[Senate Hearing 114-805]
[From the U.S. Government Publishing Office]
S. Hrg. 114-805
EPIPEN PRICE INCREASES: HOW REGULATORY BARRIERS INHIBIT PHARMACEUTICAL
COMPETITION
=======================================================================
FIELD HEARING
OF THE
SUBCOMMITTEE ON CHILDREN AND FAMILIES
OF THE
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
ON
EXAMINING EPIPEN PRICE INCREASES, FOCUSING ON HOW REGULATORY BARRIERS
INHIBIT PHARMACEUTICAL COMPETITION
__________
OCTOBER 7, 2016 (Lexington, KY)
__________
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COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
LAMAR ALEXANDER, Tennessee, Chairman
MICHAEL B. ENZI, Wyoming PATTY MURRAY, Washington
RICHARD BURR, North Carolina BARBARA A. MIKULSKI, Maryland
JOHNNY ISAKSON, Georgia BERNARD SANDERS (I), Vermont
RAND PAUL, Kentucky ROBERT P. CASEY, JR., Pennsylvania
SUSAN COLLINS, Maine AL FRANKEN, Minnesota
LISA MURKOWSKI, Alaska MICHAEL F. BENNET, Colorado
MARK KIRK, Illinois SHELDON WHITEHOUSE, Rhode Island
TIM SCOTT, South Carolina TAMMY BALDWIN, Wisconsin
ORRIN G. HATCH, Utah CHRISTOPHER S. MURPHY, Connecticut
PAT ROBERTS, Kansas ELIZABETH WARREN, Massachusetts
BILL CASSIDY, M.D., Louisiana
David P. Cleary, Republican Staff Director
Lindsey Ward Seidman, Republican Deputy Staff Directory
Evan Schatz, Minority Staff Director
John Righter, Minority Deputy Staff Director
______
Subcommittee on Children & Families
RAND PAUL, Chairman
LISA MURKOWSKI, Alaska ROBERT P. CASEY, JR., Pennsylvania
RICHARD BURR, North Carolina BARBARA A. MIKULSKI, Maryland
MARK KIRK, Illinois BERNARD SANDERS (I), Vermont
ORRIN G. HATCH, Utah AL FRANKEN, Minnesota
PAT ROBERTS, Kansas MICHAEL F. BENNET, Colorado
BILL CASSIDY, M.D., Louisiana PATTY MURRAY (ex officio),
LAMAR ALEXANDER (ex officio), Washington
Tennessee
Larry Smar, Minority Staff Director
(ii)
C O N T E N T S
__________
STATEMENTS
FRIDAY, OCTOBER 7, 2016
Page
Committee Members
Paul, Hon. Rand, Chairman, Subcommittee on Children and Families,
opening statement.............................................. 1
Witnesses
Jackson, Laura, Coordinator, Kentucky Families With Food
Allergies Support Group, Lexington, KY......................... 2
Prepared statement........................................... 4
Spencer, John, PharmD, Independent Pharmacist, Owner, Spencer
Drugs, Richmond, KY............................................ 5
Prepared statement........................................... 6
Strow, Brian K., Ph.D., BB&T Professor for The Study of
Capitalism, Professor of Economics, Western Kentucky
University, Bowling Green, KY.................................. 7
Prepared statement........................................... 10
Gottlieb, Scott, M.D., Resident Fellow, American Enterprise
Institute, Washington, DC...................................... 13
Prepared statement........................................... 15
Almeter, Philip J., PharmD, Senior Director, Pharmacy Acute Care
Services and 340B Programs, UK Healthcare, University of
Kentucky, Lexington, KY........................................ 23
Prepared statement........................................... 25
Waters, Jim, President, Bluegrass Institute for Public Policy
Solutions, Lexington, KY....................................... 30
Prepared statement........................................... 32
(iii)
EPIPEN PRICE INCREASES: HOW REGULATORY BARRIERS INHIBIT PHARMACEUTICAL
COMPETITION
----------
FRIDAY, OCTOBER 7, 2016
U.S. Senate,
Subcommittee on Children and Families,
Committee on Health, Education, Labor, and Pensions,
Lexington, KY.
The subcommittee met, pursuant to notice, at 2:57 p.m., at
the University of Kentucky College of Health Sciences, Charles
T. Wethington, Jr. Building, Commons Room, 900 South Limestone
Street, Lexington, KY, Hon. Rand Paul, chairman of the
subcommittee, presiding.
Present: Senator Paul.
Opening Statement of Senator Paul
Senator Paul. Hello. Welcome. Thank you for coming. The
Senate Committee on Health, Education, Labor, and Pensions
Subcommittee on Children and Families will please come to
order.
This afternoon, we're having a hearing on EpiPen price
increases. It's important when you get upset about something or
when you see a problem that you try to scratch beyond the
surface and see what the origin of the problem is and try to
fully understand it before we react and try to fix it.
I'd like to thank the University of Kentucky, the UK
College of Pharmacy, and UK Healthcare for hosting this
subcommittee hearing.
When I first heard about the EpiPen price increases going
up 500 percent, I was like anybody else, outraged. I have
allergic reactions to bees and have had to use epinephrine when
I was a kid. Many families have that sort of experience, and
they hate to think of sort of a lifesaving drug having a--they
just don't understand why it costs 500 percent more,
particularly when the ingredients are quite inexpensive.
The ingredients--epinephrine has been around for maybe 100
years. It's about a dollar's worth of medication in there, and
people--some have tried to say, ``Well, it's a complicated
device.'' They haven't really been in a modern hospital if they
think a spring loaded needle is a complicated device.
We've been exploring the question. We've had the FDA come
in. We won't have them represented here today. It's kind of
hard to get bureaucrats out of Washington. We have interviewed
them in the office, and we have some serious questions. Some of
these questions we will discuss here with the panel.
One, they have a patent, and I'm for patents. That's
intellectual property. It's one of the reasons why the great
developers of things that require patents are intellectual
property, like drugs. We're a leader in creating new drugs,
innovative drugs. That's great. Patents can't last forever, and
their patent will run out in 2025. They got it in 1987, a 38-
year patent. My understanding is that an original patent is
about 20 years. How did it get to be 38 years?
We want to know why there's no competition. Why is there
only one person selling these? There is a generic. There's many
different generics, but there's at least one generic that
applied 7 years ago. Is it a little too long to have the
government take 7 years to approve things? Why does it take so
long, and what can we do to speed up the process?
We ought to think about how long patents should be. We
ought to think about how long the process should be. Then we
ought to think about how other countries do it and whether or
not some other countries do it more quickly.
One of the bills that we've introduced says if it's been
approved in Europe, and it's on the general market, and there
hasn't been any significant health or safety problems with it,
then maybe we can dispense with the Phase 1, Phase 2, Phase 3
trials and go directly to a committee that would still review
the information, review it for safety and efficacy, but maybe
not make the company start over, and that we could expedite
this. Or maybe we should expedite things when there's only one
person making something and the price goes up at an alarming
pace.
There are a lot of good ideas. We have some patients in the
audience who have allergies and have to buy the EpiPen. We have
people who are involved with pharmacies selling the medication.
We have economists and policymakers.
Without any further ado, we're going to start by going
around, and you can either make an opening statement or you can
introduce yourself and make an opening comment, but I'm going
to give you your choice, and then we'll proceed from there.
I'll begin by introducing Laura Jackson, who is the coordinator
of the Kentucky Families With Food Allergies support group.
Laura.
Ms. Jackson. Thank you for inviting us today. I hope I can
give you a good perspective on what parents and families are
going through.
Senator Paul. Thank you. If you want to make any more
comment than that, you can. We'll come back in a question and
answer, but go ahead if you----
Ms. Jackson. So I should go ahead?
Senator Paul. Yes. If you have a statement, go ahead.
STATEMENT OF LAURA JACKSON, COORDINATOR, KENTUCKY FAMILIES WITH
FOOD ALLERGIES SUPPORT GROUP, LEXINGTON, KY
Ms. Jackson. I have been a food allergy parent for over 25
years, raising two sons with life-threatening food allergies. I
know all too well the dangers of a severe allergic reaction,
having witnessed it with my own child, watching my son's
symptoms progress from mild to severe in a matter of seconds,
seeing his labored breathing, the panic in his eyes, racing to
the emergency room and wondering if we could get there in time,
knowing that a tragedy was possible, living with the fear of it
happening again, and then worrying at every meal.
These experiences inspired me to form the Kentucky Families
With Food Allergies support group here in Lexington 10 years
ago. There are many parents like me in our State, all facing
the financial and emotional responsibilities that come from
raising a child with a life-threatening condition. That is why
Kentucky's food allergy parents are so concerned about the
current EpiPen price increases.
For over 15 years, my family purchased between 8 and 10
EpiPen two-packs per year for our sons who are now grown. We
needed that many due to expiration dates and also to ensure
that the injectors would always be within reach at home, when
traveling, or at school, because prompt administration can make
the difference between life and death.
In 2013, we were thrilled to have a new option when the
Auvi-Q injector came onto the market. It was compact and much
more user friendly. We switched to the Auvi-Q when it was first
introduced. In 2013, it cost my family roughly the same amount
as the EpiPen injectors. Soon after, the EpiPen manufacturer
began offering significant discounts so that EpiPens were less
expensive than Auvi-Q. Then Auvi-Q offered discounts. I saw the
cause and effect. Now that EpiPen had a competitor, they found
a way to lower the price.
Two years later, in July 2015, our insurance changed to a
nearly unreachable $5,000 deductible. We began paying the cash
price. At that time, our cost for an EpiPen two-pack or an
Auvi-Q two-pack was virtually the same, about $390.
Within a few months, there was a dramatic change in price.
In October 2015, Auvi-Q was recalled, and 2 months later, our
cost for an EpiPen two-pack shot up to well over $600. That was
an increase of over $200. Since our insurance had not changed,
I believe that the manufacturer was responsible. When I asked
my pharmacist why the price had increased so dramatically, he
said, ``They are the only game in town.'' It is my feeling that
if Mylan had competition, the price would drop.
Last year, we went looking for an alternative and were
pleased to find the Adrenaclick generic auto injector that cost
us $116 for a two-pack. It works a little differently than the
EpiPen and is not an exact generic, and, therefore, my pharmacy
and my allergist had never mentioned it.
I believe the other reason that the Adrenaclick was never
prescribed for my sons is the product's sporadic availability.
Adrenaclick is manufactured by the American company, Amedra
Pharmaceuticals. At various points in time over the last
several years, Amedra Pharmaceuticals has not been able to keep
up with the demand. The situation is confusing for all
involved, pharmacies, physicians, and consumers. Assuming the
supply catches up soon, how do we make sure that consumers are
aware of this lower-cost option?
My local school system is also affected. They tell me that
fewer parents are sending EpiPens to keep at school due to the
cost. This creates a dangerous situation. In Fayette County,
each building has four stock EpiPens for emergency use. They
are intended to be a safety net for the undiagnosed or for
students whose own EpiPen is for some reason not available.
Those EpiPens stay in the building. That means students are
riding on buses without EpiPens, going on field trips without
EpiPens, walking home without EpiPens.
In addition, an average of one in 13 children now have a
food allergy, which is roughly 2 per classroom. The school's
four stock EpiPens cannot possibly protect the entire student
population. Parents need to continue to supply EpiPens for
children with documented food allergies, but with skyrocketing
costs, many parents can't. The high cost is putting children at
risk.
There are many families in our local support group who are
struggling with this issue. Some parents are keeping EpiPens
past the expiration date. Some parents are doing without. Many
parents have told me that they are frustrated that one company
has so much control.
We need this lifesaving medication to be sold at a
reasonable price so that every child can be safe. Please allow
more manufacturers to produce epinephrine injectors.
[The prepared statement of Ms. Jackson follows:]
Prepared Statement of Laura Jackson
My name is Laura Jackson, and I have been a food-allergy parent for
over 25 years, raising two sons with life-threatening food allergies.
I know all too well the dangers of a severe allergic reaction,
having witnessed it with my own child. Watching my son's symptoms
progress from mild to severe in a matter of seconds--seeing his labored
breathing--the panic in his eyes--racing to the emergency room and
wondering if we could get there in time--knowing that a tragedy was
possible--living with the fear of it happening again--worrying at every
meal.
These experiences inspired me to form the Kentucky Families with
Food Allergies support group here in Lexington 10 years ago. There are
many parents like me in our State, all facing the financial and
emotional responsibilities that come from raising a child with a life-
threatening condition. That is why Kentucky's food allergy parents are
so concerned about the current EpiPen price increases.
For over 15 years, my family purchased 8 to 10 EpiPen two-packs per
year for our sons who are now grown. We needed that many due to
expiration dates, and also to ensure that the injectors would always be
within reach at home, when traveling, or at school, because prompt
administration can make the difference between life and death.
In 2013, we were thrilled to have a new option when the Auvi-Q
injector came onto the market. It was compact and much more user-
friendly, so we switched to the Auvi-Q when it was first introduced. In
2013, it cost my family roughly the same amount as the EpiPens
injectors. Soon after we had already filled our prescription, the
EpiPen manufacturer began offering significant discounts so that
EpiPens were less expensive than Auvi-Q. Then, Auvi-Q offered
discounts. I saw the cause and effect: now that EpiPens had a
competitor, they found a way to lower the price.
Two years later in July 2015, our insurance changed to a nearly
unreachable $5,000 deductible, so we began paying the cash price. At
that time, our cost for an EpiPen two-pack or an Auvi-Q two pack was
virtually the same at about $390.
Within a few months, there were dramatic changes in price. In
October 2015, Auvi-Q was recalled, and 2 months later our cost for an
EpiPen two-pack shot up to well over $600. That was an increase of over
$200. Since our insurance had not changed, I believe that the
manufacturer was responsible.
When I asked my pharmacist why the price had increased so
dramatically, he said, ``They are the only game in town.'' It is my
feeling that if Mylan had competition, the price would drop.
We went looking for an alternative. Unfortunately, there is no
exact alternative. We opted to purchase a generic epinephrine injector,
called Adrenaclick, that cost us $116 for a two-pack, but it is not an
exact substitute. That is why the pharmacy won't automatically
substitute one for another. Some consumers might find the generic
harder to use. In addition, many parents are not aware that Adrenaclick
is available. EpiPen is well-known due to their advertising and
marketing campaigns, but there is no marketing for the generic. That is
another issue to address: how do we make sure consumers are aware of
this lower-cost option?
My local school system is also affected. They tell me that fewer
parents are sending EpiPens to keep at school, due to the cost. This
creates a dangerous situation. In Fayette County, each building has
four stock EpiPens for emergency use, but they are intended to be a
safety net for the undiagnosed or for students whose own EpiPen is not
available. Those EpiPens stay in the building. That means students are
riding on busses without EpiPens, going on field trips without EpiPens,
walking home without EpiPens, going to sporting events without EpiPens.
The high cost is putting children at risk.
There are many families in our local support group who are
struggling with this issue. Some parents are keeping EpiPens past the
expiration date. Some parents are doing without. Many parents have told
me they are frustrated that one company has so much control. We need
this life-saving medication to be sold at a reasonable price so that
every child can be safe. Please allow more manufacturers to produce
epinephrine auto-injectors.
Senator Paul. Thank you, Ms. Jackson.
John Spencer is an independent pharmacist and the owner of
Spencer Drugs.
STATEMENT OF JOHN SPENCER, PharmD, INDEPENDENT PHARMACIST,
OWNER, SPENCER DRUGS, RICHMOND, KY
Mr. Spencer. Thank you, Senator Paul. As you said, my name
is John Spencer, and I graduated from the University of
Kentucky College of Pharmacy in 1992. I have worked in an
independent pharmacy since 1989, and I currently own four
independent pharmacies. My staff and I are literally on the
front lines of patient healthcare and provide education and
information that is necessary for our patients to take their
medications correctly in order to maximize their effectiveness
in their treatment.
Unfortunately, in the past few years, we find that we have
become arbitrators between pharmaceutical manufacturers,
pharmacy benefit managers, insurance companies, and patients.
Too often, we have to attempt to explain huge price increases
and formulary changes to a person that is sick and often in
need of potential lifesaving medication. As you might imagine,
these excuses are hard to come by. When talk of multimillion-
dollar salaries for drug company executives is all over the
news, it is really hard for my patients to understand when the
price of their prescription increases by 500 percent.
I am a businessman, and I understand the free market.
However, in the pharmaceutical industry, there are too many
players with the ability to manipulate the system, and that is
not at the heart of true capitalism or reasonable business
ethics. I also understand that the pharmaceutical companies
with proprietary products need to make a profit and be paid for
their research. It appears that, in many cases, these companies
are choosing an increase in their stock price over an increase
in accessibility to those who need the treatment the most.
