonably should be,
    and many argue that drugmaker profits are larger than appropriate. This
    thinking fails to acknowledge the high risk associated with
    pharmaceutical development, however. On average it takes more than a
    decade to bring a drug to market, and most therapies never get there.
    Between 2011 and 2020, only 7.9 percent of compounds that started Phase
    1 clinical trials made it to market.\4\ Calculating how much was spent
    on a particular drug's development and then calculating a ``fair''
    percentage markup for profit fails to account for investment in
    unsuccessful research efforts, or the inherent risk investors take when
    they provide research and development (R&D) capital to innovators. A
    reasonable return on investment (ROI) will look different if the risk
    of failure is higher, and investors expect a higher ROI in exchange for
    the risks related to pharmaceutical development relative to other
    investment options. In the absence of sufficient ROI, venture capital
    for pharmaceutical innovation will become increasingly scarce.
    ---------------------------------------------------------------------------
        \4\ https://go.bio.org/rs/490-EHZ-999/images/
    ClinicalDevelopmentSuccessRates2011_2020.
    pdf?_ga=2.112327436.987275036.1641911607-1139759599.1641911607.

        Nonetheless, there is bipartisan concern over the increasing cost
    of many biopharmaceutical therapies, but policymakers have differed on
    the best approaches to addressing prescription drug prices. While the
    Elijah E. Cummings Lower Drug Costs Now Act (H.R. 3) has been debated
    extensively,\5\ far less attention has been given to the drug policies
    that were included in the House-passed Build Back Better Act (BBBA).
    The BBBA's drug price provisions are, however, no less egregious and
    pose no less risk to consumers and the U.S. biopharmaceutical sector
    than those of H.R. 3. The BBBA's drug policies would dramatically
    curtail future innovation and would imperil the economic benefits the
    United States derives from the biopharmaceutical sector.
    ---------------------------------------------------------------------------
        \5\ https://www.americanactionforum.org/testimony/testimony-on-the-
    lower-drug-costs-now-act-h-r-3/.
    ---------------------------------------------------------------------------
                      bbba's overall impact on innovation
        At the most basic level, any policies that reduce pharmaceutical
    industry revenue will have downward pressure on future innovation. In a
    recent paper from the University of Chicago, Tomas Philipson and Troy
    Durie estimate that a 1-percent reduction in pharmaceutical industry
    revenue leads on average to a 1.54-percent drop in R&D spending.\6\
    This does not mean that any policy that reduces industry revenue is
    inherently misguided, but policymakers need to be cognizant about the
    potential impacts of the policies they advance. Further, punitive
    policies aimed primarily at reducing drug company revenue--rather than
    those addressing specific market failures or perverse incentives
    enshrined in existing law--will have negative long-term impacts.
    ---------------------------------------------------------------------------
        \6\ https://cpb-us-w2.wpmucdn.com/voices.uchicago.edu/dist/d/3128/
    files/2021/08/Issue-Brief-Drug-Pricing-in-HR-5376-11.30.pdf.

        American Action Forum (AAF) researchers have documented the
    potential impacts on innovation of previous policies aimed at reducing
    pharmaceutical prices, specifically the Trump administration's
    International Price Index (IPI) proposal, and Speaker Pelosi's H.R.
    3.\7\ These proposals differ notably from the BBBA in that they tied
    price controls to the price of a drug in designated foreign countries.
    As such, these analyses cannot be directly applied to the BBBA, but
    they do provide some context for the potential impact of this
    legislation's price controls.
    ---------------------------------------------------------------------------
        \7\ https://www.americanactionforum.org/testimony/testimony-on-the-
    lower-drug-costs-now-act-h-r-3/.

        According to AAF analysis of the aborted IPI proposal, if that demo
    had been applied to all Part B drugs--expenditures for which equal
    roughly $30 billion--industry revenues would have been reduced
    approximately $9 billion per year. Considering that the cost of
    successfully bringing a drug to market has been estimated at
    approximately $2.87 billion, the $9 billion in lost revenue per year
    potentially attributable to the IPI proposal would be equivalent to the
    cost of three new medicines each year, or 30 fewer new therapies over
    10 years. In the case of H.R. 3's Average International Market (AIM)
    price, drug prices would be capped at 120 percent of the index, rather
    than 126 percent in the IPI proposal, and the capped price would be
    applied to all U.S. payers rather than limited to Medicare Part B,
    which accounts for only 10 percent of all drug expenditures in the
    United States.\8\ If the effect on drug development of the AIM price
    were similar to the impact of the IPI, expanding those effects to 100
    percent of the U.S. market would be the equivalent of 30 fewer drugs
    per year or 60 percent of the total number of new drugs approved by the
    Food and Drug Administration (FDA) in 2021.\9\ Extrapolated over 10
    years, H.R. 3 would have potentially reduced industry revenue by the
    equivalent cost of 300 new therapies. Of course, these proposals would
    be unlikely to result in dollar-for-dollar reductions in R&D, so the
    actual number of lost therapies would be lower. These estimates are
    also not directly applicable to the BBBA because, whereas these past
    policies restrict drug prices to a limited range based on established
    international prices, the BBBA would implement a system of open-ended
    and steep price concessions based on domestic prices and enforced by a
    staggering 95 percent tax on gross profits of a particular therapy when
    a manufacturer fails to meet the Department of Health and Human
    Services' (HHS) price demands.
    ---------------------------------------------------------------------------
        \8\ https://www.americanactionforum.org/comments-for-record/
    comments-to-cms-on-proposed-international-pricing-index-for-medicare-
    part-b-drugs/.
        \9\ https://www.fda.gov/drugs/new-drugs-fda-cders-new-molecular-
    entities-and-new-therapeutic-biological-products/novel-drug-approvals-
    2021.

        Philipson and Durie, in a robust analysis of the BBBA provisions
    published November 2021, estimate the legislation would reduce industry
    revenue by an astronomical $2.9 trillion through 2039. They attribute
    $1.77 trillion to the inflation rebates, $986.9 billion to government
    ``negotiation,'' and $138.1 billion to the Part D reforms. Using their
    estimates of the impact of revenue reductions on R&D spending, the
    authors calculate that the BBBA would result in 135 fewer new drug
    approvals by 2039, and that further disincentive to researching
    additional indications will lead to 188 fewer new indications for
    existing therapies over the same period. The authors also estimate that
    the policies would result in 331.5 million fewer life years through
    2039. Significantly, the authors only apply the inflation limits to
    Medicare, but the inflation penalties will limit pricing in the private
    market as well, leading to even greater impacts on future innovation.
    They also assume that prices will be set at the absolute highest amount
    allowed under the BBBA, but there is no price floor, and the HHS
    secretary would have substantial leverage to force price concessions
    well below the maximum price.\10\
    ---------------------------------------------------------------------------
        \10\ https://cpb-us-w2.wpmucdn.com/voices.uchicago.edu/dist/d/3128/
    files/2021/08/Issue-Brief-Drug-Pricing-in-HR-5376-11.30.pdf.

        Rather than being more limited in its impact on innovation than
    previous drug pricing proposals, the BBBA's deleterious effects would
    be at least comparable to past proposals such as H.R. 3, and
    potentially even larger.
    Medicare Negotiation for Drug Prices
        Under the BBBA, beginning in 2025, the HHS Secretary would be
    authorized to ``negotiate'' the prices of up to 10 ``negotiation-
    eligible drugs.'' In 2026 and 2027, the cap increases to 15 drugs
    annually, and rises to 20 drugs in 2028 and beyond. Part B drugs--those
    drugs administered by a medical provider in a hospital, nursing home,
    or similar setting--would be exempt until 2027. Additionally, all
    insulin products would automatically be available for negotiation
    beyond the yearly caps.

        A negotiation-eligible drug is defined as a small-molecule or
    biologic (including authorized generics) treatment that has had FDA
    approval for at least 7 years for a small-molecule drug or 11 years for
    a biologic that is among the 50 single-source drugs with the highest
    total expenditures in Part B or Part D. Orphan drugs or ``low-spend''
    drugs are excluded, with low-spend being defined as a drug or biologic
    on which Medicare spends less than $200 million annually (adjusted by
    the consumer price index in future years). The reduced prices would be
    effective after an additional 2 years, meaning small-molecule drugs
    would have prices reduced 9 years after approval and 13 years for
    biologics.

        The BBBA would set a ceiling for negotiated price of between 40-75
    percent of the non-Federal average manufacturer price (AMP)--the
    average price paid by wholesalers, net of prompt pay discounts--scaling
    down depending on how far the drug is past its initial exclusivity
    period. There would, however, be no floor below which HHS could not
    demand price concessions. Unlike H.R. 3, the negotiated price would not
    be directly applied to the private health-care market, but the
    negotiated rate or ``maximum fair price'' would be publicized.

        To provide the HHS Secretary with leverage in negotiations, the
    legislation would establish an excise tax specifically on sales of
    drugs the secretary has targeted for negotiation but for which the
    manufacturer has not agreed to the secretary's target price. The excise
    tax would be applied for any period in which the manufacturer is in
    ``non-compliance.'' The tax would start out at 65 percent of sales of
    the therapy for the first 90 days of non-compliance, increasing at
    regular intervals until topping out at 95 percent for any period of
    non-compliance beyond 270 days.

        The claim that drug prices in Medicare Part D are not negotiated
    misstates the reality of how Medicare pays for drugs. One might think
    from the rhetoric that no negotiations occur between the Medicare
    prescription drug program and drug manufacturers. In fact, the Medicare
    Part D program has robust negotiation and competition built into its
    very fabric.\11\ Insurance companies offering drug coverage through
    Part D negotiate directly with manufacturers to get the best price they
    can for the drugs they provide. Getting a lower price benefits the
    prescription drug plan directly and allows it to lower premiums to
    attract seniors. In this way, the negotiations drive down premiums,
    copays, and overall drug costs. Plans are able to drive discounts by
    offering preferred placement on their formularies to specific therapies
    in exchange for lower prices. In some cases--with the exception of
    specific protected classes of drugs--a plan might decline to cover a
    particular therapy at all as part of its negotiations. This would be a
    problem if there were only one formulary for all beneficiaries, but
    beneficiaries are able to choose between a wide range of plan
    offerings, allowing them to select a plan that best fits their needs.
    In 2022, the average Medicare beneficiary has a choice of 23 stand-
    alone Part D plans, and 31 Medicare Advantage plans that include drug
    coverage.\12\
    ---------------------------------------------------------------------------
        \11\ https://www.americanactionforum.org/research/competition-and-
    the-medicare-part-d-program/.
        \12\ https://www.kff.org/medicare/issue-brief/medicare-part-d-a-
    first-look-at-medicare-prescription-drug-plans-in-2022/.

        To protect this competitive environment, Federal law prohibits the
    HHS Secretary from interfering in the negotiations between plans and
    manufacturers. The Congressional Budget Office (CBO) has long held that
    simply removing this ``noninterference'' clause would not result in any
    savings for the program because the Secretary has no beneficiaries to
    negotiate on behalf of, and no leverage for driving price
    concessions.\13\ Giving the Secretary the legal authority to negotiate
    directly with manufacturers will either result in a single negotiated
    price for each drug--which will then have to be accepted by all
    insurers--thus undermining the competitive structure of Part D, or it
    will result in nothing.
    ---------------------------------------------------------------------------
        \13\ https://www.cbo.gov/sites/default/files/108th-congress-2003-
    2004/reports/fristletter.pdf.

        The BBBA opts for the former, allowing the HHS Secretary to set
    prices that will be applied to all plans, and giving the secretary
    leverage to force price concessions via the draconian 95 percent excise
    tax on gross profits for any therapy whose manufacturer is unwilling to
    meet the secretary's price demands. Setting aside the negative long-
    term effects of the strict price controls envisioned by the BBBA,
    proponents should dispense with the fiction that this would resemble
    anything remotely like a negotiation. Given the 95-percent excise tax
    the Secretary would be free to wield against noncompliant innovators,
    ``price extortion'' would be a more honest label for this provision
    than ``price negotiation.''
    Inflation Penalties
        The BBBA would establish penalties for drugmakers if they increase
    the price of a particular therapy faster than the rate of inflation.
    For drugs covered by Part D, the AMP would be assumed as the base price
    of the drug for the purpose of tracking price increases. A drug's AMP
    would be benchmarked to October 2020, while inflation would be
    benchmarked to September 2021. Drugmakers could still increase their
    prices above inflation, but they would have to write a check for the
    difference. For example, if a drug's AMP was $110 per unit in October
    2020, and the inflation-adjusted AMP in 2023 is $120, but the actual
    AMP is $130, the manufacturer would have to pay the government $10 for
    every unit sold in 2023. The Part D inflation cap would apply to all
    drugs with a price of more than $100 per patient, per year.

        In Part B, the principle is largely the same with a few
    differences. The price of the drug to be considered would be the
    Average Sales Price (ASP). ASP would be benchmarked to July 2021, while
    inflation would be benchmarked to September 2021. While both penalties
    would take effect in 2023, the Part B penalty would be assessed
    quarterly, while the Part D penalty would be paid annually. The penalty
    would be applied to all single-source drugs in Part B with costs
    exceeding $100 per patient, per year--and biologics would still be
    considered single source even if there were biosimilar competitors.
    Biosimilars would also be subject to penalties if their price is above
    that of the reference product.

        While the BBBA would not apply Medicare's negotiated prices for
    drugs to non-Federal programs, the most significant implication of the
    BBBA's dollar-for-dollar penalties on price increases that exceed the
    rate of inflation is that, for the first time, the Federal Government
    would be unilaterally capping drug prices nationwide, both in Federal
    programs and in the private market. This shift in the Federal
    Government's posture toward private markets, negotiations, and
    competition cannot be overstated.

        Additionally, the BBBA sets the inflation benchmark to a later date
    than the price benchmark. As a result, the legislation extracts
    additional revenue from drugmakers to pay for the BBBA's other
    provisions--reinforcing the claim that at least part of the purposes of
    the drug provisions is simply to generate money to pay for unrelated
    new spending. If the policy benchmarked both drug price and inflation
    to September 2021, CBO would likely have assumed that drugmakers would
    keep their price increases to the rate of inflation. There would be
    savings due to slower price growth over time, but they wouldn't be
    huge. By capturing the recent inflation spike and back-dating drug
    prices far enough to ensure that pricing decisions already made are
    subject to the new policy, manufacturers would have to pay for
    Democrats' last year of inflationary spending policies.

        Faced with restrictions on future pricing flexibility, drugmakers
    would be incentivized to increase initial launch prices in response to
    inflation penalties. While these products would eventually be subject
    to HHS's price-setting regime, those forced price concessions would not
    take effect until years after the product's launch, further
    incentivizing manufacturers to maximize initial profits through higher
    launch prices.

        It is worth noting that the BBBA drug provisions would be
    introduced in an environment of general price inflation not seen in 4
    decades. The imposition of price controls on insulin and other drugs
    would guarantee that they will be underpriced in real terms in very
    short order--a recipe for further inefficiency and damage to innovation
    incentives. At the same time, there would be drugs that will see their
    prices rise at inflation--because the BBBA essentially blesses such a
    price rise as ``legitimate''--even if no such increase is merited on
    the fundamentals. The result would be prices that are too high in real
    terms and a harm to consumers.
    Insulin Price Restrictions
        The House-passed BBBA specifically targets insulin prices, making
    all insulin products automatically subject to Medicare negotiation. The
    BBBA would also unilaterally limit cost sharing for insulin through
    Part D to $35 per month.

        The BBBA would further intercede in the group and individual
    insurance markets to limit patient insulin costs. Starting in 2023,
    health insurers offering group or individual health insurance coverage
    would be required to provide coverage for at least one of each insulin
    dosage form (vial, pump, or inhaler) of each type of insulin (rapid-
    acting, short-acting, intermediate-acting, long-acting, and premixed).
    Further plans would be required to limit patient costs for insulin to
    no more than either $35 for a 30-day supply, or an amount equal to 25
    percent of the negotiated price of the insulin product for a 30-day
    supply--net all price concessions--whichever is lower.

        It should also be noted that the BBBA's heavy intervention in the
    insulin market, popular though those provisions are likely to be, will
    risk curtailing substantive innovation around insulin products and
    delivery mechanisms, as there will be little financial incentive for
    companies to continue to invest in their development.

        Further, recent data suggests such price controls may be
    unnecessary. The insulin market has long suffered from the inability to
    sell ``generic'' insulins because of complicated and outdated
    regulatory burdens; that issue was resolved in March 2020. In
    anticipation, manufacturers began developing new products and
    accordingly, several authorized generics and a biosimilar have recently
    come to market and compete with some of the most popular brand-name
    insulin products. Following their introduction, the price per unit of
    insulin fell 6.8 percent from 2018 to 2020, on average, across all
    insulin types, except ultra-long-acting insulin.\14\ This is
    competition at work, lowering prices. There is, however, one caveat to
    this point of success: Despite these new products having list prices of
    roughly half that of their brand-name counterparts, use among patients
    thus far is negligible--at least in Medicaid and Medicare Part D. It is
    likely that many insurers are still providing preferential treatment on
    the formulary to the brand-name products because such products
    typically come with substantial rebates--reportedly averaging between
    30-50 percent.\15\ This suggests rebate reform may be necessary to
    change this dynamic and allow the public to actually reap the benefits
    of these lower cost products, as patients pay coinsurance based on list
    price and the use of high-priced drugs increases Federal reinsurance
    spending.
    ---------------------------------------------------------------------------
        \14\ https://www.americanactionforum.org/insight/insulin-prices-an-
    update/.
        \15\ https://www.americanactionforum.org/research/insulin-cost-and-
    pricing-trends/.
    ---------------------------------------------------------------------------
    Health Equity and Pharmaceutical Innovation
        While the costs associated with innovative therapies, particularly
    biologics, present access issues that can increase disparities in
    health equity, policies like those included in the BBBA would solve
    this problem, intentionally or not, by preventing new therapies from
    being developed in the first place. Ironically, reduced innovation
    could similarly impact health equity. According to Philipson and Durie,
    therapies that treat diseases of the endocrine, cardiovascular, and
    respiratory systems along with treatments for cancer and neurological
    diseases would be most impacted by the BBBA's policies because they
    make up a high share of Medicare spending. Many conditions for which
    treatments are lacking in these categories impact minority groups at
    higher rates. For example, 18.6 percent of African Americans and 14
    percent of Hispanics age 65 and older suffer from Alzheimer's compared
    to only 10 percent of Whites.\16\ African Americans are also more
    likely die of cancer or its complications than are Whites, 169.2 deaths
    per 100,000 compared to 150.3 deaths per 100,000.\17\
    ---------------------------------------------------------------------------
        \16\ https://www.alz.org/media/Documents/alzheimers-facts-and-
    figures.pdf.
        \17\ https://gis.cdc.gov/Cancer/USCS/#/Demographics/.

        Given the recent focus on insulin prices, it is significant that
    14.5 percent of American Indians and Alaska Natives, 12.1 percent of
    non-Hispanic African Americans, and 11.8 percent of Hispanics have
    diagnosed cases of diabetes compared to 9.5 percent of Asian Americans
    and 7.4 percent of non-Hispanic Whites.\18\ Similar trends exist tied
    to educational attainment and family income. At the same time, 40.4
    percent of non-Hispanic Whites with a diabetes diagnosis use insulin,
    compared to 33.9 percent of non-Hispanic Blacks, and 31.1 percent of
    Hispanics.\19\ In other words, the impact of reduced innovation in
    insulin products will have a disproportionate impact on racial
    minorities, yet those same groups are more likely to struggle to access
    insulin therapies.
    ---------------------------------------------------------------------------
        \18\ https://www.cdc.gov/diabetes/data/statistics-report/
    appendix.html#tabs-1-3.
        \19\ https://gis.cdc.gov/grasp/diabetes/DiabetesAtlas.html#.

        Clearly work is needed to close the pharmaceutical access gap for
    disadvantaged groups, however, policies that prevent new therapies from
    ever coming to market are a self-defeating approach.
    Impact on Generic and Biosimilar Market Entry
        Another under-appreciated point of concern with the BBBA is the way
    the legislation's provisions could disincentivize future development of
    generic and biosimilar therapies. Historically, flow-on products have
    led to significant cost savings for American patients and have been a
    primary driver of prescription medications' relatively small share of
    total health-care expenditures. Ironically, the more successful the HHS
    Secretary is in leveraging the BBBA's punitive excise tax to force
    price concessions, the fewer generic and biosimilar products are likely
    to come to market. Follow-on products are able to dramatically undercut
    name-brand drugs and biologics on price because they do not have the
    same R&D expenditures and because their lower prices allow them to
    achieve larger market shares. But if the price difference between a
    name-brand drug, subject to the secretary's price controls, and a new
    generic is marginal or even non-existent, the ability of a generic to
    gain market share will be reduced.

        It may be that HHS is able to drive sufficient price concessions--
    at the cost of future innovation--to offset some of the lost savings
    due to a decimated generic and biosimilar pipeline, but lower prices
    are not the only benefit of follow-on products. Different patients
    respond differently to the same medication, so a robust pipeline of
    follow-on therapies ensures patients are more likely to have access to
    a therapy without unwanted side effects. Reduced market entry of
    generics and biosimilars could lead to fewer options for doctors to
    help patients avoid adverse reactions and side effects.
                economic damage to the biopharmaceutical sector
        The biopharmaceutical sector in the United States creates more than
    $1 trillion in economic activity and employs more than 800,000
    workers--at an average compensation over twice the national average.
    More broadly, the industry supports more than 4 million jobs across the
    U.S. economy, and generated over $67 billion in Federal, State, and
    local tax revenue in 2017 alone.

        The BBBA's policies aimed at reducing industry revenues put this
    vibrant economic engine at risk. In 1986, R&D investments by
    pharmaceutical firms in Europe exceeded R&D in the United States by
    roughly 24 percent.\20\ Following the imposition of government price
    controls in many European countries, and consequently the reduced
    return on investment, R&D spending by pharmaceutical companies grew at
    an annual rate of just 5.4 percent in the European Union, compared with
    8.8-
    percent growth in the United States. As such, more than half of the
    world's pharmaceutical R&D investments have been made in the United
    States since the turn of the century, whereas less than 30 percent has
    been invested in Europe.\21\ While shifting patterns of investment are
    the product of many factors, historically R&D and manufacturing
    investments have moved away from countries in which strict price
    control regimes are implemented. With countries such as India and
    China, among others, aggressively seeking to bolster their own
    biopharmaceutical industries, the BBBA would put at risk the economic
    benefits the United States derives from the sector and would advantage
    other countries in their efforts to lure away investments currently
    being made in this country.
    ---------------------------------------------------------------------------
        \20\ https://www.nber.org/papers/w12676.
        \21\ https://www.abpi.org.uk/facts-and-figures/science-and-
    innovation/worldwide-pharmaceutical-company-rd-expenditure-by-country/.
    ---------------------------------------------------------------------------
                   pharmaceutical policy options to consider
        While many--though not all--of the prescription drug pricing
    proposals included in the BBBA are unwise, there are worthwhile
    solutions for tackling drug prices in ways that promote competition and
    better align the incentives inherent in Federal law.
    Medicare Part D Reforms
        On a positive note, the House-passed BBBA does move in the right
    direction, undertaking a significant redesign of the Medicare Part D
    program, beginning in 2024, aimed at realigning plan and manufacturer
    incentives to constrain drug prices and to limit beneficiaries' out-of-
    pocket (OOP) costs. A similar proposal was included in H.R. 19 by House
    Republicans, and the broad framework of the proposal--originally
    outlined by AAF in 2018--has garnered bipartisan support, although
    there have been partisan differences over some of the details.\22\
    ---------------------------------------------------------------------------
        \22\ https://www.americanactionforum.org/research/redesigning-
    medicare-part-d-realign-incentives-1/.

        Under the BBBA, brand-name and biosimilar drug manufacturers would
    be liable for 10 percent of costs in the initial coverage phase and 20
    percent in the catastrophic phase. Government reinsurance would fall to
    20 percent for brand-name drugs and biosimilars and to 40 percent for
    generic drugs. Insurer liability in the catastrophic phase would
    increase to 60 percent for all drugs. The catastrophic phase would
    begin at $2,000 in OOP costs, capping beneficiary costs at that point.
    AAF originally considered capping beneficiary OOP costs between $2,500
    and $4,000 annually. The BBBA OOP cap of $2,000 is significantly below
    what beneficiaries are expected to pay before moving into the
    catastrophic phase under current law. One potential improvement,
    recognizing budgetary constraints and the need to balance savings for
    beneficiaries with costs for taxpayers, would be a slightly higher OOP
    cap. This could be coupled with a reduction in beneficiary coinsurance
    below the cap, which would benefit more enrollees--since most will
    never reach the OOP cap--while still providing substantial savings for
    ---------------------------------------------------------------------------
    taxpayers and enrollees who do reach the cap.

        The BBBA would also reduce beneficiaries' coinsurance liability to
    23 percent in the initial coverage phase (from 25 percent currently)
    and their premium liability to 23.5 percent (from 25.5 percent
    currently). Consequently, the Federal premium subsidy rate would rise
    to 76.5 percent (from 74.5 percent) and insurer liability in the
    initial coverage phase would be 77 percent for generic drugs and 67
    percent for brand-names and biosimilars.

        Last, the BBBA would allow for beneficiaries' OOP costs to be
    ``smoothed'' over the course of the year, rather than potentially
    having to pay as much as $2,000 in a single month.

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        While the BBBA version of the Part D redesign retains the 10-
    percent manufacturer share in the initial coverage phase that was added
    in the H.R. 3 version of the proposal, the legislation would lower the
    manufacturer share in the catastrophic phase from 30 percent in H.R. 3
    to 20 percent, while AAF initially proposed 9 percent (note that AAF
    used 9 percent because that was determined to be the rate at which
    pharmaceutical companies would be responsible for the same level of
    costs at the time the original analysis was done, while AAF was neutral
    on whether manufacturers' share of costs should increase).
    Drug Rebates
        In 2019, the Trump administration proposed significant changes to
    the structure of drug rebates. While Congress has delayed and sought to
    repeal this rulemaking,\23\ it would be wise to reconsider. Under
    current law, drug manufacturers typically provide significant rebates
    for drugs provided at the pharmacy counter (averaging nearly 30 percent
    in Medicare Part D), especially for drugs with competing alternatives.
    These rebates are most commonly paid to pharmacy benefit managers
    (PBMs) in exchange for preferred placement on the insurance plan's drug
    formulary. The PBMs, however, do not usually share those rebates
    directly with patients, instead typically using the rebates to hold
    down premium costs for everyone. But using rebates on high-cost drugs
    to broadly lower premiums instead of passing them through to
    beneficiaries results in the (high-cost) sick subsidizing the (low-
    cost) healthy, which seems counter to the intent of an insurance
    product.
    ---------------------------------------------------------------------------
        \23\ https://www.americanactionforum.org/weekly-checkup/a-dramatic-
    attempt-to-lower-drug-costs/.

        The rebate rule, if implemented, would change that practice. Drug
    rebates would no longer be allowed unless they are completely passed
    through to the patient at the point of sale. This change would almost
    certainly lead to increased Part D premiums, which is why there has
    been opposition. Those increases are likely to be minimal, however, as
    the cost increase would be spread across all beneficiaries. On the
    other hand, the reduced cost-sharing expenses that the highest-cost
    beneficiaries would see should outweigh those premium cost increases,
    resulting in a net benefit to patients. Those patients with the highest
    costs would see the greatest benefit. The Trump administration could
    only propose changes to affect rebates in the Medicare program through
    rulemaking; if Congress were to enact a legislative version of the
    rebate rule, however, it could extend the policy throughout the
    insurance system, which is an approach worth consideration.
    Competition and Increased Supply
        History has proven the best way to reduce the price of a good for
    which there is growing demand is to increase its supply through
    competition. For drug pricing, that means bringing generics and
    biosimilars to market to compete with brand-name drugs.

        A now-classic example of this phenomenon is the hepatitis C
    treatment, Sovaldi, which contributed over $3 billion to 2014
    expenditures alone.\24\ While the drug was quite expensive, it is
    important to note two things. First, Sovaldi--and its eventual
    competitors--provided a cure for what had been up until that point a
    costly to manage chronic disease. Second, as competitors joined the
    market, the price of Sovaldi was cut in half. Where there is
    competition, prices come down. The FDA has been doing its part by
    approving a record number of generic drugs and biosimilars.\25\ But
    other barriers to unlocking robust market competition remain.
    ---------------------------------------------------------------------------
        \24\ https://www.cms.gov/Research-Statistics-Data-and-Systems/
    Statistics-Trends-and-Reports/Information-on-Prescription-Drugs/
    index.html.
        \25\ https://www.fda.gov/NewsEvents/Newsroom/FDAInBrief/
    ucm625627.htm.
    ---------------------------------------------------------------------------
    Legal Enforcement of Competition Policy
        Often, once a generic drug has been on the market long enough, it
    acquires enough of the market share that the brand-name manufacturer
    stops producing its version of the drug. In many cases, the price
    reaches a low enough point at which other generic competitors also exit
    the market, leaving a sole manufacturer. In some high-profile cases we
    see what amounts to abuse of monopoly power--that sole manufacturer
    taking advantage of its position and dramatically increasing its price
    once there is no more competition and consumers have no choice but to
    purchase the now high-priced drug. In these cases, it should be treated
    as the abuse that it is and prosecuted where appropriate.

        Prosecuting such monopoly abuses may require new authority for the
    Federal Trade Commission (FTC). The FTC's mission is ``to prevent
    business practices that are anticompetitive or deceptive or unfair to
    consumers.'' The FTC notes that it has limited authority to take action
    against a company that has drastically raised the price of a drug,
    depending on the reason for the increase.
                   drug prices and the challenge of inflation
        Some policymakers have touted drug pricing reforms as a way to
    address consumer price inflation. Inflation is a problem. As measured
    by the Consumer Price Index (CPI) year-over-year inflation has risen
    from 1.4 percent in January 2021 to 7.5 percent in January 2022.
    Reduced drug prices, however, has essentially nothing to do with taming
    the economy-wide steady rise in prices. Drug prices contribute only 1.4
    percent of prices increases in the CPI, so changing drug prices will
    little affect the overall total. Moreover, most of the proposals in
    BBBA would not take full effect for years, and thus have no impact on
    inflation in 2022.
                                   conclusion
        The BBBA does not establish a true ``negotiation'' of drug prices
    in Medicare; rather it would empower the HHS Secretary to dictate
    prices to manufacturers who would have little to no leverage. The BBBA
    would enshrine a unique and punitive 95-percent excise tax on gross
    profits of a therapy if the manufacturer does not agree to the
    secretary's demands and set a ceiling for a drug's price. Unlike past
    proposals, however, there is no floor price below which the secretary
    would be unable to force further concessions. Significantly, under the
    BBBA the Federal Government would cap the price of all drugs throughout
    the entire health-care system by penalizing any manufacturer who
    increases a drug's price faster than the rate of inflation.

        The combination of price-setting by the HHS Secretary and inflation
    penalties would very likely reduce generic and biosimilar market entry,
    putting at risk potential savings and improved treatment options for
    millions of Americans. Price controls in the insulin market in
    particular will essentially eliminate future improvements in insulins
    and may well be unnecessary as insulin prices are beginning to drop
    with the emergence of greater competition. The BBBA's inflation
    penalties are also likely to result in higher launch prices and could
    drive price increases commensurate with inflation for therapies whose
    prices would not increase under current law.

        Further, the BBBA would reduce biopharmaceutical industry revenue
    by $2.9 trillion through 2039 and puts at risk a U.S. biopharmaceutical
    sector that generates more than $1 trillion in economic activity
    annually, employs more than 800,000 workers, and supports more than 4
    million jobs across the U.S. economy. In the mid-1980s, as European
    countries imposed stringent price controls, Europe saw a flight of
    investment in drug development and manufacturing to the United States.
    Under the BBBA, the United States would risk a similar loss in
    competitiveness to countries such as India and China that are
    aggressively seeking to bolster their own biopharmaceutical sectors.

        The BBBA would make large-scale changes to drug policy at the
    Federal level and reach deep into private insurance and contracts.
    These policies would have widespread, negative impacts on the
    development of future therapies, new indications for existing
    therapies, and the economic benefits the United States derives from a
    vibrant biopharmaceutical sector. If the BBBA's policies are enacted in
    totality, American patients will suffer, American leadership in medical
    research will be diminished, and a vibrant engine of economic
    development for American workers and investors will be strangled.
    Congress should discard the majority of the BBBA's drug policies and
    instead focus on pursuing bipartisan reforms to Medicare Part D and
    enacting changes to drug rebates.

                                     ______

        Questions Submitted for the Record to Douglas Holtz-Eakin, Ph.D.
                     Questions Submitted by Hon. Mike Crapo
     on problematic claims regarding the house-passed build back better act
        Question. A range of claims advanced in support of the drug price
    controls included in the House-passed Build Back Better Act (BBBA)
    warrant substantial scrutiny and skepticism.

        Some backers of the bill have cited a January 2022 AARP piece
    suggesting that gas and milk prices would be astronomical if they had
    grown at the rate of prescription drug prices for the past 15 years.
    Notably, however, the article in question relies on a June 2021 report
    using a dataset ending in December 2020, thus predating the recent
    surge in general inflation, which has coincided with far lower growth
    in drug prices. Moreover, the study in question focuses only on a
    subset of brand-name drugs, thus excluding the low-cost generics that
    account for 90 percent of the market, and its pricing metric fails to
    account for post-sale rebates and other price concessions. It also uses
    a 15-year window, which masks the recent slowing in even list price
    increases for medications. In terms of the current wave of inflation
    eroding American families' finances, between February 2021 and 2022,
    general inflation (CPI-U) rose by 7.9 percent, while the consumer price
    index specific to milk increased by 11.2 percent and the gasoline-
    specific index surged by 38 percent. The prescription drug-specific
    index (CPI-Rx, which includes generics but still excludes post-sale
    rebates), by contrast, grew by just 2.4 percent.

        What metrics and studies provide the most accurate and inclusive
    data on price trends for prescription drugs?

        Answer. Price trends for prescription drugs are riddled with
    ambiguity; list prices, net prices, out-of-pocket prices, development
    costs, and total spending on drugs have displayed very different
    patterns over time.

        Concerns about increasing drug prices often refer to the narrow
    definition focused on sales prices (or ``list price'') set by drug
    manufacturers, though a more accurate measurement would be the net
    price inclusive of all discounts and manufacturer rebates. List prices
    for brand-name drugs, on average, increased between 5.2 and 9.3 percent
    between 2015 and 2019, yet the average net price of these drugs grew
    between 0.3 and 2.9 percent, with the trend being flat or downward
    sloping.\1\ Additionally, while the average list price of brand name
    drugs rose 69 percent between 2010 and 2019, average out-of-pocket
    costs for those drugs declined from $27.72 in 2015 to $26.25 in
    2019.\2\
    ---------------------------------------------------------------------------
        \1\ https://www.iqvia.com/insights/the-iqvia-institute/reports/
    medicine-spending-and-affordability-in-the-us.
        \2\ https://www.iqvia.com/insights/the-iqvia-institute/reports/
    medicine-spending-and-affordability-in-the-us.

        Prescription drug price metrics should also consider utilization
    trends of certain drug types, acknowledging that the ``problem'' of
    rising prescription drug prices might not be with all drugs but driven
    by the high prices of select drugs. For example, the last decade has
    seen a significant shift toward the use of ``specialty drugs''--those
    that require special handling, must be administered by a doctor,
    require patient monitoring or follow-up care, or are used to treat
    complex, chronic conditions-- which tend to be quite expensive.\3\
    ---------------------------------------------------------------------------
        \3\ https://www.pcmanet.org/pcma-cardstack/what-is-a-specialty-
    drug/.

        Additionally, metrics must differentiate between prescription drug
    spending--a function of both price and quantity--and prescription drug
    prices. Annual growth in pharmaceutical spending in February 2020 was
    7.9 percent,\4\ but annual pharmaceutical price growth was only 2.4
    percent.\5\ On a per capita basis, real net spending has grown by only
    1 percent between 2007 and 2017 and actually declined by 2.2 percent in
    2017.\6\
    ---------------------------------------------------------------------------
        \4\ https://altarum.org/sites/default/files/uploaded-publication-
    files/SHSS-Spending-Brief_April_2021.pdf.
        \5\ https://altarum.org/sites/default/files/uploaded-publication-
    files/SHSS-Price-Brief_March_2021.pdf.
        \6\ https://www.iqvia.com/institute/reports/medicine-use-and-
    spending-in-the-us-review-of-2017-outlook-to-2022.

        Ultimately, over the past 3 years, overall health-care prices have
    gradually increased--rising 1.3 percent between March 2018 and March
    2019 and 2.5 percent from March 2020 to March 2021--though prescription
    drug prices have declined in two of the past 3 years: down 0.4 percent
    from March 2018 to 2019, rising just 1.5 percent by March 2020, and
    ---------------------------------------------------------------------------
    declining 2.3 percent by March 2021.

        Question. How does medication price inflation relate to general
    inflation and inflation specific to other goods cited by AARP, such as
    milk and gasoline?

        Answer. Inflation is a sustained rise in prices, and specific
    products (gasoline, drugs) or actors (oil producers, pharmaceutical
    manufacturers) are not responsible for economy-wide inflation. The
    notion that every drug price is somehow rising faster than the price of
    other goods is not true; as noted above, pharmaceutical price inflation
    in the CPI was roughly 2.5 percent over the past year, compared to 7.9
    percent for the CPI as a whole. Additionally, reduced drug prices have
    essentially nothing to do with taming economy-wide inflation. According
    to the March 2022 Bureau of Labor Statistics report, pharmaceutical
    drug prices contributed only 1.4 percent of the price increases in the
    CPI, so changing drug prices will little affect the overall total.\7\
    ---------------------------------------------------------------------------
        \7\ https://www.bls.gov/news.release/pdf/cpi.pdf.

        Question. In advocating for enactment of the BBBA's drug pricing
    provisions, some have characterized the bill's government price-setting
    program as market-based and fair, providing manufacturers with a say in
    the pricing of their products. These advocates have sought to
    differentiate the program from price controls and rate-setting
    ---------------------------------------------------------------------------
    mechanisms.

        In reality, however, the legislation would allow the HHS Secretary
    to set any price of his or her choosing for virtually any product
    selected. Under the bill, noncompliance with any component of the
    price-setting program--including meeting bureaucratic deadlines,
    agreeing to participate in the program, and accepting the price that
    the Federal Government sets, however arbitrary or unrealistic--would
    trigger an unprecedented and seemingly unconstitutional noncompliance
    penalty of up to 95 percent of all gross sales across all markets.
    Manufacturers thus have no choice in the matter and no leverage in the
    process. The proposal would also permanently prohibit judicial and
    administrative review of most elements of the new program, rendering
    any price set by the Secretary as absolutely final and enforceable.

        In short, the bill provides for negotiation in name only.

        Is the government price-setting program created under the House-
    passed BBBA in any way negotiation? Does it, as its backers attest,
    rely on market forces and provide manufacturers with a meaningful say
    in setting prices?

        Answer. No. At a very basic level, the government would ultimately
    set the parameters for the negotiation. The government would determine
    whether a manufacturer had complied with those parameters. And the
    government would level substantial penalties on manufacturers who do
    not comply with its price concession demands. The more one drills down,
    the clearer it becomes that the process envisioned cannot be reasonably
    called a negotiation.

        Question. To your knowledge, has Congress enacted any provision
    resembling the 95-percent noncompliance penalty--nondeductible and
    applied across gross sales for all market segments--in modern political
    history?

        Answer. No.

        Question. BBBA's defenders sometimes argue that the life sciences
    sector is uniquely and exceptionally profitable and could thus easily
    absorb the costs triggered by the bill's price controls. Others argue
    that biopharmaceutical R&D estimates overstate the sector's commitment
    to innovative research, pointing to studies suggesting that marketing
    and advertising expenses for at least some segments of the industry
    exceed R&D investments.

        Do these arguments accurately characterize the relative
    profitability, R&D intensity, and marketing/advertising expenditures of
    the biopharmaceutical sector? Why or why not?

        Answer. There are two key features to the financing of
    biopharmaceuticals. The first is that innovation is an inherently risky
    enterprise that is expensive, takes a long time, and has a very low
    rate of successfully bringing products to market. The second key
    feature is that the industry competes in capital markets with every
    other sector of the economy. The combination means that successful
    products have to be highly profitable to cover the losses from failed
    innovations and still provide investors with a market rate of return.
    In and of themselves, R&D, advertising, or other categories of expenses
    tell one little about the economics of the sector.

        Question. In making the case for the House-passed BBBA drug-pricing
    policies, some have suggested that most new drugs that come to market
    are ``me-too'' products that either make modest changes to existing
    medications or treat conditions that already have numerous therapeutic
    options. These claims seem at odds with the drug development landscape,
    where the majority of the 50 new drugs approved last year were first-
    in-class treatments, and where studies regarding existing therapies can
    lead to new indications and uses, along with improvements that offer
    outsize patient benefits. One drug originally indicated to treat
    chronic lymphocytic leukemia, for instance, received approval as a
    disease-modifying therapy (DMT) for the treatment of multiple sclerosis
    roughly 11 years later, after a far-reaching and costly clinical
    development program. This type of follow-on innovation can result in
    major medical breakthroughs.

        To what extent do we see meaningfully innovative drugs and
    biologics approved each year, and what potential value does follow-on
    innovation offer to patients?

        Answer. Of the 53 new drugs approved by the FDA in 2020, 19 drugs
    (or roughly 36 percent) were biologics. Similarly, of the 53 drugs
    approved in 2019, 20 drugs (or 38 percent) were biologics. For
    comparison, in 1999, the FDA approved 3 biologics, making up only 8
    percent of the 38 approved new drugs that year.\8\
    ---------------------------------------------------------------------------
        \8\ https://www.nature.com/articles/s41587-021-00814-w#Sec3.

        Follow-on products are able to dramatically undercut name-brand
    drugs and biologics on price because they do not have the same R&D
    expenditures and because their lower prices allow them to achieve
    larger market shares. Lower prices are not the only benefit of follow-
    on products, however; different patients respond differently to the
    same medication, so a robust pipeline of follow-on therapies ensures
    patients are more likely to have access to a therapy without unwanted
    ---------------------------------------------------------------------------
    side effects.

        Question. How would the government price-setting program and other
    price controls included in BBBA impact incentives for follow-in
    innovations like new indications for existing therapies, new
    formulations (i.e., to mitigate or eliminate side effects, to
    streamline dosing regimens, etc.), and other product improvements and
    changes?

        Answer. Historically, follow-on products have led to significant
    cost savings for American patients and have been a primary driver of
    prescription medications' relatively small share of total health-care
    expenditures. The more successful the HHS Secretary is in leveraging
    the BBBA's punitive excise tax to force price concessions, the fewer
    generic and biosimilar products are likely to come to market. Follow-on
    products are able to dramatically undercut name-brand drugs and
    biologics on price because they do not have the same R&D expenditures
    and because their lower prices allow them to achieve larger market
    shares.

        Question. While the House-passed BBBA technically makes no changes
    to patents and exclusivities with respect to prescription drugs, the
    government price-setting program and multi-market price growth cap
    policies would affect a manufacturer's ability to derive economic value
    from these market protections. How would the bill's price controls
    impact the incentives for innovation currently inherent in patents and
    exclusivities?

        Answer. The BBBA would set a ceiling for negotiated price of
    between 40-75 percent of the non-Federal average manufacturer price
    (AMP)--the average price paid by wholesalers, net of prompt pay
    discounts--scaling down depending on how far the drug is past its
    initial exclusivity period. There would, however, be no floor below
    which HHS could not demand price concessions. Because there is a
    lessened ability for the manufacturer to make a profit, these price
    controls would have similar impacts to patent and exclusivity
    restrictions: a decreased profit and therefor a decreased incentive to
    make major investments in expensive cures.

        Question. Some have claimed that the BBBA's drug-pricing provisions
    would exempt startups and other small biotechs from the onerous new
    government price-
    setting program included in the legislation. In reality, however, the
    bill includes only an extremely narrow and time-limited exemption that
    carves certain small biotechs out of the program for 3 years and
    provides them with a pricing floor for the following 2, after which
    point the bureaucratic new system would treat these small firms like
    any other companies. Notably, 66 percent of biopharmaceutical companies
    are startups. Moreover, small businesses--many of which would not
    qualify for even the temporary exemption--account for 70 percent of
    pivotal-stage trials, and more than 90 percent of biopharmaceutical
    firms overall are not turning a profit.

        Do the time-limited and narrow small biotech exemptions in the bill
    provide meaningful protection for the startups and other small
    businesses that comprise the majority of the life sciences sector?

        Answer. It takes an average of 15 years from the time a drug
    developer first begins testing a new formula until the FDA approves
    it.\9\ Additionally, only 1 in 1,000 drug formulas will ever enter pre-
    clinical testing, and of those, roughly 8 percent will ultimately
    receive FDA approval.\10\ Ultimately, it may take a long time before
    biotech startups develop a successful drug and offset some of their
    initial spending on research and development, thus, a 3-year exemption
    and a temporary 2-year price floor for small biotech drugs are unlikely
    to provide adequate protection against price controls.
    ---------------------------------------------------------------------------
        \9\ https://www.oecd-ilibrary.org/social-issues-migration-health/
    health-at-a-glance-2015/research-and-development-in-the-pharmaceutical-
    sector_health_glance-2015-70-en.
        \10\ http://www.fdareview.org/approval_process.shtml.

        Question. If enacted, how would the government price-setting
    program and other price controls (such as the mandatory multi-market
    price growth cap) impact these small businesses and the prospects of
    ---------------------------------------------------------------------------
    future biopharmaceutical startups?

        Answer. It is clear that BBBA would be destructive to innovation in
    the pharmaceutical market, particularly for smaller biotech firms, as
    potential returns on investments diminish. Venture capital and larger
    pharmaceutical investors typically play a large role in supporting
    small biopharmaceutical startups on the leading edge of development. If
    the price-setting BBBA provisions are implemented, however, such
    investments would be less justifiable. Government price controls would
    erase investment incentives and upend the current market-based
    framework that allows investors to estimate what insurance plans might
    pay for a given drug, making it almost impossible for investors to
    secure a financial return, and thus leading investors to leave the
    pharmaceutical sector altogether.

        Question. How might the imposition of the bill's price controls
    fuel industry consolidation, given the diversified product portfolios
    and compliance-related resources and staff that large multinationals
    often enjoy, relative to smaller businesses?

        Answer. The less profit a business is able to make, the smaller its
    margin for error in choosing which products to pursue. Large
    multinational corporations have the margins to allow for greater
    experimentation in a wider range of product areas, with other
    profitable drugs subsidizing research and development of expensive and/
    or less profitable drugs. Conversely, smaller drug manufacturers are
    already limited in the resources they can put into any given drug and
    have less cushion to allow for more research and development. Limiting
    the profits of these large multinationals will have some effect on
    their investments into research and innovation, but limiting the
    profits of smaller manufacturers will kneecap the ability of these
    small manufacturers to research more than just a few drugs. Industry
    consolidation trends have already shown a pattern in which a small
    company, focused on only a few products or even just one, are
    frequently purchased by larger corporations.

        Question. Therapeutic development relies heavily on high-risk
    investments from diverse sources. While some of the BBBA's backers
    anticipate that the life sciences would remain attractive to investors
    at every level, real-world experience tells a different story. Even
    under current laws and regulations, capital can--and often does--shift
    away from (or simply never flow into) the biopharmaceutical sector.
    According to one Wall Street Journal piece from last December, for
    instance, biotech stocks ``crumbled'' in 2021. Developing a new
    medication can take between 11.5 and 15 years, and only one in every
    1,000 drug formulas ever enters preclinical trials. For the ones that
    do, only 8 percent ever receive FDA approval. Unsurprisingly, it costs
    an average of $2.6 billion to develop and gain approval for a new
    medicine. These factors make the biopharmaceutical sector especially
    sensitive to the types of government price controls included in the
    House-passed BBBA, which University of Chicago researchers projected
    would lead to 135 fewer new drug approvals in the next 2 decades.

        How would the price controls included in the BBBA likely impact the
    investment landscape with respect to biopharmaceutical innovation?

        Answer. The United States has persisted as a global leader in
    biotech and biopharmaceutical development for years thanks to market-
    based functions of research and development, yet such a policy would
    effectively allow the government to dictate the price that a company
    may charge for a drug and immediately halt funding of drug discovery
    and development. Manufacturers depend on investment capital, and
    Federal policies that dramatically curtail return on investment will
    have a detrimental effect on manufacturer's ability to attract the
    capital necessary to continue bringing new treatments to market.
    Investors and venture capital firms will stop investing in new
    therapies and will give up on medicines that have not yet been
    invented. Policies in the BBBA would seek to limit drug spending
    through restrictive government price controls, preferencing lower
    spending over access to a broad range of innovative new drugs.
    According to Tomas Philipson and Troy Durie from the University of
    Chicago, BBBA provisions would reduce industry revenue by an
    astronomical $2.9 trillion through 2039: $1.77 trillion from inflation
    rebates, $986.9 billion from government inflation, and $138.1 billion
    from Part D reforms.\11\
    ---------------------------------------------------------------------------
        \11\ https://cpb-us-w2.wpmucdn.com/voices.uchicago.edu/dist/d/3128/
    files/2021/08/Issue-Brief-Drug-Pricing-in-HR-5376-11.30.pdf.

        Question. Supporters of the BBBA's government price-setting program
    sometimes cite the Veterans Affairs (VA) Department as a model for Part
    D. In practice, however, the closed formulary leveraged by the VA
    impairs access to many medications. Among the top 200 Part D drugs by
    overall spend, for instance, one study found that Part D plans covered
    an average of nearly three-fourths of the products, while the VA
    covered just over half. Among a sample of 25 first-in-class treatments,
    Part D plans covered more than three in every five, while the VA
    covered just 40 percent. The VA also integrates value assessments using
    quality-adjusted life years (QALYs) into its pricing practices, despite
    widespread criticism of these metrics by disability advocates, who
    argue that QALYs devalue individuals with exceptional needs, along with
    ---------------------------------------------------------------------------
    older individuals.

        Is the VA drug pricing system an appropriate model or exemplar for
    Part D? Why or why not?

        Answer. No. The decision to use government price setting based on
    the VA means Medicare beneficiaries will have less access to
    medications that will be excluded from the formulary and will either
    have to use less-optimal treatments or go without. Additionally, the
    QALY methodology for drug pricing, especially to assess the value of
    rare disease drugs and new therapies, is arbitrary and fails to account
    for societal or non-health benefits that result from improved health.
    Given the limitations of QALY measurements for the elderly, disabled,
    and terminally or chronically ill, the Affordable Care Act banned their
    use in Medicare formularies. QALYs make arbitrary assessments of the
    value of life and have the potential to further limit access to new
    life-saving medicines and therapies.

        Question. In defending the government price-setting program and
    multi-market price growth cap policies in the BBBA, some policymakers
    have contended that under current law, manufacturers enjoy maximal
    price-setting power and can charge whatever they want, while purchasers
    and consumers lack any leverage. In practice, however, all three of the
    largest pharmacy benefit managers (PBMs) exclude between 400 and 500
    drugs from their standard formularies, and the number of drugs excluded
    by these formularies increased by 676 percent from 2014 to 2020.
    Moreover, rebates paid by manufacturers have grown substantially in
    recent years, further reducing net prices and demonstrating leverage on
    the part of the payers extracting these price concessions.

