[Senate Hearing 115-640]
[From the U.S. Government Publishing Office]
S. Hrg. 115-640
THE COST OF PRESCRIPTION DRUGS:
HOW THE DRUG DELIVERY SYSTEM AFFECTS
WHAT PATIENTS PAY, PART II
=======================================================================
HEARING
OF THE
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
ON
EXAMINING THE COST OF PRESCRIPTION DRUGS, FOCUSING ON HOW THE DRUG
DELIVERY SYSTEM AFFECTS WHAT PATIENTS PAY
__________
OCTOBER 17, 2017
__________
Printed for the use of the Committee on Health, Education, Labor, and
Pensions
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
27-277 PDF WASHINGTON : 2019
--------------------------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Publishing Office,
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center,
U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free).
E-mail, [email protected].
COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
LAMAR ALEXANDER, Tennessee, Chairman
MICHAEL B. ENZI, Wyoming PATTY MURRAY, Washington
RICHARD BURR, North Carolina BERNARD SANDERS (I), Vermont
JOHNNY ISAKSON, Georgia ROBERT P. CASEY, JR., Pennsylvania
RAND PAUL, Kentucky AL FRANKEN, Minnesota
SUSAN M. COLLINS, Maine MICHAEL F. BENNET, Colorado
BILL CASSIDY, M.D., Louisiana SHELDON WHITEHOUSE, Rhode Island
TODD YOUNG, Indiana TAMMY BALDWIN, Wisconsin
ORRIN G. HATCH, Utah CHRISTOPHER S. MURPHY, Connecticut
PAT ROBERTS, Kansas ELIZABETH WARREN, Massachusetts
LISA MURKOWSKI, Alaska TIM KAINE, Virginia
TIM SCOTT, South Carolina MAGGIE WOOD HASSAN, New Hampshire
David P. Cleary, Republican Staff Director
Lindsey Ward Seidman, Republican Deputy Staff Director
Evan Schatz, Democratic Staff Director
John Righter, Democratic Deputy Staff Director
C O N T E N T S
----------
STATEMENTS
TUESDAY, OCTOBER 17, 2017
Page
Committee Members
Alexander, Hon. Lamar, Chairman, Committee on Health, Education,
Labor, and Pensions, opening statement......................... 1
Murray, Hon. Patty, a U.S. Senator from the State of Washington,
opening statement.............................................. 3
Collins, Hon. Susan M., a U.S. Senator from the State of Maine... 56
Kaine, Hon. Tim, a U.S. Senator from the State of Virginia....... 58
Cassidy, Hon. Bill, a U.S. Senator from the State of Louisiana... 61
Hassan, Hon. Maggie Wood, a U.S. Senator from the State of New
Hampshire...................................................... 63
Young, Hon. Todd, a U.S. Senator from the State of Indiana....... 65
Warren, Hon. Elizabeth, a U.S. Senator from the State of
Massachusetts.................................................. 67
Murkowski, Hon. Lisa, a U.S. Senator from the State of Alaska.... 69
Murphy, Hon. Christopher S., a U.S. Senator from the State of
Connecticut.................................................... 71
Baldwin, Hon. Tammy, a U.S. Senator from the State of Wisconsin.. 72
Franken, Hon. Al, a U.S. Senator from the State of Minnesota..... 74
Whitehouse, Hon. Sheldon, a U.S. Senator from the State of Rhode
Island......................................................... 77
Witnesses
Statement of Lori M. Reilly, Executive Vice President, Policy,
Research & Membership, Pharmaceutical Research and
Manufacturers of America, Washington, DC....................... 5
Prepared statement........................................... 7
Summary statement............................................ 19
Statement of Chester ``Chip'' Davis, Jr., President and Chief
Executive Officer, Association for Accessible Medicines,
Washington, DC................................................. 19
Prepared statement........................................... 21
Summary statement............................................ 30
Statement of Elizabeth A. Gallenagh, Senior Vice President
Government Affairs and General Counsel, Healthcare Distribution
Alliance, Arlington, VA........................................ 31
Prepared statement........................................... 32
Summary statement............................................ 35
Statement of Mark Merritt, President and Chief Executive Officer,
Pharmaceutical Care Management Association, Washington, DC..... 36
Prepared statement........................................... 37
Summary statement............................................ 43
Statement of Thomas E. Menighan, BSPharm, MBA, ScD(Hon.), FAPhA,
Executive Director and Chief Executive Officer, American
Pharmacists Association, Washington, DC........................ 44
Prepared statement........................................... 46
Summary statement............................................ 50
ADDITIONAL MATERIAL
Question and Answers Submitted for the Record:
Response by Lori M. Reilly to questions of:
Senator Alexander............................................ 80
Senator Murray............................................... 81
Senator Baldwin.............................................. 85
Senator Bennet............................................... 88
Senator Franken.............................................. 91
Senator Roberts.............................................. 94
Senator Whitehouse........................................... 96
Response by Chester ``Chip'' Davis, Jr. to questions of:
Senator Alexander............................................ 96
Senator Murray............................................... 97
Senator Bennet............................................... 100
Senator Roberts.............................................. 100
Senator Whitehouse........................................... 102
Response by Mark Merritt to questions of:
Senator Alexander............................................ 103
Senator Murray............................................... 104
Senator Bennet............................................... 105
Senator Cassidy.............................................. 106
Senator Hassan............................................... 107
Senator Isakson.............................................. 108
Senator Roberts.............................................. 109
Senator Warren............................................... 110
Senator Whitehouse........................................... 113
Response by Thomas E. Menighan to questions of:
Senator Alexander............................................ 115
Senator Murray............................................... 116
Senator Bennet............................................... 118
Senator Cassidy.............................................. 119
Senator Whitehouse........................................... 121
THE COST OF PRESCRIPTION DRUGS:
HOW THE DRUG DELIVERY SYSTEM AFFECTS
WHAT PATIENTS PAY, PART II
----------
Tuesday, October 17, 2017
U.S. Senate,
Committee on Health, Education, Labor, and Pensions
Washington, DC.
The Committee met, pursuant to notice, at 10:03 a.m., in
room SD-430, Dirksen Senate Office Building, Hon. Lamar
Alexander, Chairman of the Committee, presiding.
Present: Senators Alexander [presiding], Collins, Cassidy,
Young, Murkowski, Murray, Casey, Franken, Bennet, Whitehouse,
Baldwin, Murphy, Warren, Kaine, and Hassan.
Opening Statement of Senator Alexander
The Chairman. The Senate Committee on Health, Education,
Labor, and Pensions will please come to order.
Senator Murray and I will each have an opening statement,
and then we'll introduce the witnesses. After the witnesses'
testimony, Senators will each have 5 minutes of questions.
There's a vote scheduled for 10:30. I think what we'll do is
continue right on through until about 10:45, and then we'll
alternate going back and forth to vote. I think we'll have time
for all of us to hear the witnesses' testimony before we have
to leave for the vote.
Today, we're holding a hearing which is the second in a
series on prescription drug costs in response to a bipartisan
request led by Senator Cassidy, Senator Franken, along with
Senators Collins, Baldwin, Murkowski, Whitehouse, Capito,
Sanders, Enzi, and Warren, as well as other Senators who are
interested in this subject. Not only was the request for these
hearings bipartisan, but both this hearing and the first
hearing on drug prices were bipartisan, which means Senator
Murray and I agreed on the witnesses.
Despite this, our first hearing in June went so far off
track that I delayed this hearing because Senators, instead of
talking about drug prices, wanted to use the opportunity to
talk about other issues, specifically, the Affordable Care Act.
I acknowledge their deep feelings and differences of opinions
on the ACA, but the Senate has been stuck in a partisan
stalemate for 7 years over what is a relatively small part of
healthcare, the individual health insurance market, where 6
percent of Americans purchase health insurance.
Senator Murray and I have been working for several weeks to
see if we can find within the Senate a limited consensus
bipartisan agreement to stabilize the individual market in the
interim. But there are many other issues that have caused
healthcare spending in this country to grow from consuming 9
percent of the gross domestic product in 1980 to nearly 18
percent in 2015 and a predicted 20 percent in 2025, according
to the Center for Medicare and Medicaid Services.
We need to look at all aspects of healthcare spending--the
15 percent or so we spend on prescription drugs, including
retail and prescription drugs administered in hospitals, and
the other 85 percent of healthcare spending, which includes
doctor visits, surgeries, and medical devices--and ways to get
these costs under control. We're having a hearing on Thursday
to discuss wellness and healthy lifestyle changes and how they
could decrease serious illnesses and bring down healthcare
costs.
While, of course, Senators are free to say and do whatever
they wish to do, I would hope today that we could focus on the
cost of prescription drugs while we have these excellent
witnesses before us. Next month, the Committee will hold a
third hearing to hear from Norm Augustine and consider a report
he is leading from the National Academy of Sciences. This
report is the result of a study called ``Ensuring Patient
Access to Affordable Drug Therapies.''
We've set a good example of bipartisan success in the Food
and Drug Administration user fee agreements. For 18 months,
this Committee worked with our counterparts in the House to
update and pass user fee agreements, including provisions from
many Senators on both sides of the aisle, including measures
that will provide additional staff and resources to the FDA to
approve more biosimilars and generic drugs which provide more
competition and lower drug costs. That bill became law this
summer. Last year, the Committee worked together on 21st
Century Cures to spur the development of new drugs and
treatments.
My goal for these hearings is to continue these in a
bipartisan way and learn the facts about what goes into the
price patients pay when picking up their prescriptions and
what, if any, steps we can agree on to lower those prices.
We're in the middle of a remarkable time in science that is
producing amazing discoveries for patients. We have drugs that
can cure Hepatitis C, keep cancer at bay, and stop a stroke.
With this innovation comes new challenges. We need to make
sure all patients can benefit. We've all heard from patients
that the cost of new drugs is often too much for them to
afford. We also need to make sure that any action we take
doesn't jeopardize the innovation and the breakthroughs.
The prescription drug delivery system--how a drug gets from
the manufacturer to the patient--is complicated. More than 4.4
billion prescriptions are written for drugs each year for
Americans who then pick up these prescriptions at 60,000
drugstores or receive them from doctors or hospitals or online
pharmacies, and those 4.4 billion prescriptions, estimated to
cost $450 billion, are paid for in a similarly complicated way,
which you're going to hear about today.
In addition to private insurance, many different government
programs subsidize or pay for prescription drugs: Medicaid,
340B, Medicare Part B and Part D, Tricare, VA, and Indian
Health Service. Patients often pay a set amount, called a
copay, or a percentage, called coinsurance, when picking up
their prescription as well, or sometimes patients have to cover
the whole cost if they haven't met their deductible. What
amount of the cost of the prescription drug they pay is
determined by what health insurance they may have.
I hope our witnesses today will help us understand the drug
delivery system and how their role in the system affects the
price patients pay. Our witnesses represent the brand
manufacturers, who take enormous risks; generic drug
manufacturers, who over the last 30 years have grown to make up
89 percent of all prescriptions, lowering cost; drug
wholesalers, who purchase drugs from manufacturers and deliver
them all over the country daily; pharmacy benefit managers, who
use their buying power to leverage lower prices on all drugs
but also make difficult decisions about drugs to offer patients
at what cost and with what copays or what insurance; and then,
of course, pharmacists, who are on the front lines of helping
patients that find out the cost of their medicine when picking
it up at the drugstore and having to make that fit within their
budgets.
As we look at it and hope to address the fundamental cost
of healthcare, I hope we can continue to do this in a
bipartisan way.
Senator Murray.
Opening Statement of Senator Murray
Senator Murray. Well, thank you, Chairman Alexander, for
your leadership in holding these hearings, and to all of our
colleagues on both sides of the aisle for their commitment to
address this critical challenge before us today, which is the
increasing burden and soaring prices of prescription drugs.
Much like our last hearing on the devastation being caused by
the opioid crisis, this is truly an urgent discussion.
Like everyone here, I've heard from so many families who
are forced to choose between some high-priced medication and
paying their bills, between filling a prescription or putting
food on the table, and between getting the care that they need
or paying their mortgage or putting gas in the tank. So this is
clearly a challenge we need to meet and meet it quickly.
Fortunately, we have taken some steps in the right
direction. I'm very pleased this Committee worked to increase
transparency and foster more competition in the generic drug
market in the FDA Reauthorization Act. In these agreements,
taking suggestions from both sides, we were able to accelerate
the review of generics that can alleviate anti-competitive
markets, improve the process for bringing a generic to market
by increasing communication and transparency between the FDA
and manufacturers, encourage new generics to compete with sole
source products vulnerable to price hikes and shortages, and
prevent gaming of the Orphan Drug Act which has brought hope to
so many patients.
But as we know, generic competition alone will not address
the high prices paid by so many patients and families in out-
of-pocket costs and high premiums. We've got to make more
progress to get at the root of the problem facing patients,
which is the high prices set by drug manufacturers. That is why
I'm glad that Democrats have put forward a number of ideas and
legislation to demand more transparency from pharmaceutical
companies about what's behind drug prices, allow Medicare to
negotiate fair prices for prescription drugs, prevent
manufacturers from engaging in price gouging, and crack down on
the various anti-competitive practices that keep prices high.
These measures would make a real difference when it comes to
bringing down prices.
All this requires--and I've said it many times--this
administration has to be our partner, not a hindrance to our
efforts. As we all saw last week, President Trump continued to
take unilateral steps to increase premiums and undermine
protections for people with preexisting conditions and cause
chaos in our healthcare system. That pattern of governing by
sabotage is reckless and appalling and only makes it, I
believe, more critical that Congress shows patients and
families we can work together to undo the damage being caused
and move on to actually doing some good when it comes to
families' healthcare.
On drug prices, like so many other issues, President Trump
talks a big game on Twitter but has not taken any actions to
actually lower drug prices, and the little we have seen from
this administration, a leaked Executive Order back in July,
barely scratches the surface. Instead, many of the plans that
have come out would do very little to actually target drug
prices, and, in fact, some have actually targeted vital
programs, like 340B, that support hospitals and clinics in
serving the very communities who cannot afford the drugs they
need to stay healthy.
I hope the administration chooses a different path, and I
would just note, by the way, that President Trump could start
by nominating a Secretary of Health and Human Services who will
put families first when it comes to prescription drug prices
and any issues, and I expect a thorough and rigorous nomination
process when that comes before us. They have a very important
role to play.
We have a lot to cover today, and I want to thank all of
our witnesses for joining us. We are very much looking forward
to your testimony.
I just want to again thank Chairman Alexander and all of
our colleagues for their efforts to tackle this pressing
challenge to make sure that prescription medication and
lifesaving treatments are not just available, but accessible
and affordable. I'm hopeful that our bipartisan work on
insurance market stabilization and FDARA can lay the groundwork
for serious action on drug prices, given that we all agree this
is a priority. Actually, patients and families we serve can't
wait much longer.
Thank you, everyone, and I turn it back over to you, Mr.
Chairman.
The Chairman. Thank you, Senator Murray, and thank you for
creating a bipartisan environment where we can work ahead, as
you indicated, on trying to stabilize the individual health
insurance market and begin to move away from health insurance
to the larger issues affecting healthcare, such as drug prices.
We thank the witnesses for coming. I would ask you each to
summarize your comments in about 5 minutes, and that will leave
Senators more time to ask questions.
The first witness is Lori Reilly, the Executive Vice
President of Policy, Research, and Membership at PhRMA. She
leads the Policy and Research Department there, a trade
association of brand drug manufacturers. Chip Davis is the
President and Chief Executive of the trade association that
represents generic drug manufacturers, distributors, and
suppliers. Elizabeth Gallenagh is Senior Vice President for
Government Affairs and General Counsel, representing
prescription drug wholesalers. Welcome to you.
Mark Merritt is the President and Chief Executive Officer
of the national group that represents America's pharmacy
benefit managers, and Thomas Menighan is the Executive Director
and Chief Executive of the largest association of pharmacists
in the United States.
So, Ms. Reilly, let's begin with you, and then we'll hear
from each witness.
STATEMENT OF LORI M. REILLY
Ms. Reilly. Thank you, Chairman Alexander, Ranking Member
Murray, and Members of the Committee, for having me here today.
Over the past 20 years, the Food and Drug Administration
has approved more than 500 new medicines to market, and those
have resulted in significant progress against some of our
Nation's most costly and challenging conditions. Through
innovation, the HIV/AIDS death rate has dropped 86 percent in
this country from the mid `1990's, and, more recently, progress
that it's been making in the space of oncology has been
heralded as game changers for many patients facing serious
conditions such as cancer. Today, because of scientific
advances, many other conditions are now manageable and
sometimes even curable.
In the midst of the incredible scientific progress that
we've seen, drug spending growth is actually declining from its
peak in 2014. In fact, last year, prescription drug spending
cost growth was 3 percent to 5 percent, according to public and
private experts. That was in line with all other forms of
spending growth. Spending on retail as well as physician-
administered drugs continues to remain about 14 percent of what
we spend in terms of total healthcare dollars in this country.
Oftentimes, when people talk about that 14 percent, there's
a presumption that all of that comes back to the brand name
manufacturer. In fact, less than half of that 14 percent--about
6.8 percent of what we spend on total healthcare in this
country--comes back to the brand name industry. The rest goes
to the generic industry and others in the supply chain.
One important part of the supply chain that isn't with us
here today is the hospital sector. Just this morning, we
released a paper that looked at 20 of the most commonly
prescribed expensive medicines in hospital outpatient settings
and found that, on average, hospitals increase and are
reimbursed two and a half times the acquisition cost at which
they purchase medicines in this country. They're an important
part of the supply chain, and I hope we talk about that more
later today.
Going forward over the next decade, medicines are projected
to remain a stable share of healthcare spending at around 14
percent. To many, they question how can that possibly be the
case? We know what's in the pipeline. We know that over the
next 10 years, we're likely to have 40 to 45 new medicines
approved every single year. But the reality is we have, for
pharmaceuticals, some of the most stringent cost containment
across the entire healthcare sector.
Pharmacy benefit managers use the fact that there's a great
deal of competition within therapeutic areas to limit
formularies, to place medicines on high cost-sharing tiers, and
to use a host of utilization management techniques to keep
costs under control. Over the next 5 years, over $100 billion
worth of medicines will be coming off patents, and those
medicines will become generics and cheaper for Americans to be
able to afford, and, importantly, in the pharmaceutical benefit
manager's space, about three pharmacy benefit managers today
buy on behalf of 75 percent of all prescriptions in this
country because of the leverage they can exert. In 2015, they
were able to secure over $100 billion in rebates and discounts.
Unfortunately, what's happening today is those rebates and
discounts often are not making their way back to patients at
point of sale. Compounding this problem is, today, an
increasing number of patients have high cost-sharing for their
medicines, either because they have a deductible--today, 50
percent of commercially insured patients have a deductible for
their medicine. When they have a deductible for their medicine,
they're asked to pay a list price, in other words, a non-
negotiated price for their medicine.
There are solutions that we think could be put forth to
address some of the cost challenges we face. The first one is
the fact that $100 billion of discounts and rebates should find
its way back to patients at the retail pharmacy level. Those
discounts should be passed back to patients to lower their
healthcare costs. We also need to do more to reform government
rules around how companies can contract today. There's a desire
to move our healthcare system toward contracting toward value.
But today, because of government rules and regulations, it
makes it harder to have sensible contracting.
Third, we need to look at programs like the 340B program,
which, yes, do provide a very important benefit to many, but,
as I mentioned before, we know in the hospital sector,
oftentimes hospitals are increasing the price of their medicine
two and a half to three and a half times and are getting
reimbursed oftentimes, again, three times as much as the
manufacturer is getting reimbursed for the medicine.
Last, we need to speed the approval of new medicines as
well as generic medicines to the marketplace. Competition is
the best medicine to lowering costs over the long term, and we
need to build on the work that this Committee passed as part of
PDUFA-6 to continue to modernize the Food and Drug
Administration to have efficient and safe delivery of new
medicines and new generic medicines. Future progress is needed,
and patients are waiting for the kind of innovation our sector
can deliver.
Thank you very much.
[The prepared statement of Ms. Reilly follows:]
prepared statement of lori m. reilly
Chairman Alexander, Ranking Member Murray, and Members of
the Committee, thank you for inviting me to participate in
today's hearing. Understanding the role the drug delivery
system plays in determining what patients pay for medicines is
a critical part of the discussion about what can be done to
improve patient access and affordability and I appreciate the
opportunity to explore this topic with you in depth.
PhRMA represents the country's leading innovative
biopharmaceutical research companies, which are devoted to
discovering and developing medicines that enable patients to
live longer, healthier, and more productive lives. The
biopharmaceutical sector is one of the most research-intensive
industries in the U.S.: since 2000, PhRMA member companies have
invested more than half a trillion dollars in the search for
new treatments and cures, including $65.5 billion in 2016
alone.
medicines have transformed the treatment of many diseases, helping
patients live longer and healthier lives
We are in a new era of medicine in which breakthrough
science is transforming patient care and enabling us to more
effectively treat chronic disease, the biggest cost driver in
our health care system. Innovative medicines represent
significant scientific advancements that revolutionize the
treatment and thus the downstream healthcare costs of complex
and costly diseases, such as cancer, hepatitis C, HIV/AIDS, and
cardiovascular disease. In this new era of medicine, many
diseases previously regarded as deadly are now manageable and
even curable. Today, more than 7,000 medicines are in
development worldwide, of which 80 percent have the potential
to be first in class and 42 percent are personalized
medicines.\1\ Prescription medicines produce unparalleled value
and savings for the health care system, preventing or slowing
the progression of disease, and reducing the need for more
intensive medical care. Continued advances in biopharmaceutical
innovation represent the best opportunities to improve health
outcomes and control future health care costs.
---------------------------------------------------------------------------
\1\ Long G. The Biopharmaceutical Pipeline: Innovative Therapies in
Clinical Development. Analysis Group. 2017; Tufts Center for the Study
of Drug Development (CSDD). Personalized Medicine Gains Traction But
Still Faces Multiple Challenges. Tufts CSDD Impact Report. 2015;17(3).
---------------------------------------------------------------------------
New medicines help contain overall health care spending by
preventing costly complications and hospitalizations, and
replacing other medical interventions. A 2013 study by IMS
Institute for Healthcare Informatics estimated that the U.S.
health care system could save $213 billion annually by
improving the use of medicines.\2\ Similarly, research
published in Health Affairs found that just an extra $1 spent
on medicines for adherent patients with congestive heart
failure, high blood pressure, diabetes and high cholesterol can
generate $3 to $10 in savings on emergency room visits and
inpatient hospitalizations.\3\
---------------------------------------------------------------------------
\2\ IMS Institute for Healthcare Informatics. Avoidable Costs in
U.S. Healthcare: The $200 Billion Opportunity from Using Medicines More
Responsibly. June 2013.
\3\ 1A Roebuck MC, Lieberman JN, Gemmill-Toyama M, et al.
Medication Adherence Leads to Lower Care Use And Costs Despite
Increased Drug Spending. Health Affairs. 2011;30(1):99.
---------------------------------------------------------------------------
Based on the growing body of evidence about medicines'
benefits, the Congressional Budget Office (CBO) recognizes
reductions in other medical expenditures associated with
increased use of prescription medicines in Medicare Part D.\4\
Research indicates that the savings may be three to six times
greater than estimated by the CBO for seniors with common
chronic conditions like diabetes and hypertension,\5\ and less
prevalent conditions such as Parkinson's disease.\6\ More
recent research has shown that increased use of medicines among
patients is associated with reductions in expenditures from
avoided use of inpatient and outpatient services in Medicaid as
well. For example, among patients with schizophrenia, improved
adherence to antipsychotic medicines yielded annual net savings
of up to $3.3 billion, or $1,580 per patient per year, driven
by lower hospitalizations, outpatient care, and criminal system
involvement.\7\ Another study found that if 60 percent of the
children enrolled in Medicaid achieved high adherence to asthma
treatment in just 14 states, Medicaid could achieve $57.5
million in savings annually.\8\
---------------------------------------------------------------------------
\4\ Congressional Budget Office. Offsetting Effects of
Prescription Drug Use on Medicare's Spending for Medical Services.
November 29, 2012.
\5\ Roebuck MC. Medical Cost Offsets from Prescription Drug
Utilization Among Medicare Beneficiaries. Journal of Managed Care
Pharmacy. 2014;20(10):994-995.
\6\ Wei YJ, Palumbo FB, Simoni-Wastila L, et al. Antiparkinson
Drug Adherence and its Association With Health Care Utilization and
Economic Outcomes in a Medicare Part D Population. Value in Health.
2014;17(2):196-204.
\7\ Predmore ZS, Mattke S, Horvitz-Lennon M. Improving
Antipsychotic Adherence among Patients With Schizophrenia: Savings for
States. Psychiatric Services. 2015; 66:343-345.
\8\ Rust G, Zhang S, McRoy L. Potential Savings From Increasing
Adherence to Inhaled Corticosteroid Therapy in Medicaid-Enrolled
Children. American Journal of Managed Care. 2015;21(3):173-180.
---------------------------------------------------------------------------
the competitive market for prescription medicines balances innovation,
patient access, and cost containment
The competitive market is the engine that drives the
innovative biopharmaceutical research and development
ecosystem. The dynamics of the private, market-based system in
the U.S. promote incentives for continued innovation and
patient access to needed medicines while leveraging competition
to achieve cost containment. Since 2000, biopharmaceutical
companies have brought more than 500 new medicines to the U.S.
market, resulting in significant progress against some of the
most costly and challenging diseases.\9\ Yet, as a result of
robust negotiation and competition in the marketplace, spending
on medicines is growing at the slowest rate in years.\10\
---------------------------------------------------------------------------
\9\ US Food and Drug Administration. Summary of NDA Approvals &
Receipts, 1938 to the Present.http://www.fda.gov/aboutfda/whatwedo/
history/productregulation/summaryofndaapprovalsreceipts1938tothepresent
/default.htm; US Food and Drug Administration. New Drugs at FDA: CDER's
New Molecular Entities and New Therapeutic Biological Products. 2012-
2015.https://www.fda.gov/drugs/developmentapprovalprocess/
druginnovation/default.htm.
\10\ QuintilesIMS Institute. Medicine Use and Spending in the US: A
Review of 2016 and Outlook to 2021.April 2017
---------------------------------------------------------------------------
Government, market analyst, and pharmacy benefit manager
data all point to the same conclusion: that after peaking in
2014--an anomaly year in which millions of uninsured patients
gained coverage and a record number of new medicines were
approved--prescription drug spending growth has fallen
substantially. Accounting for discounts and rebates, multiple
sources report that spending on prescription medicines grew by
just 3 percent to 5 percent in 2016.\11\ As a result of
negotiation and competition in the marketplace, spending on
retail and physician-administered medicines continues to
represent only 14 percent of overall health care spending, even
though scores of new medicines are approved every year. At the
state level, Medicaid programs spent just 4.9 percent of their
budgets on prescription drugs, including new medicines, in
2016, relative to 26 percent for hospital care and 18.2 percent
for provider services.\12\
---------------------------------------------------------------------------
\11\ QuintilesIMS Institute. Medicine Use and Spending in the US: A
Review of 2016 and Outlook to 2021.April 2017; CVS Health. CVS Health
PBM Clients Achieved Lowest Prescription Drug Trend in Four Years,
Despite Rising Drug Prices. March 15, 2017.http://www.prnewswire.com/
news-releases/cvs-health-pbm-clients-achieved-lowest-prescription-drug-
trend-in-four-years-despite-rising-drug-prices-300423726.html; Express
Scripts. 2016 Drug Trend Report. February 2017.https://lab.express-
scripts.com/lab/drug-trend-report; Which PBM Best Managed Drug Spending
in 2016: How Did OptumRx Compare? Drug Channels. April 25, 2017.http://
www.drugchannels.net/2017/04/which-pbm-best-managed-drug-spending-
in.html#more.
\12\ Prescription drug pre-rebate expenditures tabulated by The
Menges Group using fiscal year 2016 CMS State Drug Utilization data
files and CMS brand/generic indicators for each National Drug Code.
Rebate information obtained from fiscal year 2016 CMS-64 reports. Post-
rebate expenditures derived through The Menges Group tabulations using
above information.
---------------------------------------------------------------------------
The U.S. biopharmaceutical marketplace promotes innovation
and affordability through cost containment that is built into
the prescription drug lifecycle. While the price of a medicine
may increase or decrease over its lifetime, prices fall
dramatically as competition occurs among brand-name medicines,
and typically fall even further (up to 80 percent) with the
introduction of generics.\13\ For instance, the price of one
common statin (atorvastatin, known in the branded form as
Lipitor) used to lower cholesterol and prevent cardiovascular
disease, dropped by about 92 percent from 2005 to 2013 when
generic alternatives came to market.\14\ Meanwhile, the average
charge for percutaneous transluminal coronary angioplasty
(PTCA)--a surgical procedure to treat cardiovascular disease--
increased by almost 66 percent during that same time
period.\15\
---------------------------------------------------------------------------
\13\ IMS Institute for Healthcare Informatics. Price Declines After
Branded Medicines Lose Exclusivity in the US January 2016.
\14\ Atorvastatin, known in the branded form as Lipitor 10mg: IMS
National Sales Perspective (NSP) Invoice Price in 2005 (Branded
Lipitor) and in 2013 (Generic Atorvastatin).
\15\ Data adapted from: HCUP Hospital Charge Data base 2005 to
2013, Average Hospital Charges.
---------------------------------------------------------------------------
The U.S. market is structured to take maximum advantage of
savings from brand competition and from generics. Three large,
sophisticated pharmacy benefit managers (PBMs) manage over 75
percent of all prescriptions filled.\16\ They use brand
competition to obtain discounts from manufacturers and take
full advantage of the presence of generics to drive savings.
This drives the rapid shift of market share to generics (and,
looking forward, to biosimilars), a system with few analogues
in other health care sectors. As one example of the growing
influence of PBMs, industry leader Express Scripts has publicly
stated their success in leveraging substantial rebates for
hepatitis C medicines led to those treatments being less
expensive in the U.S. than in many other western countries.\17\
The competitive market will continue to generate savings in the
years ahead, as more than $140 billion of U.S. brand sales are
projected to face generic competition between now and 2021.\18\
Competition from biosimiliars is estimated to account for $38
billion of the loss in brand spending.
---------------------------------------------------------------------------
\16\ Fein AJ; Pembroke Consulting, Inc., and Drug Channels
Institute. 2014-15 Economic Report on Retail, Mail, and Specialty
Pharmacies. January 2015.http://drugchannelsinstitute.com/files/2014-
15-PharmacyIndustry-Overview.pdf.
\17\ LaMattina J. For Hepatitis C Drugs, U.S, Prices Are Cheaper
Than in Europe. Forbes. December 4, 2015.http://www.forbes.com/sites/
johnlamattina/2015/12/04/for-hepatitis-c-drugs-u-s-prices-are-cheaper-
than-in-europe/#7ced43f564bb
\18\ QuintilesIMS Institute. Medicine Use and Spending in the US: A
Review of 2016 and Outlook to 2021. April 2017.
---------------------------------------------------------------------------
list prices for medicines do not reflect substantial rebates and
discounts and provide an increasingly inaccurate picture of
prescription drug costs
Much of the public debate about the cost of medicines has
focused on list prices, which do not account for the rebates
and discounts that PBMs and health plans commonly negotiate
with biopharmaceutical companies in exchange for preferred
formulary placement on lower cost-sharing tiers. For certain
medicines used to treat chronic conditions like asthma, high
cholesterol, hepatitis C, and diabetes, these discounts and
rebates can reduce list prices by as much as 30 percent to 70
percent.\19\ Biopharmaceutical companies are also required to
provide sizable statutory rebates, discounts, and fees to
government programs, which have increased in recent years due
to an increase in the Medicaid rebate, closing of the Medicare
Part D ``donut hole'' and expansion of the 340B program. These
mandatory payments grew by more than 40 percent between 2013
and 2015, increasing from $29.6 billion to $41.8 billion.\20\
---------------------------------------------------------------------------
\19\ QuintilesIMS Institute. Estimate of Medicare Part D Costs
After Accounting for Manufacturer Rebates. October 2016; Gronholt-
Pedersen J, Skydsgaard N, Neely J. Novo Nordisk Defends U.S. Diabetes
Drug Pricing. Reuters. November 4, 2016. http://www.reuters.com/
article/us-novo-nordisk-prices-idUSKBN12Z184; Silverman E. What the
`Shocking' Gilead Discounts on its Hepatitis C Drugs Will Mean. Wall
Street Journal. February 4, 2015.https://blogs.wsj.com/pharmalot/2015/
02/04/what-the-shocking-gilead-discounts-on-its-hepatitis-c-drugs-will-
mean/ Barrett P, Langreth R. The Crazy Math Behind Drug Prices:
Intermediaries that Negotiate to Lower Prices May Cause Them To
Increase Too. Bloomberg Businessweek, June 29, 2017.https://
www.bloomberg.com/news/articles/2017-06-29/the-crazy-math-behind-drug-
prices.
\20\ Berkeley Research Group. The Pharmaceutical Supply Chain:
Gross Drug Expenditures Realized by Stakeholder. January 2017.
---------------------------------------------------------------------------
Excluding rebates and discounts from discussions about the
cost of prescription medicines provides an increasingly
inaccurate picture of marketplace trends. According to PBMs and
industry analysts, list prices for brand medicines have grown
by an estimated 9 percent to 12 percent annually since 2015,
while net prices (which take discounts and rebates into
account) have grown by just 2.5 percent to 3.5 percent.\21\ A
recent study from the QuintilesIMS Institute demonstrates that
net prices for medicines that have been on the market for at
least 2 years declined by an average of 2.5 percent annually
from 2010 to 2016, driven by patent expirations and increased
competition from generics.\22\ The QuintilesIMS report also
notes that over the next 5 years, net prices for existing
medicines will continue to decline between 1 percent and 4
percent annually, highlighting the important role rebates and
discounts will continue to play in containing prescription
medicine spending growth in the future.
---------------------------------------------------------------------------
\21\ QuintilesIMS Institute. Medicine Use and Spending in the US:
A Review of 2016 and Outlook to 2021. April 2017; Express Scripts. 2016
Drug Trend Report. February 2017.https://lab.express-scripts.com/lab/
drug-trend-report; SSR Health. US Brand Pharmaceutical Net Prices Fell
0.3 percent in 3Q16. January 18, 2017.http://www.ssrllc.com/
publication/us-brand-pharmaceutical-net-prices-fell-0-3-in-3q16/
\22\ QuintilesIMS Institute. Understanding the Drives of Drug
Expenditure in the US. September 2017.
---------------------------------------------------------------------------
Claims from PBMs, payers, and others about the skyrocketing
prices of medicines almost always focus solely on list prices,
which are not reflective of actual spending trends. When new
hepatitis C medicines offering cure rates exceeding 90 percent
entered the market, PBMs claimed that these life-saving
treatments and cures would bankrupt the health system and their
costs were simply unsustainable. Instead, competition among
brand manufacturers quickly drove deep discounts averaging 40
percent to 65 percent off the list price.\23\ Express Scripts
now states that their aggressive negotiations have saved
Americans $4 billion, cured more patients with hepatitis C than
any time in history, and that the discounted price makes it
affordable to treat all patients with the infection.\24\
---------------------------------------------------------------------------
\23\ What Gilead's Big Hepatitis C Discounts Mean for Biosimilar
Pricing. Drug Channels. February 5, 2015.http://www.drugchannels.net/
2015/02/what-gileads-big-hepatitis-c-discounts.html
\24\ Express Scripts. The $4 Billion Return on a Promise Kept.
January 27, 2015.http://lab.expressscripts.com/lab/insights/specialty-
medications/the-4-billion-return-on-a-promise-kept
---------------------------------------------------------------------------
Prior to the launch of PCSK9 inhibitors, a new type of
cholesterol lowering medicine that represents a significant
advance in treatment of heart disease, PBMs made alarming
claims about their cost, projecting up to $150 billion to $200
billion per year in spending for these medicines.\25\ CMS'
Office of the Actuary, however, projected a much more modest
impact, based on expected competition leading to discounts and
continued widespread use of generic statins.\26\ The Actuary's
refusal to accept these inflated claims proved to be the right
approach. In fact, PBMs quickly made deals to cover both of the
brand competitors on the market and emphasized that the drugs'
cost is ``far lower than industry forecasts.''\27\ New research
shows that PBMs have also effectively used strict prior
authorization and high cost-sharing requirements to suppress
utilization of these medicines, resulting in less than one-
third of patients prescribed a PCSK9 inhibitor being able to
access therapy.\28\
---------------------------------------------------------------------------
\25\ Shrank W, Lotvin A, Singh S, Brennan T. In the Debate About
Cost and Efficacy, PCSK9 Inhibitors May Be The Biggest Challenge Yet.
Health Affairs Blog. February 17, 2015.http://healthaffairs.org/blog/
2015/02/17/in-the-debate-about-cost-and-efficacy-pcsk9-inhibitors-may-
be-the-biggest-challenge-yet/
\26\ 26 Kelly C. U.S. Drug Spending Will Increase 7.6 percent in
2015, Including PCSK9 Costs-CMS. The Pink Sheet, July 2015.
\27\ Express Scripts. ``Express Scripts Includes Innovative
Cholesterol-Lowering Drugs on National Preferred Formulary.'' October
6, 2015.http://www.prnewswire.com/news-releases/express-scripts-
includes-innovativecholesterol-lowering-drugs-on-national-preferred-
formulary-300155222.html
\28\ Navar AM, Taylor B, Mulder H, et al. Association of Prior
Authorization and Out-of-Pocket Costs With Patient Access to PCSK9
Inhibitor Therapy. JAMA Cardiology. Published online September 27,
2017. doi:10.1001/jamacardio.2017.3451.
---------------------------------------------------------------------------
a complex distribution and payment system shapes the prices patients,
health plans, and the government pay for medicines
The process by which prescription medicines move from
biopharmaceutical manufacturers to patients involves multiple
stakeholders and numerous financial transactions. This process
has evolved significantly in recent years, as supply chain
entities have grown to play a larger role in drug distribution
and payment. Wholesalers, pharmacies, plan sponsors, and
patients all pay different prices for medicines, and the amount
that is ultimately paid is determined by confidential
negotiations between stakeholders. Many discounts provided by
manufacturers do not flow directly through to the patients
taking the medicine, and in some cases the full discounts may
also not flow through to employers or plan sponsors.\29\
---------------------------------------------------------------------------
\29\ Midwestern Business Group on Health. Drawing a Line in the
Sand: Employers Must Rethink Pharmacy Benefit Strategies. September
2017.https://higherlogicdownload.s3.amazonaws.com/MBGH/4f7f512a-e946-
4060-9575-b27c65545cb8/UploadedImages/Specialty-percent20Pharmacy/DMJ--
MBGH--Line--in--the--Sand--RV12--9617.pdf
---------------------------------------------------------------------------
Some manufacturer rebates and discounts are required by
law, while others are negotiated between biopharmaceutical
companies and powerful commercial payers, many of which cover
tens of millions of patients. In recent years, as payers have
consolidated and competition between brand medicines has
increased, negotiated rebates and discounts have also grown.
Multiple data sources indicate that growth in manufacturer
rebates and discounts has been substantial and that an
increasing share of these discounts and rebates are retained by
middlemen involved in distributing and paying for prescription
medicines.\30\ According to a recent study by the Berkeley
Research Group, on average, more than a third of the initial
list price of a medicine is rebated back to insurance
companies, PBMs and the government, or retained by other
stakeholders along the biopharmaceutical supply chain.\31\ The
gap between list prices and net prices is growing every year as
more of medicine costs are being retained by middlemen in the
system.
---------------------------------------------------------------------------
\30\ QuintilesIMS Institute. Medicine Use and Spending in the US: A
Review of 2016 and Outlook to 2021. April 2017; Berkeley Research
Group. The Pharmaceutical Supply Chain: Gross Drug Expenditures
Realized by Stakeholder. January 2017; Dross D. Will Point-of-Sale
Rebates Disrupt the PBM Business? Mercer. July 31, 2017.https://
www.mercer.us/our-thinking/healthcare/will-point-of-sale-rebates-
disrupt-the-pbm-business.html
\31\ Berkeley Research Group. The Pharmaceutical Supply Chain:
Gross Drug Expenditures Realized by Stakeholder. January 2017.