This industry has to be put under a different microscope
when we evaluate their pricing practices. We're not dealing in
sporting goods or appliances. We're dealing with products that
can mean life and death for our patients.
It is an inconvenient truth for the makers of EpiPen when
we tell them about a local teacher with severe peanut allergies
who finds out that her co-pay for her EpiPen is now $250. The
last time I checked, most school teachers are not highly
compensated, and the idea of having to replace this product
year after year is not a pleasant thought.
Mylan does not want to discuss about a mother from
Tennessee whose child was starting kindergarten this year. She
couldn't believe the price she had heard from her local
pharmacy, so she started calling pharmacies in Kentucky in
hopes of finding a cheaper price. Heather Bresch might be
uncomfortable hearing about my colleague's patient with alpha-
gal allergy whose insurance co-pay was $626 because her
deductible had to be met.
Currently, you can go online to EpiPen.com and apply for a
co-pay discount card, which may take up to $300 off your
prescription in certain instances. In my two decades of work in
pharmacy, I have no memory of any co-pay card offering such a
staggering discount. What I know is that if you can afford to
offer a $300 discount, there's at least a $300 profit in your
product.
A 30 cc vile of epinephrine, as the Senator was mentioning,
which contains enough drug to make several EpiPens--probably in
the neighborhood of 20--costs me $58.99. Therefore, it's really
hard to believe that the active ingredient has a significant
bearing on the cost of the product.
Lawsuits, citizens' petitions, and back-door payment deals
between brand manufacturers and generic companies that are
about to launch their product seem to be the norm. I guess this
explains why some pharmacy benefit managers still choose to pay
for products like Nexium and Crestor long after AB-rated
generics exist, even though they are sometimes less than 5
percent of the cost of the brand name drug.
On Mylan's Web site under the heading, Integrity, ``Doing
what's right is sacred to us. We behave responsibly, even when
nobody is looking. We set high standards from which we never
back down.'' My response to that would be everyone is now
looking, and we expect more responsible behavior.
Thank you, Senator.
[The prepared statement of Mr. Spencer follows:]
Prepared Statement of John Spencer, PharmD
Senator Paul, my name is John Spencer and I graduated from the
University of Kentucky College of Pharmacy in 1992. I have worked in
independent pharmacy since 1989 and I currently own 4 independent
pharmacies. My staff and I are literally on the front lines of patient
health care and provide the education and information that is necessary
for our patients to take their medications correctly in order to
maximize their effectiveness in their treatment.
Unfortunately in the past few years, we find that we have become
arbitrators between pharmaceutical manufacturers, pharmacy benefit
managers, insurance companies and patients. Too often we have to
attempt to explain huge increases in prices and formulary changes to a
person that is sick and often in need of a potential life-saving
medication. As you might imagine, those excuses are hard to come by.
When talk of multi-million dollar salaries for drug company executives
is all over the news, it is really hard for my patients to understand
when the price of their prescription increases by 500 percent. I am a
businessman and I understand the free market, however in the
pharmaceutical industry there are too many players with the ability to
manipulate the system and that is not at the heart of true capitalism
or reasonable business ethics. I also understand that pharmaceutical
companies with proprietary products need to make a profit and be paid
for their research. But it appears that in many cases these companies
are choosing an increase in their stock price over an increase in
accessibility of their product to those who need their treatment the
most.
This industry has to be put under a different microscope when we
evaluate their pricing practices. We are not dealing in sporting goods
or appliances. We are dealing with products that can mean life or death
for our patients.
It is an inconvenient truth for the makers of EpiPen when we tell
them about a local teacher with severe peanut allergies who finds out
that the copay for her EpiPen is now $250. The last time I checked most
schoolteachers are not highly compensated employees and the idea of
having to replace this product every year is not a pleasant thought.
Mylan does not want to talk about the patient from Tennessee we
heard from whose child was starting kindergarten that couldn't believe
the price that was quoted by her local pharmacy and was calling to see
if she might find a better price in Kentucky.
Heather Bresch might be uncomfortable hearing about my colleague's
patient with Alpha Gal allergy whose insurance copay was $626.16
because her deductible had to be met.
Currently you can go online to www.epipen.com and apply for a copay
discount card which may take up to $300 dollars off your prescription
in certain instances. In my two decades of work in a pharmacy I have no
memory of any copay card offering such a staggering discount. What I do
know is that if you can afford to offer a $300 discount there is at
least a $300 profit built into your product.
On Mylan's Web site under the heading ``integrity'' it reads,
``Doing what's right is sacred to us. We behave responsibly, even when
nobody is looking. We set high standards from which we never back
down.'' My response to that would be . . . everyone is now looking and
we expect more responsible behavior.
Thank you Senator Paul for your time and for your concern about
this issue.
Senator Paul. Our next witness is Professor Brian K. Strow,
Ph.D., who is a Professor of Economics at Western Kentucky
University in my hometown of Bowling Green and a BB&T Professor
for the Study of Capitalism.
STATEMENT OF BRIAN K. STROW, Ph.D., BB&T PROFESSOR FOR THE
STUDY OF CAPITALISM, PROFESSOR OF ECONOMICS, WESTERN KENTUCKY
UNIVERSITY, BOWLING GREEN, KY
Mr. Strow. Thank you, Senator Paul, for inviting me to
testify before this committee today. I value any opportunity I
have to talk about the values of competition, generally, and in
this case, specifically, as it applies to the pharmaceutical
industry.
My comments today will revolve around the value of
competition, generally, to markets and to consumers,
specifically, evident--I'll show some evidence of that value in
the pharmaceutical industry, specifically; explain barriers to
this competition, generally, and why they might occur in
general scenarios and also, specifically, why they're occurring
in these specific drug markets; and then at the end, suggest
some policy solutions that we might look at addressing the very
specific barriers to competition.
To economists, we generally find that competition is good
and more competition is better. Why is that the case, and why
do consumers value choice? It's because they gain power in the
economic transaction. If there's only one producer, a monopoly
producer can charge a lot more than if there's a competitor out
there. If I'm willing to pay $10 for a drug, and I'm able to
pay $10 for a drug, and they charge me $10 for a drug, that
transaction will occur, but I've got no, in economic terms,
consumer surplus. I get no extra benefit out of making this
purchase.
If the price of drugs fall--and we'll look at how this
happens through competition--say, to $4, if I'm still willing
to pay $10 and only have to pay $4, in economic language, I'd
be gaining $6 of consumer surplus. What we look at as benefits
to society--we're going to add up, as economists, these
consumer surpluses, freeing up, as it were, people's incomes to
spend on meeting other needs and wants.
The FDA actually comes in very handy here, because in 2005,
they did a very specific study regarding the benefits of
competition in the pharmaceutical industry. What they did was
look between 1999 and 2004 at average drug prices and compared
it to the number of competitors in each specific drug market,
so if there were two drug makers, three drug makers, one drug
maker, five, six--they took it out to double digits.
What is interesting when you see the study is virtually
every increase in the number of competitors in the market
resulted in a decrease in prices. The most notable decrease in
price came when the second generic entered into the market.
You say, ``Well, why is this the case?'' Let's say that
there is, again, just one producer, a monopoly producer, and
they raise the price. What is the consumer to do? If it's a
case of--like the EpiPen, where someone has got to have the
epinephrine--it's a life or death situation--you're left with
little recourse.
You introduce one competitor, and all of a sudden, if the
price goes up for one, that competitor has a choice, and they
can do one of two things. They can either not raise their price
and increase their market share and increase their
profitability, or, given that explicit occlusion is illegal,
they could still engage in something called price following and
start raising their price anyway.
When there are smaller numbers of producers in any market,
this price following is more common. Again, what the FDA found
was that it took as little as that third company, the second
generic, to virtually wipe away this price following effect and
drive prices down in a market.
The key question, then, is not whether more competition is
good or bad. It's a fairly straightforward microeconomic
principle that more competition will lead to lower prices for
consumers. The question is where would these barriers to
competition arise? Why are we finding in some markets an
absence of competitors?
We can think about this broadly first. We can think about
circumstances that cause a reduction in competition. They might
include things like control over scarce inputs. Think about De
Beers and control over costume grade diamonds. They've got the
diamonds. No one else has the diamonds, so they might be able
to have some extra market power.
We can think of IBM at the birth of super computers and
thinking they had some technological superiority. They knew
something that other people didn't know. That could give you
some advantage. We could think about really high up front
costs. There are not a lot of jumbo jet producers in the world.
There's Boeing, there's Airbus. There's two, and why might that
be the case? You'd have to have a company larger than most
countries' GDP to even startup a company.
The other big one would be if there's economies of scale in
production. Think of electricity production. Small scale
production wouldn't be cost efficient.
Finally, the last major barrier to competition comes from
government regulations itself. The Senator alluded to some of
these in his opening statement. They include patents, licensing
rules, and government prohibition on competition. Think in this
case of the post office. There's an actual prohibition against
competing in the delivery of mail.
When we look at the pharmaceutical industry, generally, and
the EpiPen situation, specifically, what we don't see are these
big startup costs. Sure, there are some startup costs. We're
not talking Boeing-sized startup costs. Epinephrine has been
around for a long time. There's no big scientific reasons, no
great technology that's not available to other people.
We can go one at a time and go through most of the reasons
why there is this barrier to competition. It turns out the
barrier does exist, but it's coming specifically from that last
item, the government regulations.
First of all, there's the patent situation. Again, there's
a reason. Society faces a tradeoff. We can offer patents, which
gain a company monopoly status, and we know that by giving them
monopoly status, that's going to increase their pricing power.
We do it on purpose, and the reason society has decided to do
this on purpose is to encourage innovation. If you can't recoup
your research and development costs, people will not spend time
and money to expand the technological frontier and improve
people's lives.
The question is not whether we have patents or not. The
question is the optimal length of patents. One of the big
issues we're facing now in the pharmaceutical industry are
patent extensions. Sure, you came up with a great idea at the
beginning, but now maybe instead of taking the pill once a day,
you can take it twice a week, and is that worthy of patent
protection. What we need to do is look at a tradeoff between
the value of innovating to a twice-a-week pill or a different
delivery mechanism for the epinephrine versus the extra
consumer surplus we could generate by extending competition
more quickly.
The second area, then, is going to be with licenses. In
this case, we're thinking FDA approval itself. You have to
obtain FDA approval to become a competitor. So when we look at
absence of competition in the market, particularly in the face
of high prices, you say, ``Well, why aren't there new
competitors just jumping in?'' Again, if there are not huge
technical barriers, what's going on? It turns out there is a
very lengthy, as you noted, process for approval to be a
competitor.
If we're thinking shoes, if we're thinking a shoe store,
and the only shoe store in town jacks up the price of shoes,
there's a very low barrier to start a new shoe store and
compete, or you could have online competition. Here, though, if
you had to ask ``Mother, may I?'' from the government, and the
government says, ``Three years from now, 4 years from now, 7
years from now, you might be able to, if you fill out enough
paperwork, pay enough, between $1 million and $5 million in
application costs to start a shoe store,'' you could see how
there could be a lot of shoe stores that have a lot of monopoly
status. You would artificially be restricting the number of
competitors to the market.
If we're doing this on a logical basis, should the FDA have
licensing? You can make a good argument for that, that they
want to ensure product safety, and, again, we're going to face
a tradeoff. Product safety is going to be the biggest issue
here. The question is not do we have any approval process, but
is 4 years, 5 years, 7 years the appropriate amount,
particularly in cases where we already know what the drug does.
It's not a new drug. There aren't new side effects. It's the
same drug in a generic form.
Does there need to be some product testing to make sure
that the drug is what it says? Sure. Does that need to take 5,
6, 7 years? Certainly, by increasing these--the FDA increasing
the cost of getting generics to the market has done a huge
disservice to consumer surplus. At a minimum, they should do a
cost-benefit analysis and determine in each case--is this going
to be the first generic, or is this going to be the 17th
generic? We know from the evidence that the 17th generic does
not reduce prices as much in the market as the second or, most
notably, the third competitor overall with the second generic.
If the FDA is facing scarce resources, like we all do, we could
hope that they could prioritize to those areas in terms of
approving new drugs that will, in fact, lead to the highest
increase in consumer surplus.
The last barrier to competition and corresponding policy
change is when the government itself regulates the use of an
item. In this case, with EpiPen, there were some States and
local school districts that mandated specifically that it was
EpiPen that had to be stored at the school and the competitor
was not allowed. When that's the case, you restrict entry into
the market. You're not even allowing the competitor to come in
and bid down price.
Restricting government's ability itself to pick winners and
losers, to say, ``You must choose this drug versus that drug,''
will stand to increase competition and consumer surplus.
Thank you.
[The prepared statement of Mr. Strow follows:]
Prepared Statement of Brian K. Strow, Ph.D.
My name is Brian Strow, Ph.D., WKU BB&T Professor for the Study of
Capitalism and Professor of Economics at Western Kentucky University. I
am grateful for the opportunity to come before the U.S. Senate
Committee on Health, Education, Labor, and Pensions' Subcommittee on
Children and Families to testify regarding the benefits to consumers of
increased competition by producers, provide evidence of the value to
consumers of increased producer competition in the pharmaceutical
industry, explain how barriers to producer competition arise in markets
generally and the pharmaceutical industry specifically, and offer
policy suggestions aimed at reducing said barriers for the benefits of
consumers.
the benefit to consumers of competition
For consumers, choices are ``good.'' More choices are ``better.''
Economists measure ``good'' and ``better'' in terms of consumer
surplus. Consumer surplus is the difference between the amount of money
that consumers are willing and able to pay for a good or service and
the price they actually have to pay for the good or service. If one is
willing and able to pay up to $10 per for one dose of a prescription
drug and the price is set at $10, there is no consumer surplus. If the
price of the prescription drug falls to $4, then the consumer gains $6
of consumer surplus when they purchase the drug.
Competition among producers in markets for goods or services works
to lower prices and improve quality in said markets thereby increasing
consumer surplus. In order to maximize profits, monopolists will tend
to artificially restrict the quantity of a good or service available on
the market and increase the price of the good or service. As each new
subsequent producer enters the market, consumers gain greater
decisionmaking power over what good or service to purchase. Any given
producer loses power over the consumer and must compete for said
consumer's business by offering a better good or service or lowering
the price they charge. Standard microeconomic theory suggests that as
the number of competing producers increases, prices fall.
the benefit to consumers of pharmaceutical competition
In 2005, the U.S. Food and Drug Administration reported a direct
relationship between the number of drug producers in a market and the
average price of the drug for sale that occurred between 1999 and 2004.
Their chart is included below. While increased producer competition was
found to generally lower average drug prices, the best news for
consumers was that the largest percentage benefit from increased
competition occurred when merely the second generic drug entered the
market. Reductions in drug prices directly related to increased
producer competition are the rule, rather than the exception, in the
pharmaceutical industry.
Source: FDA analysis of retail sales data from IMS Health, IMS
National Sales Perspective (TM), 1999-2004, extracted February 2005.
why barriers to competition arise
In general, barriers to producer competition arise from a limited
set of circumstances. These circumstances include control over scarce
inputs (De Beers' control over costume grade diamonds), technological
superiority (IBM at the beginning of super computers), large up-front
costs (the jumbo jet industry), the presence of economies of scale
(large scale electricity production may be cheaper than small scale
production), and government regulations (patents, licensing rules, or
government prohibition as in the case of the postal monopoly).
In the absence of these barriers, if a company were to dramatically
increase the price of their good or service in absence of an increase
in their production costs, one of two things will occur. Their
competitors will not respond to the price increase and gain market
share or they will respond by increasing their own prices (explicit
price collusion is illegal). The larger the number of competitors, the
greater the likelihood that one producer will attempt to gain market
share and not raise prices. As they lose market share, the other
producers are forced to reduce their prices or get squeezed out of the
market.
If there are a small number of competitors and they all increase
their prices, the increased price acts as a signal to potential
producers indicating that resources need to be reallocated into the
increased production of the very good or service whose price has been
increased. As long as the price of the good or service remains above
the price that would be derived from perfect competition, the signal
for new entrants remains. New entrants will enter into the market until
the price returns to the price suggested by a perfectly competitive
market. (F.A. Hayek, The Use of Knowledge in Society 1945 and Milton
Friedman, Capitalism and Freedom, Chapter 8).
As in the recent case of EpiPen price increases, one must address
the question of what specific barriers to competition exist in the
short run and the long run. If no barriers to entry existed for
producers, they would have instantaneously responded to higher EpiPen
prices with similar products aimed at the same consumers.