        Do drug manufacturers, as many BBBA supporters argue, enjoy
    absolute power to charge whatever they want?

        Answer. No. Drug manufacturers are limited not just by what the
    general market is willing to pay for their products, they are also
    limited by negotiations with PBMs and insurers for what they can
    charge.
                       on tying drug prices to inflation
        Question. Price controls reflect a tried--and failed--tool for
    taming inflation. They may sound appealing on paper, but in practice,
    they produce consistently catastrophic and counterproductive results.

        Last August, William Walker, the former General Counsel and Deputy
    Director of the Federal Cost of Living Council under President Nixon,
    warned against repeating the mistakes of the past by relying on pricing
    mandates to reverse inflation. Writing in The Wall Street Journal, he
    noted that the Nixon-era price controls triggered supply shortages and
    economic strain, in addition to proving completely ineffective at
    sustainably tackling price growth, which continued to surge throughout
    the late 1970s.

        The drug pricing provisions from the House-passed BBBA seem likely
    to fall into the same trap. In addition to resulting in higher launch
    prices for new medicines, these price controls would tie price
    increases to general inflation, essentially meaning that periods of
    high inflation would allow for the highest medicine price hikes. This
    approach defies basic economics, as the past year's experience has
    shown in stark terms.

        Whereas general inflation totaled 7.9 percent from February 2021 to
    February 2022, the prescription drug price index grew at just 2.4
    percent over the same period. This essentially means that manufacturers
    could have increased the scope of their average price hikes more than
    threefold and still fallen under the general inflation threshold. Tying
    drug prices to inflation, in short, would mean more volatility for
    working families, as well as higher prices for new products.

        What factors should Congress consider as it looks at proposals like
    the inflation cap mandate from BBBA?

        Answer. Efforts to restrict price increases to no more than the
    rate of inflation do not work in the long run. Instead, policies that
    limit the ability of a company to increase prices over time simply
    result in increases in the initial list price of medications when they
    first come to market. Such anti-market policies are punitive in nature,
    aimed more at punishing pharmaceutical companies for high prices than
    at meaningfully addressing health-care costs. The problem with seeking
    to punish drug companies for high prices is that in most cases the
    effects of these policies will simply lead to higher launch prices
    nationwide, passing costs on to consumers and negatively impacting
    patients.

        It is also worth noting that the BBBA drug provisions would be
    introduced in an environment of general price inflation not seen in 4
    decades. The imposition of price controls on insulin and other drugs
    would guarantee that they will be underpriced in real terms in very
    short order--a recipe for further inefficiency and damage to innovation
    incentives. At the same time, there would be drugs that will see their
    prices rise at inflation--because the BBBA essentially blesses such a
    price rise as ``legitimate''--even though no such increase is merited
    on the fundamentals. The result would be prices that are too high in
    real terms and a harm to consumers.
                              on list price growth
        Question. While net prices for brand-name drugs have fallen for at
    least four consecutive years, according to IQVIA and others, list
    prices for these products have grown--albeit at a slower rate than in
    previous years.

        What are some of the underlying factors driving list price growth
    for prescription drugs?

        Answer. List prices are in part being driven by negotiations with
    PBMs, who are given a certain percentage of the rebates they negotiate
    from manufacturers on behalf of insurance companies. The higher the
    list price (which now almost functions as a negotiation start point
    rather than being reflective of the cost of the drug), the higher the
    rebate, and thus the higher the cut for the PBM, incentivizing PBMs to
    choose drugs with higher list prices for their insurer's formulary.
                       on additional part d plan options
        Question. While the competitive market that drives Medicare Part D
    has kept premiums stable and low, out-of-pocket spending has surged for
    some seniors in recent years, due in part to the growing inclusion of
    higher deductibles and coinsurance tied to the list--or sticker--price
    of a drug, rather than a flat copay. From 2012 to 2022, for instance,
    the standard Part D deductible grew by 50 percent, and the share of
    plans charging the maximum amount rose from 43 percent to 71 percent
    for 2022.

        While the average senior has more than 50 different Part D plan
    options, tailored to a broad range of preferences and needs, plans with
    no or low deductible are relatively uncommon, along with options that
    pass drug rebates directly to patients at the pharmacy counter.
    Unfortunately, regulations from the Obama administration prohibit plan
    sponsors from offering more choices, with an arbitrary cap of three
    plan offerings per region.

        The Lower Costs, More Cures Act would address this issue by raising
    that cap, as well as allowing sponsors to offer an additional two plans
    above the limit, so long as at least one of these new options passes a
    sizable share of price rebates directly to consumers at the point of
    sale. For some medicines, these rebates could cut costs by upward of 80
    or 85 percent.

        How could opening the door to additional Part D plan options allow
    for more innovation in benefit design, and what other incentives could
    we put in place to encourage choices with lower out-of-pocket spending?

        Answer. Raising the cap cannot diminish innovation and options, so
    seniors will have a greater variety of choices among plan designs,
    including those with much lower out-of-pocket costs. The challenge for
    plan designers is to maintain these options as relatively expensive
    seniors migrate to plans with low out-of-pocket costs. In the absence
    of countervailing reforms, this will present the market with tradeoffs
    between the out-of-pocket costs and the level of premiums.
                            on insulin affordability
        Question. Insulin affordability remains a pressing priority,
    particularly under Medicare, where roughly one in every three
    beneficiaries has diabetes, and more than 3 million use insulin.
    Unfortunately, even as net prices, which account for rebates negotiated
    by Part D plans and PBMs, have fallen for a wide range of insulin
    products, many seniors pay based on the list, or sticker, price, which
    can be as much as 86 percent higher--or even more, in some cases.

        This dynamic can prove particularly problematic before reaching the
    deductible, as well as during the coverage gap phase, where virtually
    all plans charge
    percentage-based coinsurance.

        Fortunately, thanks to a program launched by President Trump
    starting last year, every senior in the country now has the option of
    enrolling in a plan with guaranteed monthly out-of-pocket spending of
    no more than $35 for a wide range of insulins. More than 2,100 plans
    are currently participating, covering more than four in every ten
    Medicare beneficiaries, and plan participation grew by more than 30
    percent this year.

        Importantly, the program is voluntary at every level, driven by
    market forces and competition rather than top-down or heavy-handed
    government mandates.

        How do you see this program--which the Lower Costs, More Cures Act
    would permanently extend--as impacting insulin affordability for
    seniors, and how does it contrast with government price controls as a
    cost-cutting measure?

        Answer. According to CMS, seniors who enroll in a plan
    participating in the program will save around $446 annually, or over 66
    percent, relative to their average insulin cost sharing in their
    current plan. Given that the program is a voluntary model, plans are
    allowed to join at will, relying on the power of competition, rather
    than government-controlled price setting, to encourage plans to join
    the program to attract beneficiaries. The program has grown
    significantly since its implementation 2 years ago, now with over 100
    plan sponsors and 2,100 Part D plans participating in 2022 and is
    expected to continue to grow over the next couple years, further
    improving seniors' access to affordable insulin.
                          on the value of competition
        Question. In addition to ensuring low, stable premiums and earning
    high satisfaction rates, Medicare Part D came in substantially under-
    budget, costing roughly 50 percent of what the Congressional Budget
    Office had initially projected. Generic drugs, which account for a
    staggering 90 percent of all prescriptions filled today, have played a
    key role in driving these resounding successes through competition. The
    median generic medicine has a cost roughly 60 percent below its brand-
    name alternative.

        Biosimilars, which provide lower-cost alternatives to more complex
    biologic medications, have the potential to build on these
    achievements, as well as to inject cost-cutting competition into
    Medicare Part B, which covers physician-administered drugs. Between the
    first quarters of 2020 and 2021, average sales prices for more than
    half of the highest-expenditure Part B drugs declined, due in part to
    the ramp-up of biosimilar competition, particularly for oncology
    products.

        Answer. What key trends have we seen in recent years with respect
    to the biosimilar market, and how do you see competition from these
    products as impacting long-run Medicare spending, under both Part D and
    Part B?

        Answer. The number of biosimilar drugs approved per year by the FDA
    has steadily increased since 2017, with 31 biosimilars approved and 20
    currently on the market.\12\ Given that biosimilars cost, on average,
    30 percent less than their reference product, biosimilar competition
    offers significant long-term savings for both Part D and Part B.
    Medicare's Oncology Care Model reported savings of between $2500-$4500
    per episode in which a biosimilar was used compared to the originator
    product for various cancer drugs.\13\
    ---------------------------------------------------------------------------
        \12\ https://accessiblemeds.org/sites/default/files/2021-10/AAM-
    2021-US-Generic-Biosimilar-Medicines-Savings-Report-web.pdf.
        \13\ https://www.ajmc.com/view/biosimilars-drive-savings-in-
    medicare-s-oncology-care-model.

        As we've seen in the insulin market, competition will lower prices.
    Several authorized generic insulins and a biosimilar have come to
    market in recent years, leading to a 6.8-percent drop in the per-unit
    price of insulin on average across all but ultra-long-acting insulin
    between 2018-2020.\14\ Rebate reforms should be considered to increase
    uptake of these lower priced alternatives, however, and ensure long-run
    Medicare savings.
    ---------------------------------------------------------------------------
        \14\ https://www.americanactionforum.org/insight/insulin-prices-an-
    update/.

        Question. How, in your view, would the price controls included in
    the House-passed drug pricing provisions impact the biosimilar market
    ---------------------------------------------------------------------------
    moving forward?

        Answer. These price controls would likely reduce the incentive for
    manufactures to develop biosimilars, because their naturally lower
    pricing would be less attractive in the face of artificially low prices
    for brand name drugs. In the absence of price controls, and following
    some regulatory reforms in 2020, manufacturers began developing new
    products and accordingly, several authorized generics and a biosimilar
    have recently come to market and compete with some of the most popular
    brand-name insulin products. Following their introduction, the price
    per unit of insulin fell 6.8 percent from 2018 to 2020, on average,
    across all insulin types, except ultra-long-acting insulin. With price
    controls in effect, there is significantly less incentive for the
    development of biosimilar competitors to current biologics.
                            on provider payment cuts
        Question. The drug pricing policies included in the House-passed
    BBBA would impose steep Medicare cuts on physicians and hospitals
    through the bill's government price-setting program. A recent Avalere
    study found that for the providers most likely to be targeted--
    including oncology practices--the bill would slash Medicare add-on
    payments by an average of 40 percent. Patients, in turn, could find
    their care options reduced, or erased altogether, and trends like
    health system consolidation could accelerate.

        What would the mechanics of the BBB's drug pricing policies mean
    for health-care providers, and what are some preferable alternatives
    for containing Part B spending growth in the future?

        Answer. Assuming that the BBBA's provisions work as envisioned, one
    would anticipate the maximum fair price would be lower than the average
    sales price under current law. Because both current law and the BBBA
    would set provider reimbursement at the cost of the drug (either the
    maximum fair price or the average sales price) plus 6 percent, the
    result would be a lower reimbursement for providers. One option for
    controlling Part B spending would be further movement toward bundled
    payments for services in lieu of fee-for-service.
                                  on inflation
        Question. What do you see as the biggest drivers of inflation,
    which continues to erode Americans' financial security, and how can we
    reverse current trends in the prices of gas, food, cars, and a host of
    household needs?

        Answer. The current high level of inflation is the result of both
    supply and demand conditions. The global impact of COVID-19 has
    diminished supply capacity, disrupted supply chains and raised the cost
    of delivering goods and services. These higher input costs have been
    passed along as consumer price inflation. On the demand side, the
    economy is suffering from sustained, loose monetary policy and
    excessive stimulus. The American Rescue Plan, in particular, was a
    major policy error, injecting $1.9 of stimulus spending at a time when
    there was already stimulus in place and the economy was expanding at a
    rapid (6.5 percent annually) rate.
                         on outcomes-based contracting
        Question. Cutting-edge gene and cell therapies have the potential
    to transform the treatment landscape, personalizing care options
    through technologies that were--until recently--the subject of science
    fiction. By 2025, the FDA has projected that we could see 10 to 20
    approvals of these types of innovative therapies every year. The
    implications for patients could be game-changing, particularly for
    those living with previously untreatable conditions.

        As payers look to ensure access to these therapies while also
    managing potential cost impacts, a growing number have turned to value-
    based arrangements, conditioning a portion of payments on patient
    outcome achievements and benchmarks. A far-reaching Avalere survey of
    health plans and PBMs from last September found that more than half had
    established outcomes-based contracts of this type, and 12 percent had
    executed more than 10 of these arrangements.

        Still, outdated statutory barriers and regulations have undermined
    outcomes-based contracts for public and private payers alike,
    particularly with respect to the Anti-Kickback Statute and Medicaid
    price reporting rules. While the Trump administration took a vital
    first step toward addressing some of these barriers, its implementation
    has been repeatedly delayed. Congress can advance these arrangements
    much further through policies like some of the provisions included in
    the Lower Costs, More Cures Act, which would facilitate outcomes-based
    contracts with greater accountability, predictability, and flexibility,
    better serving patients across the Nation.

        What role do you see value-based arrangements playing moving
    forward, particularly for gene and cell therapies, and what steps could
    Congress take to move the needle on this front?

        Answer. Paying for quality outcomes is the gold standard of program
    design. While at times difficult to design because of multiple co-
    morbidities, incomplete science, and other factors, in those situations
    where it is possible Congress should ensure that there is a clear safe
    harbor from anti-kickback and self-referral laws.

                                     ______

                 Questions Submitted by Hon. Michael F. Bennet
                        return on federal r&d investment
        Question. You have rightfully noted the important contributions
    made by the pharmaceutical industry in developing cutting edge drugs
    that have saved countless lives. But our current form of subsidizing
    this research and development coincides with Americans (primarily
    seniors and families) paying far more than their international
    counterparts.

        Would a different form of subsidization, like advance market
    commitments, patent competitions, or other creative grant mechanisms,
    be more preferable than subsidizing pharmaceutical research and
    development without seniors and families reaping benefits at the
    pharmacy counter?

        Answer. The amount of subsidies, and not the form, is the key to
    inducing the desired level of innovation. A logically separate issue is
    the degree to which those subsidies show up in retail prices; it
    strikes me that this has more to do with insurance design and
    competition than anything else.
                                  cbo analysis
        Question. Although you are a former Congressional Budget Office
    (CBO) Director, a nonpartisan and data-driven agency, you are seemingly
    dismissive of CBO's analysis of the Build Back Better Act's drug
    pricing provisions' impact on innovation--which estimated one fewer
    drug over 10 years.

        Do you believe CBO is wrong in their analysis?

        If so, can you provide a description of what's wrong with CBO's
    estimate?

        Answer. Among the key provisions of the Build Back Better Act's
    prescription drug reforms is an immediate imposition of the draconian
    ``negotiation'' regime on insulin products. I believe this will be
    sufficient to end all innovation in the insulin area. Accordingly, its
    strikes me that one is the lower bound of the estimate of innovative
    drugs foregone by BBBA.
                         price gouging and competition
        Question. During your testimony and oral response, you mentioned
    you are supportive of implementing legal enforcement of competition
    policy if a drug manufacturer takes advantage of its position and
    dramatically increases its price only when there is no more
    competition. Under this paradigm, enforcement would occur once
    consumers have no other choice but to purchase the now high-price drug.

        Can you explain what legal enforcements of competition policy exist
    to compel manufacturers to lower the price of a drug that does not face
    market competition, but now commands high prices?

        Could you explain why these enforcements would be more effective
    than the proposed inflation penalty combined with a limited negotiation
    framework?

        Based on your expertise at CBO, would your alternative ultimately
    save taxpayers and patients money over the 10-year time horizon?

        Answer. I am not a lawyer and will not move past my area of
    expertise. There are not now such legal powers; my answer indicated
    that I thought it would be desirable for Congress to develop them.
    Moreover, as I noted, this arises largely in the context of sole-source
    drugs that are off-patent. One would not expect large budget savings
    from this market segment.
                        protecting innovation and access
        Question. I care deeply about ensuring innovation so patients with
    life-threatening illnesses may one day receive the treatment they need.
    That's why I worked with my colleagues on the Senate HELP Committee on
    establishing the Breakthrough Therapies designation to provide an
    improved pathway to innovated treatments. I also care deeply about the
    roughly one-third of Americans rationing or skipping doses because of
    prescription drug costs. I do not believe that innovation and access to
    these products should exist on their own, however, today, many
    Americans cannot access innovative treatments because of high and
    rising cost.

        Do you believe the current business practices by manufacturers to
    offer treatments at high-costs ensures access to these treatments by
    the one-third of Americans who cannot access medicines that these
    manufacturer develop?

        How do we ensure these Americans rationing and skipping doses have
    access to innovative drugs without shifting costs to the taxpayer,
    through premiums or out-of-pocket costs, or the U.S. Government?

        Answer. As I noted in my testimony, I believe that best first step
    would be for Congress to enact the Part D reforms that would cap the
    out-of-pocket costs for seniors, protect the taxpayer, and improve the
    incentives for private negotiation under the program.

                                     ______

                   Questions Submitted by Hon. Chuck Grassley
        Question. According to the Department of Labor, the Consumer Price
    Index (CPI) rose 7.9 percent in March 2022 from the year prior. That's
    at a 40-year peak that hasn't been reached since 1982. Hospitals,
    nursing homes, and other health-care entities have raised concerns to
    you about low reimbursement. Additionally, health-care providers are
    having difficulty finding the workforce to fill open jobs. On top of
    all of this, health-care providers are impacted by rising inflation to
    purchase goods in the workplace and at home. Rising inflation is
    pushing up costs including in health care. I have heard from Iowans
    concerned about the impact of losing health-care workers, challenges
    with filling open health-care jobs, and/or not having the financial
    resources to pay for increased competitive wages.

        What impact is rising inflation having on access to health-care
    services?

        Answer. Due to the pandemic, we have seen medical price inflation
    that has been somewhat, but not entirely, distinct from the general
    inflation the rest of the economy has been experiencing. Hospitals and
    health-care facilities that have been understaffed due to either
    workforce sickness or a rapid influx of patients have been forced to
    pay increasingly higher salaries to traveling nurses, which in turn
    affects the price of care for patients. If a hospital cannot afford to
    pay for the extra workforce, patients suffer through decreased access
    to providers and longer wait times. Similarly, as prices for basic
    goods and services overall have risen, health-care workers have
    demanded higher wages to compensate, resulting in similar effects price
    and access for patients.

        Question. The Prescription Drug Pricing Reduction Act (PDPRA) caps
    out-of-
    pocket prescription drug costs in Part D at $3,100 for seniors. This
    will eliminate the donut hole. Additionally, PDPRA established a
    voluntary option to smooth significant up-front costs over the entire
    year so a beneficiary does not face a $3,100 bill in the first month of
    the year prior to reaching the out-of-pocket cap. This policy is called
    ``monthly smoothing.'' PDPRA's monthly smoothing policy is voluntary
    and a beneficiary can trigger this program option if they exceed the
    monthly threshold divided by the remaining months in the plan year. By
    comparison, H.R. 3 requires a patient to accrue $2,000 in costs before
    they can smooth costs over month-to-month. This can hurt patient
    access. PDPRA allows patients to elect to smooth drug costs right away
    without facing a $2,000 bill first.

        Should we create burdensome rules for patients to manage drug costs
    like in H.R. 3 or promote access by giving patients flexibility like in
    PDPRA?

        Answer. Flexibility to allow for monthly smoothing may better
    enable patients to pay for their drugs by preventing the patient from
    being forced to spend a large amount up-front before seeing relief.
    However, overall higher out-of-pocket (OOP) spending present in the
    PDPRA may still be more of a deterrent for certain more expensive
    patients, given the $3,100 OOP cap would not reduce beneficiaries' OOP
    liability, relative to current law, until total drug spending surpassed
    $10,945 in total drug costs.

        Question. H.R. 3 would base drug prices off an international
    reference pricing model that uses prices from countries with socialized
    medicine (i.e., Canada, France, Germany, United Kingdom). Many
    international reference pricing models use
    ``quality-adjusted life year'' (QALY) metrics. QALY assigns value to
    the patient population a drug is intended for. According to the
    National Council on Disability (NDC), QALY discriminates against people
    with disabilities and limits access to lifesaving treatment. A 2019 NCD
    report found ``sufficient evidence of the discriminatory effects of
    QALYs to warrant concern and recommend its prohibition.'' This was
    based on input from bioethicists, patient rights groups, and disability
    rights advocates. Congress prohibited QALY use under the Affordable
    Care Act (ACA). H.R. 3 uses government drug price dictation based on an
    international reference pricing index.

        Should the United States set drug prices based on models--like what
    H.R. 3 uses--that discriminate against people with disabilities and
    limits access to lifesaving treatment?

        What affects will this have on patient access?

        Answer. No. QALYs assign an arbitrary dollar value to a year of
    one's life and the QALY methodology for drug pricing, especially to
    assess the value of rare disease drugs and new therapies, is also
    arbitrary and fails to account for societal or non-health benefits that
    result from improved health. These valuations necessarily require
    judgments about the value of a year of life--or fraction thereof--or
    the quality of that year. Decisions about value that have traditionally
    been made by patients and their doctors would be turned over to
    bureaucrats and academics. This type of evaluation system is typical of
    many countries with lower drug prices, where politicians have been
    willing to forego access to innovative treatments for their populations
    in order to limit health-care costs. Given the aforementioned
    limitations of QALY measurements for the elderly, disabled, and
    terminally or chronically ill, the Affordable Care Act banned their use
    in Medicare formularies. QALYs attempt to standardize measurements
    across diverse conditions and consider the value individuals place on
    their health care, but the health-care system is complex and difficult
    to replicate in a single model. Ultimately, QALYs make arbitrary
    assessments of the value of life and have the potential to limit access
    to new life-saving medicines and therapies.

        Question. In 2003, Congress passed the bipartisan Medicare
    Modernization Act (MMA). Twelve Democrats in the Senate voted for it,
    including two members currently on this Finance Committee. Medicare
    Part D contains the non-interference provision that expressly prohibits
    Medicare from: (1) negotiating drug prices, (2) setting drug prices,
    and (3) establishing a one-size-fits-all list of covered drugs. Getting
    rid of the non-interference clause would result in drug price
    dictation. In 2003, when Medicare Part D was created, many Democrats
    supported banning Medicare from negotiating drug price including:
    Senators Biden, Kennedy, Baucus, Reid, Schumer, Leahy, Durbin,
    Stabenow, and Cantwell. On the House side, this included Speaker Pelosi
    and Ways and Means Committee Chairman Neal. The Congressional Budget
    Office (CBO) has said consistently in writing that letting Medicare to
    negotiate drug prices does not save money unless you restrict patient
    access (CBO said this in 2004, 2007, again in 2007, and 2019).
    Additionally, an April 2021 CBO report said Speaker Pelosi's H.R. 3
    would lead to 38 fewer drugs produced in the next 2 decades. A
    University of Chicago researcher projected H.R. 3 would lead to 342
    fewer new drug approvals in the next 20 years. To put in perspective,
    about 30 new drugs are approved by the Food and Drug Administration
    (FDA) annually.

        For decades, CBO, the non-partisan referee, has said government
    drug price dictation does not save money unless you restrict access to
    patients. Is that still correct?

        Answer. Yes, it remains correct.

        Question. Is government drug price negotiations a real negotiation
    or is government dictating the price?

        Answer. Allowing the HHS Secretary to set prices that will be
    applied to all Medicare plans and giving the Secretary leverage to
    force such price concessions with a 95-percent excise tax on gross
    profits for any therapy whose manufacturer is unwilling to meet the
    Secretary's price demands will not resemble anything remotely like a
    negotiation. Through the 95-percent excise tax, the Secretary would be
    free to wield against noncompliant innovators, thus ``price
    negotiation'' is not an honest label for this provision.

        Question. President Obama's Office of Management and Budget (OMB)
    Director, Peter Orszag, has said this about changes to the non-
    interference, ``negotiating ability alone is largely feckless.'' Can
    you save money if you do not limit access like restricting the
    formulary or dictating prices based on a domestic or international
    reference index?

        Answer. No. In order to save money, the HHS Secretary has to have a
    lever to induce concessions, whether that be a formulary or a price
    fixing mechanism.

        Question. In a previous testimony you gave to the Finance
    Committee, you stated that government drug price dictation would
    restrict access if you want to achieve savings. Academic research has
    also confirmed that. Can you expand on how patients will be hurt by the
    proposed government drug price dictation policy?

        Answer. In a recent paper from the University of Chicago, Tomas
    Philipson and Troy Durie estimate that, as a result of the $2.9-
    trillion reduction in industry revenue through 2039, the BBBA would
    result in 135 fewer new drug approvals by 2039, and that further
    disincentive to researching additional indications will lead to 188
    fewer new indications for existing therapies over the same period. The
    authors also estimate that the policies would result in 331.5 million
    fewer life years through 2039. Therapies that treat diseases of the
    endocrine, cardiovascular, and respiratory systems along with
    treatments for cancer and neurological diseases would be most impacted
    by the BBBA's policies because they make up a high share of Medicare
    spending. Notably, many conditions for which treatments are lacking in
    these categories impact minority groups at higher rates.\15\
    ---------------------------------------------------------------------------
        \15\ https://cpb-us-w2.wpmucdn.com/voices.uchicago.edu/dist/d/3128/
    files/2021/08/Issue-Brief-Drug-Pricing-in-HR-5376-11.30.pdf.

        Question. If we disincentive the private sector to produce cures,
    will we give up our status as the world's leading research and
    ---------------------------------------------------------------------------
    development country to China?

        Answer. With countries such as India and China, among others,
    aggressively seeking to bolster their own biopharmaceutical industries,
    the BBBA would put at risk the economic benefits the United States
    derives from the sector and would advantage other countries in their
    efforts to lure away investments currently being made in this country.
    In 1986, R&D investments by pharmaceutical firms in Europe exceeded R&D
    in the United States by roughly 24 percent.\16\ Following the
    imposition of government price controls in many European countries, and
    consequently the reduced return on investment, R&D spending by
    pharmaceutical companies grew at an annual rate of just 5.4 percent in
    the European Union, compared with 8.8 percent growth in the United
    States. As such, more than half of the world's pharmaceutical R&D
    investments have been made in the United States since the turn of the
    century, whereas less than 30 percent has been invested in Europe.\17\
    While shifting patterns of investment are the product of many factors,
    historically R&D and manufacturing investments have moved away from
    countries in which strict price control regimes are implemented.
    ---------------------------------------------------------------------------
        \16\ https://www.nber.org/papers/w12676.
        \17\ https://www.abpi.org.uk/facts-and-figures/science-and-
    innovation/worldwide-pharmaceutical-company-rd-expenditure-by-country/.

    ---------------------------------------------------------------------------
        Question. Should Congress pursue policies that produce less cures?

        Answer. No.

        Question. It was characterized during the hearing that the
    bipartisan Prescription Drug Pricing Reduction Act (PDPRA) merely
    shifted costs. This is inaccurate. I appreciate my colleague, Senator
    Cassidy, correcting the record later on during the hearing, stating,
    ``Senator Wyden has said on several occasions, with all due respect,
    that the Wyden-Grassley bill passed by this committee in 2019 merely
    shifted cost to taxpayers. That's incorrect. It saved $94 billion per
    the CBO. And in the Part D redesign, we shifted the cost away from the
    consumer, from the taxpayer to the PBM and the pharmacy. Excuse me. The
    pharmaceutical company. We capped out-of-pocket costs at $3,200, and we
    allowed an amortization of payments over 12 months.'' As the
    Congressional Budget Office (CBO) stated in a March 2020 cost estimate
    of PDPRA (https://www.cbo.gov/system/files/2020-03/PDPRA-SFC.pdf),
    taxpayers would save approximately $95 billion over 10 years with the
    passage of PDPRA. In addition, Medicare Part D beneficiaries would see
    reduced cost sharing by about $72 billion over 10 years.

        Based on your experience as a former CBO director, does PDPRA
    merely shift costs to the taxpayer?

        Answer. No, it does not. One would expect that PDPRA and the Part D
    redesign would have impacts on the pricing of pharmaceuticals in the
    commercial and individual markets as well.

        Question. To date, the majority party's H.R. 3 and other partisan
    prescription drug pricing proposals have not advanced in the Senate.
    Those proposals lack robust accountability and transparency provisions
    to reform the prescription drug pricing industry. By contrast, the
    bipartisan Prescription Drug Pricing Reduction Act (PDPRA), contains
    several provisions to reform the prescription drug industry, including
    greater accountability and transparency placed on drug manufacturers
    and Pharmacy Benefit Managers (PBMs). Some of the accountability and
    transparency provisions in PDPRA would require public disclosure of
    excessive of prescription drug price increases and the launch price of
    new high-cost drugs; public disclosure of drug discounts and PBM
    financial audits to account for the true net cost of a drug; public
    disclosure of direct and indirect remuneration (DIR) fee amounts and
    financial audit results; the establishment of a prescription drug
    pricing dashboard; improved coordination between the Food and Drug
    Administration (FDA) and the Centers for Medicare and Medicaid Services
    (CMS); and the ending of spread pricing in Medicaid managed care
    contracts.

        Can Congress truly say it is passing prescription drug reform
    without the suggested accountability and transparency provisions?

        Is so-called ``prescription drug reform'' that lacks greater/
    improved accountability and transparency just maintaining the existing
    system's shell game?

        Answer. Any drug pricing reform should be evaluated by its overall
    impact, and not on the inclusion or exclusion of specific provisions.

        Question. When Congress passed the bipartisan Medicare
    Modernization Act (MMA) in 2003 it was the first major improvement to
    the Medicare program in nearly 40 years. Today, 49 million seniors have
    prescription drug coverage as a result of MMA. Approximately 18 years
    later, we have a growing problem: prescription drug affordability. AARP
    says brand name drugs are going up more than twice the rate of
    inflation. A recent National Health Interview Survey estimates suggest
    3.5 million seniors are having difficulty affording their medications.
    A Kaiser Family Foundation report found 50 percent of Part D drugs and
    48 percent of Part B drugs had price increase greater than inflation. A
    recent MedPAC report indicates that 443,000 Medicare Part D enrollees
    in 2020, up from 33,000 in 2010 (an approximate 1,200 percent
    increase), filled a prescription in a single claim that met the Part D
    out-of-pocket threshold. The Finance Committee has made progress in the
    previous Congress to pass a bipartisan prescription drug pricing
    reform, specifically the Prescription Drug Pricing Reduction Act
    (PDPRA). Senator Wyden admitted such during our most recent drug
    pricing reform hearing, stating, ``A number of these ideas were
    developed in this committee with bipartisan support, and that
    remains.'' Senator Wyden also said, ``There is no question that the
    committee came together in the last Congress and came up with a number
    of constructive bipartisan reforms. Period. Full stop.'' Senator Carper
    also stated during the same hearing that ``Senator Grassley did, I
    thought, a masterful job in drafting a bill with broad bipartisan
    support.''

        If comprehensive prescription drug pricing reform, such as PDPRA,
    is not pursued by this Congress, I believe patients will continue to
    suffer due to inaction by the majority party to work in a bipartisan
    manner to pass prescription drug pricing reform. Do you agree?

        Answer. As I noted in my testimony, I believe that that single best
    thing Congress can do at this juncture is the pass the Part D redesign
    that has bipartisan support. This would protect seniors from large out-
    of-pocket costs, protect the taxpayer from the cost of catastrophic
    drug costs, and sharpen the incentives for tough private-
    sector negotiations between plans and manufacturers.

        Question. In 2020, the Centers for Medicare and Medicaid Services
    (CMS) announced a new Center for Medicare and Medicaid Innovation
    (CMMI) Part D model to lower out of pocket insulin expenses for
    beneficiaries called the Senior Savings Model. The model has enabled
    beneficiaries to enroll in plan options guaranteeing monthly out-of-
    pocket spending of no more than $35 for at least one of each dosage
    form and type of insulin product. I supported the model and believe it
    is important tool to controlling out-of-pocket insulin costs. According
    to Avalere, seniors may be saving 63 percent to 75 percent in out-of-
    pocket insulin costs per month. CMS currently has 2,159 plans
    participating in the model in all 50 States covering 17 million Part D
    enrollees in Calendar year (CY) 2022). Currently, CMS is in year 2 of
    the 5-year model. While CMS is preparing for year 3, there is limited
    outcome data and analysis about the model.

        As CMS and policymakers gather complete data and conduct analyses
    about the program, what factors, trends, conditions, and outcomes
    metrics should Congress consider in analyzing this model to determine
    successes and opportunities for improvement?

        Answer. Metrics could include out-of-pocket spending by
    beneficiaries; Federal spending increases or decreases; and medication
    utilization by beneficiaries (number of seniors using insulin,
    frequency of skipping filling prescriptions, and frequency of insulin
    rationing).

                                     ______

                     Questions Submitted by Hon. John Thune
        Question. You've discussed that uptake of insulin biosimilars in
    Medicare and Medicaid has not been as significant as one may have
    hoped.

        How long does it normally take for the needed behavioral shift to
    occur for prescribers and patients to move to a non-branded
    alternative?

        Answer. The time needed for behavioral shifts to occur in the
    insulin market likely varies, though based on prior AAF research,
    patients are typically slow or even reluctant to switch to new
    products. The diversity of products naturally complicates how easily
    new products can be substituted and new insulin products are not being
    widely sold at all pharmacies, further limiting the physical customer
    base.\18\
    ---------------------------------------------------------------------------
        \18\ https://www.americanactionforum.org/insight/insulin-prices-an-
    update/.

        Question. Are there other practices in place that disincentivize
    ---------------------------------------------------------------------------
    this shift?

        Answer. Tier placement and rebates likely discourage uptake of
    lower-cost options. It is likely that many insurers are still providing
    preferential treatment on the formulary to the brand-name products
    because such products typically come with substantial rebates--
    reportedly averaging between 30-50 percent.

        Question. I've worked with multiple colleagues across the aisle on
    advancing the idea of value-based insurance design. This principle
    allows plans the opportunity to improve outcomes for patients by
    prioritizing high-value services for patients with specific chronic
    conditions.

        We've had a demonstration in Medicare Advantage for several years,
    including for diabetes. Additionally, the Trump administration put
    together a program to allow for reduced cost sharing for insulin that
    has V-BID-like characteristics.

        I think this is the kind of patient-focused approach we ought to be
    thinking about, rather than the heavy-handed, government-focused
    mandates Democrats are suggesting.

        Are there other ideas policymakers should consider to reduce costs
    and get plans and manufacturers more invested in achieving good
    outcomes?

        Answer. I support efforts to pay for quality outcomes and Congress
    should provide a clear safe harbor for such designs against the impacts
    of anti-kickback and self-referral laws. Also, as I noted in my
    testimony, I believe that that single best thing Congress can do at
    this juncture is the pass the Part D redesign that has bipartisan
    support. This would protect seniors from large out-of-pocket costs,
    protect the taxpayer from the cost of catastrophic drug costs, and
    sharpen the incentives for tough private sector negotiations between
    plans and manufacturers.

                                     ______

                     Questions Submitted by Hon. Tim Scott
        Question. Thirty-seven percent of South Carolinians suffer from
    high cholesterol. A few years ago, manufacturers of new and innovative
    cholesterol lowering medicines called PCSK9s took a dramatic step to
    lower the list price of the medicine in an attempt to improve patient
    affordability; however, access challenges still exist due to high co-
    pays and abused utilization management tools.

        Does Build Back Better do anything to address these patient access
    challenges in the marketplace?

        Answer. No, the BBBA does not address co-pays or utilization
    management tools for the private market, and its price controls for
    Medicare Part D do not address the issue of higher list prices causing
    higher co-pays for Medicare beneficiaries.

        Question. If the negotiation process in Build Back Better reduces
    the price of brand products by 35 percent to 80 percent, do you think
    there will still be a market for biosimilar and generic drugs?

        Answer. Yes, but the decreased incentives to invest in the
    biosimilars market means America's slow roll-out of biosimilars,
    relative to the Europe's, will be even slower, and generic investment
    is likely to decrease as well.

        Question. Are there any implications for the drug supply chain and
    potential shortages if the market for these products is significantly
    reduced?

        Answer. Yes, potentially. Smaller profits for manufacturers mean
    less investment in their supply chain, making supply chains more
    vulnerable to shocks.

        Question. When generics are approved, they often reach up to 90-
    percent savings from the list price of the brand product; however, it
    can sometimes take up to 3 years to add a generic drug to the CMS
    formulary.

        How can the Part D program be modernized to ensure that patients
    have access to lower cost generics and biosimilars?

        Answer. Instead of setting price controls that will stifle
    pharmaceutical innovation and further limit the creation of
    biosimilars, Congress should seek to increase utilization of
    biosimilars over higher-cost alternatives, by increasing patient and
    provider awareness of biosimilars and their associated benefits, as
    well as incentivizing providers to prescribe biosimilars through
    temporary reimbursement increases, both of which have historically
    garnered bipartisan support. Reforms to drug rebates, such as the
    rebate rule, could also be considered to pass costs to patients at the
    point of sale and reduce cost-sharing expenses for the highest-cost
    beneficiaries.

                                     ______

                     Questions Submitted by Hon. Ben Sasse
        Question. While we need to rein in the cost of pharmaceuticals, we
    also need to consider access to and creation of new therapeutics that
    can be potentially lifesaving. Multiple sclerosis is a good example of
    a disease that has benefitted from follow-on innovations. In 2020, the
    FDA approved Novartis' Kesimpta as a treatment for MS. This drug was
    originally approved 11 years earlier for the treatment of a rare form
    of leukemia, making this a follow-on product. It is common to find new
    indications for existing drugs, and we want to incentivize research and
    development and the multiple clinical trials that make this possible.

        How would some of the lesser-discussed policies in Build Back
    Better actually create disincentives to finding new indications for
    existing drugs? For example, wouldn't the bill make tax changes that
    disincentivize finding new indications for orphan drugs?

        Answer. Yes, one study \19\ found that disincentives in the BBBA to
    research additional indications will lead to 188 fewer new indications
    for existing therapies over the same period.
    ---------------------------------------------------------------------------
        \19\ https://cpb-us-w2.wpmucdn.com/voices.uchicago.edu/dist/d/3128/
    files/2021/08/Issue-Brief-Drug-Pricing-in-HR-5376-11.30.pdf.

        Question. Can you speak to how costly the clinical trial process
    is, and how this might drive up prices? For example, testing a new
    indication for Kesimpta took 10 years and spanned 350 sites across 37
    countries. This was for a drug that already existed and was approved
    ---------------------------------------------------------------------------
    for another use.

        How might we reform this process to decrease costs?

        Answer. According to a report submitted to HHS by the Eastern
    Research Group, the average cost of Phase 1, Phase 2, and Phase 3
    clinical trials is $4 million, $13 million, and $20 million,
    respectively, though there are significant variations in trial costs
    between medical specialties and therapeutic areas.\20\ Other studies
    have estimated the total cost of bringing a new therapy to market at
    approximately $2.87 billion.\21\
    ---------------------------------------------------------------------------
        \20\ https://aspe.hhs.gov/sites/default/files/private/pdf/77166/
    rpt_erg.pdf.
        \21\ https://www.centerwatch.com/articles/15357?v=preview.

        Inherently, clinical trials for expensive, innovative drugs will be
    more costly. It will be difficult to pursue reforms that decrease costs
    without also decreasing the value of the drug or forgoing necessary
    ---------------------------------------------------------------------------
    studies on drug efficacy and safety.

        Question. Multiple sclerosis unfortunately lacks a cure. How would
    the price controls being suggested by Democrats hurt efforts to find a
    cure for MS?

        Answer. The price controls in the BBBA would lead to reduced
    profits and therefor reduced ability to research complex and difficult
    diseases and reduced incentive to develop expensive cures that are
    targeted at a relatively small population. Rare disease populations in
    particular would lose out.

        Question. We have seen the U.S. lose its competitive advantage in
    places where we were once the global leader as a result of policies
    that harm innovation and competitiveness. One such example is the
    semiconductor industry, where we have ceded leadership to China despite
    being the creator of the industry. I worry that we are now in a similar
    moment with the pharmaceutical industry. While prices are too high and
    we need to address that problem, we lead the world in biopharmaceutical
    innovation thanks to R&D investments, strong IP protections, and a
    market-driven pricing system. I worry that the price controls being
    suggested will erode our competitive advantage, leading to fewer cures.

        What have studies found about the corresponding cuts to research
    and development that happen as a result of price controls?

        Answer. In a recent paper from the University of Chicago, Tomas
    Philipson and Troy Durie estimate the BBBA legislation would reduce
    industry revenue by an astronomical $2.9 trillion through 2039. They
    attribute $1.77 trillion to the inflation rebates, $986.9 billion to
    government ``negotiation,'' and $138.1 billion to the Part D reforms.
    These cuts to research and development would result in 135 fewer new
    drug approvals by 2039, and that further disincentive to researching
    additional indications will lead to 188 fewer new indications for
    existing therapies over the same period. The authors only apply the
    inflation limits to Medicare, but the inflation penalties will limit
    pricing in the private market as well, leading to even greater impacts
    on future innovation. They also assume that prices will be set at the
    absolute highest amount allowed under the BBBA, but there is no price
    floor, and the HHS secretary would have substantial leverage to force
    price concessions well below the maximum price.\22\
    ---------------------------------------------------------------------------
        \22\ https://cpb-us-w2.wpmucdn.com/voices.uchicago.edu/dist/d/3128/
    files/2021/08/Issue-Brief-Drug-Pricing-in-HR-5376-11.30.pdf.

        Question. Why is there such a disparity between what outside
    economists have predicted about the number of drugs that will never
    come to market as a result of these price controls and what the
    ---------------------------------------------------------------------------
    Congressional Budget Office has predicted?

        Answer. I have not done a detailed comparison of the alternative
    estimates and their underpinnings. CBO might be better-positioned to
    answer this question.

        Question. Hasn't China also recognized this problem and actually
    moved to lift price controls on pharmaceuticals in recent years?

        Answer. I am unfamiliar with these domestic China issues.

        Question. Why does so much of our active pharmaceutical ingredient
    come from China and India and should this concern us?

        Answer. In reality, U.S. supply chains are well-diversified, with
    China supplying only 18 percent of total active pharmaceutical
    ingredient imports, 9 percent of total antibiotic imports, and less
    than 1 percent of total vaccine imports. Moreover, U.S. production of
    pharmaceutical goods is often understated: 70 percent of essential
    medical equipment is manufactured in the United States, and 70 percent
    of total antibiotic spending and 50 percent of total vaccine spending
    is on U.S.-made product.

        Question. A large pillar of the Democrats' drug pricing plan
    includes punishing companies for drug prices that rise faster than the
    rate of inflation.

        With current inflation at 7.9 percent over the last 12 months, how
    many drugs have net prices rising faster than that?

        Answer. CMS has not yet released its comprehensive datasets with
    2021 or 2022 prices for Medicare covered drugs, though from 2019 to
    2020, before the recent surge in inflation, 17 percent of all Medicare
    covered drugs had price increases of 7.5 percent or higher, though this
    was based on the average spending per dose, and for Part D drugs, did
    not account for discounts or rebates.

        Given that the BBBA drug provisions would be introduced in an
    environment of general price inflation not seen in 4 decades, there
    would be drugs that will see their prices rise at inflation--because
    the BBBA essentially blesses such a price rise as ``legitimate''--even
    though no such increase is merited on the fundamentals.

        Question. Haven't net prices on a whole declined over the last
    several years? I believe even list prices have increased only
    marginally (1.3 percent in 2020 according to BLS data), and this
    doesn't take into account rebates or discounts, isn't that correct?

        Answer. Based on data from SSR Health, Drug Channels Institute
    found consistent declines in the net prices of brand-name drugs from
    2018 to 2020: In 2020, brand-name list prices grew by 4.2 percent,
    while brand-name net prices declined by 2.2 percent. Similarly, in
    2019, brand-name list prices grew by 4.6 percent, while brand-name net
    prices declined by 2.3 percent.\23\
    ---------------------------------------------------------------------------
        \23\ https://www.drugchannels.net/2021/01/surprise-brand-name-drug-
    prices-fell.html?msclkid
    =a3589045b9c411ec98796a22a1fffbde.

        According to BLS data, overall prescription drug prices fell 2.4
    percent from December 2019 to December 2020, remained unchanged from
    December 2020 to December 2021, and increased 2.4 percent from February
    ---------------------------------------------------------------------------
    2021 to February 2022.

        It is correct that the list price, or the wholesale acquisition
    cost, does not account for rebates or discounts. In contrast, a drug's
    net price equals the manufacturer's revenues after accounting for all
    rebates and discounts.

        Question. What is causing the disparity between list price and net
    price, and how might we address this problem?

        Answer. The increasing difference between list and net price points
    to the growing use of discounts and rebates. To address this problem,
    discounts and rebates should be passed on to the consumer by
    calculating co-pays and coinsurance based on the net price, rather than
    the list price as it is now. While this change would almost certainly
    lead to increased premiums Part D premiums, those increases are likely
    to be minimal as the cost increase would be spread across all
    beneficiaries. On the other hand, the reduced cost-sharing expenses
    that the highest-cost beneficiaries would see should outweigh those
    premium cost increases, resulting in a net benefit to patients. Those
    patients with the highest costs would see the greatest benefit.

        Question. Does capping the annual rise in the price of a drug
    despite market fluctuations create a perverse incentive for companies
    to introduce new products at a higher list price?

        Answer. Yes. Faced with restrictions on future pricing flexibility,
    drug makers would be incentivized to increase initial launch prices in
    response to inflation penalties. While these products would eventually
    be subject to HHS's price-setting regime, those forced price
    concessions would not take effect until years after the product's
    launch, further incentivizing manufacturers to maximize initial profits
    through higher launch prices.

                                     ______

                   Questions Submitted by Hon. John Barrasso
        Question. As a doctor, I have seen firsthand the value innovative
    medicines provide to folks across Wyoming. When we make policy here in
    Washington, it is critical we preserve the incentives for cutting-edge
    therapies to come to market so folks can live longer and healthier
    lives.

        That being said, I have concerns about the high list prices--
    particularly for long-established drugs. Insulin is one example. This
    is a life-saving drug that has been part of medical practice for
    decades.

        Though negotiated discounts and rebates can reduce the net price
    for drugs like insulin, some patients' copays continue to climb as list
    prices tick higher.

        What are the best solutions to lower the price patients pay at the
    pharmacy counter for insulin?

        Answer. Copays should be decoupled from the list price and rebate
    reforms should be considered to pass savings to patients at the point
    of sale. The reduced cost-
    sharing expenses that the highest-cost beneficiaries would see should
    outweigh premium cost increases, resulting in a net benefit to
    patients.

        Question. We have heard some discussion about the impact of
    inflation today.

        Inflation is at a 40-year high, and there is no question it is
    hurting families in Wyoming and across our country. The cost of
    everything people buy from the food at the grocery store to the
    gasoline in their cars has gone through the roof.

        At the beginning of this week, a gallon of gas sold for the highest
    price ever.

        I'm a doctor, and I want patients paying less for their
    prescription drugs and all their medical care.

        But right now the biggest worry for families in Wyoming is how will
    they buy food and fill up their tank.

        Can you discuss the impact of rising energy prices on inflation?

        Answer. Rising energy prices (currently 32 percent year-over-year)
    are a direct component of increases in the Consumer Price Index (CPI)
    and show up in inflation. However, rising energy costs are an important
    supply shock that makes the provision of goods and services more costly
    in general. These additional costs are passed along to consumers as
    well, leading to broad-based inflationary pressures.

        Question. Before coming to the Senate I practiced orthopedic
    surgery for over 20 years. During my surgical training, I got to know
    many patients with Duchenne muscular dystrophy.

        These young boys and their families made a lasting and personal
    impact on me. The sad fact was when I practiced medicine, there were no
    approved treatments for Duchenne's. This is why I helped host the Jerry
    Lewis telethon in Wyoming for many years.

        In fact, the first FDA approved treatment for Duchenne's did not
    become available until well after I joined the Senate in 2016. For
    families impacted by Duchenne's, this first approval was a beacon of
    hope.

        Now, thanks to American scientific innovation, there are multiple
    FDA approved therapies for Duchenne's. We have not cured this disease,
    but we are making important progress.

        As a doctor, I am passionate about ensuring the progress continues.
    According to the Food and Drug Administration, there are over 7,000
    rare diseases that impact over 30 million Americans. While we all want
    to lower the price of prescription drugs, we must ensure patients can
    access the next generation of life-changing medications.

        Can you please discuss the importance of maintaining investments in
    scientific research, especially with regard to supporting investments
    in therapies that address conditions that impact smaller patient
    populations?

        Answer. A historic example that demonstrates this is the hepatitis
    C treatment, Sovaldi. While the drug was quite expensive--it
    contributed over $3 billion to 2014 expenditures alone--Sovaldi (and
    its eventual competitors) provided a cure for what had been up until
    that point a costly to manage chronic disease. Second, as competitors
    joined the market, the price of Sovaldi was cut in half. Policies in
    the BBBA aimed specifically at drugs with particularly high prices
    threaten to upend incentives for the most innovative new medical
    treatments, which often by their very nature are more expensive to
    develop and produce, and increasingly serve smaller patient
    populations. According to Philipson and Durie, therapies that treat
    diseases of the endocrine, cardiovascular, and respiratory systems
    along with treatments for cancer and neurological diseases would be
    most impacted by the BBBA's policies because they make up a high share
    of Medicare spending.\24\
    ---------------------------------------------------------------------------
        \24\ https://cpb-us-w2.wpmucdn.com/voices.uchicago.edu/dist/d/3128/
    files/2021/08/Issue-Brief-Drug-Pricing-in-HR-5376-11.30.pdf.

        Question. We have heard a lot of discussion about the government
    negotiating prices for prescription medications. Many Democrats on this
    committee seem to believe they can lower prescription drug cost by
    giving more control over prescription drugs to the Department of Health
    ---------------------------------------------------------------------------
    and Human Services.

        As a former Director of the Congressional Budget Office (CBO),
    could you please help us move past the rhetoric and understand how the
    Medicare Part D program actually works.

        Specifically, can you discuss what kinds of negotiations currently
    take place between prescription drug plans and pharmaceutical companies
    right now?

        Answer. In Part D, direct negotiation by the HHS Secretary has been
    expressly forbidden, yet the program nevertheless sees aggressive
    negotiation over the prices of medications between Part D plan sponsors
    and drug manufacturers. This competitive process is the key factor in
    the program's success to date. Today, Part D beneficiaries have access
    to 54 plans, on average, enabling individuals to choose a plan that is
    tailored to their needs.\25\ Because there are a number of plan options
    for beneficiaries, individual plans have the ability to use
    preferential tiering strategies to negotiate discounts for specific
    drugs. If a beneficiary requires or desires a specific medication that
    is not on the preferred formulary (or covered at all) for one plan,
    they can choose to sign up for a different plan that provides the
    medication at a more desirable price.
    ---------------------------------------------------------------------------
        \25\ https://www.kff.org/medicare/issue-brief/medicare-part-d-a-
    first-look-at-medicare-prescription-drug-plans-in-2022/.

        Question. Historically, can you review the impact these
    negotiations have had on the overall cost of Medicare Part D,
    ---------------------------------------------------------------------------
    especially compared to the original cost estimates of the program?