---------------------------------------------------------------------------
As shown in Figure 1, accounting for the discounts, rebates
and fees paid to PBMs, payers, and the government, brand
biopharmaceutical companies realize less than half of total net
spending on prescription medicines.\32\ Of the $469 billion
spent on prescription drugs in the U.S. in 2015, brand
manufacturers realized $219 billion; the remainder went to
generic manufacturers or was retained as earnings by entities
along the supply chain and other stakeholders.\33\ The $219
billion realized by the brand biopharmaceutical industry
accounts for just 6.8 percent of the $3.2 trillion spent on
health care overall in the U.S. in 2015.\34\
---------------------------------------------------------------------------
\32\ Ibid.
\33\ Ibid.
\34\ Martin AB, Hartman M, Washington B, et al. National Health
Spending: Faster Growth in 2015 As Coverage Expands and Utilization
Increases. Health Affairs. 2017;36(1):166-176.
Figure 1:
patients do not directly benefit from significant price negotiations
happening in the market today
Savings generated from price negotiations between
biopharmaceutical companies and payers do not always make their
way directly to patients facing high cost-sharing for their
medicines. Unlike care received at an in-network hospital or
physician's office, health plans base cost sharing for
prescriptions filled in the deductible or with coinsurance on
undiscounted list prices, rather than on prices that reflect
negotiated rebates and discounts. Enrollment in high deductible
health plans and use of coinsurance for prescription medicines
has grown sharply in recent years, increasingly exposing
patients to high out-of-pocket costs based on undiscounted
prices, creating scenarios in which medicines appear to be more
costly than other health care services. High cost-sharing is a
cause for concern, as a substantial body of research clearly
demonstrates that increases in out-of-pocket costs are
associated with both lower medication adherence and increased
abandonment rates, putting patients' ability to stay on needed
therapies at risk.\35\
---------------------------------------------------------------------------
\35\ IMS Institute for Healthcare Informatics. Emergency and
Impact of Pharmacy Deductibles: Implications for Patients in Commercial
Health Plans. September 2015; Doshi JA, Li P, Huo H, et al. High Cost
Sharing and Specialty Drug Initiation Under Medicare Part D: A Case
Study in Patients with Newly Diagnosed Chronic Myeloid Leukemia.
American Journal of Managed Care. 2016;22(4 Suppl):S78-S86; Brot-
Goldberg ZC, Chandra A, Handel BR, et al. What Does A Deductible Do?
The Impact of Cost-Sharing on Health Care Prices, Quantities, and
Spending Dynamics. NBER Working Paper 21632, October 2015; Eaddy MT,
Cook CL, O'Day K, et al. How Patient Cost-Sharing Trends Affect
Adherence and Outcomes. Pharmacy & Therapeutics. 2012;37(1):45-55.
---------------------------------------------------------------------------
Over the past 10 years, patient cost-sharing has risen
substantially faster than health plan costs. For workers with
employer-sponsored health insurance, out-of-pocket spending for
deductible and coinsurance payments increased by 230 percent
and 89 percent, respectively, compared to a 56 percent increase
in payments by health plans.\36\ Whereas cost-sharing for
prescription medicines once consisted almost entirely of
copays, use of deductibles and coinsurance has increased
rapidly. For example, the share of patient out-of-pocket drug
spending represented by coinsurance more than doubled over the
past 10 years in the commercial market, while the share
accounted for by deductibles tripled.\37\ The growing use of
deductibles and coinsurance for prescription medicines creates
affordability challenges for many patients. Patients enrolled
in high deductible health plans may be asked to pay thousands
of dollars out-of-pocket before any of their prescriptions are
covered, while patients with coinsurance are responsible for as
much as 30 percent to 40 percent of the total cost of their
medicines.
---------------------------------------------------------------------------
\36\ Claxton G, Levitt L, Long M, et al. Increases in Cost-Sharing
Payments Have Far Outpaced Wage Growth. Peterson-Kaiser Health System
Tracker. October 4, 2017.https://www.healthsystemtracker.org/brief/
increases-incost-sharing-payments-have-far-outpaced-wage-growth/#item-
start
\37\ Claxton G, Levitt L, Long M. Payments for Cost Sharing
Increasing Rapidly Over Time. Peterson-Kaiser Health System Tracker.
April 2016.http://www.healthsystemtracker.org/insight/examining-high-
prescription-drugspending-for-people-with-employer-sponsored-health-
insurance/
---------------------------------------------------------------------------
Due to the growing gap between list and net prices,
patients' cost sharing for medicines is increasingly based on
prices that do not reflect plan sponsors' actual costs. For
example, market analysts report that negotiated discounts and
rebates can lower the net price of insulin by up to 50 percent
to 70 percent, yet health plans require patients with
deductibles to pay the full undiscounted price. As a result, a
patient in a high-deductible health plan who pays the list
price each month for insulin maybe paying hundreds--or even
thousands--more annually than their insurer. Analysis by
Amundsen Consulting shows that more than half of patients' out-
of-pocket spending for brand medicines is based on the list
price of the medicine, even though their health insurer may be
receiving a steep discount.\38\
---------------------------------------------------------------------------
\38\ Amundsen Consulting. Commercially Insured Patients Pay
Undiscounted List Prices for One In Five Brand Prescriptions,
Accounting for Half of Out-of-Pocket Spending on Brand Medicines. March
2017.http://www.phrma.org/report/commercially-insured-patients-pay-
undiscounted-list-prices-for-one-in-five-brand-prescriptions-
accounting-for-half-of-out-of-pocket-spending-brand-medicines
---------------------------------------------------------------------------
Health plans typically use some portion of negotiated
rebates to reduce premiums for all enrollees, rather than to
directly lower costs for patients facing high cost-sharing due
to deductibles and coinsurance. According to one actuarial
firm, this results in a system of ``reverse insurance,''
whereby payers require patients with high drug expenditures to
pay more out-of-pocket, while rebate savings are spread out
among all health plan enrollees in the form of lower premiums.
\39\ Asking sicker patients with high drug costs to subsidize
premiums for healthier enrollees is the exact opposite of how
health insurance is supposed to work.
---------------------------------------------------------------------------
\39\ Girod CS, Hart SK, Weltz S. 2017 Milliman Medical Index. May
2017.http://www.milliman.com/uploadedFiles/insight/Periodicals/mmi/
2017-milliman-medical-index.pdf
---------------------------------------------------------------------------
Some patients also end up paying more at the pharmacy
counter when they use their insurance, not knowing that their
prescriptions would be cheaper if they were paying in cash.
Many PBM contracts require pharmacies to charge patients the
exact amount negotiated between the PBM and the pharmacy, even
if that amount exceeds what the pharmacy would charge to a
patient without insurance. Gag-clauses in PBM contracts
prohibit pharmacists from informing insured patients about the
lower cash price, at the risk of the pharmacy being excluded
from the PBM's network. In these instances, pharmacies must
instead overcharge patients, requiring them to pay the full
amount of their copayment, over and above the actual cost of
the medication. These overpayments are then ``clawed back''
from the pharmacy by the PBM.\40\
---------------------------------------------------------------------------
\40\ Hopkins JS. You're Overpaying for Drugs and Your Pharmacist
Can't Tell You. Bloomberg. February 24, 2017.https://www.bloomberg.com/
news/articles/2017-02-24/sworn-to-secrecy-drugstores-stay-silent-as-
customers-overpay
---------------------------------------------------------------------------
pbms negotiate lower medicine prices for health plans and employers,
but don't always pass along all of the savings
PBMs commonly retain a portion of the rebates they
negotiate on behalf of their health plan and employer clients.
While the remainder of the rebates are generally passed on to
plan sponsors, smaller employers and health plans may not
benefit from all of the price concessions the PBM has
negotiated with manufacturers, particularly if the PBM decides
not to define certain fees or other concessions as ``rebates.''
For example, one benefits consultant has observed that PBMs are
increasingly changing the contractual definition of rebates to
exclude certain administrative fees, allowing the PBM to retain
these payments rather than passing them back to the plan
sponsor. These administrative fees can be as high as 25 percent
to 30 percent of the total rebate negotiated with the
manufacturer and are often not reported to the plan sponsor by
the PBM.\41\
---------------------------------------------------------------------------
\41\ Dross D. Will Point-of-Sale Rebates Disrupt the PBM Business?
Mercer. July 31, 2017.https://www.mercer.us/our-thinking/healthcare/
will-point-of-sale-rebates-disrupt-the-pbm-business.html
---------------------------------------------------------------------------
In addition to the rebates they negotiate with
biopharmaceutical companies, PBMs are increasingly requiring
that if a medicine's list price increases by more than a
certain percentage, the manufacturer must provide an additional
price protection rebate reimbursing the PBM for all price
increases above the threshold. Lack of transparency in
contracts between employers and PBMs has led many plan sponsors
to question the share of rebate savings being passed through,
how much the PBM is retaining for administrative fees, and
whether the PBM is disclosing and passing on other price
concessions, such as savings from price protection rebates.\42\
---------------------------------------------------------------------------
\42\ Midwestern Business Group on Health. Drawing a Line in the
Sand: Employers Must Rethink Pharmacy Benefit Strategies. September
2017.https://higherlogicdownload.s3.amazonaws.com/MBGH/4f7f512a-e946-
4060-9575-b27c65545cb8/UploadedImages/Specialty percent20Pharmacy/DMJ--
MBGH--Line--in--the--Sand--RV12--9617.pdf
---------------------------------------------------------------------------
Both the portion of the rebate retained by the PBM and the
administrative fees they charge their clients are typically
based off of a percentage of a medicine's list price.
Accordingly, some PBMs may prefer that their formularies
include medicines with high list prices and large rebates,
rather than medicines with a lower list price. In its most
recent report to Congress, the Medicare Payment Advisory
Commission discussed incentives that may drive Part D plan
sponsors to give formulary preference to medicines with large
rebates, rather than lower cost alternatives.\43\ These
incentives arise because sizable portions of the Part D benefit
are not paid for by plan sponsors (e.g., beneficiaries and
manufacturers pay for the majority of costs in the coverage
gap). Similarly, the Centers for Medicare & Medicaid (CMS) has
noted that coverage of medicines with high list prices and
large rebates ``ease[s] the financial burden borne by Part D
plans essentially by shifting costs to the catastrophic phase
of the benefit, where plan liability is limited.''\44\
---------------------------------------------------------------------------
\43\ Medicare Payment Advisory Commission. Status Report on the
Medicare Prescription Drug Program (Part D). March 2017.http://
medpac.gov/docs/default-source/reports/mar17--entirereport.pdf
\44\ Centers for Medicare & Medicaid. Medicare Part D--Direct and
Indirect Remuneration (DIR). January 19, 2017. https://www.cms.gov/
Newsroom/MediaReleaseData base/Fact-sheets/2017-Fact-Sheet-items/2017-
01-19-2.html
---------------------------------------------------------------------------
hospital markups on medicines increase cost-sharing for commercially
insured patients
The pharmaceutical distribution and payment process differs
for medicines administered in a physician office or health care
facility vs. those purchased at a pharmacy. Providers typically
purchase medicines directly, often through a Group Purchasing
Organization (GPO). After the physician administers the
medicine to the patient, the patient's insurance reimburses the
provider for the cost of the medicine as part of the patient's
coverage for medical care.
The amount that providers charge for medicines and how much
insurers pay varies widely based on where the medicine is
administered to the patient. For example, commercial insurers
often pay hospital outpatient departments twice as much as
physician offices for administering the exact same medicines,
including for diseases such as cancer or autoimmune
disorders.\45\ This is because large hospitals can demand much
higher prices from commercial insurers than small physician
practices. The Senior Vice President of Oncology and Genetics
at UnitedHealthcare described the effect for chemotherapy
treatment at high profile cancer centers: ``Put simply, the
hospitals are saying, `If you want our beds, you have to take
our prices for oncology treatment.''\46\
---------------------------------------------------------------------------
\45\ Magellan RX Management. Medical Pharmacy Trend Report: 2016
Seventh Edition. March 2017.
\46\ Newcomer LN. Those Who Pay Have A Say: A View On Oncology
Drug Pricing and Reimbursement. The Oncologist. 2016;21(7):779-81.
---------------------------------------------------------------------------
The results of hospital markups are astounding. Recent
research shows that for 20 medicines administered in hospital
outpatient departments, hospitals charge prices that are on
average nearly five times higher than their acquisition costs
and are reimbursed up to three and a half times their
acquisition cost by commercial insurers.\47\ For a vast
majority of the medicines included in the analysis, this means
that the manufacturer--who made the substantial time and R&D
investments including clinical trials necessary to develop the
treatment--was paid less for the medicine than the hospital.
---------------------------------------------------------------------------
\47\ The Moran Company. Hospital Charges and Reimbursement for
Drugs: Analysis of Markups Relative to Acquisition Cost. October 2017.
---------------------------------------------------------------------------
Hospital markups on prescription medicines have a
substantial effect not just on overall healthcare costs, but
also on patient affordability. For patients with commercial
insurance, coinsurance is the most common form of cost-sharing
for provider-administered medicines, which means that the
amount the patient must pay is equal to a percentage of the
total price the insurer reimburses the provider for the
medication. So, when a hospital is paid two or three times the
acquisition cost for a medicine, patients are also paying
higher coinsurance. As the same United insurance executive
quoted above noted ``it is immoral to force vulnerable patients
to pay triple-digit mark-ups because they have cancer.''\48\
---------------------------------------------------------------------------
\48\ Newcomer LN. Those Who Pay Have A Say: A View On Oncology
Drug Pricing and Reimbursement. The Oncologist. 2016;21(7):779-81.
---------------------------------------------------------------------------
market distortions created by the 340b program lead to higher health
care costs
The 340B program, a program originally intended to provide
discounts on medicines for safety-net providers, is
contributing to higher health care costs and economists suspect
that it is also leading to higher list prices for medicines.
This program started in 1992, and its basic structure has not
been updated since then, despite dramatic changes in the health
care system over the past 25 years. The current structure of
the program is causing higher health care costs for three main
reasons.
First, the 340B discount, which is structured as a
percentage discount, creates incentives for hospitals to earn a
larger spread from the 340B discounts by prescribing more
medicines and higher cost medicines. Economists have noted this
may lead prescribing to ``shift toward more expensive drugs
because profit margins will in general be larger.''\49\ A 2015
Government Accountability Office study found evidence that 340B
was leading to the prescribing of more drugs and more expensive
drugs for Medicare patients.\50\
---------------------------------------------------------------------------
\49\ Conti R, Bach P. Cost Consequences of the 340B Drug Discount
Program. Journal of the American Medical Association.
2013;309(19):1995-1996.
\50\ Government Accountability Office. Medicare Part B Drugs:
Action Needed to Reduce Financial Incentives to Prescribe 340B Drugs at
Participating Hospitals. GAO-15-442, June 2015.
---------------------------------------------------------------------------
Second, evidence suggests the 340B program shifts care to
more expensive and less convenient settings. Government reports
suggest that hospitals are taking advantage of guidance that
has not been revisited since 1994 which allows hospitals to
obtain more 340B discounts by buying community-based physician
practices, so that prescriptions written by those physicians
then qualify for 340B discounts.\51\ As a result, patients are
left with fewer community-based provider options and are pushed
into higher cost hospital-based settings. Analysis by the IMS
Institute for Healthcare Informatics found that average costs
for administering cancer drugs are typically twice as high at
hospital outpatient departments compared to community-based
oncologists, which can lead to ``higher patient cost
responsibility.''\52\ Researchers from Memorial Sloan Kettering
have noted 340B is helping to drive consolidation of physician
practices into hospitals, and that in the absence of reforms
``the trend toward consolidation will continue to drive up the
cost of commercial insurance...''\53\
---------------------------------------------------------------------------
\51\ 59 Federal Register 47884.
\52\ IMS Institute for Healthcare Informatics. Global Oncology
Trend Report: A Review of 2015 and Outlook to 2020,June 2016.
\53\ Bach P and Jain RH. Physician's Office and Hospital
Outpatient Setting in Oncology: It's About Prices, Not Use. Journal of
Oncology Practice 2017; 13(1), 4-5.
---------------------------------------------------------------------------
Third, the scale of the program as well as its rapid growth
may be affecting market prices for prescription drugs. In 2015,
roughly 45 percent of all hospitals participated in 340B.\54\
In an analysis of prescription drug pricing published in the
New England Journal of Medicine, economists at Harvard
University and the University of Chicago concluded that
``lawmakers could lower the price of prescription drugs by
reforming the Federal 340B Drug Pricing Program. [...]The scope
of the 340B program is currently so vast for drugs that are
commonly infused or injected into patients by physicians that
their prices are probably driven up for all consumers''
(emphasis added).\55\ Another study in JAMA noted that list
prices for drugs are likely higher than they otherwise would be
``to offset revenue losses incurred as a larger number of drug
sales become eligible for 340B discounts (and thus fewer drugs
are sold at full price).''\56\ Certain drug classes are
disproportionately impacted by the 340B program. Thus, the
price distorting impact may be concentrated in certain
therapeutic areas, such as medicines for cancer. For example,
sales to 340B hospitals account for 33 percent of all Medicare
Part B reimbursement for certain types of cancer drugs.\57\
---------------------------------------------------------------------------
\54\ Medicare Payment Advisory Commission. Report to the Congress:
Overview of the 340B Drug Pricing Program. May 2015.
\55\ Conti R and Rosenthal M. Pharmaceutical Policy Reform--
Balancing Affordability with Incentives for Innovation. New England
Journal of Medicine. 2016; 374:703-706.
\56\ Conti R, Bach P. Cost Consequences of the 340B Drug Discount
Program, Journal of the American Medical Association.
2013;309(19):1995-1996.
\57\ Drugs sold to 340B hospitals account for 33 percent of all
Part B reimbursement for breast cancer and multiple myeloma drugs.
Vandervelde A and Blalock E. Measuring the Relative Size of the 340B
Program: 2012-2017. Berkeley Research Group, July 2017.
---------------------------------------------------------------------------
market-based approaches are the best solution for addressing health
care affordability and controlling costs
The competitive U.S. health care market provides a sound
framework for balancing and supporting patient access, cost
containment, and continued progress for patients. Meaningful
efforts to address the cost of prescription medicines must
include all stakeholders in the supply chain, including
biopharmaceutical companies, PBMs, health plans, wholesalers,
hospitals, and pharmacies. Policies targeted solely at brand
manufacturers--which account for just half of total net
spending on prescription medicines and just 6.8 percent of
total U.S. health care spending--are insufficient for
addressing broader health care sustainability challenges and
risk diminishing the incentives for future innovation.
Strategies for strengthening and enhancing the competitive
market include encouraging payers to share negotiated savings
with patients at the pharmacy; reforming outdated regulations
hindering the adoption of value-based payment arrangements;
reforming the 340B drug discount program, which is distorting
the market, so that it better serves the purpose for which it
was created; and continuing to modernize the Food and Drug
Administration (FDA) and assure that there is robust generic
and biosimilar competition once a brand medicine loses its
exclusivity.
sharing negotiated savings with patients
Changes in insurance coverage for prescription medicines,
and the growing use of deductibles and coinsurance in
particular, have created affordability challenges for many
patients. Health plans should be encouraged to directly pass on
more of the savings from negotiated rebates in the form of
lower patient out-of-pocket costs, just like they do for other
types of health care services. This should be executed in a way
that maintains the confidentiality of proprietary pricing
information that the Federal Trade Commission has identified as
important to the effective functioning of competitive markets.
Payers have begun to recognize that using the undiscounted
price of a medicine to set cost-sharing is problematic for
patients: recent statements from the two largest PBMs note that
high deductibles for medicines put patients in a ``very
difficult position'' and indicate that sharing rebate savings
directly with patients should be considered as a ``best
practice.''\58\ Actuarial research indicates that sharing
negotiated savings could save certain commercially insured
patients enrolled in plans with high deductibles and
coinsurance between $145 and $800 annually, while increasing
premiums by 1 percent or less.\59\
---------------------------------------------------------------------------
\58\ Seeking Alpha. Express Scripts Holding (ESRX) Q4 2016
Results--Earnings Call Transcript. February 15, 2017.http://
seekingalpha.com/article/4046365-express-scripts-holding-esrx-q4-2016-
results-earnings-call-transcript; Seeking Alpha. CVS Health (CVS) Q4
2016 Results--Earnings Call Transcript. February 9, 2017.http://
seekingalpha.com/article/4044425-cvs-health-cvs-q4-2016-results-
earnings-call-transcript?part=single
\59\ Bunger A, Gomberg J, Petroske J. Sharing Rebates May Lower
Patient Costs and Likely Has Minimal Impact on Premiums. October 12,
2017. http://www.phrma.org/report/point-of-sale-rebate-analysis-in-the-
commercial-market
---------------------------------------------------------------------------
To help patients afford their medicines, biopharmaceutical
companies have entered into partnerships with third parties,
such as Blink Health and GoodRx, to offer discounted prices
directly to patients, outside of their insurance benefit.\60\
Encouraging health plans to allow the cost of prescriptions
purchased through these third-party programs to count toward
patients' deductibles and maximum out-of-pocket spending limits
would further reduce patient affordability barriers.
---------------------------------------------------------------------------
\60\ Thomas K. New Online Tools Offer Path to Lower Drug Prices.
New York Times. February 9, 2016.https://www.nytimes.com/2016/02/10/
business/taming-drug-prices-by-pulling-back-the-curtain-online.html
---------------------------------------------------------------------------
Copay assistance programs offered by biopharmaceutical
companies provide another valuable source of assistance for
many commercially insured patients who are struggling to afford
their out-of-pocket costs, as do manufacturer-sponsored patient
assistance programs that help underinsured and uninsured
patients obtain the medicines they need for free or nearly
free. Recent efforts by health plans to restrict use of copay
assistance programs, including no longer counting the full
amount patients are asked to pay out-of-pocket toward their
deductibles or out-of-pocket maximums, unfairly penalize
patients and threaten their ability to stay on needed
medicines.
reforming outdated regulations hindering the adoption of value-based
payment arrangements
Changes in the science and pressures for cost containment
in the competitive market are driving rapid evolution of
payment and care delivery systems, and biopharmaceutical
companies are playing a role in this transformation. As
therapies become more personalized, and as the health care
market moves away from fee-for-service care and toward more
integrated care systems, biopharmaceutical companies are
increasingly partnering with payers to develop new types of
payment arrangements that reward improvements in care and
better health outcomes for patients.
Yet while the science and market are moving rapidly,
efforts to develop new ways to pay for medicines have been
slowed by regulations designed for an earlier era. Such
regulations can have the unintended consequence of making it
more difficult for payers to prioritize results that matter to
patients, and for biopharmaceutical companies to increase the
amount of risk they share with payers. For example:
LAmbiguity in FDA rules governing manufacturer
communications about their medicines can prevent
biopharmaceutical companies from entering into contracts based
on the ability of their medicine to reduce hospitalizations or
other medical services, since those contracts might be
perceived as promoting the medicines for an unapproved
indication.
LLack of clarity in the anti-kickback statute
(AKS) can inhibit value-based contracts due to lack of
certainty as to whether contracts fit within existing safe
harbors and exceptions. By revising the AKS regulations to add
a value-based contracting safe harbor, policymakers can
facilitate private payers and manufacturers to expand the use
of value-based contracts as a solution to health care
affordability and controlling drug costs.
LPrice reporting rules such as Medicaid Best Price
can limit the amount of risk biopharmaceutical companies share
with payers within a value based arrangement, because any
increased discount beyond the statutory minimum must be offered
not only to that payer, but also to all of Medicaid. Exempting
value-based arrangements from existing technical and complex
Best Price, Average Manufacturer Price, and potentially Average
Sales Price requirements to reflect a modern and flexible
approach to price reporting would foster expansion of
innovative contracting arrangements.
modernizing the fda
As the pace of scientific discovery accelerates, it is
critical to assure that our regulatory infrastructure keeps up
with the science and that FDA regulations are up-to-date,
practical, clear and not overly burdensome to foster
efficiency, predictability, and the ability of
biopharmaceutical companies to innovate and bring new medicines
to patients. The Committee's recent action to reauthorize the
Prescription Drug User Fee Act creates a solid foundation not
only to accelerate approval of new life-saving treatments, but
also assure that there is robust generic and biosimilar
competition. We thank the Committee for its rapid and
bipartisan action.
Accelerating the introduction of new medicines allows the
forces of private market competition to keep costs in check and
increases the number lifesaving drugs becoming available to
patients. Importantly, key provisions of the prescription drug,
biosimilar, and generic drug user fee acts will help to
eliminate the generic drug application backlog, increase
resources to prevent future backlogs, and to streamline the
review process and enhance FDA's expertise related to drug-
device combination products, an area in which regulatory
uncertainties and delays have previously deterred brand and
generic manufacturers from investments. Additional
opportunities to improve competition include finalizing FDA
guidances related to biosimilars and enhancing incentives for
generic manufacturers to enter the marketplace where there are
no intellectual property or regulatory incentives preventing
generic entry but, due to small patient population sizes, there
are no brand or generic competitors. Increased competition from
generics could be spurred by waiving user fees for eligible
products, providing a transferable generic drug priority review
voucher, and expediting review of such products and the
inspection of their facilities.
Finally, the FDA can further spur efficiency in the market
and free up scarce resources through elimination of certain
outdated regulations. For example, regulations requiring
biopharmaceutical companies to submit postmarketing reports in
a format unique to the U.S. are inefficient and burdensome and
provide no appreciable benefit compared to the format used
globally. A more logical approach for submission of
postmarketing reports would be to streamline the formats.
Similarly, requiring biopharmaceutical companies to submit all
promotional materials to the FDA at the time of dissemination--
even if only minor, non-substantive changes have been made to
previously submitted pieces--results in submission of thousands
of pieces per company per year with no benefit to public
health.
reforming the 340b drug discount program
To protect the health care safety net it is critical to
ensure that the underlying market works. The 340B program needs
both congressional and administrative updates to help prevent
it from continuing to raise costs for consumers and the overall
health care system. Stronger rules for hospitals participating
in the program will help ensure the program targets the
patients and true safety-net facilities it was intended to
help. Specific reforms for hospitals participating in the
program should include stricter 340B eligibility criteria,
limits on contract pharmacy arrangements, requirements that
patients see a benefit from the program, a tighter definition
of patient eligibility, and limits on which hospital-owned
physician practices can participate in 340B.
assuring robust competition and continuing to modernize the fda
Economists have reinforced the critical role of boosting
competition to address drug cost and access issues. To increase
competition:
LKey provisions of the prescription drug,
biosimilar, and generic drug user fee acts will spur
competition, including policies to eliminate the generic drug
application backlog and increased resources to prevent future
backlogs, expand FDA's expertise related to drug----device
combination products, and reduce the regulatory uncertainty and
streamline review of drug-device combination products.
Biopharmaceutical companies have stated that current regulatory
uncertainties and delays have deterred both generic and brand
manufacturers from investments in these areas.
LReducing the length and increasing the efficiency
of drug development will increase competition on both price and
clinical effects. Given that the cost of innovator drug
development has doubled over the past decade, in part due to
increasing FDA requirements, the Prescription Drug User Fee Act
includes a range of provisions aimed at reducing uncertainty
and creating efficiencies in the both the development and
regulatory review of new medicines. Accelerating the
introduction of new medicines would allow the forces of private
market competition to keep costs in check and increase the
number of lifesaving drugs becoming available to patients.
LEnhancing incentives for generic manufacturers to
enter the marketplace in areas where there are no intellectual
property or regulatory incentives preventing generic entry but
due to small population sizes there are no brand or generic
competitors. Increased competition from generics could be
spurred by waiving user fees for eligible products, providing a
transferable generic drug priority review voucher, and
expediting review of such products and the inspection of their
facilities.
LFinalizing the various FDA guidances related to
biosimilars is necessary to reduce regulatory uncertainties for
biosimliar manufacturers and to accelerate the market entry of
biosimilars. Biosimilar medicines are an important way to spur
competition that will lead to more choices for patients and
lower prices for patients and the health care system.
sustaining incentives for innovation is critical to solving future
health care challenges
Looking ahead, it is clear that medicines offer some of the
clearest opportunities to address the challenge of growing
health care costs as our population ages. For example, the
number of Alzheimer's cases is projected to increase rapidly
over the next decade as Baby Boomers begin to reach retirement
age, resulting in an enormous human and economic cost. If we
can achieve treatment advances that delay Alzheimer's by just 5
years beginning a decade from now, 2.5 million fewer Americans
will be afflicted by the disease and we would avoid $367
billion annually by 2050 in costs for long-term care and
similar services for persons with Alzheimer's.\61\ Alzheimer's
remains a major focus of biopharmaceutical research companies
despite high risks; since 1998 there have been 123 unsuccessful
attempts to develop a medicine for Alzheimer's, and just four
approved medicines.\62\ In just the last 2 years, several
promising new therapies failed in mid-and late-stage trials,
resulting in the loss of billions of dollars of human,
political, and monetary capital.\63\
---------------------------------------------------------------------------
\61\ Alzheimer's Association. ``Changing the Trajectory of
Alzheimer's Disease: How a Treatment by 2025 Saves Lives and Dollars.''
https://www.alz.org/documents--custom/trajectory.pdf
\62\ PhRMA. Researching Alzheimer's Medicines: Setbacks and
Stepping Stones. Summer 2015. Available at: http://phrma.org/sites/
default/files/pdf/alzheimers-setbacks-and-stepping-stones.pdf
\63\ Ogg JC. The List of Failed Alzheimer's Drug Treatments Keeps
Growing. 24/7 Wall Street. September 26, 2017.http://247wallst.com/
healthcare-business/2017/09/26/the-list-of-failed-alzheimers-drug-
treatments-keeps-growing/
---------------------------------------------------------------------------
As with Alzheimer's disease, there is a significant unmet
medical need for patients with rare diseases which collectively
affect 30 million Americans. But only 5 percent of these
diseases have available treatment options.\64\ Given the many
diseases where there is significant unmet need, maintaining
incentives for the continued development of new medicines will
be crucial in addressing the most costly and challenging
diseases of our time.
---------------------------------------------------------------------------
\64\ Pharmaceutical Research and Manufacturers of America (PhRMA).
Spurring Innovation in Rare Diseases: 2017 update. http://phrma-
docs.phrma.org/files/dmfile/Rare-Disease-Udpate--FINAL.pdf.
---------------------------------------------------------------------------
Yet there is evidence that rising costs in drug
development, combined with an increasingly competitive market,
have resulted in more uncertainty and lower average returns in
recent years. Analysis by a Massachusetts Institute of
Technology economist and the IMS Institute finds that
increasing market competition has eroded much of the economic
profitability of newly launched brand medicines, such that on
average financial returns for medicines launched between 2005
and 2009 were insufficient to recoup average R&D and operating
costs.\65\
---------------------------------------------------------------------------
\65\ Berndt ER, Nass D, Kleinrock M, Aitken M. Decline in Economic
Returns from New Drugs Raises Questions About Sustaining Innovations.
Health Affairs. 2015;34(2):245-252.
---------------------------------------------------------------------------
Even drugs that succeed at launch may quickly be supplanted
as other new brand competitors enter the market, as occurred
with first generation HCV medicines. For example, despite
initial success, two protease inhibitors launched in 2011--seen
at the time as substantial advances in treatment for HCV--found
that they were supplanted by more effective treatments
following the introduction of the next generation of medicines
in 2013. Thus, despite substantial investment and many years of
research and development, competition from newer brands led
these medicines to be withdrawn from the market within 2
years.\66\ This underscores the extraordinary risk
biopharmaceutical companies confront to bring new treatments to
market.
---------------------------------------------------------------------------
\66\ Loftus P. Merck Will No Longer Sell its Victrelis Hepatitis C
Drug in the US. Wall Street Journal, Jan 21, 2015.http://blogs.wsj.com/
pharmalot/2015/01/21/merck-will-no-longer-sell-its-victrelis-hepatitis-
c-drug-in-the-u-s/
---------------------------------------------------------------------------
[summary statement of lori m. reilly]
Innovative medicines represent significant scientific
advancements that transform the treatmentand the downstream
healthcare costs of complex and costly diseases. Despite the
unparalleledsavings and value medicines generate for the health
care system, spending on medicines is ofteninaccurately
portrayed as growing rapidly and driving increases in overall
health care spending.Discussions about the cost of medicines
almost always focus on list prices, which provide amisleading
view of actual spending trends because they do not factor in
the substantial rebatesand discounts that PBMs and health plans
negotiate with biopharmaceutical companies or thestatutory
rebates, discounts, and fees companies are required to provide
to government programs.Accounting for these rebates and
discounts, net spending on medicines is growing at the
slowestrate in years.
A complex distribution system shapes the prices that
patients, plan sponsors, and the governmentpay for medicines.
This system has evolved significantly in recent years, and an
increasing shareof the discounts and rebates negotiated between
biopharmaceutical companies and payers areretained by middlemen
along the pharmaceutical supply chain. Savings generated from
pricenegotiations aren't always passed along directly to
patients, who are increasingly exposed to highout-of-pocket
costs for medicines because of the growing use of high
deductibles andcoinsurance rather than fixed dollar copays.
Unlike for care received at an in-network hospital or
physician's office, cost-sharing forprescriptions filled in the
deductible or with coinsurance is based on the list price,
rather than aprice that is reflective of the rebates and
discounts negotiated by payers. When a patient's costsharingis
based on a price that does not reflect their health plan's
actual costs, that patient canend paying hundreds-or even
thousands-more annually for a medicine than their insurer.More
than half of patients' out-of-pocket spending for brand
medicines is based on the list price,even though their insurers
may be receiving a steep discount.
Within the framework of the competitive U.S. health care
market, there are several steps thatcould improve patients'
access to medicines, increase affordability for purchasers and
patients,and support continued progress for patients. These
include encouraging payers to sharenegotiated savings with
patients at the pharmacy counter; reforming outdated
regulationshindering the adoption of value-based payment
arrangements, reforming the 340B drug discountprogram to better
serve the purpose for which it was created; and continuing to
modernize theFDA and ensure robust generic and biosimilar
competition.
------
The Chairman. Thank you, Ms. Reilly.
Mr. Davis, welcome.
STATEMENT OF CHESTER ``CHIP'' DAVIS, JR.
Mr. Davis. Thank you, Chairman Alexander, Ranking Member
Murray, and Members of the Committee. I very much appreciate
the invitation to testify here today.
The Association for Accessible Medicines is the Nation's
leading trade association for manufacturers of FDA-approved
generic prescription drugs. Our members actually manufacture
more than 90 percent of all the generic pharmaceuticals
dispensed in the United States, providing tens of thousands of
jobs in over 150 facilities throughout the country, and
manufacture more than 61 billion doses of medication every year
here in the United States.
AAM's core mission is to improve the lives of patients by
advancing timely access to affordable generic and biosimilar
medications.
On behalf of our members, let me begin by thanking the
Committee for convening today's hearing to examine the critical
challenge of rising drug prices and for your leadership in
reauthorizing all the User Fee Programs earlier this year, most
particularly for our interest, the Generic and Biosimilar User
Fee Programs.
Generic medicines currently represent, as the Chairman
said, almost 90 percent--actually 89 percent--of all
prescriptions dispensed in the U.S. But, importantly, we
account for only 26 percent of all expenditures on prescription
drugs, saving patients and payers nearly $5 billion every week.
Last year, use of generic medicines saved $253 billion to the
U.S. healthcare system. That translates into meaningful patient
access.
Generics actually operate currently in a deflationary
market, not an inflationary market, and that is an important
context. Consider that in the past 12 months, prescriptions of
brands have gone down by 7 percent while their revenue has
increased slightly. By contrast, generic prescriptions have
actually gone up. They're up 2 percent year over year, while
revenue has declined by 13 percent.
It is easy to recognize the significant difference between
generic and brand name prescription drugs when it comes to
prices that we often see at the pharmacy counter. The dramatic
difference, however, in how brand and generic drug markets
operate is not as widely understood.
When generics enter to provide competition to a brand
monopoly, payers typically shift away from the rebate model of
reimbursement that you often hear about and rely on
distribution channels to effectively lower the price of
medicine. Generics, therefore, compete for sales, and because
the products are identical, commonly, the only leverage the
generic manufacturers have is their ability to lower price and
guarantee volume. This creates fierce competition in the
marketplace amongst our members, which, in turn, causes prices
to decline.
The reality is that the markets for brands and generics are
very different, monopolized versus commoditized, and these
differences create vastly different incentives for all the
stakeholders in the supply chain. This reality was most
recently examined and affirmed through a report issued by the
University of Southern California Center for Health Policy and
Economics entitled ``The Flow of Money Through the
Pharmaceutical Distribution System.'' Among the findings was
that supply chain stakeholders capture significantly more
revenue spent on generics than they do on brands. In fact, for
every $100 spent on dispensing a generic medicine in this
country, approximately $65 goes to the distribution and
reimbursement of those products by members of the supply chain.
In today's market, consolidation in the wholesaler and
distributor market and arrangements between pharmacy chains and
distributors have left generic manufacturers with a very small
number of very large-scale purchasers. Essentially, three
purchasers today account for 90 percent of all sales from all
generic manufacturers.
Ultimately, a market that has three large-scale purchasers
is going to see significant compression and consolidation on
the supply side, which is our side. Fewer generic manufacturers
running the risk of marketing smaller portfolios can easily
translate into less competition, not more, while simultaneously
increasing the risk of drug shortages, a scenario none of us
want to see happen.
As this Committee has identified and reflected in the title
of this hearing, how do these realities affect what patients
pay, and what does it mean for them moving forward? So we all
know 30 years ago, Hatch-Waxman created a remarkably strong
system designed to balance innovation and access. But that
system can only function if there is robust competition amongst
buyers and sellers, and that system can only work if generic
companies can get the drug samples they need to do the
pharmacovigilance and start the FDA application and approval
process, which this Committee has spearheaded efforts to
accelerate and reform. That system only works when generic
medicines have the ability to enter the market when patents and
other IP protections are actually supposed to expire, and,
ultimately, that system works when public policy doesn't favor
one side of the access and innovation equation at the expense
of the other.
In closing, we all know that something must be done about
prescription drug prices. Given the fact that the new FDA
Commissioner, Dr. Scott Gottlieb, has characterized drug cost
as a public health concern, AAM respectfully submits that
Congress has the opportunity to consider policies that will
enhance generic and biosimilar competition. We have provided
those in our written testimony, and I look forward to answering
your questions as we move forward.
Thank you.
[The prepared statement of Mr. Davis follows:]
Prepared Statement of Chester ``Chip'' Davis, Jr.
Chairman Alexander, Ranking Member Murray and Members of
the Committee:
Thank you for the invitation to testify today. I am Chip
Davis, President and CEO of the Association for Accessible
Medicines (AAM). AAM is the nation's leading trade association
for manufacturers and distributors of FDA-approved generic and
biosimilar prescription medicines. Our members provide more
than 36,700 jobs at nearly 150 facilities, and manufacture more
than 61 billion doses in the United States every year. AAM's
core mission is to improve the lives of patients by advancing
timely access to affordable generic and biosimilar medications.
I commend you for convening today's hearing to examine the
critical challenge of high and rising drug prices.
Generic medicines represent greater than 89 percent of all
prescriptions dispensed in the U.S., but only 26 percent of
expenditures on prescription drugs, saving patients and payers
nearly $5 billion every week.\1\ Our industry is proud to be
able to deliver these savings to the healthcare system.
---------------------------------------------------------------------------
\1\ $253 billion total savings in 2016, equivalent to
approximately $5 billion every week. AAM 2017 Generic Drug Access &
Savings in the U.S., http://accessiblemeds.org/sites/default/files/
2017-07/2017-AAM-Access-Savings-Report-2017-web2.pdf.
---------------------------------------------------------------------------
It is sobering to consider what America's patients would
face if there were no FDA-approved generic or biosimilar
medicines to provide reliable access to affordable treatments.
Generics don't just deliver the most medicine at the lowest
cost and greatest savings; generics cushion the significant
impact dealt to patients and the healthcare system by high
brand name drug prices every day.