EpiPen producers don't have access to scarce resources or superior
technology. Other drug makers also have the ability to engage in large
scale drug production, so the argument that new production lines take
time to implement only carries short term explanatory power. That is, a
drug maker could only increase prices for a specific drug for a short
period of time. Dramatically increasing their prices risks long term
damage to the drug maker's public image which risks their relationship
with consumers in other product markets.
The chief barrier to competition in the pharmaceutical industry is
government regulation--in many forms. Patents, issued by the United
States Patent and Trademark Office offer producers limited term
monopoly rights to the production of a good. The U.S. government
purposefully restricts short term producer competition in order to
incentivize long run innovation. If we were to the point where we had
invented all there was public benefit to invent, disbanding the patent
system would increase competition and consumer surplus. We do not yet
live in such a world, and reducing the economic returns to patents
risks diminished research and development in the pharmaceutical
industry.
The FDA has to approve or license the production and sale of
pharmaceutical drugs in the United States. The longer time (and
financial burden) it takes to gain FDA approval for drug production to
commence, the less competition pharmaceutical producers face in the
short run which gives them increased pricing power thereby reducing
consumer surplus.
Last, government monopolistic regulations themselves can contribute
to the lack of competition. In the case of EpiPen, many State and local
governments mandated that schools stock epinephrine. Some of these
governments entered into agreements with Mylan (the producer of EpiPen)
that they not buy from EpiPen's competitors.
policies designed to lower barriers to competition in the
pharmaceutical industry
As there are three specific factors that reduce long run
competition in the pharmaceutical industry, reforms proposed to
successfully increase competition in the pharmaceutical industry must
specifically address one of these three factors: patent law, the FDA
regulatory process, and direct government involvement in drug markets.
Patent reforms could include increasing the innovation bar
necessary to qualify for patent protection. Is changing a pill from a
daily pill to a twice a week pill really worthy of a patent extension
if it decreases consumer surplus? At a minimum, the patent office
should be required to do a cost benefit analysis before granting patent
extensions.
Increase the speed at which generic drugs are approved by the FDA.
While the approval process for generics is shorter than for new drugs,
the FDA could be incentivized to use their scarce resources in ways
that maximize consumer surplus. The FDA could be required to do a cost
benefit analysis regarding their usage of scarce inputs. This would
work to expedite the very drugs whose benefit to consumer surplus are
the greatest.
Don't allow agents of the public sector to pick which specific
producer gains monopoly access to a public market. Analysis by Best
Practices LLC. Indicates that the most effective ways for drug makers
to increase profits are through patent extension and large volume
purchaser contracts. By eliminating public officials' ability to engage
in exclusive drug deals, one can ensure increased competition in the
pharmaceutical industry.
To summarize: competition is good more competition is better, the
chief barrier to increased competition in the pharmaceutical industry
is government, policies designed to lower drug costs and increase
consumer surplus need to begin with regulatory reform.
Senator Paul. Thank you. Our next witness is Dr. Scott
Gottlieb. He is a Resident Fellow at the American Enterprise
Institute, a well-known writer, and a practicing physician.
Scott.
STATEMENT OF SCOTT GOTTLIEB, M.D., RESIDENT FELLOW, AMERICAN
ENTERPRISE INSTITUTE, WASHINGTON, DC
Dr. Gottlieb. A reformed government bureaucrat, having
worked at FDA for a number of years.
I want to thank you for having me today, Senator, and for
the opportunity to testify before the committee.
I want to pick up on some of the discussion around the
regulatory failure and around the lack of competition. The lack
of competition in this market and for the EpiPen product does
stem from regulatory failure stemming from FDA policy, and I
think that policy can be fixed.
The first breakdown, in my view, is just the sort of
growing cost and complexity of that FDA approval process. To
give you some statistics on that, for generic drugs that were
launched in 2015, it took about 4 years for them to be
approved, to go through the FDA process, largely because less
than 1 percent of the applications actually get reviewed and
approved on their first cycles. You have multiple cycling of
these generic applications, and often it's over minor issues
that don't get to the overall safety and effectiveness of the
products.
At the same time that the complexity has gone up, so has
the cost. When I was at FDA, we used to, as a rule of thumb,
say that a generic drug application--to file and get it through
FDA would cost about a million dollars, and a category of drugs
would have to reach about $10 million in total revenue to be
genericized, to have sufficient revenue to make it worth filing
that million-dollar application.
Today, it can cost upwards of $20 million to file a generic
drug application, and the general market rule of thumb is that
a drug would have to fetch between $25 million to $50 million
in revenue to justify the investment. So you have a situation
where you have these low utilization products on the market
that don't have any competition.
Of about 1,300 branded drugs on the market, 10 percent have
lost all patent protection and only have one competitor. These
are some of the high priced drugs that we have been talking
about in the news, drugs like clomipramine, which had an 1,800
percent price hike from 2013 to 2014; fluconazole, a 996
percent increase over the same year; doxazosin, a 1,169 percent
increase. You have one competitor on the market. They have to
amortize the cost of developing that product over a very low
volume. There's no competitors coming in trying to drive the
price down, and you end up having these big price increases.
These problems are compounded when it comes to the class of
generics that I would call complex generics or complex drugs.
Typically, a complex drug is a drug that has something unusual
about its formulation or its mechanism of action that makes it
hard to determine that it's the same exact drug as the drug
it's trying to copy based on a traditional test that we require
as part of the generic drug process.
The generic drug process requires what are called bio-
equivalents and bio-availability studies, which basically means
that if you take the drug and you can measure the drug in
someone's blood at the same level and in the same proportion as
the drug it's trying to copy, you can get approval just on the
basis of those tests, just by showing that your drug gets into
the blood the same way and stays in the blood for the same
length of time. That was built for a world when drugs were
fairly simple chemicals. They were all pills. They were small
molecules.
In a world where drugs are complex and just merely
measuring them in the blood isn't a good approximation of what
their benefit might be, it's a lot harder to put those drugs
through the traditional generic drug process. Think, for
example, of a drug that acts locally like a metered dose
inhaler for asthma. It's acting directly on the lungs, so
measuring how much of that drug gets into the blood isn't going
to be a good approximation for how it works in the lungs. In
fact, it is the case that we don't have generic competition to
some very expensive metered dose inhalers for asthma that have
long lost patent protection.
Or think of a topical agent like a dermatological cream. If
you want to know why old acyclovir costs so much, it's because
it's hard to develop a generic formulation of something that
acts locally and topically.
In the case of EpiPen, it too would fall into this category
of complex generics, and the complexity here is the device.
It's the product for delivering the drug, the auto injector.
The problem is that if someone wants to copy EpiPen, the law
says that they have to have the exact same instructions for use
in their label as EpiPen. In fact, Mylan has patented some of
the unique attributes of their auto injector that deal with how
you would instruct a patient to use it. If someone wants to
copy EpiPen, they basically have to copy EpiPen's instructions
for use, but the instructions for use deal with patented
aspects of the auto injector.
There's a catch-22 here. If someone wants to develop a
different auto injector, a different form of epinephrine, a
different device, and wants to get approval as a new drug,
because they can't go through the generic drug process because
they can't copy EpiPen's label, FDA might say to them,
``Actually, we don't think you can be a new drug because you're
basically the same ingredient as EpiPen so you have to go
through the generic drug process.'' You can get caught in a
catch-22 of sorts, and I think that there are companies caught
in this process if you were to ask FDA.
What's the up-shot here? The generic drug law is a very old
law that was written at a time when drugs were very different
and were basically simple chemicals. Now that we have these
categories of complex generics, we might think about changing
the law to allow FDA to have more discretion to ask for
different complements of information for the purposes of
developing generic copies of some of these drugs.
In the case of EpiPen, that might mean allowing a generic
copy to EpiPen to have slightly different instructions for use,
as long as it's not going to create a patient safety issue, but
still be considered a generic formulation of EpiPen and still
be substitutable at the point of the pharmacy to provide that
kind of price competition that we seek in the market.
With that, I'd be happy to answer questions. I appreciate
being here.
[The prepared statement of Dr. Gottlieb follows:]
Prepared Statement of Scott Gottlieb, M.D.\1\
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\1\ The American Enterprise Institute for Public Policy Research
(AEI) is a nonpartisan, nonprofit, 501(c)(3) educational organization
and does not take institutional positions on any issues. The views
expressed in this testimony are those of the author.
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Mr. Chairman, thank you for the opportunity to testify before the
committee.
The rising list price of drugs such as the lifesaving EpiPen
autoinjector,\2\ coupled to the increasing exposure that consumers have
to these costs as a consequence of secular change in the design of
insurance coverage, has appropriately focused increasing scrutiny on
how drugs are priced. It's often argued that drugs are one of the last
vestiges of market-based pricing in our highly regulated health care
industry. By contrast, regulators in Washington set most prices for
clinical services. It's true that drug makers have more pricing
discretion than other sectors in health care, whether it's in
comparison to hospitals, providers, or even medical device makers. The
market for drug products is hardly a utopia of free market pricing and
vibrant competition. The drug market is subject to its own peculiar
price setting and regulation. These rules undermine the competitive
opportunities that could help inspire more choice and competition, and
help lower costs.
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\2\ EpiPen, ``Prescribing Information,'' August 2012, https://
www.epipen.com/hcp/-/media/files/epipen/
prescribingpercent20information.pdf.
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Today I want to talk about three areas where I believe that
regulation creates barriers to pharmaceutical competition. I will focus
my remarks on how policymakers could remedy these market failures,
enable more choice, and stimulate more price competition.
The first issue deals with the way that the Food and Drug
Administration (FDA) regulates drugs. Here I focus on what I categorize
as complex medicines. These are circumstances where the drugs have
certain intricacy associated with their formulation or delivery.
Developing cheaper, copy versions of these complex drugs, after
legitimate patents have lapsed, are made especially difficult by
shortcomings in regulatory policy.
The second area relates to existing price controls and mandatory
rebates in programs such as Medicaid and 340B. These government rebate
schemes put upward pressure on drug prices, by creating financial
pressure to raise the list prices on drugs in order to provide fiscal
room for accommodating the mandatory kickbacks. The problems associated
with this system are longstanding and manifold. But these burdens are
made more acute by a recent, sharp, and secular change in the structure
of drug insurance coverage that has left more consumers exposed to the
list price of drugs, before the rebates are applied.
Consumers who increasingly find themselves underinsured for drugs--
even while more medical care shifts toward the use of higher-cost,
specialty medicines--are not directly benefiting from the rebates that
end up lowering the real, net price of the medicine. The health plan
benefits from these rebates. They help offset premium costs. But the
underinsured consumer can end up paying the full list price, not the
post-rebate price.
In the case of EpiPen, a drug product that's used for the emergency
treatment of certain allergic reactions, the invoice price for a two-
pack EpiPen product in 2016 is currently about $600. But these invoice
or ``list'' prices do not account for any rebates and other discounts.
According to recently published data, the net price received by Mylan
for each EpiPen 2-Pak was $274.\3\ This is the ``net'' or ``real''
price.
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\3\ Mary Caffrey, ``How Increased Cost Sharing Triggered the EpiPen
Crisis,'' AJMC.com, August 24, 2016, http://www.ajmc.com/focus-of-the-
week/0816/how-increased-cost-sharing-triggered-the-epipen-crisis.
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The remaining 54 percent of the list price was split among Pharmacy
Benefit Managers (PBMs), insurers, wholesalers, and pharmacy retailers.
Toward addressing these challenges, our drug market would be more
competitive if drug makers were able to offer--and purchasers able to
demand--up-front discounts off the list price of drugs, rather than
have to settle for back-ended rebates that aren't available to
consumers when they purchase a drug at the pharmacy counter. But legal
precedents that Congress could address through legislation largely
stand in the way of the ability of drug purchasers to demand discounts,
and the feasibility of drug makers to offer them.
Third and finally, there are obstacles to the more competitive
pricing of the sort of ``single source'' breakthrough medicines that
are providing some of the most meaningful public health advances. These
include branded drugs that provide substantial benefit and even
outright cures for some forms of cancer and diseases such as Hepatitis
C.
We need to allow innovative drugs that offer meaningful advances in
medical care to be priced in a market system based on the benefit that
they offer, and the cost of the capital required to underwrite the long
and uncertain development path for creating these sorts of
breakthroughs. We don't want to undermine the model for investment and
innovation that makes these advances possible and has given us the most
vibrant market for the research and development of biotech and drug
products in the world.
At the same time, those who purchase these drugs should be able to
demand prices that relate to the benefits that these products deliver
and the circumstances for which they are prescribed. Right now,
government rules regrettably prevent this sort of price discrimination
based on indication and outcomes. Drug makers can't offer prices based
on measures of benefit or grounded in the purpose for which a drug is
prescribed. Patients can't demand these sorts of price concessions.
fda regulation shortcomings obstruct copies of complex generics
Drugs such as EpiPen fall into a category of products that one
might classify as complex generic medicines. It's been noted that the
active ingredient in the EpiPen is epinephrine, a very old drug. What
makes the EpiPen unique is its delivery vehicle--an autoinjector that's
packaged in a convenient, pen-like device. The product's key attribute
is its ability to reliably deliver accurate doses of the essential
medicine. This meaningful convenience and the product's reliability
allowed EpiPen to capture a substantial portion of the market for
injected epinephrine, but it is not the only such product available.
The current market for these epinephrine products breaks down this
way: Of the 4.2 million prescriptions for epinephrine products written
in 2016, about 3.9 million were for combination products (i.e.,
autoinjectable devices containing the medicine, such as the EpiPen).
According to IMS Health, Mylan represented about 3.8 million of these
prescriptions. Impact Laboratories comprises the bulk of the remaining
market share of autoinjectables. A third autoinjectable combination
product, Auvi-Q marketed by Sanofi, was voluntarily recalled in 2015
due to malfunctions with the device.\4\
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\4\ U.S. Food and Drug Administration, ``Sanofi US Issues Voluntary
nationwide Recall of All Auvi-Q Due to Potential Inaccurate Dosage
Delivery,'' October 13, 2015, http://www.fda.gov/Safety/Recalls/
ucm469980.htm.
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In addition to these autoinjectable products, a number of generic
forms of epinephrine are available in ampule and vial form as well as
packaged in a prefilled syringe. These products constitute a small
number of prescriptions written for epinephrine in 2016. The top four
vial manufacturers totaled about 217,000 prescriptions.
While the EpiPen's manufacturer, Mylan, maintains some important
intellectual property around its autoinjector that the company believes
differentiates its device, this should not--and has not--prevented
other companies from developing their own pen-like devices for
autoinjecting epinephrine. However, the way that FDA administers its
generic drug regulatory process has left the agency tied in some policy
knots when approving similar products as generic substitutes for
EpiPen. At the same time, other regulations make it hard for
competitors to EpiPen to get their products approved as new, branded
alternatives to EpiPen through the new drug approval pathway. Policy
shortcomings can leave potential competitors in a regulatory Catch-22.
One issue relates to the existing statute and FDA regulations that
govern the approval of generic drugs, the Abbreviated New Drug
Application (ANDA) process. FDA maintains that, if a patient has to be
retrained to use a generic alternative to a branded product, then the
alternative product cannot bear the same labeling as the drug it seeks
to copy, and it cannot meet the burden of the ANDA process and be
approved as a generic equivalent. The copy drug can't be considered the
``same'' and serve as a substitutable alternative.
This means that an alternative to a complex drug or a complex drug
and device combination such as EpiPen would have to function in the
exact same manner as EpiPen. To the extent that Mylan maintains some
intellectual property around some of the functions of the EpiPen that
correlate to some unique instructions on how to use the device, this
can impede entry of generic competitors to EpiPen--even if most of the
fundamental intellectual property (IP) on the drug and the device has
lapsed.
At the same time, under FDA's existing rules it could be difficult
for a competitor to EpiPen to seek approval under the longer and
costlier new drug approval process as a branded alternative to EpiPen.
Here is the Catch-22, of sorts, at play. A competitor might not be able
to go through the ANDA route, but may not qualify as a new drug,
either.
This could occur in an instance where a competitor to EpiPen might
be filing for approval under a regulatory pathway referred to as
505B(2). The regulatory pathway is named for the section of FDA's
statute that gives rise to this alternative approval process.
First, it would be unusual for FDA to approve a drug through the
505B(2) pathway and allow it to be therapeutically substitutable for
another product (in this case EpiPen). So any EpiPen alternative
approved under 505B(2) would not be a true generic alternative to
EpiPen. Such an approval would, nonetheless, still create market
competition that could help lower costs. But there is a second
regulatory obstacle. In situations where a product is likely to be a
therapeutic equivalent to a drug, FDA encourages (and could in some
cases require) a drug developer to file as an ANDA. So there could be
situations where FDA compels drug makers to file under the ANDA route,
only to hit a policy obstacle in trying to copy the instructions for
use in the EpiPen label without infringing some of EpiPen's IP around
its autoinjector and its unique functions.