        Answer. Total program expenditures for Part D came in far lower
    than initial CBO projections by about 48 percent. That being said,
    Medicare Part D is still in need of reform to realign incentives by
    placing greater financial risk on insurers and drug manufacturers and
    protecting beneficiaries from catastrophic financial risk.

        Question. Finally, can you discuss how the Congressional Budget
    Office has viewed the removal of the so-called ``noninterference''
    clause in terms of its overall budgetary impact?

        Answer. The CBO has long held that simply removing this
    ``noninterference'' clause would not result in any savings for the
    program because the secretary has no beneficiaries to negotiate on
    behalf of, and no leverage for driving price concessions. Giving the
    HHS Secretary the legal authority to negotiate directly with
    manufacturers will either result in a single negotiated price for each
    drug--which will then have to be accepted by all insurers--thus
    undermining the competitive structure of Part D, or it will result in
    nothing.

        Question. The proposals put forward by congressional Democrats
    ignore the real challenge of ensuring that generics and biosimilars are
    able to launch and gain adoption quickly.

        As a doctor, I strongly support both generics and biosimilars
    because I know they provide the same benefits as the branded products,
    but often at a much lower price.

        What do you believe will be the impact of the policies in Build
    Back Better, specifically regarding the adoption and development of
    future generics and biosimilar medications?

        Answer. The policies do not incentivize the adoption of generics
    and biosimilars; in fact, they reduce the incentive for these drugs to
    even be developed because the artificially lowered price of brand-name
    drugs would make naturally low-cost generics less competitive.

                                     ______

           Prepared Statement of Steffany Stern, MPP, Vice President
                of Advocacy, National Multiple Sclerosis Society
        Chairman Wyden, Ranking Member Crapo, and members of the committee,
    thank you for the opportunity to testify at this important hearing. My
    name is Steffany Stern, and I am the vice president of advocacy for the
    National Multiple Sclerosis Society. I joined the Society as a staff
    member 7 years ago, but have been part of the MS community since I was
    a year old, in 1981, when my mom, Joan, was diagnosed with MS.

        My mom's diagnosis has shaped nearly all aspects of my life. I
    watched as she dealt with the physical challenges of this devastating
    disease, the emotional ramifications of living with constant
    uncertainty about her future, and decades of financial burden. MS, like
    so many other chronic health conditions, is a family disease, and it
    hasn't been easy for any of us.

        We have come a long way since my mom was diagnosed, on her 24th
    birthday. My family is incredibly grateful for research innovation and
    the collaboration of research that has been funded by the public, the
    Society, and industry that led to it. In the 1980s and half of the 90s,
    all my mom could do to treat her MS was take vitamins, try to take care
    of herself, and hope that her relapses didn't take too much away from
    her life, in the short term or the long term. But once the MS disease-
    modifying therapies (which we refer to as DMTs) came to market, she's
    been able to take four of them, all of which have helped her manage the
    course of her disease.

        Today, evidence shows that early and ongoing treatment with a DMT
    is the best way to manage the MS disease course, prevent accumulation
    of disability, and protect the brain from damage due to MS. There are
    now more than twenty DMTs on the market, including generic options, and
    these medications have transformed the treatment of MS over the last 29
    years. When a person is diagnosed with relapsing forms of MS, they can
    choose between several effective medications to manage the course of
    their disease. Or, more accurately--they can make that choice if they
    can afford it. It is unconscionable that in 2022, people with MS and
    other health conditions who cannot pay for their medications would be
    in the same position my mom was in during the 1980s: left with no
    treatment option. For those who cannot afford their medications, all
    this innovation is simply meaningless.

        The Society's vision is a world free of MS and our mission is that
    we will cure MS while empowering people affected by MS to live their
    best lives. To achieve this mission, we work with all companies,
    organizations and individuals that share our goal. On average,
    financial support from pharmaceutical companies over the last 5 years
    has accounted for less than 5 percent of Society income. The Society
    independently develops public policy positions on issues that are
    important to people affected by MS, and we do not accept pharmaceutical
    support for our advocacy work. Additional detailed information on our
    financial relationships with the pharmaceutical sector can be found on
    the Society's website (https://www.nationalmssociety.org/About-the-
    Society/Financials/Sources-of-Support/Pharmaceutical-Support).

        Every day the Society hears from people struggling to afford their
    medication, making hard choices as families and too often going without
    medication for days, or months, or even stopping their treatment all
    together. I am grateful for the chance to share some of their
    experiences with you today.

        What is multiple sclerosis (MS)?

        MS is an unpredictable, often disabling disease of the central
    nervous system that disrupts the flow of information within the brain,
    and between the brain and body. Symptoms vary from person to person and
    range from numbness and tingling, to walking difficulties, fatigue,
    dizziness, pain, depression, blindness, and paralysis. Nearly 1 million
    Americans live with this disease, and most people are diagnosed between
    the ages of 20 and 50, when they are in their prime working years. The
    progress, severity and specific symptoms of MS in any one person cannot
    yet be predicted but advances in research and treatment are leading to
    better understanding and moving us closer to a world free of MS.

        MS is a highly expensive disease. The average total cost of living
    with multiple sclerosis is $88,487 per year.\1\ The total estimated
    cost to the U.S. economy is $85.4 billion per year.\2\ Disease-
    modifying therapies are the biggest cost of living with the disease,
    with individuals with MS spending an average of $65,612 more on medical
    costs than individuals who don't have MS.
    ---------------------------------------------------------------------------
        \1\ B. Bebo et al. ``A Comprehensive Assessment of the total
    economic burden of multiple sclerosis in the United States.'' ECTRIMS
    2021. 15, October, 2021. https://ectrims2021.abstract
    server.com/program/#/details/presentations/557.
        \2\ B. Bebo et al. ``A Comprehensive Assessment of the total
    economic burden of multiple sclerosis in the United States.'' ECTRIMS
    2021. 15, October, 2021. https://ectrims2021.abstract
    server.com/program/#/details/presentations/557.

        Prices are too high and still rising--even for drugs that have been
    ---------------------------------------------------------------------------
    on the market for decades.

        The full range of MS DMTs represent various mechanisms of action
    and routes of administration with varying efficacy, side effects and
    safety profiles. No single agent is ``best'' for all people living with
    MS \3\ and, as MS presents differently in each person, every person's
    response to a DMT will vary. It is common for people with MS to move
    through several different DMTs throughout their life with MS, as they
    may ``break-through'' on a medication, or have disease activity, and
    need to try a different DMT.
    ---------------------------------------------------------------------------
        \3\ MS Coalition. ``The Use of Disease Modifying Therapies in
    Multiple Sclerosis: Principles and Current Evidence.'' http://
    www.nationalmssociety.org/getmedia/5ca284d3-fc7c-4ba5-b005-ab
    537d495c3c/DMT_Consensus_MS_Coalition_color. Accessed December 26,
    2018.

        With all this progress, people diagnosed today have the potential
    of a better course of MS than my mom. Yet, the price of these
    medications makes them out-of-reach for a growing number of people in
    ---------------------------------------------------------------------------
    the MS community.

        While not identical, most brand MS DMTs have seen similar pricing
    trajectories. The price of MS therapies has dramatically risen since
    the first MS disease-
    modifying therapy was approved in 1993. When the first MS DMT came to
    market, the price range was $8,000 to $11,000 for one year of
    treatment. The annual median price for MS DMTs has increased nearly
    $34,000 in less than 10 years. As of February 2022 (see appendix), the
    median annual price of the brand MS DMTs is close to $94,000. Six of
    the MS DMTs have increased in price more than 200 percent since they
    came on market, with nine now priced at over $100,000. This trajectory
    is not sustainable for people with MS or the U.S. health-care system as
    a whole. Recent analysis of the MS DMTs shows that price increases of
    brand name drugs are largely driven by year-over-year price increases
    of drugs that are already in the market versus new products.\4\
    ---------------------------------------------------------------------------
        \4\ Hernandez, Inmaculada et al. ``The Contribution of New Product
    Entry Versus Existing Product Inflation in the Rising Cost of Drugs.''
    Health Affairs. Vol. 38, No. 1. https://doi.org/10.1377/
    hlthaff.2018.05147.

        My mom's first medication, Betaseron, came on the market in 1993
    priced at $11,532. That same medication is now priced at $111,721. It
    has increased in price by $100,000 since it came to market. And this
    medication is nearly 30 years old and has not been improved, and is the
    ---------------------------------------------------------------------------
    same medication it was back then.

        Generics alone will not improve the affordability of or access to
    MS medications.

        Generic medications play a critical role in prescription drug
    affordability, yet generics for specialty drugs, like MS DMTs, are
    still unaffordable for many patients. These generics are often covered
    by health plans, including Medicare plans, more like specialty
    medications rather than other generics, still resulting in high cost
    sharing for people with MS. The brand product, despite its higher
    price, can receive favorable or equal treatment in specialty tiers,
    which disincentives the use of the lower-cost generic alternatives.

        Generics are relatively new to the MS market, but the addition of
    generics to the MS class has not driven down the cost of DMTs
    substantially, as would be expected in a normal competitive market.
    When including generics, the median price of MS DMTs only falls to
    $80,412 a year and our experience with MS generics has demonstrated
    that they present their own unique set of access issues. Our experience
    has solidified our belief that we cannot rely on generics alone to
    improve affordability for people with MS. Congress must play a role in
    ensuring access to these lower-cost medications.

        As detailed in the 46brookyn report ``Wreck-fidera: How Medicare
    Part D has hidden the benefits of generic competition for a blockbuster
    Multiple Sclerosis treatment,'' in the third quarter of 2021, Medicare
    Part D plans covering most U.S. seniors didn't even make the generic
    equivalent to Tecfidera available, and only offered them the brand-name
    Tecfidera.\5\ The generic system worked as it should have, and within a
    few months of Tecfidera going generic, more than 10 generic drug
    manufacturers were able to bring generic equivalents to the market;
    however, incentives within Part D made access to these lower-cost
    alternatives challenging at best.
    ---------------------------------------------------------------------------
        \5\ 46brooklyn. ``Wreck-fidera: How Medicare Part D has hidden the
    benefits of generic competition for a blockbuster Multiple Sclerosis
    treatment.'' December 1, 2021. https://www.46
    brooklyn.com/research/2021/12/1/tecfidera. Accessed March 10, 2022.

        The Society has seen this same dynamic play out in private plans as
    well. We have heard directly from people with MS and MS health-care
    providers that some people do not have access to MS generics or are
    unable to afford the cost-share of their generic MS DMT--which may
    still be several hundred dollars each month. It can also be more
    difficult to obtain patient assistance funds for generic medications,
    which leaves people with MS and health-care providers few choices. When
    generics are unaffordable, people with MS may switch to a different
    DMT, one that is higher cost to the system but may have a lower out-of-
    pocket cost for the person with MS due to insurance design or available
    patient assistance supports. The Part D redesign proposed by Congress
    is the right first step in addressing the distorted incentives for
    prescription drug plans that leads to lower generic uptake.
    Additionally, as there is still limited evidence around real-world
    utilization of specialty generics, we urge Congress to ensure access to
    lower cost generics and biosimilars by creating a specific generic and
    biosimilar formulary tier in Medicare Part D and prescription drug
    ---------------------------------------------------------------------------
    plans.

        MS DMT prices are staggering, and are directly linked to
    unaffordable out-of-pocket costs for people living with MS.

        As the prices of MS DMTs increase, health plans and pharmacy
    benefit managers (PBMs) with little ability to negotiate better prices
    employ increasingly strict utilization management practices (prior
    authorization, step therapy and formulary restrictions) to minimize
    their use and cost liability for these therapies instead. These
    practices present significant hurdles for prescribers and real barriers
    for people with MS. Utilization management tools can result in delays
    or disruptions in treatment as patients wait for their health plan to
    determine whether they will cover care as prescribed. Any delay or
    disruption in treatment is particularly problematic for people with MS
    as delays may result in worse health outcomes, increased health-care
    costs over time and disease progression that cannot be reversed.

        Every day, people with MS and other chronic conditions must make
    impossible decisions when their doctor prescribes them a medication
    that is high-priced.

        Since I joined the Society 7 years ago, I have heard too many
    stories about the hardships associated with drug costs to possibly be
    able to count. I have heard of people making excruciating choices that
    affect not only their lives, but the lives of everyone they care
    about--just to be able to pay what they owe to take their medications.
    I'm not exaggerating when I say that for many people with MS, the
    thought of being without their medication is terrifying. Any time that
    lapses because a person is not taking their medication could mean
    disease progression, and that could mean a loss of mobility that
    becomes permanent. It could mean losing the ability to walk, to run, to
    live independently, to remember the moments you want to remember, to
    live your life the way you want to live it.

        People with MS take numerous medications, in addition to their
    DMTs, to manage their MS symptoms. The increasing costs of prescription
    drugs create numerous access challenges for people with MS, which can
    be financially devastating, and creates constant stress for people who
    already live with the uncertainty and challenges of a chronic health
    condition.

            Like Laurie from Oregon, who had to change her MS medication
            twice after joining Medicare because the out-of-pocket cost of
            her original DMT would have bankrupted her and her husband.
            During these changes, Laurie's MS symptoms increased
            substantially, and she transitioned from the relapsing form of
            MS to a progressive form of the disease. In Laurie's words,
            ``I'm furious about this. I've been living in fear about access
            to my DMTs in the future, at a time I am losing ground with my
            disease.''

            Therese in Indiana was forced to change DMTs after the costs
            for hers soared to $6,000 a month. But the next DMT didn't work
            for Therese; her MS progressed, bringing lingering cognitive
            issues, some dizziness and tingling in her hands and feet. By
            the time Therese had to switch to a different DMT, she had
            already burned through her savings.

            Or Kenya in Louisiana, who occasionally rations medicine or
            skips it all together if she can't cover her Medicare out-of-
            pocket cost.

            Every day, Bob in Minnesota and Diane in Wisconsin roll the
            dice. They each made the difficult decision to completely stop
            taking their MS DMT once they went on Medicare because they
            didn't want to financially devastate their families. For
            several years now, each has been without a DMT.

        Sadly, these stories are not unique. In a 2019 survey of people
    with MS about their experience with their DMTs, more than half of those
    surveyed said they were concerned about being able to afford their DMT
    over the next few years and 40 percent had altered the use of their
    DMTs due to cost, with some skipping or delaying treatment.\6\
    ---------------------------------------------------------------------------
        \6\ National Multiple Sclerosis Society. ``Quantifying the Effect
    of the High Cost of DMTs.'' Market Research Report. August 2019.
    https://www.nationalmssociety.org/NationalMSSociety/media/
    MSNationalFiles/Advocacy/NMSS-Research-Report-Full-Access-to-MS-
    Medications.pdf. (Accessed April 27, 2021).

        Additionally, 40 percent stated that they experience stress or
    other emotional impact due to high out-of-pocket costs and are making
    lifestyle sacrifices to be able to pay for their DMT. This snapshot of
    real-world experiences shows why 85 percent of those surveyed said that
    the Federal Government should do more to control the high costs of MS
    DMTs.\7\
    ---------------------------------------------------------------------------
        \7\ National Multiple Sclerosis Society. ``Quantifying the Effect
    of the High Cost of DMTs.'' Market Research Report. August 2019.
    https://www.nationalmssociety.org/NationalMSSociety/media/
    MSNationalFiles/Advocacy/NMSS-Research-Report-Full-Access-to-MS-
    Medications.pdf. (Accessed April 27, 2021).

        What does it really mean when we say people are making lifestyle
    sacrifices? It can range quite a bit, but in our survey \8\ people
    reported:
    ---------------------------------------------------------------------------
        \8\ National Multiple Sclerosis Society. ``Quantifying the Effect
    of the High Cost of DMTs.'' Market Research Report. https://
    www.nationalmssociety.org/NationalMSSociety/media/MSNationalFiles/
    Advocacy/NMSS-Research-Report-Full-Access-to-MS-Medications.pdf. August
    2019. (Accessed March 10, 2022.)

            Spending less on entertainment and dining out,
            Saving less for future (college or retirement),
            Using a credit card more often,
            Spending less on their family,
            Spending less on groceries,
            Postponing paying other bills,
            Postponing retirement, and
            Working a second job.

        A couple of real-life examples of these sacrifices include:

            Lisa in Michigan told us her out-of-pocket medication expenses
            average approximately $9,000/year, and on a fixed income, these
            expenses are quite debilitating. She often uses her charge
            cards to cover the costs and relies on her family to pay for
            her food as well as other living expenses. She could not get
            coverage for the new, efficacious DMT she was prescribed and
            had to switch to a more financially accessible medication
            because she could not afford her copay.

            And Wayne, a senior in South Carolina, who still owns and
            operates a small business, now takes around $13,000 out of his
            401(k) account every year to pay his Medicare out-of-pocket
            costs.

            Holly in New Mexico, who doesn't want to have to choose whether
            her family eats or she gets her medication.

        Many people with MS must rely on financial assistance from drug
    manufacturers to pay their out-of-pocket costs so they can afford to
    get their medication.

        A key piece of the prescription drug access puzzle for many people
    with MS comes in the form of patient assistance funding. Seventy
    percent of people with MS have relied on patient assistance programs to
    be able to afford and stay on their disease-modifying treatment. The
    Society believes that the current status quo which makes medications
    largely unaffordable without patient assistance programs is
    unsustainable and in many ways, harmful to people with MS.

        Reliance on patient assistance programs places undue stress and
    burden on people who rely on life-changing medications. Individuals are
    particularly challenged when they transition to Medicare, where patient
    assistance programs from manufacturers are not allowed. Charitable
    foundations exist for Medicare beneficiaries to apply to for some
    assistance affording their medication, but the need is far greater than
    supply. From 2018 to 2020, the various nonprofit programs serving
    Medicare beneficiaries with MS opened only 16 to 20 times for just a
    total of 87 to 98 days out of the entire year--approximately 25 to 30
    percent of the year. In 2021, these funds opened only four times, for
    just 25 days out of the year. And to date in 2022, the funds opened
    only once in January, for just 3 days.

        This is a nerve-wracking process for Medicare beneficiaries with
    MS, as an individual has to apply every year for the assistance, and it
    is never guaranteed even if life circumstances remain constant. People
    with MS often experience debilitating fatigue and cognitive challenges
    as common symptoms, setting them up to fail in a system that requires
    them to repeatedly call different assistance programs and hope to get
    through on a day where funds are available. This process compounds the
    stress and anxiety people with MS face on top of already managing a
    lifelong chronic condition.

            Ms. Dixon from Ohio relies on these nonprofit foundations to
            help cover her Medicare out-of-pocket expenses--about $2,000
            for a monthly supply of her DMT. She describes having to call
            the various 1-800 numbers each year and ask if they are helping
            people. In 2019, she didn't get there in time, and went several
            months without her DMT until she was finally able to find
            assistance. She is frustrated by the system, saying ``I didn't
            ask for this disease. Why should we, as people who worked all
            our lives, pay so much for medicine, when we're on a fixed
            income and you know that we can't pay for it?''

            Kenya from Louisiana calls out the need to reapply each year,
            and since it can take several months for approval, she has to
            remember to apply early or risk a disruption in her treatment.
            Kenya says it is challenging because she has to have the energy
            and mental clarity to navigate and track the complex approval
            process.

        My mom is among the group of people living with MS who could not
    access her medication without charitable assistance. Her current
    medication has a list price of nearly $104,000. I talked to my parents,
    and they said that right away in January, they face a bill of $5,000 a
    month for my mom's medication. Her Medicare Advantage Part D plan pays
    $2,600 of that and charitable assistance pays $2,400, and the
    charitable assistance continues covering her out-of-pocket throughout
    the year. My parents painstakingly select their plans every year to
    find one with the best coverage for their medications and health-care
    providers and yet somehow, this is their best option. They cannot pay
    thousands of dollars a month, for months on end, between my mom's
    Social Security Disability Insurance, my dad's Social Security check,
    and the hourly wage he makes driving a city bus to make ends meet. When
    my mom went onto this medication she now takes, my parents called and
    called through a list of charitable funds I got from the National MS
    Society, finding them all to be closed and not accepting new patients;
    my dad remained persistent and with some good timing, he finally got
    the assistance they needed. The process of seeking and finding
    assistance is immensely stressful and uncertain, requiring time and
    diligence. Luckily, my dad got through and got what they needed to
    access my mom's drugs. People like my parents should not have to face
    this process just to fill her most-necessary prescription. The patient
    assistance should not be necessary in the first place. If my parents
    cannot secure that assistance, my mom is unable to continue to take her
    drug. They also struggle to afford the medications my dad--a 40+ year
    care partner and now senior with chronic health conditions--takes each
    month; he anticipates having to pay around $4,000 out of pocket for his
    medications this year.

        Health-care costs have been a cause of stress and a burden for my
    parents since my mom was diagnosed. They were small-business owners for
    decades and my mom's care has always been a major line-item in their
    budget. I'll never forget the day he started looking at the costs he
    would have to pay out-of-pocket as he was transitioning to Medicare; he
    told me over the phone, ``Steffany, I can't afford Medicare.'' My
    parents are on a fixed income and live in a very small town, but even
    in a low cost-of-living area, their health-care costs are unsustainable
    for them on Social Security. My dad is 69 years old with his own health
    challenges and had to get a job driving a city bus in their town, to
    pay their bills, and they have had to cut every possible corner--even
    moving to a smaller home and getting less-
    expensive cars. I try to help out however I can, but this is a
    situation no one should have to be in--health care and drug costs
    making retirement security out of reach.

        It is not enough to only address out-of-pocket costs. People with
    MS need drug pricing reform.

        Congressional action to address drug pricing would have the real-
    life impact of reducing what people with MS pay for medicines. An out-
    of-pocket cap and smoothing mechanism would be transformative for
    people who rely on Medicare to get their medications. Right now, too
    many people with MS and other health conditions pay much more than they
    can afford, and some even make the decision to go off their life-
    changing medications. Recent analysis confirms their experience.
    Cumulative annual out-of-pocket spending for Medicare beneficiaries
    with MS just for their MS DMT was $6,894 in 2019, including an average
    of $352 in out-of-pocket cost per month for those already in the
    catastrophic coverage phase.\9\ We strongly support the concept of
    capping out-of-pocket costs and restructuring the Medicare Part D
    program to reduce beneficiaries' out-of-pocket costs. As noted above,
    Medicare beneficiaries living with MS have high out-of-pocket costs and
    typically reach the catastrophic phase early in the year. Under current
    law, once they reach the catastrophic phase in Part D, they are still
    responsible for 5 percent of the costs of their medications. These
    reforms would have an immediate impact on improving affordability of
    medications, upon implementation.
    ---------------------------------------------------------------------------
        \9\ Daniel M. Hartung, Kirbee A. Johnson, Adriane Irwin, Sheila
    Markwardt, and Dennis N. Bourdette, ``Trends in Coverage for Disease-
    Modifying Therapies for Multiple Sclerosis in Medicare Part D.'' Health
    Affairs. February 2019, Vol. 38, No.2.

        But to truly improve affordability and access to MS medications, we
    believe that the price of the medications must be addressed. Given the
    escalating prices of the MS DMTs, we support provisions that would
    limit how much pharmaceutical companies can increase drug prices each
    year. Last year, when the Society was analyzing drug prices of MS
    therapies, we found that five MS DMTs had increased in price by more
    than 30 percent. MS therapies are also incredibly expensive, so even
    smaller increases of 3 or 4 percent have a noticeable impact. With co-
    insurance very common for specialty medications like the MS DMTs, the
    list prices are directly linked to increased out-of-pocket costs for
    people with MS. Medicare is the single largest payer of MS-related
    costs in the United States, and as such the high prices for the DMTs
    mean higher costs across the entire system.\10\
    ---------------------------------------------------------------------------
        \10\ Hartung D.M. ``Economics and Cost-Effectiveness of Multiple
    Sclerosis Therapies in the USA.'' Neurotherapeutics. 2017;14(4):1018-
    1026. doi:10.1007/s13311-017-0566-3.

        The Society has had a comprehensive set of recommendations on
    actions to address the high cost of MS DMTs since 2016, and one of
    those recommendations is to allow Medicare to negotiate the prices of
    prescription drugs. The Medicare program consistently spends around $5
    billion on MS DMTs.\11\ Allowing Medicare to potentially negotiate for
    lower DMT prices could result in significant cost savings for both the
    program and people affected by MS, who would pay lower out of pocket
    costs and less for their premiums.
    ---------------------------------------------------------------------------
        \11\ 2019 Data from Medicare Part D and Part B Spending Dashboard.
    (Accessed May 7, 2021).

        The Society supports--and people with MS need--meaningful
    ---------------------------------------------------------------------------
    innovation.

        There is a narrative that drug prices reflect innovation and
    allowing Medicare to negotiate drug prices will result in fewer new
    products on market. This narrative is flawed. We believe that people
    with MS should not have to face a choice between unaffordable
    medications and supporting innovation.

        The innovation argument cannot explain why six MS DMTs have
    increased in price more than 200 percent since coming to market, nor
    can it justify medications still increasing in price more than 20 years
    after entering the market. Rather, these experiences directly point to
    the need for inflationary rebates. Further, the innovation narrative
    does not align with direct statements from biotech leaders who were
    involved in MS DMT pricing or marketing in an article published in
    2019.\12\ This Society-funded study suggested that the price ecosystem,
    overall corporate growth, international pricing disparities and supply
    chain-related distortions may play a more central role in drug pricing
    decisions than innovation. Those interviewed indicated that strategy
    related to initial list pricing focused on the prices of competitors in
    the therapeutic area. While one participant described the need to
    recoup development costs and incentive investments as reasons for price
    increases, more common responses cited corporate growth as more of a
    driver for price increases.
    ---------------------------------------------------------------------------
        \12\ Daniel Hartung, Lindsey Alley, Kirbee Johnston, and Dennis
    Bourdette. ``Qualitative study on the price of drugs for multiple
    sclerosis.'' Neurology. 2019; 00:1-8. Doi:10.1212/WNL.0000
    000000008653.

        Follow-on products that simply build on previous products should
    not be priced as first-in-class therapies. We have seen this first-hand
    in MS where there are multiple treatment options, many of which have
    little or no innovation associated with the agent, but are all priced
    similarly. We believe there is a place for improved products to provide
    additional options for patients, but they must be priced appropriately
    ---------------------------------------------------------------------------
    and not as ``first-in-class'' innovation.

        Despite the influx of successful DMTs in the MS space in the past
    29 years, more is needed because we still don't have a cure for this
    disease. While we have more than 20 DMTs to treat relapsing forms of
    MS, we have limited options for treating progressive MS. The Society is
    leading collaboration in this space. In 2014, we partnered with five
    other MS organizations to establish what is known today as the
    International Progressive MS Alliance, which has advanced the
    development of treatment for progressive MS by removing scientific and
    technological barriers. Currently, this Alliance includes members of MS
    organizations from Australia, Belgium, Canada, Denmark, Germany, Italy,
    the Netherlands, Spain and the United Kingdom, as well as the MS
    International Federation.

        It will take continued partnership from all stakeholders to move us
    to ``best-in-class'' products for both relapsing forms of MS and
    progressive MS. This type of innovation is happening every day and
    people with MS need true innovation to develop a cure. Innovation will
    allow for more treatments with different mechanisms, will provide novel
    solutions and drive better outcomes for people with MS. These are the
    incentives that must drive the development of novel solutions for
    people with MS--not supply-chain distortions or international pricing
    disparities. It is vital that we maintain an environment that creates
    opportunities to take the scientific and financial risks needed to
    drive development of treatments that can have life-changing benefits.

        We believe Medicare negotiation will not limit innovation but has
    the potential to drive innovation and make space for the next wave of
    innovative treatments. For example, an exciting development in the MS
    therapy pipeline is a group of treatments known as Bruton's tyrosine
    kinase inhibitors, or BTKi. BTKi is important for the activity and
    survival of antibody-producing B-cells. These immune cells are thought
    to be one of the key drivers of brain and spinal cord inflammation in
    people living with MS. This is a brand-new line of treatment, and this
    class of inhibitors can act on immune cells in peripheral circulation,
    but also directly on cells within the brain and the spinal cord to
    reduce inflammation. The treatments have shown great promise in Phase 2
    clinical trials and now there are multiple Phase 3 clinical trials for
    various BTKi molecules in both relapsing and progressive forms of MS.
    There's optimism that this approach may stop MS progression, but we
    won't know until the trials are completed. This is the kind of
    innovative therapies we need in the MS space and this type of
    innovation should be rewarded in the market. As stated previously,
    people must be able to afford and access innovation for it to have
    impact. In our health-care system, as products reach the end or pass
    their life cycle, prices should stagnate and decrease to free health-
    care dollars for the next wave of innovation. We believe that Medicare
    negotiation has a role in this cycle and the potential to promote
    uptake of truly innovative products.

        My mom is one of the 85 percent of people with MS across the United
    States who want the Federal Government to do more to control the high
    cost of MS medications.

        The Society urges the members of this committee to work together in
    a bipartisan fashion and pass meaningful reform that will lower the
    price of medications and out-of-pocket costs for people with MS. We
    appreciate that there are fundamental differences of opinion in the
    role of government to help facilitate lower drug prices, as well as the
    impact of those policies on innovation and the U.S. health-care
    system--but we believe that now is the time for Congress to act to make
    meaningful change for people with MS and millions of others who
    struggle to afford the medications they need to live their lives.

        Medications must be affordable, and the process for getting them
    simple and transparent. We urge Congress to act now and allow Medicare
    to negotiate for prescription drugs, redesign Medicare Part D to better
    work for Medicare beneficiaries by capping out of pocket costs and
    allowing beneficiaries to smooth costs within the plan year and enact
    an inflationary rebate that would prevent the cost of medications from
    rising over the cost of inflation.

        No single solution will fully address the multiple factors that
    work together to contribute to the high prices of medications in the
    U.S. We believe these policies are a good first step and will make an
    immediate impact on people with MS and others. The current system does
    not work in the best interest for people with MS and other chronic
    health conditions and the status quo is not sustainable. Medications
    cannot change the lives of people who need them if they cannot access
    them.

        Patients have waited long enough. We look forward to working with
    Congress as it works towards enacting meaningful change for people
    affected by MS.

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                                     ______

           Questions Submitted for the Record to Steffany Stern, MPP
                  Question Submitted by Hon. Thomas R. Carper
        Question. One population I am extremely concerned about is
    Medicare-only beneficiaries--especially those who are middle income and
    want to age in place rather than a nursing home. Programs of All-
    Inclusive Care or PACE should be good options for that population
    enabling these older adults to remain safely at home. However, the
    price for the PACE Part D premium is unaffordable except for the most
    affluent at $1,015 per month on average. I am working on a bill to
    reduce that cost on which I hope to work with you, Mr. Chairman.

        Wouldn't this change go a long way in enabling those living with MS
    that are only eligible for Medicare to stay at home?

        Answer. We share your concern and support Medicare beneficiaries
    who want to stay in their homes. Many people with MS experience a
    progression of symptoms throughout their disease course that results in
    loss of function and increasing disability over a time span of many
    years. We believe that the best health outcomes are achieved when
    people are at the center of their health care decision-making and have
    access to a comprehensive network of providers and health-care services
    that are focused on producing the best health outcomes at an affordable
    cost. It's essential that any care programs are able to meet all three
    of those elements to truly be patient-centric, and we hope your bill
    will address all these elements.

                                     ______

                Question Submitted by Hon. Robert P. Casey, Jr.
        Question. What alternative methodologies can lawmakers and the
    Secretary of HHS use, instead of QALYs, to determine drug cost and
    coverage?

        Answer. We believe that cost-effectiveness methodologies cannot
    accurately measure value if they do not include patient experiences,
    preferences and outcomes, and QALYs are not designed to take these
    vital elements into account.

        We would urge HHS to work with all stakeholders to develop
    alternative value assessment methodologies that ensure the vital
    elements of patient experiences, preferences and outcomes are
    considered.

                                     ______

                     Questions Submitted by Hon. Ben Sasse
        Question. Patients are understandably more concerned with high
    copays for their medicines than with high list prices, which often
    don't reflect their actual costs.

        How do you see MS patients using copay accumulator and maximizer
    programs?

        Answer. In the Society's experience, copay accumulator and
    maximizer programs shift costs to people living with MS, and jeopardize
    their access to care. We support policies that allow copay assistance
    to count towards a person's deductible. Because patients are
    responsible for all of their health costs until their annual deductible
    is met, prolonging the deductible period by not counting copay
    assistance funds can put other medical needs financially out of reach.

        Question. What impact would losing these programs have on patients'
    out-of-
    pocket costs?

        Answer. As mentioned in my written testimony, many people with MS
    have come to rely on patient assistance funding to gain access to their
    medications. Seventy percent of people with MS have relied on patient
    assistance programs to be able to afford and stay on their disease-
    modifying treatment (DMTs). The out-of-pocket costs people with pay for
    their DMTs are simply prohibitive for many people in the MS community.
    If nothing is done to address the high prices of medications, out-of-
    pocket costs will continue to be a barrier to care for people with
    chronic conditions like MS. Without assistance to cover out-of-pocket
    costs, people with MS can struggle to adhere to their treatment plan--
    which can lead to worse health outcomes for them, and higher health-
    care costs for the system. However, assistance funding is far from a
    perfect solution to the problem, given how challenging it is to get
    into and retain access to these programs, year to year.

        Question. How are you considering these patient assistance programs
    in the framework of broader reforms to insurance benefit design?

        Answer. We believe that the system should be reformed so people
    with MS and other chronic health conditions do not have to rely on
    financial assistance to afford access their medications. However, we
    believe that reforms to the prescription drug and health-care system
    must come first, before making any changes that affect financial
    assistance. Jeopardizing patient access to financial assistance would
    mean more people are unable to access their medications. Until real
    solutions are put into place, this assistance must remain available.

                                     ______

                     Prepared Statement of Hon. Ron Wyden,
                           a U.S. Senator From Oregon
        The Finance Committee meets this morning because there is nothing
    in our health-care system as broken as the way America pays for
    lifesaving medications like insulin. That failed system has forced
    millions of Americans to make daily gut-wrenching decisions between
    medicines or other necessities of life.

        Drug companies have got Americans over a barrel. With Medicare
    barred from negotiating better prices, this program that represents
    tens of millions of seniors and even more taxpayers has to take on big
    pharma with both hands tied behind its back. The consequences become
    clear when you contrast the prices Americans pay with the prices in
    other countries.

        In preparation for this hearing, the Finance Committee investigated
    pricing data for several of the most commonly prescribed brand-name
    drugs in Medicare. We looked at list prices of top-selling drugs in the
    U.S. and in comparable Western countries, and we compared the figures
    from 2015 and 2020. The list includes medications for conditions such
    as arthritis, diabetes, and cancer. In every case, the U.S. price in
    2015 started higher than the international price. In every case, from
    2015 to 2020, the U.S. price went up while the international price
    remained flat.

        In 2015 Americans had been paying 2, 3, or 4 times as much as
    international patients paid for these same medications. By 2020 that
    gap had roughly doubled for many of the most expensive drugs.

        Here's a specific example. I'm holding a Humira pen that contains
    one dose. Humira is primarily a treatment for rheumatoid arthritis,
    Crohn's disease, and other autoimmune conditions--painful diseases that
    afflict millions of Americans. Patients typically inject one of these
    pens every 2 weeks. As of 2020, the price per pen in Quebec, Canada was
    $563. List price in the U.S. was $2,778.

        Americans see this infuriating price gouging, and it's clear that
    big pharma is treating Medicare like they've cracked an ATM.
    Prescription drugs in Medicare may be the only case across the entire
    government where negotiating a better price is legally prohibited. It
    is long past time for that to change.

        Democrats have a plan that would finally allow Medicare to
    negotiate for lower prices for brand-name drugs, focusing on the
    costliest products that monopolize the market. In addition, our plan
    would cap co-pays for insulin at $35 a prescription. It would set a
    $2,000 out-of-pocket cap for seniors' medications in Medicare Part D
    and spread those costs over the year instead of front-loading them in
    January. It would also create a tough new price-gouging penalty for
    drug companies that raise prices faster than inflation.

        A number of these ideas were developed in this committee with
    bipartisan support, and that remains. There's no substitute for the
    number one reform, allowing Medicare to negotiate like any other payer.
    Without negotiation, the job's not done.

        For example, setting out-of-pocket caps without negotiation just
    passes the high prices on to somebody else, usually taxpayers. That's
    not sustainable, and it just puts more pressure on Medicare's finances
    in the long run. Unfortunately for American patients, Mitch McConnell
    has blocked any changes, even the proposals with bipartisan support,
    and repeated big pharma's talking points against them.

        The drug companies say that allowing negotiation is bad for the
    market and will spell the end of pharmaceutical innovation, but that
    claim doesn't hold up to scrutiny.

        First of all, it's true that pharmaceutical companies do develop
    breakthrough treatments. It's also true that most of the so-called
    ``new'' drugs released at higher and higher prices are actually old
    drugs repackaged in new ways. A relatively minor tweak to an old drug--
    a different syringe or a change in dosage--keeps the profits rolling
    in.

        And second, a large and growing percentage of American seniors
    either ration their medications or skip them entirely because they're
    too expensive. Almost half of cancer patients, many of them Medicare
    enrollees, burn through all their savings within 2 years. If the
    prescription drug market prices out millions of patients and bankrupts
    many others, how can anybody consider it to be healthy or functional?

        The scandal is what's legal. Today, big pharma has a legal right to
    set whatever prices they wish and expect Medicare to pay them. Drug
    companies can game the system to maintain monopolies and protect their
    cash cows. And without fail, the Republican leadership controlling the
    agenda for their party in Congress protects the status quo. That is a
    recipe to stifle innovation, not promote it.

        As we meet today, there are people all over the country who know
    they're going to get mugged every time they go to the pharmacy counter.
    Higher drug prices force people to have to make terrible choices. Far
    too often, choosing your health also means choosing hunger.

        The American people have waited long enough for Congress to act.
    Democrats have a plan, and we need to act quickly.

                                     ______

                                 Communications

                                  ----------

                                      AARP

                                601 E Street, NW

                              Washington, DC 20049

                             https://www.aarp.org/

    AARP, on behalf of our 38 million members and all older Americans
    nationwide, appreciates the opportunity to submit testimony on this
    important hearing of the Senate Finance Committee, ``Prescription Drug
    Price Inflation: An Urgent Need to Lower Drug Prices in Medicare.''

    High prescription drug prices hit older Americans particularly hard. On
    average, Medicare Part D enrollees take between four and five
    prescriptions per month, often for chronic conditions that will require
    treatment for the rest of their lives. At the same time, Medicare
    beneficiaries have a median annual income of just under $30,000. One-
    quarter have less than $8,500 in savings. This population simply does
    not have the resources to absorb rapidly escalating prescription drug
    prices and many are facing the very real possibility of having to
    choose between their medication and other basic needs such as food or
    housing.

    In the case of one of our members--Larry Zarzecki from Maryland--high
    prescription drug prices have forced him to use his retirement savings
    and sell his home to afford his medications. Larry suffers from
    Parkinson's disease and had to retire from law enforcement 10 years
    ago. He first shared his story in an AARP ad three years ago. In the
    absence of meaningful Congressional action, his situation has only
    deteriorated since that time without any relief from the high cost of
    his treatments. Larry states, ``I shouldn't have to decide between my
    home or my medicine because Congress refuses to act. I'm tired of
    waiting for Congress.''

    Unfortunately, Larry isn't alone. Every day we hear from older
    Americans who are forced to choose between paying for the medicines
    they need and paying for other essentials like food and heat. We know
    the number one reason someone does not fill a prescription is because
    of the cost.

    For years, prescription drug price increases have dwarfed even the
    highest rates of general inflation. If consumer prices had risen as
    fast as drug prices over the last 15 years, gas would now cost $12.20 a
    gallon, and milk would be $13 a gallon. Just in January, the drug
    industry raised prices on over 800 prescription medications--just as
    they have increased prices for decades--including three-quarters of the
    top 100 spend drugs in Medicare Part D. It is wrong, particularly in
    the midst of a pandemic and financial crisis, that drug companies
    remain free to raise the prices of their products unhindered, including
    those for chronic conditions that people over age 50 depend on.
    Moreover, it is not fair or right to ask patients and taxpayers to
    continue spending billions of dollars on exorbitantly priced
    prescription drugs in a broken U.S. market.

    As we look at prescription drug prices, it is important to keep in mind
    that high launch prices are just the beginning; drug prices typically
    continue to grow even after the drugs enter the market. AARP Public
    Policy Institute's latest Rx Price Watch report found that the retail
    prices for 180 widely used specialty prescription drugs increased at
    more than three-and-a-half times the rate of inflation in 2020.\1\ And
    to be clear--this isn't a one-time problem. The average annual increase
    in retail prices for the products that we study has exceeded the
    corresponding rate of inflation every year since at least 2006.
    ---------------------------------------------------------------------------
        \1\ http://www.aarp.org/rxpricewatch.

    Our report also found the average annual cost of therapy for a single
    specialty prescription drug is now over $84,000 per year. This average
    annual cost was almost $20,000 higher than the median US household
    income ($65,712); nearly three times the median income for Medicare
    beneficiaries ($29,650); and more than four-and-a-half times higher
    than the average Social Security retirement benefit ($18,530). In other
    words, we are now facing prescription drug prices that exceed what most
    people make in a year. Notably, our analysis also found that the
    average annual cost for a single specialty prescription drug would have
    been just under $40,000, or more than $45,000 lower, if retail price
    changes had been limited to the general inflation rate between 2006 and
    ---------------------------------------------------------------------------
    2020.

    AARP is also mindful that high and growing prescription drug prices are
    affecting all Americans in some way. Their cost is passed along to
    everyone with health coverage through increased health care premiums,
    deductibles, and other forms of cost sharing. We have also seen massive
    increases in prescription drug spending under public programs like
    Medicare and Medicaid. These escalating costs will eventually affect
    all of us in the form of higher health care costs, higher taxes, cuts
    to Medicare or Medicaid, or all of the above.

    In other words: every single American taxpayer is paying for high
    prescription drug prices, regardless of whether you are taking medicine
    yourself.

    Fortunately, there is action the Senate can take right now. There is
    long-standing and overwhelming bipartisan support among voters for
    allowing Medicare to negotiate with drug companies for lower prices.\2\
    The policies before the Senate--including Medicare negotiation, capping
    out of pocket costs under Medicare Part D, and penalizing drug
    companies that increase their prices faster than inflation--will
    provide long-overdue relief to older Americans across the country.
    These policies, taken together, will help reduce drug prices and out-
    of-pocket costs. This is important because real relief for seniors and
    all Americans must include policies that get to the root of the
    problem: the high prices set by drug companies.
    ---------------------------------------------------------------------------
        \2\ https://www.aarp.org/research/topics/health/info-2021/drug-
    prices-older-americans-concerns.html.

    America's seniors aren't the only ones who stand to benefit. Lowering
    prescription drug prices will also save the Medicare program and
    taxpayers hundreds of billions of dollars. Every year, Medicare spends
    more than $135 billion on prescription drugs. Yet it is prohibited by
    law from using its buying power to negotiate with drug companies to get
    ---------------------------------------------------------------------------
    lower prices.

    Congress must not fail to achieve this historic opportunity to finally
    lower prescription drug prices and bring much-needed relief to seniors
    across the country. The nonpartisan Congressional Budget Office (CBO)
    estimates that the latest drug pricing provisions passed by the House
    would save nearly $300 billion over 10 years--this includes provisions
    to penalize excessive price hikes and to allow Medicare to negotiate
    lower drug prices.\3\ The high cost of American drugs is not only
    unfair to seniors and families across the country, it is flagrantly
    fiscally irresponsible for Congress to allow the status quo to
    continue.
    ---------------------------------------------------------------------------
        \3\ https://www.cbo.gov/publication/57626.

    Industry lobbyists allege that lower drug prices will come at the cost
    of innovation. Let us be clear--AARP has no interest in solutions that
    will hamper true innovation. However, research has consistently
    demonstrated that there is no correlation between drug prices and
    innovation \4\ and that many new drugs could be described as innovation
    in name only.\5\ In addition, taxpayers fund much of the initial
    research that can lead to new drugs, and they should not be priced out
    of the benefits of those drugs when they come to market. Most of the
    important new drugs from the past 60 years were developed with the aid
    of public sector research.\6\ For example, NIH-funded research played a
    role in all 210 new drugs approved between 2010 and 2016.\7\ More
    recently, public funding helped in the development of vaccines for
    COVID-19, which the government was able to purchase and make affordable
    to the public. Finally, it is also notable that the public does not
    accept the drug industry's long-standing threat of reduced
    innovation.\8\ An AARP survey found that 83 percent of Democrats, 78
    percent of Republicans and 81 percent of independents said that drug
    prices could be lowered without harming innovation.
    ---------------------------------------------------------------------------
        \4\ https://www.healthaffairs.org/do/10.1377/hblog20190228.636555/
    full/.
        \5\ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6534750/; https://
    www.gao.gov/assets/gao-18-40.pdf; and https://www.healthaffairs.org/
    doi/pdf/10.1377/hlthaff.2020.00328.
        \6\ https://www.cbo.gov/publication/57126 which cites to https://
    aspe.hhs.gov/system/files/aspe-files/263451/2020-drug-pricing-report-
    congress-final.pdf.
        \7\ https://www.pnas.org/content/115/10/2329.
        \8\ https://www.aarp.org/politics-society/advocacy/info-2021/
    survey-voters-lower-drug-prices.html.

    Current prescription drug price trends are not sustainable and action
    is needed now. It is unfair that Americans continue to pay the highest
    drug prices in the world--three times what other nations pay for the
    same prescription drugs. The drug industry has been price gouging
    seniors for too long. Enacting the policies before this committee,
    including allowing Medicare to negotiate, will finally deliver on the
    promise of lower drug prices that will help ensure that all patients
    have affordable access to the drugs that they need to get and stay
    ---------------------------------------------------------------------------
    healthy.

                                     ______

                         Alliance for Retired Americans

                         815 16th Street, NW, 4th Floor

                              Washington, DC 20006

                                 (202) 637-5399

                            www.retiredamericans.org

    The Alliance for Retired Americans appreciates the opportunity to
    submit comments to the Senate Committee on Finance regarding the
    committee hearing entitled ``Prescription Drug Price Inflation: An
    Urgent Need to Lower Drug Prices in Medicare.'' We thank Chairman Wyden
    and Ranking Member Crapo for holding this hearing, and are most
    appreciative of the witnesses for providing insightful testimony.

    Founded in 2001, the Alliance is a grassroots organization representing
    more than 4.3 million retirees and seniors nationwide. Headquartered in
    Washington, DC, the Alliance and its 39 state chapters work to advance
    public policy that strengthens the health and retirement security of
    older Americans.

    The Alliance strongly supports efforts to eliminate waste and reduce
    drug costs in Medicare's prescription drug benefits plans and the
    system's finances overall, and opposes proposals that shift any
    additional costs to beneficiaries. We categorically support the
    fundamental goals of this hearing, namely, to demonstrate the harm that
    exorbitantly high prescription drug prices have on senior citizens and
    the American economy, and to underline the urgency of passing
    legislation that would permit Medicare to negotiate drug prices.

    Prescription Drug Prices

    Americans pay the highest prices in the world for prescription drugs,
    and prices on hundreds of drugs have already increased by 5% in 2022,
    far outpacing inflation. According to a March 29, 2021 report by the
    Government Accountability Office (GAO), in 2020 Americans paid two to
    four times more for 20 brand-named drugs than people in Canada, France
    and Australia. Seniors, who take the most prescription drugs to stay
    healthy, bear the brunt of these high prices. The Alliance disagrees
    with comments made by a number of Republican committee members and
    witness Dr. Holtz-Eakin, who stated that when compared to recent price
    increases on goods and services, they do not perceive prescription drug
    prices to be unnecessarily high.

    The Alliance believes that unacceptably high prescription drug prices
    are unrelated to recent inflationary price spikes caused by supply
    chain disruptions or the war in Ukraine. Rather, excessively high drug
    pricing is an ongoing problem that has existed for far too long, and is
    exemplified by the recent Aduhelm debacle, which shows that there is no
    justification for such high prices. After initially launching its
    Alzheimer's drug, Adulhelm, at $96,000 per year, Biogen cut the price
    in half after controversy over the drug approval process and concerns
    over the safety of the drug resulted in low sales. The drug's
    exorbitant cost was the chief factor contributing to the highest
    increase in Medicare Part B premiums in recent history. The basic
    monthly Medicare Part B premiums jumped from $148.50 to $170.10 thus
    far in 2022, an unprecedented increase of 14.5%. This is obviously a
    most terrible burden for Medicare beneficiaries. The Alliance has
    called on CMS to reduce the 2022 premium rates. The Abuhelm example is
    a case study on how unchecked prescription drug prices affect the
    entire health care system, especially for older Americans who rely on
    Medicare.

    While drug companies have defended their high launch prices and yearly
    price increases as needed to fund research and development, the House
    Oversight and Reform Committee found in a July 2021 Staff Report that
    the world's leading drug companies actually spent more on payouts to
    investors than in research and development.

    Because of the terribly high cost of prescription drugs, nearly a
    quarter of Americans and 20% of seniors report not being able to afford
    their prescriptions. As a result, millions of Americans do not take
    their prescriptions as prescribed by their doctor and are instead not
    filling them, skipping doses, or taking fewer doses than directed. One
    poignant example was provided to the committee by Ms. Steffany Stern,
    who testified that her mother faced prescription drug costs of over
    $5,000 per month for multiple sclerosis medicine, and highlighted in
    her testimony that her mother is only able to afford medicine because
    of assistance from charities. Clearly, her mother's situation and that
    of the numerous Americans who find themselves in similar circumstances
    should not be not tolerated in a nation as wealthy and resourceful as
    the United States.

    Allowing Medicare to Negotiate Prescription Drug Prices

    In accordance with the opening statement given by Finance Committee
    Chairman Wyden and brilliantly laid out by Dr. Rena Conti in her
    testimony, the Alliance strongly believes that it is of utmost
    importance that the Secretary of Health and Human Services is allowed
    to negotiate lower drug prices under Medicare. Without prescription
    drug price negotiation, the status quo, where far too many senior
    citizens are unable to afford their prescription drugs will continue.

    As Senator Wyden pointed out, ``with Medicare barred from negotiating
    better prices, this program that represents tens of millions of seniors
    and even more taxpayers has to take on Big Pharma with both hands tied
    behind its back.'' Indeed, unlike the VA and Medicaid, ``prescription
    drugs in Medicare may be the only case across the entire government
    where negotiating a better price is legally prohibited, and it is long
    past time for that to change,'' the Chairman continued.

    According to the Congressional Budget Office and Joint Committee on
    Taxation's 2019 analysis,\1\ Medicare price negotiation would not only
    assist seniors to afford their medicine, it would also save the U.S.
    government billions of dollars. In fact, it would lower spending by
    $456 billion, which would be enough to allow Medicare to cover critical
    needs such as dental, vision and hearing coverage.
    ---------------------------------------------------------------------------
        \1\ https://www.cbo.gov/publication/55936.