Put another way, the availability of low-cost generics
offsets the impact of high brand drug prices. Whereas prices
for FDA-approved generic medicines are currently declining by
over 7 percent year-over-year, prices for brand drugs,
especially biologics and specialty medicines, are increasing at
an unsustainable rate. From 2007 to 2016, brand specialty
medicines grew to occupy almost 43 percent of spending. These
products treat less than 3 percent of the population, and can
often cost patients thousands of dollars per treatment.
To illustrate this fact, consider that in the past twelve
months, prescriptions of brand drugs have decreased by 7
percent, but their revenue has climbed by 5 percent. This is a
direct result of price increases. By contrast, generic
prescriptions increased by 2 percent, but revenue declined by
13 percent.\2\
---------------------------------------------------------------------------
\2\ Morgan Stanley: Major Pharma Rx Chart / North America,
September 2017. https://ny.matrix.ms.com/eqr/article/webapp/89cddeb4-
96d6-11e7-8a10-
ce4c0a51e87f?t=1506097268%3A3184%3A22035%3Avmias1106666&m=1&ch=autob#
---------------------------------------------------------------------------
Consider the costs that patients would face in the absence
of these levels of generic competition. Last year, use of
generic medicines saved $253 billion. It has produced $1.67
trillion in savings over the last ten years. This has produced
meaningful and sustained patient access. Without generic
medicines, spending on cholesterol drugs would be more than 3.5
times higher, diabetes drugs almost 3 times higher, and
spending on breast cancer drugs 8 times higher.\3\
---------------------------------------------------------------------------
\3\ AAM 2017 Generic Drug Access & Savings in the U.S., http://
accessiblemeds.org/sites/default/files/2017-07/2017-AAM-Access-Savings-
Report-2017-web2.pdf.
---------------------------------------------------------------------------
However, the sustainability of a competitive generic market
and the availability of generic medicines for patients,
uninterrupted by shortages, is in jeopardy. In 1984, Congress
enacted the Hatch-Waxman Act which represents a model of
successful, bipartisan public policy. Over its more than
thirty-year history, the Act has produced a thriving and
constantly-changing marketplace by balancing innovation in drug
development and accelerating the availability of lower cost
generic alternatives. This has important effects on the public
health, allowing patients to live longer, healthier lives.
This balance is now threatened by three factors:
Lchanging and increasingly challenging market and
reimbursement frameworks,
Lthe abuse of laws and regulations by bad actors,
and
La failure of policy to account for the unique
challenges facing generic and biosimilar medicines.
In fact, while brand drug innovation has benefited from a
series of subsequent laws establishing incentives and
development tools, the generic and biosimilar marketplace and
patient access has not received an equivalent level of
attention. That neglect, combined with current market and
anticompetitive realities, reinforces why this hearing--and the
FDA's recent public hearing and the FTC's upcoming public
meeting on the same issue--are so important.
Congress must act to support generic and biosimilar
competition and supply to ensure continued access for patients.
It can do so by:
L1. Repealing the misguided Medicaid penalty on generic
drugs,
L2. Preventing brand abuses designed to block generic and
biosimilar competition by passing the bipartisan CREATES Act,
and
L3. Ensuring that biosimilar medicines have a level and
competitive playing field in Medicare.
generic drug markets are fundamentally different than brands
First, it is important to provide context about the generic
marketplace. Not only is the FDA approval process different for
generics and brand name drugs, but their respective markets and
the path by which they reach patients diverge significantly,
with important policy implications.
The 1984 Drug Price Competition and Patent Term Restoration
Act, commonly referred to as the ``Hatch-Waxman'' Act, created
an abbreviated pathway for generic drugs. This allows
manufacturers to rely upon the existing clinical data of the
brand product and demonstrate to FDA that their product is the
same as the reference product.
Hatch-Waxman also provided numerous lucrative incentives
for brand name drug companies, including extensions of patent
terms, regulatory exclusivities that guarantee market
monopolies regardless of the intellectual property status, and
a clear litigation pathway for asserting intellectual property
claims against generic manufacturers.
differences in supply chain
The balance created by Hatch-Waxman also created a new and
different market for generic drugs--separate from brand drugs--
that has supported growth in generic utilization and its
attendant savings for patients. Although brand manufacturers
often criticize pharmacy benefit managers (PBMs) and health
plan formulary and rebate practices, the supply chain and
pricing models they criticize do not represent the vast
majority of prescription drugs distributed in this country. The
89 percent of prescriptions filled by generic medicines are
subject to a different set of economic incentives and
arrangements--the result of multiple manufacturers marketing
identical products and competing exclusively on price, in a
commodity-style market.
When brand manufacturers leverage the pricing power granted
by their patents and regulatory exclusivities, PBMs,
distributors, and payors rely on formulary management and
rebating agreements to control costs.
However, upon generic entry, payors typically shift away
from rebate models of reimbursement and rely on distribution
channels to effectively lower the price of the medicine. Rather
than providing rebates to lower the cost, generic manufacturers
must compete for sales to wholesalers. Because the products are
virtually identical, the primary leverage manufacturers have is
their ability to lower the price and provide the necessary
volume. With over 200 generic manufacturers recognized by FDA,
competition is fierce and prices decline rapidly. The
wholesalers, often in collaborative purchasing agreements with
pharmacies across the country, then distribute generic
medicines to various retail pharmacies. Generic manufacturers
may have to compete even further by negotiating separate
payments to pharmacies to stock their product.
The different business model leads to a different type of
business planning by generic and biosimilar manufacturers. As
part of this, the decisions by which generic and biosimilar
manufacturers select which products to develop can take into
account multiple variables. Considerations include the
complexity in reverse engineering the original product, the
state of the intellectual property claimed by the brand
manufacturer over the product, the size of the patient
population served, the number of likely competitors for that
product, the product development and manufacturing capabilities
and costs.
Generic drug reimbursement is also different. Rather than
relying on per-transaction rebates, PBMs and insurers typically
establish a ``Maximum Allowable Cost'' (MAC) list that sets a
specific reimbursement rate for the product, regardless of the
generic product cost to the pharmacy. These MAC lists create
additional incentives for pharmacies to maximize their
dispensing margins by finding the lowest cost source for
generic products.
The result is a business model that differs significantly
from the brand business model. While brand companies typically
market a small number of high margin products, many generic
manufacturers market hundreds of products with varying levels
of profitability or loss.
supply chain pressures on generics
These differences in the generic and brand marketplaces
create vastly different incentives for the various
manufacturers, wholesalers, distributors, pharmacy benefit
managers (PBMs), insurers, and retail pharmacies that make up
the supply chain. To put it simply, virtually all other actors
in the supply chain enjoy significant financial benefits from
the manufacture of generic medicines.
This phenomenon was most recently examined by a group of
researchers at the USC Leonard D. Schaeffer Center for Health
Policy & Economics. That analysis, ``The Flow of Money Through
the Pharmaceutical Distribution System,'' identified two items
relevant to today's hearing:
LFirst, for every sale of a brand name drug to a
patient, the brand manufacturer captures approximately 76
percent of that revenue. Comparatively, generic manufacturers
keep only half of that percentage. Moreover, generic
manufacturers cannot rely on capturing the total volume within
the market as the brands do, and therefore individual generic
manufacturers are forced to rely on much smaller revenue
streams. To put it simply, brand drugs capture a higher
percentage of the spend of a higher value market.
LSecond, the supply chain captures significantly
more of the revenue spent on generic medicines than on brand
name drugs. For every $100 spent on dispensing generic
medicines in this country, approximately $65 goes to the
distribution and reimbursement of those products by the members
of the supply chain. PBMs make nearly three times as much on
generics as they do on brands. Wholesalers make about eight
times more. Pharmacies make over 10 times more for every $100
on generics than brands.\4\
---------------------------------------------------------------------------
\4\ Sood, et al., ``The Flow of Money Through the Pharmaceutical
Distribution System.'' June 2017. http://healthpolicy.usc.edu/
documents/USC%20Schaeffer--Flow%20of%20Money--2017.pdf
---------------------------------------------------------------------------
While the analysis demonstrates a series of strong
incentives to drive patients to generic medicines, supply chain
consolidation may jeopardize that success.
Compared to the fragmented generic drug market,
consolidation in the wholesale market and contractual
arrangements between pharmacy chains and the wholesalers have
left generic manufacturers with only a small number of
purchasers. The result is a market where three purchasers
account for over 90 percent of all wholesale revenue.\5\
---------------------------------------------------------------------------
\5\ Fein, Adam J. Fein. The 2016-2017 Economic Report on
Pharmaceutical Wholesalers and Specialty Distributors, September 2016.
---------------------------------------------------------------------------
As these purchasers move more and more towards single-
source contracts for generic drugs, it creates a dynamic where
it is possible that no more than three generic manufacturers
may be able to successfully market any given product. This
dynamic risks future competitive success in the generic market
as generic drug manufacturers may be forced to maximize
economies of scale and consolidate themselves.
cost pressures for patients
Patients thrive because of generic medicines, both in terms
of health outcomes and financial savings. For insured patients,
over 90 percent of generic prescriptions are filled for $20 or
less out-of-pocket. That is in comparison to just 39 percent
for brands at that price.\6\
---------------------------------------------------------------------------
\6\ AAM 2017 Generic Drug Access & Savings in the U.S., http://
accessiblemeds.org/sites/default/files/2017-07/2017-AAM-Access-Savings-
Report-2017-web2.pdf.
---------------------------------------------------------------------------
Data shows that patients are far less likely to fill a
prescription for a high-priced brand drug. In fact, brand name
drugs make up 20 percent of approved claims but account for 40
percent of all abandoned claims for new patients. Moreover, new
patient abandonment rates for generics are three times lower
than for branded products.\7\ Patient abandonment has a serious
effect on patient health--leading to hospitalizations, deaths
and extensive health system costs.
---------------------------------------------------------------------------
\7\ Id.
---------------------------------------------------------------------------
This is not to say that the market functions perfectly in
providing patients with the lowest cost possible. Many generic
medicines are subject to significant markups after they leave
the generic manufacturer. As an example, amoxicillin/potassium
clavulanate, commonly referred by its branded name Augmentin
and used for the treatment of infections, is sold by the
generic manufacturer for pennies per pill. However, by the time
a patient picks it up at the pharmacy counter, it may have a
cash price as high as $60 for 20 pills, or $20 for a fill for
patients with commercial insurance.\8\
---------------------------------------------------------------------------
\8\ Data on manufacturer sales from CMS Average Manufacturer Price
(AMP) data. Typical pharmacy prices from GoodRx.com.
---------------------------------------------------------------------------
It is clear the significant benefits for patients of
reliable access to affordable generic medicines are at risk.
Notwithstanding the economic principle that more suppliers of a
good or service creates lower prices for consumers, it is
unclear that the new imbalance between 200 generic competitors
and a handful of purchasers is sustainable. Some industry
analysts have already begun to forecast consolidation among
generic manufacturers.
An unfortunate yet foreseeable consequence of fewer generic
manufacturers is a significantly increased risk of drug
shortages. Evidence suggests that generic drugs are
particularly susceptible to drug shortages, potentially related
to existing market incentives as well as low reimbursement.\9\
Such shortages have a serious effect on patient care.
Responding to a series of drug shortages in 2011, Dr. Scott
Gottlieb testified before Congress that many such shortages
were a direct result of low reimbursement for older, low margin
products and that ``many hospitals are being forced to ration
key medicines and patients to sit on waiting lists for vital
drugs.''\10\
---------------------------------------------------------------------------
\9\ Stromberg, C. (May 2014). Drug Shortages, Pricing, and
Regulatory Activity. National Bureau of Economics Working Paper.http://
www.nber.org/chapters/c13102.pdf
\10\ Gottlieb, Scott. ``Drug Shortages: Why they happen and what
they mean'' Testimony before the Senate Finance Committee. December
2011. https://www.finance.senate.gov/imo/media/doc/
Gottlieb%20Testimony1.pdf
---------------------------------------------------------------------------
the importance of recognizing differences in policymaking
It is critical that policymakers take steps to ensure the
continued supply of affordable FDA-approved generic medicines.
Failure to do so threatens a stable supply of generic
medicines.
Congress recently created a new inflation-based penalty in
the Medicaid program for generics as part of the Bipartisan
Budget Act of 2015.The legislation inappropriately applied a
tool crafted for the brand drug market to generic markets,
essentially conflating what transpires in a monopolized market
with what occurs in a commoditized market with multiple
competitors. Under the legislation, generic manufacturers are
now subject to additional rebates for products even in the
absence of changes in the actual price of the product. This is
a direct result of a flawed application of a brand drug scheme
that fails to recognize the significant volatility in generic
prices.
As a result, manufacturers of affordable generic medicines
are now paying millions of dollars in ``penalties'' on products
that have not been subject to a price increase. In many
instances, changes in customer mix from one quarter to another
have triggered penalties solely due to purchasers getting lower
discounts on smaller volume orders--a normal occurrence in a
competitive market. These changes do not necessarily reflect
any new price being set by the manufacturer, but may merely
reflect new purchasing patterns.
These unpredictable, onerous penalties on often low-margin
medicines creates significant risk for manufacturers that would
consider entering these markets, and makes it more challenging
for manufacturers to continue participating in those markets. A
recent analysis concluded that the penalty would ``increase
uncertainty, reduce revenues, encourage manufacturers to exit
the market, and discourage the entry of new manufacturers. The
predictable effect of discouraging entry into competitive
markets is that product availability will be hampered:
shortages will be more likely, and the market forces that lead
prices to fall will be dampened.''\11\ Ironically, the analysis
also concluded that the penalty ``will not only have little
effect on generic prices, but it will also have the
unanticipated and unintended consequence of increasing the
likelihood of shortages for generic medicines.''\12\
---------------------------------------------------------------------------
\11\ Manning and Selck, ``Penalizing Generic Drugs with the CPI
Rebate will Reduce Competition and Increase the Likelihood of Drug
Shortages,'' September 2017. https://www.accessiblemeds.org/sites/
default/files/2017-09/Bates-White-White-Paper-Report-CPI-Penalty-09-12-
2017.pdf
\12\ Id.
---------------------------------------------------------------------------
Accordingly, we urge Congress to repeal this penalty.
barriers to entry
AAM and its members strongly support innovation. The
generic and biosimilar marketplaces rely on the existence of a
vibrant brand medicine industry. Fortunately, innovation
continues to flourish. FDA has already approved more new
molecular entities this year than it did in all of 2016. This
is good news for all of us.
But the balance between innovation and access requires a
clear opportunity for FDA-approved generic or biosimilar entry.
Without that competition, there can be no savings for patients
or taxpayers. Unfortunately, many brand medicine companies have
responded to the threat of competition by deploying new and
controversial ways to extend their high monopoly prices.
challenges to intellectual property law
Recently, one company went so far as to pay a Native
American tribe to rent its tribal sovereign immunity by taking
ownership of certain brand name drug patents facing a
challenge. Allergan, Plc (Allergan), a Dublin, Ireland-based
drug company, transferred the patent rights to its blockbuster
drug Restasis to the St. Regis Mohawk tribe in a blatant effort
to shield those patents from an administrative review process
established by Congress in 2011 and block generic competition.
The deal stands to be a profitable one for Allergan.
Restasis generated $1.4 billion in 2016 sales.\13\ For less
than 0.1 percent of the drug's annual sales, Allergan's deal
could delay patient access to affordable generic drugs for six
more years. This is a supply chain failure that Congress should
prevent.
---------------------------------------------------------------------------
\13\ Allergan plc, Annual Report (Form 10-K), at 59 (February
2017) (link)
---------------------------------------------------------------------------
According to press reports, Allergan provided an initial
payment of $13.75 million to the St. Regis Mohawk Tribe and $15
million in annual licensing fees. Every day Allergan delays
competition, the company takes in over $4 million in revenue
due to the lack of generic competition. Allergan will recoup
this licensing fee in around four days.
Allergan's transfer of its patents to the St. Regis Mohawk
Tribe is an end-run around the legal process established by
Congress to challenge questionable patents. If Congress wants
to ensure that Americans have access to affordable prescription
drugs, it must address schemes like Allergan's to delay generic
competition by renting sovereign immunity. The action by
Allergan to ensure that patients and payors do not benefit from
timely generic competition to Restasis is an alarming example
of the steps that brand name drug companies will take to put
profits above the public interest. But it is by no means the
only such example. Congress should outlaw these practices and
strengthen the IPR system.
barriers to generic and biosimilar development
As this Committee is aware, many generic and biosimilar
manufacturers face significant challenges obtaining the samples
needed for generic or biosimilar development. This is a result
of the misuse of systems designed to ensure the safety of
medicines by certain brand drug companies focused on delaying
or prevent competition. Such delays created by misuse, abuse or
regulatory failure deserve Congressional attention. In short,
if generic and biosimilar development is frustrated, they will
never enter the supply chain.
FDA Commissioner Gottlieb has highlighted the abuse of FDA-
mandated restricted distribution systems and restricted
distribution systems that brand companies create on their own,
without any mandate from FDA, to delay or completely prevent
generic competition.
This occurs when brand companies, using a Risk Evaluation
and Mitigation System (REMS) or their own voluntary ``safety''
program as an excuse, refuse to sell samples of their products
to generic and biosimilar companies so that they can conduct
the requisite bioequivalence and other testing. AAM members
that have sought to purchase brand products from wholesalers in
the supply chain are often informed that the wholesalers'
contracts prohibit the sale of the brand product for generic
studies. To date, FDA has received more than 150 complaints of
specific challenges to obtaining samples.
These abusive practices are directly counter to
Congressional intent reflected in both Hatch-Waxman, which
seeks to create generic competition as soon as brand monopoly
protection has expired, and the Food and Drug Administration
Amendments Act, which specifically prohibited the use of REMS
to delay generic competition.
FDA has taken steps to limit these kinds of abuses. In
2014, FDA released a draft guidance that attempted to assist
prospective generic and biosimilar applicants in their efforts
to acquire the samples necessary to conduct bioequivalence
testing. Under the guidance, FDA reviews bioequivalence
protocols. Following its review and identification of any
required changes, FDA sends a letter to the brand sponsor
indicating that the proposed testing contains safety
protections that provide the same level of patient-protection
as those in the applicable brand's safety protocol and that FDA
will not consider it a violation of the law for the brand
sponsor to provide samples to the designated potential generic
or biosimilar applicant. Although well-intentioned, the draft
guidance has failed to solve the problem and patients wait in
vain for FDA-approved generic and biosimilar versions of these
medicines.
Generic applicants are also challenged by brand companies'
refusal to negotiate in good faith the creation and
implementation of a single-shared REMS system (SSRS). Under
current law, if a brand drug is subject to a REMS that contains
Elements To Assure Safe Use (ETASU), generic versions cannot be
approved unless they are subject to a SSRS to implement the
ETASU elements. Moreover, the Federal Food Drug and Cosmetic
Act provides that a generic drug must utilize a shared system
along with the brand drug unless FDA waives this requirement
for one of the reasons set forth in the statute. In other
words, the brand and generic must agree on how to implement the
existing safety protocol jointly, unless FDA says otherwise.
The creation of a shared system should be relatively
straightforward and simple-generic applicants merely join the
existing safety system. Fundamentally, this is the business of
generic manufacturers: taking a sole-source product and making
it a multi-source product. However, brand companies regularly
use a variety of tactics to systematically delay and extend the
brand/generic negotiations. This refusal to engage in good
faith negotiations can delay the approval of the generic
product and force consumers to pay more to fill their
prescriptions.
This abuse injures competition. Commissioner Gottlieb
recently testified that:
Lbrand companies often have an incentive to refuse to
agree to a single, shared system REMS. By prolonging the
negotiations over a single, shared system REMS, they further
delay generic drug approval and competition. We see prolonged
negotiations and inability to agree on the terms of a single,
shared system REMS regularly.\14\
---------------------------------------------------------------------------
\14\ Gottlieb, Scott. ``Antitrust Concerns and The FDA Approval
Process,'' Testimony before the House Committee on the Judiciary,
Subcommittee on Regulatory Reform, Commercial and Antitrust Law, July
2017. https://www.fda.gov/NewsEvents/Testimony/ucm568869.htm
AAM applauds Commissioner Gottlieb's leadership to develop
a ``Drug Competition Action Plan'' to address regulatory issues
that are impeding competition, including abuse of restricted
distribution and REMS systems. However, AAM is concerned that
FDA's enforcement authorities as provided in FDAAA will not be
adequate to fully stem the brand abuses that have become so
widespread in recent years. For instance, the civil monetary
penalties available under FDA's enforcement authority pale in
comparison to the revenue available by impeding generic entry.
Center for Drug Evaluation and Research (CDER) Director Dr.
Janet Woodcock noted that ``fines and everything might simply
be considered a cost of doing business because there's so much
at stake in delaying generic competition.''\15\ Also, FDA's
authority to address the brand abuses using voluntarily imposed
restricted distribution system are highly limited.
---------------------------------------------------------------------------
\15\ Testimony of Dr. Janet Woodcock at ``Generic Drug User Fee
Amendments: Accelerating Patient Access to Generic Drugs.'' Senate
Committee on Health, Education, Labor, and Pensions, January 2016.
---------------------------------------------------------------------------
Brand manufacturers who have recognized the incentives
created by REMS-related delays have developed novel
distribution schemes that mimic these programs even when the
FDA has not recognized any inherent safety risk with the
handling or use of the medicine. According to a recent
study,\16\ 74 drugs are subject to restricted access programs
(i.e., drugs that are either subject to REMS or self-imposed
restricted distribution programs) with total sales of $22.7
billion in 2016. Of these, 41 drugs are restricted by REMS
programs, with $11.5 billion in sales in 2016. The remaining 33
drugs are restricted by the brands in a voluntarily imposed
non-REMS program, with $11.2 billion in sales in 2016. A 2014
study concluded that REMS abuse costs the U.S. healthcare
system $5.4 billion annually.\17\ Consumers bear $960 million
of that cost while Medicare and Medicaid incur $1.8 billion;
private insurers bear the remaining $2.4 billion.\1\ 18 This
estimate is conservative ``and should not be construed as the
entirety of the lost savings from REMS misuse, either currently
or going forward.''\19\ AAM and its members are committed to
ensuring that all Americans have access to safe, effective and
affordable medicines and believe that FDA's REMS programs can
and do serve a compelling public good--namely, the safe
distribution and use of certain pharmaceuticals that have a
higher risk profile. We do not support any policies that would
jeopardize patient safety. Any suggestion to the contrary is
simply an effort to distract us from the real issue we need to
focus on: addressing the use of REMS or non-FDA mandated
restrictions on drug supply that are designed to block lower
cost generics and biosimilars from coming to market. By
refusing to sell their product for research purposes, or
restricting its sale to a named patient, brand manufacturers
can distort the supply chain to limit competition.
---------------------------------------------------------------------------
\16\ Alex Brill, REMS and Restricted Distribution Programs: An
Estimate of the Market (June 2017), available at http://
www.gphaonline.org/media/cms/Alex--Brill--REMS--Study--June--2017.pdf.
\17\ Alex Brill, Lost Prescription Drug Savings from Use of REMS
Programs to Delay Generic Market Entry, at 5 (2014), available at
http://www.gphaonline.org/media/cms/REMS--Studyfinal--July2014.pdf.
\18\ Id.
\19\ Id.
---------------------------------------------------------------------------
To address this problem once and for all, Congress must
pass the CREATES Act, bipartisan legislation introduced by
Senators Leahy, Grassley, Klobuchar and Lee, to prevent the
misuse of REMS and restricted distribution schemes to delay
generic drug competition.
The cost of failure is significant, and will only encourage
anti-competitive practices to grow. In the absence of
Congressional action, AAM members today must consider the
difficulty involved in obtaining branded drugs when determining
which generic development programs to pursue. Where access to
brand drugs is subject to restricted access programs, some AAM
members have determined that generic development was not
feasible and decided against initiating these development
programs.
This means that patients and taxpayers lose out on
opportunities for affordable access to life-saving medicines
and our nation's health care system leaves savings on the
table.
biosimilar medicines are critical to future savings
Nowhere is the need for lower-priced alternatives, and the
challenges facing them, more real than among high-priced
biologic medicines. Biologics, many of which are specialty
medicines, are the most rapidly growing segment of increasing
brand-name prescription drug costs in the United States, with
more than $100 billion in annual spending. The role of biologic
drugs in the health care system is expanding--while only 2
percent of America's patients use biologics, they account for
about 40 percent of prescription drug spending in the United
States.\20\
---------------------------------------------------------------------------
\20\ Medicine Use and Spending in the U.S.: A Review of 2016 and
Outlook to 2021, April 2017.
---------------------------------------------------------------------------
These products are often life-saving therapies for serious
illnesses, but they come at steep expense to patients,
taxpayers and insurers. Many biologics cost tens of thousands
of dollars per year per patient--some more than $200,000.
To help bring down prices for patients, Congress designed
and approved the Biologics Price Competition and Innovation Act
(BPCIA) in 2010--creating an abbreviated approval pathway for
biological products that are demonstrated to be ``highly
similar'' (biosimilar) to or ``interchangeable'' with an FDA-
approved biological product. The BPCIA also gave brand biologic
drug manufacturers a 12-year market exclusivity period for
their products to ensure a return on investment for new
medicines. This period is longer than anywhere else in the
world that has a similar abbreviated pathway for biosimilars.
Biosimilar medicines represent a key step forward in
reducing high drug prices. They are safe, effective and
affordable versions of costly brand biologics. By the year
2025, over 70 percent of drug approvals are expected to be
biological products.\21\ Experts estimate that FDA-approved
biosimilars could save between $44 billion and $250 billion
over the next 10 years.\22\ In doing so, they will mean greater
access to lifesaving cures for 1.2 million U.S. patients,
according to a new analysis. Women, lower income, and elderly
patients would particularly benefit from access to biosimilar
medicines.
---------------------------------------------------------------------------
\21\ U.S. Pharmacist, ``Biosimilars: Current Approvals and
Pipeline Agents,'' October 2016 (link).
\22\ AAM, ``Generic Drug Access & Savings in the U.S.,'' June 2017
(link).
---------------------------------------------------------------------------
Today, there are 38 biosimilars approved for use in the
European Union, but only 7 in the United States. However, more
than 66 biosimilar programs are under FDA review for
development of 20 different biologic products. The ability of
biosimilars to fulfill their potential is threatened by market
abuses and policy challenges.
anticompetitive threats to biosimilar availability
As discussed above, while the abuse of restricted
distribution programs continues to impede generic development,
the problem of access to samples is likely to be even more
acute for biosimilar development. Biosimilars are more complex
and difficult to develop than traditional generic drugs. Their
development requires multiple lots of the brand product
produced over time. If access to the variability that is
inherent in brand lot development of biologics is denied, the
development of the biosimilar will be greatly delayed and
patients will be held hostage to higher prices and fewer
options. Plus, unlike with small molecule generic drugs, the
development of biosimilars is more likely to involve clinical
trials requiring even more samples of the reference product.
Restricted access to samples at any point during the clinical
trial could cause a study to fail. This further highlights the
importance of Congressional action on the CREATES Act.
It now appears that brand manufacturers of biologic drugs
are misusing their negotiating leverage to insist on contract
terms that effectively block use of biosimilar alternatives by
physicians. In a recent lawsuit, one branded company has
alleged that another company that manufactures Remicade has
misused its negotiating power to force PBMs and purchasers to
block access to a biosimilar product. Such actions could
threaten the ability of biosimilars to deliver on the promise
of savings for patients.
Finally, it is critical to reiterate that biosimilars are
just as safe and effective as their reference product. While we
understand that physicians must remain directly involved in
their patients' treatment, it is also important to recognize
that some have sought to create uncertainty around the efficacy
and pharmacovigilance standards of biosimilars in comparison to
their reference products. These messages are in direct
contradiction with the standards established in the BPCIA, and
enforced by the FDA. Differentiation between biosimilars and
their reference products risks undermining the important
provider education that is already being done by FDA. It is
also directly in contradiction to the medical evidence found in
Europe and other advanced countries that have more experience
with biosimilars, and have seen no measurable clinical
differences between biosimilars and their reference products.
policy barrier to biosimilar adoption
Biosimilars present a significant opportunity for patient
and program savings in the Medicare Part D program. However
current law creates barriers to biosimilar access for patients
in Part D, who may be forced onto higher priced biologics.
Because of the structure of Medicare Part D, the 50 percent
discount required of brand biologics is counted towards a
patient's out of pocket costs--but competing biosimilars are
barred from providing such a discount. This creates a perverse
incentive for health plans and patients to use a higher-priced
brand biologic--moving patients through the coverage gap and
into catastrophic coverage faster and with lower out-of-pocket
costs compared to a lower-cost biosimilar.
This approach creates substantial barriers for biosimilar
manufacturers, as it may be effectively impossible to ever
offer sufficient discounts to be included on Part D
formularies. The resulting imbalance severely undermines the
market potential for biosimilar competition. Ultimately,
patients, payers, and Medicare all pay more for brand biologics
than they would if the Coverage Gap Discount program were
amended to include biosimilars.
Congress should amend the Part D coverage gap discount
program to classify biosimilars as ``applicable drugs'' in the
Coverage Gap Discount Program. This change would allow
biosimilar manufacturers to pay the 50 percent discounts paid
by their brand competitors, and participate on a level playing
field to compete for placement on the Part D plan's formulary.
It would reduce both patient out-of-pocket costs and save at
least $1 billion over the next ten years for the Medicare Part
D program.
Additionally, in Part B CMS has chosen to create a coding
and reimbursement structure that deeply disincentivizes
development of biosimilars. Under current CMS policy, all
biosimilars are grouped into an average reimbursement rate,
separate from their reference brand product. This allows the
brand to maintain control over its reimbursement rate, and
allows the company to provide physicians with consistent
reimbursement, free from price competition. Meanwhile, the
biosimilar products would be forced to compete on price with
one-another, despite only ever being compared to the reference
product rather than each other.
This policy could significantly limit biosimilar adoption
in outpatient settings, which would create a significant
barrier to entry for any potential biosimilar competitors. To
better incentivize competition in settings reimbursed by Part
B, CMS should change this policy to grant individual codes and
payment rates to non-interchangeable biosimilars. This would
create a market much more conducive to price competition.
------
conclusion
AAM and its members commend the Committee for holding
today's hearing addressing the challenge of high drug prices
through the lens of the pharmaceutical supply chain. Generic
and biosimilar medicines are a critical part of the solution
for patients and America's health care system. But they are
under threat from market imbalances, policies that fail to
distinguish their business model from brand drugs, and anti-
competitive behavior by other supply chain actors. AAM stands
ready to work with you to ensure uninterrupted access to
affordable therapies for patients and taxpayers.
------
[summary statement of chester ``chip'' davis, jr.]
Background:
LGeneric medicines represent greater than 89
percent of all prescriptions dispensed in the U.S., but only 26
percent of expenditures on prescription drugs, saving patients
and payers nearly $5 billion every week. Our industry is proud
to be able to deliver these savings to the healthcare system.
LIn the past twelve months, prescriptions of brand
drugs have decreased by 7 percent, but their revenue has
climbed by 5 percent. This is a direct result of price
increases.
LBy contrast, generic prescriptions increased by 2
percent, but revenue declined by 13 percent.
LWithout generic medicines, spending on
cholesterol drugs would be more than 3.5 times higher, diabetes
drugs almost 3 times higher, and spending on breast cancer
drugs 8 times higher.
LHowever, the sustainability of a competitive
generic market and the availability of generic medicines for
patients, uninterrupted by shortages, is in jeopardy.
Three factors threaten today's generic and biosimilar industry:
L1. Changing and increasingly challenging market and
reimbursement frameworks;
L2. The abuse of laws and regulations by bad actors; and
L3. A failure of policy to account for the unique challenges
facing generic and biosimilar medicines.
Congress must act to support generic and biosimilar competition and
supply to ensure continued access for patients. It can do so by:
L1. Repealing the misguided Medicaid penalty on generic
drugs;
L2. Preventing brand abuses designed to block generic and
biosimilar competition by passing the bipartisan CREATES Act;
and
L3. Ensuring that biosimilar medicines have a level and
competitive playing field in Medicare.
Generic Drug Markets are Fundamentally Different than Brands:
LThe 89 percent of prescriptions filled by generic
medicines are subject to a different set of economic incentives
and arrangements--the result of multiple manufacturers
marketing identical products and competing exclusively on
price, in a commodity-style market.
LUpon generic entry, payors typically shift away
from rebate models of reimbursement and rely on distribution
channels to effectively lower the price of the medicine.
LThe different business model leads to a different
type of business planning by generic and biosimilar
manufacturers.
LGeneric drug reimbursement is also different.
LThe result is a business model that differs
significantly from the brand business model.
LThese differences in the generic and brand
marketplaces create vastly different incentives for the various
manufacturers, wholesalers, distributors, pharmacy benefit
managers (PBMs), insurers, and retail pharmacies that make up
the supply chain.
LTo put it simply, virtually all other actors in
the supply chain enjoy significant financial benefits from the
manufacture of generic medicines.
LThis is not to say that the market functions
perfectly in providing patients with the lowest cost possible.
Many generic medicines are subject to significant markups after
they leave the generic manufacturer.
LCompared to the fragmented generic drug market,
consolidation in the wholesale market and contractual
arrangements between pharmacy chains and the wholesalers have
left generic manufacturers with only a small number of
purchasers.
LThe result is a market where three purchasers
account for over 90 percent of all wholesale revenue.
LIt is unclear that the new imbalance between many
generic competitors and a handful of purchasers is sustainable.
Some industry analysts have already begun to forecast
consolidation among generic manufacturers.
LAn unfortunate yet foreseeable consequence of
fewer generic manufacturers is a significantly increased risk
of drug shortages.
LEvidence suggests that generic drugs are
particularly susceptible to drug shortages, potentially related
to existing market incentives as well as low reimbursement.
Such shortages have a serious effect on patient care.
LIt is critical that policymakers take steps to
ensure the continued supply of affordable FDA approved generic
medicines. Failure to do so threatens a stable supply of
generic medicines.
------
The Chairman. Thank you, Mr. Davis.
Ms. Gallenagh, welcome.
STATEMENT OF ELIZABETH A. GALLENAGH
Ms. Gallenagh. Good morning, Chairman Alexander, Ranking
Member Murray, and Members of the Committee. Thank you for the
opportunity to participate in today's hearing. I'm Liz
Gallenagh, Senior Vice President and General Counsel for the
Healthcare Distribution Alliance.
HDA is the national trade association representing primary
pharmaceutical wholesale distributors. HDA members include
national, regional, and specialty companies. Their expertise
streamlines the supply chain to ensure safety and efficiency,
serving over 200,000 pharmacy settings across the country while
achieving cost savings for our Nation's healthcare system,
about $40 billion annually.
The U.S. healthcare supply chain is a complex one. Each
day, our 35 primary distributor members, who purchase directly
from authorized manufacturers, ship 15 million products daily
from about 176 warehouses across the country, a relatively
small but highly efficient and effective network. In fact, most
pharmaceutical sales in the U.S. flow through our members,
nearly 94 percent.
Distributors are unlike any other supply chain
participants. Their core business is not manufacturing, and
they do not prescribe medicines or dispense to patients. They
focus significant resources on the safety and security of the
supply chain, and these efforts may, in fact, be the most
important service distributors provide. With this Committee's
support, several years ago, HDA strongly advocated for the
enactment of the Drug Supply Chain Security Act, which sets the
framework for unit level traceability of medicines by 2023.
On a daily basis, pharmacies and other providers place
orders with HDA distributors for the medicines they need to
serve their patients. Without distributors, customers would
have to carry weeks of inventory and place daily orders with
each and every manufacturer. By working with full line
distributors, providers can maintain just-in-time inventories,
saving them time, expense, and staff necessary to carry
extensive inventories or have large storage facilities.
In addition, primary distributors often provide financial
credit terms, pharmacy management systems, and in-store retail
support.
With regard to the upstream supply chain, the work of HDA
members enables manufacturers to concentrate on developing and
producing medicines without the added expense and challenge of
getting those medicines to every single dispensing site across
the country.
While HDA members are primarily supply chain logistics and
operations experts, this is no longer an industry focused
solely on moving products from Point A to Point B. Today, they
provide a wide array of supporting services that deliver
significant value to both ends of the supply chain and
ultimately to patients. Some examples of these core services to
manufacturers include receiving and accurately processing
orders, shipping pharmaceutical products safely, inventory and
management, providing manufacturers with ordering and
utilization data, and processing returns and chargebacks.
In exchange for these services provided to manufacturers,
distributors charge bona fide service fees. These fees are not
passed on to the customer and represent a fair market value for
a bona fide itemized service actually performed on behalf of
the manufacturer that the manufacturer would have to otherwise
perform themselves.
The distribution industry is a very high-volume yet very
low-profit margin industry with an industry margin just over 1
percent, on average, for 2016. Moreover, a recent Berkeley
research group study noted that the distributor profit on
overall branded drug cost was just under 1 percent.
Distributors have little impact on overall drug pricing,
and, generally, traditional pharmaceutical distributors
purchase from manufacturers based on wholesale acquisition
cost, or WAC, and charge manufacturers service fees. WAC
represents the manufacturer's list price, does not include
rebates, prompt payments, or other adjustments in price
resulting from proprietary negotiations between the
manufacturers and distributors, payer groups, or other
customers. Distributors are not privy to how such WAC pricing
decisions are made.
On the other side of the equation, distributors typically
sell branded drugs to downstream customers based on WACs
established solely by manufacturers. They also sell generic
drugs to downstream customers based on either WACs or other
list prices, or they may also price generic drugs sold to
customers in response to the market, for example, when there
are more than one generic drug. As such, wholesale distributors
do not control the price of prescription drugs, but rather the
price is dictated by manufacturers, WAC, or other list prices,
as well as market forces, including generic competition.
Primary distributors' goal for the supply chain is a simple
one: add efficiency, security, and timely delivery so that
providers can concentrate on patient care and ensure that their
patients have access to the medications they need.
Historically, HDA distributor members have had a positive
effect on the supply chain, helping to make the U.S. supply
chain one of the safest and most efficient in the world, while
taking cost out of the system and having minimal impact on the
overall cost of drugs.
Thank you, and I would be happy to answer any questions you
may have.
[The prepared statement of Ms. Gallenagh follows:]
Prepared Statement of Elizabeth A. Gallenagh
Chairman Alexander, Ranking Member Murray and Members of
the Committee.
Thank you for the opportunity to participate in today's
hearing. I am Liz Gallenagh, Senior Vice President, Government
Affairs and General Counsel for the Healthcare Distribution
Alliance (HDA). HDA is the national trade association
representing primary pharmaceutical distributors--the vital
link between the nation's pharmaceutical manufacturers and more
than 200,000 pharmacies, hospitals, long-term care facilities,
clinics and others nationwide.
Since 1876, HDA has helped members navigate regulations and
innovations to get the right medicines to the right patients at
the right time, safely and efficiently. HDA's members include
35 national, regional and specialty primary distribution
companies who are not just distributors, but are technology
innovators, information management experts, security
specialists and efficiency professionals. Their expertise
streamlines the supply chain to ensure safety and efficiency,
while also achieving cost savings for our nation's healthcare
system.
Role in the Supply Chain
The U.S. healthcare supply chain is a complex one and the
nation's primary pharmaceutical distributors play a vital role
within it. Each day hundreds of thousands of healthcare
provider locations must receive needed medicines and other
healthcare products from thousands of manufacturers. These
manufacturers and providers are served predominantly by 35 HDA
primary distributors who operate out of about 176 warehouses
and purchase directly from authorized manufacturers--a
relatively small, but highly efficient and effective network.
In fact, most pharmaceutical sales in the U.S. flow through
primary distributors (93.79 percent).\1\
---------------------------------------------------------------------------
\1\ 87th Edition HDA Factbook (2016-2017)
---------------------------------------------------------------------------
Every day HDA members work around the clock to safely and
efficiently ship 15 million healthcare products (medicines,
medical supplies, durable medical equipment, et al.) to
pharmacies, hospitals and other healthcare providers in order
to keep their shelves stocked with the medications and products
they need to treat and serve their patients.
Distributors are unlike any other supply chain
participants--their core business is not manufacturing and they
do not prescribe medicines or dispense to patients. Their key
role is to serve as a conduit for medicines to travel from
manufacturer to patient while making sure the supply chain is
fully secure and as efficient as possible.