Such is the case with another epinephrine product, Adrenaclick.\5\
Like EpiPen, it is a formulation of epinephrine delivered through an
autopen. Pharmacists cannot substitute it for EpiPen, despite the
similarities. That's because while it's the same drug, Adrenaclick has
a different autoinjector and, thus, bears a different set of
instructions for using the device. It cannot be approved as a generic
product that is substitutable for EpiPen.
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\5\ The Adrenaclick sells for a list price of around $140 per unit.
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These issues fall broadly into a category of challenges that relate
to the approval of ``complex generic drugs.'' \6\ While there is no
official definition of ``complex'' generics, one can broadly define
complex generics as generic drugs for which it is particularly
difficult to establish therapeutic equivalence as defined in the Orange
Book.
---------------------------------------------------------------------------
\6\ Robert Lionberger. ``Complex Generic Drugs,'' presentation at
the Generic Pharmaceutical Association Fall Technical Meeting, October
29, 2013, http://www.fda.gov/downloads/AboutFDA/CentersOffices/
OfficeofMedicalProductsandTobacco/CDER/UCM374191.pdf.
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Some complex generics present significant challenges in
establishing pharmaceutical equivalence due to problems related to
physiochemical characterization. For some, a simple bioequivalence
study is not enough to establish that the generic drug will have the
same clinical and safety profile as the reference-listed drug that it
seeks to copy.\7\
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\7\ Aloka Srinivasan, ``Complex Generics: Maximizing FDA Approval
Prospects'' Parexel, 2015, https://www.parexel.com/files/6714/3076/
9385/ComplexGenerics_WPApril2015_final.pdf.
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In soliciting a study from the Government Accountability Office,
Congress defined complex generics as drugs that were not fully
characterized because the active pharmaceutical ingredient has
molecular diversity, because scientific analytic methodologies are
unable to fully identify the molecular structures and physiochemical
properties of the active ingredient, and because the nature of the
active ingredient is not understood well enough to identify the drug's
mechanism of action that produces its therapeutic effect.\8\
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\8\ Zachary Brennan, ``House Panel Calls on GAO to Study FDA's
Approval Pathway for Complex Generics,'' Regulatory Affairs
Professionals Society, December 15, 2015, http://www.raps.org/
Regulatory-Focus/News/2015/12/15/23775/House-Panel-Calls-on-GAO-to-
Study-FDApercentE2percent80percent99s-Approval-Pathway-for-Complex-
Generics/.
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Similarly, complex drugs have also been defined by authors as
nonbiological products ``where the active substance is not a homo-
molecular structure, but consists of different (closely related and
often nano-particulate) structures that cannot be isolated and fully
quantitated, characterized and/or described by state-of-the-art
physicochemical analytical means and where the clinical meaning of the
differences is not known.'' \9\ In this regard, complex drugs can share
characteristics with biologicals.
---------------------------------------------------------------------------
\9\ Huub Schellekens et al., ``How to Regulate Nonbiological
Complex Drugs (NBCD) and Their Follow-On Versions: Points to
Consider,'' AAPS Journal 16, no. 1 (January 2014): 15-21, https://
www.ncbi.nlm.nih.gov/pmc/articles/PMC3889532/.
---------------------------------------------------------------------------
FDA has defined complex generics more broadly to include these
circumstances, as well as situations such as EpiPen, where the
complexity is related to the drug's delivery. This could include
situations like EpiPen, where a drug is delivered through a complex
device.
This might involve, for example, a drug that acts locally on tissue
lining the gut (such as oral vancomycin) or an inhaled drug that acts
directly on the lungs (like metered dose inhalers (MDIs) for the
treatment of asthma and other lung diseases). Complex drugs might also
be one that is delivered through a complicated delivery mechanism such
as EpiPen or, to take another example, a drug delivered through a
controlled-release patch.
FDA has faced perpetual policy challenges, in part of its own
making, when it has tried to ``genericize'' a growing number of these
complex drugs through its ANDA pathway. Because of the FDA's policy
constraints, as well as its own scientific ambiguity when advancing
regulatory principles for developing copies of complex drugs, sponsors
often say that they feel like they are ``shooting in the dark'' when
developing the product, preparing dossier for an effective FDA filing,
or engaging in the back-and-forth between FDA and the company during
the review.
For example, the agency delayed for years the approval of a generic
alternative to long-acting heparin--long after the legitimate
intellectual property on that medicine had lapsed.\10\ Similar delays
challenged the approval of complex generic formulations, such as oral
vancomycin, liposomal Doxorubicin HCl injection,\11\ and topical
Acyclovir ointment.
---------------------------------------------------------------------------
\10\ Alicia Mundy, ``FDA Approves Generic Lovenox,'' Wall Street
Journal, July 24, 2010, http://www.wsj.com/articles/
SB10001424052748703294904575385133623904548.
\11\ Rao N.V.S. Mamidi et al., ``Pharmacokinetics, Efficacy and
Toxicity of Different Pegylated Liposomal Doxorubicin Formulations in
Preclinical Models: Is a Conventional Bioequivalence Approach
Sufficient to Ensure Therapeutic Equivalence of Pegylated Liposomal
Doxorubicin Products?'' Cancer Chemotherapy and Pharmacology 66, no. 6
(November 2010):1173-84, https://www.ncbi.nlm.nih.gov/pubmed/20661737.
---------------------------------------------------------------------------
In other cases, FDA made errors in how it approved generic
alternatives to complex drugs like IV iron, requiring its decisions to
be revisited. Or FDA established regulatory principles that were widely
criticized and ultimately rescinded, such as when FDA tried to address
the generic approval of certain eye drops that act topically on the
eye. In the latter case, for products that act locally on tissue rather
than acting systemically after being absorbed into the blood, FDA can
lack reliable, rigorous principles for demonstrating sameness in how
two versions of a drug act on the target organ.
The problem is that the generic drug approval process was crafted
at a time when most drugs were relatively simple, small molecule pills.
The process for copying these drugs was relatively straightforward. The
system for proving sameness largely turned on the ability to show that
a copy of a drug can get into the blood at the same levels and in the
same timeframe as the branded drug that it was seeking to emulate. It
could then be postulated, based on these ``bioequivalence'' and
``bioavailability'' studies, that the generic drug would have the same
therapeutic profile as the branded drug that it sought to copy.
This classical generic pathway was sufficient for many well-
defined, small, low molecular weight drugs where the analytical testing
fully characterized the product and showed pharmaceutical sameness to
the reference-listed drug. Together with a proof of bioequivalence to
the reference product, this information allowed for the submission of
an abbreviated file (ANDA) with a waiver for efficacy and safety
studies. FDA would nonetheless be able to declare that the copy was
fully substitutable for the reference drug.
With complex generics, the ability to determine sameness based on
bioequivalence and bioavailability is sometimes not as straightforward.
That might be because the complex drugs act locally on an organ and
therefore, the level of drug found in the blood is not an effective
surrogate for surmising its therapeutic effect. Or the complex drug
might be an intricate formulation, where the concentration of active
ingredient found in the blood cannot be accurately measured. Or the
drug might be like the EpiPen and involve a complex delivery system
that requires instructions for use that cannot be precisely copied in
labeling from one version of the product to the next.
As a consequence, I believe that Congress should consider
legislation to modernize the generic drug framework to allow FDA
greater discretion in the kinds of data it relies on for its generic
approvals in this narrow category of complex drugs. This would require,
for example, granting FDA the ability to ask for more than just
bioequivalence and bioavailability data in making judgments around
sameness. Or it might require Congress to grant FDA more discretion to
make minor modifications in generic labeling to account for small
variations between a branded drug and the proposed generic copy, for
example, when instructions for use might be marginally different.
It's noteworthy that generic industry stakeholders named the
creation of a specialized review pathway for complex abbreviated new
drug applications as a priority during user fee negotiations. The
agency has also discussed with generic drug manufacturers the need for
more clarity from FDA in this pre-ANDA space, according to meeting
minutes.
These challenges with the complex drugs are compounded by the
overall slowness and inefficiency of the generic drug approval process.
As I recently noted in The Wall Street Journal,\12\ the complexity and
cost of completing even an average (less complex) generic drug
application has also grown enormously. In 2003, when I began working at
the FDA, we estimated that it cost less than $1 million for a firm to
file a generic drug application. A drug would have to earn about $10
million in annual revenue before it would be subject to generic
competition. Today, filing a generic application requires an average of
about $5 million and can cost as much as $15 million. This means that a
drug may not face brisk generic competition until it exceeds $25
million in annual revenue.
---------------------------------------------------------------------------
\12\ Scott Gottlieb, ``How Obama's FDA Keeps Generic Drugs off the
Market,'' Wall Street Journal, August 19, 2016, http://www.wsj.com/
articles/how-obamas-fda-keeps-generic-drugs-off-the-market-1471645550.
---------------------------------------------------------------------------
As I previously noted, the key to the generic economic model is to
keep entry prices low enough to attract multiple competitors. One study
estimated the cost to consumers of generics to be 90 percent of the
branded drug's price if there is only one generic entrant. But the
price falls to 63 percent if there are five competitors and 40 percent
when there are 10 competitors. Yet of the 1,328 branded drugs on the
market, about 10 percent have seen patents and exclusivities expire,
but face no generic competition.\13\
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\13\ U.S. Department of Health and Human Services, Office of the
Assistant Secretary for Planning and Evaluation, ``Understanding Recent
Trends in Generic Drug Prices,'' January 27, 2016, https://
aspe.hhs.gov/pdf-report/understanding-recent-trends-generic-drug-
prices.
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Some of these are the high-cost medicines that are the subject of
political wrangling, drugs such as clomipramine (which saw a 1,818
percent price hike from 2013 to 2014); fluconazole (996 percent
increase); and doxazosin (1,169 percent). Each of these drugs accounts
for less than $2 million in total Medicaid spending, meaning that very
few people are using them. Given the high generic entry costs and the
infrequent use of these drugs, it's often no longer economically viable
for more than one firm to make them.
Owing to these economic challenges, infrequently used generics may
now have only one competitor and cost as much as branded drugs. When
the price of a drug rises, it becomes profitable and the target of new
competition. The FDA recently committed to review new generic drug
applications in a 15-month cycle, an improvement over a median of more
than 2 years for applications submitted in 2013.\14\ For generics filed
in 2009, the median review time exceeds 3 years. Yet generics launched
in 2015 took about 4 years for the FDA to approve, since less than 2
percent of applications were approved on their first submission.\15\
FDA committed to improve first-cycle approvals, but it still rejects
most applications before demanding resubmissions, delaying
competition.\16\
---------------------------------------------------------------------------
\14\ U.S. Food and Drug Administration, ``FDA/GPhA: Quarterly
Meeting on GDUFA,'' March 23, 2015, http://www.fda.gov/downloads/Drugs/
DevelopmentApprovalProcess/HowDrugsare
DevelopedandApproved/ApprovalApplications/
AbbreviatedNewDrugApplicationANDAGenerics/UCM442070.pdf.
\15\ Janet Woodcock, ``Implementation of the Generic Drug User Fee
Amendments of 2012 (GDUFA),'' testimony before the Committee on Health,
Education, Labor, and Pensions, U.S. Senate, January 28, 2016, http://
www.help.senate.gov/imo/media/doc/Woodcock5.pdf.
\16\ Gottlieb. ``How Obama's FDA Keeps Generic Drugs off the
Market.''
---------------------------------------------------------------------------
Toward addressing these challenges, in addition to defining a new
path for complex generic drugs, FDA should also prioritize files for
these sorts of busted generic drug categories, especially where the
generic targets an uncommon and serious ailment. Companies that pursue
copies of these ``discarded'' generics could receive a voucher that
would allow them to get expedited review of another generic drug. The
value of this voucher would give firms more incentive to market copies
of low volume generics.
FDA must also scrap a draft rule it crafted to deliberately expose
generic companies to rampant product liability suits--the so-called
generic drug labeling rule.\17\ FDA also needs to tailor its oversight
of manufacturing to the way that generics operate, usually by
manufacturing dozens of different drugs on each production line and
hundreds of different medicines in a single plant. Right now, FDA is
trying to force generics into the much costlier way that branded firms
operate their manufacturing plants, by requiring that generic product
lines be dedicated to just one or two different drug products.
---------------------------------------------------------------------------
\17\ Ed Silverman, ``Generic Drug-Safety Rules Debated,'' Wall
Street Journal, February 26, 2015, http://www.wsj.com/articles/generic-
drug-safety-rules-debated-1425009063.
---------------------------------------------------------------------------
The regulatory delays are even more apparent with the complex
drugs. Yet these complex medicines comprise a growing and important
portion of our therapeutic armamentarium. The generic entry of some
important copies of these medicines, once the legitimate intellectual
property has lapsed on the branded alternatives, has sometimes been
needlessly delayed. This saddles consumers with unnecessary costs that
were never intended when the generic pathway was envisioned. These
shortcomings largely stem from the absence of scientific tools for
determining sameness in these settings, and the regulatory framework to
efficiently approve these copies through FDA's ANDA pathway. Yet the
agency insists on trying to force these drugs down the traditional
generic drug approval process. It's time for Congress to define a more
efficient pathway.
price controls force rebates at the expense of discounts
In the cost of medicines, another challenge facing consumers is the
growing gap between the list price of drugs and the actual, net price
paid by those who purchase the medicines on their behalf. In many cases
the average net price is much lower than the list price. In fact, the
average net price for drugs actually rose at a 5-year low in 2015 and
is rising in relative concert with overall health care inflation.\18\
---------------------------------------------------------------------------
\18\ Policy and Medicine, ``IMS Releases 2016 Report on
Prescription Drug Spending--Net Price Growth 2.8 percent in 2015,'' May
2, 2016, http://www.policymed.com/2016/05/ims-releases-2016-report-on-
prescription-drug-spending-net-price-growth-28-in-2015.html.
---------------------------------------------------------------------------
But the list prices of drugs are rising much more sharply. The gap
between these two prices--the list price and the real, net price
actually paid by health plans--reflects rebates that drug makers
eventually pay to health plans as a way to provide money off the
sticker price of a medicine. This byzantine system is an unintended
consequence of past policymaking. But its growing impact on consumers
is unmistakable.
As more consumers find themselves on health plans that have adopted
very high deductibles, that also use closed and narrow drug formularies
that leave a growing number of important medicines completely
uncovered, and that use fixed coinsurance rather than fixed co-pays as
a way to distribute costs to consumers, these conditions mean that the
high list prices on drugs are the prices being paid by a growing number
of consumers when they buy medicines at the pharmacy counter. Recent
data from Kaiser that examined drug spending from 2004 to 2014 showed
just how much these out-of-pocket costs have risen, far outpacing the
costs paid by the health plans. Average payments toward deductibles
more than tripled, rising 256 percent, and average payments toward
coinsurance more than doubled, rising 107 percent. Over this time,
average payments by health plans themselves increased only 58
percent.\19\
---------------------------------------------------------------------------
\19\ Henry J. Kaiser Family Foundation, ``2015 Employer Health
Benefits Survey,'' September 22, 2015, http://kff.org/health-costs/
report/2015-employer-health-benefits-survey/view/exhibits/.
---------------------------------------------------------------------------
In the end, insurers may ultimately pay a price for a medicine that
is half the ``list'' price paid up front by the consumer. The consumer
never receives the direct benefit of the rebate, which gets paid to the
insurer. This is precisely the circumstance that occurred for many
consumers who purchased EpiPen at or near its list price.
These challenges are not just a function of high deductibles, which
leave consumers exposed to the list cost of their drugs up to the point
that they reach their deductibles. They are also a function of the
growing use of narrow and closed drug formularies. These are schemes
where insurers agree to cover to a shrinking list of drugs. When the
drugs don't make it onto these narrow formulary lists, the closed
structure of the formulary means that a drug is completely uncovered.
Moreover, what consumers spend out of pocket doesn't count against
their deductible or out of pocket maximums.
Now that these insurance features have become a mainstay of plans
sold in the Affordable Care Act and are being sanctioned--if not
encouraged--by Federal regulators as a way to accommodate the law's
other regulatory costs, these same insurance designs are being imported
into employer-sponsored coverage and coverage sold outside the
exchanges. The Kaiser Family Foundation says that a quarter of workers
with employer sponsored insurance (ESI) must pay the full cost of drugs
before their coverage kicks in, up from 17 percent in 2011.\20\
---------------------------------------------------------------------------
\20\ Robert Langreth, ``Secret Rebates: Why Patients Pay $600 for
Drugs That Cost $300,'' Bloomberg News, October 5, 2016, http://
www.bloomberg.com/news/articles/2016-10-05/patients-lose-out-on-big-
pharma-s-secret-rebate-merry-go-round.
