Senate HELP Panel Debates How to Lower Drug Prices

Ken Terry

December 13, 2017

Should the government increase regulations on the pharmaceutical industry to lower drug prices? That was the key issue discussed yesterday in a Senate hearing about a new National Academy of Sciences (NAS) report on drug costs.

The November 30 NAS report recommends that Congress give the federal government greater ability to negotiate the prices of prescription drugs ― something that the Medicare Modernization Act of 2003 explicitly prohibits.

In addition, the NAS panel proposed that physicians and hospitals tighten restrictions on pharmaceutical detailing and drug company gifts to providers. Its report also recommends that the government accelerate the introduction of generic drugs, require greater transparency about drug firms' financial dealings, and prohibit these companies from claiming tax deductions for direct-to-consumer advertising.

Both Sen. Patti Murray (D-WA), ranking member of the Senate Commitee on Health, Education, Labor and Pensions (HELP), and witness Norm Augustine, chair of the NAS panel that authored the report, emphasized how important the issue of high drug prices is to ordinary Americans. Murray noted that some progress toward lowering drug prices had been made through the US Food and Drug Administraiton's Reauthorization Act of 2017, which streamlines the process for bringing generic drugs to market.

However, she noted, "Generic products alone will not address the high prices paid by so many patients in out-of-pocket costs and high premiums. As long as manufacturers can actively avoid competition, we'll continue to see little impact and little change on drug prices."

Economist Douglas Holtz-Eakin, PhD, president of the American Action Forum in Washington, DC, who was a witness at the hearing, saw things differently. In his view, the keys to lower pharmaceutical prices are decreasing the costs of bringing drugs to market, eliminating barriers to market entry, eliminating monopoly power, and enabling markets to work effectively.

Shifting costs from one payer to another would not help, he said, because it would reduce prices for some people but not for the system as a whole. For example, he said, the Medicaid best price policy, under which pharmaceutical companies must give state Medicaid programs the best price they offer any purchaser, shifts costs from Medicaid to private payers.

Sen. Al Franken (D-MN) noted that Alex Azar, a former pharmaceutical company executive who has been nominated as secretary of the Department of Health and Human Services (HHS), recently told the HELP committee that Medicare Part D, working through pharmacy benefit managers (PBMs), already obtains the best drug pricing available. He asked Augustine why the NAS panel disagreed with Azar on this.

HHS should negotiate on behalf of the patient because there is a new balance of strength between the provider and the buyer, Augustine responded. "The patient doesn't have the choice to walk from the table and say, 'I'll only buy half that amount of drugs.' All the strength is on the seller's side. The buyer, unlike in most other industries, finds himself or herself in a position where [drug companies] have something that's essential, and they can't walk away."

Sen. Bill Cassidy, MD (R-LA), asked whether drug company research and investment in biopharmaceutical firms would be hurt if the government set prices for a drug, such as an Alzheimer's disease therapy, that was mainly prescribed to Medicare patients. Augustine agreed that that might happen and that it would be better to let market forces operate. But for other medications, he pointed out, private payers have half of the market, so drug companies could recoup their profits there.

Moreover, he added, it's a misconception that if a drug company loses a dollar of revenue, its research and development (R&D) investment is reduced by a dollar. "They could do less R&D, but they might also reduce lobbying, dividends, mergers, executive compensation, or stock buybacks," Augustine said.

Generic Competition

Augustine and another witness, David Mitchell, who heads a patient advocacy group, both stressed the need for Congress to stop drug companies from slowing the market entry of generic drugs that compete directly with brand-name drugs after they go off patent. Studies show that prices for a particular drug often drop 50% or more in the first year after generics become available, Augustine noted.

Drug companies go to great lengths to prevent this from happening, senators and witnesses noted. They may patent very similar "me-too" drugs or give generic companies inducements to keep their pills off the market. Maggie Hassan (R-NH) said that to keep its grip on its blockbuster eye drug Restasis, the drug's manufacturer, Allergan, went so far as to transfer the patents for the drug to the Saint Regis Mohawk Tribe and licensed them back in a deal designed to block a patent challenge from generic drugmakers.

Cases such as that of Restasis, the massive price hike for the lifesaving EpiPen drug (Mylan), and Turing Pharmaceutical's licensing of an antiparasitic drug only to then raise its price more than 50-fold give a black eye to the pharmaceutical industry, Augustine said. "They shouldn't be allowed," he added, but he didn't suggest how to stop the drug companies from operating in this fashion.

Asked why the NAS panel recommended that tax deductibility be stripped from drug advertising, Augustine said that television drug ads not only add to the cost of medications but can also strain the doctor-patient relationship. Banning the ads would have raised First Amendment issues, so the NAS panel decided to call for the elimination of the tax deduction.

Detailing to physicians, he noted in response to a question from Sen. Chris Murphy (D-CT), costs drug companies even more than television advertising does. "Detailing performs some useful purposes in educating prescribers, but it adds to costs and in many cases distorts the marketplace." The panel recommended that providers increase restrictions on detailing and the acceptance of gifts from drug companies to avoid potential conflicts of interest in prescribing medications, he said.

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