HDA distributor members focus significant resources on the
safety and security of the supply chain, and their secure
supply chain efforts may in fact be the most important service
distributors provide to the overall pharmaceutical delivery
system. With this committee's support several years ago, HDA
strongly advocated for the enactment of the Drug Supply Chain
Security Act (DSCSA), Title II of the Drug Quality Security
Act, which sets a framework for unit level traceability of
medicines by 2023. Today, HDA members are in the midst of Phase
I implementation efforts and work to collaborate with FDA,
state regulatory authorities, and trading partners to build the
systems and processes necessary to achieve unit-level
traceability of prescription drugs by 2023, as outlined in the
law.
Relationship with Provider Customers
On a daily basis, pharmacies, hospitals and other
healthcare providers place orders with HDA distributor members
for the medicines, supplies and equipment they need to serve
their patients. Without pharmaceutical distributors, pharmacies
and providers would have to carry weeks of inventory and
undertake the time-consuming process of placing individual
orders with each and every manufacturer for products needed by
the healthcare provider on a daily basis. By working with full-
line distributors, providers can maintain just-in-time
inventories that saves pharmacies and hospitals the expense and
staff necessary to carry extensive inventories or have large
storage facilities--both of which would add significantly to
their cost of operations.
While distributors provide many services to the pharmacy
provider community, the core services are supply chain
related--providing on-time and complete shipment of ordered
drugs in a safe and efficient manner. In addition, they often
provide financial credit, pharmacy management systems, and in-
store retail support, among many other services.
Traditional distributors serve a broad array of provider
types; mostly retail and hospital settings, including chain
pharmacy warehouses, mass merchandisers and food chains, and
chain pharmacies (39.5 percent); hospitals, HMOs, clinics and
nursing homes (17.2 percent); independent pharmacies (17.3
percent); mail order (15.8 percent). Specialty distributors
(and specialty subsidiaries) serve other provider settings such
as physician offices, home care, specialty pharmacy, and some
retail pharmacy.\2\
---------------------------------------------------------------------------
\2\ 87th Edition HDA Factbook (2016-2017)
---------------------------------------------------------------------------
Relationship with Manufacturer Suppliers
The work of primary distributors also enables manufacturers
to concentrate on developing and producing needed medicines
without the added expense and logistical challenges of
determining how to get those medicines to the providers and
patients across the U.S. However, pharmaceutical distribution
has evolved over the last decade from simply managing
warehouses and shipping goods. While HDA members are primarily
supply chain logistics and operations experts, this is no
longer an industry focused solely on moving products from point
A to point B. Rather, pharmaceutical distributors provide a
wide array of supporting services that enable the
pharmaceutical supply chain to function efficiently and safely,
delivering significant value to manufacturers and healthcare
providers--and ultimately to patients. Some examples of these
core services include: receiving orders and
shippingpharmaceutical products in a safe, efficient manner,
inventory handling and inventory management, providing
manufacturers with data about where, and in which settings,
their products are utilized, verifying downstream customer
eligibility to purchase products at pricing established under
various programs or contracts between such customers and given
manufacturers, and processing relevant chargebacks to
manufacturers.
In exchange for the variety of distribution and logistics
services that primary distributors provide to manufacturers,
they charge manufacturers what are referred to as ``bona fide
service fees'' for the provision of these services. These fees,
which are not passed on to the customer, represent a fair
market value for a bona fide, itemized service actually
performed on behalf of the manufacturer that the manufacturer
would otherwise perform (or contract for) in the absence of the
service arrangement. This model reduces demand volatility--
aligning order patterns more closely to actual patient demand
and, eliminating artificial demand spikes, allowing for a
supply chain that operates more smoothly and predictably.
It should also be noted that without HDA members, each
manufacturer would have to ensure that more than 200,000
pharmacy and provider settings receive the medications they
need when they need them, employing substantial financial,
logistical and staff resources to provide medicines and
supplies to hundreds of thousands of dispensing sites. Because
distributors provide these logistical, inventory and other
service support which manufacturers and pharmacies would
otherwise have to perform themselves, the pharmaceutical supply
chain is more efficient, reliable and secure, and patients are
able to get the medicines they need in a timely fashion, saving
our healthcare system approximately $42 billion each year.\3\
---------------------------------------------------------------------------
\3\ The Center for Healthcare Supply Chain Research, The Role of
Distributors in the U.S. Healthcare Industry, 2011.
---------------------------------------------------------------------------
Primary Wholesale Distributors' Role in Drug Pricing\4\
---------------------------------------------------------------------------
\4\ HDA's antitrust policy strictly prohibits any discussions
which constitute or imply an agreement or understanding between or
among its members concerning: 1) prices, discounts, or terms or
conditions of sale; 2) profits, profit margins or cost data; 3) market
shares, sales territories or markets,; 4) allocation of customers or
territories; 5) selection, rejection or termination of customers or
suppliers; 6) restricting the territory or markets in which a company
may resell products; 7) restricting the customers to whom a company may
sell; or 8) any matter which is inconsistent with the proposition that
each members company of HDA must exercise its independent business
judgment in pricing its services or products, dealing with its
customers and suppliers and choosing the markets in which it will
compete.
---------------------------------------------------------------------------
The primary pharmaceutical distribution industry is a very
high volume, yet very low profit margin industry, with the
industry margin just over one percent on average in 2016. In
fact, overall profitability for the primary distribution sector
shows little notable change over the past several years, even
during recent market volatility.\5\ Moreover, in a recent 2017
study, the Berkeley Research Group concluded that the
pharmaceutical wholesale distributor profit on overall branded
drug costs was just under one percent.\6\
---------------------------------------------------------------------------
\5\ Data obtained from annual HDMA/HDA industry Factbook
Publication, compiled and compared across multiple years.
\6\ The Pharmaceutical Supply Chain: Gross Drug Expenditures
Realized by Stakeholders; 2017; Table 2 http://www.thinkbrg.com/media/
publication/863--Vandervelde--PhRMA-January-2017--WEB-FINAL.pdf.
---------------------------------------------------------------------------
Traditional pharmaceutical wholesale distributors purchase
pharmaceuticals from manufacturers based on the Wholesale
Acquisition Cost (``WAC''), a publicly available figure
reported for each pharmaceutical product by the manufacturer to
various compendia such as Medi-Span and RedBook, which publish
such prices. WAC represents the manufacturer's list price, and
does not include rebates, prompt payment, or other adjustments
in price resulting from proprietary negotiations between the
manufacturer and wholesaler, downstream payer groups or other
customers. Manufacturers (pharmaceutical, biologic, generic,
etc.) set the WAC price for their products. Wholesale
distributors are not privy to how such WAC pricing decisions
are made. Wholesale distributors typically purchase
pharmaceuticals from manufacturers based on WAC and they also
charge manufacturers distribution fees related to their
services, as previously discussed.
Wholesale distributors typically sell branded drugs to
downstream customers based on WACs established solely by
pharmaceutical manufacturers. Wholesale distributors might also
sell generic drugs to downstream customers based on WACs
established solely by pharmaceutical manufacturers and
published in the various pricing compendia or they may price
generic drugs sold to downstream customers in response to the
market, which includes supply of competing generic drug and
considers the WACs for such generic drug products and
competitors to such drug products. As such, wholesale
distributors do not control the price of pharmaceuticals rather
the price of pharmaceuticals is dictated by published WAC or
other list prices determined solely by manufacturers of such
products and other market forces, including the WACs of generic
drugs that compete with a given generic drug product.
------
conclusion
As I noted earlier, primary pharmaceutical distributors
have evolved from providing basic inventory management and
distribution to now offering a suite of services supporting
many different operations of both manufacturers and healthcare
providers. Ultimately, these services result in benefits to
patients and consumers and have made the U.S. pharmaceutical
supply chain one of the safest and most efficient in the world.
Traditional pharmaceutical wholesale distributors' goal in
the pharmaceutical supply chain is a simple one: add
efficiency, security and timely delivery of products so
providers can concentrate on patient care and ensure their
patients have regular access to the medications they need.
Historically, HDA distributor members have effectively achieved
this goal and have had a positive effect on the supply chain
and patients while taking costs out of the pharmaceutical
supply chain and having minimal impact on the overall cost of
drugs.
Thank you. I would be happy to answer any questions you may
have.
------
[Summary Statement of Elizabeth A. Gallenagh]
HDA is the national trade association representing primary
pharmaceutical distributors--the vital link between the
nation's pharmaceutical manufacturers and more than 200,000
pharmacies, hospitals, long-term care facilities, clinics and
others nationwide. Since 1876, HDA has helped members navigate
regulations and innovations to get the right medicines to the
right patients at the right time, safely and efficiently.
Distributors are unlike any other supply chain
participants--their core business is not manufacturing and they
do not prescribe medicines or dispense to patients. Their key
role is to serve as a conduit for medicines to travel from
manufacturer to patient while making sure the supply chain is
fully secure and as efficient as possible. HDA distributor
members focus significant resources on the safety and security
of the supply chain, and their secure supply chain efforts may
in fact be the most important service distributors provide to
the overall pharmaceutical delivery system.
Primary pharmaceutical distributors have evolved from
providing basic inventory management and distribution to now
offering a suite of services supporting many different
operations of both manufacturers and healthcare providers.
Ultimately, these services result in benefits to patients and
consumers and have made the U.S. pharmaceutical supply chain
one of the safest and most efficient in the world.
Traditional pharmaceutical wholesale distributors' goal in
the pharmaceutical supply chain is a simple one: add
efficiency, security and timely delivery of products so
providers can concentrate on patient care and ensure their
patients have regular access to the medications they need.
Historically, pharmaceutical wholesale distributors have
effectively achieved this goal and have had a positive effect
on the supply chain and patients while taking costs out of the
pharmaceutical supply chain and having minimal impact on the
overall cost of drugs.
------
The Chairman. Thank you, Ms. Gallenagh.
Mr. Merritt, welcome.
STATEMENT OF MARK MERRITT
Mr. Merritt. Thank you, Mr. Chairman and Members of the
Committee, for inviting me to discuss drug pricing and the
delivery system drug makers use to bring their products to
market.
I'd like to start by providing a brief top line overview of
a very complicated subject, an executive summary, if you will,
on why there's such anger about drug pricing, especially now;
the role supply chains play; and how PBMs use their skill and
expertise to reduce overall costs.
There are several reasons why drug pricing has become such
a concern in recent years. First is drug makers' recent shift
from producing blockbuster drugs like Lipitor, which may have
cost $3 a day, to drugs like Sovaldi, which costs $1,000 a day.
These are great drugs, but not everybody is prepared to pay
$1,000 a day for a new drug even if it is a great drug. All
this came on the heels of a decade that saw very little brand
inflation, thanks to a wave of competing generics that hit the
market at that time.
The second reason for concern were the recent high-profile
scandals of three drug makers, specifically Mylan's 400 percent
EpiPen price hike and the discovery that two companies, Turing
and Valeant, had built entire business models around buying
rights to low-cost drugs in order to re-sell them at much
higher prices. There were, of course, many hearings on the
issues, and I testified at a few of them.
Third is that many health plans have tried to restrain
premium increases by raising deductibles in the face of higher
costs, not just of drugs but of overall major medical costs.
Higher deductibles meant that some patients who had grown
accustomed to paying $25 copays, thinking that might actually
be the price of the drug, came face to face for the first time
with the actual price of drugs, which can run hundreds or even
thousands of dollars.
The rise of high-price specialty drugs, the scandals
surrounding particular manufacturers, and the emergence of high
deductible plans have converged all at one time to raise real
visibility on this issue.
I'd like to offer just a few brief thoughts on the drug
supply chain. First, supply chains are a routine part of how
consumers access not just drugs but almost any product in the
marketplace. They're a normal part of American business.
They're not something that's unique to prescription drugs or
healthcare. They're used all across America.
It should be noted that supply chains have nothing to do
with why manufacturers raise prices. Mylan didn't raise EpiPen
prices by 400 percent because of supply chain costs. The laws
of supply and demand, not supply chains, determine how drug
makers and other manufacturers set prices. In its simplest
terms, the prescription drug marketplace is like any other, a
market of sellers and buyers. Drug makers are the sellers and,
like all sellers, set prices according to whatever the market
will bear.
Likewise, the buyers want to pay as little as possible.
These are the employers, unions, health plans, and government
programs that hire PBMs to negotiate price concessions from
drug makers. In fact, PBMs do a number of things to reduce
cost. PBMs design benefits that encourage patients to use
generics and less expensive brands. The PBMs create networks of
affordable pharmacies. They reduce cost for consumers. PBMs
negotiate rebates and other price concessions from drug
companies.
It should be noted that rebates are simply discounts paid
after sales have been made instead of at the point of sale.
While PBMs have stated publicly that they welcome drug
companies to offer alternatives to rebates, including simply
lowering a list price of drugs, rebates remain a key way to
deliver savings to our clients who determine the amount of
rebates each PBM passes through to them.
Ninety percent of rebates are passed through to plan
sponsors, and almost half of large employers require 100
percent of rebates to be passed through. Once these are passed
through, plans can decide what to do with them. Typically,
they're used to reduce premiums, deductibles, copays, but
that's up to every plan to do what they want. So the
marketplace is evolving on the issue.
It should also be noted that drug makers set and raise
prices regardless of rebates they negotiate with PBMs. In fact,
Sovaldi's list price was $84,000 and involved no rebate
whatsoever until other competitors came to market. Then they
were able to bring prices and costs way down, in fact, lower
than a lot of price control countries in Europe.
All in all, PBMs reduce drug costs by 30 percent, play a
major role in the success of Medicare Part D, and have helped
restrain the growth in overall drug spending to 3 percent to 4
percent a year, despite rising list prices.
Finally, there are market-based policy solutions that can
reduce costs. I'd like to thank Senators Collins and Franken
for their FDA reauthorization amendment to expedite generic
approvals, promote competition, and guard against sudden price
hikes of decades old drugs. We also urge Congress to work with
FDA to accelerate approvals for brand drugs which face limited
competition and do whatever possible to bring biosimilars to
market faster. These steps would foster competition, which is
the key to reducing overall drug prices.
I look forward to answering any questions you might have.
[The prepared statement of Mr. Merritt follows:]
prepared statement of mark merritt
Introduction
Good morning. My name is Mark Merritt, President and CEO of
the Pharmaceutical Care Management Association (PCMA). I
appreciate this opportunity to appear before the Committee at
this hearing examining the drug supply chain. PCMA is the
national association representing America's pharmacy benefit
managers (PBMs), which administer prescription drug plans for
more than 266 million 1A\1\ Americans across dozens of PBMs
with health coverage provided through self-insured employers,
health insurers, labor unions, Medicare, Medicaid, CHIP, and
the Federal Employees Health Benefits Program (FEHBP).
---------------------------------------------------------------------------
\1\ PR Newswire, ``PBMs Provide Policy Solutions to Increase
Competition, Reduce Rx Costs,'' Feb 04, 2016.
---------------------------------------------------------------------------
The cost of prescription drugs has understandably garnered
a lot of attention, particularly with the recent wave of high
priced, high profile specialty drugs like Sovaldi. This
development has imposed unique challenges on patients and the
employers, unions and government programs that hire PBMs to
help make coverage more affordable. By negotiating price
concessions from drug companies and recommending strategies
that promote generics and more affordable pharmacies, PBMs have
played a key role in retraining the rise of overall drug costs
to low single-digit increases over the past few years. It is
also important to note that prescription drug launch prices and
price increases are determined by the same supply-and-demand
dynamics of countless other industries that manufacture
products and use supply chains to get them to market. Pricing
decisions are made unilaterally by manufacturers. There's no
correlation between manufacturer price increases and the
rebates and discounts they negotiate with PBMs.
At the outset, I want to thank this Committee for its
actions to improve generic competition and lower the cost of
prescription drugs as part of the Food and Drug Administration
(FDA) Reauthorization Act. In addition, I'd like to recognize
Senators Collins and Franken for your work on the amendment
that addresses clearing the FDA's application backlog as well
as expediting generic drug development and promoting
competition. Title VIII will help foster a more competitive
marketplace to improve the affordability and accessibility of
prescription drugs for patients and guard against sudden,
astronomical price hikes of decades-old prescription drugs. The
HELP Committee has played an important role in fostering the
competition that will both reward innovation and maintain
affordability.
This testimony will outline how PBMs reduce prescription
drug costs to provide patients, employers, and public programs
with the highest value prescription drug benefits.
Additionally, it will suggest a set of policy options to
increase competition in the prescription drug marketplace to
help reduce costs.
How PBMs Reduce Drug Costs for Payers and Cost-Sharing for Patients
The role of PBMs is to help our clients, including the
employers, unions, and health insurers who provide prescription
drug benefits, to reduce costs and improve health outcomes for
consumers. PBMs have a proven track record of delivering high-
quality, affordable benefits that address the individual needs
of their clients and patients.
PBMs play a crucial role in keeping drug costs down for
payers. PBMs operate outside of the ``pharmacy supply chain''
that physically moves prescription drugs from manufacturers to
drug wholesalers to the pharmacy, where they are ultimately
dispensed to patients. Rather, PBMs represent insurers and
health plans, on the buy side of the economic transaction. In
their capacity as benefit managers, PBMs do not take possession
of pharmaceuticals, but work on behalf of health care payers to
reduce costs.
Given current drug pricing trends, the role of PBMs has
become more important than ever. While few plans can afford to
offer true ``first-dollar'' prescription drug coverage, all
want to offer the most affordable benefits for consumers. That
is why thousands of America's largest, most sophisticated
health purchasers--Fortune 500 companies, insurers, state
employee programs, state Medicaid programs, unions, and
Medicare Part D plans--choose to hire PBMs, even though none
are required to.
PBMs typically reduce costs by 30 percent \2\ by, among
other things, using their substantial scale and expertise to
promote generics and negotiate aggressive rebates, discounts,
and other price concessions with manufacturers to reduce
premiums and cost-sharing.
---------------------------------------------------------------------------
\2\ Visante: Pharmacy Benefit Managers (PBMs): Generating Savings
for Plan Sponsors and Consumers, February 2016.
---------------------------------------------------------------------------
The Role and Background of Rebates
Long before PBMs became prominent in the marketplace, the
rebate system was created by manufacturers (and in the case of
programs like Medicaid and 340B, used by public programs) to
reduce the net cost of brand drugs. Most rebates reported by
manufacturers are actually paid pursuant to these government
discount programs, not to plans administered by PBMs.
As part of manufacturer-PBM negotiations, brand drug
manufacturers compete for formulary placement for
therapeutically equivalent products by offering rebates for
moving market share, which are typically calculated and paid
weeks or months after a drug is dispensed. As a result of these
negotiations, PBMs can recommend benefit designs that stretch
payers' finite dollars and reduce premiums and cost-sharing.
These designs include cost-sharing incentives for patients to
use the most affordable drugs, which often are generics. The
highest cost-sharing is typically reserved for drugs with the
least competitive discounts, or in the case of many high-
priced, single-source drugs (e.g., cancer therapies), no
discount at all. PBMs also support benefit designs that ensure
patients do not pay more in cost-sharing than the cost of an
actual drug and innovations like electronic prior authorization
that reduce physicians' administrative burden.
Rebate savings are used by payers to reduce premiums and
out-of-pocket costs for patients. Each payer determines what
percentage of rebates is passed through to it, and how much (if
any) it wants the PBM to retain as payment for services. While
on average payers elect to receive 90 percent of rebates
negotiated by PBMs, \3\ an increasing number require PBMs to
pass through all of them. About 46 percent of commercial PBM
contracts are negotiated with full pass-through of rebates to
payers, \4\ and 100 percent of rebates in the Medicare Part D
program are required to be reported to CMS. PBMs are committed
to providing rebate transparency and audit rights to their
clients.
---------------------------------------------------------------------------
\3\ Written Testimony of Joanna Shepherd, Ph.D., Emory University
for the ERISA Advisory Council Hearing on PBM Compensation and Fee
Disclosure, June 19, 2014, Citing J. P. Morgan, ``Pharmacy Benefit
Management, Takeaways from Our Proprietary PBM Survey,'' May 21, 2014.
\4\ See, Pharmacy Benefit Management Institute, ``PBMI Research
Report: Trends in Drug Benefit Design,'' 2016.
---------------------------------------------------------------------------
there is no connection between the prices drugmakers set and the
rebates they negotiate with pbms
A recent study of the top 200 self-administered, patent-
protected, brand-name drugs shows no correlation between the
launch prices or price increases manufacturers set and the
rebates they pay to PBMs. \5\ There are many cases of high-
priced drugs that carry low rebates and low-priced drugs that
carry high rebates. Some high-priced drugs have no rebate at
all.
---------------------------------------------------------------------------
\5\ Visante, Inc. Increasing Prices Set by Drugmakers; Not
Correlated With Rebates, June 2017. Analysis prepared for PCMA
---------------------------------------------------------------------------
The figure below \6\ illustrates the lack of correlation of
price changes to rebates, by drug class.
---------------------------------------------------------------------------
\6\ Ibid.
[GRAPHIC] [TIFF OMITTED] T7277.002
.epsLike manufacturers in other industries, drugmakers set
prices according to supply, demand, and the level of
competitive alternatives available. Considering the confusion
surrounding rebates, PBMs encourage manufacturers to offer
payers other ways to reduce net costs.
Hepatitis C Drugs: A Classic Case of Leveraging Competition
The introduction of new therapies for hepatitis C
demonstrates how competition in the marketplace can drive
significant savings on expensive drugs. In 2013 the first
highly effective drug to cure hepatitis C was priced at $84,000
for a cycle of treatment. However, by 2015, after that drug
faced competition from additional market entrants, PBMs were
able to negotiate a 46 percent rebate--saving billions. \7\
Market competition and the threat of formulary exclusion
compelled the manufacturer to agree to this steep rebate.
Indeed, after some PBMs excluded the first drug and opted to
prefer a competing manufacturer's drug when the competing
drug's manufacturer was willing to drop the cost, other PBMs
were able to prefer the first drug in their formulary, when the
first manufacturer matched the competition. Still other PBMs
were then able to keep both on their formulary as the market
evolved.
---------------------------------------------------------------------------
\7\ New York Times, ``Costly Hepatitis C Drugs for Everyone?''
September 2, 2015.
---------------------------------------------------------------------------
Research on hepatitis C drug costs has subsequently shown
that by 2015, when competition had emerged, hepatitis C drug
costs negotiated in the U.S. by PBMs for Medicare Part D were
usually lower than those in price-controlled European countries
and Japan. \8\ The case of hepatitis C drugs illustrates
clearly the effectiveness of the threat of formulary exclusion
to bring manufacturers to the negotiating table.
---------------------------------------------------------------------------
\8\ IMS Health, ``Comparison of Hepatitis C Treatment Costs
Estimates of Net Prices and Usage in the U.S. and Other Major
Markets,'' September 2016.https://www.imshealth.com/files/web/
IMSH%20Institute/Healthcare%20Briefs/IIHI--Comparison--of--HepatitisC--
Treatment--Costs.pdf
---------------------------------------------------------------------------
PBMs Help Commercial Clients Explore Trade-Offs to Point-of-Sale (POS)
Rebates
POS rebates refer to contract arrangements where negotiated
price concessions are estimated before the transaction and then
applied immediately at the point of sale. In the commercial
market, PBMs already help payers implement POS rebates. Since
moving rebates to POS does not reduce overall costs but only
redistributes them among different enrollees, payers ask
themselves the following questions before choosing this
approach:
LShould rebate savings be used to reduce premiums
for all enrollees or out-of-pocket costs for certain ones who
take certain drugs?
LDo plans have the administrative and financial
capacity to reduce costs at POS even though manufacturers do
not pay rebates until months after a drug has been dispensed?
LDo plans understand the limitations of POS
rebates? Some high-priced drugs carry no rebates at all and
others are so expensive that rebates alone will not guarantee
access. A $1,500 drug with a 30 percent rebate would still cost
patients in the deductible $1,050.
LIf plans are willing to exchange higher premiums
for lower cost-sharing, would it be simpler to just reduce
deductibles or co-pays on certain drugs?
Frustration over high drug prices has led some policymakers
to explore ways to reduce costs for consumers, including
forcing health plans to use rebates to reduce POS costs rather
than premiums. However, such policies do not reduce costs; they
only shift costs from one group of patients to another.
POS Rebates Do Not Work in Medicare Part D
While plans with POS rebates can be implemented in the
commercial market, they have proven unworkable in Medicare Part
D and pose risks that could destabilize the program. In fact,
POS rebates are already permitted in Part D and have been
tried--unsuccessfully--in the past. They lead to significant
adverse selection and expose plans to other risks, such as
being accused of False Claims Acts violations if they
incorrectly estimate the size of rebates. Requiring POS rebates
in Part D would dramatically increase costs to the program and
taxpayers. According to modeling by the actuarial firm,
Milliman, this would result in widespread premium increases and
cost taxpayers an additional $20 billion over the next decade.
\9\
---------------------------------------------------------------------------
\9\ Milliman, ``Value of Direct and Indirect Remuneration (DIR):
Impact on Medicare Part D Prescription Drug Plan (PDP) Program
Stakeholders,'' Commissioned by Pharmaceutical Care Management
Association, July 2017.https://www.pcmanet.org/wp--content/uploads/
2017/07/Value-of-PDP-DIR--20170706.pdf
---------------------------------------------------------------------------
PBMs Use Direct and Indirect Remuneration (DIR) to Keep Drug Costs and
Beneficiary Premiums Low
DIR often refers to negotiated price concessions between
pharmacies and health plans or PBMs. However, as coined, DIR is
a technical term created by the Centers for Medicare and
Medicaid Services (CMS) specific to Medicare Part D that
includes both manufacturer rebates and certain incentive
payments to pharmacies. These contractual arrangements--even if
not specifically labeled DIR--also exist in the commercial
market. The vast majority of DIR payments in Part D are PBM-
manufacturer negotiated rebates. A much smaller share is made
up of incentive payment terms that pharmacies (or their
Pharmacy Service Administrative Organizations on their behalf)
\1\ contractually negotiate with PBMs. Pharmacy DIR payments
based on performance metrics hold pharmacies accountable for
certain activities such as generic dispensing, cost-effective
dispensing, improving medication adherence, and reducing
inappropriate drug use.
---------------------------------------------------------------------------
\1\ Parties especially noteworthy in the supply chain and key to
negotiations between PBMs and pharmacies are large third-party
organizations known as pharmacy services administrative organizations
(PSAOs). These organizations allow independent pharmacies to pool their
collective purchasing power. More than 80 percent of independent
pharmacies (18,103 of the 21,511 pharmacies identified by National
Council for Prescription Drug Programs data) use PSAOs or other group
purchasing organizations to increase their leverage in negotiating
their payment terms and conditions with PBMs. The largest PSAOs are
controlled by three multi-billion dollar suppliers to pharmacies,
providing a further negotiating advantage for independent pharmacies
due to the size and sophistication of these parent companies.
---------------------------------------------------------------------------
According to a recent study, the price concessions PBMs
negotiate with drug manufacturers and drugstores and report to
CMS as DIR are generating significant savings for the federal
government and are projected to save enrollees in standalone
Part D plans $48.7 billion on their premiums over the next 10
years. \10\
---------------------------------------------------------------------------
\10\ Milliman, ``Value of Direct and Indirect Remuneration (DIR):
Impact on Medicare Part D Prescription Drug Plan (PDP) Program
Stakeholders,'' Commissioned by Pharmaceutical Care Management
Association, July 2017.https://www.pcmanet.org/wp-content/uploads/2017/
07/Value-of-PDP-DIR--20170706.pdf
---------------------------------------------------------------------------
CMS has also found that DIR contributes significantly to
keeping Part D premiums low. Earlier this year, CMS released a
report that found negotiated DIR price concessions have grown
in recent years to moderate beneficiary premiums and reduce
costs for the government. \11\ The CMS report highlights how
negotiated price concessions reduce premiums for Medicare Part
D beneficiaries, which also lead to lower costs for the federal
government--negotiated price concessions lowered per-
beneficiary costs in Part D 28 percent on average. \12\ Stable
and affordable premiums have contributed to a 90 percent
satisfaction rate among Part D enrollees. \13\
---------------------------------------------------------------------------
\11\ CMS, ``Medicare Part D-Direct and Indirect Remuneration
(DIR)'' January 19, 2017.https://www.cms.gov/Newsroom/
MediaReleaseDatabase/Fact-sheets/2017-Fact-Sheet-items/2017-01-19-
2.html
\12\ CMS, Op. Cit.
\13\ Morning Consult for Medicare Today, ``Ten Years After
Implementation, Nearly Nine in 10 Seniors are Satisfied with Part D,''
July 2016.http://medicaretoday.org/resources/senior-satisfaction-
survey/
---------------------------------------------------------------------------
Policy Recommendations to Improve Competition and Reduce Costs
PCMA supports policies to lower drug costs through
increased competition. The policy proposals outlined below to
help increase competition in the marketplace include some under
HELP Committee jurisdiction and some under Finance or Judiciary
Committee jurisdiction.
LStop anticompetitive product adjustments, i.e.,
``evergreening.'' Drug manufacturers sometimes use tactics such
as ``product hopping'' or ``evergreening,'' submitting
applications to the FDA for approval of a ``new'' product that
is essentially the same as the original product. These product
lifecycle management tactics artificially extend drug
exclusivity periods and delay the take-up of lower-cost
generics.
LAllow for FDA accelerated approval of brand drugs
based on increasing competition. Accelerated review is granted
to new drug applications that address ``unmet need.'' The
economic need for competition to lower prices should be a
criterion of unmet need.
LRevisit and improve biosimilar labeling and
naming. Substitutable biosimilars should bear identical names
and labels to their innovator analogs. Use of different names
will confuse patients and providers and inhibit prescribing of
biosimilars.
LReduce innovator biologic exclusivity to seven
years. Seven years of data exclusivity would still provide a
sufficient return to manufacturers, while also speeding more
affordable biosimilars to market.
LEliminate use of Risk Evaluation and Mitigation
Strategies (REMS) to delay competition. Some manufacturers have
used REMS to prevent generic or biosimilar developers from
getting sufficient quantities of a drug or biologic to develop
a competitor to the innovator product. REMS were never intended
for this purpose; this practice should be prohibited.
PCMA also supports enhancing tools in Medicare Part D,
Medicaid, and commercial markets to increase competition and
affordability. PBMs and health plans can best drive competition
among drug manufacturers when they can give plan enrollees a
strong incentive to use a competing, higher-value drug. This
reduces costs and helps improve adherence among patients. Below
are some strategies to strengthen these efforts.
LCreate a safe harbor for value-based drug price
negotiations from Medicaid Best Price. Today any drug
manufacturer must offer state Medicaid programs the lowest
price it offers any other payer. This provision is seen as a
price floor and is inhibiting creative value-based pricing
arrangements.
LExpand drug coverage options for Health Savings
Account (HSA)-eligible high-deductible health plans (HDHPs).
HDHPs associated with HSAs should have the option of covering
prescription drugs with low or no cost-sharing prior to
reaching the deductible, especially drugs that qualify for a
preventive drug list. This policy can be achieved by expanding
the current preventive drug list used by HDHPs.
LRemove Part D's protected classes. Designating
``classes of clinical concern'' where all or substantially all
drugs in a class must be covered allows drug manufacturers to
name their price. CMS already applies careful plan formulary
coverage checks to assure proper coverage.
LMake biosimilars subject to the 50 percent Part D
coverage gap discount. The ACA did not apply to biosimilars the
50 percent Part D coverage gap discount. This could have the
unintended consequence of encouraging prescribing of more
expensive innovator biologics when lower cost biosimilars are
available.
LEncourage greater use of generics for Medicare
Part D Low Income Subsidy (LIS) enrollees. MedPAC recommended
allowing the Secretary of HHS to lower cost-sharing on generics
and raise it for brands that have generic competition.
Increasing the differential between brands and generics and
allowing plans to lower generic cost-sharing would save money
for enrollees and Medicare.
LEliminate the tax deduction for direct-to-
consumer (DTC) drug ads that mention a specific product. While
DTC drug ads may encourage some people to see a doctor, they
drive up unnecessary utilization and the cost of health care.
These are all common-sense ideas that would improve
affordability for payers, taxpayers, and consumers, and
increase competition.
------
Conclusion
PBMs evolved because they increase the value of
prescription drug benefits. PCMA's member companies harness
market forces and competition to corral drugs costs and deliver
high-quality benefits and services to their payer clients and
enrollees. In its search for solutions to address high drug
costs, PCMA encourages the Committee to pursue policies that
foster and encourage competition to keep prescription drug
costs and pharmacy benefits more affordable for employers,
enrollees, taxpayers, and government programs.
PCMA member companies welcome continuing discussion among
all stakeholders to create a robust, sustainable market that
will continue to deliver needed cures and treatments for
patients who suffer through disease and chronic illness. PCMA
looks forward to working with this Committee and the rest of
Congress to find additional ways to promote savings consistent
with high-quality, high-value prescription drug benefits.
Thank you for the opportunity to testify. I am happy to
answer any questions.
------
[summary statement of mark merritt]
America's pharmacy benefit managers (PBMs) administer
prescription drug plans for more than 266 million Americans
across dozens of PBMs with health coverage provided through
self-insured employers, health insurers, labor unions,
Medicare, Medicaid, CHIP, and the Federal Employees Health
Benefits Program (FEHBP).
The cost of prescription drugs has understandably garnered
a lot of attention. However, despite the rise of list prices on
certain brand drugs, PBMs have held the rise of overall drug
costs to low single-digit increases over the past few years. It
is also important to note that prescription drug launch prices
and price increases are determined by the same supply-and-
demand dynamics of countless other industries that manufacture
products and use supply chains to get them to market. Pricing
decisions are made unilaterally by manufacturers. There's no
correlation between manufacturer price increases and the
rebates and discounts they negotiate with PBMs.
The role of PBMs is to help our clients, including the
employers, unions, and health insurers who provide prescription
drug benefits, to reduce costs and improve health outcomes for
consumers. PBMs have a proven track record of delivering high-
quality, affordable benefits that address the individual needs
of their clients and patients.
Given current drug pricing trends, the role of PBMs has
become more important than ever. While few plans can afford to
offer true ``first-dollar'' prescription drug coverage, all
want to offer the most affordable benefits for consumers. That
is why thousands of America's largest, most sophisticated
health purchasers--Fortune 500 companies, insurers, state
employee programs, state Medicaid programs, unions, and
Medicare Part D plans--choose to hire PBMs, even though none
are required to.
PBMs typically reduce costs by 30 percent by, among other
things, using their substantial scale and expertise to promote
generics and negotiate aggressive rebates, discounts, and other
price concessions with manufacturers to reduce premiums and
cost-sharing.
PCMA supports policies to lower drug costs through
increased competition. The policy proposals outlined below to
help increase competition in the marketplace include some under
HELP Committee jurisdiction and some under Finance or Judiciary
Committee jurisdiction.
LStop anticompetitive product adjustments, i.e.,
``evergreening.''
LAllow for FDA accelerated approval of brand drugs
based on increasing competition.
LRevisit and improve biosimilar labeling and
naming.
LReduce innovator biologic exclusivity to seven
years.
LEliminate use of Risk Evaluation and Mitigation
Strategies (REMS) to delay competition.
LCreate a safe harbor for value-based drug price
negotiations from Medicaid Best Price.
LExpand drug coverage options for Health Savings
Account (HSA)-eligible high-deductible health plans (HDHPs).
LRemove Part D's protected classes.
LMake biosimilars subject to the 50 percent Part D
coverage gap discount.
LEncourage greater use of generics for Medicare
Part D Low Income Subsidy (LIS) enrollees.
LEliminate the tax deduction for direct-to-
consumer (DTC) drug ads that mention a specific product.
These are all common-sense ideas that would improve
affordability for payers, taxpayers, and consumers, and
increase competition.
------
The Chairman. Thank you, Mr. Merritt.
Mr. Menighan.
STATEMENT OF THOMAS E. MENIGHAN
Mr. Menighan. Thank you, Chairman Alexander and Ranking
Member Murray, for the opportunity to discuss a very important
topic for our Nation's patients, families, and pharmacists.
It's an honor to be here.
I'm Tom Menighan, American Pharmacists Association CEO.
APhA is America's largest, oldest, and most diverse pharmacist
organization. We promote patient access and coverage for
pharmacists' quality patient care services. Our members
contribute to healthcare in a wide variety of settings,
including physician offices, specialty and community pharmacies
both chain and independent, senior care, ambulatory care, and
health systems.
For many years as a practicing community pharmacist and
specialty pharmacy owner, I've shared the challenges with
patients facing financial choices between food and medicine.
Today's topic is of concern to America's 300,000 pharmacists,
the professional on the front line, informing patients about
medication cost and explaining complex insurance coverage
policies.
As the organization representing pharmacists in all
practice settings, we support policies that increase patients'
access to affordable and cost-effective medicines.
Decisions among the entire supply chain impact patient
medication costs, including arrangements among manufacturers,
wholesalers, insurers, and PBMs. Pharmacies are where millions
of Americans are first confronted with complex pharmaceutical
pricing policies or changes in coverage, formularies, prior
authorization, deductibles, copayments, many of which they
don't know or understand.
Upstream decisions often limit pharmacists' options to
impact patients' final drug costs. Instead of helping to
address the nearly $300 billion the U.S. spends annually on
medication use problems, fixing the problems of medication use,
community pharmacists spend much of their day on the phone
pursuing appropriate, covered, affordable treatment.
To address this challenge, we support a transparent pricing
framework that would eliminate or identify mechanisms like
rebates and post point of sale price fees imposed on
pharmacies. These policies generally result in higher point of
sale prices to consumers and, consequently, higher beneficiary
copayments. We also encourage policies that allow any willing
pharmacy to enter into contracts with insurers or PBMs to
increase patient access and choice, which can improve adherence
and health outcomes.
AphA requests the Committee to look beyond the drug price
spend in isolation. Policies should consider the relationship
between effective medication use and lower medical costs rather
than squaring them in siloes. Full value in healthcare will
come from integrating these siloes and their related costs and
outcomes.
As drugs become more expensive, complex, and personalized,
the need to optimize their impact and value should increase. To
get the greatest benefit from medications, patients must
understand how to use their medications safely and effectively.
Empowered pharmacists can assist patients in optimizing the
medication use and decreasing patient cost by providing
services focused on safe and appropriate use.
For example, pharmacists provide medication management
services, especially important for patients who take multiple
drugs or have chronic conditions, and we address hospital
readmissions by helping patients transition between care
settings.
Unfortunately, Medicare does not cover our services. Many
of our Nation's seniors are medically underserved, despite 91
percent of Americans living within five miles of a community
pharmacy. Pharmacists are a well trained and underutilized
healthcare resource, which can positively affect beneficiaries'
care and the entire Medicare program.
We ask your support today for S. 109, the Pharmacy and
Medically Underserved Areas Enhancement Act, and urge its swift
passage to provide access to underserved seniors. Not only will
access increase, but the Act will help improve beneficiary
outcomes, particularly those impacted by medications. But we
have to be on the team.
Finally, AphA supports a safe and secure supply chain.
America's pharmacists and patients should not have to worry
about diversion and counterfeits. We believe proposals to
legalize importation of non-FDA approved drugs will do more
harm than good. Importantly, we have great concern regarding
importations' impact on patient safety and continuity of care.
We believe it is in direct conflict with recent efforts by
Congress to secure the U.S. supply chain and secure and improve
patient safety.
In summary, thank you for including pharmacists today, the
medication experts, on the patient's healthcare team in this
discussion. Ultimately, the most expensive medicine is the one
not purchased, not taken, abandoned, or not used correctly by
patients. Pharmacists stand ready to help.
I look forward to answering any questions on the positive
role we can play and do play in reducing patients' prescription
drug costs.
Thank you.
[The prepared statement of Mr. Menighan follows:]
statement of thomas e. menighan
Thank you Chairman Alexander and Ranking Member Murray for
inviting me to testify today on a very important topic for our
nation's patients, families, and their pharmacists:
prescription drug prices. \1\ It is an honor to be here.