---------------------------------------------------------------------------
The problem is that our current system provides incentives for
companies to push lists prices higher, only to rebate the money later
on the back end. Yet the rebates don't benefit consumers equally and
they don't necessarily help offset the costs paid by those who need a
particular drug. The rebates eventually make their way back to health
plans to help offset the collective costs of premiums. But if a patient
needs a particular drug, they will increasingly find that they are
paying the full, negotiated price at the pharmacy counter. They never
see the real ``net'' price, after the rebate is applied much later. The
rebate is paid to the health plan, not the patient buying the drug.
Government policies help push the list prices higher, even as the
net prices grow more slowly and in some cases even decline. For one
thing, mandatory rebates required by programs such as Medicaid and 340B
create incentives to launch drugs with high list prices if companies
know they will be required to provide a fixed rebate off those charges.
The use of average sales price in Medicare provides similar incentives
to launch with a high list price, so do market conditions that largely
prevent companies from offering up-front discounts to health plans and
instead force them to compete based on providing rebates.
Because companies can negotiate based only on providing rebates
rather than discounts, they know that the list price will bear
increasingly less relation to their real price.\21\
---------------------------------------------------------------------------
\21\ Scott Gottlieb, ``Why Drug Makers Charge Outrageous Prices,''
CNBC, August 29, 2016, http://www.cnbc.com/2016/08/29/why-drug-makers-
charge-outrageous-prices-commentary.
html.
---------------------------------------------------------------------------
This is another place where Congress can act to provide more market
competition based on a system where purchasers can demand discounts up
front, rather than back-ended rebates. Discounts would actually benefit
consumers more evenly since consumers would have the opportunity to
acquire drugs at the pharmacy at the discounted price.
It gets to the issue of why there is this artificial divide between
the list and net price in the first place. Why, in other words, does
the discounting in the drug space take the form of rebates paid to
pharmacy benefit managers through a convoluted system on the back end
of the transaction, rather than an up-front discount on the drugs?
It all stems from litigation in the late 1990s, brought by chain
store pharmacies, that claimed that drug makers were colluding to
discount to HMOs and not providing the same discounts to pharmacies, in
violation of Sherman Antitrust Act. Drug makers contended that they did
nothing wrong, and the discounts they made available to HMOs and
providers were appropriate because these purchasers could move market
share, while the pharmacies could not.\22\ The litigation, which
comprised dozens of separate cases, was ultimately consolidated into a
single class action. Drug makers eventually settled the suits. They
agreed to offer the same price to all channel partners. In other words,
discounts that they made available to HMOs would also be available to
pharmacies.\23\
---------------------------------------------------------------------------
\22\ 21 Collin Levey, ``Trial Lawyers Get Their Comeuppance,'' Wall
Street Journal, July 19, 1999, http://www.wsj.com/articles/
SB932313148898376573.
\23\ Milt Freudenheim, ``Drug Makers Settle Suit on Price Fixing,''
New York Times, February 10, 1996, http://www.nytimes.com/1996/02/10/
business/drug-makers-settle-suit-on-price-fixing
.html.
---------------------------------------------------------------------------
To get around this outcome, the drug makers moved away from
offering discounts and toward today's model of rebates. These rebates
are based on complex formulas tied to some measure of units of a drug
that are sold. The idea was that these rebates could be offered to
everyone, including pharmacies. But the pharmacies would never be able
to satisfy the burden of evidence to qualify for the rebates. Only the
health plans could make the required representations related to how
many units of a particular drug that it sold.
This raises an interesting question: Could Congress legislate to
make it legal for drug makers to engage in price discrimination based
on purchaser, offering discounts to one channel and not to another, so
long as the drug makers were not conspiring to offer similar discounts?
The answer, probably, is yes. If drug makers could offer discounts,
purchasers would start demanding them. A discount would potentially be
far more equitable, transparent, and pro-competitive than a rebate--
especially where the rebate does not flow evenly to all consumers.
Increasingly, it's consumers who are underinsured or uninsured that are
stuck paying the full list price at the pharmacy counter.
If the ``rebate'' came in the form of up-front discounts, rather
than back-ended givebacks, more consumers who are underinsured would
benefit from the negotiated ``real'' price.
we should allow drugs to be priced based on outcomes and indications
Third and finally, we need to allow drugs to be priced based on how
they are being prescribed and the outcomes that they deliver. Right
now, regulation largely prevents the same medicine from being sold at
different prices when it's being used in different settings. For
example, a drug must largely be sold at the same price whether it is
used in a high-value indication or used for which there might be less
evidence of benefit. The same rules also largely prevent drugs from
being priced based differently based on measuring the outcomes that
they deliver to a group of patients. Regulations largely foreclose
these kinds of arrangements, referred to collectively as value-based
contracts.
Among other things, the Office of the Inspector General would
probably view such indication-based discounts as an illegal inducement
for doctors to prescribe more of a drug for a certain use. The FDA
might interpret a contract tied to an indication or outcome that isn't
precisely specified in the drug's FDA-approved label as a form of
illegal, off-label promotion. In order to enable these arrangements,
FDA would need to concede that commercial, contract-related
communications constitute protected speech under the First Amendment
and thus are not subject to the agency's active regulation.\24\
---------------------------------------------------------------------------
\24\ Scott Gottlieb and Kavita Patel, ``A Fair Plan For Fairer Drug
Prices,'' Health Affairs Blog, July 11, 2016, http://healthaffairs.org/
blog/2016/07/11/a-fair-plan-for-fairer-drug-prices/.
---------------------------------------------------------------------------
The way that the Medicaid best price and average sales price (ASP)
are calculated (two price schedules that are maintained by the Centers
for Medicare and Medicaid Services (CMS) for the purpose of price
setting) would also present an obstacle to these kinds of value-based
contracts. Under these price schedules, when drug companies offer
indication- or outcomes-based discounts, they would be penalized across
all of the indications for which a drug is prescribed. The discounts
offered in one indication-based contract would lower the cost paid by
every plan that ties its price to the ASP and Medicaid best price. It
would also mean that the benefit of these discounts would be available
to heath plans--through a lower overall Medicaid best price and ASP--
even when the health plans don't enter into the same value-based
contracts.
Congress could act to provide a safe harbor when companies pursue
these value-based contracts, to make sure that sponsors don't face
regulatory obstacles from FDA, CMS, or OIG when the contracts meet
certain public health goals. This could provide another vehicle for
purchaser to demand more discounts from drug makers, and more ways to
tie these discounts to circumstances and outcomes that matter most for
patients.
conclusion
These policies will take on increasing importance as the nature of
drug coverage changes. These changes in coverage are partly a
consequence of the Affordable Care Act, which favored narrow provider
networks and drug formularies as a way to accommodate the cost of other
regulatory priorities. This has left more consumers underinsured for
their drug purchases. The exchange-based plans also relied on
constructs like closed drug formularies. These same insurance
constructs--having been rendered politically acceptable under the ACA--
are being imported into commercial insurance plans as well. The
National Business Group on Health, in a 2016 survey, found that 50
percent of employers reported that they plan to use a closed formulary
to help control costs.\25\
---------------------------------------------------------------------------
\25\ Stephen Miller, ``Employers Project Health Premium Hike of 6%
in 2017,'' Society for Human Resource Management, August 10, 2016,
https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/health-
premiums-2017.aspx.
---------------------------------------------------------------------------
The result is a sharp, secular change in the structure of drug
coverage. More consumers are paying the list price for drugs, not the
lower net price eventually paid by health plans, after rebates are
applied. Congress can act to increase competition by enabling more
drugs to reach the market, especially low-cost generic medicines. And
enabling more health plans to negotiate discounts that can directly
benefit consumers.
Senator Paul. Thank you. We'll save the questions--we'll go
around and save the questions.
Our next witness is Philip Almeter, who is the Senior
Director of Pharmacy Acute Care Services and the 340B Programs
at UK HealthCare here at the University of Kentucky.
STATEMENT OF PHILIP J. ALMETER, PharmD, SENIOR DIRECTOR,
PHARMACY ACUTE CARE SERVICES AND 340B PROGRAMS, UK HEALTHCARE,
UNIVERSITY OF KENTUCKY, LEXINGTON, KY
Mr. Almeter. Thank you, Senator Paul, for the opportunity
to provide testimony regarding the rising prices of medications
in the United States. I am pleased to see that the HELP
Committee has taken an interest in this issue.
The University of Kentucky's UK HealthCare operates two
hospitals, several ambulatory clinics, and six retail
pharmacies, one of which is a specialty pharmacy. In fiscal
year 2016, we saw 38,000 discharges, 1.29 million outpatient
visits, and UK Pharmacy Services dispensed 430,000 outpatient
prescriptions.
Many of the medication price increases seen recently have
affected UK and in my opinion can be classified into two basic
groups: direct/obvious and indirect/less obvious. The direct/
obvious reasons include increases in innovation, consequences
of the FDA's Unapproved Marketed Drugs Initiative, changes in
ownership, and the sole source effect. Indirect/less obvious
reasons are surrounding the pharmacy benefit management impact.
The majority of the increases in innovation lies with the
specialty pharmacy. In the last 5 years, spend with specialty
medications has doubled, contributing to 70 percent of overall
medication spend. The primary drivers for this were therapy
developments for hepatitis, autoimmune diseases, and oncology,
which accounted for $19.3 billion in the increased spend. I
believe we will continue to see the cost of many new therapies
remain expensive, which have a higher price ceiling than what
is seen with non-specialty items.
In 2006, the FDA announced its Unapproved Marketed Drugs
Initiative, with the goal of bringing medications that do not
currently have FDA approval for marketing into compliance with
the approval provisions of the Federal Food, Drug, and Cosmetic
Act, with one of the goals being to not adversely affect public
health, imposing undue burden on consumers, or unnecessarily
disrupting the market. My observations are that this new
initiative incentivizes manufacturers to put forth R&D dollars
for older agents in order to gain market exclusivity.
With neostigmine, a medication used to reverse
neuromuscular blocking agents, used since 1939, UK HealthCare
has seen the price increase 519 percent in 3 years. This was
started in December 2013 when eclat-funded studies and gained
market approval from FDA. The FDA allowed other agents to enter
the market, and in November 2015, the price increased further
to 127 percent. In January, Fresenius Kabi also funded studies,
receiving market approval. The price increased further in
February 2015 to 519 percent, and it stayed there despite a
third manufacturer, West-Ward, in December 2015 gaining FDA
approval.
With vasopressin, a medication used since the 1950s in the
treatment of vasodilatory shock, a single manufacturer gained
FDA approval in 2014. Since then, the other generic
manufacturers have dropped out, leaving only one manufacturer
of a critical medication, which puts patients at risk in case
of a national shortage. The price increased 3,362 percent in 2
years, and in the same time period, UK HealthCare has spent
approximately $650,000 more on this medication.
As a result of this initiative, medication spend has
increased. However, these are the same medications that we have
been using in the hospitals for decades.
The change in ownership effect that has been seen with
acquisitions of drugs like EpiPen is also impacting medications
used specifically in the hospital setting. Nitroprusside saw
price increases of 1,745 percent following Valeant's
acquisition of this medication. Calcitonin injection saw a
price increase of 1,258 percent and then again 3,259 percent in
a period of 2 years following Mylan's acquisition of this
medication. Unlike the FDA initiative, these manufacturers have
not invested any dollars in R&D.
A phenomenon that has been reported in the retail
environment over the last 2 years is a sole source effect seen
with many generics. These are typically older generic
medications that have fallen out of favor due to other novel
therapies. As manufacturers leave this market and only one or
two remain, we are seeing skyrocketing price increases. This is
impacting many patients who use older generic medications based
on their affordability.
Potential solutions to these issues include introduced
legislation such as Senate Bill S. 3335, the Fair Drug Price
Act of 2016, as well as asking FDA to consider performing an
analysis on the market impact of the Unapproved Marketed Drugs
Initiative thus far.
Regarding the PBM impact, during the full House Committee
on Oversight and Government Reform hearing on EpiPen, Heather
Bresch, CEO of Mylan, stated that although the cost of the two-
pen EpiPen is $608, Mylan only receives $274 net revenue on the
transaction. Questions should be asked as to where the
remaining $334 go. Lack of transparency will obscure where
every dollar goes. However, given the rapidly increasing
profits of the larger PBMs, questions should be directed in
this direction.
PBMs have evolved since the 1970s such that we have seen
unprecedented growth in consolidation, decreasing transparency,
and conflicts of interest develop with PBM-owned mail order and
specialty pharmacies. Introduced legislation that could improve
transparency in this sector of healthcare are House Bill H.R.
244, the MAC Transparency Act, and Senate Bill S. 3308,
Improving Transparency and Accuracy in Medicare Part D Spending
Act.
Thank you for the opportunity to provide testimony today.
[The prepared statement of Mr. Almeter follows:]
Prepared Statement of Philip J. Almeter, PharmD
Thank you, Senator Paul, and members of the Committee for the
opportunity to provide testimony today regarding the rising medication
prices in the United States. The University of Kentucky's UKHealthCare
(UK) operates two hospitals numbering 945 beds, several ambulatory
clinics and six retail pharmacies, one of which is a specialty
pharmacy. In fiscal year 2016 UK saw 38K discharges, 1.29M outpatient
visits, and UK Pharmacy Services dispensed 430K outpatient
prescriptions.
The medication price increases seen recently, that have affected
UK, can be classified into a variety of categories but for the purposes
of this testimony will be placed into two basic groups, Direct/Obvious
and Indirect/Less Obvious. The Direct/Obvious reasons include increase
innovation, consequences of the Food and Drug Administration (FDA)
Unapproved Marketed Drugs Initiative, changes in ownership, and the
sole source effect. The Indirect/Less Obvious reasons are surrounding
the Pharmacy Benefit Management (PBM) Impact.
increases in innovation
The majority of Increases in Innovation with medications can be
generalized into the Specialty Pharmacy Phenomenon. Specialty
medications now make up the majority of the drug development pipeline
and within the last 5 years spend with specialty medications has
doubled contributing to 70 percent of the overall medication spend
between 2010 and 2015. The primary drivers for this growth were therapy
developments in Hepatitis, autoimmune diseases, and oncology, which
accounted for $19.3B in increased spend.\1\ For example, in the case of
Hepatitis C, in 2014 there was an increase of 742 percent in the cost
of treatment as Sovaldi, Olysio and Harvoni entered the market. In 2015
the spend with Hepatitis C specialty improved with competition from
newer agents (Technivie, Zepatier, and others) as well as more
stringent insurer evaluations on appropriate use.\2\ Another example is
specialty medication developments in the field of Oncology, which has
had much innovation and thus spend. This has been demonstrated with
advances in immunotherapy and approaches with combination regimens such
that annual costs for therapy approach $295K per a patient. These
regimens have demonstrated significant increases in survival compared
to traditional standards of care.\3\ \4\ With the proliferation of this
specialty medication phenomenon, we will continue to see the cost of
many new therapies remain expensive, which have a higher price ceiling
than what is seen with non-specialty items.
fda unapproved marketed drugs initiative
In 2006 the FDA announced its Unapproved Marketed Drugs Initiative
with the goal of bringing medications that do not currently have FDA
approval for marketing, due to a lack of safety and efficacy data, into
compliance with the approval provisions of the Federal Food, Drug, and
Cosmetic Act (the FD&C Act) 'without adversely affecting public health,
imposing undue burdens on consumers, or unnecessarily disrupting the
market.'' \5\ To put this into historical context, in 1938 the FD&C Act
was enacted due to the 107 deaths that resulted from mistaken ingestion
of diethylene glycol. The purpose of this Act was to ensure that
medications were proven safe before use. Several drugs that were
marketed before this Act were grand fathered in (e.g. levothyroxine,
digoxin, nitroglycerine, and phenobarbital). The 1962 Kefauver-Harris
Amendment to this Act was passed due to the serious birth defects seen
with the tranquilizer medication, thalidomide. The purpose of this
amendment was to ensure that medications also be proven to be effective
before use. This requirement was also extended to medications that
received FDA approval between 1938 and 1962. The initiative, which
includes Prescription and Over the Counter medications, has the
potential to impact as many as 5,000 agents.
Although the intent of this initiative was not to disrupt the
market, this has not been the case for hospitals. Below are two case
examples with the medications neostigmine and vasopressin:
Neostigmine: Observed price increase of 519 percent in 3 years.
Originally patented in 1933 and approved in the United
States in 1939.
