[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
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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
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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.
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\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\
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\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.
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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\
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\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\
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\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
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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.
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\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.
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\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\
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\29\ U.S. House of Representatives. ``Industry Spending on
Buybacks, Dividends, and Executive Compensation.'' Staff Report,
Committee on Oversight and Reform. July 2021.
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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\
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\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\
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\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.
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\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.
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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
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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.
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\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\
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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.
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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.)
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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.
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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.)
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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\
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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.
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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.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
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.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
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://
acsjournals.onlinelibrary.
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://
www.degruyter.com/view/journals/fhep/19/1/article-p141.xml.
[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/
21422402/.
[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
2014): 432-480, https://www.jstor.org/stable/10.1086/679110.
[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/
trajectory.pdf.
[47] Adams Nager, ``A Trillion-Dollar Opportunity: How Brain Research
Can Drive Health and Prosperity'' (ITIF, July 2016), http://
www2.itif.org/2016-trillion-dollar-opportunity.pdf.
[48] William Nordhaus, ``Schumpeterian Profits and the Alchemist
Fallacy'' (working paper, Department of Economics, Yale University,
2005), http://www.
econ.yale.edu/ddp/ddp00/ddp0006.pdf.
[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).
[52] Russell Ormiston, ``An Analysis of Construction Spending in the
Pharmaceutical and Biotech Industry, 2015-2020'' (Pharmaceutical
Industry Labor-
Management Association and the Institute for Construction Economic
Research (ICERES), June 2021), https://unionjobs.pilma.org/wp-content/
uploads/2021/06/PIL-D-2106-Full-Jobs-Report_FINAL.pdf.
[53] Stephen Ezell, ``Ten Reasons Why a COVID-19 TRIPS IP Waiver Is
Unwarranted,'' Innovation Files, April 9, 2021, https://itif.org/
publications/2021/04/09/ten-reasons-why-covid-19-trips-ip-waiver-
unwarranted.
[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/
how-moderna-made-its-mrna-covid-vaccine-so-quickly-noubar-afeyan.html.
[55] Peter Wilderford, ``How long does it take to research and
develop a new vaccine?'', Effective Altruism Forum, June 28, 2017,
https://forum.effective
altruism.org/posts/8qMDseJTE3vCFiYec/how-long-does-it-take-to-research-
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/
219735/efpia-pharmafigures2017_statisticbroch_v04-final.pdf.
[58] Cello Health, ``15 Breakthrough drug innovations
(infographic),'' https://cellohealth.com/us/views/15-breakthrough-drug-
innovations-infographic/.
[59] Matt Fuchs, ``6 Biotech Breakthroughs of 2021 That Missed the
Attention They Deserved,'' Leaps.org, January 3, 2022, https://
leaps.org/6-biotech-breakthroughs-of-2021-that-missed-the-attention-
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://
www.researchamerica.org/sites/default/files/Publications/
Research%21America-Investment%20Report.
Final.January%202022.pdf.
[63] 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.
[64] Congressional Budget Office (CBO), ``Research and Development in
the Pharmaceutical Industry'' (CBO, April 2021), 4-5, https://
www.cbo.gov/publication/57025.
[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/
AUTM/media/SurveyReportsPDF/FY20-US-Licensing-Survey-FNL.pdf.
[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
data, https://pitchbook.com.
[74] Jacob Pileth, ``In 2021 it paid to stay private when the chips
were down,'' Evaluate Vantage, January 5, 2022, https://
www.evaluate.com/vantage/articles/insights/venture-financing/2021-it-
paid-stay-private-when-chips-were-down.
[75] Pacific BioLabs, ``Stages of Drug Development,'' https://
pacificbiolabs.com/stages-of-drug-development.
[76] 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.
[77] Deloitte Center for Health Solutions, ``Unlocking R&D
Productivity: Measuring the Return From Pharmaceutical Innovation
2018'' (Deloitte Center for Health Solutions, 2018), https://
www2.deloitte.com/global/en/pages/life-sciences-and-healthcare/
articles/measuring-return-from-pharmaceutical-innovation.html.
[78] Deloitte Center for Health Solutions, ``Unlocking R&D
Productivity: Measuring the Return From Pharmaceutical Innovation
2019'' (Deloitte Center for Health Solutions, 2019), 2, https://
www2.deloitte.com/content/dam/Deloitte/uk/Documents/life-sciences-
health-care/deloitte-uk-ten-years-on-measuring-return-on-pharma-
innovation-report-2019.pdf.