---------------------------------------------------------------------------
\1\ The cost of prescription drugs increased by 8.77 percent in
2016, according to data from the Truveris National Drug Index. Over the
past 3 years, annual price increases have increased by an average of
9.98 percent. See, Truveris. Prescription Drug Prices Continue to
Climb, Soaring 8.77 percent in Latest Truveris NDI Report. Press
Release. May 10, 2017. Available at:https://www.truveris.com/resources/
press-releases/prescription-drug-prices-continue-to-climb-soaring-8.77-
in-latest-truveris-ndi-report
---------------------------------------------------------------------------
My name is Tom Menighan and I am the Executive Vice
President and CEO of the American Pharmacists Association, or
APhA.
APhA is America's oldest, largest and most diverse
pharmacist organization. APhA was founded in 1852, and
represents pharmacists, pharmaceutical scientists, student
pharmacists, pharmacy technicians, and other parties invested
in improving medication use and advancing patient care. APhA
members practice and contribute to providing care in all
practice settings, including community pharmacies, hospitals,
long-term care facilities, community health centers, physician
offices, ambulatory clinics, managed care organizations,
hospice settings, and the uniformed services. APhA promotes
patient access and coverage for pharmacists' quality patient
care services.
I was a practicing community pharmacist and specialty
pharmacy owner for many years. Like many other pharmacists, I
needed to make careful purchasing decisions to provide patient
access to needed medications and negotiate with other members
of the supply chain and payers to stay viable. I've also shared
the challenges with patients who face financial choices between
food and medicine for themselves or loved ones. Today's topic
is of major concern to America's 300,000 pharmacists-the health
care professional most often at the front lines of informing
patients about their medication cost or copay amount and
explaining complicated insurance coverage policies.
Pharmacies are where millions of Americans are first
exposed to the impact of complex pharmaceutical pricing
policies or confronted with changes in coverage, formularies,
prior authorization, deductibles and co-payments or co-
insurance, many of which they didn't know existed or
understand. My comments today will focus on the following
areas----cost versus value, patients' access to medications,
and medications' safety and affordability.
Cost Versus Value
As drugs become more and more expensive, complex, and
personalized, the need to optimize their impact also increases.
In order to get the greatest benefit from medications, patients
must understand how to use their medications safely and
effectively. Pharmacists have more medication-related education
and training than any other health care professional.
Pharmacists can and do assist patients in optimizing the impact
of medications and decreasing patients' costs by providing
services focused on safe and appropriate medication use. For
example, pharmacists provide medication management services,
which are especially important for patients who have complex
care plans, take multiple drugs or have chronic conditions.
Additionally, to address hospital readmissions, pharmacists
help patients transition between care settings.
Unfortunately, despite the fact that many states and
Medicaid programs are turning to pharmacists to increase access
to health care and address medication-related costs, Medicare
Part B does not cover the services pharmacists can provide.
Pharmacists are trained to do more than place medication in a
container and while 91 percent of Americans live within 5 miles
of a community pharmacy \2\ many of our Nation's seniors are
medically underserved. Pharmacists are an underutilized health
care resource which can positively affect beneficiaries' care
\3\ and the entire Medicare program.
---------------------------------------------------------------------------
\2\ NCPDP Pharmacy File, ArcGIS Census Tract File. NACDS Economics
Department.
\3\ CMS. Evidence Supporting Enhanced Medication Therapy
Management. Center for Medicare and Medicaid Innovation. 2016.
Available at: https://innovation.cms.gov/Files/x/mtm-evidencebase.pdf
---------------------------------------------------------------------------
APhA strongly believes S.109, the Pharmacy and Medically
Underserved Areas Enhancement Act, is a bipartisan proposal
that will improve patient care, health outcomes, impact of
medications, \4\ and consequently, the viability of the
Medicare program. Introduced by former Health Subcommittee
Chair Chuck Grassley (R-IA) and Senators Bob Casey (D-PA),
Susan Collins (R-ME), and Sherrod Brown (D-OH), S. 109 has 45
bipartisan cosponsors. Similar legislation obtained 51
cosponsors in the 114th Congress.
---------------------------------------------------------------------------
\4\ See Avalere Health. Exploring Pharmacists' Role in a Changing
Healthcare Environment. May 2014. Available at: http://avalere.com/
expertise/life-sciences/insights/exploring-pharmacists-role-in-a-
changing-healthcare-environment Also, See Avalere Health. Developing
Trends in Delivery and Reimbursement of Pharmacist Services. October
2015. Available at: http://avalere.com/expertise/managed-care/insights/
new-analysis-identifies-factors-that-can-facilitate-broader-
reimbursement-o
---------------------------------------------------------------------------
The legislation will enable Medicare patients in medically
underserved communities to better access health care through
state-licensed pharmacists practicing according to their own
state's scope of practice. In medically underserved
communities, pharmacists are often the closest health care
professional and accessible outside normal business hours.
Helping patients receive the care they need, when they need it,
is a common sense and bipartisan solution that will improve
outcomes and reduce overall costs.
The importance of medication-related services cannot be
overstated, especially in the Medicare program. Medications are
the primary method of treating chronic disease and are involved
in 80 percent of all treatment regimens. Moreover, the United
States spends nearly $300 billion annually on medication-
related problems, including nonadherence. \5\ Accordingly, not
only will S.109 increase beneficiaries' access to health care,
it will help improve their outcomes-particularly those impacted
by medications. APhA appreciates the support by many Committee
members for the Pharmacy and Medically Underserved Areas
Enhancement Act and urges its swift passage to allow
pharmacists to deliver these vital services as providers in
medically underserved areas.
---------------------------------------------------------------------------
\5\ New England Healthcare Institute. Thinking Outside the
Pillbox: A System-Wide Approach to Improving Patient Adherence for
Chronic Disease. August 2009. Available at:http://www.nehi.net/
publications/17-thinking-outside-the-pillbox-a-system-wide-approach-to-
improving-patient-medication-adherence-for-chronic-disease/view
---------------------------------------------------------------------------
We also encourage the Committee, when considering policy
changes, to look beyond isolated components of health care to
determine cost and value. Because health coverage is frequently
analyzed by the benefit type such as inpatient, outpatient, and
drug coverage, a patient's overall services, costs and outcomes
may never be reviewed comprehensively. Policies cannot continue
to consider drug and medical coverage, and their related costs
and outcomes, separately if we are to achieve true value in
health care. Current coverage and payment policies related to
prescription drugs place incentives on the short-term, focusing
on cost containment for the product rather than weighing the
overall clinical benefit to the patient and the impact to their
medical costs. Breaking down the many silos within our health
care system will help address that $300 billion dollars spent
on medication-related problems-many of which are preventable.
\6\
---------------------------------------------------------------------------
\6\ Ibid.
---------------------------------------------------------------------------
Patients' Access to Medications
As the organization representing pharmacists in all
practice settings, APhA has been, and is, a strong supporter of
policies which increase patients' access to affordable and cost
effective medicines. Decisions along the entire drug supply
chain impact patients' medication costs, including arrangements
between manufacturers, wholesalers, insurers, and pharmacy
benefit managers, or PBMs. Because of these upstream
stakeholder policies, for most patients, pharmacists have
limited options to impact patients' final drug costs. Moreover,
complex coverage and payment policies hinder the full potential
of community pharmacists' clinical education and training from
being realized as much of their day is spent on the phone
trying to find an appropriate treatment that is not only
covered, but the patient can afford. Consequently, APhA
supports a transparent pricing framework which would eliminate
such mechanisms as hidden discounts, free goods and post point-
of-sale price fees imposed on pharmacies.
To address post point-of-sale fees, known as Direct and
Indirect Remuneration (DIR) fees, APhA supports S. 413, the
Improving Transparency and Accuracy in Medicare Part D Spending
Act, that would prohibit Medicare Part D plan sponsors and
their PBMs from retroactively reducing payment on clean claims
submitted by pharmacies under Medicare Part D. The Centers for
Medicare and Medicaid Services (CMS) has acknowledged a notable
growth in DIR fees, which have more than tripled in recent
years. \7\ These policies generally result in higher prices at
point of sale which result in the beneficiary paying more
because cost-sharing is based on sales prices. S. 413 will
boost transparency in drug pricing and facilitate better CMS
oversight.
---------------------------------------------------------------------------
\7\ See, Wakely Consulting Group analysis of S. 413/H.R. 1038.
2017. Available at: http://www.ncpa.co/pdf/wakely-report.pdf
---------------------------------------------------------------------------
An additional problem facing some pharmacies is the
inability to enter into contracts with health plans due to the
growth in narrow networks. APhA reiterates the need for Part D
plans to be required to contract with any pharmacy willing to
accept their contractual terms and conditions. Increasing
patient choice will not only improve patients' access to
benefits and services, but will likely positively impact
patient satisfaction and outcomes, such as adherence. A related
issue is limited distribution of some medications. As more
costly and complex medications are being developed, some
manufacturers, clinics, practitioners' offices and pharmacies
have entered into contracts that effectively limit the
distribution of certain medications. To address these issues,
APhA encourages the Committee to examine narrow networks and
the limited distribution of certain medications and the impact
these mechanisms have on patients and competition.
Drug shortages are another factor that can negatively
affect patients in terms of cost and the availability of their
treatments. APhA urges the Committee to consider mechanisms to
both better control the price of medications in shortage and
also to improve tracking and prediction systems used to
identify drugs in shortage. APhA also strongly supports the
appropriate prosecution of entities that engage in price
gouging and profiteering of medically necessary drug products
in response to drug shortages.
Medications' Safety and Affordability
APhA supports congressional efforts to increase patients'
access to appropriate, safe, effective, and affordable
prescription medications. We are a strong supporter of the user
fee acts, like the FDA Reauthorization Act of 2017 (FDARA),
which have helped innovative and cost affordable treatments
reach patients more quickly. Equally, we have encouraged the
development and implementation of a framework by the U.S. Food
and Drug Administration (FDA) for determining biologic product
interchangeability. APhA opposes practices which circumvent the
intent of drug product review laws and negatively impact the
pharmacist's ability to substitute medications to safe,
effective, lower-cost alternatives. Conversely, APhA supports
pharmacists collaborating with prescribers and patients to
design cost-effective treatment regimens, identify formulary or
generic products as a means to reduce costs, and intervene on
behalf of the patient to identify alternate therapies. \8\
---------------------------------------------------------------------------
\8\ See Brief for the FTC as Amicus Curiae, Mylan Pharmaceuticals,
Inc. v. Warner Chilcott plc, et al. U.S. 3d Cir. (2016), describing a
typical product-hopping scheme, ``A brand-name pharmaceutical company
expects generic rivals to win FDA approval to compete with the
company's profitable brand-name drug using automatically substitutable
AB-rated equivalents. To thwart such substitution, the brand-name
company introduces minor changes to the drug's formulation, such as
therapeutically insignificant tweaks to dosage levels or to the form of
administration (e.g., capsules vs. tablets). Before generic equivalents
have a change to enter, the brand-name manufacturer then takes various
steps to extinguish demand for the original version. The shift in
prescriptions is generally a one-way street: once doctors prescribe a
medicine and find that it works, they are generally reluctant to switch
users back to the original formulation even if a cheaper generic
version of it later becomes available.'' Available at:https://
www.ftc.gov/system/files/documents/amicus--briefs/mylan-
pharmaceuticals-inc.v.warner-chilcott-plc-et-al./
151001mylanamicusbrief.pdf
---------------------------------------------------------------------------
Although APhA supports congressional efforts to address
patients' medication costs, APhA has significant concerns with
turning to drug importation achieve lower prices. We believe
proposals to legalize importation of non-FDA approved drugs is
not a comprehensive solution to the complex issue of drug
pricing, threatens patient safety, disrupts care, and directly
conflicts with efforts by Congress and federal agencies to
increase the integrity and security of the U.S. drug supply
pursuant to the Drug Supply Chain Security Act (DSCSA).
Furthermore, APhA is concerned savings, if any, will be short-
term and importation will instead result in long-term costs to
patients and the health care system.
Because drug importation policies effectively encourage
patients to buy medications online from foreign sources, APhA
fears patients will be at an even greater risk of taking
ineffective or harmful medications, including controlled
medications in which they weren't prescribed. The lack of a
strong regulatory framework for internet pharmacies in certain
foreign countries has led to the large number of illegitimate
foreign internet pharmacies. APhA's concerns regarding foreign
internet pharmacies are compounded by the large number of
illegitimate internet ``pharmacies'' which have increased and
become more sophisticated in recent years, making them
difficult to track and permanently stop.
Importantly, broader importation laws will further fragment
care and hinder the progress made by Congress to move U.S.
health care delivery and payment towards value. Because
Canadian pharmacists may only fill prescriptions written by
Canadian prescribers, expanded importation policies will
encourage Americans to seek care from foreign prescribers and
pharmacists, whose systems and standards are not integrated
into, or consistent with, U.S. systems or care. Value-based
care models and other efforts to produce savings and promote
quality, such as outcomes-based reimbursement, will be more
difficult to measure and optimize if patients are allowed to
receive care outside the model's mechanisms to drive results.
As previously noted, obtaining safe and effective
medications is only one part of appropriate medication use. It
also requires a health practitioner's knowledge of the
patient's complete medication profile and an understanding by
the patient of how to take the medication, side effects and/or
potential interactions----all of which could be negatively
affected by importation proposals. APhA believes importation of
non-FDA approved drugs could hurt the very patients intended to
benefit from importation proposals. Consequently, the risks to
patient safety from harmful or ineffective products or
avoidable medication errors due to fractured care outweighs any
increase in access or cost-savings.
In summary, thank you today for including pharmacists-the
medication expert on the patient's health care team-in this
discussion. Ultimately, the most expensive medicine is the one
not purchased, not taken, or not used correctly by patients.
Pharmacists stand ready to help.
I look forward to answering any questions on the positive
role pharmacists can and do play in reducing patients'
prescription drug costs.
Addendum: APhA House of Delegates Policies Related to Drug Pricing
2004, 1968 Manufacturers' Pricing Policies
APhA supports pharmaceutical industry adoption of a
``transparent pricing'' system which would eliminate hidden
discounts, free goods, and other subtle economic devices.
(JAPhA NS8:362 July 1968) (JAPhA NS44(5):551 September/October
2004) (Reviewed 2006)(Reviewed 2011)(Reviewed 2016)
1985 Pharmaceutical Pricing
APhA supports a system of equal opportunity with the same
terms, conditions, and prices available for all pharmacies. (Am
Pharm NS25(5):52 May 1985) (Reviewed 2004) (Reviewed
2006)(Reviewed 2011)(Reviewed 2016)
2004, 1977 Prescription Drug Advertising
APhA does not oppose the dissemination of price information
to patients, by advertising or by any other means. (JAPhA
NS17:448 July 1977)(JAPhA NS44(5):551 September/October
2004)(Reviewed 2006)(Reviewed 2011)(Reviewed 2016)
2016, 1994 Pharmacy Services Benefits in Health Care
Reform
A single set of pricing rules, eliminating class-of-trade
distinctions, for medications, medication delivery systems, and
other equipment so that no payer, patient, or provider is
disadvantaged by cost shifting.
The right for every American to choose his/her own provider
of medications and pharmacists' services and for all
pharmacists to participate in the health plans of their choice
under equally applied terms and conditions. (Am Pharm
NS34(6):58 June 1994) (Reviewed 2004) (Reviewed 2010) (Reviewed
2011)(JAPhA 56(4); 379 July/August 2016
2016 Biologic, Biosimilar, and Interchangeable Biologic Drug
Products
APhA urges the development of programs and policies that
facilitate patient access to and affordability of biologic
products. (JAPhA 56(4); 369 July/August 2016)
2005, 1977 Government-Financed Reimbursement
APhA supports only those government-operated or -financed,
third-party prescription programs which ensures that
participating pharmacists receive individualized, equitable
compensation for professional services and reimbursement for
products provided under the program. (JAPhA NS17:452 July 1977)
(JAPhA NS45(5):558 September/October 2005)(Reviewed
2009)(Reviewed 2011)(Reviewed 2012)(Reviewed 2017)
2012 Drug Supply Shortages and Patient Care
APhA encourages the active investigation and appropriate
prosecution of entities that engage in price gouging and
profiteering of medically necessary drug products in response
to drug shortages. (JAPhA NS52(4) 457 July/August
2012)(Reviewed 2017)
2005, 1981 Third-party Reimbursement Legislation
APhA supports enactment of legislation requiring that
third-party program reimbursement to pharmacists be at least
equal to the pharmacists prevailing charges to the self-paying
public for comparable services and products, plus additional
documented direct and indirect costs, which are generated by
participating in the program. (Am Pharm NS21(5):40 May 1981)
(Reviewed 2005) (Reviewed 2009)(Reviewed 2014)
1967 Drugs Provided Under Social Security Act: Guidelines for
Pharmaceutical Service
Since it is probable or likely that APhA may have to
consider and act upon some proposals in the area of drug costs
before the next annual meeting, we recommend that APhA Board of
Trustees be guided by whether the proposals: (a) Permit
pharmacists to select and dispense a quality drug product; (b)
Establish some mechanism to assist pharmacists in selecting
quality, drug products under the cost and other criteria
established; (c) Permit the use of any available drug product
when unique medical circumstances so require; (d) Establish a
reasonable remuneration base for pharmacists rendering services
under the program; (e) Guarantee recipients free choice of
pharmacy; and (f) Limit the reimbursement for pharmacists'
services to those provided by duly licensed pharmacists. (JAPhA
NS7:315 June 1967) (Reviewed 2005) (Reviewed 2009)(Reviewed
2014)
2017 Pharmacy Performance Networks
APhA supports performance networks that improve patient
care and health outcomes, reduce costs, use pharmacists as an
integral part of the health care team, and include evidence-
based quality measures. (JAPhA 57(4): 441 July/August 2017)
------
[summary statement of thomas e. menighan]
Thank you Chairman Alexander and Ranking Member Murray for
the opportunity to discuss a very important topic for our
Nation's patients, families, and their pharmacists.
It is an honor to be here.
I am Tom Menighan, the American Pharmacists Association's
(APhA), Executive Vice President and CEO.
APhA is America's oldest, largest and most diverse
pharmacist organization. We promote patient access and coverage
for pharmacists' quality patient care services. Our members
contribute to health care in a wide variety of settings
including physician offices, specialty and community
pharmacies, senior care facilities, academia and health
systems.
I was a practicing community pharmacist and specialty
pharmacy owner for many years. I've shared the challenges with
patients who face financial choices between food and medicine
for themselves or loved ones. Today's topic is of major concern
to America's 300,000 pharmacists--the health care professional
most often at the front lines of informing patients about their
medication cost or copay amount and explaining complicated
insurance coverage policies.
As the organization representing pharmacists in all
practice settings, APhA is a strong supporter of policies which
increase patients' access to affordable and cost effective
medicines.
As you know, decisions along the entire drug supply chain
impact patients' medication costs, including arrangements among
manufacturers, wholesalers, insurers, and pharmacy benefit
managers, or PBMs.
Pharmacies are where millions of Americans are first
exposed to the impact of complex pharmaceutical pricing
policies or confronted with changes in coverage, formularies,
prior authorization, deductibles and co-payments, many of which
they didn't know or understand. Due to these upstream decisions
and policies, for most patients, pharmacists have limited
options to impact patients' final drug costs. Instead of
helping to address the nearly $300 billion the U.S. spends
annually on medication-related problems, community pharmacists
spend much of their day on the phone to find an appropriate
treatment that is not only covered but the patient can afford.
We support a transparent pricing framework that would
eliminate mechanisms like rebates and post point-of-sale price
fees imposed on pharmacies. These policies generally result in
higher prices at point of sale and consequently, higher
beneficiary co-pays. We also encourage policies that allow any
willing pharmacy to enter into contracts with insurers or PBMs
to increase patient access and choice, which can improve
adherence and health outcomes. APhA requests the Committee to
look beyond isolated components of health care to determine
cost and value. Policies that consider drug and medical
coverage, and their related costs and outcomes in separate
silos cannot achieve true value in health care.
As drugs become more expensive, complex and personalized,
the need to optimize their impact and value also increases. To
get the greatest benefit from medications, patients must
understand how to use their medications safely and effectively.
Empowered pharmacists can assist patients in optimizing the
impact of medications and decreasing patients' costs by
providing services focused on safe and appropriate medication
use.
For example, pharmacists provide medication management
services, which are especially important for patients who take
multiple drugs or have chronic conditions, and address hospital
readmissions by helping patients transition between care
settings.
Unfortunately, Medicare Part B does not cover our services.
Many of our Nation's seniors are medically underserved, despite
91 percent of Americans living within 5 miles of a community
pharmacy. Pharmacists are an underutilized health care resource
which can positively affect beneficiaries' care and the entire
Medicare program.
We ask your support today for S. 109, the Pharmacy and
Medically Underserved Areas Enhancement Act, and urge its swift
passage to provide access to underserved seniors. Not only will
access increase, it will help improve beneficiary outcomes,
particularly those impacted by medications.
Finally, APhA supports a safe and secure supply chain.
America's patients and pharmacists should not have to worry
about diversion and counterfeits. We believe proposals to
legalize importation of non-FDA approved drugs will do more
harm than good. Importantly, we have great concern regarding
importation's impact on patient safety and continuity of care
and believe it is in direct conflict with recent efforts by
Congress to secure the U.S. drug supply and improve patient
safety.
In summary, thank you today for including pharmacists--the
medication expert on the patient's health care team--in this
discussion. Ultimately, the most expensive medicine is the one
not purchased, not taken, or not used correctly by patients.
Pharmacists stand ready to help.
I look forward to answering any questions on the positive
role pharmacists can and do play in reducing patients'
prescription drug costs.
------
The Chairman. Thank you very much to all the witnesses.
We'll now begin a 5-minute round of questions. I'll begin, and
then we'll go to Senator Murray, and then we'll leave and go
vote and come back. But we'll continue the hearing so that
Senators can ask questions.
Ms. Reilly, did I hear you right? I think you said that
three of the pharmacy benefit managers, which Mr. Merritt
represents, negotiate rebates for 75 percent of prescriptions
sold.
Ms. Reilly. That's correct.
The Chairman. That's about $100 billion of money?
Ms. Reilly. In 2015, over $100 billion was negotiated on
behalf of commercial health plans as well as some government
mandated----
The Chairman. The rebate is simply--that $100 billion means
that the pharmacy benefit managers then--the manufacturers get
less money.
Ms. Reilly. Correct.
The Chairman. The pharmacy benefit managers then decide in
their negotiations where that $100 billion goes.
Ms. Reilly. Right. So it lowers the net price to the
manufacturer. That money either gets sent back to the insurance
company, some of which is kept--a portion of which is kept by
the pharmacy benefit manager.
The Chairman. Mr. Menighan, you said, I believe, that we
don't need rebates. Is that what you said?
Mr. Menighan. No. What I said was that we need----
The Chairman. Do you want to get rid of them?
Mr. Menighan [continuing]. we need more transparency in the
system so that we know where they're coming from. At the end of
the day when the patient walks up to a pharmacy, and the
pharmacy presents them with the cost of the medicine to them,
the impact of rebates isn't really felt until after----
The Chairman. Well, Ms. Reilly was saying that people who
go into your pharmacies don't really see the direct--or don't
necessarily see the direct benefit of the rebate negotiated by
the pharmacy benefit managers.
Mr. Menighan. Well, that's fair. They don't.
The Chairman. Senator Murray and I and others of us--we've
been working on health insurance, which we find to be very
complicated. Where the money goes in prescription drugs is more
complicated. I've yet to figure out exactly where it goes.
Why do we need rebates at all? Wouldn't it increase
transparency if the drug manufacturers just established a list
price and then they negotiated with the pharmacy benefit
managers, or to whomever else they sold to, a reduction in that
price if they wanted to, and then we wouldn't have some mystery
about who is getting the benefit of a rebate.
Mr. Menighan. Without commenting on the need for rebates,
they're clearly used to drive market share----
The Chairman. Why wouldn't you comment on it?
Mr. Menighan. They're used to drive market share.
Oftentimes, in our view, that's not necessarily to the benefit
of the patient. When pharmacists are trying to manage
medication use----
The Chairman. Well, my question is why do we need rebates.
Ms. Reilly. Well, I would argue----
Mr. Menighan. I don't know why we need rebates.
The Chairman. Mr. Merritt, why do we need rebates? Why
don't we just get rid of rebates and let you negotiate directly
with the manufacturers, take that $100 billion a year and just
reduce the list price? Wouldn't that make it simpler for us to
understand where the money goes?
Mr. Merritt. We'd be open to that. I mean, rebates were
around before PBMs ever came on the scene, and, usually,
rebates are used not just by manufacturers of drugs but other
products because they want to keep one high price because their
lower volume clients will pay that price. But then as they have
bigger volume clients, instead of lowering the price, they'll
offer a bigger discount, which is all a rebate is.
Ms. Reilly. I would argue, though, that high rebates are
things that both the pharmacy benefit managers and insurance
companies like, because they get a big check at the end of the
day for those rebates. They then can use those rebate dollars
to do what they want to do with them, which is typically to
lower premiums.
The Chairman. Right. Well, would you like, Ms. Reilly, to
eliminate rebates?
Ms. Reilly. We'd like to see those rebates get passed back
to the patient at the point of sale.
The Chairman. Why worry about a big complicated chart that
shows how they're being passed back? Why not just eliminate
rebates?
Ms. Reilly. Well, I think that's one option, obviously, to
have a lower list price. But I will tell you, today, plans and
PBMs tend to favor products in terms of the formularies. They
prefer to have a product with a high list price and a high
rebate because, again, that money flows back to them for them
to decide what to do with.
The Chairman. Ms. Gallenagh, what do you think? Do we need
rebates at all?
Ms. Gallenagh. Honestly, to be candid, wholesale
distributors don't have any role in this rebate.
The Chairman. But you have a nice view of the prescription
drug business. Do you think it would be more transparent and
easier to follow and the consumers might get a more direct
benefit of lower cost if rebates were eliminated?
Ms. Gallenagh. I think it's something to be explored.
The Chairman. That's what we're doing. We're exploring it
here, trying to get an--Mr. Davis, what about you?
Mr. Davis. Mr. Chairman, this is a good example of a
difference between the branded and the generic market.
Historically, the rebate model isn't applied across the entire
generic sector. Our work in setting a wholesale acquisition
cost is generally directed to the wholesalers. We'll have 20 or
25 generic manufacturers competing for the business of the
three wholesalers. That usually leads to sort of an upfront
negotiation with them on price, which is what forces the
deflationary aspect of the industry.
We are seeing an increased level of involvement between
PBMs and brands as branded products come close to patent expiry
in an effort to maintain market share that will negatively
inhibit a generic getting to market. But, ultimately, the
rebate model is not as commonly used on the generic side as it
is on the brand side.
The Chairman. Thanks to each of you.
Senator Murray.
Senator Murray. Thank you.
Ms. Reilly, let me start with you. Do you agree that our
current system of brand and generic drugs is designed to strike
a careful balance between protecting the market share of
innovative drugs for a limited period to recoup costs and
driving competition to bring prices down after that time? Yes
or no?
Ms. Reilly. I do believe that's the intent of our system,
yes.
Senator Murray. I do, too. But here's what my concern is.
Your member companies are taking some actions now to
deliberately disrupt that balance to get the longest market
monopoly possible in order to benefit their bottom line, and
I'll give you some examples.
AbbVie recently settled in court to extend the market
monopoly for Humira to 20 years. Biogen extended its monopoly
on the MS drug, Tecfidera, to 15 years by getting additional
patents that cover only the drug's dosage amount. Allergan sold
its patent for Restasis to the Mohawk Indian tribe to shield it
from challenge, protecting a more than 15-year monopoly, and
recently settled with a generic challenger to keep it off the
market for 7 years.
Are those isolated incidents, or are they part of a larger
trend in which companies use the patent system to actually
block competition that could actually bring down prices?
Ms. Reilly. Well, those were a lot of examples. Let me try
and address each one of them. In the case of patent
settlements, companies are given patents by the Patent and
Trademark Office, and they believe they have every right to
defend those patents in a court of law. In the case of the
AbbVie and Amgen patent settlement you mentioned, there was no
exchange of money for that patent settlement. The patents on
that particular product, according to public records, exceeded
actually to 2033, so this product will be coming on the market
10 years prior to when the patents truly expire for that
product. I understand there are other companies that are also
trying to get on the market to challenge that particular
product.
Yes, we have a system, and that system was in part designed
by the Hatch-Waxman Act to encourage generic manufacturers to
get on the market before our patents actually expire. I think
it's a system that's worked incredibly well. In 1984, there
were 19 percent of prescriptions that are generic. Today,
nearly 90 percent of prescriptions are generic. Patent
settlements is one way oftentimes to get products to market
well before the patent would actually have expired.
Oftentimes, there are anecdotes pointed out. I would argue
that, by and large, patent settlements and the Hatch-Waxman
system have served and inured to the benefit of patients in
getting those medicines to market sooner than they would have
been otherwise.
Senator Murray. Well, Mr. Davis, I'd like you to comment on
that, and there also seems--that, as well as I think there's
other tactics at play to keep drug prices high. When Congress
actually passed the Biologics Price Competition and Innovation
Act as part of the ACA, it cleared the path for products to
compete with pricey biologics. The CBO estimated that increased
competition could save patients and families $7 billion just
through 2019. But even though FDA has now approved several of
those, we aren't seeing any great savings.
Why is that? Combine it with an answer to the first
question.
Mr. Davis. Sure, Senator Murray. Thank you for the
question.
I think there are three things that are having an enormous
impact on the generic side of the pharmaceutical ecosystem
right now that, quite frankly, are threatening its continued
viability and sustainability moving forward. One is the market
imbalance that I talked about, and, quite frankly, that was
created in the market, and it's going to take some time for the
market to work that out, where you have essentially three
buyers that are in control of 90 percent of the generic drug
supply.
The two others, though, are directly related to policy and
your question. The second is that there has been a series, both
here in Washington and at the state level, of what we would
call well-intentioned but misguided policy provisions, for
instance, things that look to actually penalize generic
manufacturers operating in a deflationary market that are only
26 percent of the total cost but that are not focusing on the
increase in cost of branded drugs and specialty drugs year over
year. The implementation of a Medicaid rebate penalty on
generics passed as part of the 2015 budget agreement is a great
example of that, in addition to some bills in places like
Maryland and California on the state legislative side.
Directly to your question, the third area is we are
absolutely, unequivocally seeing an increased effort on the
part of certain branded manufacturers with respect to the
amount of anti-competitive behavior designed to keep generics
and biosimilars off the market. You mentioned a number of them.
I think the reality is, overall, the reason that we're seeing
this is because there are companies that are doing the business
math and the political math and thinking that they can actually
get away with it.
To your question on the biosimilars, interestingly enough,
when BPCIA passed as part of the Affordable Care Act, I believe
the Federal Government began scoring savings, estimated
savings, as early as fiscal year 2014. To your point, the first
biosimilar did not get to market until September 2015. Seven
have been approved. Only three are on the market. The other
four are tied up in litigation.
Senator Murray. Thank you, Mr. Chairman. I just think it's
really real that in order for competition to bring down costs,
we have to make sure the market is actually working. So that's
one of the concerns that I have as we move forward.
The Chairman. In the absence of other Senators, I'll ask a
question, and when they come back, I'll defer to them.
With the exception of drugs compounded in pharmacies, each
pharmaceutical drug sold in the United States requires a
careful review by the Food and Drug Administration before that
drug can be sold in the United States. We call that the FDA
Gold Standard. There are 4.4 billion prescriptions a year. Most
of us, when we go into our local pharmacy or the doctor's
office, don't really worry about the safety of those
prescriptions because we rely on the FDA Gold Standard.
Sometimes, when the cost of drugs comes up, there are
proposals that we should import drugs from other countries and
sidestep the careful FDA review and approval of each drug sold
in the United States. I'd like to ask each of you, starting
with Mr. Menighan and then going across, whether you agree that
we should allow drugs approved by other countries to be sold in
the United States without careful review and approval of each
drug by the Food and Drug Administration.
Mr. Menighan.
Mr. Menighan. The short answer is absolutely not. While
AphA appreciates congressional efforts to address patients'
medication costs, we don't believe importation is a solution to
the complex issue of drug pricing. Broadened importation of
non-FDA approved meds threatens patient safety, directly
conflicts with congressional efforts to increase the integrity
and security of the supply chain and the Drug Supply Chain
Security Act, and disrupts continuity of care and value-based
payment and delivery. We're concerned that savings, if any,
will be short-term, and importation will instead result in
long-term cost to patients.
The Chairman. Thank you.
Mr. Merritt.
Mr. Merritt. I'll give the short answer. We oppose that.
The Chairman. Thank you, Mr. Merritt.
Ms. Gallenagh.
Ms. Gallenagh. We would absolutely oppose importation as it
would threaten patient safety in this country. We have done a
lot of work on the Drug Supply Chain Security Act, and we're
currently in the Implementation Phase 1 of that law. One of the
things that it requires is serialized product by all
manufacturers in this country. There is no global standard for
serialization currently. It also involves data exchange for
each transaction that happens from the manufacturer to
distributor to pharmacy by 2023 at the unit level. There is
also no global standard for that data exchange.
We've done a lot of work to try and protect the U.S. supply
chain and make it as safe as possible, and we don't think that
allowing foreign imports will do anything to keep that level of
security.
The Chairman. Senator Collins has returned, and I'm going
to turn the chair over to her. But I'd like for Mr. Davis and
Ms. Reilly to answer my question about drug importation.
Mr. Davis. Yes, Mr. Chairman. Briefly, we share the concern
that you've heard from the other witnesses here today relative
to safety. The Secretary of Health and Human Services has the
opportunity to certify and legalize importation if they
determine, whether it's a Republican or Democratic health
official, that it's safe and cost effective. No one has been
willing to do that.
I will tell you, also, there's an additional element
related to generics from a practical perspective, which is far
and away, as a market basket, generics are less expensive in
the U.S. market than they are in major developed markets across
the world. So it would beg the question: Why would you want to
be importing something that's more expensive to begin with?
The Chairman. Ms. Reilly.
Ms. Reilly. I would just add on to what the panelists have
said previously. But opening our borders to potentially
counterfeit medicines risks the health and safety of Americans.
Counterfeiting medicines is a low-penalty, low-risk enterprise,
and if we open the borders, we are subjecting Americans to
unsafe medicines. So we adamantly oppose.
Statement of Senator Collins
Senator Collins. [presiding]. Thank you for your response.
First of all, let me say that I love having the gavel in my
hand----
[Laughter.]
Senator Collins ----even if it's only temporary and because
of the need of other Members to go vote. I went and voted early
so that I could relieve Senator Alexander so the Chairman could
go vote.
Last year, the Senate Aging Committee did an extensive
investigation into the spiraling cost increases of certain
prescription drugs. It's been mentioned this morning. We looked
at Turing, we looked at Valeant, and what we found was a
pattern of certain, what I call, hedge fund pharma companies
buying the rights to a drug and then, overnight, increasing the
cost by as much as literally 5,000 percent in the case of
Daraprim.
These were companies that played absolutely no role in the
development of the pharmaceutical. So there wasn't any
investment in R and D that would justify that kind of increase.
I am particularly pleased that the Chairman is holding this
hearing today, because I think that we have a lot of work to
do. One of the issues that really troubles me is the lack of
transparency in the system. The MAC price is not what most
people pay. Prices vary, depending on what pharmaceutical
benefit manager negotiated the cost. Prices vary according to,
obviously, whether a generic can be substituted.
But there's just a lack of transparency in the entire
system, and I'd like to go across the panel and have each of
you comment on how we can increase transparency into the
pricing, because until we do that, it is going to be very
difficult for us to get a handle on whether these cost
increases are justified.
Ms. Reilly.
Ms. Reilly. Thank you for the question, and thank you for
the work that you've done on issues that you raised, such as
the ones with Daraprim, Turing, and Valeant pharmaceuticals.
We, too, share the concerns that you raised about the fact that
companies can buy and essentially engage in regulatory
arbitrage, knowing that the approval through the FDA may take
years.
There are a number of solutions that we've talked about as
well that we think merit some consideration, whether the FDA
can fast-track reviews of medicines to compete with these
products, whether they can list on their websites suppliers and
names of companies that may be able to help in producing
competing product. So we are thankful for your leadership on
that issue and would welcome working with you on that.
The issue of transparency, I think, is a very important
one. Oftentimes, when we hear the word, transparency, it means
different things to different people. Transparency is
important, but it's important if it applies holistically.
Oftentimes, the transparency legislation that we've seen wants
to focus on one industry, the brand name pharmaceutical
industry, and leave out the rest of the supply chain.
As I mentioned in my testimony, brand name pharmaceuticals
represent about half of what we spend on total drugs in this
country. The rest is subsumed by generic manufacturers, as Chip
mentioned, just over 20 percent, but the rest is as a result of
supply chain, be it wholesalers, distributors, pharmacy benefit
managers, payers, and hospitals.
If we're going to have a discussion on transparency, which
we would welcome, we think it's important to have one that
holistically involves the entire supply chain, because there
are costs, as I mentioned before, in the hospital sector alone
where they are increasing their reimbursement two and a half
times over what they acquire a pharmaceutical product for. We
definitely need to have more transparency into areas like that.
Senator Collins. I see two of my Members of the Committee
have returned. So rather than going down the line, I'm going to
switch to another question that I want to make sure I get in,
and, Mr. Merritt, I'm going to direct it to you and Mr.
Menighan.
Last night, NBC Nightly News ran a story about an
investigation which found that a wide variety of prescription
drugs on certain insurance plans are actually cheaper when the
consumer pays out of pocket. That makes no sense to me. We also
learned that at least in some negotiations, in some contracts,
there is a gag order that prevents pharmacists from telling
patients that they would be better off paying out of pocket
than using their health insurance.
I would like both of you to answer the question of how
common is this practice, and how can this occur? How can it
occur that a prescription benefit manager, whose very job is to
negotiate prices, is negotiating a price that's actually higher
than the consumer would pay out of pocket?
Mr. Merritt.
Mr. Merritt. Yes, it's a really good question, and the
answer to your question is it's not something that should be
going on in the marketplace. It's an outlier behavior. I'm not
even sure if it's a PBM or an insurer behavior. But it's not
something that we support. We think the person ought to--who
goes to the pharmacy ought to pay the lesser amount if it's a
cost-sharing or the cost of the drug. So if there's a generic
that costs $5 and there's a $20 copay, they should pay $5. They
shouldn't pay that. So I agree that it's a practice that we
don't support. It's an outlier practice and a practice that we
hope goes away.
Mr. Menighan.
Mr. Menighan. Thank you, Senator Collins. First, I should
say that I didn't handle an earlier question about rebates. We
oppose rebates in all their forms.
With regard to the question that you just asked,
pharmacists are incredibly frustrated with their inability to
help patients. Providing patient care shouldn't be this
difficult. My members feel incredibly frustrated with their
lack of connectivity, their lack of communication with plans.
Essentially, they have no negotiating power, and they're sort
of told what they have to do, and they can take it or leave it.
They can either be in a network or not, typically not, and if
they're in the network, they're told how to perform. So----
Senator Collins. So is it an outlier----
Mr. Menighan. No, it's not an outlier.
Senator Collins ----or is this a common practice?
Mr. Menighan. It's common.
Senator Collins. Thank you.
Senator Kaine.
Statement of Senator Kaine
Senator Kaine. Thank you, Madam Chair, and thank you to the
witnesses for their good testimony. I want to ask a couple of
questions.
Mr. Menighan, if I can start with you at the front line
with pharmacies and dealing with patients--commonly, I hear, as
I travel around Virginia, about how high prices affect
financial decisions whether--your last line was great. The most
expensive drug is one that somebody doesn't get, often for a
financial reason, or if they get, they don't use it correctly.
One in four Americans who take prescription drugs report that
they have difficulty affording them, and then these high costs
lead to lack of access, and that disproportionately affects the
most vulnerable people in my population.
Just talk a little about your customers. How do you see
this high price challenge affecting your customers?
Mr. Menighan. Well, on the front end, at the first purchase
of a medication, oftentimes patients do have to make hard
choices, and pharmacists are in a great position to help with
those choices if given the latitude to do so. Oftentimes, we
spend our time chasing administrivia when, in fact, we should
be spending our time coaching patients on effective use of
their medicines, which they so desperately need.