Up until December 2013 there were a handful of generic
Neostigmine products that never went through formal FDA safety
and efficacy evaluations.
December 2013--Eclat funded studies to evaluate the
use of what is already known with neostigmine and received
formal FDA approval for reversal of non-depolarizing
neuromuscular blocking agents after surgery.
FDA allowed time for other agents to enter the
market.
November 2015--Price increased 127 percent.
January 2015--Fresenius Kabi, following funded
studies, received FDA approval to enter the market.
February 2015--Price increased further to 519 percent.
December 2015--WestWard, following funded studies,
received FDA approval to enter the market.
End result: a handful of manufacturers making the same
product used since the 1930s but there is a new average price
that is 519 percent higher.
Impact:
Compared to fiscal year 2014, UK spent $243K
more in fiscal year 2015 and $259K more in fiscal year
2016.
Measures were taken to modify use as much as
possible.
The need for this agent has not changed;
however, in absence of these efforts UK would have
spent $700K more in the span of fiscal year 2015 and
fiscal year 2016.
Vasopressin: Observed price increase of 3,362 percent in 2
years.
First used as a vasopressor agent in the 1950s.
Par Pharmaceuticals funded studies to evaluate the use
of what is already known with vasopressin and received formal
FDA approval for use in increasing blood pressure in adults
with vasodilatory shock (e.g., post-cardiotomy or sepsis) who
remain hypotensive despite fluids and catecholamines.
November 2014--Par gains approval and price increases
to 1,137 percent.
April 2015--As other generics begin to drop out of the
market price increases 2,321 percent.
January 2016--Price increases 2,787 percent.
July 2016--Price increases 3,362 percent.
Impact:
Compared to fiscal year 2014, UK spent $194K
more in fiscal year 2015 and $452K more in fiscal year
2016.
Measures were taken to modify use as much as
possible.
The need for this agent has not changed;
however, in absence of these efforts UK would have
spent $800K more in the span of fiscal year 2015 and
fiscal year 2016.
change in ownership effect
Over the last few years a shift in the markets with generic
medication price increases has gained much attention in the press. This
is largely for the impact it has had on patients in the retail setting
and the barriers that have come with making much needed medications
unaffordable. The most notable examples have been seen with Mylan's
EpiPen and Turing's Daraprim. This change in ownership effect has also
been observed with medications that are largely used in hospitals,
however, given that these medications are not dispensed in a fee-for
service environment, public awareness to the extension of this issue is
low. Unlike the examples listed above with the FDA initiative, the
manufacturers of these generic medications have not invested dollars
into research of the medications' safety and efficacy profiles. Below
are 2 case examples with nitroprusside injection and calcitonin
injection to demonstrate the financial impact of this effect on UK.
Nitroprusside is used for the immediate reduction of blood pressure in
hypertensive crises, for producing controlled hypotension to reduce
bleeding during surgery, and for the treatment of acute congestive
heart failure. Calcitonin is used for the early treatment of
hypercalcemic emergencies.
Nitroprusside Injection: Observed price increase of 1,745
percent in less than 2 years.
Since 1988 Hospira has owned and produced.
December 2013--Marathon acquired and the price
increased 350 percent.
February 2015--Valeant acquired and price increased
1,250 percent.
July 2015--Valeant increase price 1,438 percent.
August 2015--Valeant increased price 1,745 percent.
Impact:
Compared to fiscal year 2014, UK spent $194K
more in fiscal year 2015 and $104K more in fiscal year
2016.
Measures were taken to modify use as much as
possible.
The need for this agent has not changed;
however, in absence of these efforts UK would have
spent $100K more in the span of fiscal year 2015 and
fiscal year 2016.
Calcitonin Injection: Observed price increase of 3,259
percent in a little over 3 years.
Since 1986 Sebela has produced this product.
August 2014--Increased price 1,258 percent (from the
price in January 2013).
September 2015--Mylan acquired the product.
March 2015--Increased price 2,823 percent.
May 2016--Increased price 3,259 percent.
Impact:
Compared to fiscal year 2014, UK spent $451K
more in fiscal year 2015 and $390K more in fiscal year
2016.
Measures were taken to modify use as much as
possible.
The need for this agent has not changed;
however, in absence of these efforts UK would have
spent $1.5M more in the span of fiscal year 2015 and
fiscal year 2016.
It should be noted that in addition to the impact on medication
spend, this has also led to a need for increased resources to manage.
Both the FDA initiative and the change in ownership effect led UK to
create a pharmacist role responsible for overseeing larger medication
utilization initiatives 2 years ago. This role, filled by Dr. Jeremy
Flynn, has been key in monitoring for price spikes, identifying current
use of affected medications, gaining consensus from providers on how we
can modify use (supported by evidence-based literature), and monitoring
utilization moving forward. What is not known and has not been measured
is the clinical outcomes associated with these practice changes. This
month UK will be sending Dr. Flynn to Chicago for advanced analyst
training so that outcomes can be measured in conjunction with these
increasing utilization initiatives.
sole source effect
A phenomenon that has been reported in the retail environment over
the last 2 years is a sole source effect seen with many generic
medications. The medications that are being affected by this are
typically older therapies and have been somewhat replaced by novel
therapies. With diminishing interest in these generic medications and
manufacturers looking to invest in innovative new therapies, several
generic manufactures are leaving this market. The result is that there
may be one or two remaining manufacturers. When this occurs, price
increases are not uncommon. Below is a table of medications reported by
Vizient Inc. that have observed sharp price increases as a result of
this sole source effect \6\:
------------------------------------------------------------------------
Percent
price
Generic medication increase
2014-2015
------------------------------------------------------------------------
Hydroxychloroquine 200 mg tablet........................... 1,245
Fluoxetine HCl 10 mg tablet................................ 1,131
Atenolol 50 mg tablet...................................... 803
Propranolol 40 mg tablet................................... 783
Digoxin 125 mcg tablet..................................... 681
------------------------------------------------------------------------
It should be noted that this is similar to the impact often seen
with medication shortages as generic injectable medications have seen
drastic price increases when shortages occur.\7\
A potential solution to some of the Direct/Obvious reasons listed
above include S. 3335: Fair Accountability and Innovative Research
(FAIR) Drug Pricing Act of 2016, introduced on September 15, 2016 by
Senator Baldwin (WI). This bill contains language that would require
manufacturers of certain drugs and biological products to report to the
Department of Health and Human Services that result in a 10 percent or
more increase in price over a 12-month-period.
Additionally, consideration should be given by the FDA on analyzing
the market impact of their Marketed Unapproved Drugs Initiative thus
far. If the two medication examples listed above increased expenses in
excess of $1M in a 2-year span of time for a single health system, then
careful consideration should be given to the approach of this
initiative as others in the potential denominator of 5,000 are
considered.
pharmacy benefit manger impact
During the Full House Committee on Oversight and Government Reform
hearing on EpiPen, Heather Bresch, CEO of Mylan, stated that although
the cost of the 2-pen EpiPen is $608, Mylan only receives $274 net
revenue on the transaction.\8\ Questions should be asked as to where
the remaining $334 goes. It is likely shared between the wholesaler,
insurer, pharmacy, and PBM. Lack of transparency will obscure where
every dollar goes, however, given the rapidly increasing profits of the
larger PBMs, it is not unlikely that they are receiving the majority of
this.
PBMs are the middle men of sorts in the prescription drug industry
coordinating the sale and reimbursement of prescription drugs between
health insurance plan sponsors or employers, drug manufacturers, and
local and national pharmacies. PBMs started out in the 1970s as
entities that mostly performed claims processing. Much has changed over
the years as PBMs now largely control the flow of medication from
manufacturers to patients, control the formularies of covered
medications, control the reimbursement amounts provided to pharmacies
for dispensing medication and other related therapy management and
counseling services, and run their own mail order and specialty
pharmacies, which many patients are often required to use under certain
plan designs. PBMs do provide valuable services, such as their touted
ability to gain reductions in medication costs for plans and employers,
provide national pharmacy access, and facilitate pharmacy benefits for
a wide variety of clients.\9\ Despite these benefits some of the
concerns with the evolved state of PBMs as it relates to rising
medication costs are the considerable consolidation of the PBM market
coupled with unprecedented growth, the lack of transparency in PBM
operations and finances, and the PBM ownership of mail order and
specialty pharmacies.
The PBM market in the United States has undergone rapid
consolidation to the point that it resembles an oligopoly. In 2012 the
Federal Trade Commission (FTC) permitted Express Scripts Inc. (ESI) to
acquire Medco (the two largest PBMs in the United States at the time),
thus forming the largest specialty pharmacy, Accredo. Then in March
2015 the FTC allowed United/Optum's acquisition of Catamaran (the third
and fourth largest PBMs) to form OptumRx. Finally, in July 2015 the FTC
allowed CVS Caremark (the largest PBM for Medicare Part D plans) to
acquire Omnicare (the largest long-term care pharmacy), which is
heavily reliant on Part D patients. This consolidation has led to three
large PBMs (ESI, CVS Caremark and OptumRx) controlling approximately 80
percent of the PBM market. Parallel to the consolidation, the two
largest of these PBMs (ESI and CVS Caremark) have demonstrated a profit
increase from approximately $900M to $6B (600 percent increase) in a
span of 10 years.\10\
The lack of transparency with what is occurring with rebates (as
mentioned in the EpiPen hearing) and payments at the transactional
level (adjudication and beyond) coupled with this consolidation and
growth of the PBM industry has led many in the retail pharmacy business
to question the practices of the PBMs. The advent of Direct and
Indirect Remuneration (DIR) fees (a.k.a. ``Clawbacks'') has extended
the timeframe for the dispensing transaction to take place long after
the adjudication (sometimes weeks or months) so that PBMs can charge
additional fees after the transaction making it difficult for pharmacy
owners to determine profitable dispenses. Additionally, the pricing
structure of many pharmacy contracts with PBMs is not transparent with
regards to the Maximum Allowable Cost or MAC, making the MAC for many
PBM agreements a moving target. In response, the industry is developing
tools for pharmacies to monitor transaction payments from PBMs for any
deviations in the MAC. However, even with the use of such tools, PBMs
make it difficult for pharmacies to appeal incorrect MAC pricing
claims.
Tied into the rising price of medications is the PBM ownership of
mail order and specialty pharmacies. PBMs are tasked with managing drug
costs for health plans and employers by maintaining a formulary.
However, if the PBM owns a pharmacy, will the PBM prefer medication A
which is effective or medication B which is also effective but could
have a better rebate and the cost of paying a pharmacy at the
transaction level for the medication is irrelevant because it is owned
by the PBM?
This strong link between the PBMs and their owned pharmacies has
had a direct impact on UK's specialty pharmacy in day-to-day management
of patients. UK has had patients who wished to have their specialty
medications filled with UK Specialty Pharmacy. In the process of
completing the fill a Prior Authorization (PA) is often required. This
involves contacting the PBM to make a case for approval of the therapy
and often involves engaging the medical team, providing labs, and
sharing information on previously failed therapies. Following the PA
being issued by the PBM, UK pharmacy staff have learned to act promptly
as there have been numerous instances where the PBM-owned pharmacy
contacts the clinic staff via phone and asks for a duplicate
prescription to be sent. Early on in UK's specialty pharmacy operation
PBM-owned pharmacies could capture specialty prescription by this
method; however, after much discussion with clinic staff over the
frustrated patients who were forced to wait for their medication to be
dispensed from a pharmacy States away, this PBM strategy has not been
as successful.
It is likely that this strategy has been successful in other
pharmacy settings which simply do not have the resources to combat this
conduct.
There are several potential solutions to making this contributing
sector to the true price of medications more transparent. H.R. 244: MAC
Transparency Act (only pertains to Medicare), introduced on January 9,
2015 by Rep. Doug Collins (GA). This bill contains language that would
prohibit PBMs from transmitting patient information (including claims
data) to PBM-owned pharmacies unless the plan enrollee voluntarily
elects to allow this, and require PBMs to define and disclose MAC to
participating Pharmacies, to identify the source for this calculation,
to not update any more frequently than 7 days, and to establish a
dispute resolution process for reimbursed claims that are below the
acquisition cost. S. 3308: Improving Transparency and Accuracy in
Medicare Part D Spending Act, introduced on September 12, 2016 by
Senator Shelley Capito (WV), will allow for greater transparency at the
claim level between retail pharmacies and PBMs as it will prevent
Clawbacks from occurring and will require PBMs to be transparent about
fees at the adjudication.
conclusion
In closing I am pleased to see that legislation has been introduced
to address the Direct/Obvious and Indirect/Less Obvious reasons for the
medication price increases we have seen. It is my hope that public
awareness of this issue in the retail environment will be extended to
the hospital environment for the reasons listed above.
Thank you, again, for the opportunity to provide testimony today. I
am happy to answer any questions you have.
references
1. Medicine Use and Spending in the US. IMS Institute. April 2016.
2. Express Scripts 2015 Drug Trend Report.
3. Helwick C. Cost of Immunotherapy Projected to Top $1 Million per
Patient per Year. ASCO Post. July 10, 2015.
4. Loftus P. FDA Approves Merck's Keytruda for Most Common Form of
Lung Cancer. WSJ. October 2, 2015.
5. Guidance for FDA Staff and Industry. Marketed Unapproved Drugs--
Compliance policy Guide. September 19, 2011.
6. Lucio S, Birt A. Understanding Escalating Drug Prices and
Mitigation Strategies. Vizient Webex. September 20, 2016.
7. Erstad BL. Value-Based Medicine: Dollars and Sense. Crit Care
Med. 2016 Feb;44(2):375-80.
8. Testimony of Heather Bresch. Reviewing the rising price of
EpiPens. Before the House Committee on Oversight and Government Reform.
September 21, 2016.
9. Jorgenson J, Zappa A. Is PBM Transparency an Answer to
Controlling Rising Drug Costs? Am J Pharm Benefits. 2015;7(4):161-164.
10. Testimony of David A. Balto. The State of Competition in the
Pharmacy Benefits Manager and Pharmacy Marketplaces. Before the House
Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust
Law. November 17, 2015.
Senator Paul. Thank you.
Our final witness--and then we'll have some discussion--is
Jim Waters, who is the President of the Bluegrass Institute for
Public Policy Solutions.
STATEMENT OF JIM WATERS, PRESIDENT, BLUEGRASS INSTITUTE FOR
PUBLIC POLICY SOLUTIONS, LEXINGTON, KY
Mr. Waters. Thank you, Senator. Good afternoon.
As Senator Paul said, I'm with the Bluegrass Institute for
Public Policy Solutions. We are now celebrating our 13th year.
We were founded in 2003 as a State-based free market think
tank.
Whether we're talking about manufacturing or education or
healthcare or the development of new drugs, it's vital that we
do understand that the free market does work when it's allowed
to do so. Competition, as we've heard, drives innovation, and
perhaps nowhere is that innovation more important than in the
area of research and developing drugs that save lives.
I'd like to tell a short story that I shared with 1,500
freedom fighters at the State Policy Network to show that while
there are risks and while regulators often claim that they're
looking out for us and that they are being compassionate, the
consequences of placing unmovable barriers to lifesaving drugs
is the wrong approach, as it actually does end up costing
rather than saving lives.
Once upon a time, an eagle's egg was knocked loose from its
nest, and it rolled down the mountain into a barnyard full of
chickens. Intending compassion, these chickens committed to
protecting that egg until it hatched, after which they raised
this creature, not as a beautiful eagle, but as just another
chicken who scratched for grubs and worms and flittered around
the barnyard.
One day, a neighbor convinced the farmer who owned these
chickens to let him take that eagle up the mountain and see if
he could fly. When that man released him, of course, that
innate desire to live free and soar took over, and that
majestic bird stretched his wings and flew into the sky.
What if he hadn't? What if he had fallen to the ground and
died? Would anyone dare claim that that neighbor had done evil
in giving that eagle the opportunity to fly? Should we really
have kind of a rope-a-dope drug approval system that says no,
even to seriously ill or terminally ill human beings' right to
try every option to save their lives, even if in the end it
doesn't always work?
What if medical missionary Dr. Kent Brantly had died of
that humiliating wasting disease of Ebola, even after taking
ZMapp while in Liberia, where he was 6,000 miles from family
and utterly alone? Sure, he had a right to know that no human
had ever been tested and that it hadn't fully passed all of the
FDA safety protocols, which had been going on for years with
that drug. Who should have told him that he had no such right
to try it until some government agency finally got around to
approving this drug, even as he stood close enough to death's
door at age 33 to push it open?