    Counter arguments frequently offered by Republicans and Pharma, which
    claim that allowing for price negotiations would lead to dramatic
    decreases in innovation, as well as government drug price controls, are
    terribly misguided. In reality, as Dr. Conti demonstrated in her
    testimony, allowing for Medicare negotiation ``would not result in
    material reductions in innovation in the next decade and would have
    small effects over 30 years--one less drug the next decade and four
    less drugs over the subsequent decade,'' she points out. Moreover,
    there is no indication that any of the ``forgone'' drugs would have
    become innovative cures, given that only one in eight drugs generates a
    new therapeutic benefit. Additionally, Dr. Conti added that ``most of
    the new pharmaceutical products (excluding generics) provided by the
    U.S. FDA are not new drugs at all (but rather) only 32% were new
    molecular entities, while the rest represent new versions of old
    drugs.''

    Patent Abuses

    Another contributing factor to the causal effect of high drug prices is
    the abusive practice of drug companies that take advantage of the U.S.
    patent system. The Alliance strongly agrees with Chairman Wyden and
    Finance Committee Democrats, as well as Republican members who
    mentioned the issue of patent abuse during the hearing, and believe
    that legislation needs to be enacted urgently to curb these often
    egregious abuses. Pharmaceutical companies use numerous tactics to
    extend patent terms, including the use of patent thicket, pay-for-delay
    agreements, parking exclusivity, evergreening and other measures that
    reduce competition and keep prices inflated.

    Indisputably, patent extensions cost the Medicare program billions of
    dollars. For example, AbbVie Pharmaceutical filed over 250 patents on
    Humira and used patent thicket--a group of overlapping patents--to
    extend its patent on the drug. The extension of Abbie's patent from
    2016-2019 cost the Medicare program over $2 billion. In addition, since
    AbbVie's patents on Humira were set to expire in 2017, the company
    reached an agreement through a pay-for-delay deal with its competitors,
    Novartis and Amgen, to delay the entry of those companies' biosimilars
    in the United States until 2023, a delay agreement that is costing
    American taxpayers $19 billion.

    Additional Items:

    Lastly, the Alliance for Retired Americans strongly supports meaningful
    reform items in the House passed Build Back Better Act, all of which
    have been mentioned during this hearing and supported by Finance
    Committee Democrats. The most salient of these include:

          Capping co-pays for insulin at $35.
          Setting a $2,000 out of pocket cap for seniors' medications in
    Medicare Part D.
          Creating a new price gouging penalty for drug companies that
    raise prices faster than inflation.

    On behalf of our more than 4.3 million members, the Alliance for
    Retired Americans appreciates the opportunity to submit testimony on
    this vitally important issue.

                                     ______

                     American College of Clinical Pharmacy

                 Office of Government and Professional Affairs

                     1455 Pennsylvania Ave., NW, Suite 400

                              Washington, DC 20004

                                 (202) 621-1820

                                  www.accp.com

    The American College of Clinical Pharmacy (ACCP) appreciates the
    opportunity to provide the following statement to the Senate Finance
    Committee related to the March 16, 2022 hearing on ``Prescription Drug
    Price Inflation: An Urgent Need to Lower Drug Prices in Medicare.''

    ACCP is a professional and scientific society that provides leadership,
    education, advocacy, and resources enabling clinical pharmacists to
    achieve excellence in patient care practice and research. ACCP's
    membership is composed of more than 17,000 clinical pharmacists,
    residents, fellows, students, scientists, educators and others who are
    committed to excellence in clinical pharmacy practice and evidence-
    based pharmacotherapy.

    ACCP's members practice in a variety of team-based settings, including
    ambulatory care environments, hospitals, colleges of pharmacy and
    medicine, the pharmaceutical industry, government and long-term care
    facilities, and managed care organizations. Our focus is the
    optimization of medication regimens to achieve patient-centered
    therapeutic goals,

    ACCP welcomes the growing recognition in Congress of the unique
    opportunity that prescription drugs offer to improve health and enhance
    the quality of life for millions of American patients, and the unique
    challenges we face in ensuring affordable access to these vital
    therapies.

    We look forward to working with you to incentivize integration of
    qualified clinical pharmacists into value-based patient-care teams in
    order to achieve better outcomes from the medication therapies our
    entire health delivery system is so heavily invested in.

    Achieving Medication Optimization

    ACCP believes that in order to achieve a health care system that
    delivers better care, smarter spending, and healthier people and
    communities, it is vital to establish a truly team-based, patient-
    centered approach to health care consistent with evolving delivery and
    payment models currently available under private and commercial health
    plans.

    It is estimated that $528 billion a year,\1\ equivalent to 16 percent
    of total health care spending, is consumed due to inappropriate or
    otherwise ineffective medication use. Given the central role that
    medications play in care and treatment of chronic conditions, combined
    with the continuing growth in the range, complexity and cost of
    medications--and greater understanding of the genetic and physiologic
    differences in how people respond to their medications--the nation's
    health care system consistently fails to deliver on the full promise
    medications can offer.
    ---------------------------------------------------------------------------
        \1\ Watanabe, J., McInnis, T., and Hirsch, J. (2018). Cost of
    Prescription Drug-Related Morbidity and Mortality. The Annals of
    Pharmacotherapy, 52(9), 829-837. http://dx.doi.org/10.1177/
    1060028018765159 Retrieved from https://escholarship.org/uc/item/
    3n76n4z6.

    Comprehensive medication management (CMM) is a direct patient care
    service, provided by clinical pharmacists working as formal members of
    the patient's health care team that has been demonstrated to
    significantly improve clinical outcomes and enhance the safety of
    medication use by patients.

    Optimizing Specialty Drug Use

    The rapidly increasing cost of many existing and newly approved
    specialty drugs is a major and growing concern to patients, the
    American public, commercial and federal payers, and health policy
    economists and regulators.

    Specialty prescription drugs can be defined as a prescription drug that
    ``has a total average prescription cost greater than $1,000 per
    prescription; or has a total average cost per day of therapy greater
    than $33 per day.''\2\ The Centers for Medicare and Medicaid Services
    definition of specialty drugs is also based on price--pharmaceuticals
    costing $600 or more per month are considered specialty drugs.\3\
    ---------------------------------------------------------------------------
        \2\ Schondelmeyer S.W., Purvis L. Rx price watch report. Trends in
    retail prices of specialty prescription drugs widely used by older
    Americans, 2006 to 2013 [research report], 2015. Available from
    www.aarp.org/content/dam/aarp/ppi/2015/rx-price-watch-specialty-
    prescription-drug-prices-continue-to-climb-final.pdf.
        \3\ Centers for Medicare and Medicaid Services (CMS). Medicare Part
    D specialty tier [guidance document], 2014. Available from www.cms.gov/
    Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovGenIn/Downloads/
    SpecialtyTierMethodology.pdf.

    ACCP believes that a patient-centered, team-based, and evidence-driven
    approach to CMM must be paired with emerging value-based pricing
    approaches to better ensure that the rational and economical use of
    specialty drugs is optimized both for patients and for the health care
    system. CMM, applied through standardized clinical practice processes
    is a cornerstone of interprofessional, patient-centered care that can
    ---------------------------------------------------------------------------
    better ensure optimized, economical specialty drug use.

    ACCP urges the Committee to pursue specialty drug pricing models that
    ensure patients and health systems receive commensurate value from the
    appropriate use of specialty drugs, employ rational and transparent
    pricing practices, and enable pharmaceutical manufacturers to
    sufficiently recoup research and development (R&D) investments.\4\
    ---------------------------------------------------------------------------
        \4\ ACCP Position Statement, 2017. Optimizing Specialty Drug Use,
    Pharmacotherapy, 37: 973-975. https://doi.org/10.1002/phar.1945.

    Value-based pricing models might include indication-specific pricing,
    bundled payments, and explicit investigations of cost, value,
    comparative effectiveness and safety of specialty drugs.

     Implementation of Pharmacogenomics (PGx) to Achieve Medication
                        Optimization

    Pharmacogenomics (PGx) allows clinicians to assess how a patient's
    genetic profile determines their responses to specific medications.
    Appropriate diagnosis and access to advanced diagnostics like PGx
    testing is essential to ensure safe and effective therapy for each
    patient. When applied as a component of CMM, PGx ensures that a
    patient's medications are individually assessed to determine that each
    is indicated, effective, consistent with patient expectations, and
    safe, in view of the comorbidities present, other concurrent
    medications, and the patient's ability to adhere to the prescribed
    regimen.

    When integrated into CMM, PGx testing allows for targeted treatment
    decisions based on the unique characteristics of the patient's unique
    genetic profile. The integration of PGx within CMM reduces costs,
    improves outcomes and access to care, and enhances patient and provider
    quality of life and satisfaction. To ensure medication optimization,
    pharmacogenomics (PGx) should be integrated into CMM.

    ``Cures 2.0'' legislation (H.R. 6000) currently being considered by the
    House Committee on Energy and Commerce includes Section 408: Medicare
    Coverage for Precision Medicine Consultations. Section 408 would
    require the Secretary of Health and Human Services to create a pilot
    grant program within the Center for Medicaid and Medicare Innovation
    (CMMI) to test approaches to delivering personalized-medicine PGx
    consultations by qualified clinical pharmacists.

    We thank the Finance Committee for tackling these serious issues
    related to the increasing cost of prescription medications, Medicare
    coverage and payment for digital health and personalized medicine
    infrastructure. We urge you to advance payment policy to support the
    integration of evolving team-based, quality-focused payment and care
    delivery models that shift Medicare payment policy for providers toward
    value of care and away from volume of services.

    About ``Qualified Clinical Pharmacists''

    Clinical pharmacists are practitioners who provide CMM and related care
    for patients in all health care settings. They are licensed pharmacists
    with specialized, advanced education and training who possess the
    clinical competencies necessary to practice in team-based, direct
    patient care environments. Accredited residency training or equivalent
    post-licensure experience is necessary for entry into direct patient
    care practice. Board certification is also expected once the clinical
    pharmacist meets the eligibility criteria specified by the Board of
    Pharmacy Specialties (BPS). In providing CMM, they establish a valid
    collaborative drug therapy management (CDTM) agreement with the
    patient's provider or are formally granted clinical privileges within a
    health care practice/institution.

    We would welcome the opportunity to provide additional information,
    data, and connections to successful practices that provide CMM/PGx
    services as part of this effort to optimize the use of medications in
    the U.S.

    Summary

    We thank you for the opportunity to provide input on the Finance
    Committee's efforts to address prescription drug price inflation and
    its impact on the long-term sustainability of the Medicare program.

    As part of this effort, we urge you to consider efforts to modernize
    access to and coverage of innovative therapies and we encourage you to
    utilize the unique contributions of clinical pharmacists in the area of
    medication optimization. We welcome the growing understanding in
    Congress of the unique value that qualified clinical pharmacists
    provide in the therapeutic management of complex conditions.

    ACCP is dedicated to advancing a quality-focused, patient-centered,
    team-based improvement in health care delivery that (1) helps assure
    medication optimization, (2) enhances patient safety, (3) promotes
    value-based rather than volume-based care, and (4) contributes to
    greater affordability and sustainability for the Medicare program. We
    look forward to working with you to help achieve these goals.

                                     ______

                         American College of Physicians

                     25 Massachusetts Avenue, NW, Suite 700

                           Washington, DC 20001-7401

                                  202-261-4500

                                  800-338-2746

                               www.acponline.org

    On behalf of the American College of Physicians (ACP), we are grateful
    for this opportunity to share our views with the Senate Finance
    Committee regarding its recent hearing on the rising cost of
    prescription drugs and the need to lower drug prices in Medicare. We
    appreciate that over the past several years the Finance Committee has
    conducted multiple hearings and developed polices on prescription drug
    reforms, but we urge the Congress to act now to approve legislation to
    lower drug costs that may be signed into law. Our nation and patients
    can no longer afford to wait for Congress to act as the high cost of
    prescription drugs continues to strain the budget of federal and state
    governments and compels our patients to resort to cutting back or
    skipping doses of their medicines to save money, which can lead to more
    serious health complications. Our statement will provide this Committee
    with ACP's recommendations to increase access to prescription drugs in
    Medicare through policies that would: allow Medicare to negotiate drug
    prices; impose caps on out-of-pocket spending in Medicare Part D;
    increase competition in the prescription drug marketplace; eliminate
    tax deductions for direct-to-consumer drug advertising; and improve
    transparency regarding drug costs.

    ACP is the largest medical specialty organization and the second
    largest physician membership society in the United States. ACP members
    include 161,000 internal medicine physicians (internists), related
    subspecialists, and medical students. Internal medicine physicians are
    specialists who apply scientific knowledge, clinical expertise, and
    compassion to the preventive, diagnostic, and therapeutic care of
    adults across the spectrum from health to complex illness. Internal
    medicine specialists treat many of the patients at greatest risk from
    COVID-19, including the elderly and patients with pre-existing
    conditions like diabetes, heart disease and asthma.

    ACP remains committed to developing polices to lower the cost of
    prescription drugs and has published a series of papers that provide
    Congress with multiple options to address this issue. These papers
    include policy recommendations on the following topics:

          Stemming the Cost of Prescription Drugs through policies to
    Improve Transparency, Value, and Competition in the Marketplace \1\
    ---------------------------------------------------------------------------
        \1\ https://www.acponline.org/acp_policy/policies/
    stemming_rising_cost_prescription_drugs_
    2016.pdf.
    ---------------------------------------------------------------------------
          Reducing the Cost of Prescription Drugs in Public Health Plans
    \2\
    ---------------------------------------------------------------------------
        \2\ https://www.acpjournals.org/doi/pdf/10.7326/M19-0013.
    ---------------------------------------------------------------------------
          Recommendations for Pharmacy Benefit Managers to Stem the
    Escalating Cost of Prescription Drugs \3\
    ---------------------------------------------------------------------------
        \3\ https://www.acpjournals.org/doi/10.7326/M19-0035.
    ---------------------------------------------------------------------------
          Improving Competition in the Prescription Drug Marketplace.\4\
    ---------------------------------------------------------------------------
        \4\ https://www.acpjournals.org/doi/pdf/10.7326/M19-3773.

    Because the topic of prescription drug pricing continues to be of
    interest to patients, physicians, and government officials, ACP
    believes policymakers should act immediately to address current issues
    in the Medicare and Medicaid programs that add costs to the health care
    system, may inadvertently incentivize higher prices for prescription
    drugs, and increase out-of-pocket costs for consumers.

    Prescription Drug Costs Continue to Rise

    The cost of prescription drugs continues to rise, which greatly affects
    access to life-saving treatments for patients who are unable to afford
    high out-of-pocket costs. Patients increasingly face higher co-pays,
    more drug tiers and prescription drug deductibles, adding to the burden
    they face in affording high-cost medications. Many Americans face the
    difficult choice of filling their prescriptions or paying for
    necessities such as food or housing.

    According to a report \5\ published by the Congressional Budget Office
    (CBO) ``nationwide spending on prescription drugs increased from $30
    billion in 1980 to $335 billion in 2018. (All estimates of drug
    spending and prices in this report are expressed in 2018 dollars.'') As
    outlined in ACP's 2019 position paper,\6\ Policy Recommendations for
    Public Health Plans to Stem the Escalating Costs of Prescription Drugs,
    the United States spends more on prescription drugs than other high-
    income countries, with average annual spending of $1,443 per capita on
    pharmaceutical drugs and $1,026 per capita on retail prescription
    drugs. In a 2021 study \7\ by the RAND Corporation, it was further
    affirmed that prices in the United States were 256 percent higher, on
    average, than in 32 other countries with comparable economies and when
    only comparing brand-name drugs, prices in the United States were 344
    percent higher.
    ---------------------------------------------------------------------------
        \5\ https://www.cbo.gov/publication/57050.
        \6\ https://www.acpjournals.org/doi/pdf/10.7326/M19-0013.
        \7\ https://www.rand.org/news/press/2021/01/28.html.

    Reports show that although use of prescription drugs in the United
    States is high, it is not an outlier \8\ compared with nine other high-
    income nations. The primary differences between health care
    expenditures in the United States versus other high-income nations are
    pricing of medical goods and services and the lack of direct price
    controls or negotiating power by centralized government health care
    systems.
    ---------------------------------------------------------------------------
        \8\ https://www.commonwealthfund.org/sites/default/files/documents/
    ___media_files_publica
    tions_issue_brief_2017_oct_sarnak_paying_for_rx_ib_v2.pdf.
    ---------------------------------------------------------------------------

    Allow Medicare to Negotiate Drug Prices

    We appreciate that during this hearing a significant portion of the
    debate was devoted to examining the impact of allowing Medicare to
    directly negotiate the price it pays for drugs in the Medicare Part D
    program. According to a Kaiser Family Foundation tracking poll,\9\
    granting Medicare Part D the authority to negotiate drug prices is
    favored by a bipartisan majority of the public, with more than 90
    percent of Democrats, Republicans, and Independents agreeing with this
    approach. Negotiating authority was also endorsed in a report \10\ by
    the National Academies of Sciences, Engineering, and Medicine on
    improving the affordability of prescription drugs as part of a package
    of broader reforms for consolidating and leveraging purchasing power
    and strengthening formulary design.
    ---------------------------------------------------------------------------
        \9\ https://www.kff.org/health-reform/report/kaiser-health-
    tracking-poll-late-april-2017-the-future-of-the-aca-and-health-care-
    the-budget/.
        \10\ https://pubmed.ncbi.nlm.nih.gov/29620830/.

    ACP has longstanding policy supporting the ability of Medicare to
    leverage its purchasing power and directly negotiate with manufacturers
    for drug prices. We supported a provision in H.R. 3, the Elijah E.
    Cummings Lower Drug Costs Now Act, that would mandate that the
    Secretary of Health and Human Services (HHS) identify 250 brand name
    drugs that lack competition in the marketplace and that account for the
    greatest cost to Medicare and the U.S. health system and then negotiate
    directly with drug manufacturers to establish a maximum fair price for
    a bare minimum of 25 of those drugs. In a 2019 estimate by the
    Congressional Budget Office,\11\ projections indicated that $456
    billion in savings over 10 years would be realized by enacting the
    provision in H.R. 3 to allow Medicare to directly negotiate
    prescription drug prices with manufacturers.
    ---------------------------------------------------------------------------
        \11\ https://www.cbo.gov/system/files/2019-12/hr3_complete.pdf.

    Last November, the House passed H.R. 5376, the Build Back Better Act
    (BBBA), that includes a provision to allow Medicare to directly
    negotiate the price of some drugs provided in Medicare Part D. We
    remain concerned that the House-passed BBBA does not include this more
    robust provision of price negotiation in H.R. 3. We believe that giving
    HHS the authority to negotiate drug prices with manufacturers is one of
    the most effective ways to lower the cost of prescription drugs and we
    urge lawmakers to include that provision of H.R. 3 or similar
    ---------------------------------------------------------------------------
    legislation in the final bill.

    The House-passed BBBA allows HHS to negotiate the price of 10 of the
    most expensive drugs by 2025 and goes up to 20 drugs by 2028 on drugs
    that are beyond their period of exclusivity. The bill applies an excise
    tax on drug manufacturers for raising prices faster than the rate of
    inflation, reduces out-of-pocket expenses for customers and ensures
    patients pay no more than $35 a month for insulin products. While ACP
    reaffirms its support for a full repeal of the noninterference clause,
    ACP is also supportive of an interim approach, such as allowing the
    Secretary of HHS to negotiate for a limited set of high-cost or sole-
    source drugs.

    Impose Caps on Out-of-Pocket Spending in Medicare Part D

    American consumers must pay less at the pharmacy counter. The Medicare
    Part D benefit structure leaves millions of patients exposed to extreme
    out-of-pocket spending, while failing to create the proper incentives
    to direct patients towards drugs that cost less.

    ACP was pleased to support a provision in legislation that Senators
    Wyden and Grassley introduced in the last Congress, the Prescription
    Drug Pricing Reduction Act of 2019, which would cap annual out-of-
    pocket spending for Medicare Part D beneficiaries who reach the
    catastrophic phase of coverage. In addition, ACP supports adoption of a
    cap on out-of-pocket drug costs to protect Medicare beneficiaries from
    excessive exposure to these costs, which is too often the case today.
    Although we are supportive of these policies, we urge the Committee to
    consider the full gamut of likely ramifications from such changes,
    particularly when programmatic changes of this magnitude are being put
    forward.

    One potential result, for example, is that such a cap on beneficiary
    out-of-pocket costs is likely to be offset at least in part by higher
    premiums, unless accompanied by other measures that address the
    underlying reason for high out-of-pocket costs, like excessive pricing.
    Notable among these is the application of any cap brought about by Part
    D reforms should be on a quarterly as opposed to an annual basis. This
    will help beneficiaries better afford their medications at the time
    they have to pay out-of-pocket for them--rather than at the end of a
    full calendar year--which could be many months after they have incurred
    the expense.Limiting beneficiary out-of-pocket expenses on a quarterly
    basis will make it much less likely they will forgo needed medications
    because they cannot afford them.

     Increase Competition in the Marketplace to Lower the Cost of
                        Prescription Drugs

    The prescription drug market in the United States relies on competition
    to keep prices reasonable. Although many policies have been implemented
    to spur competition and decrease costs for patients, these policies may
    be outdated and should be redesigned and updated to achieve success in
    the current prescription drug market.
    Improve Competition in Medicare Part D Low Income Subsidy Program
    ACP supports the Medicare Part D low-income subsidy program (LIS) that
    assists seniors with fewer resources in paying for their prescription
    drugs. We also support modifications to this program to encourage the
    use of lower-cost generic or biosimilar drugs by eliminating cost
    sharing for generic drugs for LIS enrollees. Twelve million Medicare
    Part D beneficiaries are enrolled in the LIS program. Although use of
    low-cost generic drugs by Part D beneficiaries is relatively high and
    continues to increase as more generics become available, the generic
    drug use rate is lower among LIS enrollees than among other Medicare
    beneficiaries.

    Despite the current rate of generic drug dispensing among low-income
    subsidy (LIS) enrollees and non-LIS enrollees, additional savings are
    possible for Medicare and its beneficiaries. The Centers for Medicare
    and Medicaid Services (CMS) \12\ estimates that Medicare could have
    saved nearly $9 billion if available equivalent generics were used
    instead of brand-name drugs and could have passed on $3 billion in
    savings to the Part D program and its beneficiaries. Reducing or
    eliminating cost sharing for LIS enrollees would not require
    legislative action because it would not increase cost sharing, would
    reduce overall out-of-pocket costs for LIS enrollees, and would
    encourage use of generics among them. Reducing or eliminating cost
    sharing or copayments for generic drugs could also reduce Medicare
    spending \13\ on reinsurance payments because a majority of enrollees
    who reach the catastrophic phase of coverage are in the LIS program. In
    addition to traditional generic drugs, biosimilar cost sharing should
    also ensure that LIS enrollees have an incentive to choose lower-cost
    alternatives to brand name biologic drugs. Biosimilars have the
    potential to save \14\ $54 billion in direct spending on biologic drugs
    between 2017 and 2026.
    ---------------------------------------------------------------------------
        \12\ https://aspe.hhs.gov/sites/default/files/private/pdf/259326/
    DP-Multisource-Brands-in-Part-D.pdf.
        \13\ https://aspe.hhs.gov/sites/default/files/private/pdf/259326/
    DP-Multisource-Brands-in-Part-D.pdf.
        \14\ https://pubmed.ncbi.nlm.nih.gov/30083415/.
    ---------------------------------------------------------------------------
    Prohibit Gaming of the Patent System
    ACP supports robust oversight and enforcement of restrictions on
    product-hopping, evergreening, and pay-for-delay practices to increase
    marketability and availability of competitor products and we urge the
    Congress to adopt policies that will prohibit drug companies from
    gaming the patent system through these practices.

    There are several ways in which pharmaceutical manufacturers use the
    existing patent system for their benefit. Companies may apply for
    multiple patents on a single drug, creating what has been referred to
    as a patent thicket,\15\ a ``dense web of overlapping intellectual
    property rights that a company must hack its way through in order to
    actually commercialize new technology.'' In an egregious example, the
    parent company of the biologic drug Humira \16\ has filed 247 patent
    applications and has been granted more than 100, extending patent
    protection for the drug into the 2030s.
    ---------------------------------------------------------------------------
        \15\ https://www.journals.uchicago.edu/doi/pdfplus/10.1086/
    ipe.1.25056143.
        \16\ https://heatinformatics.com/sites/default/files/images-
    videosFileContent/i-mak.enbrel.
    report-REVISED-2020-10-06.pdf.

     End the Practice of Product Hopping or Evergreening by Pharmaceutical
            Companies
    Companies use product hopping or evergreening to prevent generic
    competition from entering the market by making small adjustments with
    minimal if any real therapeutic value to a drug that grant the company
    longer patent protection, or they remove the drug from market, forcing
    patients to switch to a reformulated version of the same drug.
    Applications for these types of modifications often occur toward the
    end of a product's patent life, when the drug is facing potential
    generic competition, in order to maximize the potential monopoly
    extension.
     ACP Opposes Anti-competitive Pay-for-Delay Arrangements
    ACP opposes anticompetitive pay-for-delay arrangements that curtail
    access to lower-cost alternative drugs. ACP believes applicable federal
    agencies should be empowered through guidance, congressional action, or
    additional resource support to address anticompetitive behaviors and
    gaming. Pay-for-delay, also known as ``reverse payment settlement,'' is
    a patent settlement strategy in which a patent holder pays a generic
    manufacturer to keep a potential generic drug off the market for a
    certain period. The number of pay-for-delay agreements \17\ increased
    from 3 in 2005 to 19 in 2009, after court decisions upheld the legality
    of such agreements, which prohibit generic drugs from entering the
    market on average nearly 17 months longer than agreements without
    compensation. In 2013, the Supreme Court ruled that although pay-for-
    delay agreements are not presumptively illegal, the FTC cannot be
    prevented from initiating legal action in regard to such
    agreements.\18\
    ---------------------------------------------------------------------------
        \17\ https://www.ftc.gov/news-events/topics/competition-
    enforcement/pay-delay.
        \18\ https://www.scotusblog.com/case-files/cases/federal-trade-
    commission-v-watson-pharmaceuticals-inc/.

    Senators Klobuchar and Grassley have introduced legislation S. 1428,
    The Preserve Access to Affordable Generics and Biosimilars Act, which
    would prohibit brand name drug companies from compensating generic drug
    companies to delay the entry of a generic drug into the market. ACP
    calls for robust oversight and enforcement of pay-for delay agreement
    in order to limit anti-competitive behaviors that keep lower cost
    alternative off the market, and we appreciate that Senators have
    introduced legislation with the intent to address these harmful
    tactics.
     Reduce Pharmaceutical Companies Market or Data Exclusivity Periods
            from 12 to 7 years
    Pharmaceutical companies also claim that long exclusivity periods are
    needed to support innovation and allow a return on their investment and
    promote future innovation. Marketing exclusivity is granted by the FDA
    upon approval, during which a competitor, typically a generic drug, is
    prohibited from being marketed. Data exclusivity prohibits a competitor
    company from using the data collected by an originator company to gain
    approval of their drug. In the case of biosimilars, the high cost of
    developing and conducting trials undermines the potential cost-savings
    to the manufacturer if they are required to collect new data. ACP
    opposes extending market or data exclusivity periods beyond the current
    exclusivities granted to small-molecule, generic, orphan, and biologic
    drugs and we support reducing the period of data and market exclusivity
    for biologic drugs from 12 years to 7 years. Reducing the exclusivity
    period from 12 to 7 years, combined with provisions to prevent product
    hopping or evergreening \19\ of biologic drugs, could get biosimilar or
    interchangeable drugs to market faster and save the federal government
    nearly $7 billion over 10 years. The Federal Trade Commission (FTC)
    \20\ also supports a reduction in biologic exclusivity, noting that 12
    years is unnecessary to promote innovation because biologic drug
    manufacturers are likely to earn substantial revenue even after the
    introduction of biosimilars.
    ---------------------------------------------------------------------------
        \19\ https://obamawhitehouse.archives.gov/omb/budget/.
        \20\ https://www.ftc.gov/sites/default/files/documents/reports/
    emerging-health-care-issues-follow-biologic-drug-competition-federal-
    trade-commission-report/p083901biologicsreport.pdf.
    ---------------------------------------------------------------------------

     Eliminate Tax Deductions for Direct-to-Consumer Pharmaceutical
                        Advertising

    A study \21\ of the period from 1997 to 2016 showed that direct-to-
    consumer (DTC) advertising for prescription drugs experienced rapid
    spending growth, from $2.1 billion (11.9 percent) of total spending in
    1997 to $9.6 billion (32.0 percent) of total spending in 2016. Another
    study \22\ showed that one third of the growth in drug spending is
    attributable to an increase in advertising. A review of available data
    showed that DTC advertising was associated with increases in
    prescribing of the advertised drug \23\ and drug spending.\24\ Although
    a complete ban on DTC advertising is unlikely given that many courts
    have ruled that it is allowed under the First Amendment, steps can be
    taken to limit the influence it may have on prescription drug
    expenditures.
    ---------------------------------------------------------------------------
        \21\ https://pubmed.ncbi.nlm.nih.gov/30620375/.
        \22\ https://www.nber.org/system/files/working_papers/w21714/
    w21714.pdf.
        \23\ https://pubmed.ncbi.nlm.nih.gov/16076787/.
        \24\ https://www.gao.gov/assets/gao-07-54.pdf.

    Under current law, drug manufacturers may deduct the cost of
    advertising expenses from federal taxes. Eliminating the tax deduction
    only for prescription drug product claim ads does not run afoul of free
    speech concerns about banning DTC advertising. Further, a study of
    physicians by the FDA showed that although the physicians believed that
    DTC advertising prompted patients to ask questions and be more aware of
    possible treatments, they believed that such ads did not convey risks
    ---------------------------------------------------------------------------
    and benefits equally well.

    We urge Congress to approve legislation, S. 141, the End Taxpayer
    Subsidies for Drug Ads Act, which would prohibit a tax deduction for
    expenses for DTC advertising of prescription drugs, thus eliminating
    the deduction that pharmaceutical companies use to pay for drug
    advertising.

    Increase Transparency in the Marketplace

    ACP policy supports transparency in the pricing, cost, and comparative
    value of all pharmaceutical products. For decades, pharmaceutical
    manufacturers have claimed that drug pricing is based on research and
    development cost and innovation and is well regulated by market forces.
    The spike in prices and increase in price for drugs already on the
    market have made many stakeholders wary, especially because many of
    these new therapies treat small populations and there are few data to
    support that overall health care costs are reduced.

    We support additional measures to improve transparency in the price of
    prescription drugs so that drug manufacturers disclose additional
    information concerning the reasons why drug prices may rise beyond the
    rate of inflation. Pharmaceutical companies should disclose actual
    material and production costs to regulators, and research and
    development costs contributing to a drug's pricing, including those
    drugs which were previously licensed by another company. Rigorous price
    transparency standards should be instituted for drugs developed from
    taxpayer-funded basic research.

    We urge Congress to approve the FAIR Drug Pricing Act (S. 898), which
    would promote pricing transparency by requiring manufacturers to notify
    the Department of Health and Human Services (HHS) and provide a
    justification report 30 days before they increase the price of certain
    drugs.
    Increase Transparency for Pharmacy Benefit Managers and Insurers
    Pharmacy benefit managers \25\ (PBMs) are for-profit companies that act
    as intermediaries for health insurers, self-insured employers, union
    health plans, Medicare Part D prescription drug benefit plans, and
    government purchasers in the selection, purchase, and distribution of
    pharmaceutical products for more than half the U.S. population. The ACP
    believes increased transparency \26\ is needed on the part of PBMs and
    health plans to provide greater understanding of drug prices, help
    patients make informed decisions, and support a more sustainable health
    care system.
    ---------------------------------------------------------------------------
        \25\ https://www.healthaffairs.org/do/10.1377/hpb20171409.000178/
    full/.
        \26\ https://www.acpjournals.org/doi/pdf/10.7326/M19-0035.

    The continued lack of transparency from PBMs and insurers can hinder
    how patients, physicians, and others view the drug supply chain and can
    make it difficult to identify whether a particular entity is
    inappropriately driving up drug prices. This lack of transparency can
    also prevent viable policy solutions from being identified and further
    delay reforms that would help to rein in spending on prescription
    drugs. Although there have been many calls for transparency on the part
    of pharmaceutical companies and greater support for transparency in
    health care generally, all stakeholders must commit to improving
    transparency as the health care community works toward creating an
    ---------------------------------------------------------------------------
    innovative but sustainable prescription drug market.

    We provide the following recommendations to improve transparency in the
    prescription drug marketplace:

          Banning gag clauses that prevent pharmacists from informing
    patients when lower-cost alternatives are available, such as paying
    cash for a prescription instead of going through one's insurance
    coverage, is a reasonable step that has garnered bipartisan support.

          ACP supports the availability of accurate, understandable, and
    actionable information on the price of prescription medication. ACP
    urges health plans to make this information available to physicians and
    patients at the point of prescribing to facilitate informed decision
    making about clinically appropriate and cost-conscious care.

          ACP believes health plans, PBMs, and pharmaceutical
    manufacturers should report the amount paid for prescription drugs,
    aggregate number of rebates, and nonproprietary pricing information to
    the Department of Health and Human Services and make it publicly
    available. Any disclosure mandate should be structured in a way that
    deidentifies negotiated rebates with specific companies and protects
    confidential information that could be considered trade secrets or
    could have the effect of increasing prices.
    Implement Reforms Concerning Step Therapy Practices
    PBMs have developed a series of price management tactics to curb the
    rising cost of prescription drugs. Among these, step therapy policies,
    commonly called ``fail-first'' \27\ policies, require patients to be
    initiated on lower-priced medications \28\ before being approved for
    originally prescribed medications. Carriers can also change coverage in
    an attempt to force patients off their current therapies for cost
    reasons, a practice known as nonmedical drug switching.\29\
    ---------------------------------------------------------------------------
        \27\ https://www.rheumatologyadvisor.com/home/topics/practice-
    management/acr-releases-new-step-therapy-and-drug-pricing-position-
    statements/.
        \28\ https://www.healthaffairs.org/doi/10.1377/hlthaff.2014.0516.
        \29\ https://pubmed.ncbi.nlm.nih.gov/31081414/.

    Evidence concerning the effectiveness of these tactics is mixed. Some
    studies \30\ have found they can successfully drive cost savings
    without negatively impacting patient care. Others \31\ have found
    overall health spending actually increased due to an uptick in
    hospitalizations and other services resulting from new symptoms or
    complications. Meanwhile, these policies have drawn scrutiny for
    restricting patient access to effective treatments, putting patient
    health and safety in jeopardy by subjecting patients to potential
    adverse effects, interfering with the patient-- physician relationship,
    and absorbing practice resources with burdensome approvals and
    documentation requirements.
    ---------------------------------------------------------------------------
        \30\ https://acpo365-my.sharepoint.com/personal/
    glyons_acponline_org/Documents/ACP%20
    Files/Motheral%20BR.%20Pharmaceutical%20step-
    therapy%20interventions:%20a%20critical%
    20review%20of%20the%20literature.%20J%20Manag%20Care%20Pharm.
        \31\ https://www.healthaffairs.org/doi/10.1377/hlthaff.2014.0516.

    In 2020, ACP released a position paper, that details our policies
    concerning Mitigating the Negative Impact of Step Therapy Practices and
    Non-Medical Switching of Prescription Drugs.\32\ We provide the
    following recommendations to the Senate Finance Committee as it
    considers policies to reform the practice of step therapy and
    medication and medication switching:
    ---------------------------------------------------------------------------
        \32\ https://www.acponline.org/acp_policy/policies/
    step_therapy_nonmedical_switching_
    prescription_drugs_policy_2020.pdf.

          All step therapy and medication switching policies should aim to
    ---------------------------------------------------------------------------
    minimize care disruption, harm, side effects, and risks to the patient.

          All step therapy and nonmedical drug switching policies be
    designed with patients at the center, taking into account unique needs
    and preferences.

          All step therapy and nonmedical drug switching protocols be
    designed with input from frontline physicians and community
    pharmacists; feature transparent, minimally burdensome processes that
    consider the expertise of a patient's physician; and include a timely
    appeals process.

          Data concerning the effectiveness and potential adverse
    consequences of step therapy and nonmedical drug switching programs
    should be made transparent to the public and studied by policymakers.
    Alternative strategies to address the rising cost of prescription drugs
    that do not inhibit patient access to medications should be explored.

    We also urge the Congress to approve The Safe Step Act (S. 464 and H.R.
    2163), which would ensure patient access to appropriate treatments
    based on clinical decision-making and medical necessity, not arbitrary
    step therapy protocols. This legislation would require insurers to
    implement a clear and transparent process to request an exception to a
    step therapy policy.

    Conclusion

    We appreciate the sustained effort of the Senate Finance Committee to
    lower the price of prescription drugs for our patients, but we urge you
    to act on our recommendations as soon as possible to ensure our
    patients can afford drugs prescribed by their physician. Should you
    have any questions regarding this statement, please do not hesitate to
    contact Brian Buckley our Senior Associate for Legislative Affairs at
    bbuckley@acponline.org.

                                     ______

                          American Consumer Institute

                          Center for Citizen Research

                    1701 Pennsylvania Avenue, NW, Suite 200

                              Washington, DC 20006

                                 (703) 282-9400

                   Statement of Steve Pociask, President/CEO

    Strangling Generic Drugs is the Wrong Path to Lower Prices

    Lowering drug prices is a public policy objective that everyone can
    agree on. About 18 million patients can't afford their prescribed
    medications, according to a recent poll,\1\ including nearly 1 in 5
    members of the poorest households. Unfortunately, Congress' plan to
    control pharmaceutical prices consists of half-baked proposals \2\ that
    would do serious harm to consumers.
    ---------------------------------------------------------------------------
        \1\ https://www.usnews.com/news/health-news/articles/2021-09-22/18-
    million-americans-cant-pay-for-needed-meds.
        \2\ https://www.wsj.com/articles/a-toxic-drug-price-deal-
    11636415735?mod=opinion_lead_pos1.

    The legislation's central feature is an elaborate set of price
    controls--simply put, government-imposed ceilings on what drug makers
    can charge for their products. Although price controls are a tempting
    remedy to make medicines more affordable, their historical record is
    dismal. From 3rd-century Rome to modern-day Venezuela, artificial
    constraints on prices invariably lead \3\ to shortages in the short-run
    and decreased innovation in the long-run as private companies abandon
    the market or rein in their investment.
    ---------------------------------------------------------------------------
        \3\ https://www.wsj.com/articles/a-toxic-drug-price-deal-
    11636415735?mod=opinion_lead_pos1.

    A study \4\ from the National Bureau of Economic Research, for example,
    estimated that cutting pharmaceutical prices by 40-45 percent by
    government fiat--roughly the reduction being proposed for some drugs--
    would cause pharmaceutical makers to significantly cut back on research
    and development, resulting in a 50-60 percent decrease in the number of
    compounds getting to human trials. That means fewer cutting-edge
    treatment options for patients.
    ---------------------------------------------------------------------------
        \4\ https://www.nber.org/system/files/working_papers/w11114/
    w11114.pdf.

    Innovation in the brand-name pharmaceutical industry wouldn't be the
    only casualty of Congress' plan. The market for generic and biosimilar
    drugs--low-cost copies of a brand-name product--would be significantly
    disrupted, too. Makers of generics and biosimilars tend to compete
    against the costliest brand-name drugs, hoping to attract customers by
    undercutting their rival's price. As more manufacturers enter the
    ---------------------------------------------------------------------------
    market and competition intensifies, prices fall rapidly.

    For example, products with a single generic maker are about 35 percent
    cheaper \5\ than those with no generic competition, and prices drop by
    95 percent when six or more generics are offered, according to FDA
    data. That explains why 92 percent of generic prescriptions in the U.S.
    are filled for $20 or less,\6\ delivering more than $315 billion \7\ in
    consumer savings every year.
    ---------------------------------------------------------------------------
        \5\ https://www.fda.gov/about-fda/center-drug-evaluation-and-
    research-cder/generic-competition-and-drug-prices.
        \6\ https://accessiblemeds.org/sites/default/files/2020-09/AAM-
    2020-Generics-Biosimilars-Access-Savings-Report-US-Web.pdf.
        \7\ https://accessiblemeds.org/sites/default/files/2020-09/AAM-
    2020-Generics-Biosimilars-Access-Savings-Report-US-Web.pdf.

    But by forcing down the price of brand-name drugs, Congress' plan would
    weaken the enticement for generic and biosimilar competitors to enter
    the market. Though not as costly as developing a novel drug, creating
    generic or biosimilar medicines can be expensive. A 2013 paper \8\
    estimated that it takes 7 to 8 years to develop a biosimilar, at a cost
    of up to $250 million. Investors will be less likely to view the
    expense as worthwhile if the government can intervene to impose
    arbitrary caps \9\ on drug prices. The result will be fewer generics
    and less competition for brand-name products, undermining the price
    reductions that Congress hopes to achieve. Lawmakers should be seeking
    to make it easier for generics and biosimilars to thrive, not more
    difficult.
    ---------------------------------------------------------------------------
        \8\ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4031732/.
        \9\ https://www.statnews.com/2021/11/06/hurried-bills-congress-
    shouldnt-undermine-vast-savings-generic-biosimilar-drugs/.

    Another provision of the bill punishes certain drug makers for raising
    their prices faster than inflation. Though matching pharmaceutical
    price increases with consumers' cost of living is intuitively
    appealing, this measure could easily backfire. Generic manufacturers
    generally price their products just above production cost, counting on
    the volume of sales--not revenue per unit--to turn a profit. While
    consumers benefit from rock-bottom prices, the viability of this
    pricing strategy hinges on drug makers' ability to modify the price as
    underlying production costs fluctuate. Given the complexity of the
    global pharmaceutical supply chain, it's impossible to foresee when the
    price of a raw input--potentially located in a foreign country--may
    spike, forcing the drug maker to rapidly increase its sale price in
    order to stay afloat. If penalized for doing so by an inflation cap,
    the manufacturer would curtail its production or withdraw from the
    market. Why would a generic drug manufacture enter the market and take
    ---------------------------------------------------------------------------
    this risk?

    The design of the inflation penalty is especially problematic, since it
    is based on the percentage that a price increase exceeds inflation.
    That means a generic drug maker may face a penalty for increasing its
    price by a penny from $0.25 to $0.26 (a 4-
    percent increase), but a brand-name drug manufacturer could increase
    its price by 20 cents from $10.00 to $10.20 (a 2 percent increase) may
    avoid the penalty. Once again, this tilts the playing field against
    lower-cost medicines.

    There are better ways to tackle drug costs. Accelerating FDA reviews
    \10\ of generics and biosimilars promises to lower prices and expand
    consumer choice without disrupting competition. Reining in the
    excessive power \11\ of pharmacy benefit managers (PBMs), which often
    exploit their position as middlemen in pharmaceutical transactions to
    extract exorbitant profits, should also be a priority for Congress.
    ---------------------------------------------------------------------------
        \10\ https://www.wsj.com/articles/fda-unveils-effort-to-get-
    biosimilar-drugs-on-the-market-faster-1531937491.
        \11\ https://www.realclearhealth.com/articles/2016/07/21/
    the_middlemen_in_higher_drug_
    prices_109971.html.

    Millions of patients need relief from spiraling pharmaceutical prices.
    Lawmakers should be focusing on real solutions, not miracle-cures that
    ---------------------------------------------------------------------------
    do more harm than good.

    Steve Pociask is president and CEO of the American Consumer Institute,
    a nonprofit education and research organization. For more information
    on the Institute, visit www.TheAmericanConsumer.Org or follow us on
    Twitter @ConsumerPal.

                                     ______

                         American Diabetes Association

                         2451 Crystal Drive, Suite 900

                              Arlington, VA 22202

               Statement of Lisa Murdock, Chief Advocacy Officer

    Thank you, Chairman Wyden, Ranking Member Crapo and distinguished
    members of the Finance Committee, for providing the American Diabetes
    Association (ADA) the opportunity to submit written comments regarding
    the rising cost of prescription drugs in Medicare. We appreciate you
    considering this important topic at this critical time.

    The ADA is the nation's leading voluntary health organization fighting
    to bend the curve on the diabetes epidemic and help people living with
    diabetes thrive. For 80 years the ADA has been driving discovery and
    research to treat, manage and prevent diabetes, while working
    relentlessly for a cure. We help people with diabetes thrive by
    fighting for their rights and developing programs, advocacy and
    education designed to improve their quality of life.

    As you are no doubt aware, the increasing cost of prescription drugs
    has created an outsized burden on the diabetes community, which has
    grown to 37 million--more than one in 10--Americans. For people with
    diabetes, many of whom rely on insulin and other expensive medications
    to manage their condition, this financial barrier can mean the
    difference between life and death. The price of insulin has roughly
    tripled in the past decade, increasing from less than $100 for an
    average vial in 2009 to nearly $300 for the same vial today, even
    though today's insulin is nearly the exact same product as it was 10
    years ago.\1\ With these facts in mind, it should be little surprise
    that Americans spend more treating diabetes than any other chronic
    condition; that people with diabetes in the U.S. spend two and a half
    times more on health care than those who do not have diabetes; and that
    one in four insulin-dependent Americans report rationing their insulin
    supply due to the cost of the drug and financial difficulty.\2\
    ---------------------------------------------------------------------------
        \1\ Rachel Gillett and Shayanne Gal, ``One Chart Reveals How the
    Cost of Insulin Has Skyrocketed in the US, Even Though Nothing About It
    Has Changed,'' Business Insider, September 18, 2019, https://
    www.businessinsider.com/insulin-price-increased-last-decade-chart-2019-
    9.
        \2\ American Diabetes Association, ``Economic Costs of Diabetes in
    the U.S. in 2017,'' Diabetes Care 41, no. 5 (2018): 917-928, https://
    care.diabetesjournals.org/content/41/5/917; Sarah Stark Casagrande and
    Catherine C. Cowie, ``Health Insurance Coverage Among People With and
    Without Diabetes in the U.S. Adult Population,'' Diabetes Care 35, no.
    11 (2012): 2243-2249, https://care.diabetesjournals.org/content/35/11/
    2243; Centers for Medicare and Medicaid Services, ``National Health
    Expenditure Data--Historical,'' NHE Tables, December 16, 2020, https://
    www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-
    reports/national
    healthexpenddata/nationalhealthaccountshistorical; Darby Herkert et
    al., ``Cost-Related Insulin Underuse Among Patients with Diabetes,''
    JAMA Internal Medicine 179, no. 1 (2019): 112-114, https://
    jamanetwork.com/journals/jamainternalmedicine/article-abstract/2717499.

    During the pandemic and consequent economic downturn, the diabetes
    community faced a disproportionate health burden of COVID-19. Americans
    with diabetes and other related underlying health conditions were
    hospitalized with COVID-19 six times as often and died of COVID-19 12
    times as often as those who did not have diabetes.\3\ One in 10
    coronavirus patients with diabetes died within one week of hospital
    admission.\4\ And Americans with diabetes accounted for 40 percent of
    COVID-19 fatalities nationwide, despite making up just 10 percent of
    the U.S. population.\5\ While we are still learning about the
    relationship between COVID-19 and diabetes, we know that unmanaged
    diabetes--whether a lack of medication use or missing doses--is a key
    factor in COVID-19 severity and complications, and an important
    indicator of whether someone with diabetes and COVID-19 is likely to
    have a longer hospitalization.\6\
    ---------------------------------------------------------------------------
        \3\ Erin K. Stokes et al., ``Coronavirus Disease 2019 Case
    Surveillance--United States, January 22-May 30, 2020,'' Morbidity and
    Mortality Weekly Report (MMWR), Centers for Disease Control and
    Prevention, June 15, 2020, https://www.cdc.gov/mmwr/volumes/69/wr/
    mm6924e2.
    htm?s_cid=mm6924e2_w#T1_down.
        \4\ Karena Yan, ``1 in 10 People with COVID and Diabetes Die Within
    Seven Days of Hospital Admission,'' diatribe Learn, June 22, 2020,
    https://diatribe.org/1-10-people-covid-and-diabetes-die-within-seven-
    days-hospital-admission.
        \5\ Jonathan M. Wortham et al., ``Characteristics of Persons Who
    Died with COVID-19--United States, February 12-May 18, 2020,''
    Morbidity and Mortality Weekly Report (MMWR), Centers for Disease
    Control and Prevention, July 10, 2020, https://www.cdc.gov/mmwr/
    volumes/69/wr/mm6928e1.htm; American Diabetes Association, ``Statistics
    About Diabetes,'' https://www.diabetes.org/resources/statistics/
    statistics-about-diabetes.
        \6\ Dr. Sudip Bajpeyi and Ali Mossayebi, ``Unmanaged Diabetes as a
    Poor Prognostic Factor in the Severity of Infection and Recovery Time
    of Hospitalized COVID-19 Patients,'' American Diabetes Association,
    June 25, 2020, https://www.diabetes.org/newsroom/press-releases/2021/
    unmanaged-diabetes-associated-with-greater-COVID-19-severity.

    Beyond facing a heightened risk for the worst of the virus's health
    effects, Americans with diabetes have also experienced magnified
    financial challenges in the pandemic's wake. ADA surveys during the
    pandemic suggest that people with diabetes suffered pandemic-driven
    unemployment at a rate 50 percent higher than the national rate.\7\
    One-third of Americans with diabetes reported that they lost income due
    to COVID-19, and one in four reported needing to dip into their
    savings, take out a loan or use their stimulus checks to afford
    diabetes medication or supplies since the start of the pandemic.\8\
    Nearly one in five people with diabetes reported being forced to choose
    between buying food and filling their prescriptions.\9\
    ---------------------------------------------------------------------------
        \7\ American Diabetes Association and dQ&A, ``Diabetes and COVID-
    19: New Data Quantifies Extraordinary Challenges Faced by Americans
    with Diabetes During Pandemic,'' July 29, 2020, https://
    www.diabetes.org/sites/default/files/2020-07/7.29.2020_dQA-
    ADA%20Data%20Release.
    pdf.
        \8\ Ibid.
        \9\ American Diabetes Association and Diabetes Daily, ``Effects of
    the COVID-19 Pandemic on People with Diabetes,'' December 23, 2020,
    https://www.diabetes.org/sites/default/files/2020-12/
    ADA%20Thrivable%20Data%20Deck.pdf.

    These troubling trends, coupled with the increasing cost of insulin,
    makes action by Congress to reduce the cost of insulin specifically,
    and prescription drugs more broadly, urgent. When it comes to insulin,
    we can learn from Medicare to expand cost-saving benefits to people
    with diabetes on commercial health insurance plans. One-third of
    Medicare beneficiaries have diabetes, and more than 3.3 million seniors
    on Medicare use insulin. During the Trump administration, the Centers
    for Medicare and Medicaid Services (CMS) Innovation Center launched the
    Senior Savings Model, a 5-year program to offer seniors Medicare Part D
    plan options that cap the beneficiary's cost sharing for insulin at $35
    a month, regardless of the beneficiary's coverage phase. The Biden
    administration continued the pilot program in 2022, and more than 500
    Part D plans are participating in the model this year.\10\
    ---------------------------------------------------------------------------
        \10\ ``Part D Senior Savings Model,'' U.S. Centers for Medicare and
    Medicaid Services, February 28, 2022, https://innovation.cms.gov/
    innovation-models/part-d-savings-model.