Patients won't make lifestyle choices, won't be better
nourished, won't increase their activity without long-term
coaching and support. When they face these major barriers on
the front end, oftentimes they throw up their hands and say,
``I can't do it. It's too hard,'' and they go back to their old
ways, and they don't manage their chronic disease.
At its core, these front line decisions that patients have
to make and the limited resources and the lack of transparency
that affects pharmacists' ability to understand the reasons
behind why PBMs may say this drug is available, this one is
not, and the conflict that occurs there when a physician says,
``This is the drug that I want for my patient. I think it's
best for that patient,'' the pharmacist says, ``I'd like to
give that to you, but it's going to cost you $500,'' and the
patient says, ``I can't handle that. I give up,'' pharmacists
are really challenged with that.
To the degree that we know the reasons behind those
formulary choices, we can be better advocates for our patients.
To the degree that we can insert lower-cost options in
collaborations with our physician colleagues, we can help our
patients. But we need the time to do that and we need the
transparency and better understanding of the information behind
those decisions that are often made far above us and without
any transparency.
Senator Kaine. I would like the record to reflect that Mr.
Menighan's use of the phrase, administrivia, suggests a new
word that should be included in the Webster's Collegiate
Dictionary in the coming year. I've never heard it, and I
really like it, and I'm going to use it, steal it, and say I
thought of it.
[Laughter.]
Senator Kaine. My next question is for----
Mr. Menighan. It's yours, Senator.
Senator Kaine. My next question is for Mr. Davis.
Mr. Davis, your written testimony has a really nice thing
that I love, Congress must act to support generic and
biosimilars, and you give us three things. I want to make sure
I really get--one, the CREATES Act, I understand. There are two
I want to make sure I understand, and I wonder if you could
explain.
First, repealing the misguided Medicaid penalty on generic
drugs. Describe what that penalty is and why it's misguided.
Mr. Davis. Sure, Senator. Thank you for the question. In
the fall of 2015, as part of the budget agreement that I
believe was reached in October of that year, a rebate penalty
that has long been associated with the branded industry--in
Medicaid, you pay a base level rebate if you're a branded
product, and then if your price increases exceed medical
inflation, there's an additional penalty over and above. That
was instituted in the early 1990's through a process in an
effort to constrain a monopolist company's ability to take
price increases above and beyond the rate of inflation.
Through weekend deliberations around that budget agreement,
there was a decision made--there had been a bill introduced in
the House and Senate that, quite frankly, had languished for
several years, that was ultimately included in an effort
because it was allegedly scored at saving about a billion
dollars over 10 years. The net effect of that provision,
Senator, is that it actually applies in a commoditized market
and can impact a generic manufacturer when they don't take a
price increase.
So that penalty has now gone into effect beginning earlier
this year, and we have heard from our members that in certain
instances some 40 percent of their generic portfolio is
impacted by this additional penalty in instances when they did
not take a price increase.
Senator Kaine. It's a penalty that affects generics in a
different way than branded pharmaceuticals?
Mr. Davis. Yes, Senator. We have an added additional
expense back to the government that is not tied to when
companies actually take a price increase. That's the net
effect.
Senator Kaine. Thank you. Then, second, you want to ensure
that biosimilar medicines have a level and competitive playing
field in Medicare. Could you describe that, as my last
question?
Mr. Davis. Sure. Thank you. There's two components to that.
One actually is that our members would actually like for
biosimilars to be included in the 50 percent discount to the
Medicare Part D coverage gap, so, actually, to make sure that
there's not sort of an inverse incentive to make sure that a
patient actually stays on the higher cost biosimilar--or,
excuse me--biologic if it's appropriate to be on the
biosimilar, but we actually have to be exposed to the same 50
percent discount in the coverage gap. So that's something that
we have supported, and we would urge Congress to consider that
at the appropriate option.
Then the last area with respect to that--and, actually,
CMS, to their credit, is now looking at several of the
reimbursement policies that originally came out relative to how
they were going to treat biosimilars. We think there's more
opportunity to encourage the marketplace, not distinguish the
originator biologic and then group all biosimilars that have
never been compared to each other in a separate J code, and
we're optimistic that perhaps CMS will continue that evaluation
and come up with a different decision. But that's going to be
critical to making sure that we have a more conducive
environment for biosimilars moving forward.
Senator Kaine. Thank you.
Senator Collins. Senator Cassidy.
Statement of Senator Cassidy
Senator Cassidy. Thank you. I think a lot about drugs, and
I have to admit it turns my head. I'm going to focus on
insulin, and then I may come back to something else in a little
bit, and I'm going to focus on it in two different areas.
Ms. Reilly, if we speak about some of our insulin products,
they're increasing at 20 percent per year. The Wall Street
Journal had an article in 2016 about 2015, and at that point,
they actually referred to the role of PBMs. But if I look prior
to 2015, there were no rebates, appreciably, being given to
PBMs, but prices were going up anywhere from 10 percent to 23
percent per year, and this is toward the end of the monopoly.
So, presumably, they've recouped their expense of new drug
development, but costs are going up 20 percent per year so
that, I think, from 2010 to 2015, something goes from $114 to
$228. As deductibles have grown, patients can't afford this.
You make a good case that we're investing in development,
et cetera, but when costs are going up 20 percent per year on
the tail end of a monopoly--presumably those costs have been
recouped--Americans with diabetes and all Americans are upset.
What do you say about that?
Ms. Reilly. Thank you for asking that question. I think the
diabetes marketplace, to your point, is often confusing. Today,
it is, I would argue, one, if not the most, competitive
marketplaces. On average----
Senator Cassidy. But can we go back to that specific period
from, say, 2010 to 2015, or 2011, where people were basically
price taking. They were getting 20 percent increases per year,
even though, presumably, they had recouped their cost of
investment prior to that.
Ms. Reilly. Well, I would argue, Senator Cassidy, that
rebates were occurring well before 2010. Today, the average
rebate in the diabetes market----
Senator Cassidy. Okay. If I may, in 2014--2013 to 2014,
quarter four, year to year, the price list for Novo Nordisk was
22 percent with a rebate of 1.2 percent increase. For Sanofi,
it was 23 percent with a rebate change of 5.4 percent, net
price increase 20.8 percent and 26.4 percent. I'm not sure I'm
seeing that, at least in that period up to 2014.
Ms. Reilly. Right, and I'm not sure what the data is that
you're looking at, Senator Cassidy, but what I can tell you is
that today, the rebates and discounts publicly reported
averaged between 60 percent and 70 percent.
Senator Cassidy. Again, I'm not speaking of today. I'm
speaking of that period in the early part of this decade.
Ms. Reilly. Right.
Senator Cassidy. Those drugs have now had a new competitor,
and, frankly, when there's new competitors, PBMs drive bigger
rebates, and I'll have a question for Mr. Merritt about that in
just a second. But if you're an American looking at the insulin
price--believe me, there's a guy from Lafayette, Louisiana, who
texts me about three times a week, talking about how his
daughter cannot afford insulin, and the price increase it's
had, coupled with her high deductible premium, and he's a
Republican, pro-business, but he's about his daughter's
diabetes. So what do we say to her?
Ms. Reilly. I would say a couple of things that are
important that have happened. Prior to, I would say, 2012, most
patients that took medicine did not have a deductible for their
medicine. When they showed up at the pharmacy counter in
January, the price that they paid for their medicine was often
a copay and a pretty modest one--for diabetes medicine, often
$20. From 2012 to 2015, there's been a dramatic increase in the
number of patients that today have a deductible----
Senator Cassidy. So you're addressing--if I may, because I
have limited time. You're addressing the fact that the
individual may not have been seeing the price--but there's
still price--somebody's paying. It's either indirectly through
the premium or directly through a copay. So somebody is paying.
Ms. Reilly. Well, I would argue, too, though, Senator
Cassidy, when companies price their product, they're not just
looking to get reimbursed for the prices that they spent on
getting that individual product to market. Companies are
investing in the next generation of cures and treatments. Those
costs also have to be recouped. There's been many advancements
in the space of insulin since they first began many years ago,
and some of the newer insulins are longer acting. Patients
can----
Senator Cassidy. If I may say, though, just to counter that
a little bit, there's been more of an emphasis on raising
prices on established drugs than on new innovative drugs, and I
think that statistic--I don't have that statistic in front of
me, but I've read that in the past.
Ms. Reilly. Well, I would say last year, price increases on
all drugs was at 2.5 percent. So price increases have certainly
moderated over the past few years. While that may have been the
case several years ago, we are not seeing the kind of price
increases that we had years ago.
Senator Cassidy. Let me go to Mr. Merritt. I'm sorry. I
don't mean to be rude. I apologize.
Mr. Merritt, now, I've learned to say what I've been told,
not what I know. But this Wall Street Journal article to which
I refer with my questions to Ms. Reilly point out that in 2015,
actually, insulin prices did moderate. Prior to that, it's kind
of like, oh, my gosh, I wish my stocks were doing as well. But
in 2015, it actually flattened, but the price increased
dramatically because they had to pay high rebates to PBMs. A
competitor had entered; the PBM could choose; and so to pay the
rebate, they jacked up their price in order to pay for the
rebate.
The CEO of Mylan came in to speak to me. She said actually
their price was relatively flat, and then a competitor came in.
PBMs came and said, ``Wait a second. There's now a competitor.
We'll only carry you if you give us a big rebate.'' They had to
increase their price in order to pay the rebate. She said it's
paradoxical in the world of PBMs. When there is no competitor,
your prices are lower and competition increases the price. I've
heard that from the CEO of Mylan and from the Wall Street
Journal. Your thoughts regarding that?
Mr. Merritt. I would disagree with that. Let's remember
Mylan raised the price of EpiPen 400 percent just because it
felt like doing it, and----
Senator Cassidy. They would counter and say, ``No, we had
to do it because there's now a competitor, albeit on the market
only for a short time, and we were told that they would not
carry my EpiPen, that they would carry the competitor unless we
paid the rebate. That's when we increased it.''
Mr. Merritt. I don't think that happened. I think the
reality is if they'd just lower the price, that would make it
great, too, because all we want is the lowest net cost.
Senator Cassidy. So, wait a second. On insulin--again, I'm
looking at this Wall Street Journal article dated from October
2016, and they say that at that point, the net price going back
to the manufacturer remained flat, even though the price
increased dramatically, and they were paying the PBM for this
with a delta between their net price and their list price. Are
you disagreeing with that, too?
Mr. Merritt. Again, the simplest thing is for them just to
lower their prices. Typically, a rebate goes up because the
price goes up. If the price goes up, our clients are going to
demand that we get more of a discount. That's just how it
works. What we want is lower net cost. That can be done in a
number of different ways, and to Chairman Alexander's point,
rebates are one way things can work, but the simplest thing
would just be for prices to go down.
Senator Cassidy. I am way over, but I'll do it for the
record and ask you to direct the response directly to the
article in the Wall Street Journal which disagrees with that a
little bit.
I'm sorry for being way over. I apologize to my colleagues.
Senator Collins. Senator Hassan.
Statement of Senator Hassan
Senator Hassan. Thank you, Senator Collins, and I want to
add my thanks to Chairman Alexander and Ranking Member Murray
for holding this hearing, and thank you all to the witnesses
for being here today.
Ms. Reilly, I hear from granite staters all the time who
struggle to afford their medications, and they are so
frustrated. Drug makers are reaping sky-high profits as
patients choose between having their medicine or, for example,
heating their homes, choices they have to make too often
because of the brazenly anti-competitive behavior that bad
actors in the drug industry engage in, most recently, Allergan,
who makes the blockbuster dry eye drug, Restasis.
Restasis brought in sales of $1.5 billion last year alone,
which is, on average, $4 million per day. Allergan has had a
market monopoly on this multibillion dollar drug since its
approval in 2002, and, boy, is it working to keep it that way.
On September 8th of this year, just 1 week before its patents
were set to be subject to a hearing at the U.S. Patent and
Trademark Office, Allergan announced it had cut a deal with a
Native American tribe in order to shield the Restasis patents
from review by exploiting the doctrine of tribal sovereign
immunity.
In this outrageous first of its kind deal, which just
yesterday, a Federal district court judge called a ploy,
Allergan assigned ownership of the Restasis patents over to the
tribe. Then it basically leases back the patents from the tribe
and continues to sell the blockbuster drug. So Allergan is
using tribal sovereign immunity to shield the Restasis patents
from review, maintaining its market monopoly, preventing
generic competition, and keeping prices and profits high.
Meanwhile, patients who need Restasis are struggling to afford
it.
Allergan's behavior here is unacceptable, and if other drug
companies follow its lead, the problem is only going to get
worse. I'm very concerned about the potentially devastating
implications of the deal for our entire patent system, for the
delicate balance struck in the Hatch-Waxman Act, and, most
importantly, for patients' access to affordable drugs.
Ms. Reilly, your organization has a role to play here. In
May 2017, PhRMA approved new membership criteria to--and this
is a quote--``tackle the biggest challenges facing patients,''
and PhRMA expelled 22 member companies, which was seen as a
response to public concern over the rising cost of prescription
drugs and to remove bad actors.
Ms. Reilly, you are head of Membership for PhRMA. What I
want to know, yes or no, is whether you believe Allergan's
actions are consistent with the mission of your organization.
Ms. Reilly. First of all, thank you very much for the
question. I want to make clear a few things. Today, our member
companies are asked to defend their patents, not----
Senator Hassan. Ms. Reilly, I have very limited time and
another question to ask. So yes or no, is it consistent?
Ms. Reilly. I believe the IPR process, which is in play
here, is a process that needs significant reform. Our
companies----
Senator Hassan. That's fine. But to exploit tribal
sovereign immunity to avoid competition as opposed to dealing
with the patent system, in my view, is unacceptable. I'm sorry,
but because I have limited time, I'd like to move on to my next
question, which is to Ms. Gallenagh.
I want to discuss with you my serious concerns about the
Washington Post 60 Minutes report this weekend on a bill from
last year that your organization lobbied for aggressively. The
DEA had the power to immediately stop distributors from
supplying opioids and other prescription drugs to pill mills
and other corrupt sources. But according to the DEA Chief
Administrative Law Judge, last year's law makes it much harder
for the DEA to use that power. Under the new law, the agency
must provide substantial evidence that a distributor's actions
makes death or serious bodily harm considerably more likely,
and the DEA needs to do so before any witnesses are produced or
any evidence is admitted at a hearing.
As a result, the judge writes that the law appears--and
this is his quote--``completely eliminate the DEA's ability to
ever impose an immediate suspension.'' Yet, Ms. Gallenagh, your
organization spokesperson told the Washington Post, quote, ``To
be clear, this law does not decrease DEA's enforcement against
distributors.'' That's a direct contradiction from what the
judge is saying, and it's his job to interpret the law. Doesn't
that make your organization's statement pretty misleading?
Ms. Gallenagh. Thank you for the question, Senator. The
opioid epidemic, in general, is a very serious concern and a
complex issue that we are also very concerned about as
distributors, and we work with our supply chain partners daily
to try and find solutions to that.
Senator Hassan. Ms. Gallenagh, I understand that. But
here's the point. The point is that your organization, which
lobbied aggressively for this law last year claimed that it
does not decrease the DEA's enforcement against distributors,
and the DEA Chief Administrative Law Judge says you're wrong,
that the law completely eliminates the DEA's ability to take
certain enforcement actions. It's his job to interpret the law.
So is the judge wrong, or is your organization statement
misleading?
Ms. Gallenagh. In that sense, I believe that the judge's
statement was misleading, and I stand behind our organization's
defense, and I----
Senator Hassan. I'd suggest you read the judge's article,
which has now been published, because what he points out, among
other things, is that for all this time when there wasn't a
statutory definition of immediate harm that constrained the DEA
the way the bill that was passed last year does, over many,
many years, the industry didn't challenge the DEA's actions,
because the DEA--very often, there's almost no case law on it.
So I'd suggest you go read it, because there are a lot of us
extraordinarily concerned----
The Chairman [presiding]: We're a minute over.
Senator Hassan. I thank you for your time, thank you,
Chairman Alexander.
The Chairman. Thank you, Senator Hassan.
Senator Young.
Statement of Senator Young
Senator Young. Thank you, Chairman.
Ms. Reilly, the congressional Research Service tells us the
United States spends more for prescription drugs than other
wealthy countries. In Europe, drug prices are set by
governments, not by pharmaceutical companies. There's a recent
study by McKinsey which indicated, on average, the difference
between the price of one drug in the United States and the same
drug in France, UK, Germany, Italy, and Spain was 50 percent.
So U.S. consumers, by my reading, are subsidizing the world's
research and development. I'm not the first one to divine this
insight.
Research and Development magazine tells us the U.S.
accounted for 46 percent of global life sciences R and D, a
vast majority of that going to biopharma. So the challenge is
even if Europeans or wealthy countries were to raise their
prices and reduce the extent to which they're free riding, that
wouldn't automatically lead to a decrease in prices here in the
U.S. for our consumers. Instead, a company would be punished by
their investors and by their stockholders for lightening the
burden on rank and file Americans who are trying to obtain
pharmaceuticals.
I guess my question is twofold. The first part should be an
easy sort of yes or no, as I would see it. Am I correct that
foreign countries' pricing and reimbursement systems actually
affect our prescription drug costs?
Ms. Reilly. I would definitely say that the U.S. does bear
the burden for the world in terms of supporting research and
development. I think the numbers that you gave are much higher
than I've seen in terms of the price differential between the
United States and other countries. Oftentimes, those rely on
list prices which are not the net price paid.
Senator Young. So go back and look at the McKinsey study
and see where you disagree with their premises and their
findings. Maybe we could engage in a dialog offline about that.
Ms. Reilly. Absolutely.
Senator Young. The second part of the question is since
you've acknowledged there is an impact of these foreign
reimbursement systems and foreign pricing on the price to U.S.
consumers, how might we mitigate to extent to which Americans,
our innovators, our consumers, are shouldering the burden of
financing the world's medical innovation?
Ms. Reilly. Well, one thing I think is important to make
clear is we do have a different system in the United States. We
reward innovation, companies that bring their products to
market, and we pay more up front, and we pay significantly less
on the back end.
Senator Young. So you're giving me a lot of background. Are
there strategies we might use as policymakers to change this
dynamic or mitigate the extent to which we're shouldering the
burden like through free trade agreements, for example?
Ms. Reilly. Absolutely. Stronger trade agreements could go
a long way to ensure that other countries are paying more of
their fair share. I would note a comment that Mark said, which
is with regard to the recent Hep C medicines. PBMs here on
record said that patients here were paying less than what was
being paid abroad in part because of the considerable market
consolidation we have in the PBM market, where you have many
PBMs that are buying on behalf of more people than entire
foreign countries and the EU.
Senator Young. Are there other strategies we might employ
to reduce the price to consumers in the State of Indiana?
Ms. Reilly. Well, I think again, we have to look at what
our insurance market system looks like today. I think,
oftentimes, we treat pharmaceuticals very different than we
treat other aspects of the healthcare system. Based on an
individual's biology, if you need a medicine, you're being
asked to pay significantly more out of pocket as opposed to if
you needed to go into a hospital setting. So I think we do need
to examine whether it's fair to say to a patient with
rheumatoid arthritis, ``You need to pay 40 percent of the price
of your medicine,'' and if I go in the hospital, I need to pay
4 percent of the cost.
Senator Young. So one possibility to lower prices and
increase value, as I understand it, is the use of outcome-based
contracts increasingly being piloted by pharmaceutical
companies and insurers alike. Can you explain how these
contracts work in summary fashion and their potential to lower
drug costs for patients, and then perhaps elaborate on any
policy initiatives we here might engage in that might be
standing in the way of moving these pilots to scale?
Ms. Reilly. Sure. Great question. I think there are a
number of innovative arrangements that are being produced, the
goal of which is to say instead of purchasing medicines
historically like we have, which is based on a volume basis,
we'll pay for whatever we buy, and a movement toward saying we
will pay for those medicines at differential rates,
potentially, depending on if they meet the outcome that the
payer and the pharmaceutical company can mutually agree to.
There's lots of potential benefits of moving in this
direction. First of all, our companies are putting our money
where our mouth is. We may be getting paid less or, in some
cases, nothing, depending on if our medicine produces, as we
believe it should, so it's helpful for the healthcare system
with the ability to lower cost, helpful for patients, too,
because the goal, again, is also that if patients aren't being
helped by them, then their cost sharing should also be lowered
by those medicines. They're in their infancy stage in part
because there are government rules, like the anti-kickback
statute, price reporting, and communications with the FDA that
need to be addressed to make these become much bigger than they
are today.
Senator Young. I'll follow-up with you and your
organization to see if there's specific ways we might be
helpful to empower our companies to make use of these
contracts.
Ms. Reilly. Absolutely.
Senator Young. Thank you so much.
Ms. Reilly. Appreciate it.
The Chairman. Thank you, Senator Young.
Senator Warren.
Statement of Senator Warren
Senator Warren. Thank you, Mr. Chairman.
The high cost of prescription drugs is a huge problem.
Let's talk about the best way to tackle this public health
crisis.
Ms. Reilly, your association, which is called PhRMA,
represents brand name drug companies, and you said in your
testimony that, quote, ``the competitive market is the engine
that drives the drug industry.'' So I take it you think that
market solutions are the most effective way to deal with the
rising price of drugs.
Ms. Reilly. I do believe that markets lower cost, yes.
Senator Warren. Good. I love markets, and I also believe in
market-based solutions. So let's talk about one of the best
market-based solutions, and that's competition. If the
restrictions that prevent purchasers from importing the exact
same drugs at lower prices from places like Canada were
removed, we'd see some real competition, and we'd see some
lower prices.
Another market solution is negotiation. If the Federal
Government were allowed to negotiate more competitive drug
prices for Medicare beneficiaries, then prices would come down.
Ms. Reilly, you've already said that PhRMA opposes
importation of drugs from Canada. Let me ask about letting the
Federal Government negotiate with drug companies over Medicare
prices--these two market-based solutions.
Ms. Reilly. Well, I would argue price controls are not a
market-based solution. When foreign----
Senator Warren. I'm sorry. I didn't ask about price
controls. I asked about bringing in drugs that would compete
with prices here.
Ms. Reilly. Bringing in drugs from other countries that
price control their products is not a market-based way to get
the drug prices----
Senator Warren. So you would be in favor of drug
importation from any place that's not doing what you call price
control?
Ms. Reilly. I would argue that almost every country outside
of the U.S. artificially limit prices----
Senator Warren. Oh, so there's no place that we can import
from that would satisfy your requirements. How about the
Federal Government competing and actually having some
competition and saying, ``We're going to negotiate prices.''
Ms. Reilly. I think there's often a fallacy that because
the Federal Government is not setting prices in Medicare that
there's not negotiation, and that couldn't be further from the
truth. As we've seen in the Medicare Part D program, there's
been robust negotiation. Rebates are over 35 percent, on
average, in Part D. Premiums have been low.
Senator Warren. Let me just stop you there. I just want to
make sure I understand the point of the group that you
represent here and lobby for, and that is--is it that the
Federal Government ought to be able to negotiate all drug
prices?
Ms. Reilly. No, we don't believe the Federal Government is
in the best position. We have rapid market consolidation in the
pharmacy benefit manager space that exerts significant pressure
to the tune of over $100 billion in rebates last year.
Senator Warren. I understand that you have other concerns.
But drug competition from Canada, price negotiation, are market
solutions. They're not government mandates, and I would have
thought that if you believe in market solutions, you would have
embraced them.
Ms. Reilly. Well, I don't believe that price controls are
market-based solutions, and I also think that you need to look
at the downsides that happen in those countries, which is
patients don't get the kind of access that they get to
therapies here in the United States.
Senator Warren. I realize that you can call it price
controls, but this is a real question of whether or not there's
any place else for consumers to go to purchase drugs, or
whether or not the Federal Government can negotiate on a drug-
by-drug basis every time taxpayers are picking up the ticket.
Ms. Reilly. Well, the Congressional Budget Office has
looked at this----
Senator Warren. I looked it up, and the organizations who
are testifying here today spent a combined total of $30 million
lobbying Congress last year. PhRMA, your organization, is
responsible for almost three-quarters of that total, and a lot
of that money that is spent lobbying Congress is to keep drug
prices high. That's what improves profitability for your
industry and the companies you represent.
Here's what I think is really wrong about this. You talk
about wanting market solutions, but your industry isn't based
on competitive markets. It's based on totally artificial
taxpayer granted monopolies. Companies invent new drugs, and
then the government hands the companies the exclusive right to
manufacture and sell those drugs at whatever prices they want
for decades. So I just have a little bit of time left. But I
want to ask--do you know the average length of a government
granted monopoly for top-selling drugs in this country?
Ms. Reilly. Ten to twelve years.
Senator Warren. Yes, 10 to 12 years. The law says five, 5
years of exclusivity, but drug companies game the system.
According to a 2015 analysis by researchers at Harvard,
companies end up with a monopoly that lasts a medium length of
12 and a half years.
I know that I'm out of time, Mr. Chairman.
Ms. Reilly. Senator Warren, patents are 20 years long, 20
years. That is how long a pharmaceutical patent is. We also
have 5 years of data exclusivity.
Senator Warren. I'm sorry. The law says 5 years of
exclusivity on the basic drugs.
Ms. Reilly. Absolutely.
Senator Warren. The average--do you think the Harvard
study--they don't know how to do it there, to study how much
money you're making off these things or how long you have
exclusivity?
Ms. Reilly. Senator Warren, I'm simply saying that
companies have 5 years of data exclusivity. Immediately after
that, a generic company can get to market, and let me tell you,
they try very hard to get to market as soon as they can.
Senator Warren. You're saying that the drug companies don't
game the system at all to expand their exclusivity to an
average of 12 and a half years? It just happens? Please try
your story on someone else.
Ms. Reilly. Senator Warren, patents are 20 years long.
Exclusivity is a completely different----
Senator Warren. Try this story on someone else who's going
to be willing to listen to it. Taxpayers watch----
The Chairman. If you want to----
Senator Warren. ----thank you, Mr. Chairman.
The Chairman. ----you can finish your point.
Senator Warren. No, no. I just wanted to say taxpayers
watch when we've granted exclusivity to these companies, and
then they watch as the prices go up, and there's not a darned
thing for taxpayers to do about it. This is just fundamentally
wrong.
The Chairman. Thank you, Senator Warren.
Senator Murkowski.
Statement of Senator Murkowski
Senator Murkowski. Thank you, Mr. Chairman.
Ms. Gallenagh, I want to follow-up just very quickly with
the discussion that you were having with Senator Hassan
regarding this latest news with the weakening of the DEA
enforcement authorization--a big expose this weekend through 60
Minutes, Washington Post. You have a drug czar that is now
effectively withdrawn from this position. The President himself
is saying we need to look into this and to investigate it.
One of our colleagues on the other side of the aisle has
already introduced legislation that would repeal it. There have
been some that have suggested it needs to be modified.
You've indicated to Senator Hassan that you think that the
judge had misinterpreted--or you disagreed with the judge's
interpretation, I believe. But do you think that what was
passed in 2016 is actually good and sound, or do you believe
that, in fact, given what we know today, it might need to be
modified or amended in some way?
Ms. Gallenagh. Thank you, Senator. First, let me say
Senators Hatch and Whitehouse, who authored that bill in the
Senate, worked very closely with the DEA to ensure that the
bill did not inhibit the ability to take action against
registrants. DEA did not oppose that bill.
Also, regarding the ALJ's article, which was a draft, I
understand, ALJ's are not involved in issuing immediate
suspension orders. They are recommended by DEA staff. They are
issued by an administrator or a deputy administrator, and----
Senator Murkowski. But do you think that something needs to
be done to address what clearly has come out to be limitations
within DEA's authority that we might need to address through
legislation?
Ms. Gallenagh. I think that it should be explored as to
what DEA's limited actions were and their limited involvement
with collaborating with industry and talking about defining the
terms that registrants operate under. We have pages of
questions that we have submitted to the agency over the years
that have gone unanswered. This bill, from our understanding,
is sound, and we supported it. But we are open to talking
through those issues more closely with you and with other
offices.
Senator Murkowski. I do think that it is an issue that has
really risen to perhaps a higher level, given what we are
seeing around this country with regards to just the easy
availability of these opioids that are just ravishing parts of
our country. So this is something that needs to be continued
and addressed.
I've listened to the testimony from each of you and have
read through your written comments, and I just have to express
the frustration that I think the general public feels in just
being so limited in their ability to understand why. All they
know is that the most expensive part of their healthcare that
they can see is what is going on with the cost of their
prescription drugs.
Then when we talk about, well, all we need is transparency.
But if you look to try to understand it, you've got a
manufacturer that sets a list price, but almost nobody pays
that. You've got the PBMs that negotiate different prices.
You've got the GPOs who might negotiate different prices.
You've got one hospital that might charge something different
than a hospital across the street. There may be rebates. There
may be discounts. There may be other pricing things. There is
no way that anyone can follow this.
For the average consumer, if you all are talking
transparency, it doesn't mean anything to them. So I look to
ways that we might be more transparent that actually could
translate to something. We put on the back of any product what
the ingredients are and how that's allocated out. When Alaskans
get a permanent fund dividend, it actually lists on that
voucher, if you will, where all of the associated costs are
attributed to.
Are we crazy to think that we could be doing more with
actually accounting for the cost so that the consumer could
better understand and make it legible? Because right now, it's
impossible to understand, and even those of us who are
listening to you as supposed experts, it's all Greek, and we're
not doing anything to help the consumer.
Maybe it's a rhetorical question here, but I challenge you
all to translate how the pricing mechanisms--who gets
discounts, who doesn't, why it's fair for one hospital to
charge something that the other one doesn't? In no other
industry that I can think of do you have this latitude for a
discrepancy in pricing and the ability to just set it and be
done with it.
I'm over my time. So perhaps if you can respond to me with
some concrete examples of the ways that we can be more
transparent--because I think that, ultimately, that can help us
push down the cost. But right now, it's impossible to discern.
Thank you, Mr. Chairman.
The Chairman. I'd like to ask--the witnesses are welcome to
respond to the Senator in writing with concrete examples. I
think that would be helpful to her and to all of us.
Senator Murphy.
Statement of Senator Murphy
Senator Murphy. Thank you very much, Mr. Chairman.
Just to Senator Murkowski's point, I got to be the chairman
of Connecticut General Assembly's Health Committee when I was
29 years old because I was the only one who took the time to
try to figure out how a drug was priced, what AWP and AMP
meant, what the dispensing fee meant. It was the most opaque
market that existed in our state's healthcare system, and to
this day, I think there are only a couple of state legislators
in Connecticut who understand how a drug is priced either in
the private market or through Medicaid, and it does behoove us
when we talk about transparency to understand that if you just
layer transparency on a pricing system today that has a
thousand different prices, it's really difficult.
I just have one question, because I know we've got to sneak
in Senator Baldwin and myself before the bell here, and it's
for Ms. Reilly, so I'll just prepare you for it.
The Trump administration recently announced that it wants
to expand association health plans and something called limited
duration insurance plans. That was part of last week's
Executive Order. The risk here is that you're now going to set
up one system of care for healthy people who can get into those
plans, which don't require you to price without respect to
medical acuity, and one system for sick people, who will then
stay in the marketplaces under the Affordable Care Act where
insurance plans can't discriminate.
Your CEO said on television last week that the Executive
Order was a good idea, because we need to be trying everything
that can lower costs for patients. But the fact of the matter
is when you review these short-term limited duration plans, by
and large, they do not cover prescription drugs. If you look at
the best-selling plans that are sold on E-Health, they exclude
preexisting conditions, they exclude mental health, exclude
substance abuse, they exclude prescription drugs, and maternity
expenses.
I looked up the best-selling plan in my home state, which
is offered by National General Accident and Health, and it
doesn't cover prescription drugs, either. So why is PhRMA
taking a position to support the Executive Order when, to the
extent that these short-term duration plans become available to
more and more Americans, it'll exclude the very product that
you sell, in addition to all sorts of other coverages that
people desperately need?
Ms. Reilly. Thank you for the question. Let me offer two
points, the first of which is our CEO was asked that question
before the Executive Order was actually released, so I would
note that. The second, I think some of the words that we heard
coming out prior to the release of it had to do with how do we
increase competition, how do we address some of the
consolidation that's happening in the marketplace. I think
those are principles that many people espouse.
I think the details in terms of how this ultimately gets
worked out--the devil is certainly in the details, and we will
be looking anxiously as the various agencies look to implement
that, because, again, our goal is to ensure that patients have
access to care. That is our primary goal.
Senator Murphy. So let me just ask that more specifically.
If the result of the--I understand what the rhetoric is when
the President talks about his executive actions. They are often
very different than the actual words in the EOs. If the results
of this Executive Order is to dramatically expand access to
limited duration plans, is that something that PhRMA would
support?
Ms. Reilly. Our goal, as I said before, is to ensure
patients have access to therapies, including innovative
medicines, because so many patients rely on them. So we will be
looking in earnest as the agencies work on this to ensure that
patients do continue to have access to medicines.
Senator Murphy. I would argue that now would be the time to
weigh in and make your feelings known on this.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Murphy.
Senator Baldwin.
Statement of Senator Baldwin
Senator Baldwin. Thank you, Mr. Chairman.
Today, we've heard many competing reasons and even how it's
very complex to know why drug prices are high and are
increasing. So I continue to believe that we should start from
the beginning of the story. I have a bipartisan bill with
Senator McCain, and it's pretty simple. It would give us more
information as policymakers by establishing basic transparency
for drug companies when they increase the price of drugs.
That's it.
In fact, California just enacted, with bipartisan support,
a new law similarly requiring transparency for drug price
increases.
While many changing factors contribute to a price that a
patient pays, one factor has remained constant. We now see drug
companies systematically increasing list prices of existing
drugs every year. According to reports in just the first
quarter of 2017, there were 40 increases of drug prices, which
is more than the first quarter of 2016.
If, as we have heard today, the list price provides an
inaccurate picture, then I'm not sure why we shouldn't just ask
drug companies for information to help paint an accurate
picture and to explain why we are seeing these prices increase
as my bipartisan bill would do.
Mr. Davis, you noted that in the last year, revenues for
branded drugs have increased as a direct result of price
increases. Can you please briefly elaborate on this and
describe what your industry is seeing when it comes to list
price increases? I do want to ask another question, so please
be brief and concise.
Mr. Davis. Sure. Thank you, Senator, for the question. Just
to clarify, are you asking the question relative to the brands
or to the generics?
Senator Baldwin. Revenues from branded drugs that you noted
in your testimony.
Mr. Davis. Yes. So what we've actually seen--and this is an
example of how different the markets operate--is that while
we're experiencing a period of unprecedented price deflation in
the generics, where actually year over year, the prescriptions
are going up, the revenue is going down in our industry. That's
the opposite of what we're seeing in the branded side, where
the prescriptions are actually going down, and the revenue is
continuing to go up.
So there can be a whole host of economic reasons for that.
One of them that we submitted in our testimony is we are seeing
an increasing level--despite some of the communications about
supporting generic and biosimilar competition, we are seeing an
increased level of activity--some of it was referenced earlier
by Senator Hassan in her comments around outsourcing IP to
Native American tribes--lately of these types of behaviors that
are making it more challenging for generics to get to the
market.
Senator Baldwin. Ms. Reilly, like my colleagues have
reflected in their comments and questions, I way too often hear
concerns, stories from my constituents, about the impact of
drug price increases on their lives. Often, these are tearful
discussions, because your health and the ability to treat
health conditions is deeply personal. I hear about the insulin
list prices that have continued to increase since 2002, about
top-selling drugs like Humira that have increased almost every
year for 10 years, and about the more than 14 drugs for
multiple sclerosis that have increased since 2004 to an annual
average of about $83,000.
A woman named Diane from Webster, Wisconsin, talked about a
heartbreaking conversation she had with her husband earlier
this year where they decided that she would stop taking her MS
medication after 23 years because of it reaching $90,000 a
year.
At the same time, reports have indicated that most of the
big drug companies spend more on marketing than on research and
development. A recent Health Affairs study of the 20 top-
selling drugs found that earnings from charging high drug
prices in the U.S. exceeded global spending in R and D.
Ms. Reilly, last year, your trade association updated its
membership criteria to stipulate that branded companies invest
in certain amounts of global R and D spending per year to be
eligible to join. Given this renewed commitment to R and D, do
you support drug companies making their R and D spending and
investments more transparent for the public, as my bipartisan
bill would do, including when they increase the list price of
an existing drug? Yes or no?
Ms. Reilly. Absolutely. Research and development costs--and
I think our companies, by and large, make that information
public. It is an important part of what we do. I would take
issue--our companies spend significantly more on research and
development than they do on marketing costs. With regard to
transparency----
Senator Baldwin. Do you disagree with the conclusions of
the Health Affairs study?
Ms. Reilly. I do, yes. With regard to transparency, again,
I think a couple of things are important. One, it needs to be
holistic and applied to the entire supply chain. As we talked
about here today, we're half or slightly less than half of what
we spend on brand name drugs. Lots of other folks in the supply
chain also have a piece of this equation, and I think that
needs to be explored.
Senator Baldwin. I understand the arguments you've made.
However, let's start at the beginning. Let's get transparency
throughout, but let's start at the beginning, and the Fair Drug
Pricing Act would be a good start in that direction.
Ms. Reilly. I would just say list prices, too, as we've
talked about here today, are not indicative of net prices and
what are actually paid in the marketplace.
The Chairman. Thank you, Senator Baldwin.
I'm going to need to go vote, so I'm going to thank each of
you for coming today. You've been excellent in helping us put a
spotlight on drug prices.
We have two Senators who--one or two--who have questions to
ask. I'm going to ask Senator Franken to chair in my absence,
and he'll ask his questions, and then if other Senators come
back who have not asked their questions, he'll call on them,
and then he'll adjourn the hearing. So thank you very much for
coming.
Senator Franken, thank you for chairing.
Statement of Senator Franken
Senator Franken. [presiding] Thank you, and as you're
leaving, I'd like to thank you and Senator Murray for calling
this hearing and also for the important negotiations that
you're involved in. So thank you.
I just wanted to do that. Sorry I haven't been here for the
whole thing. I've had some other stuff to do, and I ran back so
that I could do this, and so if you'll excuse me--actually, I
didn't run back. This is just such an exciting hearing.
[Laughter.]
Senator Franken. It seems like from your testimony and some
of--mainly from your testimony that, like, every one of you in
some way or another is responsible for getting prices down.
That's what it seemed like from your testimony. I think Senator
Young touched on this, but I want to try to go over it again
for myself.
The U.S. spends more on prescription drugs than any
industrialized country, in part because drug prices are higher
in the U.S. than in any other country. The drug industry pushes
back and says that these price comparisons don't take into
account the discounts that manufacturers give to insurers and
other actors in the system. So to cut through that, I'd like to
ask you some questions. Let's use the drug, Advair, which is an
asthma inhaler example. It's produced in North Carolina. So
it's a drug that's produced in the United States.
Ms. Reilly, what is the list price for Advair in the United
States, and how does it compare to the cost in Canada, France,
and Germany?
Ms. Reilly. I honestly do not know the list price of Advair
off the top of my head, so I'd have to get back to you on that.
Senator Franken. Sure, sure. That's very understandable.
I'm going to ask you the price of every drug and see how you
do.
[Laughter.]
Senator Franken. No. A Bloomberg news report from 2015
found that the list price, this is the list price, for Advair
was $309.60 in the United States. Accounting for, say, a 50
percent discount, then the price would be $154.80, which is
still higher than the price in Canada, which, in 2015, was
$74.12. The price in Germany was $37.71, and the price in
France was just $34.52.
Ms. Reilly, why are prices so much higher in the United
States for a drug produced in the United States? This is true
for drugs that are produced in the United States and not
produced in the United States. Why are they so much higher? I
think Americans really want to know this, and I think they want
to know this because you guys talked about research. Americans
pay for a lot of the basic research, right?
Ms. Reilly. Yes.
Senator Franken. Yes, through NIH.
Ms. Reilly. Our industry, yes.
Senator Franken. But much of it the taxpayer pays directly
to the NIH to do the basic research. Most of the research you
do is not--in your industry is not basic research.
Ms. Reilly. We do a fair amount of basic research.
Senator Franken. You do a fair amount.
