Washington Watch: High pill prices are hard to swallow
But determined legislators and hopeful candidates are seeking solutions
March 1, 2019
House Democrats, Senate Republicans and the Trump administration agree on one thing – that drug prices must be lowered. Both parties are working through the ideas to reduce prescription drug costs, but the problem is finding common ground and achieving consensus.
No compromise is there yet and it may not emerge as some lawmakers could choose to use the issue for political advantage instead of working out a solution now.
But an arms race of sorts is building as Democratic presidential contenders try to make the most noise on the drug pricing issue. It is clearly a perilous time for the powerful drug industry, which has set its own agenda, using campaign contributions to lawmakers over the past decade.
Some innovative and interesting ideas are emerging on Capitol Hill – some with bipartisan support, others with absolutely no chance of becoming law. Voters clearly have a strong appetite for action.
The drug price issue has so much momentum that even the senators representing states with major biopharma concentrations – Sens. Elizabeth Warren, D-Mass., and Cory Booker, D-N.J. – are not hesitating to vilify the very drug companies they represent and which employ tens of thousands of their constituents. Both have pledged not to accept corporate campaign donations.
House Oversight and Government Reform Committee Chairman Elijah Cummings, D-Md., has been holding the industry to higher standards for years. Now he’s pushing a sweeping investigation of drug price increases like the tripling of insulin prices.
Abolish ‘pay for delay’
Sen. Charles Grassley, R-Iowa has joined with presidential hopeful Sen. Amy Klobuchar, D-Minn., to stop brand name drug manufacturers from subverting competition in the drug marketplace. They would abolish “pay for delay,” a well-established practice where branded drug makers pay off a generic one to keep a competing product from coming to the market or to delay its production. Another idea would strengthen the legal remedies for generic companies if a brand-name drug manufacturer refuses to provide the materials necessary to develop a generic alternative and also requires them to provide samples in sufficient quantities at a reasonable price.
Medicare is testing changes that might reduce out-of-pocket drug costs. The president, who accused drug companies of “getting away with murder,” has thrown out a plethora of suggestions, calling it the “American Patients First” drug pricing blueprint but nearly all of the actions he’s proposed will need congressional help to get implemented.
The legislative ideas
Everyone understands the urgency of some action – except the pharmaceutical industry.
Drug price reform is far more complicated than the rhetoric about it. Getting a handle on the real costs to patients is even more difficult to assess, buried under a complicated web of manufacturer rebates and insurance cost sharing.
One idea gaining strong support in Congress is the Trump administration’s threat to remove the safe harbor exemption for drug rebates negotiated between pharmacy benefit managers, payers and drug manufacturers. A majority of lawmakers support making substantial changes to the rebate system, which seems to most of them like a hidden system of kickbacks.
Generic drug shortages
The current ideas range from realistic and practical to considerably more aspirational. Sen. Elizabeth Warren, D-Mass., has rolled out an ambitious but potentially controversial piece of drug pricing legislation which would put the federal government in the generic-drug-making business when drug shortages occur.
In 1984, Congress unanimously passed what is considered one of its most important pieces of legislation, creating the modern U.S. generic drug industry. It rewarded pharmaceutical companies’ investment in risky research and development by letting them set prices and reap the rewards of government-granted monopolies for a limited amount of time. Once their patents expired, competition could rush in.
Generic drugs, ones that that have the same chemical substance as the original brand-name drugs but are made by other companies after the original patent expires, have been significantly less expensive than brand-name drugs. Currently the Justice Department and 47 states are pursuing a huge investigation and lawsuit against the big generic drug companies, arguing that 16 generic drug manufacturers are using drug-cartel-style behavior, alleging they divvied up the market and fixed prices for more than 300 drugs.
Nearly 90 percent of American prescriptions are written for generics. The problem is that more than 50 percent of generic drugs are now supplied by only two manufacturers, turning the idea of a competitive, commodity-driven market upside down. When a new generic drug is introduced there are usually several companies offering it, but have developed monopolies.
A couple of examples stand out. Daraprim, a 60-year-old anti-parasitic drug that was often taken by people with AIDS caused a national outrage when the Martin Shkreli’s Turing Pharmaceuticals raised the price 5,000 percent. Albuterol, another decades-old drug used to ease asthma symptoms, sold by generic manufacturers Mylan and Sun, jumped more than 3,400 percent from 13 cents a tablet to more than $4.70 per tablet, according to a lawsuit brought against the generic industry by grocery chains including Kroger.