Who had the right to deny Kalamazoo College sophomore Emily
Stillman the opportunity to try a vaccine against meningitis
that was available but not yet approved by the drug
bureaucracy, even after years of testing and trials. Too often,
bureaucracy has cried in Chicken Little fashion, ``the sky
might fall,'' while denying the Emily Stillmans of our world
the right to try and save a life, her life, as if that life
belonged to some government agency.
Yet no government agency blocked Dr. Brantly's access to
the experimental ZMapp and the ensuing miracle which finds him
today fully healed and still serving the world's poor and
downtrodden. It's a moving story, don't misunderstand. I'm very
happy about what happened to him and for his family. What about
all the others that also had a right to at least try? Who also
could have lived a miracle?
Twelve hundred people make it through the FDA's
Compassionate Use Application each year. The process is so
complicated. It's very time consuming and extremely expensive.
Plus the FDA keeps no record of the many, many people who try
but who are denied that application. The first step in that
process alone is laborious. It requires a physician to complete
an application to the FDA that takes around 100 hours just to
fill out, after which the manufacturer also must submit lengthy
documentation requirements.
The FDA then has a month to review the submission and
either grant or deny the request, and if there are any
questions at all, that 1-month clock starts completely over
from the very beginning. After the FDA approves a request, a
separate committee not affiliated with the FDA, called an
Institutional Review Board, also must approve the patient's use
of the drug, and this board can also take up to a month to
reach a decision. What do you think happens a lot of times
during that process? Sadly, there are many documented cases of
patients dying while their application is being considered
through this process.
While the FDA claims these regulations are needed to
protect lives, in the end, they are too often costing lives. It
seems like our government's experimental drug policy seems to
have been more about control, about kind of picking and
choosing, and EpiPen is a great example of this. Here we have a
wonderful medical invention, and without the heavy-handed
regulatory process currently enforced by the FDA, I'm convinced
that other manufacturers would not only create a similar
product, but an even better one.
Perhaps most disturbing about the EpiPen situation is that
the FDA, at least at this point, as we've heard, has limited
manufacturing of this lifesaving device to pretty much a single
company, and the reason they do it is important to understand.
They do it under the guise of ensuring safety. We want to make
sure this is safe before we allow other manufacturing of these
types of drugs. Yet this regulatory overreach has not only
dramatically increased the price of the product because there's
no competition, but it also discourages other manufacturers
from developing better products.
This is cronyism at its worst, favoring a single company
while shutting out other firms who would participate while also
discouraging the research and development that would bring new,
probably even better drugs to market. I would ask the question:
Where is the compassion in forcing drug manufacturers through
what amounts to be a 7 to 10-year, up to a $2 billion process
for some new drugs just to get them to the marketplace while
people die who were willing to accept the risk of those drugs
that may not have completely jumped through all the FDA hoops?
It doesn't seem compassionate, and it certainly doesn't seem
fair.
What if Dr. Brantly had taken ZMapp and then died anyhow?
What if Emily Stillman had died even if she had taken the
vaccine? Should that risk outweigh the potential of life
restored? I have to ask: Should some government agency even be
taking the temperature of such a risk with individuals willing
to accept that?
An alternative ending to that parable that's often been
used tells about how the eagle died in that chicken coop,
having never been given the opportunity to try, never knowing
that he could fly. Who knows the miracles that await by giving
those even at death's crossing the right to know, the right to
try, the right to see if they just might soar once again as
well. It has happened, you know.
Thank you.
[The prepared statement of Mr. Waters follows:]
Prepared Statement of Jim Waters
Good afternoon. My name is Jim Waters, and I'm privileged to serve
as president of the Bluegrass Institute for Public Policy Solutions,
Kentucky's first and only free-market think tank, which was founded in
2003.
Whether we're talking about manufacturing, education or health
care, it's vital that we understand that the free market works--when
allowed to do so. Competition drives innovation. Perhaps nowhere is
innovation more important than in the area of researching and
developing medicines that save lives.
I'd like to tell a short story to illustrate:
Once upon a time, an eagle's egg was knocked loose from its nest
and rolled down the mountain into a barnyard full of chickens.
Intending compassion, these chickens committed to protecting this egg
until it hatched, after which they raised this creature--not as a
beautiful eagle--but as just another chicken who scratched for grub and
worms and flittered around the barnyard.
One day, a neighbor convinced the farmer who owned these chickens
to let him take that eagle up the mountain to see if he could fly. When
that man released him, that innate desire to live free and soar took
over. That majestic bird stretched his wings and flew into the sky.
But what if he hadn't? What if he'd fallen to the ground and died?
Would anyone dare claim the neighbor had done evil in giving that eagle
the opportunity to try?
Should we really have a rope-a-dope drug-approval system that says
``no'' even to terminally ill human beings' right to try every option
to save their lives--even if--in the end--some of those lives do cease?
What if medical missionary Dr. Kent Brantly had died of the
humiliating, wasting disease of Ebola even after taking Zmapp while in
Liberia--6,000 miles away from family and utterly alone? Sure, he had a
right to know that no human had ever been tested and that it hadn't
fully passed FDA safety review, which have been going on for years. But
who should have told him that he had no such right to try it until some
government agency finally got around to approving it, even as he stood
close enough to death's door at age 33 to push it open?
Who had the right to deny Kalamazoo College sophomore Emily
Stillman the opportunity to try a vaccine against meningitis that was
available but not yet approved by America's drug bureaucracy--even
after years of testing and trial?
Too often that bureaucracy has cried in chicken-little fashion:
``the sky might fall'' while denying the Emily Stillmans of our world
the right to try and save a life--her life . . . as if that life
belonged to a government agency.
Yet no government agency blocked Dr. Brantly's access to the
experimental Zmapp and the ensuing miracle, which finds him today fully
healed and still serving the world's poor and downtrodden.
It's a moving story. Don't misunderstand. I'm very happy for him
and his family. But what about all the others that also had a right to
at least try? Who also could have lived a miracle?
Twelve-hundred people make it through the FDA's ``compassionate
use'' application each year. But the process is complicated, time-
consuming and expensive. The FDA keeps no record of the many, many
people who try but are denied such application.
The process is complicated, time-consuming and expensive. The first
step in the process requires a doctor to complete an application to the
FDA that takes around 100 hours to complete, after which the
manufacturer must also submit lengthy documentation requirements. The
FDA then has a month to review the submission and either grant or deny
the request. If there are any questions, that 1-month clock starts
over.
After the FDA approves a request, a separate committee not
affiliated with the FDA--called an Institutional Review Board--also
must approve the patient's use of the drug. This board can also take up
to a month to reach a decision.
Sadly, there are many documented cases of patients dying while
their application is being considered.
It seems like our government's experimental drug policy has been
more about control . . . about picking and choosing. EpiPen, for
instance, is a wonderful drug. But without the heavy-handed regulatory
process currently enforced by the FDA, I'm convinced other
manufacturers could not only create similar--but better--products.
Perhaps most disturbing about the EpiPen situation is that the FDA
has limited the manufacturing of the lifesaving anti-allergic reaction
device to a single company under the guise of ensuring safety. Yet this
regulatory overreach has not only dramatically increased the price of
the product, it has discouraged other manufacturers from developing
even better products.
This is cronyism at its worst--favoring a single company while
shutting out other firms who want to participate and discouraging the
research and development that would bring new and better drugs to
market.
Where's the compassion in forcing drug manufacturers through what
amounts to be a 7-to-10-year, $2 billion process while people die who
were willing to accept the risk of drugs that may not have completely
jumped through all FDA hoops? It's not compassionate, and it certainly
doesn't seem fair.
What if Dr. Brantley had taken Zmapp and then died anyhow? What if
Emily Stillman had died even if she had taken the vaccine? Should that
risk outweigh the potential of life restored? Should some government
agency even be taking the temperature of such a risk?
An alternative ending to that parable that's often been used tells
about how the eagle died in that chicken coop, having never been given
the opportunity to try . . . never knowing he could fly. Who knows the
miracles that await by giving those even at death's crossing the right
to know, the right to try, the right to see if they just might soar
once again?
Senator Paul. Thank you, Jim. I may have to steal that
eagle story sometime. It's pretty good.
[Laughter.]
Jim mentions an ancillary issue, which is the right to try
for people who are terminally ill, and there is a bill
percolating through--I think 30-some-odd State legislatures now
passed it--and I'm a co-sponsor of it in the Congress, and we
are trying to get that through as well.
We had some moving testimony from some patients with ALS,
and one of the points that they made was that a lot of
treatment for a new disease may well be specifically targeted
to you and to the genetic mutation you have. There's said to be
over 20 different mutations for ALS. It's not all the same
disease, and perhaps maybe you're going to go to a lab, and
some day, they're going to draw your blood, look at your
chromosomes, look at your genetic defect, and they can't do a
1,000-person clinical trial on it because the treatment is
going to be for you.
It kind of goes to Dr. Gottlieb's point that maybe we have
to look at our criteria. Maybe what we used to do 20 years ago
shouldn't be the same.
One of the most important things is when we're unhappy
about something, that we look for the root cause and we don't
blame the wrong person. We're all unhappy, uniformly unhappy,
at how the price went up by 500 percent, but there's a couple
of different reactions. We could say, ``Well, we need price
controls. We just need to tell the companies they can only
charge $100.'' Price controls were the disaster that brought
down the Soviet Union and are the disaster that leads to
poverty under socialism.
What we have to say--well, was this a free market? Was this
really capitalism, as Dr. Strow was saying? Are there barriers
to entry that are government? Are some barriers acceptable? Are
we going to let the government be involved in some safety and
efficacy? Probably, yes, but can they go too far?
The FDA, when we brought them in, they said to us, ``Oh,
you fixed this a year ago''--we passed some reforms about a
year ago--and they said, ``We're doing a lot better now,'' and
I said, ``Well, it's been 7 years. How about the EpiPen
alternative?''
There are a lot of technical questions, and when you try to
dig into this, if you bring the generic manufacturers in about
these things, they're afraid to talk to us, because if I
publicly state what any of the generic people are talking
about--which they're allowed to tell me--they're afraid the FDA
will punish them and will never approve their process. We ask
the FDA, and they say it's proprietary--``We can't tell you any
information about the applications.''
It takes about four--3.7 times for the application to go to
the FDA, come back, go to the FDA, come back, and 7 years is
just, frankly, unacceptable. We do need to fix the system. With
regard to EpiPen, it's both looking at people finagling or
manipulating the patent system, and then it's also looking at
speeding up the entry of new drugs into the marketplace, not
only new drugs, but generic drugs.
One of the things that I'd like to ask Dr. Gottlieb would
be with regard to--we had these reforms, and I know you
understand the reforms. Do you think the reforms were enough?
Do you think the FDA is doing a better job? There's some
indication that the application time may not have gotten
shorter since the reforms. They tell us one thing, and then we
look at the statistics and it doesn't necessarily seem to be
better.
Dr. Gottlieb. The statistics are getting better, because
the cycling--they're trying to address the cycling. The overall
length of time that it takes to review an application hasn't
really gone down. They're reviewing more applications--they're
getting more applications done within a certain timeframe, but
they're still having these multiple cycles, and it's still
taking a lot of years to get an application through. It's also
too early to tell what impact the generic drug user fee law had
on the process. It certainly gave them more resources.
With respect to this particular issue, though, there hasn't
been anything that's resolved this issue of these complex
formulations, and these, frankly, end up being a lot of the new
and more innovative drugs and a lot of very important drugs.
There have been other cases where there have been drugs where
patents have long since lapsed, and FDA has struggled to
approve generic versions to those drugs.
A classic example recently was lovenox. The lovenox patents
were up for two or 3 years, and FDA was fumbling trying to get
the generic entrants through the generic drug approval process.
It relates back to, again, trying to fit these complex drugs
through that old generic drug application, that old generic
drug process.
When I was at FDA, we were just starting to think about how
we were going to approve generic copies of biosimilar drugs,
and the FDA staff were arguing that they didn't need Congress
to do anything. They didn't need new legislation. They could
approve generic copies of biological drugs through a pathway
called 505(b)(2) that existed. It turns out Congress did
legislate, and thankfully, because if the FDA was struggling to
try to approve these biologics through their traditional
pathway or some nuance in the authorities that they thought
they had, it wouldn't have gone as smoothly.
The same thing is operative here. The FDA will argue that
they don't need new authority to deal with these complex drugs,
yet they keep making mistakes when it comes to trying to
introduce competition. They argue that they can put it through
their traditional process, but, in fact, they haven't been
successful at doing that.
This is a ripe opportunity for Congress to look at this
whole category--to the extent that the category itself can be
defined, and I think it can--and think of a sort of generic-
plus type of approval process that's a little different than
the traditional process but allows these drugs to enter the
market more quickly.
Senator Paul. Going back to whether or not this is broken
capitalism or whether this is cronyism or what we should do,
some will propose that we just need to cap the price and have
price controls on drugs and that, somehow, that's the answer.
Dr. Strow, do you think this is a breakdown of capitalism,
or do you think this is artificial barriers to entry from the
government? What do you think of price controls?
Mr. Strow. Price controls generally make me squeamish, but
I'm going to come back to that. I'm just going to start with
the simple answer of, yes, it's largely due to barriers to
entry.
Senator Paul. Governmental barriers.
Mr. Strow. Government barriers to entry. Specifically,
let's imagine a race. The gun is about to go off. We've got
epinephrine or the EpiPen in one lane and a potential
competitor in the next. The gun goes off. EpiPen takes off down
the track, and you physically restrain the competitor and say,
``You can't go yet. You have to start an FDA approval process,
and 4 to 7 years down the line, we'll let you start running the
race.'' You might imagine who's going to win that race, at a
minimum, not just 4 to 7 years, but for some time after that.
The thing is with the patent system, we know when that gun
is supposed to go off. We know when the patent expires--and we
can go back and argue about whether or not we should extend
patents--but we do know when the patent expires. If we know
that's when the race can start between the brand name and the
generic guys, why don't we let the generic guys go through all
the product testing before the gun goes off? Why don't we hit
it so that when the gun goes off, everyone gets to run? That
would dramatically increase the role of generics in the market
and bring them to market more quickly.
The overarching question we have to ask is: Does the FDA
care about drug prices? We can argue that the reason they're
set up is solely for drug safety, and if you're only looking at
one end of the spectrum, then it's always going to be their
incentive to have the safest possible thing, which is--safety
is good, but they're not taking account of the tradeoffs.
The question is: In their charter itself, should they be
forced to consider safety at what cost? All kinds of levels of
government have to do cost-benefit analysis, and FDA, I don't
think, should be immune from that.
I was going to hit on price controls. Let's take two
scenarios. In one scenario, you're going to put price controls
on for something that's patented. You just undid the patent
protection. In another form, you either have a monopoly right
to sell a product or you don't. If you come in on the back side
and say, ``Yes, we'll give you a patent, but''--wink, wink,
nod, nod--``we're going to tell you what to charge,'' there no
longer is that incentive to innovate in existence in the first
place. You'd be effectively getting rid of the patent system.
The second question is: Do you want price controls for
things that aren't subject to patents? Then the question
becomes: Where is, again, the role of competition? Why would
you need a price ceiling if new entrants could come in? We see
from evidence in the drug industry itself and from the FDA, the
evidence that they have collected, that when you allow the
competition to happen, the competition does materialize and
drug prices do fall. It would be a solution in search of a
problem.
Senator Paul. I like the idea of maybe starting a generic
application process before it expires. If it's going to take
you 4 years, if you took your 4 years before it expires, it
wouldn't be as much of a complaint. All of us essentially
acknowledge that we are not against patents and that we like
the innovation that patents allow.
Particularly if we're going to reform this in ways drug
companies may not like--but if you reform it such that you
speed up the process of getting the patent and getting the
approval, then they have a longer period of time to enjoy their
patent protection. You could speed it up on the tail end, the
transition to generics, but you could also speed it up on the
front end so they can make more money on the front end if they
can get their FDA approval sooner, which sooner FDA approval,
if done properly, is what we want--lifesaving drugs more
quickly on the market.
Does anybody else have a comment on Dr. Strow's comment on
letting the generic application process start earlier? It
doesn't start now, right? You have to wait until the end to
file any paperwork?
Mr. Waters. That would have a huge impact since 90 percent
of all medicines filled in the United States are generic.
Beginning that process earlier would certainly affect in a
positive way--a lot of people.
Senator Paul. I kind of wanted to broaden the debate beyond
EpiPen, because Philip Almeter mentioned several of the drugs--
so did Dr. Gottlieb--of all the different drugs. This isn't a
one drug thing. There's a host of these and many of them in the
generic sphere.