Ms. Reilly. Yes.
Senator Franken. Most of it is not basic research, and I'll
give you the figures on that and we'll call that up in a
second.
Ms. Reilly. I'm aware.
Senator Franken. These higher prices in the United States
support high-level profits and some research and development
costs, but we also pay these high prices because of the way our
system is structured, the laws we set, and the clout of the
drug industry. For example, Congress passed a law that
prohibits the Federal Government from negotiating with drug
manufacturers for lower prices for Medicare, which is the
single largest payer for prescription drugs. In those other
countries, you have the government able to bargain with the
pharmaceutical companies.
All of you presented yourself as part of the piece that
keeps the prices down. Why are the prices so much higher--in
this case, assuming a 50 percent discount from the list price--
and in a number of cases, twice as high, four times as high as
Canada, France, respectively, and more than four times as high
as Germany. Why? Americans want to know why.
Ms. Reilly. I'm happy to start. We do have a different
system in the U.S. relative to other European countries. We
actually compensate companies for the innovation and the value
of the medicines that they bring. I would argue in many
European countries, the prices are artificially depressed. They
tend to also pay more when a medicine goes generic, and they
use fewer generics.
In total, our systems are spending--if you compared, on
average, how much we spend, yes, they probably do spend a
little bit less. I would argue, though, that our country
incentivizes new therapies and innovation to come to market,
and then after that period of time, when a patent expires and
exclusivity is gone, 90 percent of the market--95 percent of
the market shifts overnight to low-cost generics.
In that system that we have, we are able to support a
broader innovation ecosystem. The fact that we have 90 percent
generics here and in most European countries, it's 50 percent
to 60 percent, in part, because they don't incentivize their
entry. They don't incentivize the dropping of price here. We do
so in a way that those additional resources are able to fuel
the next generation of therapies for patients.
Senator Franken. I would suggest it is very small comfort
for the Minnesotans that I visit around my state who can't pay
for their pharmaceuticals, and I would suggest to you that this
is a longer discussion. But Americans have to ask, why do
Americans pay more, two times as much, four times as much, for
our pharmaceuticals, many of which we produce, many of which
we've done the basic research for through the NIH. Why do we
have to pay--why does the American consumer have to pay more
than the Canadian consumer for the same drug, more than the
German consumer, more than the French consumer?
Ms. Reilly. Senator, I would also argue----
Senator Franken. Okay, go ahead.
Ms. Reilly. I was going to say there is a case here for the
need for stronger trade agreements to ensure that other
countries, particularly European countries, are paying more of
their fair share.
Senator Franken. So the answer is just to make them pay
more.
Ms. Reilly. No. I think them paying more would permit
prices here to potentially fall. It would also permit more
money to go back into research and development, which over time
lowers the cost of therapies, both innovative therapies as well
as generics.
Senator Franken. Does anybody else on the panel care to
comment?
Mr. Davis. Yes, Senator. If I could just add, just to
reinforce a comment previously made, to say that all drugs are
more expensive in the United States fails to recognize the
distinction Ms. Reilly talked about between brands and
generics. It is a carefully--it historically has been a
carefully balanced ecosystem created by Hatch-Waxman, where, as
a country, we made a decision in the 1980's to actually make
the investment for the ability to bring novel therapeutics to
market sooner rather than later, and then, ultimately, get a
utilization rate and lower cost generics than we have in the
rest of the world.
So to the question that was asked earlier, why shouldn't we
consider importing generics from Canada, by example, they're
more expensive in Canada. So I'm not sure why we would import
something that's less expensive here to begin with.
Senator Franken. I'll bet the idea--and I approve of being
able to import. I'll bet the idea would be to import the drugs
that are cheaper. That's just my guess about what consumers
would do, and I almost--I don't know. I used to be in comedy,
and I almost think that your answer there was a tad absurd,
which is--of course, we're not saying we need the right to
import the same drug that's more expensive in the other
country. Do you understand kind of the absurdity of saying
that?
Mr. Davis. Yes. Senator, my intention in saying that was to
look at policy and understand that the markets operate
fundamentally differently. The commoditized market in the
United States is what drives generic prices lower than they are
in other developed markets. That was my only point.
Senator Franken. Thank you. But I do want to say that if
you look at the whole universe of drug prices, we pay more, and
we pay a lot more, and you're acknowledging that. That's what
I'm talking about.
I'll go to Senator Whitehouse.
Statement of Senator Whitehouse
Senator Whitehouse. Let me ask the panel to focus on a very
specific issue, which is the question of monopoly. Let's set
aside for a second the licensed monopoly that people get when
their intellectual property is protected by a patent or a
trademark. Let's just set that aside. We're not talking about
that particularly approved monopoly. We're talking about other
kinds.
Does everybody agree that we have seen circumstances
recently in which a drug manufacturer has an effected monopoly
with respect to one or more of their products? Does anybody
dispute that phenomenon? Everybody agrees with that phenomenon?
We've seen it, right? That's not complicated. Yes, everybody
agrees.
Let's say that you are a patient, and you have taken a
particular drug for many, many years, and it's not under any
kind of trademark or patent protection. But somebody who's not
even in the pharmaceutical industry, an investor, comes in and
sees a monopoly, buys it, and jacks the price up by 500
percent, just because they can. We know that has happened also,
don't we? Yes from everybody, no dissent with that, Okay.
So here's the problem that I have, which is that in that
circumstance, the question then is: Where do you go? How do
people respond to that particular problem? The thesis that I
have is that in those circumstances, which we all admit are
true, there is a clear monopoly, and, further, we see price
manipulation consistent not with any market, but with monopoly
power.
My thesis is that there's no place for anybody to go.
There's no entity in the U.S. Government that has the authority
to say, ``Hold it. That's a monopoly. You are extracting
monopoly rents,'' to use the economic term, ``and you've got to
knock it off.'' You may be able to get a lawsuit out of the
Department of Justice for an antitrust or price fixing type
violation, but we haven't seen a lot of that. The FDA nibbles
around the edges of this problem. It doesn't have authority to
step in at that point.
Shouldn't there be some place in government where it is
clear that once a monopoly exists, and there's no doubt about
that, and it's clear that monopoly rent extraction is being
done, nothing related to market pricing. In that narrow
circumstance, shouldn't there be somebody able to act? Let's go
right down the line here, starting with Mr. Menighan.
Mr. Menighan. Thank you, Senator. We share your
frustration. We often serve as uncompensated insurance agents
for those with coverage who have to navigate complex insurance
regs and coverage issues and copayments and insurance. We want
desperately to be part of the team that helps people navigate
the system in a more effective way.
Senator Whitehouse. You concur that right now, there's no
place to go? There's no office----
Mr. Menighan. We have relatively few places, other than
perhaps compassionate use programs that some companies provide,
but not all companies provide that.
Senator Whitehouse. Mr. Merritt.
Mr. Merritt. Yes, it's frustrating. It is part of the
marketplace. What we've seen----
Senator Whitehouse. Not part of a legitimate marketplace,
though, right? Extracting monopoly rents isn't viewed by any
economist as being legitimate economic behavior, is it?
Mr. Merritt. Well, we didn't like it when Mr. Shkreli went
and bought up Daraprim and sold it for thousands of percent
more, and I testified in the same panel a year or two ago. It's
outrageous.
Senator Whitehouse. But other than scolding him here in
Congressional Committees, nobody said, ``No, you can't do
that.''
Mr. Merritt. I'll tell you that one thing we did--and I'll
let Lori talk about the legality of it--but just something we
did in the marketplace. When Daraprim--the price was jacked
up--he bought the drug for--was it $13.50, or something like
that, and jacked it up to several hundred dollars. If you look
at that from a price control perspective, maybe it would be
great if he just cut that in half to a few hundred dollars. Or
if you looked at--well, maybe he shouldn't charge more than it
was originally, $13.00.
What we did was we found a compound pharmacy out in San
Diego that would do it for $1, and then we cut his drug off the
formulary and said, ``Here, everybody can have this drug for
$1, but you can't have the Daraprim. It's overpriced.'' So
there are some things we can do in the marketplace, but that's
not to say or imply that it's not a challenge. It just takes
time to overcome.
Senator Whitehouse. My time is already out. So if you have
quick responses, I'll go to Ms. Gallenagh.
Ms. Gallenagh. Thank you, Senator. As you know, HDA members
are unique in the supply chain, but we do support anything that
supports increased competition in the marketplace.
Senator Whitehouse. Mr. Davis?
Mr. Davis. Senator, I think what you've been characterizing
is the equivalent of a de facto monopoly.
Senator Whitehouse. Yes.
Mr. Davis. Not one that government licenses, but de facto,
and it requires a lot of analysis before individuals like Mr.
Shkreli decide to go in there. I do think, moving forward,
there is a need to continue focus here. I do think that some of
the things that the new FDA commissioner in the announcement of
his Drug Competition Action Plan and legislation that this
Committee ensured was part of FDARA, which was a listing of
Daraprim-like drugs, so there's more visibility and increasing
the--in an effort to try to minimize the risk associated with
more of those types of circumstances----
Senator Whitehouse. But do you agree that nobody presently
has regulatory authority over exorbitant monopoly prices?
Mr. Davis. No, correct. To the credit of the FDA
commissioner, I think he's doing what he can within his remit.
Senator Whitehouse. Trying to, but there is no----
Mr. Davis. But does he have all the authority to address
that in and of himself? No.
Senator Whitehouse. Ms. Reilly.
Ms. Reilly. I would say companies, like in the instance of
Daraprim, took advantage of regulatory arbitrage to
dramatically increase a price. I do think there is a lot that
the FDA could do.
Senator Whitehouse. But there was no direct regulator on
the beat whose responsibility was to look for a clear de facto
monopoly and address the excess price extraction.
Ms. Reilly. Right, and to Chip's point, I think there's
been a lot more----
Senator Whitehouse. I'm sorry. Right? I just want to make
sure I heard you, your answer. You said right?
Ms. Reilly. I would say in that particular case--and we've
seen a handful of others that mimic the same pattern--is
exactly right. I think the FDA is trying to do--but more could
be done, and we've got lots of ideas on how you could address
that.
Senator Whitehouse. Thanks for letting me go over, Chairman
Franken.
Senator Franken. Oh, I went way over. I'm even going to ask
one more question, just to Mr. Merritt, real quick.
Pay-for-delay, since we're talking about monopolies. Pay-
for-delay--a drug company has a patent, and then a generic
comes up, the patent runs out, the generic has it, the company
has it, and they pay the generic not to bring it to market.
What do you think of that practice?
Mr. Merritt. Well, we oppose that practice. It is an
interesting economic question, because I've heard both sides on
it, and I think--well, Chip can address this better than me.
But what generics would say is, ``Well, gosh, it's so hard to
break through a patent that at least if I can get a settlement,
we'll try to get a generic to market,'' and there's some
incentive to do that. But, overall, our industry is on the
other side of that issue.
Senator Franken. Thank you.
The hearing record will remain open for 10 days. Members
may submit additional information for the record within that
time, if they would like. The HELP Committee will meet again
tomorrow, October 18th, at 9:30 a.m. for an executive session.
Thank you all for being here today. The Committee will
stand adjourned.
ADDITIONAL MATERIAL
Response by Lori M. Reilly to Questions of Senator Alexander, Senator
Murray, Senator Baldwin, Senator Bennet, Senator Franken, Senator
Roberts, and Senator Whitehouse
chairman alexander
Question 1. What is the role of rebates, and do we need
them?
Answer 1. Payers have significant influence over which
medications are covered on their formularies and how much
patients have to pay out-of-pocket for their prescriptions. In
order to increase patients' access to their medicines,
biopharmaceutical manufacturers commonly negotiate rebates with
payers and PBMs in exchange for formulary inclusion or
placement on a lower cost-sharing tier. Rebates allow
differential levels of discounting to occur, reflecting the
robust levels of competition in the market, which economists
believe leads to lower average prices. We believe today's
system needs to evolve not to eliminate rebates, but to make
sure that rebates make their way back to patients to help lower
patient costs.
Question 2. How do rebates affect your industry? Do your
members contract and get paid based on the public ``list''
price, or using a ``net'' price that takes into account
rebates?
Answer 2. Rebates are used in private negotiations by
manufacturers to gain access to payer formularies and determine
level of formulary tier placement. Manufacturers pay rebates as
a percentage of the current list price (WAC price) at the time
the pharmacy dispenses the medicine to the patient. The
manufacturer sets the ``list'' price of a medicine, but is
actually paid the ``net'' price, which is the amount after
rebates and any other discounts and fees have been removed. In
recent years, net prices have been growing much more slowly
than list prices. Focusing on list prices alone results in a
perception that drug prices are growing at unsustainable rates,
when the prices manufacturers actually receive are in fact
growing at low single digit rates. According to IMS Institute
for Healthcare Informatics, brand net prices grew at just 3.5
percent in 2016, after taking into account discounts and
rebates.
Question 3. Would you support a policy that would allow
supply chain participants to contract for lower prices on the
front end rather than after the fact with rebates?
Answer 3. Today's pharmaceutical distribution and payment
system is complex, and by almost any measure is very
successful. It delivers over six billion prescriptions to
patients every year, and generates deep discounts which have
held growth in prescription drug costs in check; drug costs
grew more slowly than overall health care costs in five out of
the last 10 years.
Rebates, by themselves, are not problematic, so long as
patients, health plans, and employers are all able to benefit
from them so that they lower total costs for the health care
system. A system in which all discounts are applied only at the
point of sale would likely run the risk of reducing the ability
of purchasers with significant market leverage to obtain deeper
discounts. Economists at the Federal Trade Commission and
Congressional Budget Office (CBO) have argued that such
differential levels of discounting tend to result in lower
average prices.
However, we do need to make sure that the system is working
for patients, and that savings provided by manufacturers find
their way to patients and can help reduce patient cost sharing.
We are encouraged by signs that the Center for Medicare &
Medicaid Services is considering policies to apply rebates to
patient cost sharing in Medicare Part D, and believe that will
help the market work better. Another way to help the market
work better is to remove barriers to alternative payment
arrangements (such as when a manufacturer agrees to forgo
payment if a medicine does not work as intended). These new
types of arrangements offer potential to reward the best value
for patients.
senator murray
Question 1. In the written testimonies submitted to the
committee, there is a lot of blame shifting when it comes to
where the fault of high drug prices lays. We can all agree that
our complex health system is inefficient, but, for that reason,
the blame is shared, and everyone bears responsibility to fix
the problem.
Please provide more than one policy proposal, which does
not involve any other members of the supply chain, that your
industry in particular could implement, either with or without
the help of Congress or the Administration, to bring down costs
for patients and families, including the reasons why you
believe it would bring down costs.
Answer 1. While our current system has worked well in
driving innovation for patients and holding down costs, many
patients still struggle to access their medicines. Now is the
time to have the critical conversation about how to promote and
sustain medical innovation and ensure access so that patients
and the health care system benefit from the tremendous
scientific advancement and progress we are seeing today. In
order for this to happen, we believe the entire health care
system, including medicines, should be driven by value and that
the private marketplace is best equipped to align health
improvements with costs moving forward.
America's biopharmaceutical companies are committed to
working with policymakers and stakeholders to advance solutions
that further enhance the private marketplace, lower costs and
drive value for patients, and promote continued medical
innovation.
(1) Value-Driven Health Care: The market is already moving
towards better recognizing and rewarding value and
biopharmaceutical companies are working with private health
insurers to implement new payment arrangements that recognize
improvements in care and better patient outcomes. But outdated
laws and regulations are making it challenging to move in this
direction and for manufacturers to share appropriate
scientifically sound information with payers on the value that
medicines provide. Removing these barriers will not only help
drive value and efficiency in the health system, but drive more
robust competition in the marketplace and reduce costs for
patients. As we continue the shift towards rewarding value,
better quality measurement and value assessment tools will be
critical to holding the health care system accountable and
ensuring patient-centered, value-based health care in the
private sector.
(2) Modernizing Drug Discovery, Development and Approval:
To get medicines approved faster while ensuring safety, we need
to modernize the U.S. Food and Drug Administration (FDA) with
new technologies and expertise to keep up with 21st century
science. Modernizing the FDA will bring down the time and cost
of developing new medicines, which will bring medicines to
patients faster and enhance competition in the market.
(3) Engaging and Empowering Consumers: Quality and cost
information should be readily available to patients to drive
greater market efficiency and better align benefit design with
patient preference and need. Insurance companies should also
pass on more of the discounts they receive to patients in the
form of lower out-of-pocket costs, just like they do for other
types of health care services.
(4) Addressing Market Distortions and Fostering
Competition: Regulations that stand in the way of competition
should be revised or eliminated. For example, unnecessary and
overly burdensome regulations create market distortions that
impede competition by impacting the introduction of new
medicines and in some cases generics. Policies are needed to
encourage generic entry in circumstances where incentives are
lacking, such as in markets with very small population sizes.
Additionally, the 340B program is widely understood to distort
the market and is in need of significant reform. Addressing
market distortions will increase competition, revive the health
care market and improve affordable access to medicines for
patients.
The market-based U.S. health care system has worked well
over time, but more can be done to help it work even better. As
we move towards value-driven health care, we can build a
sustainable, patient-centered, and science-driven health care
system that stems the growth of chronic disease and harnesses
today's hopes to discover tomorrow's cures.
The complete platform of PhRMA's ideas can be viewed in
more detail here: http://phrma.org/sites/default/files/policy-
solutions.pdf.
Question 2. Patients and families are right to expect--and
deserve--more transparency from the prescription drug supply
chain. Recently, experts and lawmakers have started asking
questions about the work of Pharmacy Benefit Managers, or
``PBMs,'' that negotiate on behalf of insurers and employers
for rebates, off the list prices for drugs, in addition to
other services like developing pharmacy networks and drug
formularies. The details of that work and who really benefits
are largely kept confidential.
Question 2(a). Do patients at the pharmacy counter always
benefit from the discounts PBMs secure from drug manufacturers?
If no, what policy solutions do you propose to address that gap
for your industry? For others in the supply chain?
Answer 2. Patients typically do not benefit directly from
discounts and rebates negotiated between biopharmaceutical
manufacturers and payers. Instead, payers typically use
manufacturer rebates in part to reduce premiums for all of
their covered members, rather than to directly reduce the cost
that an individual patient has to pay at the point of sale.
This increases patient cost sharing unnecessarily.
Answer 2(a). Patients should benefit from negotiated
savings in the form of lower out-of-pocket costs at the
pharmacy, just as they do for other types of healthcare
services. It has been reported that for certain medicines--
including those used to treat diabetes, asthma, high
cholesterol, and hepatitis C, rebates can reduce list prices by
as much as 30 percent to 70 percent. If a larger share of these
rebates were shared with patients at the point of sale it could
dramatically lower cost sharing for some patients.
Question 2(b). When PBMs negotiate with drug companies, is
the goal to secure the largest rebate, or to secure the lowest
prices for patients? Put another way, if drug company A company
offered a drug for a list price of $100 with a rebate of $50,
and drug company B offered the drug for $40 dollars with no
discount, which drug would get preferred placement on the PBM's
formulary?
Answer 2.(b) PBMs market their role as negotiating for the
lowest possible prices for their clients. Typically decisions
about placement of medicines on formularies are based on
multiple factors, including price. Since administrative fees
and the size of the rebate retained by PBMs are commonly based
off of a percentage of a medicine's list price, PBMs may have
financial incentives to include medicines with high list prices
and large rebates on their formularies. In this example, the
PBM may earn more on the drug offered by company A, which may
impact which medicine receives preferred placement on their
formulary.
Question 2(c). We've heard that drug companies will
sometimes make deals with PBMs by offering big rebates on an
exciting and expensive new product in exchange for favorable
placement on the formulary for the rest of that company's
drugs, even if those products aren't the least expensive
options for patients. Given that PBM contracts are not public,
and these examples cannot be verified, can you clarify whether
these ``book of business'' deals exist? Or is every PBM
contract, price, and rebate negotiated on a product-by-product
basis only?
Answer 2(c). Manufacturers may approach rebate negotiations
in a variety of ways. PhRMA does not have any source of
information about specific types of deals or negotiations, and
cannot comment on individual company pricing decisions or offer
insight into this question.
Question 2(d). Pharmaceutical companies often say they need
to raise drug prices in order to compete by offering larger
rebates to PBMs. If that is true, what explains price increases
for drugs that don't face direct competition?
Answer 2(d). Manufacturers base pricing decisions on a
range of factors including affordability, access, and
reinvestment needs for R&D to develop tomorrow's innovative
medicines. PhRMA does not have any source of information about
specific types of negotiations, and cannot comment on
individual company pricing decisions or offer insight into this
question.
Question 3. The hearing record shows that we both agree
that the US drug market represents a careful balance between
protecting innovative products from competition for a limited
time, and fostering a robust and competitive generics market to
drive costs down for consumers after that time. If this balance
works correctly, market forces will help keep costs low.
Innovative products are protected from competition by both
exclusivity periods granted by the FDA, and patents. While
exclusivity periods are fixed terms that run from the date of
drug approval, twenty-year patent protections begin from the
date the patent is granted, which could be well before drug
approval, or well after. I fully support a robust patent system
that protects innovation, however, as I made clear in the
hearing, I do not support perpetual market monopolies that
eliminate proper market forces and keep drug prices high.
While there are several high profile examples of new
patents on drugs sought by companies solely to keep competition
off the market, an analysis conducted by researchers at
University of California Hastings College of the Law found that
this is a widespread practice in the pharmaceutical industry.
Examining patents in the FDA Orange Book, the authors found
that between 2005-2015, at least 74 percent of the drugs
associated with new patents each year were existing approved
drugs.
Question 3(a). Please explain how new patents on drugs
already on the market and nearing the end of a previous
patents' life can improve the innovation and affordability of
that drug.
Answer 3. Patents are issued by the U.S. Patent and
Trademark Office (PTO) under the Patent Act (title 35 of the
U.S. Code). Under that Act, the PTO is to issue (or grant)
patents for inventions that are new, useful, and non-obvious,
and that meet the other requirements relating to disclosures in
an application. A patent discloses the invention and then
includes claims for what is actually protected by the patent.
The PTO grants patents only after a thorough review of a filed
application and its claims by patent examiners that are
specialists in the relevant technical area. The examiner raises
issues about whether the claimed invention is entitled to
patent protection based on the patentability requirements
referenced earlier. There is interaction between the inventor
and the examiner referred to as the patent prosecution process.
If the applicant demonstrates to the examiner that the
application meets all of the requirements for a patent, the PTO
grants the patent.
Answer 3(a). Once the patent is granted, the owner has the
exclusive right to make, use, sell, offer for sale, or import
the patented invention described in the claims during the
patent term. The basic term of protection is 20 years from
filing, although the Patent Act provides for limited extensions
to the term to compensate for PTO or regulatory approval
process delays.
In the pharmaceutical industry, patents are available for
various types of inventions, and include patents that claim the
active drug substance, the drug product (including
formulations, dosage forms and combinations), and new methods
of using a drug, as well as patents that claim manufacturing
processes.
Contrary to recent assertions by Feldman and Wang,\1\ IP
protections do not impede competition in the U.S.; rather, they
drive companies to innovate by providing a degree of assurance
that companies may earn a return on an otherwise risky and
costly investment in R&D. Specifically, IP protections can
foster the entry of new competitors to market during the term
of the patent. For example, in less than a year after market
entry of the first in a new class of hepatitis C treatments,
there were multiple competitors on the market that competed on
both price and clinical effects which resulted in robust
competition in the marketplace. The competition was so fierce
that Express Scripts, the U.S.' largest PBM, now touts that
hepatitis C treatment is less expensive here than in other
western countries thanks to aggressive market negotiation. The
study doesn't provide any data about generic entry or pricing
to support the contention that so-called ``evergreening'' is
inhibiting competition.
---------------------------------------------------------------------------
\1\ Feldman, Robin and Connie Wang. `May Your Drug Price Be Ever
Green.' Oct 31 2017. SSRN. https://papers.ssrn.com/sol3/papers.cfm/
abstract-id=3061567
---------------------------------------------------------------------------
In addition, innovation doesn't stop once a product first
receives approval as there may be additional patented
innovations that occur post-approval that benefit patients.
Specific benefits that might come from additional innovation
include:
LKnowing the appropriate dosing for using a
medication in pediatric populations is necessary to ensure the
safe and effective use of medicines in this vulnerable patient
population.
LAdditional R&D, which may include lengthy and
costly Phase III trials, may result in expanded uses of
existing medicines and new formulations of such medicines.
These innovations may include new dosing regimens and reduced
side effects, both of which may increase patient compliance
with treatment. In turn, these innovations may result in
improved health outcomes and a reduction in unnecessary
hospitalizations.
LOngoing innovation increases brand-to-brand
competition, spurs continued innovation, and provides payers
with increased leverage in negotiating rebates and other
discounts.
Question 1(b). Please provide an estimate of the amount of
money spent by your member companies in 2016 defending patents
on their products that were granted after the completion of
such product's phase III trial supporting the first FDA
approval.
Answer 1(b). PhRMA does not collect or track this
particular information, and it is not publicly available.
Question 1(c). Please provide the total number of patents
granted to PhRMA member companies in 2016.
Answer 1(c). PhRMA does not collect or track information on
patents granted to companies by PTO.
Question 1(d). Please provide the number of patents granted
to PhRMA member companies in 2016 that were not for new
molecular entities or new indications.
Answer 1(d). PhRMA does not collect or track information on
patents granted to companies by PTO.
senator baldwin
Ms. Reilly, in your testimony on October 17, you explained
that higher drug prices in the United States are needed to
support an ``innovation ecosystem.'' Compared to lower prices
in Europe and Canada, you argued that higher prices here
provide companies the financial resources to ``fuel the next
generation of therapies for patients.'' You said that your
member companies spend significantly more on research and
development than marketing and that they do a great deal of
basic research to develop new therapies. However, as the first
chart (Table 1) from Professor William Lazonick's paper\2\
makes clear, PhRMA's members in the S&P 500 are spending
significantly more buying back their own stock and issuing
dividends than they are on research and development. To me,
this suggests that R&D isn't as important to your members as
boosting the stock price.
---------------------------------------------------------------------------
\2\ Lazonick, William. `US Pharma's Financialized Business Model'.
Jul 13 2017. Institute for New Economic Thinking.
---------------------------------------------------------------------------
The second chart (Table 4) provides a key piece of the
puzzle. Pharmaceutical executives receive an inordinate amount
of their compensation in the form of stock-based based pay.
This seems to explain the broad trend of price increases that
squeeze consumers--because the decision makers at your member
companies are incentivized to do so by boards and shareholders
who elect to pay executives in stock. I would appreciate
answers to the following questions:
Question 1(a). How do buybacks and dividends help the
pharmaceutical industry develop ``the next generation of drug
therapies?''
Answer 1(a). Since 2000, PhRMA members alone have invested
over three-quarters of a trillion dollars in the search for and
development of new therapies, $600 billion of that in the
United States--more R&D than any other sector, including the
federal government. The incredible complexity of drug discovery
and development requires a wider R&D ecosystem made up of
patient organizations, academia, large and small industry
players and government agencies bringing their expertise
together. Whatever the business strategies of our members, it
cannot be justly or fairly denied that our companies provide
the lion's share--by far--of the resources and conduct the vast
majority of the research by which new advances in treatment and
of the therapies yet to come are made within that R&D
ecosystem.
Stock buybacks and dividends are well-established business
strategies often demanded by investors that return capital to
investors, and make up part of an investor's total return on a
stock. Investors can use those returns to fund other
investments. If returns from high-risk biopharmaceutical
investments are deemed too low, they will invest those returns
elsewhere. [Meaning less of the investment capital needed to
fund new biotech start-up companies, engage in high-risk drug
discovery, and develop the next generation of drug therapies.]
In an era when many publicly traded companies of all
sectors offer buybacks and/or dividends to their shareholder
investors, and given competitive capital markets, buybacks/
dividends may be a sound strategy to maintain investor interest
in the biopharmaceutical industry.
Question 1(b). Do you recognize that pharmaceutical
companies could spend billions less on buybacks and dividends
and instead lower their drug prices by the same amount and
still generate the same operating revenue?
Answer 1(b). PhRMA is committed to advancing public
policies in the United States and around the world that support
innovative medical research, yield progress for patients today,
and provide hope for the treatments and cures of tomorrow. We
have no advocacy role related to individual member company
business strategies.
Question 1(c). How does spending billions more on buybacks
and dividends help promote ``value-driven health care'' which
is part of your organization's mission statement?
Answer 1(c). PhRMA is committed to advancing public
policies in the United States and around the world that support
innovative medical research, yield progress for patients today,
and provide hope for the treatments and cures of tomorrow. We
have no advocacy role related to individual member company
business strategies.
Question 1(d). Does PhRMA believe its members should
maximize shareholder value?
Answer 1(d). PhRMA represents the country's leading
innovative biopharmaceutical research companies, which are
devoted to discovering and developing medicines that enable
patients to live longer, healthier, and more productive lives.
PhRMA is committed to advancing public policies in the United
States and around the world that support innovative medical
research, yield progress for patients today, and provide hope
for the treatments and cures of tomorrow.
Question 1(e). Do you believe that a pharmaceutical
executive who receives over 90 percent of their compensation in
the form of stock will make increasing the stock price their
top priority?
Answer 1(e). PhRMA's mission is to conduct effective
advocacy for public policies that encourage the discovery of
important, new medicines for patients by biopharmaceutical
research companies. We have no involvement in business,
operational, or human resource decisions of our member
companies, including those related to employee compensation.
Question 1(f). Why do you believe we are seeing this trend
of pharmaceutical corporations providing a higher than average
percentage of total direct compensation to their executives in
the form of stock, as illustrated in Table 2?
Answer 1(f). PhRMA's mission is to conduct effective
advocacy for public policies that encourage the discovery of
important, new medicines for patients by biopharmaceutical
research companies. We have no involvement in business,
operational, or human resource decisions of our member
companies, including those related to employee compensation.
As the table points out, the executive compensation
practices in question are used throughout the corporate world,
in keeping with policies in the tax code. It is my
understanding that current tax reform legislation in the House
of Representatives contains a provision that would eliminate
the section of the tax code that encourages stock options as a
key performance-based compensation tool.
Question 1(g). Given the connection illustrated here
between stock-based executive pay, stock prices, and drug price
increases, do you think that the pharmaceutical industry should
reconsider how their executives are compensated?
Answer 1(g). PhRMA represents the country's leading
innovative biopharmaceutical research companies, which are
devoted to discovering and developing medicines that enable
patients to live longer, healthier, and more productive lives.
We are committed to advancing public policies in the United
States and around the world that support innovative medical
research, yield progress for patients today and provide hope
for the treatments and cures of tomorrow. We have no
involvement in human resource decisions at our member
companies, including those related to employee compensation.
senator bennet
Question 1. In your testimony, each of you indicated that
there is some role for value-based arrangements that health
plans can set up with drug manufacturers for outcomes-based
reimbursement. However, there are still relatively few of these
arrangements in place.
I recently sent a letter with Senators Cassidy, Warner, and
Young to request a GAO study on value-based arrangements. We
asked GAO to assess the savings potential for consumers and the
government in outcomes-based arrangements.
What do you expect we will find in this study?
Answer 1. As GAO looks at outcomes-based arrangements, I
would anticipate that they will probably find that outcomes-
based arrangements have reduced costs for consumers and health
plans, and that there is some evidence that these arrangements
have reduced costs for the government. In addition, I expect
that you will find that there are significant legal and
regulatory barriers that limit the proliferation of these and
other value-based contracts, and modernizing key regulations
would increase the benefits and widespread adoption of value-
based arrangements.
Outcomes-based arrangements can reduce costs for patients
by allowing the payer to give the medicine improved formulary
placement, and thus reducing coinsurance or utilization
management for patients.\3\ A recent Commonwealth Fund study
highlighted two medicines for which outcomes-based contracts
resulted in better formulary placement and lower cost sharing
for patients. As stated by the Commonwealth Fund, one medicine
``was given preferred formulary status, meaning that patients
were responsible for lower copayment'' and another medicine
received preferred formulary status in some cases.\4\ GAO's
study will likely identify other cases where outcomes-based
contracts reduced cost sharing or otherwise improved patient
access to medicines.
---------------------------------------------------------------------------
\3\ Note that utilization management can increase costs for
patients if they are forced to try multiple medicines before accessing
a medicine that works for them, or through other costs from not
managing their disease.
\4\ Seely E and Kesselheim A. ``Outcomes-Based Pharmaceutical
Contracts: An Answer to High U.S. Drug Spending?'' Commonwealth Fund.
Issue Brief. September 2017.
---------------------------------------------------------------------------
Outcomes-based arrangements can also improve outcomes for
patients and reduce medical costs for private payers and the
government. These benefits were recognized by a recent survey
of representatives from 45 health plans representing 183
million covered lives. Of the payers surveyed that had
participated in an outcomes-based arrangement, 38 percent had
experienced and improvement in patient outcomes and 33 percent
had experienced cost savings as a result of the outcomes-based
arrangement.\5\
---------------------------------------------------------------------------
\5\ Avalere Health. Payer Perspectives on Outcomes-Based
Contracting: Avalere Policy 360. May 22, 2017.
---------------------------------------------------------------------------
These benefits are not surprising. The Congressional Budget
Office has recognized that, improved use of medicines reduces
spending reduces on medical services such as hospitalizations
and emergency room visits.\6\ Value-based arrangements can
support improved use of medicines by allowing payers to provide
broader access to medicines, as discussed earlier. They can
also support development of data about which patients benefits
most from innovative medicines in the real world. Both of these
changes can support better use of medicines and lead to reduce
spending on medical services.
---------------------------------------------------------------------------
\6\ Congressional Budget Office (CBO). Offsetting Effects of
Prescription Drug Use on Medicare's Spending for Medical Services.
2012. Available at: https://www.cbo.gov/sites/default/files/112th-
congress-2011-2012/reports/MedicalOffsets-One-col.pdf
---------------------------------------------------------------------------
Outcomes-based arrangements may also reduce the cost of
prescription medicines, as manufacturers provide additional
rebates for patients who do not meet the agreed to outcomes
targets. These arrangements may also encourage payer and
manufacturer negotiations to focus on the value of medicines
instead of the difference between list and net prices.
Outcomes-based contracts in Medicare Advantage or Medicare
Part D plans can lead to savings for the Federal government.
Under Part D's competitive, market-based structure, innovator
companies contract directly with Part D plans and Medicare
Advantage (or MA-PD) plans. To the extent that outcomes-based
arrangements improve use of medicines, they can reduce MA plan
spending, which could reduce MA plan bids. In addition, if
outcomes-based arrangements reduce plans' cost of providing
Part D benefits, this could reduce plans' risk and thus permit
lower plan bids, reducing the government's costs. Outcomes-
based arrangements could also reduce reinsurance costs by
increasing rebates paid by innovator companies.
Outcomes-based arrangements in Medicaid can also reduce
government costs. Though the operational hurdles to such
arrangements are substantial, manufacturers can enter into
outcomes-based arrangements directly with states through
supplemental rebate agreements. In addition, to the extent that
manufacturers enter into outcomes-based arrangements with
Medicaid Managed Care plans, that can also reduce plan costs
and the premiums that these plans charge to states.
Question 1. What impediments exist to creating outcomes-
based reimbursements?
Answer 1. PhRMA identified the top barriers to outcomes-
based contracts in a member survey released earlier this year.
The top barriers identified in our member survey were:
LConcern or uncertainty about how the contract
might affect price reporting metrics (e.g., Medicaid Best
Price, Average Sales Price, Average Manufacturer Price)
LConcern about potentially implicating the federal
anti-kickback statute (which generally prohibits providing
something of value in return for Medicare or Medicaid business)
or uncertainty about how to structure the arrangement to ensure
compliance with the anti-kickback statute, and
LConcern or uncertainty about FDA regulations
concerning clinical or economic outcomes claims.\7\
---------------------------------------------------------------------------
\7\ Pharmaceutical Research and Manufacturers of America. Barriers
to Value-Based Contracts for Innovative Medicines: PhRMA Member Survey
Results. March 2017.
---------------------------------------------------------------------------
LOperational barriers, including inability to
measure outcomes and payer access to medical and pharmacy data.
Additional information about each of these barriers is
provided below.
price reporting metrics
By law, drug manufacturers must calculate and report to the
federal government various drug pricing metrics that affect the
drug's payment rate or the manufacturer rebate in certain
government programs. In reporting these metrics, manufacturers
must adhere to a complex set of government price-reporting
rules for calculating Average Sales Price in Medicare Part B
and Best Price in Medicaid. These highly technical price-
reporting rules were established long before the introduction
of new approaches to contracting. While the price-reporting
rules do permit biopharmaceutical companies to make reasonable
assumptions, to the extent there is ambiguity about how to
capture innovative contracting methods, this can create
uncertainty for biopharmaceutical companies. Value-based
contracts in the private market necessitate a more modern and
flexible approach to price reporting.
anti-kickback statute
Concern about potentially implicating the federal anti-
kickback statute or uncertainty about how to structure the
arrangement to ensure compliance with the anti-kickback statute
was also identified as a substantial barrier across contract
types. The anti-kickback statute is broadly written. While it
was designed to achieve the important goal of deterring health
care fraud, it may also inadvertently thwart beneficial
innovative programs that present low risk of fraud and abuse
and could lead to better patient outcomes and significant
savings for our health care system. Legislative exceptions and
regulatory safe harbors were created to protect beneficial
arrangements under the anti-kickback statute; however, the key
safe harbor regulations for manufacturers were developed over
twenty years ago, and did not anticipate the market's shift to
value-based payment and contracting. Value-based contracts
should have clear protection under the anti-kickback statute.
fda regulation of manufacturer communications
In January, the FDA released a series of new draft guidance
documents, including guidance on communications with payers and
formulary committees.\8\ This guidance provides helpful clarify
for the biopharmaceutical industry. While the draft guidance
makes clear that FDA ``does not regulate the terms of contracts
between firms and payors,'' it does address many of the
communications that may take place in the contracting
negotiations. To that extent, the draft guidance provides come
clarity to manufacturers and may reduce the level of concern
around the barrier posed by FDA regulations. However, the
guidance does not answer all questions or provide sufficient
latitude for communications about medically accepted unapproved
uses of approved medications, so further change is needed.
---------------------------------------------------------------------------
\8\ Food and Drug Administration.``Draft Guidance: Drug and Device
Manufacturer Communications With Payors, Formulary Committees, and
Similar Entities--Questions and Answers.'' January 2017.
---------------------------------------------------------------------------
operational challenges
Prioritization of these challenges by survey respondents
supports ongoing efforts to improve measurement of health
outcomes, including development of patient centric and patient
reported outcomes. It also suggests an ongoing need to improve
data systems to reduce the burden of outcome measurement. Many
organizations are working to address these challenges and do
the important work of building a system that can support
expansion of value-based contracting for biopharmaceuticals and
broader development of a value-driven healthcare system.
senator franken
Question 1. The pharmaceutical industry has an opportunity
to leverage amazing new treatments to improve the health of
millions of people. Three million people in the United States
have Hepatitis C, and your industry has developed new
treatments that could save many of these peoples' lives. For
example, there are three new Hepatitis C drugs that have a 90
percent cure rate. But right now, treatment costs an average of
$84,000 per course of treatment. Even with discounts offered to
state Medicaid programs, the annual cost to Medicaid for these
drugs is still between $20,000 and $30,000 annually, which is
still too high for many states to provide care to all in need.
The price of treatment is out of reach for many Americans, and
we have learned that this is largely due to drug companies
setting prices not based on what it cost the company to develop
the drug, but more based on ``what the market will bear.'' The
more drug corporations set prices with the goal of maximizing
revenue, the more millions of Americans will not be able to
access urgently needed medicines.
What measures would you support to ensure that everyone who
needs a medicine is able to get it--without busting personal
and state budgets?