    This successful bipartisan approach to reducing out-of-pocket costs for
    patients who use insulin can be replicated across insurance plans, and
    Congress has already taken steps to do just that. Last year, the House
    of Representatives passed the Build Back Better Act, which included a
    $35 monthly co-pay cap on insulin for commercial health insurance
    plans, group health insurance plans covered by the Employee Retirement
    Income Security Act (ERISA) and Medicare. Meanwhile several Senate
    Republicans introduced the Lower Costs, More Cures Act, which would
    make the Senior Savings Model and the $35 insulin co-pay cap in
    Medicare permanent. In February, the Affordable Insulin Now Act--a
    stand-alone bill with the Build Back Better Act's insulin co-pay cap
    ---------------------------------------------------------------------------
    provisions--was introduced in the House and the Senate.

    As a result of the ADA's leadership in advocating for state and federal
    caps on cost sharing for insulin, 20 states and the District of
    Columbia have already enacted co-pay caps. Still, since these caps are
    limited to individuals covered by state-regulated insurance, more is
    needed to expand and deepen the impact of limits on cost-
    sharing. We know that co-pay caps can provide immediate, noticeable
    financial relief to patients. An analysis of California Senate Bill
    473--which would cap out-of-
    pocket costs for insulin at $50 per month for state regulated plans--
    would offer patients currently paying above the cap a 55 percent
    reduction in cost sharing, from an average of $88 per prescription to
    $39 per prescription. The analysis estimated a 10 percent decrease in
    diabetes-related emergency room visits, which could reduce ER costs by
    more than $2 million in the cap's first year should the state enact
    it.\11\
    ---------------------------------------------------------------------------
        \11\ ``Analysis of California Senate Bill 473 Insulin Cost
    Sharing,'' California Health Benefits Review Program, April 19, 2021,
    http://analyses.chbrp.com/document/view.php?id=1566.

    The best way forward is to enact a national insulin co-pay cap right
    now so Americans with diabetes can benefit from reduced costs
    regardless of the type of insurance they have. By contrast, policies
    that simply shift funds among industry players in the health care
    supply chain are less valuable unless patients themselves are realizing
    direct savings--at the pharmacy counter, in their premiums and in the
    cost of deductibles. Practical approaches like a monthly co-pay cap
    that put patients first should be a key goal of any effort to make
    ---------------------------------------------------------------------------
    drugs more affordable.

    Given that people with diabetes typically require more than one
    medication to manage their diabetes and other co-morbidities--indeed,
    the U.S. diabetes community accounts for $1 of every $4 spent on health
    care, including prescription drugs, in America--we hope to see Congress
    take additional steps this year to make prescription medication and
    supplies for people with diabetes more affordable.\12\ Among our
    priorities are:
    ---------------------------------------------------------------------------
        \12\ ``Cost Effectiveness of Diabetes Interventions,'' National
    Center for Chronic Disease Prevention and Health Promotion, Centers for
    Disease Control and Prevention, March 7, 2022, https://www.cdc.gov/
    chronicdisease/programs-impact/pop/diabetes.htm.

          Increasing transparency throughout the pharmaceutical supply
    chain, including efforts to shed light on pricing practices, improve
    accountability in the pharmacy benefit manager (PBM) market, and ensure
    that rebates are benefiting patients and not artificially increasing
    prices or limiting patient options;
          Speeding competitive generic drug and biosimilar alternatives to
    market by, among other things, addressing loopholes in our patent
    system that allow manufacturers to stave off competition;
          Cracking down on insurance practices that push patients to
    choose between quality and affordability, including prior authorization
    and step therapy (or ``fail first'') policies that force patients to
    try the least expensive drug in a class first, even if their
    prescribing physician believes a different therapy is in the patient's
    best clinical interest; and
          Increasing oversight and regulation of specialty drug tiers used
    by insurers that shift the cost-sharing burden disproportionately onto
    patients with rare and/or chronic conditions who rely on these
    medications.

    Thank you for the opportunity to submit this testimony for the record.
    The ADA looks forward to continuing to work with Congress to enact a
    national co-pay cap on insulin and identify other ways to reduce the
    cost of prescription drugs so that all Americans with diabetes can
    afford to stay safe and healthy.

                                     ______

                    American Federation of Teachers, AFL-CIO

                            555 New Jersey Ave., NW

                              Washington, DC 20001

                                 (202) 879-4400

                              https://www.aft.org/

    March 21, 2022

    The Honorable Ron Wyden
    Chairman
    U.S. Senate
    Committee on Finance
    Dirksen Senate Office Bldg.
    Washington, DC 20510-6200

    Re: Senate Committee on Finance Hearing, March 16, 2022--``Prescription
    Drug Price Inflation: An Urgent Need to Lower Drug Prices in Medicare''

    Dear Chairman Wyden:

    On behalf of the 1.7 million members of the American Federation of
    Teachers, including 200,000 nurses and other health professionals, I
    thank you for holding this important hearing on the affordability of
    pharmaceuticals and for your leadership on this critical issue.

    No one should have to choose between feeding their families and paying
    for lifesaving medication, but that is exactly what happens in American
    households because of the unjustified rising price tag of prescription
    drugs. I frequently hear stories from our members about patients who
    are skipping needed medications because they are forced to choose
    between their health needs and paying their mortgages or buying food.

    AFT members and their families--from the bus driver living paycheck to
    paycheck, to the nurse who understands the lifeline that prescription
    drugs can be, to the retired teacher on a fixed income--are demanding
    that those in power in Washington, DC, take action to lower drug
    prices. It is devastating to hear retired educators and healthcare
    professionals, who have spent their lives helping people, talk about
    the struggles they face in taking care of their own health needs.

    This hearing should serve as the first step toward passing legislation
    to reduce what patients pay for medicine. Legislation to address the
    medicine affordability crisis must include a mandate that the secretary
    of health and human services negotiate the price of a significant
    number of drugs covered by Medicare and ensure that prices don't rise
    faster than inflation. These price protections should be extended to
    all in need of medication.

    As a union, we have worked hard to ensure that our members have access
    to high-quality, affordable healthcare, which is why we have fought for
    the Affordable Care Act, worked to end surprise medical billing, and
    demanded that healthcare workers have supportive work environments. We
    will continue to press for access to high-quality, affordable
    healthcare, and it is clear that comprehensive legislative action is
    needed to directly address the affordability of many pharmaceuticals.

    Thank you again for your important leadership on this issue. Your work
    is crucial to ensuring that patients have access to the medicines they
    need.

    Sincerely,

    Randi Weingarten
    President

                                     ______

                         American Hospital Association

                              800 10th Street, NW

                           Two CityCenter, Suite 400

                           Washington, DC 20001-4956

                                 (202) 638-1100

    On behalf of our nearly 5,000 member hospitals, health systems and
    other health care organizations, our clinician partners--including more
    than 270,000 affiliated physicians, 2 million nurses and other
    caregivers--and the 43,000 health care leaders who belong to our
    professional membership groups, the American Hospital Association (AHA)
    writes to express support for addressing the high cost of drugs in
    Medicare.

    The AHA is deeply committed to the availability of high-quality,
    efficient health care for all Americans. Hospitals and health systems,
    and the clinicians who work in them, rely on lifesaving drug therapies
    to care for their patients. In addition, researchers in U.S. academic
    medical centers generate much of the evidence used to develop new
    drugs. However, an unaffordable drug is not a lifesaving drug.

    The AHA continues to work with its members to document the challenges
    hospitals and health systems face with high drug prices and develop
    policy solutions to protect access to critical therapies while
    encouraging and supporting much-needed innovation. We encourage
    Congress to consider policy recommendations in the following areas.

    Increase Competition and Innovation

    Competition for prescription drugs generally results in increased
    options for lower cost therapies, particularly through the introduction
    of one or more generic competitors. We encourage Congress to implement
    policies that would increase the introduction of generic alternatives
    and discourage anti-competitive tactics while maintaining incentives
    for the development of innovative new therapies.

          Deny patents for ``evergreened'' products. Some drug
    manufacturers attempt to minimize or eliminate competition through
    product ``evergreening.'' A manufacturer attempts to ``evergreen'' a
    product when it applies for patent and market exclusivity protections
    for a ``new'' product that is essentially the same as the original
    product, such as extended release formulations or combination therapies
    that simply combine two existing drugs into one pill. What generally
    happens is that, while the older version of the drug is no longer
    patent-
    protected and, therefore, generic alternatives may be offered, drug
    manufacturers promote the newer version as the ``latest and greatest.''
    Without important information on the comparative value of the newer
    drug, many providers and consumers switch to the brand-only
    ``evergreened'' product after intense marketing by the manufacturer
    that suggests that the newer version is superior. Patents and market
    exclusivity rights for products that are simply modifications of
    existing products should be denied unless the new product offers
    significant improvements in clinical effectiveness, cost savings,
    access or safety.

          Limit orphan drug incentives to true orphan drugs. Drug
    manufacturers receive a number of incentives to develop drugs for rare
    diseases. These incentives, which include waived FDA fees, tax credits
    and longer market exclusivity periods, are intended to spur innovation
    of therapies for which the manufacturer may otherwise not recoup their
    investment due to low volume. These incentives have contributed to the
    development of innovative, life-saving drugs where no therapies
    previously existed. However, in some instances, manufacturers have
    received orphan drug status for drugs that they subsequently marketed
    for other, non-rare indications. In these instances, manufacturers are
    receiving the incentives for drugs that are broadly used. For example,
    Humira (adalimumab), Procrit (epoetin alfa) and Prolia (denosumab) all
    are approved for orphan drug status; however, since receiving the
    designation, the drugs also have been marketed for a number of other,
    non-rare indications. Further, each of these drugs were among the top
    10 highest-spend drugs for hospitals and health systems, and each had
    substantial price increases of at least 15% from 2015-2017.\1\
    ---------------------------------------------------------------------------
        \1\ AHA/FAH Drug Survey 2019.

           Congress should require FDA to collect information on other
    intended indications for a drug when evaluating eligibility for orphan
    drug status. FDA also should be required to do a post-market review at
    regular intervals throughout the market exclusivity period to determine
    whether the drug should retain its status as an orphan drug. In
    instances where the manufacturer is promoting the drug for other
    indications that do not meet the orphan drug status requirements, FDA
    should levy penalties, such as requiring that the manufacturer pay the
    government the value of the tax breaks and waived fees and potentially
    reducing the market exclusivity period.

    Increase Drug Pricing Transparency

    Payers, providers and the public have little information about how
    drugs are priced. This gap in information challenges payers' abilities
    to make decisions regarding coverage and pricing of drugs, and often
    results in mid-year cost increases that providers are unprepared to
    manage. Policies should be implemented to provide greater parity
    between drug manufacturers and other sectors of the health care system,
    including hospitals, which already disclose a considerable amount of
    information on pricing, input costs and utilization.

    Increased disclosure requirements related to drug pricing, research and
    development should be included at the time of application for drug
    approval. There is very little evidence of what it actually costs to
    develop a new drug and how those costs factor into the pricing of a
    drug. Other components of the health care system are held to a much
    higher transparency standard. For example, hospitals provide detailed
    data to the Centers for Medicare and Medicaid Services (CMS) via the
    annual Medicare cost report, which includes information on facility
    characteristics, utilization, costs and charges, and financial data.
    Given the significant taxpayer investment in drugs--both through funded
    research and purchasing through public programs like Medicare and
    Medicaid--there should be greater transparency parity between drug
    manufacturers and other health care providers.

    Drug manufacturers should be required to submit as part of the drug
    approval process information on anticipated product pricing for both a
    single unit and a course of treatment; anticipated public spending on
    the product (e.g., from government purchasers including Medicare,
    Medicaid and TRICARE, among others); and information on how the product
    was priced, including anticipated portion of the product price that
    will contribute to current or future marketing and research and
    development costs. In addition, drug manufacturers should be required
    to provide information on the research that contributed to the
    development of the drug and specify all entities that conducted
    research that contributed to the development of the drug, the amount
    spent on that research and the funding source.

    Increased transparency into drug pricing could be used to hold drug
    manufacturers accountable for fairly pricing products, help calculate
    the value of a drug, and support future policymaking.

    Improve Access Through Inflation-Based Rebates for Medicare Drugs

    The Medicaid program consistently achieves better pricing on drugs than
    the Medicare program. The primary driver behind the lower net unit
    costs are mandated, additional rebates that kick in when the average
    manufacturer price (AMP) for a drug increases faster than inflation. A
    similar inflation cap should be implemented on the price of drugs under
    the Medicare program. Under Medicare Part B, such a cap could be
    operationalized through a manufacturer rebate to Medicare when the
    average sales price (ASP) for a drug increases faster than a specified
    inflation benchmark. A similar cap could be placed on increases in the
    prices of Part D drugs.

    This policy would protect the program and beneficiaries from dramatic
    increases in the Medicare payment rate for drugs, notable past
    increases included examples like 533% (Miacalcin, used for treating
    bone disease), 638% (Neostigmine, used in anesthesia) and 1,261%
    (Vasopressin, used to treat diabetes and bleeding in a critical care
    environment). This policy also could potentially generate savings for
    drugs with price growth above the inflation benchmark. According to a
    2019 report, the Congressional Budget Office estimated that an
    inflationary rebate requirement would reduce direct spending by about
    $35 billion over 10 years.\2\
    ---------------------------------------------------------------------------
        \2\ https://www.cbo.gov/system/files/2019-12/hr3_complete.pdf.
    ---------------------------------------------------------------------------

     Better Align Incentives by Testing Changes to the Federally-Funded
                        Part D Reinsurance Program

    Under the Part D prescription drug program, the federal government
    covers 80% of the costs for enrollees who cross the out-of-pocket
    threshold. Insurers and beneficiaries share the responsibility for the
    remaining 20%, at 15% and 5%, respectively. These reinsurance payments
    are substantial: in 2013, the federal government's portion totaled
    nearly $20 billion for approximately 2 million Medicare
    beneficiaries.\3\ This program shields Part D plan sponsors from high
    costs and may create disincentives for plan sponsors to aggressively
    negotiate drug prices with manufacturers and manage enrollees' care.
    ---------------------------------------------------------------------------
        \3\ MedPAC, ``Chapter 6: Sharing risk in Medicare Part D,'' June
    2015.

    Congress should require CMS to design a pilot project to test a new
    Part D payment model that either reduces or eliminates reinsurance
    payments while making appropriate adjustments to the direct subsidy
    rate. While CMMI has recently taken action in an attempt to modernize
    the Part D program through rewards and incentives, medication
    management programs and changes to the Low-Income Subsidy,
    congressional action would require CMS to test whether shifting more of
    the financial risk to insurers leads to appropriate reductions in
    program spending due to stronger negotiations with drug manufacturers
    or improved care management. This alternative is consistent with a
    Medicare Payment Advisory Commission recommendation on improvements to
    the Part D program.

    Protect the 340B Drug Pricing Program

    The 340B program is a critical program that helps eligible providers to
    care for the patients and communities they serve. The program requires
    pharmaceutical companies participating in Medicaid to sell certain
    outpatient drugs at discounted prices to health care organizations that
    care for high numbers of uninsured and low-
    income patients or care for specific populations, such as children or
    patients with cancer or AIDS. 340B hospitals use the savings they
    receive on the discounted drugs to stretch scarce federal resources and
    provide more affordable and effective care, just as Congress intended.
    In fact, 340B hospitals reinvest their 340B savings in programs that
    are critical for the communities and patients they serve, which can
    include enhancing patient services and access to care, as well as
    providing free or reduced priced prescription drugs to vulnerable
    patient populations. In 2018 alone, 340B hospitals provided $68 billion
    in community benefits. Despite the 340B program's proven track record
    for 30 years, pharmaceutical manufacturers have repeatedly attempted to
    scale back or significantly reduce its benefits to hospitals and the
    patients they serve.

    Since July 2020, several of the largest drug manufacturers have engaged
    in unprecedented and unlawful actions to limit the scope of the 340B
    program by denying 340B pricing through contract pharmacies and
    demanding superfluous, detailed reporting of 340B drug claims
    distributed through hospitals' contract pharmacies. These drug
    companies have knowingly violated the statute and ignored calls by both
    the Biden and Trump Administrations to end these harmful actions.

    The Health Resources and Services Administration (HRSA) has long
    authorized 340B covered entities to contract with community pharmacies
    to dispense drugs to eligible patients in order to expand the reach of
    the program and ensure access to prescribed medications for their
    patients. The use of outside pharmacies is especially important for
    hospitals that are located in and/or serve rural communities, as many
    of these hospitals do not operate in-house pharmacies, so they must
    rely on contracting with outside pharmacies to ensure their patients
    have access to their medications. More than 80% of rural 340B hospitals
    use contract pharmacies to ensure their patients receive outpatient
    drugs, as well as other essential services. These contract pharmacy
    arrangements have also proven especially important during the COVID-19
    pandemic when patients have relied more heavily on alternative pharmacy
    channels such as mail order, online and small localized retail
    pharmacies. Hospitals have increasingly contracted with such pharmacies
    to ensure that their patients are able to access their prescribed
    medications and are not lost to follow-up. For these reasons, it is
    imperative that these pernicious actions by pharmaceutical companies be
    stopped immediately and restore access to 340B pricing for hospitals
    with contract pharmacy arrangements.

    The 340B program is now more crucial than ever as 340B hospitals
    continue to be on the front lines of the COVID-19 public health
    emergency, despite incurring historic financial and operational
    challenges. Among these challenges is the high cost of pharmaceuticals.
    As of January 2022, hospital drug expenses are 22% higher on an
    absolute basis and 65% higher on a per patient basis compared to pre-
    pandemic levels in January 2020.

    The fact remains that pharmaceutical companies continue to raise the
    prices of their products and enjoy double-digit profit margins, while
    340B hospitals continue to care for the nation's most vulnerable
    patients and communities and operate on razor-thin margins. It is
    imperative for Congress to continue its bipartisan support of the
    program and ensure that eligible hospitals and their patients can
    continue to benefit from the 340B program.

    Conclusion

    Thank you for your attention to the ever increasing cost of
    prescription drugs and consideration of our comments on behalf of
    hospitals and health systems. We look forward to working with Congress
    to lower the cost of drugs to protect access to critical therapies.

                                     ______

                      American Pharmacy Cooperative, Inc.

                            5601 Shirley Park Drive

                            Bessemer, Alabama 35022

    The Honorable Ron Wyden, The Honorable Mike Crapo, and members of the
    Committee:

    Thank you for the opportunity to submit a statement for the record in
    connection with this Committee's March 16, 2022, hearing on
    prescription drug price inflation in Medicare. American Pharmacy
    Cooperative (``APCI''), consisting of more than 1,700 community
    pharmacies across thirty states, is appreciative of this Committee's
    attention to rising prescription drug prices for America's seniors and
    watched the hearing with great interest.

    As you are likely aware, anticompetitive and predatory practices by
    pharmacy benefits managers (``PBMs'') wreak havoc on independent
    community pharmacies across the country including but not limited to
    misaligned reimbursements based on opaque, trade secreted
    methodologies, retroactive DIR fees, restrictive narrow networks, and
    beneficiary steering of patients away from community pharmacies to PBM
    owned or affiliated pharmacies.

    However, PBMs, on behalf of their client (and often affiliated)
    prescription drug plans (``PDPs''), also engage in practices that
    directly raise the costs of prescription drugs for senior beneficiaries
    in Medicare Part D and addressing those practices should figure
    centrally in any efforts to rein in rising drug costs.

    In that regard, the 3 Axis Advisors report released earlier this month
    entitled: Deserving of Better: How American Seniors are Paying for
    Misaligned Incentives within Medicare Part D, illustrates the role PDP/
    PBM imposed DIR fees play in inflating medication costs at the drug
    counter in Medicare Part D.

    More specifically, the report found, amongst other things, one large
    PDP/PBM increased prices at the counter 51% over a 30-month period on
    generic drugs.\1\ While this would appear problematic in and of itself,
    during the same period the national average drug acquisition cost
    (``NADAC'') saw 8.7% deflation over the same 30-month period for the
    same mix of generic drugs.\2\ This represents an astounding 59% gap
    between drug costs at the counter for beneficiaries and NADAC.
    ---------------------------------------------------------------------------
        \1\ 3 Axis Advisors (2021). Deserving of Better: How American
    Seniors are Paying for Misaligned Incentives within Medicare Part D
    (hereinafter referred to as ``3 Axis report''). Available online at
    https://static1.squarespace.com/static/5c326d5596e76f58ee234632/t/
    622631f0c98dae
    49c09a3d86/1646670321833/
    3AxisAdvisors_Medicare_DIR_Report_Final_0322.pdf.
        \2\ Id.; NADAC is administered by CMS and is used today in most
    Medicaid fee for service programs with pharmacies being reimbursed at
    the average acquisition cost for a drug plus a professional dispensing
    fee based on pharmacies' average cost to dispense a prescription drug.

    Equally concerning, the report also uncovered a 591.9% increase in
    retroactive DIR fees applied to community pharmacies during the same
    30-month period.\3\ The trend is unmistakable, despite acquisition
    costs for pharmacies deflating, costs rose for beneficiaries at an
    alarming rate while PBMs recouped more money via retroactive DIR fees.
    ---------------------------------------------------------------------------
        \3\ Id.

    3 Axis Advisors also uncovered that in addition to the 59% spread
    between costs at the counter and NADAC, and the rise in retroactive DIR
    fees, the same plan was recouping beneficiary cost shares collected by
    pharmacies via retroactive DIR fees thus charging beneficiaries cost
    shares that exceed the amount the pharmacies were reimbursed (this
    practice is referred to as a clawback).\4\ More specifically, the
    report's single plan analysis found that during the first 6 months of
    2021:
    ---------------------------------------------------------------------------
        \4\ Id.

          A mean beneficiary clawback of $10.71;
          More than 27% of claims had a clawback; and
          Beneficiary clawbacks were in excess of $2.21 million.\5\
    ---------------------------------------------------------------------------
        \5\ Id.

    Put another way, beneficiaries under this plan were charged by their
    PDP/PBM $2.21 million more for prescription drugs than the pharmacies
    were reimbursed. This particular plan seems to be escalating the use of
    cost share clawbacks with the average value of the clawback increasing
    by 1,648% from 2019 to 2021.\6\
    ---------------------------------------------------------------------------
        \6\ Id.

    In light of the foregoing, the report's findings that moving away from
    PDP/PBM pricing games and towards a transparent drug pricing
    reimbursement model would yield significant savings should come as no
    surprise. However, the potential savings found was eye opening.
    Specially, the report found an estimated $18.7 billion in potential
    savings across Part D in 2021 alone by moving from the current PDP/PBM
    negotiated price model to a transparent model in which pharmacies are
    reimbursed based upon NADAC plus an average dispensing fee of $10.\7\
    ---------------------------------------------------------------------------
        \7\ Id.
    ---------------------------------------------------------------------------

    Conclusion

    The 3 Axis Advisors' report findings bear repeating:

          Report's single plan analysis found 51% increase in prices at
    counter for generic medications in a 30-month period while NADAC saw
    8.7% deflation during the same period all while DIR fees increased
    591%.
          Report's single plan analysis also uncovered a PDP/PBM charging
    beneficiaries cost shares that exceed the amounts the pharmacy is
    reimbursed after DIR fees are assessed with the average beneficiary
    clawback increasing 1,648% from 2019 to 2021.
          Report found potential savings via a move to NADAC of $18.7
    billion plan wide in 2021 alone.

    In light of the foregoing, APCI believes that a move to a NADAC based
    reimbursement model should figure centrally in any efforts to lower
    drug costs for Part D beneficiaries. Not only would it save
    beneficiaries and taxpayers money, it would strip PDPs/PBMs of their
    ability to manipulate drug prices for their own selfish gain.

    It is APCI's sincere hope the 3 Axis report's findings is a catalyst to
    beginning conversations regarding a move to a transparent NADAC based
    model with this Committee along with exploring additional actions that
    can lower drug prices and protect patients, taxpayers, and community
    pharmacies.

    Should you have any questions or APCI can provide anything additional,
    please contact the undersigned at gregr@apcinet.com.

    Thank you again for your leadership and attention to this important
    issue.

    Sincerely,

    Greg Reybold, Esq.
    Director of Healthcare Policy and General Counsel

                                     ______

                      Association for Accessible Medicines

                       601 New Jersey Ave., NW, Suite 850

                              Washington, DC 20001

                                  202-249-7100

                            info@accessiblemeds.org

                               accessiblemeds.org

    The Association for Accessible Medicines (AAM) and its Biosimilars
    Council are the nation's leading trade association for the
    manufacturers and distributors of FDA-
    approved generic and biosimilar medicines. AAM's members provide more
    than 52,000 jobs at nearly 150 facilities in the United States and
    manufacture more than 60 billion doses of medicines every year.\1\ AAM
    appreciates the opportunity to submit this statement for the record for
    the Senate Finance Committee's hearing on ``Prescription Drug Price
    Inflation: An Urgent Need to Lower Drug Prices in Medicare.''
    ---------------------------------------------------------------------------
        \1\ AAM, ``A Blueprint for Enhancing the Security of the U.S.
    Pharmaceutical Supply Chain,'' October 2021 (https://
    accessiblemeds.org/blueprint).

    America's patients rightfully expect Congress to address the ever-
    increasing prices of brand-name prescription drugs. High launch prices
    on new brand biologics and annual price increases on existing brand-
    name drugs, combined with an increasing trend of anti-competitive
    tactics designed to delay or prevent competition from more affordable
    biosimilars and generics, are pushing access to medicines out of reach
    for too many patients. These dynamics are compounded by flawed policies
    that reward health plans for the use of high-cost, high-rebate brand
    drugs and that allow plans to raise the out-of-pocket costs for
    generics, even as the prices for those generics are falling. As a
    result, Medicare's seniors are missing out on billions of dollars in
    ---------------------------------------------------------------------------
    savings from biosimilar and generic drugs each year.

    However, the untested approach in the House-passed Build Back Better
    Act (H.R. 5376) does not address these challenges and could in fact
    harm future savings from generic and biosimilar medicines. The Build
    Back Better Act's approach to direct negotiations in Medicare and
    inflation-based penalties, as passed by the House, would alter the
    incentive for generic and biosimilar manufacturers to develop new
    medicines. In contrast, the bipartisan Prescription Drug Pricing
    Reduction Act of 2019 (``Grassley-Wyden'') would effectively tackle the
    high cost of brand-name prescription drugs without disrupting the
    ability of generic and biosimilar manufacturers to compete.

    In light of the proven track record of savings from generic and
    biosimilar competition, addressing the existing barriers to competition
    would produce more immediate results and be more successful in lowering
    the cost of prescription drugs for patients for years to come. AAM
    estimates seniors could save as much as $74 billion over the next 10
    years, with additional savings for taxpayers and the federal government
    of more than $66 billion, by maximizing patient access to generic and
    biosimilar medicines already approved by FDA.\2\
    ---------------------------------------------------------------------------
        \2\ HHS, ``Savings Available Under Full Generic Substitution of
    Multiple Source Brand Drugs in Medicare Part D,'' January 2018 (https:/
    /aspe.hhs.gov/sites/default/files/private/pdf/259326/DP-Multisource-
    Brands-in-Part-D.pdf); FDA, Remarks from FDA Commissioner Scott
    Gottlieb, M.D., FDA's Biosimilars Action Plan, September 2018 (https://
    www.fda.gov/news-events/press-announcements/remarks-fda-commissioner-
    scott-gottlieb-md-prepared-delivery-brookings-institution-release-
    fdas); Avalere, ``Effect of Potential Policy Change to Part D Generic
    Tiers on Patient Cost Sharing and Part D Plan Costs,'' February 2019
    (https://avalere.com/insights/effect-of-potential-policy-change-to-
    part-d-generic-tiering-on-patient-cost-sharing-and-part-d-plan-costs);
    AAM, Modeling the Budget and Premium Impacts of Updating Medicare Part
    D to Increase Generic & Biosimilar Adoption, October 2019; Milliman
    Research Report, ``Five Year Analysis of the Drug Pricing Lab's
    Production Plus Profit Pricing (P-Quad) Proposal for Biologic Drugs,''
    March 2021 (https://www.drugpricinglab.org/wp-content/uploads/2021/03/
    MSK-Biologic-P-quad-Whitepaper_2021.03.08.pdf).

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    Specifically, AAM recommends the Senate Finance Committee advance
    the following reforms:
          Address the biosimilar rebate trap and increase patient access
    to biosimilar medicines;
          Ensure that patients have access to lower-cost generics at
    launch;
          Modernize the Part D benefit to encourage more generic and
    biosimilar adoption;
          Ensure that patient out-of-pocket costs reflect the low cost of
    generics; and
          Eliminate the penalty on generics in Medicaid.

    Together, these policies could save patients and taxpayers billions in
    2022 and more in future years through increased competition, lower out-
    of-pocket costs and reduced spending on prescription drugs.\3\
    ---------------------------------------------------------------------------
        \3\ AAM, ``Prescription for Savings,'' January 2021 (https://
    accessiblemeds.org/Rx4Savings).
    ---------------------------------------------------------------------------

     Generic and Biosimilar Medicines Drive Savings, Brand-Name Drugs
                        Increase Costs

    The generic and biosimilar markets are fundamentally different than the
    brand-name and biologic markets. While brand-name drugs operate in a
    market where there is no direct price competition from generics and
    biosimilars due to government-awarded exclusivities and patent
    protections, generic and biosimilar medicines compete within a multi-
    competitor model with drug prices decreasing as more competitors enter
    the market. Not surprisingly, these differences lead to dramatically
    different results for patients.

    Generic and biosimilar medicines are successful in lowering the cost of
    prescription drugs. Experience shows drug prices decline rapidly when
    generics enter the market. According to FDA, prices fall by an average
    of 39% for the first generic and by nearly 80% when four or more
    generics enter the market.\4\ Evidence with the biosimilars market
    shows average cost savings of 45%.\5\ Importantly, biosimilar
    competition also results in lower brand biologic prices--by about 25%
    on average.\6\
    ---------------------------------------------------------------------------
        \4\ FDA, ``New Evidence Linking Greater Competition and Lower
    Generic Drug Prices,'' December 2019 (https://www.fda.gov/about-fda/
    center-drug-evaluation-and-research-cder/generic-
    competition-and-drug-
    prices#::text=New%20Evidence%20Linking%20Greater%20Generic,differ
    ent%20sources%20for%20wholesale%20prices).
        \5\ AAM, Analysis of Average Sales Price Files, January 2022.
        \6\ Ibid.

    Competition from generic and biosimilar medicines leads to significant
    savings for patients and the health care system. Over the last 10
    years, generics and biosimilars provided more than $2 trillion in
    savings--including $469 billion from new generics and more than $12
    billion from biosimilars. In addition to the cost savings provided,
    patient access to life-savings treatments is broadened as the price of
    medicine falls. A recent analysis of Medicare Part D from the
    Congressional Budget Office (CBO) notes, ``the number of standardized
    prescriptions dispensed for generic drugs more than doubled from 2009
    through 2018.''\7\ And the independent consulting firm IQVIA found that
    biosimilar competition has provided for new access to care--more than
    10 million additional days of patient therapy beyond what would have
    been expected.
    ---------------------------------------------------------------------------
        \7\ CBO, ``Prescription Drugs: Spending, Use, and Prices,'' January
    2022 (https://www.cbo.gov/publication/57050).

    Independent research from MedPAC, CBO, AARP and HHS's ASPE examining
    trends in the prices of prescriptions drugs reach the same undeniable
    conclusion: generic prices continue to decrease, while brand-name drugs
    ---------------------------------------------------------------------------
    continue to rise.

          MedPAC: ``Generic drug prices in Part D declined by an average
    of 13.7% from 2006-2018 and experienced an 11% decline from 2018-
    2019.''\8\
    ---------------------------------------------------------------------------
        \8\ MedPAC, ``March 2021 Report to the Congress: Medicare Payment
    Policy,'' March 2021 (https://www.medpac.gov/wp-content/uploads/2021/
    10/mar21_medpac_report_ch13_sec.pdf).
    ---------------------------------------------------------------------------
          CBO: ``In Medicare Part D, the average price of a generic
    prescription was $22 in 2009 and gradually fell to $17 in 2018.''\9\
    ---------------------------------------------------------------------------
        \9\ Ibid., CBO.
    ---------------------------------------------------------------------------
          AARP: ``Between 2016 and 2017, retail prices for 390 widely used
    generic prescription drugs decreased by an average of 9.3
    percent.''\10\
    ---------------------------------------------------------------------------
        \10\ AARP, ``Trends in Retail Prices of Generic Prescription Drugs
    Widely Used by Older Americans: 2017 Year-End Update,'' April 2019
    (https://www.aarp.org/content/dam/aarp/ppi/2019/04/trends-in-retail-
    prices-of-generic-prescription-drugs-widely-used-by-older-
    americans.pdf).
    ---------------------------------------------------------------------------
          ASPE: ``Our review of the evidence strongly supports the
    conclusion that generic drug prices are not an important part of the
    drug cost problem facing the nation.''\11\
    ---------------------------------------------------------------------------
        \11\ ASPE, ``Understanding Recent Trends in Generic Drug Prices,''
    January 2016 (https://aspe.hhs.gov/reports/understanding-recent-trends-
    generic-drug-prices).

    Notably, recent analysis from MedPAC and CBO shows the increases in the
    prices of brand-name drugs are significant enough to completely offset
    the increased use of lower-cost generic medicines. CBO found, ``Despite
    increases in the use of lower-cost generic drugs over the 2009-2018
    period, the average price of a prescription drug did not fall
    significantly, because of increases in the prices of brand-name
    drugs.''\12\
    ---------------------------------------------------------------------------
        \12\ Ibid., CBO.

    Patients savings, however, often goes unrealized. HHS found
    ``incompletely aligned incentives for generic substitution leave
    significant savings uncaptured.''\13\ Seniors and the Medicare Part D
    program would have saved $3 billion in 2016 if generics had been
    dispensed rather than the brand-name drug.\14\ In 2018, FDA reported
    that patients could have saved ``more than $4.5 billion in 2017'' if
    they had the ability to purchase FDA-approved biosimilars.\15\ AAM's
    Biosimilars Council conducted similar analysis and found patients had
    unrealized savings of more than $10 billion from the lack of access to
    lower-cost biosimilar medicines through 2018.\16\
    ---------------------------------------------------------------------------
        \13\ Ibid., HHS 2018.
        \14\ Ibid.
        \15\ Ibid., FDA 2018.
        \16\ Biosimilars Council, ``Failure to Launch: Patent Abuse Blocks
    Access to Biosimilars for America's Patients,'' June 2019 (https://
    accessiblemeds.org/resources/reports/white-paper-part-1-failure-launch-
    patent-abuse-blocks-access-biosimilars-americas).

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    Moreover, updated analysis from Avalere shows generic drugs are
    increasingly being placed on higher formulary tiers for seniors with
    Medicare Part D coverage. From 2011 to 2022, the number of generic
    drugs on the lowest cost-sharing tier declined from 71% to 14%.\17\
    Generic drugs are now placed on non-generic tiers 57% of the time.\18\
    As a result, patients are now paying more, even sometimes paying the
    full cost of the drug, even as generic prices have continued to fall.
    Avalere estimated seniors would save more than $4 billion a year if
    generic medicines were placed only on generic formulary tiers.\19\
    ---------------------------------------------------------------------------
        \17\ Ibid., Avalere 2019; Avalere, ``57% of Generic Drugs Are Not
    on 2022 Part D Generic Tiers,'' January 2022 (https://avalere.com/
    insights/57-of-generic-drugs-are-not-on-2022-part-d-generic-tiers).
        \18\ Ibid, Avalere 2022.
        \19\ Ibid, Avalere 2019.
    ---------------------------------------------------------------------------

     The Generic and Biosimilar Markets Are Designed and Function
                        Differently than the Brand Drug Markets

    The pharmaceutical industry in the United States is predicated on a
    balance between innovation and access. Brand-name drug companies are
    rewarded for inventing and developing new treatments and cures. In
    return for the innovation, current law provides brand-name drug
    companies with 12 years of exclusivity for biologics and 20 years, from
    filing, for each patent. There is also regulatory exclusivity provided
    to incentivize pediatric and orphan drug development. During the period
    of patent and marketing exclusivity, brand-name drugs are priced and
    sold free from competition from generics and biosimilars, and discounts
    or rebates may be negotiated with pharmacy benefit managers (PBM) for
    formulary placement.

    Developers of generic and biosimilar medicines are provided with the
    opportunity to begin marketing the same or highly similar medicine with
    the same clinical benefit for patients if the developer can address the
    patents and exclusivity. As noted earlier, the introduction of
    competition into the market significantly reduces the price of
    medicine, and patients benefit from greater, more affordable access to
    FDA-approved drugs. Thus, generic and biosimilar medicines consequently
    play an integral role in patient health.

    Once medicines are approved and launched, brand-name drug companies
    maximize revenue through price rather than volume and negotiate
    discounts or rebates with other stakeholders in the supply chain. In
    contrast, generic drug manufacturers compete solely on the basis of
    price and the ability to supply. As a result, brand-name drug companies
    retain 76% of all revenue, while other stakeholders in the supply chain
    capture 24%.\20\ For generic drug manufacturers, the economic reality
    is different.
    ---------------------------------------------------------------------------
        \20\ USC Schaeffer, ``The Flow of Money Through the Pharmaceutical
    Distribution System,'' June 2017 (https://healthpolicy.usc.edu/
    research/flow-of-money-through-the-pharmaceutical-distribution-system/
    ).

    Generic drug manufacturers retain 36%, while other stakeholders capture
    64% of all revenue.\21\
    ---------------------------------------------------------------------------
        \21\ Ibid.

    In the brand-name drug market, brand-name drug companies use their
    leverage in the supply chain to negotiate formulary placement through
    rebate agreements with PBMs and health insurers. There is little room
    for wholesalers and pharmacies to capture large margins due to their
    relative lack of negotiating power. And pharmacy reimbursement for
    brand-name drugs is tied to the reported price and there is generally
    ---------------------------------------------------------------------------
    only one product available.

    For the generic drug market, wholesalers, through collaborative
    purchasing agreements with pharmacies across the country, and group
    purchasing organizations exert leverage through their purchasing power
    and the robust competition among multiple generic manufacturers who are
    making identical products. More than 90% of all generic drug sales are
    controlled by three consolidated wholesaler-pharmacy groups.\22\ This
    results in significant downward pressure on price, which can result in
    sustainability challenges for generic manufacturers and can leave
    generic drugs vulnerable to drug shortages.
    ---------------------------------------------------------------------------
        \22\ Adam Fein, ``The 2018-19 Economic Report on Pharmaceutical
    Wholesalers and Specialty Distributors,'' October 2018 (https://
    www.drugchannels.net/2018/10/new-201819-economic-report-on.html).
    ---------------------------------------------------------------------------

     Build Back Better's Proposed Reforms Harm Generic and Biosimilar
                        Development

    The House-passed Build Back Better Act (H.R. 5376) threatens to reduce
    seniors' access to generics and biosimilars, potentially dampening
    competition for years to come, with its approach to direct negotiations
    in Medicare and inflation-based rebate penalties. In contrast, the
    bipartisan Prescription Drug Pricing Reduction Act of 2019 (``Grassley-
    Wyden'') would effectively tackle the high cost of brand-name
    prescription drugs without disrupting the ability of generic and
    biosimilar manufacturers to compete.
    Direct Medicare Negotiations
    The Build Back Better Act's direct Medicare negotiations would alter
    the careful balance struck between innovation and access enacted as
    part of the Hatch-Waxman Amendments in 1984 and the Biologics Price
    Competition and Innovation Act (BPCIA) in 2010. The negotiations
    framework severely erodes the incentives for biosimilar and generic
    development, keeping drug prices high for some seniors, while forgoing
    additional cost savings.

    Biosimilars are complex products that can require 8 to 10 years to
    develop, at a cost of $100 to $250 million.\23\ After years of high-
    risk investment, the biosimilar industry is poised to deliver
    tremendous savings to the U.S. health care system, improving access for
    patients and lowering prescription drug costs. New biosimilars are
    expected to launch for a range of treatments for patients with
    diabetes, arthritis, macular degeneration, oncology and more. As shown
    below, 42 biosimilars are on track to launch in the coming years.\24\
    However, the negotiation framework in the Build Back Better Act
    threatens this progress and could undermine biosimilar competition,
    resulting in fewer options for care and higher costs for patients.
    ---------------------------------------------------------------------------
        \23\ AAM, ``The Evidence Is Clear: Biosimilar Competition Will
    Achieve More Savings for Patients Than Build Back Better's
    Negotiations,'' December 2021 (https://accessiblemeds.org/resources/
    blog/competition-biosimilars-will-achieve-more-savings-bbb-
    negotiation).
        \24\ Cardinal Health, ``2022 Biosimilars Report,'' February 2022
    (https://www.cardinalhealth.
    com/content/dam/corp/web/documents/Report/cardinal-health-2022-
    biosimilars-report.pdf).

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    Under the Build Back Better proposal, HHS would have the authority
    to negotiate prices with manufacturers for 100 drugs or more by 2030, a
    number of them reference biologics that could be subject to biosimilar
    competition. IQVIA estimates biosimilars will deliver more than $130
    billion in savings by 2024. That is greater savings for patients than
    the Build Back Better proposal and it starts right now. And as more
    biosimilars and interchangeable biologics become available, there is
    the potential for much larger savings as providers and payers take
    advantage of the opportunities to improve access and reduce costs for
    ---------------------------------------------------------------------------
    patients with these products.

    The House-passed version of the Build Back Better Act, however, would
    put these savings in jeopardy. The aggressive use of non-innovative
    patents by brand-name pharmaceutical companies delays entry for
    biosimilars past the point of the negotiation window. As a result, it
    takes biosimilars many years to launch, and AAM would welcome further
    efforts by Congress to address patent abuse and accelerate timelines
    for biosimilar competition. But rather than addressing the core problem
    of patent abuse, the Build Back Better framework imposes price controls
    that could actually reduce biosimilar competition and reward brand
    manufacturers.\25\ While Build Back Better's reforms may reduce the
    cost of some brand-name drugs for Medicare, it would do so at the
    expense of biosimilar development for all patients. This would harm
    long-term savings available through competition, and it would directly
    result in higher prices for employers and private market payers who are
    counting on biosimilar competition.\26\
    ---------------------------------------------------------------------------
        \25\ AAM, ``Medicare Negotiations Serve as a Catalyst to a
    Perpetual Monopoly,'' November 2021 (https://accessiblemeds.org/
    resources/blog/medicare-negotiations-serve-catalyst-perpetual-
    monopoly).
        \26\ AAM, ``Proposed BBB Negotiation Framework Discourages
    Biosimilar Competition, Imposes Higher Costs on Commercially Insured
    Patients and Their Employers,'' December 2021 (https://
    accessiblemeds.org/resources/blog/proposed-bbb-negotiation-framework-
    discourages-biosimilar-competition-imposes-higher).

    The cumulative result is that the uncertainty associated with
    developing and bringing a biosimilar to market would skyrocket, and the
    potential market opportunity for lower-cost competitors would be cut by
    at least 60%. At the time biosimilar developers decide on whether to
    commit to a $100-$250 million investment, manufacturers will have no
    way to know whether a reference product will be selected for
    negotiation or what the negotiated price might be. The resulting
    uncertainty created by the Build Back Better Act's negotiation
    framework therefore threatens the future of an industry that has
    already demonstrated its promise by helping cut by 50% the spending
    growth rate in oncology treatments. While the approach in the Build
    Back Better Act may result in savings on faster timelines than
    biosimilars are able to launch, the dampening effect on competition may
    result in few options for patients and additional downstream savings
    never materializing. The proposal can and must be adjusted to avoid
    harming the incentives to develop generic and biosimilar medicines for
    seniors, children and other patients should Congress advance them
    further.
    Inflation-Based Rebates
    In addition, the House-passed Build Back Better Act would apply
    inflation-based rebate penalties to generics. This is misguided and
    would limit patients' access to low-cost medicines. The proposal is
    based on a policy designed for the brand drug market. Under the policy,
    drugs face a penalty when a product's average price rises faster than
    inflation (less than 2% in recent years). But while FDA-approved
    generics function the same way as innovative drugs for patient health,
    their market functions very differently, and any policies should be
    tailored to the market. The Prescription Drug Pricing Reduction Act
    (``Grassley-Wyden'') recognized those differences and thus did not
    include generic and biosimilar medicines in its inflation-based rebate
    penalties.

    Inexpensive products are particularly sensitive to percentage-based
    triggers for an inflation-based penalty. For instance, a change of one
    penny in the average price of a generic costing 20 cents per pill would
    likely trigger the penalty. And unlike brand drugs, generics compete
    based on lower list prices and can experience volatile swings in their
    Average Manufacturer Price (AMP) even when they do not raise their
    price. This can occur when a generic keeps its prices unchanged but
    experiences changes in the quantity purchased as other manufacturers
    compete for business. The result is that a generic may keep its price
    level but see its AMP increase because of changes in customer
    purchasing patterns.

    This is not merely hypothetical. Generic manufacturers are already
    struggling with the impact of this policy as applied in the Medicaid
    market. A survey of AAM members determined that 40 to 100% of total
    penalties assessed under the Medicaid policy were attributable to
    changes in customer purchasing behavior, meaning that the majority of
    instances where companies incurred the Medicaid inflation penalty were
    not associated with a true increase in the drug's list price. Moreover,
    half of the respondents indicated the penalty was applied to products
    that were recently or currently on the FDA shortage list.

    The proposed policy, which applies to generic drugs sold in Medicare
    Part D and the commercial market, creates an additional barrier to a
    sustainable market for vulnerable products. It undermines the ability
    of low-cost generics to stay on the market and can serve as a barrier
    to reentering a market--even to prevent a drug shortage.

    In the updated Build Back Better text released on December 11th, the
    Senate Finance Committee narrowed the applicability of the inflation-
    based rebate penalty on generics in Medicare Part D. The penalty would
    apply only to single-source generics with a total cost greater than
    $100 per beneficiary per year and provides the HHS Secretary with
    discretion to exempt products due to shortages or supply chain
    disruptions. This is a material improvement to the House-passed Build
    Back Better Act.

    AAM strongly recommends aligning the current inflation-based penalty
    under Medicaid with the Build Back Better's definition should this
    policy move forward. While generic medicines are not a contributing
    factor to the drug pricing problem and should therefore be exempt from
    any inflation-based penalties, Congress should at a minimum align the
    policies to minimize the operational costs associated with compliance.
    Generic manufacturers already operate on relatively low margins and
    onerous requirements and penalties serve only to threaten the
    sustainability of the market.

     Building a Better Prescription Drug Market Rests on More Generic,
                        Biosimilar Competition and Access

    Increasing competition and patient access to generic and biosimilar
    medicines must be at the center of any reform to the prescription drug
    market. AAM's recommended reforms build on the progress made in recent
    years to increase patient access to lower-cost medicines, but it is
    without question that much more can and should be done to achieve the
    full potential of generic and biosimilar competition. Modernizing the
    Medicare program is an important place to start.

    Medicare modernization is integral to both lower drugs costs for
    patients and make the federal health programs more sustainable for
    future generations. Generic and biosimilar medicines face significant
    barriers to use and adoption in Medicare because of policy choices that
    unintentionally incentivize plans to prioritize formulary placement of
    high-cost brand drugs. These challenges are the result of the design of
    the Part D Coverage Gap Program, which rewards plans for preferring a
    high-cost brand drug, and the Part D drug rebate sharing formula, which
    allows plans to benefit from covering high-rebate brand drugs--even
    when it results in higher costs for Medicare and patients.

    To this end, AAM recommends the Senate Finance Committee advance the
    following reforms:

      Address the biosimilar rebate trap and increase patient access to
    biosimilar medicines.

    The manner by which drug rebates can be used by high-cost brand-name
    drugs to block generic or biosimilar competition has been well
    documented. Rebate traps are of particular concern in the Medicare
    program because of the manner in which rebates are shared with CMS.
    Specifically, plans retain all rebates until the catastrophic phase of
    the benefit, at which point plans retain 20% of the rebates--even
    though plans are liable for only 15% of the costs. This means that the
    value of high rebates on brand drugs, combined with the impacts of
    beneficiary cost-sharing differences and Part D subsidies and program
    design, may drive plans to give equivalent or preferential tier
    placement to higher-cost brand drugs because the rebates are more
    valuable to the plan--even if the brand drugs have a higher net price
    or result in higher costs to patients and taxpayers.

    As generics seek to compete and biosimilars are poised to enter the
    Part D market, the rebate sharing formula continues to be a major
    concern. This practice undermines efforts to reduce patient out-of-
    pocket spending by further inhibiting access to lower-cost generic
    products, forcing additional costs onto America's seniors. Congress has
    a number of options available to address this issue, such as revising
    the rebate sharing formula such that plans are permitted to keep only
    the portion of rebates for which they are financially liable or even
    requiring rebate pass-through before a patient enters the catastrophic
    phase of the benefit. Moreover, we encourage Congress to ensure that
    Medicare policies encourage true price competition and do not create
    perverse financial incentives favoring high-cost brand-name medicines.

    In addition, AAM supports the following policies to help increase
    biosimilar adoption, generating savings for patients and the federal
    government:

            Modest increase to Medicare Part B reimbursement
    (ASP+8%). This policy was included in the Prescription Drug Pricing
    Reduction Act (``Grassley-Wyden''), introduced as The BIOSIM Act (H.R.
    2815) by Representatives Kurt Schrader (D-OR) and Adam Kinzinger (R-
    IL), and included in The Lower Drug Costs Now Act (H.R. 3).\27\
    ---------------------------------------------------------------------------
        \27\ AAM Letter of Support for BIOSIM Act (http://
    biosimilarscouncil.org/wp-content/uploads/2021/04/AAM-BC-Letter-of-
    Support-BIOSIM-Act-04-22-21.pdf); Rep. Kurt Schrader, ``Schrader
    Introduces Bipartisan Bill to Make Biosimilar Drugs More Affordable to
    Patients,'' September 2019 (https://schrader.house.gov/newsroom/
    documentsingle.aspx?DocumentID=392607).

            Establish a Medicare shared-savings demonstration
    program. Bipartisan legislation has been introduced in the Senate and
    House as the Increasing Access to Biosimilars Act (S. 1427/H.R. 2869)
    by Senators John Cornyn (R-TX) and Michael Bennet (D-CO) and
    Representatives Tony Cardenas (D-CA) and Angie Craig (D-MN).\28\
    Estimates prepared by Milliman suggest that this demonstration program
    could save up to $3.2 billion for patients and as much as $12.5 billion
    for the federal government over the next 10 years.\29\
    ---------------------------------------------------------------------------
        \28\ AAM Letter of Support for Increasing Access to Biosimilars Act
    (https://biosimilars.staging.wpengine.com/wp-content/uploads/2021/04/
    AAM-BC-Letter-of-Support-for-Increasing-Access-to-Biosimilars-Act-04-
    28-21.pdf); Sen. John Cornyn, ``Cornyn, Bennet Introduce Bill to
    Address High Cost of Prescription Drugs for Seniors,'' July 2020
    (https://www.cornyn.senate.gov/content/news/cornyn-bennet-introduce-
    bill-address-high-cost-prescription-drugs-seniors); Rep. Tony Cardenas,
    ``Cardenas, Hudson, Craig, Fitzpatrick Introduce the Increasing Access
    to Biosimilars Act,'' March 2020 (https://cardenas.house.gov/media-
    center/press-releases/c-rdenas-hudson-craig-fitzpatrick-introduce-
    increasing-access).
        \29\ Ibid., Milliman.