Sometimes we will ask: Why did everybody go out of
business? We get these vague things, like voluntary recall or a
manufacturing problem, and what I'm wondering is--and Scott may
know this more than anybody else--is are they sometimes being
told quietly by the FDA ``You're going to get a public
punishment. You can voluntarily do this, or you can say
manufacturing problem.'' In reality, it's the FDA that is
shutting them down by saying ``You didn't pass a certain
inspection.''
Our understanding is that in the last couple of years--did
something change to make it worse? Are there stepped-up
investigations that are maybe knit-picking that really aren't
going to the safety issue but are overwhelming some of the drug
production, and then all of a sudden, we have no competitor
because of an inspection process?
Dr. Gottlieb. Right. It is the case that FDA dramatically
changed its enforcement standard with respect to what we call
good manufacturing practices or GMPs as they apply to the
generic drug industry, out of a perception not entirely untrue
that the generic industry was operating at a different
standard, in some cases a lower standard, than the branded
industry, and they wanted to bring everyone up to the same
standard.
They did that in a fashion where they went into these
generic manufacturing plants and issued what we call 483s,
which are findings of deficiencies, and the 483s become public
and they create liability for the companies. If a company
continues to operate a plant after it has received a sanction
from the FDA saying that the plant is deficient in some
significant way, that's a hard position to put a company in and
for the company to continue operating.
What happened was they did this, and they knocked off the
market 25 percent of the parenteral drug manufacturing in the
United States. By parenteral drug--injected drugs, and these
are a lot of the drugs that have been in shortage and where the
prices have gone up. Last year, we almost had a shortage of
normal saline in this country because they knocked the plants--
--
Senator Paul. That was a reaction to the contaminated
steroid injections that happened at the company--what, up in
Massachusetts or something?
Dr. Gottlieb. I think it's actually the opposite. They did
this prior to what happened in Massachusetts, and once these
shortages were created by FDA for the branded drugs, more of
the market shifted toward the compounded drugs, and that's why
the utilization of the compounded drugs spiked. The FDA, by
trying to address a risk in one context, actually increased the
overall public health risk because more of the market shifted
to less regulated products, the compounded products in the case
that you referenced.
A lot of that manufacturing is not coming back online. The
FDA has still imposed requirements on the generic manufacturers
that are much costlier than what they used to be. For example,
a generic manufacturing plant might produce hundreds of drugs
in a plant and literally dozens on a single manufacturing line.
The branded industry might produce a single drug or two on a
manufacturing line. FDA is increasingly saying, ``We want only
a few drugs produced on a manufacturing line,'' because it
makes it easier for them to oversee that manufacturing line.
That's also very expensive, and it's not the expense at which
the generic drug industry has traditionally operated. It's
increasing the cost of the manufacturing.
When you increase the cost of manufacturing a pill that
used to cost 2 cents and now it costs 3 cents or 4 cents to
manufacture, that's a 100 percent or 200 percent price
increase. There's a cost of goods component here as a result of
the regulatory increase that's contributing to the price
increases that we're seeing in the market.
Senator Paul. I guess what we have to look at is in the
mission that the FDA is given--are they going in and--have we
increased inspections that are shutting down plants because of
a problem, or are we doing it just because of an increased
zealousness, that we have decided that we want to inspect
these, and that perhaps it isn't improving safety? They've made
a unilateral decision without a real problem.
Dr. Gottlieb. Right. My view has been it's a little bit of
both, obviously, and there are situations where the FDA is on
very firm ground in terms of shutting down a manufacturing
facility. The larger problem is that there's a disconnect
between the FDA field force that goes in and inspects these
plants and issues these public findings and the policymakers
back at FDA, the career staff who are more sensitive to
considerations of what the real public health risk would be in
allowing a plant to manufacture in some subpar State versus
taking the manufacturing offline and creating unintended
consequences.
The policymakers in FDA have a very hard time getting
control over the field force. The field force operates as sort
of an independent law enforcement unit and doesn't really
respond to those policy prerogatives. They'll go in and shut a
plant down, even if the policymakers might say, ``Look, we
would rather that plant continue to operate under close
supervision while they remediate themselves because we don't
want to precipitate a shortage that might force doctors and
patients to have to use a compounded alternative that we know
is a lot less safe.''
That kind of teaming of those two regulatory pieces of FDA
isn't happening. The only place it is happening is on the
biologic side, and that's in large measure because after we had
those shortages of the flu vaccine that you'll remember, you
saw long lines in Florida because the FDA shut down some flu
vaccine manufacturers right before flu season. CBER, the Center
for Biologics, adopted what they call team biologics, where
they basically forced the field force and the review staff to
work together on these inspections, and so you had inspections
happen that were much more sensitive to what some of the
potential consequences would be of shutting down a facility.
That's not happening as much on the drug side. You're
seeing unilateral decisions taken by the field force to shut
certain facilities or force their shuttering, and then the
consequences are felt by the career staff at FDA who worry
about the unintended consequences.
Senator Paul. I want to go back briefly to what Dr.
Gottlieb said earlier. Neither side will tell us--the FDA or
the people making the generics--exactly why it hasn't been
approved. There are articles out there saying that it's not
enough the same.
The question I asked to the FDA was, ``What does that mean?
Have you defined a sameness standard?'' They said, ``We're
working on it.'' Companies have gone through 7 years of being
denied, and there's no written standard of what the same means.
I say, ``Does it inject .3 milligrams, the same as the
EpiPen?'' They won't tell you that, either, but I think the
answer is yes.
I think it works. It injects the proper dose. It's not
harming anybody. It may be that the instructions aren't exactly
the same, and I was like, ``Are you telling me that if the
spring that launches the needle is a right-handed spring versus
a left-handed spring, it wouldn't be the same?'' They were
like--essentially, yes.
It's a distinction without a difference that's stopping
things, so they're screwing up a whole marketplace, making us
wait 7 years for competition based on something that actually
works. The catch-22 is they're saying it's not enough the same,
but if it's different, then give them a patent. Give them a
patent for a brand new device. Then they'll be sued also.
What happens is every time a generic wants to come on the
market, they immediately get sued by the patented every time,
and then there's a 30-month waiting period. We're looking at
maybe shortening the 30-month waiting period. They're going to
sue them every time. Why don't we shorten it and make it 12
months or 15 months?
I'm of the belief that we need more oversight of the FDA,
and the last time around--they want to put soft words in for
the FDA, like they may do something. I want to say that they
shall do something. They need more oversight from us, because
left to their own devices, they don't have a good track record.
I guess you could argue that for safety, we have done a pretty
good job in our country.
I wanted to see if anybody else knew anything about the
tetracycline problem or some of these other drugs. Maybe,
Philip, you can comment on this. They say there's a shortage of
the base ingredients going into tetracycline, and I don't see a
shortage in any other marketplace. I don't understand how when
you order it--if you go to Walmart and you take a water off
there and you scan it, they know it's gone and they order more
water. Unless it's a diamond or something, and there's a
shortage of--tetracycline used to be for pennies.
A mother told me the other day it cost her $1,200 for a 1-
month supply for her kid's--I think it's doxycycline or
minocycline--but a tetracycline--it's been generic for 50 years
probably. Even the derivatives are generic. Do you have any
comment on the tetracycline?
Mr. Almeter. No, the tetracycline shortages really occurred
in 2011, and that's when we saw the real--the shortages spike
across--hospitals were opening their totes in the morning and
not seeing drugs in their totes.
Senator Paul. Has the price come back down or not?
Mr. Almeter. It hasn't. In January 2011, it was $6.76 a
bottle for the 500 milligram capsules. Then in January 2013, it
was $900, and then in May or June 2015, it's now $1,260 a
bottle. There's only two manufacturers, Watson and Teva.
Nothing else has changed. It was short due to raw ingredients
at the time, but nothing else has really changed.
Senator Paul. I hear that, and I'm not sure--my warning
signals of being suspicious about what I am being told.
Shortage of supply. Why? Does anybody know?
Mr. Almeter. I was going to say your question earlier to
Scott regarding what's the message that pharmacies hear when
all of a sudden something is unavailable--the example I gave
earlier with the FDA Unapproved--with vasopressin and
neostigmine, all we saw was messages from our wholesalers
saying shortage issue, manufacturer's product issue. There were
none of the details behind the scenes of ``X manufacturer got
approval, and we're getting pressure to get out of here or
we're going to have fines put on us.'' You have to do a lot of
digging. You have to ask representatives. They don't want to
talk. A lot of it--you have to wait until it comes out in the
news.
Senator Paul. It's opaque. There isn't a transparency, and
some it is this idea of proprietary knowledge. We're not
hearing it from either side. One side is afraid of the FDA. The
FDA says--and I understand the proprietary rules--``we can't
tell you anything about it.''
Like on the sameness thing, how do we fix that? The FDA is
feeling some pressure now. They're going to actually define
sameness. I asked them the same--some of these EpiPens have
said it was a dosage problem. I want to know how far off it
was. I want to know what a standard of error is. I want to
know--was it doing .31? Was it harming anybody? What's the
range? Can it go from .295 to .305? What is the range? They
said they kind of have that, but they didn't seem to be very
easy and forthcoming with it.
Then I asked them the question, ``Well, did the EpiPen--
what was its standard of error?'' That's not really what you're
comparing to. You're having to do new studies where you compare
something to EpiPen, but the EpiPen may not have had--why
wouldn't you compare it to an original study, that if EpiPen
does .3, and it has a range of error on its injection, that
would be the standard you would go by. But that, apparently, is
not true. You have to go by new studies where you compare
yourself to EpiPen. Right?
Dr. Gottlieb. To your point, initially, about the patent
issue, Mylan was clever in this circumstance. They patented
aspects of the auto injector that deal with how the auto
injector itself is used. They created unique instructions for
use for their auto injector and then patented the aspects of
their product that deal with those instructions for use.
Senator Paul. Maybe we should stop that--stop allowing a
patent for that, because there is some discussion--like I
remember in ophthalmology, some guy patented the frown
incision. We used to do the smile, and he turned it upside down
and it was a frown. Everybody made fun of it somewhat, but I
think he actually got a patent. Maybe you shouldn't be able to
get a patent for----
Dr. Gottlieb. Just change the regulatory standard, because
the regulatory standard right now is if it requires any
retraining by the patient, then it can't be a generic
alternative. I would argue as a clinician, a little bit of
retraining, if it's self-explanatory to the patient, might be
permissible and might be perfectly fine and isn't going to
confuse the end user. Maybe we could provide a little more
flexibility there.
Senator Paul. One other thing I'd like to say--and then
we're also open for a couple more questions and responses
here--is that I'm a big believer in trying to figure out the
problem. You don't just get angry and put price controls on.
You figure out the problem--and this is a complicated issue--
and then we figure out how to fix it.
All of you have taken the time to come and testify. I know
many of you had to drive hours or come from other States, and I
appreciate that. We want to find the solution. If any of you
are willing to continue to work with our office--several bills
were mentioned, and we know about some of those, and we will
continue to look at those.
Also, we'll be looking at a solution. I'm going to work
with Chairman Alexander to try to find a solution to this. As
this comes forward, it may take 6 months, it may take a year,
but we want to actually try to fix some of this stuff. Maybe we
don't patent labeling, maybe we define--if they tell us what
they think sameness is, maybe we tell them, ``No, this is what
it should be,'' and when they say there are manufacturing
issues, we would say, ``Have you pushed them out of the
market?'' Do we make it easier when there's one supplier? If
someone gobbles up all the suppliers, should we make it easier?
Apparently, they do have a special route for drugs to come
in, to be imported, if there is said to be a shortage, but they
don't have it for single supplier. Maybe we should do it for
single supplier. Some of this has to do with drugs coming
across foreign boundaries, which maybe we should enhance. We're
not the only civilized country in the world. Europe, Asia--
there's a lot of places that do testing. Should we not have a
more international system of trying to approve drugs?
Does anybody have another comment on any of the issues or
want to make any other statement?
Mr. Waters. I'm concerned that we discourage the
continuation of research and development with barriers. Part of
our system is trial and error a lot of times. In the
development of these drugs, sometimes you don't always get it
on the first swing. You don't always hit it. The companies have
to be encouraged to continue to research that, and maybe a lot
of these regulatory barriers have been detriments to that part
of the process that we don't see.
Senator Paul. We're going to conclude, but I talked to
Courtney earlier.
Would you mind just standing up and tell us who you are and
a little bit about your kids and their problems?
Audience Member. My name is Courtney, and I have two
children that have food allergies and require an EpiPen. I've
been with--Laura Jackson's e-mails. There have been many
meetings, I follow this closely. The main concern is the
unexplained price increase. We switched over to the Auvi-Q and
it was great, because I have a teenager and he liked being able
to carry it. It was perfect for him.
Then right after the Auvi-Q was inexplicably recalled, the
prices jumped. Before, it was costing us, with a co-pay, around
$50. Then we were without insurance, and we were on a bridge
insurance for the summer, the Kentucky Connect health insurance
policy, so we started paying about $250 for a set of EpiPens. I
have two children and that was a cost of $500 that I couldn't
afford, and my parents, luckily, stepped in and helped me pay
for that. Then my job started and I got insurance, and my co-
pay was reasonable.
Without insurance, right now, my EpiPens for one child
would cost $802, and--as you said, it was lower. I've tried to
find out why the Auvi-Q has been recalled, and there isn't a
lot of information about that. I understand what you're saying
about how the pharmacist is not given any information, because
when I asked him, he said, ``Well, it just says it was an
insufficient supply or delivery method.'' I don't think there's
been any record of anybody finding any injury, any adverse
effects from using an Auvi-Q.
Competition is good, and if you could eliminate some of
these barriers, maybe we would see that it's helping
competition.
Senator Paul. Thank you. That reminds me of one more
question for Philip.
The one that's out there is Adrenaclick. Is Adrenaclick
significantly cheaper for you at the hospital than EpiPen?
Mr. Almeter. The one we use at the hospital costs a few
dollars, because we use a vial and we're giving it in a code
situation intravenously.
Senator Paul. You're not using an auto injector?
Mr. Almeter. In the retail environment, we are buying the
generic, as well as the brand. I guess it depends on the plan,
the payer and what the patient----
Senator Paul. It's complicated to figure out whether the
price----
Dr. Gottlieb. The list for Adrenaclick is $140, the list
price.
Mr. Almeter. It's about $400 for us to buy.
Dr. Gottlieb. The Adrenaclick is $400?
Mr. Almeter. The Adrenaclick is about $400.
Senator Paul. Which gets to the whole other question--
there's 10 different prices, and it's so confusing, and then
there's rebates for big purchasers, et cetera, et cetera. For
you, you say the price is not that much different?
Mr. Almeter. No, it's about 8 percent cheaper for the
generic.
Senator Paul. I think what's happening is he's a much
bigger purchaser than you.
Mr. Almeter. Sure.
Senator Paul. EpiPen is probably offering a steeper
discount to try to get you to use it. There's not enough
differential for you to even--if you have a differential in the
hospital, will you try to encourage your physicians to order
cheaper varieties if you think they're equivalent?
Mr. Almeter. It's really dictated by the plan. That's
really where it's----
Senator Paul. By the plan, more than the physician?
Mr. Almeter. Yes, it really is, and it's a safety net
provider when they can't afford it. I will say this, that UK
HealthCare--we're a safety net provider. We have to get the
drug to the patient, and if they can't afford it, we will use
our dollars to give it away for free.
Senator Paul. Right. Some of the published material also
said that Adrenaclick was not therapeutically equivalent to
EpiPen. Does anybody know what that means? I know what it
means, but why are they saying that.
Mr. Almeter. My understanding is it has to do with AB
rating. If you look at the rating, it's a BX rating, and they
won't say that they're perfectly bio-equivalent.
Dr. Gottlieb. It's not substitutable, but it would have to
do with the device, not the drug inside the device.
Senator Paul. Once again, sort of a distinction without a
difference. It gives the same dose, and it probably works
equally as well, and you could debate which one works easier or
better. By saying that, what's happened on some insurance plans
is some insurance plans have listed it as a second tier, where
they would rather you get the other one because it's the gold
standard and this is not therapeutically equivalent.
Mr. Almeter. Or they get a bigger rebate with that one.
Senator Paul. Exactly, and that's another problem we're
going to look into as well. We've gotten a lot of answers
today, and we're going to keep looking into it. We want to keep
in contact with you, if you'll keep in contact with us, and we
would appreciate any of your feedback.
Thanks, everybody. I'm supposed to adjourn us here.
I'm sorry. If you have any more comments, you can put them
in writing, and we'll put them in the record. What you've given
us as your testimony today will be in, and you have 10 days to
submit anything else.
Thank you for being here today, and the committee will
stand adjourned.
[Whereupon, at 4:10 p.m., the hearing was adjourned.]
[all]