[79] Deloitte Center for Health Solutions, ``Ten years on: Measuring
the return from pharmaceutical innovation 2019'' (Deloitte Center for
Health Solutions, 2019), 6, https://www2.deloitte.com/content/dam/
Deloitte/uk/Documents/life-sciences-health-care/deloitte-uk-ten-years-
on-measuring-return-on-pharma-innovation-report-2019.pdf.
[80] Congressional Budget Office (CBO), ``How Taxes Affect the
Incentives to Invest in New Intangible Assets'' (CBO, November 2018),
22-23, https://www.cbo.gov/system/files?file=2018-11/54648-
Intangible_Assets.pdf.
[81] Henry Grabowski and John Vernon, ``A New Look at the Returns and
Risks to Pharmaceutical R&D,'' Management Science, Vol. 36, No. 7.
(July 1990), 804-821.
[82] John Vernon, Joseph Golec, and Joseph DiMasi, ``Drug Development
Costs When Financial Risk is Measured Using the Fama-French Three-
Factor Model,'' Health Economics 19, (August 2010), https://
pubmed.ncbi.nlm.
nih.gov/19655335/.
[83] Jack Scannell, ``Four Reasons Drugs Are Expensive, of Which Two
Are False,'' Forbes, October 13, 2015, http://www.forbes.com/sites/
matthewherper/2015/10/13/four-reasons-drugs-are-expensive-of-which-two-
are-false/#257708d948
a5.
[84] Organisation for Economic Co-operation and Development,
``Pharmaceutical Pricing Policies in a Global Market'' (OECD, September
2008), 190, http://www.oecd.org/els/pharmaceutical-pricing-policies-in-
a-global-market.htm.
[85] 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.
[86] Alfonso Gambardella, Science and Innovation: The US
Pharmaceutical Industry During the 1980s (Cambridge University Press,
1995).
[87] 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.
[88] OECD, ``Pharmaceutical Pricing Policies in a Global Market,''
190.
[89] 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.
[90] Carmelo Giaccotto, Rexford E. Santerre, and John A. Vernon,
``Drug Prices and Research and Development Investment Behavior in the
Pharmaceutical Industry,'' The Journal of Law and Economics, Vol. 48,
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\
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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
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Publishing, 2001).
[48] Joseph A. DiMasi and Laura B. Faden, ``Competitiveness in
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Discovery, Vol. 10, No. 1 (January 2011), http://www.nature.com/nrd/
journal/v10/n1/abs/nrd3296.
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[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://
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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
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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
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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://
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[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\
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\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\
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\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.
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\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.
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\14\ https://www.americanactionforum.org/insight/insulin-prices-an-
update/.
\15\ https://www.americanactionforum.org/research/insulin-cost-and-
pricing-trends/.
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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\
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\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.
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\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.
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\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/.
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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\
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\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.
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\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.
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\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.
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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\
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\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\
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\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
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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/.
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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.
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\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\
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\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\
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\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\
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\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\
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\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
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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.
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\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
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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
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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.
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\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.
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\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
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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.
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\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.
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\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\
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\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
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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\
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\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\
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\1\ https://www.acponline.org/acp_policy/policies/
stemming_rising_cost_prescription_drugs_
2016.pdf.
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Reducing the Cost of Prescription Drugs in Public Health Plans
\2\
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\2\ https://www.acpjournals.org/doi/pdf/10.7326/M19-0013.
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Recommendations for Pharmacy Benefit Managers to Stem the
Escalating Cost of Prescription Drugs \3\
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\3\ https://www.acpjournals.org/doi/10.7326/M19-0035.
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Improving Competition in the Prescription Drug Marketplace.\4\
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\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.
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\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.
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\8\ https://www.commonwealthfund.org/sites/default/files/documents/
___media_files_publica
tions_issue_brief_2017_oct_sarnak_paying_for_rx_ib_v2.pdf.
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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.
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\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.
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\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
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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.
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\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/.
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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.
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\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\
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\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.
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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
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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.
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\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
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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\
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\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.
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\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:
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\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
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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
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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.
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\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.
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\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
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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.
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\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
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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.''
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\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\
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\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
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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.
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\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
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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.
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\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
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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\
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\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
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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\
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\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/.
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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.
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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\
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\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
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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\
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\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.
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\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\
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\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.
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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.
[all]