            Reduce cost sharing for patients in Medicare Part
    B. This policy was introduced in the 116th Congress as the ACCESS Act
    (H.R. 4597) by Representative Scott Peters (D-CA).\30\
    ---------------------------------------------------------------------------
        \30\ Rep. Scott Peters, ``Reps. Peters, King, Cardenas Introduce
    Bipartisan Bill to Make Cost-Effective Biosimilars More Accessible,''
    October 2019 (https://scottpeters.house.gov/media-center/press-
    releases/reps-peters-king-brindisi-introduce-bipartisan-bill-to-make-
    cost-0).

            Allow biosimilars to qualify for mid-year formulary
    changes. We encourage CMS to align the regulation surrounding mid-year
    formulary changes and notice requirements to make biosimilars
    consistent with those of small-molecule drugs. This would provide plan
    sponsors with another lever to use to encourage beneficiary use of the
    ---------------------------------------------------------------------------
    lower-cost biosimilar option.

            Ensure that plan utilization management strategies
    do not prohibit the use of biosimilars. Specifically, we encourage CMS
    to clarify that utilization management tools are based on the molecule,
    not the product. This would make it easier for a patient currently
    receiving biologic therapy to switch to a lower-cost biosimilar without
    once again being subject to step therapy requirements that they have
    already navigated.

      Reduce cost sharing for seniors in Medicare and for low-income
    beneficiaries.

    Generic and biosimilar medicines can provide significant savings for
    patients only if they are covered on the appropriate Medicare Part D
    formulary tier. Ensuring coverage of newly available generic and
    biosimilar medicines, reducing patient cost sharing through proper
    formulary tier coverage and creating a new specialty tier for
    biosimilars can significantly encourage generic and biosimilar
    adoption. To this end, AAM recommends three distinct policy solutions:

            Ensure Medicare Part D plans cover new generic
    medicines, particularly first generics, at launch;
            Create a separate specialty tier to allow for
    differentiation among specialty brands and more affordable generics and
    biosimilars; and,
            Reduce cost sharing for seniors by providing for
    placement of all generic medicines on formulary tiers designated as
    generic and separate from high-priced brand-name drugs.

    First generics--drugs approved by FDA as the first competitor to a
    brand--benefit patients and the health care system. First generics
    represent new competition and lower prices beginning, on average, 40%
    lower than brand drugs. But Medicare prescription drug formularies are
    covering only 21% of the first generics launched in 2020. Commercial
    health plan formularies, by contrast, covered 66% of first
    generics.\31\ This is not a one-time statistical blip. It is the
    continuation of a trend whereby Medicare drug plans are significantly
    slower to cover first generics, delaying seniors' access to lower-cost
    competition. Even when Medicare drug plans do cover first generics,
    these plans tend to place them on brand drug tiers with higher patient
    cost sharing, rather than on low copay generic tiers.
    ---------------------------------------------------------------------------
        \31\ AAM, ``New Generics Are Less Available in Medicare Than
    Commercial Plans,'' July 2021 (https://accessiblemeds.org/sites/
    default/files/2021-07/AAM-New-Generics-Are-Less-Available-in-Medicare-
    2021.pdf).

    In addition, seniors are not realizing the full value of lower-cost
    generics. As noted earlier, generic drugs have increasingly been moved
    to brand tiers with higher copays--even when the cost of the generic
    drug has declined. Not only has this caused significant increases in
    out-of-pocket costs for beneficiaries, but it even means that patients
    may be responsible for the full cost of the drug. A recent analysis
    found that in cases where the generic is covered on Tier 3, nearly 45%
    of Medicare Part D beneficiaries paid the full cost of their generic at
    least once while in the initial coverage limit of their benefit.\32\ In
    other words, their generic drug cost less than the plan's required
    copayment, causing the patient to pay the full price of the product at
    the pharmacy.
    ---------------------------------------------------------------------------
        \32\ Avalere, ``Some Part D Beneficiaries May Pay Full Price for
    Certain Generic Drugs,'' July 2021 (https://avalere.com/insights/some-
    part-d-beneficiaries-may-pay-full-price-for-certain-generic-drugs).

    Should one or more of these policies be enacted in the next few months,
    seniors could select these new coverage options during open enrollment
    beginning October 2022 with coverage effective in January 2023. A
    combination of these policies would ensure that patients have access to
    safe, affordable generic and biosimilar medicines, as well as ensure a
    ---------------------------------------------------------------------------
    viable and competitive prescription drug market for years to come.

    In doing so, accelerating coverage of newly launched generics could
    lower premiums by $2.5 billion and federal health spending by $7.3
    billion.\33\ Creating a new specialty tier for specialty generics and
    biosimilars would likely have a negligible impact on premiums, while
    reducing federal health spending (savings up to $11 billion) depending
    on how it is implemented. And while ensuring generic medicines are on
    generic cost-sharing tiers (Tiers I and II) may nominally increase
    premiums, it would save seniors as much as $4 billion per year in lower
    out-of-pocket costs.\34\
    ---------------------------------------------------------------------------
        \33\ AAM, ``White Paper: Access Denied: Why New Generics Are Not
    Reaching America's Seniors,'' October 2019 (https://accessiblemeds.org/
    sites/default/files/2019-09/AAM-White-Paper-Access-Denied-First-
    Generics-web_0.pdf).
        \34\ Avalere, ``Medicare Part D Generic Drug Tiering Request for
    Comment: Implications for Patient Out-of-Pocket Spending and Part D
    Plan Costs,'' February 2019 (https://avalere.com/wp-content/uploads/
    2019/02/20190228-White-Paper-Part-D-Generic-Tiering.pdf).

    The bipartisan Ensuring Access to Lower-Cost Medicines Act (H.R. 2846)
    was introduced by Rep. David McKinley (R-WV) and Rep. Ann Kuster (D-
    NH).\35\ Similar policies were offered as an amendment by Sen. Robert
    Menendez (D-NJ), Sen. James Lankford (R-OK), Sen. Ben Cardin (D-MD) and
    Sen. Steve Daines (R-MT) in the 116th Congress during the Senate
    Finance Committee's markup of the Prescription Drug Pricing Reduction
    Act (``Grassley-Wyden'').
    ---------------------------------------------------------------------------
        \35\ Rep. Annie Kuster, ``Kuster, McKinley Introduce Bipartisan
    Legislation to Help Save Seniors Billions in Drug Costs,'' April 2021
    (https://kuster.house.gov/news/documentsingle.aspx?
    DocumentID=3535#::text=Act%20last%20Congress.-
    ,The%20Ensuring%20Access%20to%20Lower
    %2DCost%20Medicines%20for%20Seniors%20Act,charged%20the%20higher%20brand
    %20rate.).

    Another option to consider is reducing cost sharing for low-income
    Medicare beneficiaries (LIS). LIS beneficiaries typically utilize more
    expensive brand-name drugs even when lower-cost biosimilar and generic
    medicines are available. In 2018, HHS estimated the Part D program and
    its beneficiaries could have saved $2.8 billion with full generic
    substitution in 2016.\36\ Reducing the out-of-pocket costs for low-
    income seniors through policies designed to encourage the greater use
    of generic medicines could save up to $18 billion over 10 years,
    according to CBO.\37\ We encourage Congress to support legislation to
    this end.
    ---------------------------------------------------------------------------
        \36\ Ibid., HHS 2018.
        \37\ CBO, ``Proposals for Health Care Programs--CBO's Estimate of
    the President's Fiscal Year 2017 Budget'' [Line 59], March 2016
    (https://www.cbo.gov/system/files/2020-03/56243-2016-03-29-health-
    programs.pdf).

      Modernize the Part D benefit to encourage more generic and
    ---------------------------------------------------------------------------
    biosimilar adoption.

    The Medicare Part D benefit should be updated to incentivize the use of
    lower-price, high-quality medicines by eliminating the perverse
    incentives that favor high-cost brand-name drugs. AAM recommends that
    such efforts:

            Incentivize the use of lower-cost biosimilars and
    generics by decreasing plan liability for these products; and
            Align plan incentives for using low-cost products
    by decreasing government reinsurance and increasing plan liability in
    the catastrophic phase.

    The House-passed Build Back Better Act sets plan liability in the
    catastrophic phase of the Part D benefit at 60% for all prescription
    drugs. The Prescription Drug Pricing Reduction Act (``Grassley-Wyden'')
    differentiates between brand-name (66%) and generics (60%). AAM
    recommends setting plan liability at 50% for generics and 50% for
    biosimilars to encourage greater adoption of these lower-cost
    medicines.

      Eliminate the penalty on generics in Medicaid.

    Manufacturers of affordable generic medicines are now paying millions
    of dollars in penalties on prescription drugs that have not been
    subject to a price increase. These unpredictable, onerous penalties--
    totaling $1.6 billion over 10 years--make it challenging to continue
    production of low-margin generics and threaten patient access to life-
    saving medicine. Repealing the Medicaid Generics Penalty alleviates the
    harmful and unintended consequences of this policy on patients.

    We strongly encourage Congress to advance the Protecting Access to
    Affordable Medicines Act (H.R. 2868) introduced by Representative G.K.
    Butterfield (D-NC) and Billy Long (R-MO). This proposal would exempt
    the lowest-cost generics, those with a price of less than $1 per unit,
    and would help address the misguided application of the Medicaid rebate
    on generic medicines, thus reducing the risk of drug shortages and
    benefiting patients through sustainable access to low-cost
    generics.\38\
    ---------------------------------------------------------------------------
        \38\ AAM Letter of Support for the Protecting Access to Affordable
    Medicines Act (2021); Rep. G.K. Butterfield, ``Congressman Butterfield
    Introduces Bipartisan Bill to Fix Medicaid Penalty for Low-Cost
    Generics,'' October 2020 (https://butterfield.house.gov/media-center/
    press-
    releases/congressman-butterfield-introduces-bipartisan-bill-to-fix-
    medicaid#::text=Federal%20
    Agency%20Help-
    ,Congressman%20Butterfield%20Introduces%20Bipartisan%20Bill%20to,Penalty

    %20for%20Low-
    Cost%20Generics&text=This%20will%20help%20ensure%20that,to%20quality%20
    and%20affordable%20medications.).
    ---------------------------------------------------------------------------

    Conclusion

    Congress is right to try to meet the expectations of a nation concerned
    about the high prices of brand-name drugs. But policies to reform drug
    pricing should be focused on ensuring that Americans have access to
    more affordable medicines by eliminating barriers and improving
    incentives for competition. The House-passed Build Back Better Act
    offers an untested approach that, in our estimation, would harm the
    development of generic and biosimilar medicines. The Senate Finance
    Committee has an opportunity to advance policies that will yield more
    immediate and lasting results in lowering the cost of prescription
    drugs for patients. We welcome the opportunity to work together toward
    that shared goal.

                                     ______

                    Association of Community Cancer Centers

                       1801 Research Boulevard, Suite 400

                              Rockville, MD 20850

                                T: 301-984-9496

                                F: 301-770-1949

                              www.accc-cancer.org

    March 16, 2022

    The Honorable Ron Wyden             The Honorable Mike Crapo
    Chairman                            Ranking Member
    U.S. Senate                         U.S. Senate
    Committee on Finance                Committee on Finance
    221 Dirksen Senate Office Building  239 Dirksen Senate Office Building
    Washington, DC 20510                Washington, DC 20510

    RE: ``Prescription Drug Price Inflation: An Urgent Need to Lower Drug
    Prices in Medicare''

    Dear Senators Wyden and Crapo,

    On behalf our member cancer programs and practices, the Association of
    Community Cancer Centers (ACCC) would like to thank the Senate Finance
    Committee for holding this hearing on ``Prescription Drug Price
    Inflation: An Urgent Need to Lower Drug Prices in Medicare''. In
    considering legislation to reduce out-of-pocket prescription drug costs
    for Medicare beneficiaries, it is important for the Committee to
    consider the cancer care provider perspective, and we appreciate the
    opportunity to submit the following statement for the record.

    ACCC is the leading education and advocacy organization for our
    nation's cancer care community, representing a network of 28,000
    multidisciplinary practitioners from 2,100 hospitals and practices
    nationwide. The diversity of our membership uniquely positions ACCC to
    effectively engage with policymakers about the need for reforms to
    reduce out-of-pocket costs for prescription drugs and drugs
    administered in both academic and community-based oncology practices,
    clinics, and hospitals.

    ACCC supports the goal of reducing the cost of prescription drugs for
    Medicare beneficiaries. However, we are concerned that the ``maximum
    fair price'' standard proposed for achieving cost savings in the Build
    Back Better Act (BBBA) would negatively impact reimbursement for
    providers that administer drugs covered under Medicare Part B. We also
    fear this legislation would threaten the financial viability of cancer
    programs and practices across the country and reduce Medicare
    beneficiary access to crucial medications and treatments. We therefore
    request that the Committee pursue legislative solutions that hold
    providers harmless in the drug pricing negotiation between the federal
    government and drug manufacturers.

    The current level of reimbursement for Medicare Part B drugs affords
    cancer care providers the necessary capital to fund crucial elements of
    a comprehensive cancer care program. This not only includes the cost of
    overhead, but the ability to invest in new and innovative technologies,
    patient care coordination and supportive care services, and adequate
    staffing structures for care delivery. By reducing reimbursement for
    Medicare Part B drugs, we believe that the drug pricing provisions of
    the BBBA would limit the ability of cancer programs to provide quality
    care to the diverse communities they serve.

    Moreover, we are concerned that reductions in drug reimbursement
    outlined in the BBBA may worsen the financial challenges that many
    community cancer programs are already experiencing. Oncology programs
    and practices in smaller communities, rural areas, and areas of high
    Medicare penetration stand to be most severely affected by these
    reimbursement cuts. These community providers may be faced with the
    difficult decision to reduce available treatment options and services
    or even close their doors as a result. This would create new access
    issues for Medicare beneficiaries, with a disproportionate effect on
    the poor, vulnerable, and people of color.

    ACCC believes that the most effective treatment options should be
    available to patients at the lowest cost, and any proposed changes in
    reimbursement for drugs should promote health equity while maintaining
    the ability of cancer programs to provide necessary support services
    for potentially disadvantaged populations. Therefore, we are troubled
    by the drug pricing provisions of the BBBA because of their potential
    to exacerbate existing inequities in cancer care delivery.

    For these reasons, we encourage the Committee to refine the drug
    pricing provisions of the BBBA to remove providers from the middle of
    proposed drug pricing negotiations between the federal government and
    drug manufacturers. The proposal to establish a new negotiated price
    would severely impact reimbursement for providers that administer the
    selected Part B drugs, with the largest and most immediate impact on
    providers that treat predominantly Medicare beneficiaries. This change
    in pricing structure would also impact commercial reimbursement in a
    way that unfairly penalizes providers.

    As the voice of our nation's cancer care community, we strongly urge
    the Committee to consider the impacts of drug price negotiation on
    cancer care providers and their ability to provide high quality,
    equitable care to the patients they serve. If you have any questions,
    please contact Matt Devino at mdevino@accc-cancer.org or (301) 263-
    3510.

    Respectfully,

    Krista Nelson, MSW, LCSW, OSW-C, FAOSW
    President

                                     ______

                            Center for Fiscal Equity

                          14448 Parkvale Road, Suite 6

                              Rockville, MD 20853

                          fiscalequitycenter@yahoo.com

                          Statement of Michael Bindner

    Chairman Wyden and Ranking Member Crapo, thank you for the opportunity
    to address this issue.

    These concerns have been with us for decades. They still demand
    attention. PhARMA and AARP have put so much money into advertising on
    both sides that something must either be done, or loudly ignored. The
    advertisements on both sides have, to date, provided more heat than
    light - which was to be expected. Let us try to move to the facts so
    that we might find solutions.

    The decision to not allow Medicare Part D to follow the Department of
    Veterans Affairs and negotiate down drug prices helped end the balanced
    budget that President Bush inherited from President Clinton.

    This bill also pushed Bruce Bartlett out of the Republican Party and
    prompted the writing of the book that sealed the deal. The passage of
    that legislation was fishy, from leaving the vote open unto the wee
    hours of the night to future hiring of the law's author by big PhARMA.

    While the Affordable Care Act helped ameliorate the worst feature of
    Part D, the coverage gap in the middle, it did not eliminate it.
    Perhaps competition will allow that gap to be filled.

    PhARMA relies, in part, on claims that negotiation will lead to cost
    shifting. The dirty little secret in this debate is that single-payer
    solutions in the rest of the OECD have already resulted in cost
    shifting, where the rest of the world shifts its cost to the United
    States. Most people with insurance don't notice this. Single payer
    healthcare, either through a public option or Medicare for All, will
    further bury this. For now, allowing drug price negotiation will give
    drug companies leverage to renegotiate their deals with the rest of the
    world.

    PhARMA also relies on the claims that new cures for pandemics and
    subsidizing the development of orphan drugs and new therapies requires
    the right to charge the most the market can bear. This ignores the fact
    that most basic research comes through government grants and contracts,
    not drug company profits. The latter fund commercial, not scientific,
    development.

    In comments to Ways and Means, House Budget and this Committee in 2019
    and 2020, we discussed how to fund orphan drugs and new treatments so
    that no one remains untreated due to insurance coverage.

    A main problem with high-cost drugs, especially orphan drugs, is the
    high development costs and the cost of small batch manufacturing. This
    could drive the need to raise drug prices for mature drugs in order to
    subsidize the orphans, although some hikes are undertaken because no
    one can stop them. The solution for this is for NIH and the FDA to own
    the rights to orphan drugs and to contract out research and development
    costs as it does basic research, as well as testing and production.

    PhARMA would still make reasonable profit, but the government would eat
    the risk and sometimes reap the rewards. NIH/FDA might even break even
    in the long term, especially if large volume drugs which were developed
    with government grants must pay back a share of basic research costs
    and the attached profits, as well as regulatory cost.

    Universal coverage, starting with a public option under the Affordable
    Care Act, with eventual evolution to some type of single-payer system
    is inevitable. Unless we start building negotiation into the system
    now, we will give the drug companies a reason to oppose reform later.

    A public option will only pass if pre-existing condition reforms are
    abolished with public option enrollment being automatic upon rejection.
    The public option must be subsidized, replacing Medicaid for the
    disabled and those not requiring long-term nursing care. Long-term care
    should be removed from states and replaced with a new federal Medicare
    Part E.

    The profit motive, with the need to constantly increase profits to
    attract Wall Street investment or keep stock prices growing will lead
    to an ever increasing number of people who will be considered
    uninsurable, thus relying on the public option.

    Most healthcare systems will provide services to both comprehensive
    insurance beneficiaries, the retired, the disabled and those with the
    public option. In other words, Medicare for All is our future, with the
    only exception being firms abandoning the system and providing their
    own doctors while making arrangements with local hospitals and
    specialists--essentially creating local HMOs.

    The major issue here is funding, although more efficiency will reduce
    prices. Costs are already minimized by the for-profit and by
    governmental medical care (which often uses for profit networks). To
    repeat, with a shout THE ISSUE IS PRICE, NOT COST!

    Attachments are included on Universal Coverage and our updated Tax
    Reform Plans discuss these issues in further detail. The latter finds
    the money to both pay for healthcare and an expanded child tax credit
    without expanding the ``welfare state'' bureaucracy so many love to
    hate.

    Thank you again for the opportunity to add our comments to the debate.
    Please contact us if we can be of any assistance or contribute direct
    testimony.

     Attachment One--Hearing on ``Pathways to Universal Health Coverage,''
                        June 12, 2019

    There are three methods to get to single-payer: a public option,
    Medicare for All and single-payer with an option for cooperative
    employers.

    The first to set up a public option and end protections for pre-
    existing conditions and mandates. The public option would then cover
    all families who are rejected for either pre-existing conditions or the
    inability to pay. In essence, this is an expansion of Medicaid to
    everyone with a pre-existing condition. As such, it would be funded
    through increased taxation, which will be addressed below. A variation
    is the expansion of the Uniformed Public Health Service to treat such
    individuals and their families.

    The public option is inherently unstable over the long term. The profit
    motive will ultimately make the exclusion pool grow until private
    insurance would no longer be justified, leading-again to Single Payer
    if the race to cut customers leads to no one left in private insurance
    who is actually sick. This eventually becomes Medicare for All, but
    with easier passage and sudden adoption as private health plans are
    either banned or become bankrupt. Single-payer would then be what
    occurs when.

    The second option is Medicare for All, which I described in an
    attachment to June 18th and 19th's comments and previously in hearings
    held May 8, 2019 (Finance) and May 8, 2018 (Ways and Means). Medicare
    for All is essentially Medicaid for All without the smell of welfare
    and with providers reimbursed at Medicare levels, with the difference
    funded by tax revenue.

    Medicare for All is a really good slogan, at least to mobilize the
    base. One would think it would attract the support of even the Tea
    Partiers who held up signs saying, ``don't let the government touch my
    Medicare!'' Alas, it has not. This has been a conversation on the left
    and it has not gotten beyond shouting slogans either. We need to decide
    what we want and whether it really is Medicare for All. If we want to
    go to any doctor we wish, pay nothing and have no premiums, then that
    is not Medicare.

    There are essentially two Medicares, a high option and a low one. One
    option has Part A at no cost (funded by the Hospital Insurance Payroll
    Tax and part of Obamacare's high unearned income tax as well as the
    general fund), Medicare Part B, with a 20% copay and a $135 per month
    premium and Medicare Part D, which has both premiums and copays and is
    run through private providers. Parts A and B also are contracted out to
    insurance companies for case management. Much of this is now managed
    care, as is Medicare Advantage (Part C).

    Medicaid lingers in the background and the foreground. It covers the
    disabled in their first two years (and probably while they are seeking
    disability and unable to work). It covers non-workers and the working
    poor (who are too poor for Obamacare) and it covers seniors and the
    disabled who are confined to a long-term care facility and who have run
    out their assets. It also has the long-term portion which should be
    federalized, but for the poor, it takes the form of an HMO, but with no
    premiums and zero copays.

    Obamacare has premiums with income-based supports (one of those facts
    the Republicans hate) and copays. It may have a high option, like the
    Federal Employee Health Benefits Program (which also covers Congress)
    on which it is modeled, a standard option that puts you into an HMO.
    The HMO drug copays for Obamacare are higher than for Medicare Part C,
    but the office visit prices are exactly the same.

    What does it mean, then, to want Medicare for All? If it means we want
    everyone who can afford it to get Medicare Advantage Coverage, we
    already have that. It is Obamacare. The reality is that Senator Sanders
    wants to reduce Medicare copays and premiums to Medicaid levels and
    then slowly reduce eligibility levels until everyone is covered. Of
    course, this will still likely give us HMO coverage for everyone except
    the very rich, unless he adds a high-option PPO or reimbursable plan.

    Either Medicare for All or a real single payer would require a very
    large payroll tax (and would eliminate the HI tax) or an employer paid
    subtraction value-added tax (so it would not appear on receipts nor
    would it be zero rated at the border, since there would be no evading
    it), which we discuss below, because the Health Care Reform debate is
    ultimately a tax reform debate. Too much money is at stake for it to be
    otherwise, although we may do just as well to call Obamacare Medicare
    for All and leave it alone.

    The third option is an exclusion for employers, especially employee-
    owned and cooperative firms, who provide medical care directly to their
    employees without third party insurance, with the employer making HMO-
    like arrangements with local hospitals and medical practices for
    inpatient and specialist care.

    Employer-based taxes, such as a subtraction VAT or payroll tax, will
    provide an incentive to avoid these taxes by providing such care.
    Employers who fund catastrophic care or operate nursing care facilities
    would get an even higher benefit, with the proviso that any care so
    provided be superior to the care available through Medicaid or Medicare
    for All. Making employers responsible for most costs and for all cost
    savings allows them to use some market power to get lower rates.

    This proposal is probably the most promising way to arrest health care
    costs from their current upward spiral--as employers who would be
    financially responsible for this care through taxes would have a real
    incentive to limit spending in a way that individual taxpayers simply
    do not have the means or incentive to exercise. The employee ownership
    must ultimately expand to most of the economy as an alternative to
    capitalism, which is also unstable as income concentration becomes
    obvious to all.

    Attachment Two--Tax Reform, Center for Fiscal Equity, December 7, 2021

    Individual payroll taxes. Employee payroll tax of 7.2% for Old-Age and
    Survivors Insurance. Funds now collected as a matching premium to a
    consumption tax based contribution credited at an equal dollar rate for
    all workers qualified within a quarter. An employer-paid subtraction
    value-added tax would be used if offsets to private accounts are
    included. Without such accounts, the invoice value-added tax would
    collect these funds. No payroll tax would be collected from employees
    if all contributions are credited on an equal dollar basis. If employee
    taxes are retained, the ceiling would be lowered to $100,000 to reduce
    benefits paid to wealthier individuals and a $16,000 floor should be
    established so that Earned Income Tax Credits are no longer needed.
    Subsidies for single workers should be abandoned in favor of radically
    higher minimum wages. If a $10 minimum wage is passed, the employee
    contribution floor would increase to $20,000.

    Wage Surtaxes. Individual income taxes on salaries, which exclude
    business taxes, above an individual standard deduction of $100,000 per
    year, will range from 7.2% to 57.6%. This tax will fund net interest on
    the debt (which will no longer be rolled over into new borrowing),
    redemption of the Social Security Trust Fund, strategic, sea and non-
    continental U.S. military deployments, veterans' health benefits as the
    result of battlefield injuries, including mental health and addiction
    and eventual debt reduction.

    Our proposed brackets have been increased from $85,000 to $100,000
    because this is the income level at the top of the 80% of tax paying
    households who earn the bottom third of adjusted gross income. Earners
    above this level are considered middle class. Likewise, the top 1% of
    income earners are at the $500,000 level, which will be used as the
    start of the highest rate.

    Asset Value-Added Tax (A-VAT). A replacement for capital gains taxes,
    dividend taxes, and the estate tax. It will apply to asset sales,
    dividend distributions, exercised options, rental income, inherited and
    gifted assets and the profits from short sales. Tax payments for option
    exercises, IPOs, inherited, gifted and donated assets will be marked to
    market, with prior tax payments for that asset eliminated so that the
    seller gets no benefit from them. In this perspective, it is the
    owner's increase in value that is taxed. As with any sale of liquid or
    real assets, sales to a qualified broad-based Employee Stock Ownership
    Plan will be tax free. These taxes will fund the same spending items as
    income or S-VAT surtaxes.

    This tax will end Tax Gap issues owed by high income individuals. A 26%
    rate is between the GOP 23.8% rate (including ACA-SM surtax) and the
    Democratic 28.8% rate as proposed in the Build Back Better Act. It's
    time to quit playing football with tax rates to attract side bets. A
    single rate also stops gaming forms of ownership. Lower rates are not
    as regressive as they seem. Only the wealthy have capital gains in any
    significant amount. The de facto rate for everyone else is zero. For
    now, however, a 28.8% rate is assumed if reform is enacted by a
    Democratic majority in both Houses.

    Subtraction Value-Added Tax (S-VAT). These are employer paid Net
    Business Receipts Taxes. S-VAT is a vehicle for tax benefits, including

          Health insurance or direct care, including veterans' health care
    for non-
    battlefield injuries and long-term care.
          Employer-paid educational costs in lieu of taxes are provided as
    either
    employee-directed contributions to the public or private unionized
    school of their choice or direct tuition payments for employee children
    or for workers (including ESL and remedial skills). Wages will be paid
    to students to meet opportunity costs.
          Most importantly, a refundable child tax credit at median income
    levels (with inflation adjustments) distributed with pay.

    Subsistence-level benefits force the poor into servile labor. Wages and
    benefits must be high enough to provide justice and human dignity. This
    allows the ending of state administered subsidy programs and
    discourages abortions, and as such enactment must be scored as a must
    pass in voting rankings by pro-life organizations (and feminist
    organizations as well). To assure child subsidies are distributed, S-
    VAT will not be border adjustable.

    The S-VAT is also used for personal accounts in Social Security,
    provided that these accounts are insured through an insurance fund for
    all such accounts, that accounts go toward employee ownership rather
    than for a subsidy for the investment industry. Both employers and
    employees must consent to a shift to these accounts, which will occur
    if corporate democracy in existing ESOPs is given a thorough test. So
    far it has not. S-VAT funded retirement accounts will be equal-dollar
    credited for every worker. They also have the advantage of drawing on
    both payroll and profit, making it less regressive.

    A multi-tier S-VAT could replace income surtaxes in the same range.
    Some will use corporations to avoid these taxes, but that corporation
    would then pay all invoice and subtraction VAT payments (which would
    distribute tax benefits. Distributions from such corporations will be
    considered salary, not dividends.

    Invoice Value-Added Tax (I-VAT). Border adjustable taxes will appear on
    purchase invoices. The rate varies according to what is being financed.
    If Medicare for All does not contain offsets for employers who fund
    their own medical personnel or for personal retirement accounts, both
    of which would otherwise be funded by an S-VAT, then they would be
    funded by the I-VAT to take advantage of border adjustability. I-VAT
    also forces everyone, from the working poor to the beneficiaries of
    inherited wealth, to pay taxes and share in the cost of government.
    Enactment of both the A-VAT and I-VAT ends the need for capital gains
    and inheritance taxes (apart from any initial payout). This tax would
    take care of the low-income Tax Gap.

    I-VAT will fund domestic discretionary spending, equal dollar employer
    OASI contributions, and non-nuclear, non-deployed military spending,
    possibly on a regional basis. Regional I-VAT would both require a
    constitutional amendment to change the requirement that all excises be
    national and to discourage unnecessary spending, especially when
    allocated for electoral reasons rather than program needs. The latter
    could also be funded by the asset VAT (decreasing the rate by from
    19.5% to 13%).

    As part of enactment, gross wages will be reduced to take into account
    the shift to S-VAT and I-VAT, however net income will be increased by
    the same percentage as the I-VAT. Adoption of S-VAT and I-VAT will
    replace pass-through and proprietary business and corporate income
    taxes.

    Carbon Added Tax (C-AT). A Carbon tax with receipt visibility, which
    allows comparison shopping based on carbon content, even if it means a
    more expensive item with lower carbon is purchased. C-AT would also
    replace fuel taxes. It will fund transportation costs, including mass
    transit, and research into alternative fuels (including fusion). This
    tax would not be border adjustable unless it is in other nations,
    however in this case the imposition of this tax at the border will be
    noted, with the U.S. tax applied to the overseas base.

    Tax Reform Summary

    This plan can be summarized as a list of specific actions:

    1.  Increase the standard deduction to workers making salaried income
    of $35,000 and over, shifting business filing to a separate tax on
    employers and eliminating all credits and deductions--starting at 7.2%,
    going up to 28.8%, in $50,000 brackets.

    2.  Shift special rate taxes on capital income and gains from the
    income tax to an asset VAT. Expand the exclusion for sales to an ESOP
    to cooperatives and include sales of common and preferred stock. Mark
    option exercise and the first sale after inheritance, gift or donation
    to market.

    3.  Employers distribute the child tax credit with wages as an offset
    to their quarterly tax filing (ending annual filings).

    4.  Employers collect and pay lower tier income taxes, starting at
    $100,000 at 7.2%, with an increase to 14.4% for all salary payments
    over $150,000 going up 7.2% for every $50,000 up to $250,000.

    5.  Shift payment of HI, DI, SM (ACA) payroll taxes to employers,
    remove caps on employer payroll taxes and credit them to workers on an
    equal dollar basis.

    6.  Employer paid taxes could as easily be called a subtraction VAT,
    abolishing corporate income taxes. These should not be zero rated at
    the border.

    7.  Expand current state/federal intergovernmental subtraction VAT to a
    full GST with limited exclusions (food would be taxed) and add a
    federal portion, which would also be collected by the states. Make
    these taxes zero rated at the border. Rate should be 19.5% and replace
    employer OASI contributions. Credit workers on an equal dollar basis.

    8.  Change employee OASI of 7.2% from $18,000 ($20,000 for $10 minimum
    wage) to $100,000 income are optional taxes for Old Age and Survivors
    Insurance.

                                     ______

                          Chronic Care Policy Alliance

                           1001 K Street, Sixth Floor

                              Sacramento, CA 95814

                             Statement of Tom McCoy

    Chronic Care Policy Alliance (CCPA) is a network of organizations
    dedicated to ensuring people living with chronic disease have access to
    quality, affordable healthcare. That is why as the Senate Finance
    Committee explores prescription drug prices, CCPA urges the Committee
    to focus on the costs borne by patients while recognizing the immense
    value prescription drugs bring to improving patient outcomes by
    improving their well-being, their quality of life, and even their
    lifespan.

    The development of new treatments and reasonable access to them is
    critical to the continued improvement of the lives of patients with
    chronic conditions. New treatments can change a debilitating or fatal
    disease into a manageable condition. Therefore, any reforms need to
    ensure they do not impede current and future development and
    exploration of cures and treatments.

    Patients depend on treatments and recognize the need to foster the
    development of these treatments--and Congress has been a strong partner
    in building the regulatory framework that has led to astounding new
    treatments in recent years. Undercutting the system that has produced
    these treatments, including innovative vaccines and treatments for
    COVID-19 in record time, is a misguided endeavor.

    Furthermore, as the Committee considers prescription drug policies, it
    should keep a patient-centered focus and ensure any changes to
    prescription drug policies benefit patients. Any savings to the federal
    government created by policy changes should be used to directly reduce
    consumers' cost.

    As Congress considers potentially sweeping reforms to prescription drug
    policies, whether those proposed in the Build Back Better Act or other
    legislation, it is important that Congress evaluate our health system
    holistically to determine both opportunities for reform as well as the
    impact each reform will ultimately have on patients. Focusing on costs
    without focusing on patients could easily create unintended
    consequences and bring harm to patients.\1\ Instead, Congress should
    focus on specific policies that directly reduce patient costs, such as
    ensuring prescription drug rebates that are passed directly benefit
    patients.
    ---------------------------------------------------------------------------
        \1\ https://chroniccarealliance.org/letter-to-congress-please-
    oppose-harmful-policy-change-to-medicare-part-d/.

    We look forward to working with you on future policy reforms that
    protect patients and guarantee access to quality, affordable
    ---------------------------------------------------------------------------
    healthcare.

                                     ______

                            ERISA Industry Committee

                         701 8th Street, NW, Suite 610

                              Washington, DC 20001

                               Main 202.789.1400

                              http://www.eric.org/

    Chairman Wyden, Ranking Member Crapo, and Members of the Committee,
    thank you for the opportunity to submit a statement for the record on
    behalf of The ERISA Industry Committee (ERIC) for the hearing entitled
    ``Prescription Drug Price Inflation: An Urgent Need to Lower Drug
    Prices in Medicare.''

    ERIC is a national nonprofit organization exclusively representing the
    largest employers in the United States in their capacity as sponsors of
    employee benefit plans for their nationwide workforces. ERIC's member
    companies voluntarily provide benefits that cover millions of active
    and retired workers and their families across the country. With member
    companies that are leaders in every sector of the economy and with
    stores, factories, offices, warehouses, and other operations in every
    state, ERIC is the voice of large employer plan sponsors on federal,
    state, and local public policies impacting their ability to sponsor
    benefit plans and to lawfully operate under ERISA's protection from a
    patchwork of different and conflicting state and local laws, in
    addition to federal law.

    You are likely to engage with an ERIC member company when you drive a
    car or fill it with gas, use a cell phone or a computer, watch TV, dine
    out or at home, enjoy a beverage, fly on an airplane, visit a bank or
    hotel, benefit from our national defense, receive or send a package, go
    shopping, or use cosmetics.

    ERIC member companies provide comprehensive health benefits (including
    drug coverage) and pay the vast majority of these costs incurred by
    plan beneficiaries--as such, they have a significant stake in, and deep
    commitment to, efforts to curb the unsustainable rising costs of
    prescription drugs. Brand prescription drug costs have increased by
    nine percent annually for the past decade, and much of the burden is
    falling on the employers who, on average, pay 75 percent of the cost of
    care for 181 million American employees and family members.
    Additionally, drug costs represent the fastest-growing component of
    health care costs for employers and plan beneficiaries.\1\ We strongly
    believe that healthy, functioning, competitive markets can drive lower
    prices and improve value. But we also recognize that markets sometimes
    fail or don't even exist, and in those cases, government involvement is
    needed.
    ---------------------------------------------------------------------------
        \1\ Gigi Cuckler et al., ``National Health Expenditure Projections,
    2018-2027'' (https://www.
    cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-
    Reports/NationalHealth
    ExpendData/Downloads/ForecastSummary.pdf); Health Affairs 37(3); March
    2018.

    Employer-sponsored health coverage is popular and valued by employees
    across the country. But to be a sustainable benefit, health coverage
    needs to be high quality and affordable. As you consider policies to
    lower prescription drug costs in Medicare, we urge the Committee to
    ensure that these policy changes do not result in shifting costs onto
    the millions of employees, families, and retirees who receive their
    health care benefits from their employers. ERIC urges Congress to
    ensure that measures such as negotiating prescription drug costs and
    inflation caps in the Medicare program do not make matters worse for
    private sector payors, and to adopt robust safeguards to ensure that
    employers and consumers do not experience cost-shifting increases due
    to changes in how the Medicare program pays for drugs. An internal
    analysis by the American Health Policy Institute (AHPI) finds that if
    drugmakers seek to make up for lost revenue due to Medicare price caps,
    employer-sponsored insurance premiums would increase by up to 3.7
    percent per year above their current cost trends. In just the first
    five years, if Medicare negotiation is implemented, employers,
    employees, and their families would face more than $125 billion in
    increased drug costs.\2\ Employees and their families who receive their
    health benefits from their employer are already experiencing high drug
    costs and spend on average $4,571 per year.\3\ These cost increases are
    unsustainable for working Americans.
    ---------------------------------------------------------------------------
        \2\ https://www.pbgh.org/wp-content/uploads/2021/09/Employer-Group-
    Letter-on-Drug-Pricing-to-Hon.-Ron-Wyden.pdf.
        \3\ Black, Michelle. Value Penguin. February 28, 2022. https://
    www.valuepenguin.com/pharmaceutical-spending-study.
    ---------------------------------------------------------------------------

    Conclusion

    ERIC and its member companies are committed to advancing policies that
    will lower costs and improve the quality of health care. We look
    forward to working with you as you develop Medicare prescription drug
    policy to ensure it does not adversely affect employer-sponsored
    coverage for American workers, their families, and retirees.

                                     ______

                            Fresenius Kabi USA, LLC

                             Three Corporate Drive

                             Lake Zurich, IL 60047

                                 T 847-550-2300

                                 T 888-391-6300

                       https://www.fresenius-kabi.com/us

    U.S. Senate
    Committee on Finance
    Dirksen Senate Office Bldg.
    Washington, DC 20510-6200

    RE: Fresenius Kabi Statement for the Record Senate Finance Committee
    Hearing on ``Prescription Drug Price Inflation: An Urgent Need to Lower
    Drug Prices in Medicare'' March 16, 2022.

    Thank you for the opportunity to provide comment in response the
    committee's hearing, entitled ``Prescription Drug Price Inflation: An
    Urgent Need to Lower Drug Prices in Medicare.''

    Fresenius Kabi is a generic and biosimilar manufacturer that employs
    more than 4,000 people in the United States with key domestic
    manufacturing, research and development, and distribution centers in
    Illinois, Nevada, North and South Carolina, New York, Pennsylvania, and
    Wisconsin. Fresenius Kabi specializes in bringing affordable medicines
    to patients with critical and chronic conditions.

    Access to complex generic and biosimilar medicines represents a
    critical lifeline to millions of Americans. In 1984, Congress created a
    competitive pharmaceutical market with the passage of the Hatch-Waxman
    Amendments. The law has successfully delivered decades of savings for
    patients and the U.S. health care system. Generic medicines account for
    90% of all prescriptions filled and just 18% of total Medicare drug
    spending, and more than nine out of ten generic prescriptions are
    filled for $20.00 or less.

    Conversely, biologics represent approximately 10% of prescriptions
    filled but more than 80% of Medicare drug spending. In the coming
    years, biosimilars are poised to deliver tremendous savings to patients
    and the U.S. health care system with treatments for diabetes,
    arthritis, macular degeneration, cancer and more, but cannot deliver
    those savings in the current environment. Like Hatch-Waxman, the
    Biologics Price Competition and Innovation Act of 2009 (BPCIA) created
    an expedited pathway for biosimilars, but it did not account for the
    market distortions we see today. In 2022, this design is necessary but
    not sufficient to introduce the competitive forces needed to address
    the root causes of high-cost biologics, including patent policies and
    the extreme leverage of payers, which are more likely to protect
    branded biologics and disadvantage biosimilars.

    Although price-setting seems to be an attractive route to pursue for
    Congress, it will not yield the results needed to sustain a healthy
    market, that includes innovation, in the long term because high list
    prices are a mere symptom of a deeper problem. By addressing the root
    causes of the problem, Congress can enjoy the success of cultivating
    the most robust and competitive market in the world, much like the
    success of the U.S. generics market.

    Medicare direct negotiation does not address the root causes of the
    pricing problem, which is protracted brand monopolies due to patent
    misuse by branded drug companies and misaligned incentives due to
    rebating tactics in Medicare Part D. The current proposal allows
    government price setting in year 13 for biologics, instead of
    rebalancing the patent system to give biosimilar makers the ability to
    introduce competition after the product patent has expired, a similar
    time frame to the BBB proposal depending on the quality and quantity of
    the innovation in question. As written, the proposal does not address
    the root causes of the problem and will only reduce costs of some
    brand-name drugs for Medicare in the short term. Because it severely
    erodes the incentives for future development of biosimilars and complex
    generic medicines it will yield less savings for patients and the
    Medicare program over time.

    Instead, we urge Congress to take on the anti-competitive tactics used
    by brand pharmaceutical companies to delay competition on their most
    profitable drugs. By addressing patent quality in the biologics market
    and ending the sophisticated life cycle management strategies, such as
    patent thickets and product hopping, designed to render the biosimilar
    irrelevant upon launch, Congress can gain a more robust result through
    competition, while still maintaining the U.S. as the innovation leader
    of the world.

    Secondarily, delayed competition, resulting from the proliferation of
    low-quality patents, exacerbates the second root cause of high drug
    prices, which is the misaligned incentives in Medicare Part D. This
    imbalance allows rebates and list prices to grow unchecked and may
    force eventual biosimilar entrants to fight for market share in an
    environment where rebates perversely incentivize the prescribing of
    more expensive drugs. This practice undermines efforts to reduce
    patient out-of-pocket spending by further inhibiting access to lower-
    cost generic and biosimilar products.

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    We urge Congress to tackle the root causes of high drug prices by
    directly addressing patent quality and misaligned Medicare Part D
    incentives, which keep competition on the costliest drugs at bay, or at
    a disadvantage of leverage. We welcome the opportunity to discuss BBB's
    approach and the implications for development of lifesaving and
    affordable generics and biosimilars. Ensuring America's seniors can
    access lower-cost medicines is a goal we share.

    Should you have any questions or would like to learn more about
    Fresenius Kabi, please do not hesitate to be in touch.

    Regards,

    Sarah D'Orsie
    Vice President of Government Affairs and Policy

                                     ______

                          Health Equity Collaborative

                     1001 Connecticut Avenue, NW, Suite 730

                              Washington, DC 20036

                       www.healthequitycollaborative.org

    The Health Equity Collaborative appreciates the opportunity to submit a
    statement for the record on the Senate Finance Committee's hearing
    titled ``Prescription Drug Price Inflation: An Urgent Need to Lower
    Drug Prices in Medicare''. Confronting the rising cost of healthcare
    remains a top priority of the Health Equity Collaborative. Average
    insurance premiums, which total $21,342 per family of four, and other
    expenses like out-of-network specialists and prescription drugs have
    reached record levels. We believe every sector of the healthcare
    industry needs to be held accountable and do their part in lowering the
    high insurance and prescription drug costs for underserved and diverse
    communities.

    We applaud the House's passage of The Build Back Better Act for its
    historic investment in public health initiatives and subsequent focus
    from both Chambers to remedy the social inequities surrounding rising
    health care costs. However, it's critical to highlight the lack of
    provisions examining the role that Pharmacy Benefit Managers (PBMs)
    play in driving up prescription drug costs.

    Despite wielding significant power to control costs, PBMs have directly
    benefitted from lack of oversight in the rebate market all the while
    maintaining a vested interest in keeping higher, not lower drug prices.
    These rebates are not shared directly with patients, and these
    middlemen collect as much as half the spending on brand name medicines.
    Discounts do not directly help vulnerable populations because they are
    not applied directly to consumer out of pocket costs. Rebates have
    skyrocketed from $102 billion in 2014 to $187 billion in 2020.
    Consumers deserve more transparency at the Pharmacy counter.

    At this critical moment, congressional action is needed to identify and
    reform any perceived misaligned incentives or anti-competitive
    practices in the healthcare supply chain. This includes PBMs. In
    January 2021, the U.S. Senate Finance Committee released an
    investigative report on pricing schemes focused on insulin, finding
    that ``PBM's formularies of covered drugs can affect patient's out-of-
    pocket spending for up to 50% of their co-pay.'' Increasing scrutiny
    and legislative regulations on PBMs would create immense cost savings.

    The 116th Congress's ``C-THRU Act'' would enforce transparency on
    rebates, discounts, and other accrued payments, including their impact
    on Medicare Part D. This would ensure that Medicare enrollees receive a
    fair share of rebate savings by requiring cost sharing for Part D
    enrollees to be based off the negotiated price of the drug. Another
    policy solution, the Drug Price Transparency Act of 2021, would limit
    which type of prescription drug rebates are exempt from federal anti-
    kickback laws. This would narrow the range of possible pricing schemes
    PBMs could use. Middlemen do not deserve to profit while health care
    costs skyrocket beyond the reach of most Americans, including those in
    vulnerable populations.

    There is no health equity without health justice, and there will be no
    long-term solutions unless we dismantle structural barriers that
    preclude people from accessing affordable medicines. While certainly
    not exhaustive, ensuring greater transparency and accountability within
    the pharmaceutical supply chain is one step towards improving the
    health of our nation's patients of color and creating a more equitable
    healthcare system.

                                     ______

                         Healthcare Leadership Council

                         750 9th Street, NW, Suite 500

                              Washington, DC 20001

                                  202-452-8700

    March 16, 2022

    The Honorable Ron Wyden             The Honorable Mike Crapo
    Chairman                            Ranking Member
    U.S. Senate                         U.S. Senate
    Committee on Finance                Committee on Finance
    Washington, DC 20510                Washington, DC 20510

    Dear Chairman Wyden and Ranking Member Crapo:

    Thank you for holding a hearing on ``Prescription Drug Price Inflation:
    An Urgent Need to Lower Drug Prices in Medicare.'' The Healthcare
    Leadership Council (HLC) appreciates the opportunity to share its
    thoughts with you on this important issue.

    HLC is a coalition of chief executives from all disciplines within
    American healthcare. It is the exclusive forum for the nation's
    healthcare leaders to jointly develop policies, plans, and programs to
    achieve their vision of a 21st century healthcare system that makes
    affordable high-quality care accessible to all Americans. Members of
    HLC hospitals, academic health centers, health plans, pharmaceutical
    companies, medical device manufacturers, laboratories, biotech firms,
    health product distributors, post-acute care providers, home care
    providers, and information technology companies'advocate for measures
    to increase the quality and efficiency of healthcare through a patient-
    centered approach.

    Competition and Innovation

    The U.S. healthcare system has seen an increase in the cost of
    prescription drugs which has adversely affected patients, providers,
    payers, and other healthcare stakeholders. Increases in drug prices are
    often due to the lack of competition in the prescription drug
    marketplace. As a diverse coalition of healthcare stakeholders across
    the U.S. healthcare system, we believe innovation is essential to
    increasing market competition to deliver affordable, cutting-edge drug
    therapies to the public. HLC believes policies that encourage
    competitive markets and support innovation will lower drug costs and
    improve access to treatment. HLC supports a continuation of
    streamlining the Food and Drug Administration's (FDA) responsibilities
    and processes, which would include decreasing the backlog of generic
    drug approvals at the FDA and broadening FDA authority to accelerate
    review and approval for new generic drugs.Addressing barriers to and
    encouraging the entry of new generic drugs into the market will create
    more competition and help to lower drug prices.

    Importation

    HLC has provided an informed perspective on this issue throughout the
    sustained period in which we have seen pressure to allow wholesale
    importation of prescription drugs from outside U.S. borders. Our
    position is shaped by a membership that includes both pharmaceutical
    manufacturers and healthcare payers and providers, but also the
    healthcare product distributors that would be charged with facilitating
    movement of these imported drugs into the United States.

    We have found that the promised cost savings from importation cannot be
    realized. When shipping, relabeling, storage, liability coverage, and
    other costs are factored into the economics of importation, the cost
    differential between obtaining medicines from the United States and
    those countries that employ government price controls are largely
    erased. Further, as multiple Canadian authorities have pointed out,
    Canada is frequently faced with drug shortage challenges and simply
    does not have the capacity to meet its own citizens' needs, as well as
    demand from the United States, so importation from Canada is not
    feasible.

    In Republican and Democratic presidential administrations, U.S.
    Department of Health and Human Services Secretaries and FDA
    Commissioners have consistently attested that wholesale drug
    importation cannot be implemented without unacceptable risks to the
    American public. Today, those risks are more acute than ever before.
    Policymakers should consider the following when making decisions
    regarding drug importation:

          We have a substance use disorder crisis in this country, much of
    it fueled by the proliferation of lethal fentanyl that is originating
    in other countries and finding its way here through our ports and via
    the international mail service. Law enforcement authorities have said
    their resources are being stretched to the breaking point by the influx
    of illegal drugs. Government authorized wholesale drug importation will
    only make law enforcement's task more difficult.

          It is a fallacy that drugs coming in from Canada can be assumed
    safe. Today, according to the National Association of Boards of
    Pharmacy, there are over 35,000 online drug sellers, many of them based
    in Canada. More than 95 percent of these operations are in violation of
    applicable laws. There is no way for the FDA to guarantee that
    prescription drugs imported to the United States from Canada did not
    originate in another country where they could have been counterfeited
    or adulterated.

          We are in a global counterfeit drug crisis. The World Health
    Organization has estimated that one in every 10 pharmaceutical products
    in low- and middle-income countries is falsified or substandard.
    Americans have benefited from a closed drug supply system in which
    manufacturing and distribution of prescription medications is approved
    and overseen by the FDA. Opening our borders to imported
    pharmaceuticals will only place Americans at greater danger from those
    of ill intent who see the United States as a lucrative market.

    Price Controls

    We also believe policymakers must consider the ramifications for future
    medical innovation should other governments' price controls be imported
    into the United States economy. Today, we are the world's leading
    developer of new treatments and therapies. Americans are living
    healthier, longer lives because of an environment that encourages
    investment in pharmaceutical research and development. Even if
    wholesale importation were workable, the tradeoff in reduced research
    and development resources and investment would be unacceptable.