In addition, to price spikes, many companies have used tactics to actively delay or quash competitors, and regulatory obstacles to spike prices and make it harder or less attractive for drugs to get approved in the first place. More than half of the FDA’s approved generics are not being sold, and less than a third of the generics it approved are being actively marketed.
A bill proposed by Sen. Warren would require that generic drugs must be offered at a “fair price” that covers manufacturing and administrative costs while ensuring patient access. In addition, HHS could strip a contractor of its ability to make and sell the drug if the price point is too high. Proceeds for the sales would go back to covering agency costs, making it self-sustaining.
In addition, the government would be authorized to manufacture active ingredients for medications. This would be a hotly contested issue as major drug companies routinely deny rivals samples of their products which are needed to determine whether the generic is an equivalent treatment. Warren’s legislation specifically targets insulin for diabetics as an example of what desperately needs to be fixed; it requires that generic insulin treatments would have to be produced within the first year of the bill’s passage. Insulin prices have gone from $21 a vial of Humalog in 1996 to $275 in 2017, and shortages have become common.
Medicare negotiating drug prices
Sen. Sherrod Brown, D-Ohio, has introduced legislation to let Medicare negotiate prices, so that if the company and the government can’t reach agreement, the government could take away the company’s patent rights. Sanders, and House Oversight chairman Cummings would address stalled negotiations by proposing to let Medicare pay the lowest amount among: Medicaid’s best price, the highest price a single federal purchaser pays, or the median price paid for a specific drug in France, the United Kingdom, Germany, Japan and Canada.
Other federal agencies, including Medicaid and the Department of Veterans Affairs, already negotiate drug prices and establish a formulary of drugs covered. The VA, on average, pays 40 to 60 percent less for drugs than Medicare Part D. A House bill by Rep. Peter Welch, D-Vt., which would repeal an existing prohibition on HHS’s ability to negotiate prices for drugs covered by Medicare Part D, would also prioritize certain kinds of drugs for negotiation, including high-cost drugs, those with recent price hikes and drugs without any notable competition. In addition, the HHS secretary would create a formulary for Medicare drug coverage and would require that Part D cover at least two drugs in every class and category. Finally, it would also establish a fall-back price if the negotiations failed, based on what other federal programs like Medicaid or the VA pay or on what certain foreign countries pay, whichever is lowest.
The formulary issue will be particularly tricky to negotiate. Without it, the Congressional Budget Office has said Medicare negotiations wouldn’t save a meaningful amount of money. But when access restrictions are included to extract deeper savings from drug makers, it also leaves the government vulnerable to attacks that it is denying patients access to drugs.
Matching prices abroad
Vermont’s Sanders and Rep. Ro Khanna, D-Calif., have proposed legislation that would require companies to price their drugs no higher than the median of what’s charged Germany, Japan, France, the United Kingdom and Canada. If manufacturers fail to comply, other companies could get the rights to make those drugs too, but they would have to provide the brand name company with a reasonable royalty.
It would also let the HHS Secretary label a drug as “excessively priced” based on other criteria, including the size of the patient population, the value of the drugs to patients, and the costs of developing the drug, among other factors.
Possibilities range far and wide
Many other areas are being studied, debated, and legislation proposed to deal with this all-important area of special concern to seniors. These include:
Out of pocket insurance pricing for drugs.
Penalize price gouging.
Import drugs from Canada.
Total revamp of the drug market. Under legislation by Vermont’s Sanders, the government would set up a $100 billion prize system, rewarding developers of new drugs with financial rewards to enable them to manufacture drugs within FDA safety rules. Then prizes would go out to specific targeted needs, like certain infectious diseases or those affecting global neglected diseases.
Understanding the complex nature of the drug pricing issues, any real solution will likely require more than one single piece of legislation. For example, the price-gouging penalty idea doesn’t stop drugs from having high initial list prices. Letting Medicare negotiate drug prices, doesn’t mean people covered by other plans will necessarily see the same savings. Empowering the government to produce competing drugs doesn’t promise to keep prices down long term and doesn’t guarantee that patients will see any of those savings.
But while drug pricing ideas may not be good policy, they absolutely make for excellent politics. A recent Politico-Harvard poll found that 90 percent of Democrats and 82 percent of Republicans say taking action to lower prescription medicine prices is extremely important and the top issue for both parties. In the run-up to the 2018 elections, a Global Strategies Group poll showed drug company favorability underwater by a lopsided 71-21 margin.
So if lawmakers can’t reach consensus on drug pricing legislation, it will certainly be the focus of attention at least through this year if not all the way through the 2020 presidential elections.
Also contributing to this report were Vox, Stat, the Intercept, Kaiser Health News and Newsweek.