    In fact, a recent Congressional Budget Office report estimated the
    number of drugs that will be introduced in the U.S. market under price
    controls over the next 30 years would be reduced by one over the 2022-
    2031 period, four over the subsequent decade, and five over the decade
    after that.\1\ This is not a practical approach to reduce prescription
    drug costs, especially as it comes at the expense of a patient losing
    out on a potential lifesaving drug. In addition, the list price of
    drugs in 2021 rose less than the Consumer Price Index (CPI) and the net
    price of drugs dropped by 1.2 percent. As such, allowing the government
    to set the price for drugs in an environment where the list price of
    drugs is increasing less than the CPI is simply not needed.
    ---------------------------------------------------------------------------
        \1\ U.S. House of Representatives, Committee on Oversight and
    Reform. Drug Pricing Investigation: Majority Staff Report. December
    2021.

    As a diverse coalition of healthcare stakeholders across the U.S.
    healthcare system, we believe there are numerous policy actions that
    can have an impact on drug affordability without endangering the health
    and safety of the American people. They include FDA reforms to bring
    generic medications to the market at a faster pace; modernization of
    federal fraud and abuse laws to enable pro-patient, value focused
    collaboration among payers, providers, and manufacturers; and creating
    ---------------------------------------------------------------------------
    a cap on out-of-pocket drug costs in Medicare.

    HLC members from all health sectors agree that treatment affordability
    and accessibility must continue to be health policy priorities. Opening
    our borders, however, to drugs of unverifiable origin at a time of
    increased global drug counterfeiting and trafficking of illicit
    substances is not an acceptable solution to achieve this goal. Allowing
    the importation of prescription drugs will create more problems than it
    solves. It is clear that both the ``Prescription Drug Price Relief
    Act'' and ``Affordable and Safe Prescription Drug Reimportation Act''
    would have a devastating effect on the innovation taking place to
    develop new treatments and cures for diabetes, heart disease,
    Alzheimer's, cancer, and many other health conditions. Investors will
    not devote dollars to the development of therapies that will be
    subject, directly, or indirectly, to harsh government price controls.
    It's right to pursue greater affordability; but not with a tradeoff
    that includes a diminished ability to fight disease. Government can
    take steps to address patient out-of-pocket costs and can also use
    trade negotiations to ensure other countries pay more of their fair
    share toward drug development; but we shouldn't sacrifice our current
    level of medical innovation.

    Medicare Part D Improvements and Maximum Out-of-Pocket Cap

    The Medicare Part D prescription drug program has successfully provided
    comprehensive, affordable drug coverage to seniors since 2006. We
    agree, however, that there are modifications and changes to the program
    that would improve incentives for all stakeholders, provide real
    financial protection for sicker beneficiaries, and reduce taxpayer
    costs. We support the concept of an out-of-pocket cap within Medicare
    Part D that does not negatively impact beneficiaries by significant
    premium increases or access restrictions.

    In the current Medicare Part D program, beneficiaries are only
    responsible for five percent of drug costs above the catastrophic
    threshold. However, five percent of a $100,000 drug can be burdensome
    for seniors. Annual out-of-pocket expenses for these patients are
    significant. Beneficiary spending exceeds more than $3,000 on average,
    and one in 10 beneficiaries spends at least $5,200 for out-of-pocket
    prescription drug costs. HLC supports an out-of-pocket cap that
    provides all seniors with certainty and financial relief. We believe
    that any changes to the Medicare Part D program should be patient-
    centered and address beneficiaries' affordability issues.

    HLC believes that establishing an out-of-pocket cap is a meaningful way
    to help seniors afford the lifesaving prescription drugs they need,
    especially those who are not eligible for supplemental help. The cost
    associated with an out-of-pocket cap needs to be shared among
    stakeholders, including, but not limited to health plans,
    pharmaceutical manufacturers, and the federal government.

    Thank you for the opportunity to comment on ``Prescription Drug Price
    Inflation: An Urgent Need to Lower Drug Prices in Medicare.'' HLC looks
    forward to continuing to collaborate with you on this important issue.
    If you have any questions, please do not hesitate to contact Debbie
    Witchey at (202) 449-3435 or dwitchey@hlc.org.

    Sincerely,

    Mary R. Grealy
    President

                                     ______

                              Jack Kemp Foundation

                         2012 Wyoming Avenue, NW, #301

                              Washington DC 20009

                 Statement of Ike Brannon, Ph.D., Senior Fellow

    The BBB's Threat to Biosimilar Drug Development

    In 2019, longtime pharmaceutical industry critic Peter Bach took to The
    Wall Street Journal to declare that the U.S. should throw in the towel
    on copycat versions of the nation's highest priced specialty drugs in
    favor of government price controls. The recommendation was rightly
    maligned by those who recognize the undeniable role drug competition
    plays in driving down medicine costs for patients and taxpayers alike.

    Yet 2 years later Congressional Democrats, perhaps unwittingly, appear
    poised to incarnate the Bach proposal.

    Democrats have included a number of provisions intended to reduce drug
    prices in the Build Back Better bill, which is currently being debated
    in the U.S. Senate after having passed the House of Representatives on
    Friday. But the fact that the current bill's provisions that call for
    Medicare to essentially regulate prices and limit any future price
    increases would come at a high cost.

    For starters, it would completely upend our country's wildly successful
    decades-long model of allowing new drugs to enjoy short periods of
    exclusivity, followed by a period of robust competition from generics
    and--for large molecule biologic drugs--biosimilars.

    The inevitable outcome of such a price regulatory regime would be the
    likely evisceration of the market for biosimilar drugs, leaving us with
    less drug development, less competition, and reduced progress in the
    market for biologic drugs.

    Biologics--complex drugs that are made via the use of living cells--
    comprise the fastest-growing class of medicine in the United States. In
    the last decade nearly all the blockbuster drugs that have been
    introduced have been biologics.

    Biologics have also proven to be very expensive to develop and
    manufacture. Unlike classic small-molecule medicines, biologic drugs
    are created within living systems and are highly sensitive, which means
    that manufacturers must control the nature of starting materials and
    employ hundreds of process controls to guarantee quality. The cost of
    researching, developing, and producing these drugs contributes to their
    high prices.

    One way the U.S. has tried to reduce the price of biologic drugs has
    been to encourage the introduction of biosimilar drugs. Biosimilars are
    akin to generics in that they are near-replicas of the original
    biologics, but creating the therapeutic equivalent of a biologic is a
    far more complex task than making a generic equivalent of a small-
    molecule drug: Biosimilar manufacturers are not granted access to the
    DNA used in reference products, and must invest in research and
    development to create close facsimiles of the originals. So while
    biosimilars are touted as lower-cost versions of their reference
    products, they nevertheless require significant investment as well.

    However, the U.S. has been slow to approve biosimilar drugs, which has
    dampened their effect on drug prices. For instance, the EU approved its
    first biosimilar drug in 2006, but the first U.S. drug--Zarxio--did not
    reach the market until 2015. Today, the EU has approved 69 biosimilar
    drugs and the U.S. has just 31, many of which have been approved only
    recently and have yet to come to market.

    No one would claim that the sizable difference in approvals between the
    U.S. and EU has to do with a lax EU regulatory state, given its
    famously sclerotic and cautious bureaucracy and its unquestioning
    embrace of the precautionary principle: It is clear that something is
    amiss in the U.S. biosimilar market. Part of it has to do with the fact
    that the current system has allowed drug companies to delay biosimilar
    competition via the courts and what some construe as a form of patent
    abuse, but the FDA's lengthy and complex process to approve biosimilar
    drugs is a bigger problem.

    A more vigorous FDA, combined with legislation that removed most of the
    legal barriers and patent abuse that stymie biosimilar competition,
    would make it easier for biosimilar drugs to enter the market. This
    would go a long way towards constraining the prices of new drugs in a
    way that wouldn't have an untoward effect on development.

    Instead, many Democrats see the bureaucratic and legalistic barriers as
    an immutable fact of life rather than a problem to be fixed, and
    embrace government price-setting instead.

    As such, the current drug provisions in Build Back Better would
    basically end the decades-old model of encouraging competition via
    generics and go towards a centrally regulated market--more so than even
    Europe.

    Orrin Hatch, my former employer in the U.S. Senate, recently came out
    of retirement to issue a statement decrying the notion of price
    controls and the possible demise of the Hatch-Waxman Act, the
    legislation that created the market for generic drugs and later
    biosimilars.

    Current members of Congress should heed Senator Hatch's caution. Even a
    feint towards such a command-and-control drug market would cause
    biosimilar investment to plummet: it may be difficult to fully revive
    such investment later if pharmaceutical companies fear that such a
    draconian step would remain a possibility with the next administration.

    The more practical and less damaging way to help reduce price pressures
    for prescription drugs would be to fix the pipeline for biosimilars and
    let competition drive down prices--just as generics have done.

    Ike Brannon is a former senior economist for the United States Treasury
    and the Senate Finance Committee

                                     ______

                   National Association of Chain Drug Stores

                          1776 Wilson Blvd., Suite 200

                              Arlington, VA 22209

                                  703-549-3001

                                 www.nacds.org

    U.S. Senate
    Committee on Finance
    Dirksen Senate Office Building
    Washington, DC 20510

    Re: Statement for the Record--``Prescription Drug Price Inflation: An
    Urgent Need to Lower Drug Prices in Medicare''

    Dear Chairman Wyden, Ranking Member Crapo, and Members of the Senate
    Finance Committee:

    The National Association of Chain Drugs Stores (NACDS) \1\ thanks the
    Senate Finance Committee for the opportunity to submit this statement
    for the record following the Committee's hearing titled, ``Prescription
    Drug Price Inflation: An Urgent Need to Lower Drug Prices in
    Medicare.''
    ---------------------------------------------------------------------------
        \1\ NACDS is located at 1776 Wilson Boulevard, Arlington, VA 22209.

    In the Medicare Part D program, drug costs--and corresponding patient
    out-of-
    pocket costs--are on the rise. As Medicare beneficiaries' trusted
    access points to needed medications, pharmacies know firsthand the dire
    consequences associated with increasing drug costs and out-of-pocket
    spending. For instance, higher out-of-pocket costs have been repeatedly
    connected to patients not taking their medication as prescribed,
    otherwise known as medication nonadherence, which has serious
    downstream impacts on worsening health and higher medical spending. In
    fact, a literature review of 160 studies illustrated that an increase
    in patient share of medication costs is directly associated with a
    significant decrease in medication adherence.\2\ For example, higher
    out-of-pocket costs for medication have been associated with patients
    bypassing getting their medication filled because they cannot afford
    the co-pay, or otherwise results in patients inappropriately using
    their medication to make their supply last longer, such as cutting
    pills in half or skipping doses.\3\
    ---------------------------------------------------------------------------
        \2\ Eaddy MT, et al., ``How Patient Cost-Sharing Trends Affect
    Adherence and Outcomes,'' Pharmacy and Therapeutics, January 2012,
    available at https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3278192/.
        \3\ Kaiser Family Foundation, March 1, 2019, available at https://
    www.kff.org/health-costs/press-release/poll-nearly-1-in-4-americans-
    taking-prescription-drugs-say-its-difficult-to-afford-medicines-
    including-larger-shares-with-low-incomes/.

    For many chronic conditions, patients may not immediately feel the
    impact of skipping their medications, but in time, medication non-
    adherence leads to serious consequences in poorer health outcomes,
    increased morbidity and mortality, and higher downstream spending. When
    medications are not taken as prescribed, patients do not receive the
    expected, optimal benefit. For costly chronic conditions, such as
    diabetes, heart failure, hypertension, or cardiovascular disease, for
    example, non-
    adherence may lead to worsening of the condition and the need for more
    costly medications and treatments in the future; or worse, an emergency
    department visit for an avoidable heart attack or heart failure
    exacerbation. The negative impact of medication nonadherence has been
    ---------------------------------------------------------------------------
    well demonstrated across many other conditions as well.

    To combat high drug prices, out-of-pocket costs, and the associated
    negative impacts of both on Medicare Part D beneficiaries, NACDS urges
    the Committee to consider the following two policy solutions:

        b  Recommendation 1: Congress should implement standardized
    pharmacy quality measures to effectuate comprehensive pharmacy direct
    and indirect remuneration (DIR) reform that best serves Medicare
    patients and improves healthcare quality, equity, and reduces
    preventable spending.

        b  Recommendation 2: Congress should protect pharmacies'
    proprietary data collected through any mandatory reporting requirements
    of drug acquisition costs to promote competition and discourage the
    misuse of such information.

    NACDS offers more background on these policies below.

        b  Recommendation 1: Congress should implement standardized
    pharmacy measures to effectuate comprehensive pharmacy DIR reform that
    best serves Medicare patients and improves healthcare quality, equity,
    and reduces preventable spending.

    The Centers for Medicare and Medicaid Services (CMS) is currently
    considering a proposal to reduce prescription drug prices for Medicare
    Part D patients by adopting a revised definition of ``negotiated
    price'' for a covered Part D drug that would include all pharmacy price
    concessions (also known as ``pharmacy direct and indirect
    remuneration'' or ``pharmacy DIR fees'') at the point of sale. This
    proposal would bring transparency to pharmacy DIR fees, while also
    lowering beneficiaries' out-of-pocket costs by $21.3 billion over 10
    years, or approximately 2 percent.\4\ In comments submitted to CMS this
    month, NACDS provides strong support for the Administration's work to
    bring transparency to pharmacy DIR and urges CMS to finalize the rule
    for contract year 2023. NACDS' support is premised on the simple fact
    that the proposal will better align marketplace competition with the
    interests of Medicare patients, and lead to lower total healthcare
    costs, including lower out-of-pocket costs for beneficiaries.
    ---------------------------------------------------------------------------
        \4\ 87 Fed. Reg. 1842, 1849 (January 12, 2022).

    Still, as retail pharmacies continue their commitment to serve Medicare
    patients, NACDS knows that successful DIR reform does not end with
    transparency of pharmacy DIR fees. In tandem with pharmacy DIR fee
    transparency, NACDS continues to advocate, as we have for the past
    eight years, that comprehensive pharmacy DIR reform must include the
    standardization of performance-based pharmacy price concessions and
    incentive payments that are currently based on arbitrary and
    inconsistent performance measures. We believe Congress can help
    accomplish this final step towards comprehensive pharmacy DIR reform to
    ---------------------------------------------------------------------------
    improve quality, equity and reduce preventable spending.

    In its current proposal, CMS acknowledges that performance-based
    pharmacy price concessions, net of all pharmacy incentive payments,
    increased, on average nearly 170 percent per year between 2012 and 2020
    and now comprise the second largest category of DIR received by
    sponsors and PBMs, behind only manufacturer rebates.\5\ CMS further
    acknowledged that performance-based incentive payments--payments paid
    to a pharmacy based on performance--have been extremely unlikely in
    recent years. NACDS concurs that this has been the experience of
    pharmacies.
    ---------------------------------------------------------------------------
        \5\ 87 Fed. Reg. at 1916.

    NACDS highlights that since the proposed rule does not address the
    present regime of a lack of incentive payments paired with the
    prevalence of price concessions based on performance, it would still
    perpetuate significant, outstanding challenges that must be addressed
    to achieve comprehensive DIR reform and redirect incentives to
    emphasize better care for beneficiaries. Stated more precisely,
    pharmacy price concessions, including those based on performance,
    included in the negotiated price would remain contingent, variable, and
    without regard to beneficiary outcomes and care experience. Price
    concessions that are supposed to be performance-based could continue to
    be calculated lower and lower, without any regard to performance at
    all. Such a structure undermines CMS' goals to serve Part D
    beneficiaries in ways that improve healthcare quality, equity and
    minimize preventable spending. Therefore, we urge Congress to consider
    legislation that would standardize pharmacy performance measures used
    to determine price concessions so that pharmacies can be fully apprised
    of performance expectations and opportunities before signing a Part D
    contract, rather than after-the-fact, as is the current untenable
    situation. Implementing standardized pharmacy performance measures
    would also help to redirect and align incentives toward providing
    ---------------------------------------------------------------------------
    better care, equity, and experiences for beneficiaries.

    Further, CMS' current requirement for the disclosure of performance
    measures to the agency is critically important as a first step in
    reforming DIR for the benefit of Medicare beneficiaries but is
    inadequate in effectuating comprehensive pharmacy DIR reform. Congress
    should implement clear rules and pharmacy measures needed to produce
    pharmacy incentives to improve performance based on quality and patient
    outcomes. These measures should be defined, transparent, consistent
    across plans, and used with time to adjust performance to ensure
    improvement. Additionally, these measures must be pharmacy-specific,
    proven, and based on achievable criteria that consider the drugs
    dispensed and the disease state(s) being managed. Doing so will help
    ensure fairness for both Part D plans and pharmacies, and benefit
    access to Medicare beneficiaries, while also promoting trust that is
    sorely lacking in the current process. Importantly, effective pharmacy-
    level performance measures should first recognize that there should be
    reimbursement for dispensing medications, separate from performance-
    based quality measures.

    The development of pharmacy-level quality measures is already underway.
    Several pharmacy quality measures have been developed, tested, and
    endorsed by the Pharmacy Quality Alliance (PQA) over the last two years
    for the purpose of evaluating the quality of pharmacies and assessing
    pharmacist-provided care and pharmacy-based services. To date, PQA has
    endorsed five pharmacy quality measures, primarily focused on
    medication adherence.\6\, \7\ Additional measures are in
    development, including measures focused on patient health outcomes for
    some of the most common, costly conditions including high blood
    pressure and diabetes (A1c), among others.\8\
    ---------------------------------------------------------------------------
        \6\ Pharmacy Quality Alliance, available at https://
    www.pqaalliance.org/pqa-endorses-pharmacy-performance-measures-for-
    medication-adherence-and-specialty-turnaround-time.
        \7\ Pharmacy Quality Alliance, available at https://
    www.pqaalliance.org/pqa-endorses-pharmacy-performance-measures.
        \8\ Pharmacy Quality Alliance, available at https://
    www.pqaalliance.org/pharmacy-measures.

    Implementing standardized pharmacy performance measures would not only
    help to provide pharmacies with clarity on their performance
    expectations and opportunities but would also help to redirect and
    align incentives toward providing better care, equity, and experiences
    for beneficiaries based on evidence-based, tested quality measures.
    Beyond this, implementing standardized pharmacy performance measures
    would help reduce the total cost of care by aligning incentives for
    pharmacies, plans, and PBMs to further improve medication adherence,
    patient health outcomes, and prevent downstream unnecessary spending in
    addition to undue harm and suffering for patients. To effectuate this
    meaningful, needed change for Medicare beneficiaries, Congress must
    take the final step in comprehensive pharmacy DIR fee reform by
    ---------------------------------------------------------------------------
    implementing standardized pharmacy measures.

        b  Recommendation 2: Congress should protect pharmacies'
    proprietary data collected through any mandatory reporting requirements
    of drug acquisition costs to promote competition and discourage the
    misuse of such information.

    Within the realm of prescription drug pricing, some policymakers have
    considered updates to the National Average Drug Acquisition Cost
    (NADAC) survey in the Medicaid program. For example, some policymakers
    have argued that pharmacy responses to the NADAC survey should be
    mandatory. As Congress considers changes to the NADAC survey, NACDS
    urges the Committee to ensure that any proprietary pharmacy data
    collected must remain confidential and not publicly disclosed. Congress
    should also abstain from policies that could utilize information
    collected through a mandatory NADAC reporting program to other federal
    programs like Medicare.

    Public disclosure of this information could have a market-distorting
    effect that harms pharmacies' ability to negotiate effectively, which
    could ultimately harm Medicaid beneficiaries and the pharmacies that
    serve them. For example, such disclosure could result in higher
    acquisition costs for pharmacies. Given the widespread concerns with
    mandatory NADAC reporting, Congress should not consider policies that
    would permit proprietary information to likewise skew competition and
    the patient experience in Medicare.

    Conclusion

    In conclusion, NACDS urges the Committee to advance legislation that
    would require implementation of standardized pharmacy quality measures
    in the Part D program so that implementation can be aligned with
    proposed rulemaking to effectuate more holistic DIR reform for
    beneficiaries, as well as consider the impact of NADAC proposals to
    influence the overall cost of drugs. NACDS looks forward to working
    with the Committee on both of these important policies. For questions
    or further discussion, please contact NACDS' Christie Boutte, Senior
    Vice President, Reimbursement, Innovation & Advocacy, at
    cboutte@nacds.org or 703-837-4211.

                                     ______

                        National Breast Cancer Coalition

                    2001 L Street, NW, Suite 500, PMB #50111

                              Washington, DC 20036

                                 P 202-296-7477

                                 F 202-314-3458

                       https://www.stopbreastcancer.org/

                    Statement of Fran Visco, J.D., President

    Thank you, Chairman Wyden, Ranking Member Crapo, and Members of the
    Senate Finance Committee, for the opportunity to submit a statement for
    the record of the hearing this Committee, held on March 16, 2022:
    ``Prescription Drug Price Inflation An Urgent Need to Lower Drug Prices
    in Medicare.''

    My name is Fran Visco, and I am a breast cancer survivor, a wife, a
    mother, a lawyer, and President of the National Breast Cancer Coalition
    (NBCC). My statement represents the hundreds of member organizations
    and thousands of individual members of the Coalition. NBCC is a
    grassroots organization dedicated to ending breast cancer through
    action and advocacy. The Coalition's primary goals are to advocate for
    federal funding for breast cancer research and collaborate with the
    scientific community to implement new models of research, improve
    access to quality health care, treatments, and breast cancer clinical
    trials for women and men; and expand the influence of breast cancer
    advocates wherever breast cancer decisions are made.

    Congress must help put an end to drug prices that create financial
    toxicity for patients, adversely disrupt the health-care system, and
    have little relation to value to human life. The U.S. spends more than
    double what other industrialized countries do per capita on
    prescription drugs, and 79% of Americans agree that the cost of
    prescription drugs is too high. It is not just a belief. It is reality.
    Medical debt is the largest source of personal debt in the U.S. Two-
    thirds of all personal bankruptcies are due to medical bills. About 115
    million Americans under 65 report issues with medical bills and have
    skipped medical care due to cost.\1\
    ---------------------------------------------------------------------------
        \1\ Breaking News: Medical Debt and Your Credit Report, Oncolink,
    March 23, 2022.

    Because our mission is to end breast cancer, we focus specifically on
    oncology drugs, and the trends there are troubling. A JAMA study,
    published in July 2021, found that between 2009 and 2019, 74% of the 65
    cancer drugs the group looked at increased in price faster than the
    rate of inflation. The median monthly treatment cost rose from $5,790
    in 2009-2010 to $14,580 in 2018-2019.\2\ In 2019, national out-of-
    pocket expenses in the U.S. for female breast cancer were $3.14
    billion.\3\ Most troubling is that there is generally no relationship
    between a drug's clinical effectiveness or reducing mortality and its
    price or subsequent price increases. We will not end breast cancer or
    any disease until everyone has access to affordable, effective
    interventions.
    ---------------------------------------------------------------------------
        \2\ July 1, 2021 Analysis of Launch and Post approval Cancer Drug
    Pricing, Clinical Benefit, and Policy Implications in the U.S. and
    Europe.
        \3\ CDC, Annual Report to the Nation on the Status of Cancer,
    October, 2021.

    Affordable access to prescription drugs has been a priority for NBCC
    since its inception. From advocacy for access to quality care for all
    to drug pricing workshops to interactions with the FDA and public
    statements on specific drug pricing, NBCC has been a voice for value,
    evidence-based approaches, and affordable, accessible treatments. The
    government's ability to negotiate drug pricing is but one necessary
    ---------------------------------------------------------------------------
    reform to help save lives.

    A recently published study found non-initiation (patient did not fill
    their prescription) for 30 percent of prescriptions written for
    anticancer drugs among many Medicare part D beneficiaries. Many
    Medicare Part D beneficiaries must pay a percentage of the price for
    high-priced drugs for each medication fill. Many beneficiaries
    typically pay hundreds or thousands of dollars for a single fill. The
    study's findings support current legislative efforts to increase the
    accessibility of high-price medications by reducing out-of-pocket
    expenses under Medicare Part D.\4\
    ---------------------------------------------------------------------------
        \4\ Many Medicare Beneficiaries Do Not Fill High-Price Specialty
    Drug Prescriptions, Health Affairs, April 2022. https://doi.org/
    10.1377/hlthaff.2021.01742.

    The purpose of a healthcare system must be to do what is best for
    peoples' lives. The system must be designed to achieve that goal. At
    NBCC, we believe that value to patients should be the cornerstone of
    the conversation about drug pricing. Today, U.S. drug manufacturers
    enjoy monopolistic market power and set prices as high as possible. As
    a result, many of their drugs launch with huge price tags despite
    ---------------------------------------------------------------------------
    little added value or innovation.

    Some recent examples of this in breast cancer include:

          TECENTRIQ (atezolizumab) was approved via accelerated approval
    for first-line treatment of advanced or metastatic triple-negative
    breast cancer (TNBC) in 2020, using the surrogate endpoint of
    progression-free survival (PFS) as the primary endpoint. The list price
    of TECENTRIQ is $13,860 per month.

          On April 22, 2020, the FDA granted accelerated approval to
    sacituzumab govitecan-hziy (TRODELVY, Immunomedics, Inc.) for
    metastatic triple-negative breast cancer based on a single-arm trial
    (not a randomized trial). The approval was based on the surrogate
    endpoint of response rate. The list price of TRODELVY is $6,600 per
    month.

    While drug price negotiation is critical to providing access to quality
    health care to all Americans, it is just a start. NBCC believes that
    the next conversation in drug pricing must be about value-based drug
    prices so that Americans have access to drugs that actually benefit
    them at prices they can afford.

    To this end, NBCC adopted the following five principles for value-based
    drug pricing:\5\
    ---------------------------------------------------------------------------
        \5\ Comprehensive Reform to Lower Prescription Drug Prices,
    Madeline Twomey, Center for American Progress, January 29, 2019; How
    Medicare Could Get Better Prices on Prescription Drugs, Kevin Outterson
    and Aaron S. Kesselheim, Health Affairs Vol. 28, 2009.
    ---------------------------------------------------------------------------

    Everyone Must Benefit from Drug Pricing Reform

    Drug pricing reform must be comprehensive. New and existing drugs must
    be subject to pricing reform, and private and government-provided
    insurance coverage must be included.

    Drug Prices Must Reflect Value to People's Lives

    Health-care consumers generally and breast cancer advocates more
    specifically want drugs that significantly extend the length and/or
    quality of their lives. The reality is that most drugs coming to market
    today do neither of these but do carry significant financial costs.

    NBCC urges reform that results in an evidence-based system where drugs
    are priced based on how well they improve people's lives. Value-based
    approaches to drug pricing can encourage drug makers to produce more of
    what people need, drugs that will enhance health and/or quality of
    life.

    Independent and Fair Assessments Must Determine Value

    Independent analyses should inform drug value assessments.
    Organizations conducting assessments must be independent, free of any
    conflicts of interest, and have a transparent and reviewable
    methodology.

    The Process Must Include Educated Patient Advocates

    Educated patient advocates who represent a constituency must have a
    meaningful seat at the table in determining value in all aspects of
    drug pricing policy, including evaluation and negotiation.

    Patient advocates must be centered in the drug pricing discussion.
    Educated patient advocates can bring a truly comprehensive view to the
    table on what matters most to a healthcare system focused on
    ``peoples'' lives.

    Reform Must Include Strong Enforcement Mechanisms

    Drug price policies must include strong, meaningful, and effective
    enforcement mechanisms.

    NBCC will continue to work with you on our shared goal to make certain
    that effective treatments are also affordable and accessible. The
    ability to negotiate drug prices under Medicare is a necessary step to
    that end.

    Thank you again for the opportunity to submit testimony. We look
    forward to working with the Senate Finance Committee on this issue of
    critical importance to American consumers.

                                     ______

                   National Community Pharmacists Association

                             100 Daingerfield Road

                              Alexandria, VA 22314

                                 (703) 683-8200

                                  www.ncpa.org

    Chairman Wyden, Ranking Member Crapo, and Members of the Committee:

    Thank you for conducting this hearing on prescription drug
    affordability and the need to lower costs for patients. In this
    statement, NCPA will offer support and suggestions on a number of
    policy considerations that would lower out of pocket costs for seniors,
    provide certainty for pharmacies, and protect taxpayers by bringing
    more transparency to Medicaid spending.

    NCPA represents America's community pharmacists, including 19,400
    independent community pharmacies. Almost half of all community
    pharmacies provide long-term care services and play a critical role in
    ensuring patients have immediate access to medications in both
    community and long-term care (LTC) settings. Together, our members
    represent a $67 billion healthcare marketplace, employ 215,000
    individuals, and provide an expanding set of healthcare services to
    millions of patients every day. Our members are small business owners
    who are among America's most accessible healthcare providers.

    Our pharmacies and the patients they serve have long had concerns about
    pharmacy benefit managers (PBMs), their anticompetitive practices, and
    the role they play in ever-increasing drug costs. These concerns have
    been further exacerbated because of the COVID-19 pandemic's impact on
    small businesses. Independently owned pharmacies have served as
    lifelines as essential businesses during the pandemic, but PBM
    practices are causing these small businesses to struggle to remain
    viable and keep doors open to provide continued access and care. We
    appreciate the efforts of the Chairman and Ranking Member to discuss
    these practices and the impact on the drug prices on Medicare patients.

    Pharmacy direct and indirect remuneration (DIR) fee reform

    NCPA has long advocated for relief from Medicare Part D pharmacy DIR
    fees, a top priority. In January, the Centers for Medicare & Medicaid
    Services (CMS) released a proposed rule which would address many of the
    concerns NCPA has raised with the agency, this Committee, and the
    relevant Committees of jurisdiction in the House of Representatives. In
    the rule, CMS acknowledges pharmacy price concessions, also known as
    pharmacy DIR fees, have increased more than 107,400 percent over a 10-
    year period.\1\
    ---------------------------------------------------------------------------
        \1\ Proposed Rule: Medicare Program; Contract Year 2023 Policy and
    Technical Changes to the Medicare Advantage and Medicare Prescription
    Drug Benefit Programs, https://www.
    federalregister.gov/d/2022-00117/p-714.

    NCPA provided comments to CMS on the proposed rule, requesting the
    agency to resolve or clarify the several issues summarized below to
    have a positive impact on patients, the Medicare program, and community
    pharmacies.\2\
    ---------------------------------------------------------------------------
        \2\ NCPA offers these comments on the proposed rule without
    commenting on CMS' statutory authority to modify the definition of
    ``negotiated prices.'' NCPA is presently the lead plaintiff in a
    lawsuit challenging CMS' existing regulatory definition of ``negotiated
    prices,'' see NCPA v. Becerra, No. 1:21-cv-131 (D.D.C.), and nothing in
    this letter should be construed as a waiver of the arguments that NCPA
    and the other plaintiffs have made in the litigation challenging the
    existing regulatory definition.

    NCPA requested CMS provide the following to maximize the benefit for
    ---------------------------------------------------------------------------
    patients and community pharmacies:

          CMS must ensure transparency of pharmacy reimbursement at the
    point of sale and ensure the lowest possible reimbursement equals the
    amount paid on a pharmacy remittance advice, paid within the CMS prompt
    pay rules of 14 calendar days. Transparency to pharmacies and patients
    is critical. Therefore, CMS needs to:

              Clarify that the definition of ``other
    stakeholders'' includes the dispensing pharmacy;
              Verify the lowest possible reimbursement will be
    visible to pharmacies at the point of sale on the paid claim response;
              Provide clear guidance that any post-point-of-
    sale adjustments must be positive incentive payments for pharmacy
    performance only;
              Specify that the coordination-of-benefits
    requirements do not apply to pharmacy incentive payments;
              Confirm that all pharmacy price concessions must
    be attributable at the claim level even if not computed or assessed at
    the time of dispensing the Medicare Part D drug;
              Address how CMS guidance would apply if plan
    sponsors or PBMs were to begin restructuring pharmacy fees on a basis
    other than claim-level fees;
              Require that pharmacy administrative service fees
    are properly reported by Medicare Part D plans, as plans are currently
    incentivized not to report these fees at all; and
              Clearly provide a workable and inclusive
    definition of pharmacy price concession that addresses any fee paid by
    a pharmacy or deducted from payments to a pharmacy, or any other
    remuneration received directly or indirectly by the Medicare Part D
    sponsor or its intermediary contracting organization.

          CMS must close the coverage gap loophole. The proposed rule
    creates a loophole that would treat patients differently depending on
    their phase in the Medicare Part D benefit, would permit PBMs to
    continue to play games with pharmacy price concessions for pharmacies
    and inflate prescription costs for the most vulnerable patients, and
    would add needless administrative expenses by forcing the use of two
    systems, one within the coverage gap and the other outside of it.

          CMS must require standardized pharmacy performance measures for
    incentive payments. There is currently an inequitable application of
    metrics for community pharmacies. Even pharmacies that earn high
    performance ratings are nevertheless punished by pharmacy DIR fees
    based on arbitrary PBM measures.

          CMS must enforce existing network adequacy and contract
    provision requirements. Maintaining adequate access for patients to
    prescription drugs is predicated on the participation of pharmacies in
    Medicare Part D plan networks.

          CMS must address NCPA's concerns and recommendations when
    promulgating the final rule for small business pharmacies to remain
    viable participants in the Medicare Part D program. An ``Actuarial
    Memorandum of the Model and Assumptions in Analyzing the 2023 Proposed
    Rule Regarding Pharmacy Price Concessions at Point of Sale'' was
    prepared for Avalere Health on behalf of NCPA.\3\ NCPA commissioned
    this memorandum because CMS failed to adequately test the assumptions
    that this proposal could result in a ``modest'' potential indirect
    positive effect on pharmacy payment, and CMS did not consider this
    proposal's impact on small business pharmacies. The memorandum reveals
    that CMS miscalculated the positive impact on pharmacy. If plans lower
    net reimbursement by 2 percent because of this rule, a reasonable
    assumption based on PBMs' long history of reduced pharmacy
    reimbursement in the Medicare Part D program, the average pharmacy
    would face a 2 percent reduction in reimbursement.\4\
    ---------------------------------------------------------------------------
        \3\ See discussion at p. 14 and Appendix attached of NCPA comment
    letter at, https://ncpa.org/sites/default/files/2022-03/ncpa-comment-
    cms-part-d-proposed-rule.pdf.
        \4\ Actuarial Memorandum of the Model and Assumptions in Analyzing
    the 2023 Proposed Rule Regarding Pharmacy Price Concessions at Point of
    Sale, prepared for Avalere Health and commissioned by NCPA, p. 9 and
    Table 7 (Appendix to comment letter).

    We are grateful that Congress included some version of pharmacy DIR fee
    reform in every drug pricing package over the last legislative cycle
    (Grassley-Wyden, H.R. 3, H.R. 19, and S. 3129), which has helped to get
    us to the point where CMS is moving forward with rulemaking to apply
    all pharmacy price concessions at the point of sale. However, if this
    rule is finalized, it may be necessary to have additional statutory
    authority and clarity that would allow CMS to move forward to address
    other issues, such as standardized quality metrics. We hope that
    Congress will work with us to standardize pharmacy quality metrics for
    pharmacy incentive payments this year, so that comprehensive pharmacy
    DIR fee reform can be implemented in 2023.

    Conclusion

    In conclusion, prescription drug prices continue to grow at an alarming
    rate. There are many factors in the pharmaceutical supply chain and
    delivery system that may contribute to this growth, including pharmacy
    benefit manager ``middlemen.'' NCPA stands ready to work with Congress
    and the administration to implement policies that will lower drug
    prices at the pharmacy counter for our patients.

                                     ______

                         National Council on Disability

                          1331 F Street, NW, Suite 850

                              Washington, DC 20004

                               202-272-2004 Voice

                                202-272-2022 Fax

                                https://ncd.gov/

    Dear Chairman Wyden, Ranking Member Crapo, and Members of the
    Committee:

    Thank you for the opportunity to submit this statement for the record.
    On behalf of the National Council on Disability (NCD), I write to raise
    concern about provisions in the House-passed Build Back Better Act
    (H.R. 5376) that would allow the Secretary of Health and Human Services
    (HHS) to negotiate prices for some high-cost drugs covered under
    Medicare Part B and Part D. NCD respectfully advises the committee to
    include a provision in the bill that prohibits HHS from relying on
    QALY-based cost effectiveness reports, whether from research entities
    that conduct such research, e.g., the Institute for Clinical and
    Economic Review (ICER), or reliance upon prices paid by foreign
    countries, where those countries utilize the QALY methodology to
    determine coverage for prescription medicines. This is in line with the
    Patient Protection and Affordable Care Act's prohibition on HHS'
    reliance on QALY-based cost effectiveness research in Medicare.
    Further, we advise including a provision that requires HHS to rely on
    value assessments made by the Patient-Centered Outcomes Research
    Institute, which conducts value assessments without the use of the
    QALY.

    As an independent federal advisory body to the President, his
    Administration, Congress, and federal agencies, NCD unequivocally
    agrees that drug prices need to be lowered as high drug prices can
    themselves be a source of health inequity for millions of people with
    disabilities. However, our agency would like the Committee to be aware
    of the unintended and discriminatory implications that would negatively
    affect people with disabilities and chronic illnesses absent parameters
    governing the drug negotiation process. NCD is concerned that most of
    the proposed ``applicable countries'' identified in H.R. 5376 as
    countries to reference when determining the average international
    market price per unit for a particular drug or treatment use QALY-based
    cost-effectiveness to determine their national health system's coverage
    of prescription drugs and treatments.

    Congress has previously determined that the QALY methodology is
    discriminatory in both design and its impact and restricts access to
    necessary prescription drugs. These concerns led Congress to prohibits
    its use by the Secretary of HHS in coverage determinations in Medicare
    under the 2010 Patient Protection and Affordable Care Act \1\ as well
    as by the Patient-Centered Outcomes Research Institute.\2\ In addition,
    HHS' regulation implementing Section 504 of the Rehabilitation Act of
    1973 prohibits discrimination on the basis of disability in all
    programs or activities conducted by HHS.\3\
    ---------------------------------------------------------------------------
        \1\ Patient Protection and Affordable Care Act, Pub. L. 111-148,
    title VI, Sec. 6301(c), March 23, 2010 (codified as 42 U.S.C. 1320e-
    1(e)) (The Patient-Centered Outcomes Research Institute . . . shall not
    develop or employ a dollars-per-quality adjusted life year (or similar
    measure that discounts the value of a life because of an individual's
    disability) as a threshold to establish what type of health care is
    cost effective or recommended. . . . The Secretary shall not utilize
    such an adjusted life year (or such a similar measure) as a threshold
    to determine coverage, reimbursement, or incentive programs under
    subchapter XVIII).
        \2\ Id.
        \3\ Enforcement of Nondiscrimination on the Basis of Handicap in
    Programs or Activities Conducted by the Department of Health and Human
    Services, 45 CFR Part 85 (1988).

    In January 2021, NCD raised similar concerns in response to the Centers
    for Medicare and Medicaid Services' (CMS) Most Favored Nation (MFN)
    Rule that was implemented in an attempt to control Medicare
    prescription drug costs. NCD determined that the MFN Rule, like the
    drug price negotiation provisions of H.R. 5376, was contrary to federal
    law by adopting foreign drug prices set in reliance on the QALY.\4\
    Furthermore, the MFN Rule explicitly acknowledged that a portion of the
    MFN Model's savings ``is attributable to beneficiaries not accessing
    their drugs through the Medicare benefit, along with the associated
    lost utilization.'' CMS' ``Extreme Disruption'' possibility predicted
    that, for the potential $286.3 billion in Medicare savings, nearly half
    would be due to seniors foregoing necessary medicines and treatments.
    The MFN Model is a clear example of how value assessments like QALYs
    unintentionally result in limiting access to healthcare.
    ---------------------------------------------------------------------------
        \4\ https://ncd.gov/publications/2021/ncd-letter-cms-most-favored-
    nation-rule#_ftn6.

    As the Committee discusses the best way to lower drug prices, for the
    reasons stated above, NCD reaffirms our advice to prohibit the use of
    QALY-based cost methodologies and reliance upon international pricing
    that uses those methodologies. We further reaffirm our advice to adhere
    to the Patient Protection and Affordable Care Act's prohibition on HHS'
    ---------------------------------------------------------------------------
    reliance on the QALY methodology in Medicare.

    Most Respectfully,

    Andres J. Gallegos
    Chairman

                                     ______

                            National Taxpayers Union

                          122 C Street, NW, Suite 650

                              Washington, DC 20001

                             Phone: (703) 683-5700

                              Fax: (703) 683-5722

                              https://www.ntu.org/

    The Honorable Ron Wyden             The Honorable Mike Crapo
    Chair                               Ranking Member
    U.S. Senate                         U.S. Senate
    Committee on Finance                Committee on Finance
    219 Dirksen Senate Office Building  219 Dirksen Senate Office Building
    Washington, DC 20510                Washington, DC 20510

    Dear Chair Wyden, Ranking Member Crapo, and Members of the Committee:

    On behalf of National Taxpayers Union (NTU), the nation's oldest
    taxpayer advocacy organization, I write in regard to your March 16th
    hearing, ``Prescription Drug Price Inflation: An Urgent Need to Lower
    Drug Prices in Medicare.''

    NTU has conducted research and advocacy on prescription drug pricing
    policy, which significantly impacts American taxpayers, in Congress and
    the states for decades. We have long believed that prescription drug
    policy should focus on increasing market competition and providing
    targeted, fiscally responsible relief for patients facing high costs,
    rather than artificially setting prices or forcing private
    manufacturers into deeply imbalanced negotiations with the federal
    government. Unfortunately, several recent proposals in the House and
    Senate have leaned heavily into these price controls and faux
    ``negotiations.''\1\
    ---------------------------------------------------------------------------
        \1\ For example, see Subtitle I of Title XIII (page 175) in: House
    Committee on Rules. ``Build Back Better Act--Rules Committee Print 117-
    18 Section-By-Section.'' November 2021. Retrieved from: https://
    rules.house.gov/sites/democrats.rules.house.gov/files/
    Section_by_Section_BBB_RC
    P117-18__.pdf#page=175. (Accessed March 14, 2022.)

    We write once again to urge lawmakers to pursue narrow, targeted
    solutions for Americans facing high drug costs, rather than sweeping
    tax-and-mandate schemes that will ultimately push the cost bubble for
    researching, developing, manufacturing, and delivering prescription
    ---------------------------------------------------------------------------
    drugs on to other parts of the private health sector.

    Below, we briefly review some of NTU's recent work on prescription drug
    policy, and share some recommendations that would offer more tangible
    and lasting cost relief for patients than federal price controls.

    NTU's Recent Work on Prescription Drug Policy

    In November 2021, NTU analyzed the broad outlines of a deal negotiated
    between moderate Democrats and liberals to include prescription drug
    pricing provisions in the FY 2022 reconciliation bill, formerly known
    as the Build Back Better Act (BBBA).\2\
    ---------------------------------------------------------------------------
        \2\ Lautz, Andrew. ``Analyzing the New Prescription Drug Pricing
    Proposal For Reconciliation.'' NTU, November 5, 2021. Retrieved from:
    https://www.ntu.org/publications/detail/analyzing-the-new-prescription-
    drug-pricing-proposal-for-reconciliation.

    We noted that the negotiated deal among Democratic lawmakers included
    three broad planks: (1) a requirement for Medicare to negotiate the
    prices of prescription drugs on a top-down basis, replacing private-
    sector negotiations between Part D plans and drug manufacturers, (2)
    inflation caps in Medicare Parts B and D that would require
    manufacturers to rebate Medicare when increasing the price of their
    drugs beyond a broad measure of consumer inflation, and (3) reform and
    ---------------------------------------------------------------------------
    redesign of the Part D prescription drug benefit for seniors.

    Of the first plank, requiring Medicare negotiation, we argued that:

            . . . requiring Medicare to negotiate drug prices would upend
            private-sector negotiations happening every year in Part D. And
            by seeking hundreds of billions of dollars in the form of
            higher taxes or rebates, policymakers could undermine the
            resources necessary to develop new and improved prescription
            drugs for patients in America and around the world.\3\
    ---------------------------------------------------------------------------
        \3\ Ibid.

    Of the second plank, inflation caps in Medicare, we noted in July 2021
    ---------------------------------------------------------------------------
    that:

            To peg the allowable price Medicare will pay for a prescription
            drug to a broad measure of price increases like the Consumer
            Price Index (CPI) is to effectively attempt to set the price of
            the drug. While there are obvious examples of abusive price
            increases that are clearly not tied to market conditions, such
            as Martin Shkreli increasing the price of malaria and HIV
            medicine from $13.50 to $750, manufacturers can and do weigh
            more than just CPI in setting the price of drugs. Private
            payers in Part D should be able to push back on what they deem
            to be excessive price increases in negotiations with
            manufacturers, and private payer negotiations also affect the
            price of drugs in Part B because Part B reimbursement is based
            on average sales price.\4\
    ---------------------------------------------------------------------------
        \4\ Lautz, Andrew. ``Senate Finance Drug Pricing Framework Risks
    Similar Pitfalls of Price-
    Setting H.R. 3.'' NTU, July 7, 2021. Retrieved from: https://
    www.ntu.org/publications/detail/senate-finance-drug-pricing-framework-
    risks-similar-pitfalls-of-price-setting-hr-3.

    NTU also led a coalition of taxpayer, consumer, and free-market
    advocates who wrote to Congress in December 2021, warning of the
    impacts these two planks in BBBA could have on generic drug
    ---------------------------------------------------------------------------
    competition:

            We are also deeply concerned about the impact these two
            proposals could have on generic drug and biosimilar
            development. The top-down negotiation requirement is structured
            in such a way that it will undermine the carefully balanced
            policy that provides space for generic drug and biosimilar
            manufacturers to develop products that offer lower-cost
            alternatives to popular brand-name drugs.

            The inflation caps are also as damaging to generic
            manufacturers as they are to others, if not more so. Applying a
            broad-based measure of consumer price growth to the growth of a
            medical product is clunky at best, and could severely undermine
            manufacturers' ability to account for the cost growth of
            developing, manufacturing, and distributing their products at
            worst.\5\
    ---------------------------------------------------------------------------
        \5\ Lautz, Andrew. ``NTU-Led Coalition Warns of BBB's Impact on
    Drug Competition.'' NTU, December 9, 2021. Retrieved from: https://
    www.ntu.org/publications/detail/ntu-led-coalition-warns-of-bbbs-impact-
    on-drug-competition.

    Generic drugs have helped push down the costs of brand-name products
    for decades since the passage of the landmark, bipartisan Hatch-Waxman
    Act in 1984, and even a co-author of that legislation, former Sen.
    Orrin Hatch (R-UT), has warned that provisions in BBBA could
    ``undermine generic competition'' and ``jeopardize . . .
    biopharmaceutical innovation.''\6\
    ---------------------------------------------------------------------------
        \6\ See: BioUtah.``Hatch Warns of Dangers to Generic Drug Market.''
    November 18, 2021. Retrieved from: https://bioutah.org/hatch-warns-of-
    dangers-to-the-generic-drug-market/. (Accessed November 30, 2021.)
    ---------------------------------------------------------------------------

     NTU's Federal Policy Recommendations for Prescription Drug Cost
                        Support

    Fortunately, there are bipartisan proposals currently on the table in
    Congress that could reduce costs for patients who may be struggling in
    America--all without the harmful price controls or higher taxes that
    could undermine research and development in America's biopharmaceutical
    sector.

    One major proposal that has long earned NTU's support is the third
    plank of BBBA's prescription drug section--Medicare Part D reform and
    redesign. Several versions of this redesign have transferred some of
    the risk in the Part D benefit from America's taxpayers to the private
    insurers offering plans in Part D, and have used the cost savings to
    propose setting the first ever out-of-pocket cap for Part D. This would
    protect seniors from paying above a certain amount per year in drug
    costs--anywhere from $2,000 per year to $3,100 per year \7\--and could
    save some of the seniors with the highest costs in the program
    thousands of dollars per year.
    ---------------------------------------------------------------------------
        \7\ Lautz, Andrew. ``Analyzing the New Prescription Drug Pricing
    Proposal for Reconciliation.'' NTU, November 5, 2021. Retrieved from:
    https://www.ntu.org/publications/detail/analyzing-the-new-prescription-
    drug-pricing-proposal-for-reconciliation.

    In February of last year, NTU also proposed several policy reforms that
    could increase competition in the prescription drug market, lower
    ---------------------------------------------------------------------------
    costs, or accomplish both aims:

          Ensure pharmaceutical manufacturers (and other American
    industries) can continue to fully and immediately recover their
    research and development (R&D) costs, rather than amortizing them over
    five years;
          Reduce, rather than increase, distortionary rebates in the
    Medicaid program;
          Make the elimination of price controls and the protection of
    intellectual property two primary goals of U.S. free trade agreements;
    and
          Reduce regulatory barriers to competition and patient barriers
    to accessing biosimilars.\8\
    ---------------------------------------------------------------------------
        \8\ Lautz, Andrew. ``A Taxpayer- and Market-Oriented Path Forward
    for Federal Prescription Drug Policy.'' NTU, February 25, 2021.
    Retrieved from: https://www.ntu.org/publications/detail/a-taxpayer-and-
    market-oriented-path-forward-for-federal-prescription-drug-policy.

    We believe all of these reforms would lead to more lasting and
    effective change for patients and taxpayers than price controls that
    could destroy parts of the private biopharmaceutical sector and
    undermine efforts to increase prescription drug competition. Thank you
    for your consideration of NTU's views as a taxpayer advocate. Should
    you wish to discuss NTU's reform recommendations at greater length, I
    ---------------------------------------------------------------------------
    am at your service.

    Sincerely,

    Andrew Lautz, Director of Federal Policy

                                     ______

                                PharmacyChecker

                             333 Mamaroneck Avenue

                             White Plains, NY 10605

                              Tel. (718) 554-3067

                            info@pharmacychecker.com

                            www.pharmacychecker.com

    March 25, 2022

    U.S. Senate
    Committee on Finance
    Dirksen Senate Office Bldg.
    Washington, DC 20510-6200

                 Statement of Lucia Mueller and Gabriel Levitt

    Thank you for the opportunity to comment.

    The heart and soul of PharmacyChecker's mission is to help people find
    affordable and safe medicine. We vehemently support ending the ban on
    Medicare drug price negotiations, but we also believe safe importation
    of lower-cost medicines is critical now. PharmacyChecker's
    verifications of online pharmacies and drug price comparisons help
    alleviate the crisis of high drug prices for individual patients by
    publishing free, useful information on international pharmacy standards
    of practice and drug price comparisons of those mail order
    international pharmacies with U.S. discount pharmacy options.

    Patients deserve a choice when it comes to their medications and should
    enjoy the commonsense systems and competition the Internet has fueled
    across all industry sectors. It is well known that tens of millions of
    Americans have chosen to buy more affordable prescription drugs from
    Canada and other countries. PharmacyChecker's main advocacy focus is
    online access to lower-cost and safe imported medications for
    Americans. This requires (1) rational policies applied to Internet
    safety so that patient-consumers can buy their prescription medication
    from international online pharmacies; and (2) federal policies that do
    not prevent patients from importing affordable medicines they need.

    Sadly, the pharmaceutical industry spends considerable resources to
    convince Congress that prescription drugs from other countries are
    somehow dangerous or counterfeit. The January 2022 report published by
    PharmacyChecker.com, ``Not Made in the USA: The Global Pharmaceutical
    Supply Chain and Prospects for Safe Drug Importation,'' brings
    transparency to this very issue by identifying countries of manufacture
    for the top 100 drugs by total expenditures in Medicare Part D in 2018,
    showing that most of the prescription drugs Americans get at local
    pharmacies are not made here.\1\ Additionally, looking at wholesale and
    retail channels, ``Not Made in the USA'' discusses the vast domestic
    vs. international price discrepancies of these top 100 drugs. Below are
    the Key Findings and Policy Recommendations of that report relevant to
    the issue of high drug prices in America.
    ---------------------------------------------------------------------------
        \1\ Levitt, G. and Mueller, L. 2022. ``Not Made in the USA: The
    Global Pharmaceutical Supply Chain and the Prospects for Safe Drug
    Importation,'' https://www.pharmacychecker.com/research/not-made-in-
    the-usa/.
    ---------------------------------------------------------------------------

    Dataset

    The dataset of drugs for this report comes from the Medicare Part D
    Drug Spending Dashboard & Data.\2\ The drugs chosen to determine their
    countries of origin were the top 100 drugs by total spending in 2018.
    Where there were generic drugs listed, we looked at the brand name
    product to assess the manufacturing origin of that drug.\3\ Eighty-five
    of the 100 were single source drugs with no generic availability in
    2018.
    ---------------------------------------------------------------------------
        \2\ Medicare Part D drug spending dashboard. (2020, December 22).
    Centers for Medicare and Medicaid Services, CMS, https://www.cms.gov/
    Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/
    Information-on-Prescription-Drugs/MedicarePartD.
        \3\ Spending on those generic products is captured in the source
    data.
    ---------------------------------------------------------------------------

    Key Findings

          A large majority of the top 100 drugs in Medicare Part D are
    made outside the U.S.:
            v  68% of finished drug formulations (FDFs) \4\
    ---------------------------------------------------------------------------
        \4\ Finished Drug Formulation (FDF) is the term for the final drug
    product prescribed to a patient by a medical professional.
    ---------------------------------------------------------------------------
            v  78% of active pharmaceutical ingredients (APIs) \5\
    ---------------------------------------------------------------------------
        \5\ Active Pharmaceutical Ingredients (APIs) are the key components
    of a medicine that produce the intended effects in the body. Since a
    large majority of prescription drugs sold in the U.S. are made with
    foreign APIs, tracking where they originate is an important public
    health issue.

    These brand name products ranged from exceedingly expensive cancer,
    biologic, and specialty drugs to more widely prescribed maintenance
    ---------------------------------------------------------------------------
    medications.

          Almost all imported brand name drugs are made in countries with
    manufacturing safety practices equal or superior to those in the United
    States.

    Similar to generic drugs, most brand FDFs and their APIs are foreign
    made. What differs is that most FDA-approved brand name drugs,
    including their APIs, are made in high-income countries with the
    strongest pharmaceutical regulations. Of the 100 Medicare Part D drugs
    assessed in our report, 32 were finished in the U.S.; 67 were finished
    in countries that have comparable to if not stronger systems of
    pharmaceutical manufacturing than the U.S.: the countries in the
    European Union, Canada, Japan, Singapore, Switzerland, and the United
    Kingdom. One drug, brand Neurontin (gabapentin), was formulated in
    India.

          Among drugs from the dataset that are accessible to patients for
    purchase online, average international mail order prices were 75.53%
    lower than average U.S. pharmacy prices. Average prices available of
    drugs only shipped from Canadian dispensing pharmacies were 70.18%
    lower than average U.S. pharmacy retail prices.

    Policy Recommendations for the Federal Government

        v  Through legislation, expressly allow importation of brand name
    drugs by companies, other than their manufacturers, from countries
    known to have similarly strong pharmaceutical regulations as the U.S.,
    subject to rational regulatory safeguards.

    Under current law, Section 804 of the FDCA, importation of commercial
    quantities of prescription drugs for re-sale without the authorization
    of the manufacturer is only permitted from Canada. Its relatively small
    size to the U.S., 38 million compared to 330 million, precludes long-
    term and meaningful parallel trade in pharmaceuticals with the United
    States. In contrast, the combined markets of Canada, Japan, the
    European Union, and the United Kingdom, have 667 million people--twice
    the U.S. population. If other high-income countries with strong
    pharmaceutical regulations are added, including Australia, Israel, New
    Zealand, Singapore, and Switzerland, the relevant market size is almost
    700 million. Those regions and countries are also where most of our
    brand name drugs are manufactured. Section 804 must be amended to allow
    non-manufacturers importation from those countries, too.

    The amendment to allow imports from this greater network of countries
    would be specific to brand name drugs manufactured in the listed
    countries.

    Currently, Section 804 precludes the importation of biologics. The most
    expensive category of medical products on the market, biologics
    represent about 40% of all pharmaceutical expenditures,\6\ but only
    about 2% of prescriptions written.\7\ As previously mentioned,
    wholesale prices for biologics are on average almost three times higher
    in the U.S. than in the OECD.\8\ Thus, Section 804 must be amended to
    permit the importation of biologics.
    ---------------------------------------------------------------------------
        \6\ Aitken, M. (2020, March 9). Biologics market dynamics: setting
    the stage for biosimilars [PDF]. IQVIA Institute for Human Data
    Science, https://www.ftc.gov/system/files/documents/public_events/
    1568297/aitken_-
    _biologics_market_dynamics_setting_the_stage_for_biosimilars_
    slides.pdf.
        \7\ Roy, A., and The Apothecary. (2019, March 8). Biologic
    medicines: the biggest driver of rising drug prices. Forbes, https://
    www.forbes.com/sites/theapothecary/2019/03/08/biologic-medicines-the-
    biggest-driver-of-rising-drug-prices/?sh=6019fbed18b0.
        \8\ Mulcahy, A.W., Whaley, C.M., Gizaw, M., Schwam, D., Edenfield,
    N., and Becerra-Ornelas, A.U. (2021). International prescription drug
    price comparisons: Current empirical estimates and comparisons with
    previous studies. RAND Corporation, https://www.rand.org/pubs/
    research_reports/RR2956.html.

    Ostensibly, the preclusion of biologics in Section 804 was due to the
    greater challenges in safe distribution of what are referred to as
    ``large molecule'' pharmaceuticals that are produced with living
    organisms and therefore require special technology to ship under
    temperature controls. Today, U.S. pharmacy benefit managers, such as
    Optum,\9\ are already actively importing biologics, albeit under the
    authorization and with the cooperation of the manufacturers. A federal
    rule should require wholesale importers of biologic drugs to meet or
    exceed manufacturer specifications for safe, international shipping.
    Optum's marketing materials provide a roadmap to develop the
    standard).\10\
    ---------------------------------------------------------------------------
        \9\ Six thoughts: Temperature-controlled shipping. (n.d.). Health
    Services Innovation Company | Optum, https://www.optum.com/business/
    resources/library/cool-thoughts-shipping-sensitive-medications.html.
        \10\ Ibid.

    The current federal rule allowing wholesale importation under Section
    804, requires that the U.S. importer only imports from a wholesaler
    that received the products for import directly from the manufacturer.
    This rule makes it easier for drug manufacturers to use inventory
    management to prevent unwanted distribution of their products from
    lower to high priced markets. The rule should be revised to allow the
    U.S. importer to import from a secondary wholesaler, as long as that
    wholesaler received the products from the wholesaler that first
    received the products from the manufacturer. This revision would
    maintain a closed distribution channel while allowing for the
    development of a competitive marketplace in pharmaceutical trade,
    ---------------------------------------------------------------------------
    similar to the European Union.

        v  Remove barriers and provide guidance to assist individual
    patients who seek to import brand name drugs pursuant to a valid
    prescription.

    The Secretary of Health and Human Services is already seeking new ideas
    on expanding personal drug importation to help patients access lower
    drug prices internationally.\11\
    ---------------------------------------------------------------------------
        \11\ Requests for proposals for insulin reimportation and personal
    prescription drug importation; Withdrawal (86 FR 36283). (2021, July
    9). Food and Drug Administration, https://www.federalregister.gov/
    documents/2021/07/09/2021-14637/requests-for-proposals-for-insulin-
    reimportation-and-personal-prescription-drug-importation.

    Federal law allows personal importation of lower-cost medicines,
    subject to Section 804(J) of the Food, Drug and Cosmetic Act. A few
    million Americans each year already import lower-cost medicine for
    personal use. While they are not charged or prosecuted for illegal
    imports, individuals purchase medicine, often over the Internet within
    a grey marketplace, receiving conflicting messages from regulators,
    industry-sponsored and non-profit organizations on what they should and
    ---------------------------------------------------------------------------
    shouldn't do.

    Organizations like PharmacyChecker and the Canadian International
    Pharmacy Association provide guidance to patients and healthcare
    providers for those who choose to import medicine for personal use.
    Those private sector solutions are helpful, but a publicly or non-
    profit funded effort is needed to bring greater awareness and
    stakeholder acceptance of safe personal drug importation.

    To maximize the utility of personal drug importation as a safe and
    accepted channel for drug affordability, the following is proposed:

        1.  Create an HHS task force with a diverse set of stakeholders to
    review best practices in safe personal drug importation and create FDA
    recommendations to the public. As part of its mandate, the task force
    would identify all current programs and channels of personal drug
    importation, assessing their strengths and weaknesses.

        2.  Revise the FDA's public communications to include useful
    recommendations for patients who choose to import a lower cost medicine
    for personal use and clarify that the agency will not prevent the
    personal import of a brand name drug from licensed pharmacies in
    Australia, Canada, the European Union, Israel, Japan, New Zealand,
    Switzerland, Singapore, and the UK.

    As a general model, the U.S. can look to Australia, in which personal
    importation is expressly legal and the government provides warnings and
    guidance.\12\ As Australians do not face the same problems as Americans
    do with drug affordability, Australians' necessity for personal
    importation is not as widespread. Thus, the FDA would need to create
    more robust warnings and guidelines for patients in the United States.
    ---------------------------------------------------------------------------
        \12\ Personal importation scheme. (2015, March 18). Australian
    Government Department of Health | Therapeutic Goods Administration
    (TGA), https://www.tga.gov.au/personal-importation-scheme.

        v  Instead of reactionary, mercantilist policies to bring drug
    manufacturing home, pursue greater global collaboration and
    coordination towards an international agreement to better regulate and
    ensure the safe manufacture and high quality of APIs.\13\
    ---------------------------------------------------------------------------
        \13\ Mayr, M. (2017, September 19). International cooperation for
    inspections of API manufacturers. The place of the Certification
    Procedure in the global regulatory environment. Prague [PDF]. European
    Medicines Agency, https://www.edqm.eu/sites/default/files/20092017-
    m_mayr-
    international_cooperation_for_inspections_of_api_manufacturers.pdf.

    APIs are made all over the world and shipped globally to different drug
    companies for the manufacture of FDFs. This global competition has
    meant much lower cost generic drugs worldwide, including in the U.S.
    For reasons of national security, whether due to geopolitical tensions
    with China or reliance on foreign supplies during the pandemic, there
    is a new rallying cry for greater autarky with pharmaceuticals. A more
    longstanding, and less politically charged issue is that, for over 20
    years, the FDA has been criticized for its inability to keep up with
    federal requirements on inspections and oversight of global API
    ---------------------------------------------------------------------------
    manufacturers.

    In terms of national security, the U.S. should identify the greatest
    vulnerabilities and create practical contingency plans involving
    alternative suppliers or ramping up domestic production. The FDA has
    reported to Congress on the extent of our vulnerabilities, and they are
    not as great as the rhetoric on this issue. China accounts for 13% of
    all FDA registered API manufacturers, a significant but not
    overwhelming figure. As a matter of national defense policy, we need to
    identify alternative suppliers for those pharmaceutical ingredients and
    appropriate special funding and production plans to ramp up domestic
    manufacturing of the most critical pharmaceuticals.

    Outside the above-mentioned national security issues, we must accept
    the reality of global pharmaceutical manufacturing. To maximize safety
    and minimize cost, the U.S. should set clear goals for international
    harmonization on API standards, cGMP, and distribution. The European
    Medicines Agency is already leading this effort, with the FDA as a
    participant.\14\ FDA's MRAs with all EU countries on drug
    manufacturing, finalized in 2019, occurred because the FDA knows that
    the future lies in globally accepted standards and even shared
    regulatory authority.
    ---------------------------------------------------------------------------
        \14\ Ibid.

    Efforts to harmonize API quality standards have been ongoing for 20
    years through the International Council for Harmonisation of Technical
    Requirements for Pharmaceuticals for Human Use (ICH), the
    Pharmaceutical Inspection Co-operation Scheme, and the World Health
    Organization. The FDA publishes a questions-and-answers document for
    the regulated industry called ``Q7 Good Manufacturing Practice Guidance
    for Active Pharmaceutical Ingredients'' that is the product of those
    efforts.\15\
    ---------------------------------------------------------------------------
        \15\ U.S. Department of Health and Human Services, Food and Drug
    Administration, Center for Drug Evaluation and Research, and Center for
    Biologics Evaluation and Research. (2018). Q7 Good Manufacturing
    Practice Guidance for Active Pharmaceutical Ingredients. Questions and
    Answers. Guidance for Industry. FDA.gov, https://www.fda.gov/media/
    112426/download.

    The next step is for the FDA to prioritize working with those
    international forums and counterpart national drug regulators to create
    a global regulatory approval scheme for API manufacturers. The goal is
    for an API manufacturer, whether in Mumbai, Minneapolis, or Munich, to
    gain approval for international distribution based on one high
    standard. This will create efficiencies, improve safety, and reduce
    ---------------------------------------------------------------------------
    costs for American taxpayers.

                                     ______

                               R Street Institute

                       1212 New York Ave., NW, Suite 900

                              Washington, DC 20005

                                  202-525-5717

                                www.rstreet.org

    March 16, 2022

    The Honorable Ron Wyden
    Chairman
    U.S. Senate
    Committee on Finance
    219 Dirksen Senate Office Building
    Washington, DC 20510-6200

    The Honorable Mike Crapo
    Ranking Member
    U.S. Senate
    Committee on Finance
    219 Dirksen Senate Office Building
    Washington, DC 20510-6200

    RE: Hearing on ``Prescription Drug Price Inflation: An Urgent Need to
    Lower Drug Prices in Medicare''

    Dear Chairman Wyden, Ranking Member Crapo, and Honorable Members of the
    Committee:

    Thank you for the opportunity to submit testimony regarding today's
    hearing on ``Prescription Drug Price Inflation: An Urgent Need to Lower
    Drug Prices in Medicare.'' This issue is one of vital importance to
    millions of Americans, and I applaud the Committee's willingness to
    address it at such a crucial time.

    A recent editorial I authored discusses the topic in detail. I include
    it below for your consideration.\1\
    ---------------------------------------------------------------------------
        \1\ Jonathan Bydlak, `` `Build Back Better' could limit access to
    prescription drugs,'' The Spectator World, December 6, 2021, https://
    spectatorworld.com/topic/build-back-better-biden-limit-prescription-
    drugs.

    Thank you again for your leadership on this matter. R Street is happy
    to advise the Committee in its work or otherwise in any manner that
    ---------------------------------------------------------------------------
    would be helpful.

    Respectfully,

    Jonathan Bydlak
    Director of Governance
    Director of the Fiscal and Budget Policy Project

                                     ______

                  u.s. edition of the world's oldest magazine

                                   POLICY \2\
    ---------------------------------------------------------------------------

        \2\ https://spectatorworld.com/topic-category/policy/.
    ---------------------------------------------------------------------------

         ``Build Back Better'' could limit access to prescription drugs

      It's one of the most underreported--and dangerous--consequences of
                              Biden's legislation

                         December 6, 2021 | 11:05 a.m.

                                  Written by:

                                Jonathan Bydlak

    Much has been written about the expansiveness of the Biden
    administration's signature priority: the Build Back Better Act (BBB).
    The legislation is projected by the Congressional Budget Office (CBO)
    to spend more than $1.6 trillion \3\ in its attempts to address
    countless Democratic priorities ranging from climate change to the
    expansion of Medicaid.
    ---------------------------------------------------------------------------
        \3\ https://spendingtracker.org/bills/hr5376-117.

    One aspect of the bill, however, has attracted far less fanfare than it
    ---------------------------------------------------------------------------
    should have: its impact on the cost of prescription drugs.

    Provisions in the bill would, among other things, impose rebates \4\ on
    drug manufacturers if prices rise faster than inflation. It's an idea
    that sounds great in the current moment of creeping inflation, but is
    ultimately little more than a market distortion likely to produce an
    array of adverse consequences.
    ---------------------------------------------------------------------------
        \4\ https://www.kff.org/health-costs/issue-brief/potential-costs-
    and-impact-of-health-provisions-in-the-build-back-better-act/.

    A new University of Chicago study \5\ looked at the impact of the bill
    on ``innovation and patient health'' and found that BBB would reduce
    spending on drug research and development by ``about 18.5 percent.'' It
    concludes that such a reduction might limit research and development,
    potentially leading to 135 fewer new drugs.
    ---------------------------------------------------------------------------
        \5\ https://ecchc.economics.uchicago.edu/2021/11/30/issue-brief-
    the-impact-of-hr-5376-on-biopharmaceutical-innovation-and-patient-
    health/.

    Perhaps most damning, the study also concluded that the corresponding
    drop in drug production would result in a loss of 331.5 million life
    years--a number 31 times larger than the life years lost in the United
    States as a result of COVID-19. That's presumably not the outcome that
    ---------------------------------------------------------------------------
    Democrats had in mind.

    But their proposal doesn't just impact the market for new brand-name
    drugs. It also would undermine access to affordable generic and
    biosimilar medicines already approved by the Food and Drug
    Administration (FDA).

    In addition to the inflation rebates, BBB seeks to cap Medicare drug
    prices by limiting how much the program will pay for prescriptions.
    While negotiation with manufacturers would result in some savings to
    the program--$79 billion \6\ over 10 years according to the latest CBO
    estimate--it also would create complications \7\ for generics
    manufacturers, who are critical \8\ to keeping prescription costs low
    in the first place. As another commentator highlights,\9\ ``requiring
    Medicare to negotiate drug prices would upend private-sector
    negotiations'' that are already occurring.
    ---------------------------------------------------------------------------
        \6\ https://pink.pharmaintelligence.informa.com/PS145281/Medicare-
    Price-Negotiation-Inflation-Rebate-Legislation-Would-Generate-163Bn-
    CBO-Says.
        \7\ https://www.statnews.com/2021/11/06/hurried-bills-congress-
    shouldnt-undermine-vast-savings-generic-biosimilar-drugs/.
        \8\ https://www.iqvia.com/-/media/iqvia/pdfs/institute-reports/
    price-declines-after-branded-medicines-lose-exclusivity-in-the-us.pdf.
        \9\ https://www.ntu.org/publications/detail/analyzing-the-new-
    prescription-drug-pricing-proposal-for-reconciliation.

    As The Wall Street Journal editorial board recently pointed \10\ out,
    under BBB, ``branded drugs will also see less generic competition,
    which will result in higher prices.'' They further note that generics
    on average reduce prices by 30 percent--and once there are four generic
    entrants in a market, prices drop by nearly 80 percent.
    ---------------------------------------------------------------------------
        \10\ https://www.wsj.com/articles/a-toxic-drug-price-deal-
    11636415735.

    This observation is consistent with past analysis by the FDA, which has
    broadly found \11\ that ``greater competition among generic drug makers
    is associated with lower generic drug prices.''
    ---------------------------------------------------------------------------
        \11\ https://www.fda.gov/about-fda/center-drug-evaluation-and-
    research-cder/generic-competition-and-drug-prices.

    In other words, the more generics manufacturers there are in the
    marketplace, the more savings for consumers and government alike.
    Likewise, legislation that threatens such competition ultimately will
    ---------------------------------------------------------------------------
    increase drug prices.

    The rise of affordable generics \12\ is one of the great healthcare
    success stories of the last decade. It's a trend that has not only
    provided quality medication for those who need it, it has also
    benefited programs like Medicare at a time of otherwise rising
    healthcare costs.
    ---------------------------------------------------------------------------
        \12\ https://thehill.com/blogs/pundits-blog/healthcare/343484-one-
    simple-bipartisan-way-to-help-rein-in-soaring-healthcare/.

    With inflation \13\ and supply chain difficulties \14\ continuing to
    threaten the robustness of the post-pandemic recovery, it's more
    important than ever that lawmakers pay close attention to the full
    implications of their policy proposals. Passing along costs and
    sticking it to drug companies may appeal to populists on both sides,
    but Americans are unlikely to come out ahead should such misguided
    policies become law.
    ---------------------------------------------------------------------------
        \13\ https://www.washingtonpost.com/business/2021/11/10/cpi-
    inflation-october/.
        \14\ https://www.cnbc.com/2021/12/01/siemens-chairman-says-supply-
    chain-chaos-will-last-until-next-summer.html.

    Prescription drug reform is one of the few areas where there is genuine
    bipartisan agreement \15\ not only about what policy goals should be,
    but about the best ways to improve access while keeping costs down.
    \16\ The Biden administration should listen to that consensus and
    rethink their latest proposal.
    ---------------------------------------------------------------------------
        \15\ https://www.grassley.senate.gov/news/news-releases/grassley-
    leahy-hail-inclusion-creates-act-year-end-spending-agreement.
        \16\ https://www.theamericanconservative.com/the-easiest-way-
    donald-trump-can-bring-drug-prices-down/.

    Jonathan Bydlak is director of the Governance Program at the R Street
    Institute, a center-right think tank.
                                     ______

                              Texas Rare Alliance

                          3575 Far West Blvd., #27892

                                Austin TX 78731

                                 (512) 688-1914

                                 March 16, 2022

    On behalf of nearly 3 million Texans living with a rare disease,
    approaching 10% of the total rare disease population in the United
    States, Texas Rare Alliance writes to encourage responsible drug
    pricing reform that does not negatively impact the continued
    development of innovative treatments for rare diseases with unmet needs
    or continued patient access to approved rare disease medications. We
    ask for the same consideration for patients with common conditions.

    Of the more than 8,000 rare diseases, 95% lack an FDA-approved disease-
    modifying treatment. It is crucial we continue research and development
    of additional rare disease treatments and that rare disease patients
    can access disease-modifying treatments upon approval.

    We know what price controls have done to patients in other countries--
    they have resulted in patients, including rare disease patients, having
    worse access to treatments. They undervalue the lives of people who are
    chronically ill, disabled, or elderly, and many of these people are
    rare disease patients.

    I. The Unmet Need for Rare Disease Treatments

                A. The Rare Disease Landscape in the United States
    The facts are not great. One in 10 Americans, over 32 million, has a
    rare disease.\1\ Half of rare disease patients are children (16 million
    American children).\2\ Rare diseases cause thirty-five percent of the
    deaths in the first year of life.\3\ Thirty percent of children with a
    rare disease will not survive until their fifth birthday.\4\ There are
    7,000 rare diseases.\5\
    ---------------------------------------------------------------------------
        \1\ RARE Facts (n.d.). Global Genes, https://globalgenes.org/rare-
    disease-facts/.
        \2\ Id.
        \3\ Get the Facts on Rare Diseases (n.d.). Rare Genomics Institute,
    https://www.raregenomics.
    org/rare-disease-facts.
        \4\ Id.
        \5\ RARE Facts (n.d.). Global Genes, https://globalgenes.org/rare-
    disease-facts/.

    Ninety-five percent of all rare diseases do not have an FDA-approved
    disease-modifying treatment.\6\ It will take thousands of years to
    realize treatments for all rare diseases if FDA-approved therapies
    continue at the current rate.\7\
    ---------------------------------------------------------------------------
        \6\ Id.
        \7\ Bock, Eric. (April 17, 2020). Rare Disease Research
    Progressing, But Could Go Even Faster. NIH Record. 72(8) 1, 8-9,
    https://nihrecord.nih.gov/sites/recordNIH/files/pdf/2020/NIH-Record-
    2020-04-17.pdf.

    I am intimately aware of what it means to lack an approved rare disease
    treatment for your rare disease community. It is devastating. We need
    more conditions like SMA to cross over from the ninety-five percent of
    rare diseases that lace an approved SMA treatment to the five percent
    with an FDA-approved disease-modifying treatment. To achieve this, we
    must encourage continued research and development of breakthrough
    therapeutics.

    II. Understanding the True Economic Burden of Rare Diseases

    The National Economic Burden of Rare Disease Study in the U.S.,
    published by the EveryLife Foundation for Rare Diseases, covered 379
    rare diseases affecting 15.5 million people in the U.S. for 2019. The
    study estimated the overall rare disease economic burden to exceed $966
    billion.\8\ This included ``$418 billion in direct medical cost and
    $548 billion in indirect and non-medical costs absorbed directly by
    families living with rare diseases.''\9\
    ---------------------------------------------------------------------------
        \8\ EveryLife Foundation for Rare Diseases. (2021). The National
    Economic Burden of Rare Disease Study, 15, https://
    everylifefoundation.org/wp-content/uploads/2021/02/The_National_
    Economic_Burden_of_Rare_Disease_Study_Summary_Report_February_2021.pdf.
        \9\ Id.

    Accordingly, in-direct and Non-medical costs (costs absorbed directly
    by families) in 2019 accounted for nearly 60% of the overall cost.\10\
    Prescription medications and outpatient prescription administration
    were only about 10% of the overall economic burden and less than what
    was spent on inpatient care.\11\ We can't expect to address
    affordability if we focus on a small percentage of the problem.
    ---------------------------------------------------------------------------
        \10\ Id.
        \11\ Id.
    ---------------------------------------------------------------------------

    III. Protecting the Pathway to Rare Disease Research

    Congress recognized the unmet need for rare disease treatments by
    passing the Orphan Drug Act (ODA) in 1983.\12\ The ODA incentivizes the
    development of treatments for rare diseases, many of which are life-
    threatening, and most lack an approved treatment.\13\ Congress
    reaffirmed its commitment to the rare disease community in 2016 by
    passing the 21st Century Cures Act,\14\ a bipartisan effort President
    Obama signed into law. The Act included many provisions to improve the
    discovery, development, and delivery of orphan therapies for rare
    disease patients, together with substantial NIH funding.\15\
    ---------------------------------------------------------------------------
        \12\ Orphan Drug Act of 1983. Pub L. No. 97-414, 96 Stat. 2049.
        \13\ Rare Diseases at FDA. (February 20, 2020). U.S. Food and Drug
    Administration, https://www.fda.gov/patients/rare-diseases-fda.
        \14\ Public Law 114-255, 130 Stat. 1033. To Accelerate the
    Discovery, Development, and Delivery of 21st Century Cures, and for
    Other Purposes. Enacted: December 13, 2016, https://www.congress.gov/
    114/plaws/publ255/PLAW-114publ255.pdf.
        \15\ Huron, Jennifer. President Signs 21st Century Cures Medical
    Innovation Bill Into Law (December 13, 2016). National Organization of
    Rare Disorders, https://rarediseases.org/president-signs-21st-century-
    cures-bill-law/. Rare Diseases at FDA. (February 20, 2020). U.S. Food
    and Drug Administration, https://www.fda.gov/patients/rare-diseases-
    fda.
    ---------------------------------------------------------------------------

    IV. The Commitment to Rare Disease Research Is Paying Off

    2018 represented a historic year for the rare disease community. For
    the first time, rare disease approvals exceeded general approvals from
    the Center for Drug Evaluation and Research (CDER) at the FDA.\16\ ``In
    2018, 34 of CDER's 59 novel drugs (58%) were approved to treat rare or
    `orphan' diseases that affect 200,000 or fewer Americans.''\17\
    Increased approvals of rare disease treatments are a welcome sign for
    the rare disease community. We must avoid barriers to research and
    development to ensure the continued development of innovative FDA-
    approved therapies for rare diseases with unmet needs.
    ---------------------------------------------------------------------------
        \16\ Center for Drug Evaluation and Research. Advancing Health
    Through Innovation: 2018 New Drug Therapy Approvals, https://
    www.fda.gov/files/drugs/published/New-Drug-Therapy-Approvals-
    2018_3.pdf.
        \17\ Id.
    ---------------------------------------------------------------------------

    V. Rare Disease Research Benefits Us All

    Research for rare diseases greased the wheels for a COVID-19 vaccine.
    Before the COVID-19 pandemic, most had not heard of mRNA technologies.
    This is not true for researchers in the rare disease community. There
    are more than 145 ongoing mRNA clinical trials for rare diseases,
    including Cystic Fibrosis.\18\ This represents more than 25% of all
    mRNA clinical trials.\19\ Rare disease researchers pivoted to work on
    developing treatments and vaccines for COVID-19. One of these
    researchers is Dr. David Fajgenbaum, a clinician and researcher who
    also happens to be a rare disease patient with Castleman Disease.\20\
    ---------------------------------------------------------------------------
        \18\ CBI Insights. (February 3, 2021). What Are mRNA Therapies, and
    How Are They Used for Vaccines? Research Briefs, https://
    www.cbinsights.com/research/what-are-mrna-therapies/.
        \19\ Id.
        \20\ Moffitt, Debra. (May 27, 2020). Rare Disease Hunter Dr. David
    Fajgenbaum Takes on COVID-19, https://www.cslbehring.com/vita/2020/
    david-fajgenbaum-takes-on-covid19.

    Today, mRNA COVID vaccines protect most vaccinated patients in the U.S.
    As of April 28, 234.6 vaccines have been administered in the U.S. 226.5
    million of the vaccines--96.5%--have been the Pfizer and Moderna mRNA
    vaccines.\21\ We need research into breakthrough technologies like mRNA
    technology to continue and protect all of us.
    ---------------------------------------------------------------------------
        \21\ Fry, Erika and Rapp, Nicolas. (April 28, 2021). 55% of U.S.
    Adults Have Gotten a COVID Vaccine. See How Your State Is Doing,
    Fortune, https://fortune.com/2021/04/28/covid-vaccine-tracker-update-
    us-state-by-state-pfizer-moderna-johnson-and-johnson-data-coronavirus-
    vaccines-april-2021/.
    ---------------------------------------------------------------------------

    VI. History Has Taught that Setting Prices Doesn't Work

    Being a Texan, it is hard not to see the impact government interference
    in pricing has had on other sectors. U.S. price controls on oil,
    gasoline, and petroleum in the 1970s resulted in a sharp decline in
    domestic oil production, increasing reliance on foreign oil,\22\
    creating lines for miles and hours along highways as vehicles waited
    for gas, despite FTC warnings.\23\, \24\ Another example in
    the U.S. is the Federal Reserve adoption rules imposing fee caps for
    debit card transactions in 2011 \25\ that decreased access to credit
    products by consumers and failed to lower consumer fees or pass on
    savings.\26\, \27\
    ---------------------------------------------------------------------------
        \22\ Rafuse, Jack. (June 7, 2007). History 101: Price Controls
    Don't Work. Chicago Tribune, https://www.chicagotribune.com/news/ct-
    xpm-2007-06-07-0706061080-story.html.
        \23\ Id.
        \24\ Id.
        \25\ Mitchell, Dan. (April 16, 2020). The Case Against Price
    Controls. International Liberty, https://danieljmitchell.wordpress.com/
    2020/04/16/the-case-against-price-controls/.
        \26\ Id.
        \27\ Id.

    Innovation and technology have led to an improved quality of life for
    ---------------------------------------------------------------------------
    Americans.

    Innovation and technology are the answer and historically have led to
    an improved quality of life for all Americans.

    VII. Price Controls Would be Disastrous for Access to Medications

    According to the Galen Institute, 89% of new medicines introduced
    between 2011 and 2018 are available in the U.S. compared to 62% in
    Germany, 60% in the U.K., 50% in Japan, and 48% in France.\28\ In its
    analysis of H.R. 3, the CBO estimated that the resulting reduced
    revenues over a decade between ``$.05 trillion to $1 trillion would
    lead to a reduction of 8 to 15 new drugs coming to market. It is
    difficult to know in advance the nature of these drugs or to quantify
    the effect of foregone innovation on health.''\29\ The CBO estimated
    the cost of creating and maintaining the system to implement H.R. 3
    would increase spending at around $3 billion over a 6-year period.\30\
    ---------------------------------------------------------------------------
        \28\ The Editorial Board. (October 4, 2019). Pelosi's Expensive
    Drug Bill. The Wall Street Journal, https://www.wsj.com/articles/
    pelosis-expensive-drug-bill-11570228189.
        \29\ Swagel, Phillip. (October 11, 2019). Effects of Drug Price
    Negotiation Stemming From Title 1 of H.R. 3, the Lower Drug Costs Now
    Act of 2019, on Spending and Revenues Related to Part D of Medicare,
    CBO, https://www.cbo.gov/system/files/2019-10/hr3ltr.pdf.
        \30\ Id.

    Comparably, the Build Back Better Act (BBBA) would result in 135 fewer
    ---------------------------------------------------------------------------
    new drugs and a loss of 331.5 million life years in the U.S. by 2039.

            We find that H.R. 5376 will reduce revenues by 12.0 percent
            through 2039, and therefore that the evidence base predicts
            that R&D spending will fall about 18.5 percent, amounting to
            $663 billion. We find that this cut in R&D activity leads to
            135 fewer new drugs. This drop in new drugs is predicted to
            generate a loss of 331.5 million life years in the U.S., 31
            times as large as the 10.7 million life years lost from COVID-
            19 in the U.S. to date. These estimated effects on the number
            of new drugs brought to market are 27 times larger than
            projected by CBO, which finds only 5 drugs will be lost through
            2039, equaling a 0.63 percent reduction.\31\
    ---------------------------------------------------------------------------
        \31\ https://cpb-us-w2.wpmucdn.com/voices.uchicago.edu/dist/d/3128/
    files/2021/08/Issue-Brief-Drug-Pricing-in-HR-5376-11.30.pdf.

    That is a hefty cost for a system that could prove as disastrous as the
    oil, gasoline, and petroleum controls of the 1970s and the more recent
    failed debit card transaction fee caps beginning in 2011. It is a cost
    that will be paid in worsened health outcomes_and deaths_in the rare
    disease and greater patient communities.

    VIII. Inflation Penalties Would Lead to Empty Medicine Cabinets

    In February, U.S. inflation reached a 40-year high of 7.9%.\32\
    However, consumer prices that included gasoline, food outpaced the
    inflation rate, with gasoline increasing 22% in two weeks.\33\ If our
    government had inflation penalties in place for food and gasoline,
    retailers could not afford to supply food and gas. Our pantries,
    refrigerators, and our tanks would be empty.
    ---------------------------------------------------------------------------
        \32\ https://www.bloomberg.com/news/articles/2022-03-10/u-s-
    inflation-hits-fresh-40-year-high-of-7-9-before-oil-spike.
        \33\ https://apnews.com/article/gas-prices-record-high-russia-
    ukraine-ac7fcc350ad1f1c71d
    b4185b99fef112.

    Similarly, pharmaceutical and biopharmaceutical companies cannot supply
    medications to patients when circumstances increase their supply costs
    above inflation. Although our government is not considering inflation
    penalties on food and gas, it is on our medications. It places U.S.
    patients in danger of having empty medicine cabinets devoid of their
    medications.

    IX. My Experience with QALY-Based Cost-Effectiveness Analysis

    When policymakers talk about coverage and reimbursement strategies for
    health care treatments based on their value or cost-effectiveness, they
    rely on a discriminatory metric called the quality-adjusted life year
    that devalues lives lived with disabilities and chronic conditions--
    particularly rare diseases. Foreign countries rely on the metric to
    justify restricting access to care that they do not view as cost-
    effective. Our 10-year-old son, Hunter, diagnosed with SMA Type I, has
    a QALY of .2. This means his life is valued at 80% less than our
    daughters in perfect health who have QALYs of 1. ALS is another example
    worth noting because it has a QALY of -.05. This tells ALS patients and
    their loved ones that having ALS is worse than being dead.

    We are blessed that Hunter hasn't been directly impacted by the QALY.
    However, I did move the family back to our St. Louis home at the height
    of the COVID-19 pandemic following the death of Michael Hickson in
    Austin by a doctor who employed a QALY rationale to deny treatment
    because the doctor didn't perceive Michael as having a quality of life.

    It was a sucker punch. I packed up everything and ran away fast and
    temporarily returned to St. Louis, where I knew St. Louis Children's
    Hospital saw value in Hunter, worked hard to save him so many times and
    provided his Spinraza treatments.

    I also witnessed Hunter's friend Ben impacted by QALYs. Ben and Hunter
    started the Spinraza EAP together--with positive health outcomes. After
    FDA approval, insurers did not view Spinraza as cost-effective for
    patients like Ben, who depended on a machine to help him breathe. Ben's
    mom, Melissa, cried. She asked why Ben's life wasn't worth saving too.
    Eventually, he found coverage from a patient assistance program until
    being covered under Medicaid. We oppose metrics that devalue our
    children's lives. We refuse to save our children only to have a health
    system adopt QALYs that gives upon them.

    The Institute for Clinical and Economic Review (ICER) conducts value
    assessments relying on QALYs for treatments such as Spinraza. I
    testified that Hunter had not been hospitalized since starting
    treatment in 2016. The year before, we feared for his life. It is also
    imperative to commence treatments presymptomatically to afford the
    patients the best possible health outcomes and quality of life. I
    testified to ICER about all of the costs of SMA that no one considers,
    such as the daily respiratory protocol such as albuterol nebulizer
    treatment, the extensive daily stretching physical therapy to preserve
    and improve movement, occupational therapy to improve movements related
    to education, and navigating the world, and speech including oral
    stimulation to improve both speech and swallow, not to mention
    nutrition and medical equipment, most of which is not covered by
    insurance. Yet, their assessment using a QALY measure failed to capture
    any of the significant economic aspects of that drug for my family.
    ICER ultimately determined that Spinraza was not cost-effective.

    In 2018, when CVS Caremark threatened to use a QALY-based benchmark for
    what drugs they would cover in a benefit package being marketed to
    their employer clients, it created a moment of panic for people that
    rely on these innovations to survive. Thankfully, advocacy worked
    against CVS Caremark, and they stopped marketing that benefit package.
    Still, we constantly fear payers using these cost-per-QALY benchmarks
    to determine what they will or will not cover. I cannot imagine the
    fate of families like mine if we were to explicitly endorse the use of
    discriminatory metrics in Medicare and Medicaid. 89% of new medicines
    introduced between 2011 and 2018 are available in the U.S. compared to
    62% in Germany, 60% in the U.K., 50% in Japan, and 48% in France. The
    Congressional Budget Office, assuming the use of QALYs in its analysis
    of the impact of legislation to control drug prices in the House of
    Representatives, H.R. 3, estimated a reduction of 8 to 15 new drugs
    coming to market and acknowledged difficulty quantifying the effect of
    foregone innovation on health.

    Thankfully, the National Council on Disability, an independent federal
    agency advising Congress and the administration on disability issues,
    has recommended that Congress unambiguously bar the use of QALYs. Their
    research found that QALYs would prioritize providing treatment to a
    non-disabled population with a longer theoretical life expectancy and
    otherwise perfect health over a population with a disability or chronic
    condition.

    They also found that simplified value assessments do not account for
    the complex experience of patients with rare diseases that are not
    well-represented in the research literature, particularly for
    communities of color. QALYs do not take into account clinical expertise
    on rare disorders that may not have extensive research literature
    available for use in value assessments. QALYs often rely on research
    that does not adequately account for the ways in which many people--
    especially, though not exclusively, those with rare conditions--may
    have medication responses that vary dramatically from the average. For
    individuals with rare conditions or who come from groups
    underrepresented in research, like people with disabilities and people
    of color, the inability of QALYs to account for information that
    primarily exists within clinical knowledge but has not yet made it into
    the research literature constitutes a serious problem. Many cancer
    drugs are not considered valuable enough to cover in the U.K. due to
    their use of QALYs. Historically, the United Kingdom has used QALYs to
    justify not covering the limited drugs available for Alzheimer's
    disease, even when they cost the equivalent of a cup of coffee. The use
    of a cost-per-QALY analysis in the United Kingdom delayed access to
    cystic fibrosis treatments in the United Kingdom.

    America's sense of morality and ethic of equality makes it a bridge too
    far to deny or devalue care to those with significant lifetime health
    needs just because they may never achieve a pre-conceived notion of
    optimal health. The implications are even more significant for
    communities of color that are underrepresented in the research
    literature that informs value assessment. Therefore, we need a
    consistent national policy that makes it clear that federal programs
    cannot use discriminatory metrics such as QALYs to drive reimbursement
    and coverage. While the law bars Medicare from using QALYs, state
    Medicaid programs have recently started to openly reference QALYs, and
    legislation considered by Congress to reduce drug prices opens the door
    to their use in Medicare decisions.

    X. Patients Conflate Rising Out-of-Pocket Insurance Costs with Drug
                        Costs

    According to CMS, Out-of-Pocket spending by patients grew 4.6% in 2019
    to $406.5 billion, comprising 11% of healthcare spending.\34\ Retail
    prescription prices decreased in 2019 by .4%. Prescription drugs
    represent 10% of healthcare spending.\35\ Growth in retail prescription
    drug spending increased by 5.7% but was attributed to growth in the use
    of prescriptions drugs in terms of the number of prescriptions
    dispensed.\36\ Our population is aging, and aging individuals use more
    prescriptions. Hospital and physician and clinical services increased
    more dramatically than prescription drugs in 2019 at rates of 6.2% and
    4.6%, respectively. This represents a combined 51% of healthcare
    spending.\37\
    ---------------------------------------------------------------------------
        \34\ National Health Expenditures 2019 Highlights (2020), CMS,
    https://www.cms.gov/files/document/highlights.pdf.
        \35\ Id.
        \36\ Id.
        \37\ Id.
    ---------------------------------------------------------------------------

     XI. Patients Need Responsible Reform that Improves Access to the
                        Medications They Need

                A. Medicare Part D Out-of-Pocket (OOP) Limits for
                        Beneficiaries
    The BBBA does provide benefits that should be retained for Medicare
    beneficiaries. Many disabled and elderly Medicare patients are
    currently forced to choose between paying a mortgage, rent, putting
    food on the table, or paying for the medications they need. Medicare
    beneficiaries in that situation lose no matter what choice they make.
    The OOP limits for beneficiaries would be capped at $2,000 under BBBA.
    It would also be spread over the year so that beneficiaries wouldn't
    face paying the entire $2,000 in the first month to access their
    medications.
                B. Pharmacy Benefit Manager (PBM) Oversight and
                        Transparency
    Drug pricing increases are traceable to the emergence of PBMs and their
    practices that benefit PBMs and payors to the detriment of U.S.
    patients. At best, PBMs operate as contractual middlemen to insurers,
    and at their worst, PBMs are wholly owned by plans. PBMs act as
    gatekeepers to the formulary, creating a race to the bottom between
    drug manufacturers to gain a coveted spot on the formulary. The PBMs
    also demand rebates, concessions, and fees from manufacturers. To pay
    the demanded rebates, concessions, and fees, manufacturers increase the
    price that the insurer pays. Then, the PBMs and insurers complain to
    the press and policymakers that drug prices are rising too fast and too
    much.

    Fortunately, some states have caught on and have enacted legislation
    that protects patients from some unscrupulous practices such as
    penalizing patients with higher copays for using a network pharmacy of
    their choice over a PBM-owned pharmacy, mandating patients use the PBM-
    owned mail order pharmacy, or from reimbursing PBM-owned pharmacies at
    higher rates than other pharmacies.

    However, to truly understand the practices of PBMs and the impact on
    the health care ecosystem, we must first know what those practices are,
    how much the PBMs and insurers make, and what, if any, benefit is
    passed on to beneficiaries. Consequently, we cannot improve the
    situation until there is transparency on all sides. California has made
    strides in this effort, with PBM reform providing oversight and
    transparency.\38\ Several state and federal laws have banned PBM gag
    clauses that prevent pharmacies from disclosing when the retail price
    for medication is lower than the co-insurance price. Arkansas
    legislation even goes as far to penalize and fine PBMs in addition to
    banning the gag clauses.\39\
    ---------------------------------------------------------------------------
        \38\ https://leginfo.legislature.ca.gov/faces/
    billTextClient.xhtml?bill_id=201720180AB315.
        \39\ https://custom.statenet.com/public/
    resources.cgi?id=ID:bill:AR2018010H1010&ciq=ncsldc
    3&client_md=9a13edc9b4b75c06b9f201a9884a52cf&mode=current_text.
    ---------------------------------------------------------------------------
                C. Innovation and Competition Are the Solutions to Lower
                        Drug Prices
    Just as innovation and competition in the oil industry led to the U.S.
    escaping the clutches of OPEC (not the disastrous pricing mandates that
    led to rationing, empty gas tanks, and mile-long lines at the gas
    stations), it will be innovation and competition that reduce drug
    pricing and result in the proliferation of innovative treatments for
    rare diseases with unmet needs. Some of the innovations come from
    surprising sources, such as innovative regulatory reform at the FDA
    that makes platform clinical trials possible that could create shared
    clinical trial fees from smaller pharmaceutical and biopharmaceutical
    companies that would increase the number of clinical trials for rare
    and orphan conditions with unmet needs.

    XII. Conclusion

    We can improve the rare disease community by ensuring continued
    research and development for the 95% of rare diseases without an FDA-
    approved disease-modifying treatment. We must respect the lives of
    chronically ill, disabled, and elderly individuals. Their lives matter,
    and we cannot afford to discount their lives at any cost. With all of
    us working together to embrace innovation and technology, we can
    expedite rare disease treatments as we did with COVID-19 vaccines. We
    witnessed what is possible, and treating rare disease patients is just
    as crucial as protecting lives from COVID-19. Please consider the
    negative implications that imposed drug pricing would have on the
    development of rare disease treatments--as well as common conditions
    that lack disease-modifying treatments like Alzheimer's and Diabetes--
    and access to those treatments. Thank you for your consideration. If
    you have any questions or would like to discuss our statement, please
    contact me at khrystal@txrare.org or by phone at (512) 688-1914.

    With gratitude,

    Khrystal K Davis, J.D.
    Founding President

                                     ______

                         Taxpayers Protection Alliance

                         1101 14th St., NW, Suite 1120

                              Washington, DC 20005

            Statement of Daniel Savickas, Government Affairs Manager

    I am pleased to be able to submit this statement for the record on
    behalf of the Taxpayers Protection Alliance (TPA). TPA is a non-profit
    non-partisan organization dedicated to educating the public through the
    research, analysis and dissemination of information on the government's
    effects on the economy. TPA, through its network of taxpayers will hold
    politicians accountable for the effects of their policies on the size,
    scope, efficiency and activity of government and offer real solutions
    to runaway deficits and debt.

    TPA has done extensive work to help lower the costs of prescription
    drugs in the United States. We strive to promote policies that will
    lower costs for patients and lessen the financial burden on taxpayers
    across the nation. We also strive to increase competition in the
    marketplace to achieve those objectives. The following statement was
    published as an editorial piece in TownHall on November 19, 2021 and is
    a product of those aforementioned efforts. I thank the committee in
    advance for its dedication to this issue and consideration of the views
    expressed below.

    _______________________________________________________________________
    Prescription Price Controls Harm Access to Life Saving Medication
    As published in TownHall--November 19, 2021
    By Daniel Savickas

    It is no secret that the costs of prescription drugs are very high in
    the United States. Studies from Harvard Medical School indicate that
    one in four American patients have foregone a prescription because the
    cost was too high. With the costs of everything else beginning to rise
    due to the pandemic, inflation, and the global supply chain crisis, it
    is even more possible that more Americans will have to choose between
    treating their illnesses and affording basic necessities. This is
    unacceptable.

    Access to medicine and prescriptions is a problem that touches many
    families in the United States. Naturally, lawmakers are trying to
    ameliorate this problem through legislation. Unfortunately, the
    prevailing proposal on Capitol Hill is a set of
    command-and-control policies slipped into the ``Build Back Better''
    reconciliation spending plan. The plan would implement restrictions and
    price controls on the market. This would actually harm the companies
    most likely to offer affordable solutions, generic and biosimilar drug
    manufacturers.

    Generic drugs are manufactured very similarly to brand name products.
    They have the same active ingredient as their branded competitor and
    are often very similar in other characteristics, such as safety,
    strength, and intended use. Biosimilars are manufactured to have the
    same impacts as the branded drug, but are more complex in their
    manufacturing to be considered as identical in the way generics are.

    Generics and biosimilars come to market to compete with the brand name
    alternative once the initial patent expires on the brand name product.
    Generics and biosimilars are most notable because of their prices.
    According to the Food and Drug Administration (FDA) data, generics are
    on average 80 to 85 percent less expensive than branded drugs, and
    biosimilars are roughly 10 to 37 percent less expensive.

    Creating more competition in the market between branded drugs,
    generics, and biosimilars will be key to any strategy to lower the
    prices of prescription medicines. During the years-long period where
    the branded drug has market exclusivity, generic and biosimilar
    manufacturers need to be able to reliably forecast the market to hit
    the ground running when market access begins. Price controls and
    government negotiations that are based on changing benchmarks and
    arbitrary numbers erode that ability. Generics and biosimilars will be
    left in the dark in terms of what type of investment is needed to
    create a successful, widely available product.

    Price controls shift demand, drastically alter supply calculations, and
    obscure the true value of medications already available. Such proposals
    reflect a fundamental misunderstanding about the nature of prices.
    Prices are merely a signal of value from consumers and suppliers based
    on a host of factors. Price controls treat the symptoms of what's wrong
    with the current system, but not the underlying cause. That would be
    like shutting off ``low battery'' notifications on your phone instead
    of plugging your phone into a charger. If generics and biosimilars
    can't read the signals that prices send and the market behavior that
    follows, they will be at a severe disadvantage when it comes time to
    market their products.

    These price controls come in the form of government ``negotiations''
    with drug manufacturers. First, a negotiation is hardly fair or based
    on actual value when one party is the government, which has a monopoly
    on force and threatens punitive action should talks fall through.
    Proponents of the plan tout the fact that negotiation benchmarks will
    be tied to international market valuations. However, international
    markets are substantially different from the American one. In the U.S.,
    patients have more access to newer medicines, which is partly
    responsible for higher prices. This negotiation further obfuscates
    value and will lead to decreasing availability and investment. Generics
    will bear this shift heavily.

    Another price control in the package is an inflationary penalty. This
    penalty would implement a steep tax on drug manufacturers who raise the
    price of their drugs faster than the rate of inflation. First, this
    will incentivize drug makers to come to market at a higher list price
    to hedge their bets, in case a price hike might be needed in the
    future. That is because labor supply, manufacturing costs, and supply
    chain shortages--like those we're seeing now--can increase costs faster
    than inflation. This would necessitate a change, but without the
    ability to make it, prices would have to start astronomically high to
    protect investment.

    Secondly, such a percentage-based benchmark would disproportionately
    impact generic drug makers, whose prices are already far lower. Because
    of the discrepancy, a minuscule price hike by a generic would trigger
    the penalty. This provision is not an incentive to lower prices;
    instead it's an incentive for brands to start high and a punishment for
    the manufacturers that are offering affordable medicines.

    Competition is the surest way to lower the price of any product on the
    market, and prescription drugs are no exception. Generic and biosimilar
    drug manufacturers have been helping offer far more affordable
    alternatives for years. While lawmakers in Washington think they are
    going after pharmaceutical companies charging the highest prices, the
    manufacturers of all life-saving medications will be impacted. The
    biggest price of all, however, will be paid by the patients and
    families that rely on them.

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