Answer 1. New medicines are transforming care for patients
fighting debilitating diseases like cancer, hepatitis C, high
cholesterol and more. Yet, in the midst of all this progress,
medicine costs in the US are growing at the slowest rate in
years and spending on retail and physician-administered
medicines continues to represent only 14 percent of overall
health care spending, even as scores of new medicines--
including cures for hepatitis C--reach patients year after
year.\9\9,\10\ Despite claims that hepatitis C medicines are
bankrupting state Medicaid programs, spending on the new
generation of hepatitis C medicines represented less than 3.5
percent of national Medicaid prescription drug spending net of
rebates in 2015 and less than 2 percent of total annual
Medicaid spending.\11\
---------------------------------------------------------------------------
\9\ Medicare & Medicaid Services (CMS), Office of the Actuary,
National Health Statistics Group, data. The Nation's Health Dollar
($3.2 Trillion), Calendar Year 2015, Where it Went.https://www.cms.gov/
Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/
NationalHealthExpendData/Downloads/PieChartSourcesExpenditures2015.pdf.
Accessed May 2017.
\10\ Altarum Institute. A 10-Year Projection of The Prescription
Drug Share of National Health Expenditures, Including Nonretail. http:/
/altarum.org/publications/a-10-year-projection-of-the-prescription-
drug-share-of-national-health-expenditures-including. May 2017.
\11\ The Menges Group analysis of FY2015 CMS 64 reports and State
Drug Utilization data files. Rebate information was obtained from CMS-
64 reports, and post-rebate expenditures derived through Menges Group
tabulations using above information.
---------------------------------------------------------------------------
One reason our current marketplace for medicines has been
successful in controlling costs is that health insurers and
pharmacy benefit managers are powerful, sophisticated
purchasers who use their leverage to negotiate discounts and
rebates off the ``list prices'' of medicines on behalf of
payers. Today, the top 3 PBMs have considerable negotiating
power, accounting for three-quarters of the market.\12\ As one
example of the growing influence of PBMs, industry leader
Express Scripts has publicly stated their success in
negotiating substantial rebates for hepatitis C medicines has
made it affordable to treat everyone with the disease.\13\
Moreover, owing to the success of this competitive market
dynamic, negotiated prices here in the US are typically lower
than in most European countries.\14\ In Medicaid, robust
negotiation of supplemental rebates on top of federally
mandated rebates for medicines reduced prices of hepatitis C
medicines by 40 to 65 percent.\15\
---------------------------------------------------------------------------
\12\ AJ Fein; Pembroke Consulting, Inc. Drug Channels Institute.
The 2017 economic report on U.S. pharmacies and pharmacy benefit
managers. http://drugchannelsinstitute.com/products/industry-report/
pharmacy.January 2017.
\13\ LaMattina J. For Hepatitis C Drugs, U.S, Prices Are Cheaper
Than in Europe. Forbes. December 4, 2015. http://www.forbes.com/sites/
johnlamattina/2015/12/04/for-hepatitis-c-drugs-u-s-prices-are-cheaper-
than-in-europe/7ced43f564bb.
\14\ IMS Health,``Comparison of Hepatitis C Treatment Costs,''
September 2016 https://www.imshealth.com/files/web/IMSH20Institute/
Healthcare20Briefs/IIHI-Comparison-of-HepatitisC-Treatment-Costs.pdf.
\15\ Drug Channels, What Gilead's Big Hepatitis C Discounts Mean
for Biosimilar Pricing, February 2015, http://www.drugchannels.net/
2015/02/what-gileads-big-hepatitis-c-discounts.html/more.
---------------------------------------------------------------------------
But in order for these medicines to be effective, patients
need access to treatment. Many patients are struggling to
access the medicine they need. This is due to several factors
that are unrelated to the ``price'' of a medicine, including
the growth of high deductible health care plans,\16\ and
insurance designs that subject patients to four or more cost
sharing tiers for prescription medicines (often with
coinsurance).\17\ Both of these growing trends force patients
to pay cost sharing based on the full list price of a medicine
through deductibles or with coinsurance, even if their insurer
receives a significant discount from the manufacturer. In fact
more than half of commercially insured patients' out-of-pocket
spending for brand medicines is based on the full list
price.\18\ We believe insurance companies should pass on more
of the discounts they receive to patients in the form of lower
out-of-pocket costs, just like they do for other health care
services.
---------------------------------------------------------------------------
\16\ Kaiser/HRET 2017 Employer Health Benefits Survey. Available
here: https://www.kff.org/health-costs/report/2017-employer-health-
benefits-survey/
\17\ Kaiser/HRET 2017 Employer Health Benefits Survey. Available
here: https://www.kff.org/health-costs/report/2017-employer-health-
benefits-survey/
\18\ PhRMA,``Commercially-Insured Patients Pay Undiscounted List
Prices for One in Five Brand Prescriptions, Accounting for Half of Out-
of-Pocket Spending on Brand Medicines,'' 2017. Analysis by Amundsen
consulting. Available at: http://www.phrma.org/report/commercially-
insured-patients-pay-undiscounted-list-prices-for-one-in-five-brand-
prescriptions-accounting-for-half-of-out-of-pocket-spending-brand-
medicines
---------------------------------------------------------------------------
Question 1. How do you propose that we curb the profit
incentives that drove up the price of Hepatitis C drugs and
left millions without access to treatment so that this pricing
model is not replicated across all of the new specialty drugs
that are now in the pipeline?
Answer 1. The market for hepatitis C medicines provides an
illustration of how the market-based system in the US drives
innovation and medical advances while leveraging competition to
control costs.
Just six years ago, the only available treatment for
hepatitis C was associated with debilitating flu-like side
effects and cured just half of patients. The rapid pace by
which new medicines emerged to meet this substantial unmet need
over the past few years was driven by market-based incentives
which encouraged competing biopharmaceutical companies to make
the risky and costly investments in research and development
needed to bring new medicines to market. Within a year of the
introduction of the first major breakthrough hepatitis C
treatment, this competitive dynamic resulted in multiple market
entrants which enabled payers to leverage deep discounts for
these medicines in exchange for favorable formulary placement.
In fact, today publicly reported discounts range from 40-65
percent and payers tout their aggressive negotiating tactics
have made it affordable to treat everyone with the disease. But
what is truly remarkable is in the span of just 6 years a cure
has been developed for a deadly and costly disease, which
researchers now project will be rare by 2036 with today's more
effective treatments and current screening guidelines.\19\
---------------------------------------------------------------------------
\19\ Kabiri M, Jazwinski AB, Roberts MS, Schaefer AJ, Chhatwal J.
The Changing Burden of Hepatitis C Virus Infection in the United
States: Model Based Predictions. Annals of Internal Medicine.
2014;161(3): 170.
---------------------------------------------------------------------------
While our current system has worked well in driving
innovation for patients and holding down costs, many patients
still struggle to access their medicines. Now is the time to
have the critical conversation about how to promote and sustain
medical innovation and ensure access so that patients and the
health care system benefit from the tremendous scientific
advancement and progress we are seeing today. In order for this
to happen, we believe the entire health care system, including
medicines, should be driven by value and that the private
marketplace is best equipped to align health improvements with
costs moving forward.
America's biopharmaceutical companies are committed to
working with policymakers and stakeholders to advance solutions
that further enhance the private marketplace, lower costs and
drive value for patients, and promote continued medical
innovation. We support moving in this direction through the
following core themes, described earlier.
LValue-Driven Health Care
LModernizing Drug Discovery, Development and
Approval
LEngaging and Empowering Consumers
LAddressing Market Distortions and Fostering
Competition
The market-based U.S. health care system has worked well
over time, but more can be done to help it work even better. As
we move towards value-driven health care, we can build a
sustainable, patient-centered, and science-driven health care
system that stems the growth of chronic disease and harnesses
today's hopes to discover tomorrow's cures.
senator roberts
Question 1. When the Biologics Price Competition and
Innovation Act passed in 2010, the Congressional Budget Office
projected $7 billion in savings to the federal government from
2010-2019.
Do you think we can achieve this projected savings over the
next two years?
Answer 1. The inclusion of the provisions related to
biologics and biosimilars within the Affordable Care Act was
very important to future of biopharmaceutical innovation. While
we can't speculate on how CBO previously derived its estimates,
some of the more recent non-government estimates such as
QuintilesIMS suggests about $37 billion in biologic sales will
be subject to biosimilar competition between now and 2021.
Question 1. What have been the main delays for biosimilars?
Answer 1. I believe that the earlier estimates were
potentially overly optimistic given the substantial costs and
scientific and regulatory uncertainties associated with
developing biologic medicines. In addition, the earlier CBO
estimates did not adequately consider the substantial time
required for the FDA to develop the range of guidances
necessary to inform the review and approval of biosimilar
medicines. To date the FDA has not finalized all of the
necessary guidances. As of October 2017,the agency has approved
seven biosimilars.
Question 1. Does Congress need to clarify parts of the
biosimilars law, and can that be done without causing further
delay and uncertainty about the pathway for these products,
pushing savings even further into the future?
Answer 1. At this time, I do not think there is anything
that needs to be clarified in the statute. I believe the FDA
has the appropriate authorities to develop the necessary
guidance to inform the development, review, and approval of
these products, as evidenced by the approval of seven
biosimilars since passage of BPCIA.
Question 2. In 2015, Express Scripts and Imprimis partnered
to offer a compounded alternative to Daraprim in an effort to
provide a lower-cost option since no approved generic was on
the market. Do you believe compounded drugs should be
considered a substitutable alternative for FDA approved drugs
when there is not a patient medical need?
Answer 2. The FDA has identified a number of approaches to
fostering competition when there are small patient populations
and no IP or regulatory exclusivities serving as a barrier to
entry. The new FDA Commissioner has taken a number of steps, as
has Congress, in facilitating the entry of additional
competitors in these circumstances, which I believe will help
avoid this occurrence in the future.
As the FDA has identified a number of potential concerns
with compounded drugs, PhRMA does not view compounding as the
optimal approach to addressing this type of situation.
According to the FDA, there can be health risks associated with
compounded drugs that do not meet federal quality standards.
Compounded drugs made using poor quality practices may be sub-
or super-potent, contaminated, or otherwise adulterated.
Additional health risks include the possibility that patients
will use ineffective compounded drugs instead of FDA-approved
drugs that have been shown to be safe and effective.
Question 3. Would striking the non-interference clause save
the government, or patients, money? What impact could it have
on access to new innovative therapies?
Answer 3. Medicare Part D is a highly successful program,
providing access to affordable prescription drug coverage for
seniors and disabled individuals while keeping costs low.
Despite numerous claims that repealing the non-interference
provision would save money, CBO has repeatedly said government
negotiation would have a ``negligible'' impact on federal
spending unless the government also limited seniors' access to
needed prescription medications. Furthermore, large, powerful
Part D plans already negotiate discounts and rebates directly
with biopharmaceutical companies and many brand-name
prescription drugs carry substantial rebates,''\20\ often as
much as 20-30 percent. These negotiations result in significant
cost savings for seniors and taxpayers. According to CBO, total
Part D costs are 45 percent, or $349 billion, lower than
initial ten-year projections.\21\ Therefore, undermining this
competitive feature of Part D could have real consequences,
including reduced access, less choice and higher premiums for
America's seniors and people living with disabilities who rely
on Medicare Part D coverage to access needed medicines.
---------------------------------------------------------------------------
\20\ 2017 Medicare Trustees Report, p. 143, footnote 66.
\21\ See CBO Medicare Baselines available at www.cbo.gov
---------------------------------------------------------------------------
There are real concerns that if the non-interference clause
were removed from Medicare law, the only way for the government
to negotiate lower prices would be by imposing access or
coverage restrictions on medicines in Medicare. For instance,
other federal programs that utilize restrictive formularies,
like the Veterans' Affairs program, limit access to innovative
medicines. A recent study by Xcenda found that of 25 newly FDA-
approved first-in-class therapies, Part D plans covered an
average of 81 percent, compared to just 12 percent under the
VA.\22\ In addition, recent research shows that imposing VA-
style pricing in Part D would reduce life expectancy of
Medicare beneficiaries by nearly 2 years, significantly shrink
the drug development pipeline by as much as 25 percent, and
result in the loss of trillions of dollars in consumer
welfare.\23\
---------------------------------------------------------------------------
\22\ Comparing Drug Coverage: Medicare Part D vs Veterans Affairs
Program. Xcenda, August 26, 2016. http://www.xcenda.com/Insights-
Library/Archive/Xcenda-Original-Research-Stark-Contrast-in-Part-D-vs-
VA-Coverage-of-Newly-Approved-Drugs/.
\23\ Moreno, G, van Eijndhoven, E, Benner, J, et al. (2017). The
Long-Term Impact of Price Controls in Medicare Part D. Forum for Health
Economics and Policy, January 2017, doi:10.1515/fhep-2016-0011.
---------------------------------------------------------------------------
senator whitehouse
Question 1. During the hearing, we discussed ``de facto''
monopolies of prescription drugs, or monopolies that occur
outside of the patent and exclusivity protections granted to
new drugs. You all acknowledged that we have seen instances of
industry outsiders taking advantage of these de facto
monopolies and dramatically increasing the prices of drugs.
Addressing this unfair price manipulation in a targeted way
will require the proper identification of de facto monopolies.
How can we ensure de facto monopolies are correctly identified?
Answer 1. The Turing Daraprim situation was caused when a
small company was able to corner the market in an older, off-
patent drug that treats a serious condition in a small patient
population. This situation is an exception not the rule. In
this case, there is a lack of a market incentive for a generic
entry.
The FDA has already taken steps to avoid this type of
situation by publishing a list of products that meet the
criteria of a small patient population yet has no competitors
and no patent or exclusivity barriers to entry of competitors
be they brand, generic, or biosimilars. In addition, the FDA
has stated an intent to expedite the review of potential
competitors and take other steps to foster the entry of
additional competitors. PhRMA believes the FDA has taken
sufficient steps to identify situations that could be taken
advantage of by unscrupulous actors.
Response by Chester ``Chip'' Davis to Questions of Senator Alexander,
Senator Murray, Senator Bennet, Senator Roberts, and Senator Whitehouse
chairman alexander
Question 1. What is the role of rebates, and do we need
them?
Question 2. How do rebates affect your industry? Do your
members contract and get paid based on the public ``list price,
or using a ``net'' price that takes into account rebates?
Question 3. Would you support a policy that would allow
supply chain participants to contract for lower prices on the
front end rather than after the fact with rebates?
Answer 1. In response to brand manufacturer pricing power
granted by their patents and regulatory exclusivities, PBMs and
payors rely on formulary management and rebating agreements to
control costs.
Answer 2. However, upon generic entry, payors typically
shift away from rebate models of reimbursement and rely on
distribution channels to effectively lower the price of the
medicine. Rather than providing rebates to lower the cost,
generic manufacturers must compete for sales to wholesalers.
Because the products are identical, the primary leverage
generic manufacturers have is their ability to lower the price
and provide the necessary volume. Rebates are simply not a
factor in our industry.
Generic drugs currently allow supply chain participants to
contract for lower prices on the front end. With over 200
generic manufacturers recognized by FDA, competition is fierce
and prices decline rapidly. The wholesalers, often in
collaborative purchasing agreements with pharmacies across the
country, then distribute generic medicines to various retail
pharmacies. Generic manufacturers may have to compete even
further by negotiating separate payments to pharmacies to stock
their product.
These differences in the generic and brand marketplaces
create vastly different incentives for the various
manufacturers, wholesalers, distributors, pharmacy benefit
managers (PBMs), insurers, and retail pharmacies that make up
the supply chain. To put it simply, virtually all other actors
in the supply chain enjoy significant financial benefits from
the manufacture of generic medicines.\1\ Ultimately, generic
manufacturers do not pay rebates on individual sales of their
products like brands do. Wholesalers force generic
manufacturers to compete with one another on the front-end
price.
---------------------------------------------------------------------------
\1\ Sood, et al., ``The Flow of Money Through the Pharmaceutical
Distribution System.'' June 2017. http://healthpolicy.usc.edu/
documents/USC percent20Schaeffer-Flow percent20of percent20Money-
2017.pdf
---------------------------------------------------------------------------
However, compared to the fragmented generic drug market,
consolidation in the wholesale market and contractual
arrangements between pharmacy chains and the wholesalers have
left generic manufacturers with only a small number of
purchasers. The result is a market where three purchasers
account for over 90 percent of all wholesale revenue.\2\
---------------------------------------------------------------------------
\2\ Fein, Adam J. Fein. The 2016-2017 Economic Report on
Pharmaceutical Wholesalers and Specialty Distributors, September 2016.
---------------------------------------------------------------------------
Answer 3. The current state of the market puts these
savings generics offer at risk. As these purchasers move more
and more toward single-source contracts for generic drugs, it
creates a dynamic where it is possible that no more than three
generic manufacturers may be able to successfully market any
given product. This risks future competitive success in the
generic market as generic drug manufacturers may be forced to
maximize economies of scale and consolidate themselves. AAM has
no position on the viability or utility of rebates or whether
the supply chain would be better served negotiating savings on
the front-end rather than relying on this contracting
agreement. We would however call your Committee's attention to
supply chain consolidation and its impact on our industry.
senator murray
Question 1. In the written testimonies submitted to the
committee, there is a lot of blame shifting when it comes to
where the fault of high drug prices lays. We can all agree that
our complex health system is inefficient, but, for that reason,
the blame is shared, and everyone bears responsibility to fix
the problem.
Please provide more than one policy proposal, which does
not involve any other members of the supply chain, that your
industry in particular could implement, either with or without
the help of Congress or the Administration, to bring down costs
for patients and families, including the reasons why you
believe it would bring down costs.
Answer 1. AAM strongly supports regulatory and
reimbursement environments that allow generic and biosimilar
medicines to compete in open markets. These have produced
robust competition with a proven track record of savings for
the U.S. health care system--$253 billion in 2016, and $1.67
trillion over the preceding decade. Medicare and Medicaid alone
saved $77 billion and $37.9 billion, respectively.
We believe there are a range of opportunities for Congress
and the Administration to further the development of
competitive markets, further delivering savings to patients,
payers and governments.
electronic labeling
In 2014, the FDA released a proposed rule\3\ establishing
guidelines for the use of electronic labeling for
pharmaceuticals. Electronic labeling, or e-labeling, would
replace paper Prescribing Information package inserts for
prescription drugs received by physicians, pharmacists, and
other healthcare professionals.
---------------------------------------------------------------------------
\3\ ``Electronic Distribution of Prescribing Information for Human
Prescription Drugs, Including Biological Products,'' 79 Fed. Reg.
75,506 (Dec. 18, 2014).
---------------------------------------------------------------------------
Prescription drug labeling, or Prescribing Information,
contains the information necessary for the safe and effective
use of a drug product and is intended for use by healthcare
professionals. The labeling is submitted to FDA as part of a
manufacturer's drug application and is subject to agency
approval, updated periodically to include the most current
information about the product. Manufacturers provide this
information in the form of paper package inserts for
prescription drugs received by healthcare professionals.
Eliminating the paper labeling requirements would reduce
the cost of manufacturing, while simultaneously providing
health care professionals with the most up-to-date safety
information. A final rule would significantly reduce costs for
manufacturers, allowing them to maintain deflationary trends
currently seen in the generics market of about 8 percent per
year. We encourage the Committee to work with FDA to modernize
pharmaceutical labeling procedures.
increasing generic utilization in medicare
The nonpartisan Medicare Payment Advisory Commission
(MedPAC) has estimated that ``nearly 70 percent of Medicare's
total spending for Part D plans was on behalf of the 30 percent
of Part D enrollees who receive the LIS.'' Despite having
greater health needs requiring more prescriptions, these high-
cost beneficiaries routinely miss opportunities to take
advantage of lower cost generic drugs. However, Part D plans
have limited ability to modify drug copayments for LIS
enrollees. Thus, brand-name drug copays for LIS enrollees do
not differ significantly from generic drug copays--meaning LIS
enrollees do not have an incentive to choose the generic drug
when one is available.
Compared with other Part D beneficiaries, Low-Income
Subsidy (LIS) not only fill more prescriptions but fill more
expensive prescriptions. This is why MedPAC has recommended
changes to Medicare Part D cost-sharing policies for LIS
enrollees to improve generic utilization--changes that have
been echoed by a range of nonpartisan experts. The
Congressional Budget Office (CBO) has estimated that similar
proposals could save the Federal Government $17.7 billion over
10 years\4\, while ensuring that these beneficiaries continue
to have access to high-quality prescription drugs.
---------------------------------------------------------------------------
\4\ Proposals for Health Care Programs--CBO's Estimate of the
President's Fiscal Year 2016 Budget (March 12, 2015)
---------------------------------------------------------------------------
AAM encourages Congress to consider legislation directing
the Centers for Medicare and Medicaid Services (CMS) to modify
the Medicare Part D LIS copayment structure to encourage the
use of generic medicines by these beneficiaries. This policy
would build on the cost and access successes that both private
and public purchasers have achieved as they have moved to more
aggressively utilize generic drugs, while assuring beneficiary
access to life-saving medications.
ensure access to biosimilar medicines in medicare
Nowhere is the need for lower-priced alternatives, and the
challenges facing them, more real than among high-priced
biologic medicines. Biologics, many of which are specialty
medicines, are the most rapidly growing segment of increasing
brand-name prescription drug costs in the United States, with
more than $100 billion in annual spending. The role of biologic
drugs in the health care system is expanding--while only 2
percent of America's patients use biologics, they account for
about 40 percent of prescription drug spending in the United
States.\5\
---------------------------------------------------------------------------
\5\ Medicine Use and Spending in the U.S.: A Review of 2016 and
Outlook to 20, April 2017.
---------------------------------------------------------------------------
To help bring down prices for patients, Congress designed
and approved the Biologics Price Competition and Innovation Act
(BPCIA) in 2010--creating an abbreviated approval pathway for
biological products that are demonstrated to be ``highly
similar'' (biosimilar) to or ``interchangeable'' with an FDA-
approved biological product.
Biosimilar medicines represent a key step forward in
reducing high drug prices. They are safe, effective and
affordable versions of costly brand biologics. Experts estimate
that FDA-approved biosimilars could save between $44 billion
and $250 billion over the next 10 years.\6\ In doing so, they
will mean greater access to lifesaving cures for 1.2 million
U.S. patients, according to a new analysis. Women, lower
income, and elderly patients would particularly benefit from
access to biosimilar medicines.
---------------------------------------------------------------------------
\6\ AAM, ``Generic Drug Access & Savings in the U.S.,'' June 2017
(link.)
---------------------------------------------------------------------------
However current law creates barriers to biosimilar access
for patients in Part D, who may be forced onto higher priced
biologics. Because of the structure of Medicare Part D, the 50
percent discount required of brand biologics is counted toward
a patient's out of pocket costs--but competing biosimilars are
barred from providing such a discount. This creates a perverse
incentive for health plans and patients to use a higher-priced
brand biologic--moving patients through the coverage gap and
into catastrophic coverage faster and with lower out-of-pocket
costs compared to a lower-cost biosimilar.
This approach creates substantial barriers for biosimilar
manufacturers, as it may be effectively impossible to ever
offer sufficient discounts to be included on Part D
formularies. The resulting imbalance severely undermines the
market potential for biosimilar competition. Ultimately,
patients, payers, and Medicare all pay more for brand biologics
than they would if the Coverage Gap Discount program were
amended to include biosimilars.
AAM encourages Congress to pass legislation to classify
biosimilars as ``applicable drugs'' in the Coverage Gap
Discount Program. This change would require biosimilar
manufacturers to pay the 50 percent discounts paid by their
brand competitors, and participate on a level playing field to
compete for placement on Part D plans' formularies. It would
reduce both patient out-of-pocket costs and save at least $1
billion over the next 10 years for the Medicare Part D program.
senator bennet
Question 1. In your testimony, each of you indicated that
there is some role for value-based arrangements that health
plans can set up with drug manufacturers for outcomes-based
reimbursement. However, there are still relatively few of these
arrangements in place.
I recently sent a letter with Senators Cassidy, Warner, and
Young to request a GAO study on value-based arrangements. We
asked GAO to assess the savings potential for consumers and the
government in outcomes-based arrangements.
What do you expect we will find in this study?
What impediments exist to creating outcomes-based
reimbursements?
Answer 1. AAM strongly supports efforts to ensure value in
prescription drug purchasing. In fact, generic drugs are the
best ``value-based'' purchasing model--a proven approach to
delivering value and savings to patients and payers, including
Medicare and Medicaid. In the last 10 years, generic
competition has produced $1.67 trillion in savings for the U.S.
health care system.
As policymakers consider new approaches such as ``value-
based'' or ``outcomes-based'' arrangements, it is important to
note that the level of price concessions that seem to be part
of such arrangements do not compare to the savings associated
with generic medicines--which can drop as low as 20 percent of
the brand drug price within a year of the loss of brand drug
market exclusivity. For that reason, greater flexibility in
brand contracting will not likely significantly alter the
generics landscape or the central role of generic drugs in
delivering FDA-approved medicines to patients at lower costs.
However, policymakers should carefully consider whether
such arrangements will truly result in lower prices and reduced
costs. As part of such scrutiny, policymakers should examine
whether brand drug manufacturers may abuse their market power
to delay or impede generic entry.
senator roberts
Question 1. When the Biologics Price Competition and
Innovation Act passed in 2010, the Congressional Budget Office
projected $7 billion in savings to the Federal Government from
2010-2019. Do you think we can achieve this projected savings
over the next 2 years? What have been the main delays for
biosimilars? Does Congress need to clarify parts of the
biosimilars law, and can that be done without causing further
delay and uncertainty about the pathway for these products,
pushing savings even further into the future?
Answer 1. Biosimilars can offer more savings to patients,
payers, and the Federal Government when more products come to
market.
FDA-approved biosimilar medicines represent a key step
forward in reducing high drug prices. They are safe, effective
and more affordable versions of costly brand biologics. Experts
estimate that FDA-approved biosimilars could save between $54
billion and $250 billion over the next 10 years.\7\ In doing
so, the cost savings will lead to greater access to lifesaving
cures for 1.2 million U.S. patients. Women, lower income, and
elderly patients would particularly benefit from access to
biosimilar medicines.
---------------------------------------------------------------------------
\7\ AAM, ``Generic Drug Access & Savings in the U.S.,'' June 2017
(link).
---------------------------------------------------------------------------
Currently seven products have been approved by the FDA, but
only three have been able to come to market due to legal
roadblocks initiated by the innovator company(s). Additionally,
the three products that have come to market have faced market
roadblocks initiated by the innovator company(s).
AAM believes that we can achieve the projected savings if
biosimilars are able to overcome barriers created by innovator
companies, such as unscrupulous marketing tactics to impede
competition. Education is another important aspect of the
conversation. Recently, FDA unveiled a new education campaign
to help educate prescribers and to help dismiss the myths
perpetuated by the innovator companies.
However current law also creates barriers to biosimilar
access for patients in Part D, who may be forced onto higher
priced biologics. Because of the structure of Medicare Part D,
the 50 percent discount required of brand biologics is counted
toward a patient's out of pocket costs--but competing
biosimilars are barred from providing such a discount. This
creates a perverse incentive for health plans and patients to
use a higher-priced brand biologic--moving patients through the
coverage gap and into catastrophic coverage faster and with
lower out-of-pocket costs compared to a lower-cost biosimilar.
This approach creates substantial barriers for biosimilar
manufacturers, as it may be effectively impossible to ever
offer sufficient discounts to be included on Part D
formularies. The resulting imbalance severely undermines the
market potential for biosimilar competition. Ultimately,
patients, payers, and Medicare all pay more for brand biologics
than they would if the Coverage Gap Discount program were
amended to include biosimilars. AAM encourages Congress to pass
legislation to classify biosimilars as ``applicable drugs'' in
the Coverage Gap Discount Program.
Question 2. In 2015, Express Scripts and Imprimis partnered
to offer a compounded alternative to Daraprim in an effort to
provide a lower-cost option since no approved generic was on
the market. Do you believe compounded drugs should considered a
substitutable alternative for FDA approved drugs when there is
not a patient medical need?
Answer 2. We believe the key distinction between
outsourcing facilities, which provide stock supplies of
compounded drugs, and traditional compounders, who tailor
products to individual patients, is the prescription. This
point has been repeatedly made by the FDA and Commissioner
Gottlieb in recent public statements. The prescription
requirement is critical to ensure product quality, create
oversight accountability, and maintain incentives for
outsourcing facilities to invest in quality systems.
Outsourcing facilities should not be allowed to compound
approved products and must be held to Good Manufacturing
Practices (cGMP) as prescribed by DQSA and the FDA. Widespread
compounding like that envisioned by Imprimis threatens the
underpinnings of FDA's ``gold standard'' approval.
senator whitehouse
Question 1. During the hearing, we discussed ``de facto''
monopolies of prescription drugs, or monopolies that occur
outside of the patent and exclusivity protections granted to
new drugs. You all acknowledged that we have seen instances of
industry outsiders taking advantage of these de facto
monopolies and dramatically increasing the prices of drugs.
Addressing this unfair price manipulation in a targeted way
will require the proper identification of de facto monopolies.
How can we ensure de facto monopolies are correctly identified?
Answer 1. We understand that many older, off-patent
products have provided complex problems for policymakers. The
FDA has also recognized this problem and begun exploring ways
to help create market-based solutions for instances when brand
companies abuse their monopolies for these products, including
recently publishing a list of such products for public
consumption. AAM supported this legislation and is working
collaboratively with FDA to implement it.
A generic company considers a range of factors when
determining whether to pursue development of a generic version
of an approved drug. AAM's assessment of FDA's ``List of Off-
Patent, Off-Exclusivity Drugs without an Approved Generic''
revealed that the list contains 264 products, and consists of
83 products that are often deemed inappropriate development
candidates due to their product type and the capital investment
required (e.g., radiopharmaceuticals, amino acid/electrolyte
replacements). Of the remaining 181 potential products, 144
products have low volume sales, which reduces the
attractiveness of developing the product. Generic companies
evaluate potential product candidates with low sales; however,
the drugs often treat small patient populations or are no
longer the standard of care.
Ultimately any manufacturer that abuses one of these ``de
facto monopolies'' is effectively relying on regulatory
arbitrage to delay competition from reaching the market.
However, it is important to remember that any specific
restrictions on product pricing will likely ultimately
completely deter generic entry, which has been shown to be the
most effective method of reducing brand prices.
Question 2. While we want to make sure people can afford
their medications, it strikes me that patient assistance
programs that reduce out-of-pocket costs for patients also
serve to help companies maintain their market share, even when
there is a lower-cost drug available that is just as effective.
What effect do patient assistance programs have on costs to
patients and to the overall health care system? How could
Congress help ensure patient assistance programs don't mean
wasteful spending of our health care dollars, while still
preserving patient access?
Answer 2. We agree that copay coupons and patient
assistance programs designed to protect brand market share may
skew functioning markets, and push additional cost back onto
the health system exclusively to the benefit of the brand
manufacturer.
However, in instances where manufacturers work with payers
to ensure that programs are designed in way that lower patient
out-of-pocket costs without pushing additional cost on the
system, those programs should be encouraged.
Response by Mark Merritt to Questions from Senator Alexander, Senator
Murray, Senator Bennet, Senator Cassidy, Senator Hassan, Senator
Isakson, Senator Roberts, Senator Warren, and Senator Whitehouse
senator alexander
Question 1. What is the role of rebates, and do we need
them?
Answer 1. After settling a 1996 class-action lawsuit by
retail pharmacies alleging that manufacturers were illegally
discounting their products more to health insurers, drug
manufacturers turned to rebates as a way to grant price
concessions to drug purchasers who demonstrated they could move
market share. Previously, manufacturers had offered hospitals
and managed care plans discounted list prices up front, but
under the settlement, manufacturers abandoned that practice. By
calculating the market share a given organization had moved to
a manufacturer's drug and paying rebates after the insurer or
PBM presented data demonstrating their enrollees' use of a
given product, manufacturers could recognize PBMs' and health
plans' abilities to influence patients' choice of drugs and
still comply with their court settlement.
As part of today's manufacturer-PBM negotiations, brand
drug manufacturers compete by offering rebates for market-share
influencing formulary placement, typically for therapeutically
equivalent products. As a result of these negotiations, PBMs
can recommend benefit designs that reduce the net cost of drugs
and stretch payers' finite dollars to reduce premiums and cost-
sharing. Without rebates, payers and patients would pay
considerably more for brand drugs and health coverage costs
would be higher. Unless manufacturers devise a different legal
way of bringing down net drug costs (or decide to lower their
prices significantly), rebates are needed.
Question 2. How do rebates affect your industry? Do your
members contract and get paid based on the public ``list''
price, or using a ``net'' price that takes into account
rebates?
Answer 2. PCMA is not privy to contract negotiations of its
members' business. PBMs typically respond to payer requests for
proposals, which lay out the payer's terms and conditions. Each
payer determines what percentage of rebates it wants the PBM to
pass through to it, and how much (if any) it wants the PBM to
retain as payment for services. While on average payers elect
to receive 90 percent of rebates negotiated by PBMs, an
increasing number require PBMs to pass through all of them.
About 46 percent of commercial PBM contracts are negotiated
with full pass-through of rebates to payers, and 100 percent of
rebates in the Medicare Part D program are required to be
reinvested for subsequent year benefits. PBMs are committed to
providing rebate transparency and audit rights to their
clients.
Question 3. Would you support a policy that would allow
supply chain participants to contract for lower prices on the
front end rather than after the fact with rebates?
Answer 3. Yes. PBMs work to obtain the lowest net cost from
manufacturers and are open to other means besides rebates to
achieve it.
senator murray
Question 1. In the written testimonies submitted to the
committee, there is a lot of blame shifting when it comes to
where the fault of high drug prices lays. We can all agree that
our complex health system is inefficient, but, for that reason,
the blame is shared, and everyone bears responsibility to fix
the problem.
Please provide more than one policy proposal, which does
not involve any other members of the supply chain, that your
industry in particular could implement, either with or without
the help of Congress or the Administration, to bring down costs
for patients and families, including the reasons why you
believe it would bring down costs.
Answer 1. Because PBMs negotiate with manufacturers and
with pharmacies to bring down the cost of prescription drugs,
there is little PBMs could do on their own without involving
other actors in the drug supply chain. PCMA has a wide range of
policy proposals to bring down the cost of drugs, which we will
send along with this document.
Question 2. Patients and families are right to expec --and
deserve--more transparency from the prescription drug supply
chain. Recently, experts and lawmakers have started asking
questions about the work of Pharmacy Benefit Managers, or
``PBMs,'' that negotiate on behalf of insurers and employers
for rebates, off the list prices for drugs, in addition to
other services like developing pharmacy networks and drug
formularies. The details of that work and who really benefits
are largely kept confidential.
Question 2(a)1. Do patients at the pharmacy counter always
benefit from the discounts PBMs secure from drug manufacturers?
If no, what policy solutions do you propose to address that gap
for your industry? For others in the supply chain?
Answer 2,2(a). There is not a simple answer to this
question. In general, rebate savings are used by payers to
reduce premiums and out-of-pocket costs for patients. A PBM
acts as a third-party administrator under contract to the
payer. The amount of rebates passed back to a payer is
established by the contract between the payer and the PBM. The
allocation of rebates the payer receives is up to the payer,
which establishes the benefit designs in its health plans. As
we understand it, such contract terms vary widely among PBMs
and payers.
Question 2(b). When PBMs negotiate with drug companies, is
the goal to secure the largest rebate, or to secure the lowest
prices for patients? Put another way, if drug company A company
offered a drug for a list price of $100 with a rebate of $50,
and drug company B offered the drug for $40 dollars with no
discount, which drug would get preferred placement on the PBM's
formulary?
Answer 2(b). PBMs negotiate with drug manufacturers to
achieve the lowest net cost of drugs for the client payer.
Question 2(c). We've heard that drug companies will
sometimes make deals with PBMs by offering big rebates on an
exciting and expensive new product in exchange for favorable
placement on the formulary for the rest of that company's
drugs, even if those products aren't the least expensive
options for patients. Given that PBM contracts are not public,
and these examples cannot be verified, can you clarify whether
these ``book of business'' deals exist? Or is every PBM
contract, price, and rebate negotiated on a product-by-product
basis only?
Answer 2(c). In its role as a trade association, PCMA does
not and, for antitrust reasons cannot, have access to our
member companies' proprietary contracts with other entities.
Therefore, we do not know the answer to the question.
Question 2(d). Pharmaceutical companies often say they need
to raise drug prices in order to compete by offering larger
rebates to PBMs. If that is true, what explains price increases
for drugs that don't face direct competition?
Answer 2(d). The premise of the question is untrue.
Manufacturers alone decide prescription drug launch prices and
price increases according to the same supply and-demand
dynamics of countless other industries that manufacture
products. The launch prices of new drugs and price increases of
existing drugs bear no correlation to the rebates and discounts
manufacturers negotiate with PBMs. There are high-priced drugs
with low rebates and lower-priced drugs with high rebates. It
all depends on how much direct competition a given drug faces
in the market. Indeed, research shows that the size of
negotiated rebates is strongly correlated with the extent to
which specific drugs face marketplace competition. Please see
attached analyses for more information.
senator bennet
Question 1. In your testimony, each of you indicated that
there is some role for value-based arrangements that health
plans can set up with drug manufacturers for outcomes-based
reimbursement. However, there are still relatively few of these
arrangements in place.
I recently sent a letter with Senators Cassidy, Warner, and
Young to request a GAO study on value-based arrangements. We
asked GAO to assess the savings potential for consumers and the
government in outcomes-based arrangements.
What do you expect we will find in this study?
Answer 1. It is impossible to speculate without knowing the
exact questions asked of GAO, or the data and assumptions that
GAO may use to answer the questions. PCMA agrees that outcomes-
based arrangements are still in their infancy.
Question 1(a). What impediments exist to creating outcomes-
based reimbursements?
Answer 1(a). The Medicaid Best Price Law and elements of
the Federal Anti-Kickback Statute may inhibit the formation of
value-based agreements.
senator cassidy
Question 1. In determining Direct & Indirect Remunerations,
should Part D plan sponsors utilize quality and performance
measures that are applicable to the services provided by retail
and specialty pharmacies?
Answer 1. In its role as a trade association, PCMA is not
privy to the contracts our members negotiate. In general, PBMs
try to work with pharmacies to lower costs, improve quality,
and provide value to patients and payers. PBMs implemented
value-based payment incentives with pharmacies, reflecting the
trend in every other part of the health system toward basing
payment on value, rather than volume, of services.
Question 2. An analysis commissioned by the Coalition of
Affordable Prescription Drugs (CAPD) (http://
www.affordableprescriptiondrugs.org/app/uploads/2017/06/ow-pbm-
med-d-report-june-2017-final-1.pdf) found that in 2014 PBMs
saved the Medicare Part D program $31.7 billion due to
negotiated price reductions. CMS, however, reported that such
savings only totaled $17.4 billion (https://www.cms.gov/
Newsroom/MediaReleaseDatabase/Fact-sheets/2017-Fact-Sheet-
items/201701-19-2.html)--can you please discuss the difference
in these two reported amounts?
Answer 2. The respective authors of the studies would be in
a much better position to answer this question.
Question 3. In your testimony, you stated PBMs pass through
90 percent of rebates to your customers. Please provide
detailed information supporting this statement for those
members that participate in the Medicare Part D program.
Answer 3. As a matter of CMS policy, under Part D bidding
and medical loss ratio regulatory constructs, every Part D Plan
(PDP) and MA-PD must file detailed information with CMS on Part
D rebates in its bids. Because that information is proprietary,
PCMA does not know what portion of rebates is passed along to
beneficiaries but notes that under rules and guidance, plans
treat rebates like all other revenue received, so Part D plans
must allocate at least 85 percent of all funds to clinical--in
contrast to administrative activities.
With respect to the figure in PCMA's testimony, Adam Fein
calculated and reported the 90 percent figure in his blog
``Drug Channels'' on January 14, 2016, in a piece entitled,
``Solving the Mystery of Employer-PBM Rebate Pass-Through.'' It
reads, ``we estimate that on average, PBMs pass back to
employers more than 90 percent of total rebate dollars,
regardless of form, received from brand-name pharmaceutical
manufacturers.''
Additionally, a J. P. Morgan survey of human resources
executives at 50 large employers across the United States
illustrates current pricing arrangements in PBM contracts.
Across all respondents, PBMs on average retained approximately
10 percent of manufacturer rebates,
Question 4. What is PCMA position on ``gag clauses'' that
impose restrictions on pharmacies from informing consumers
about lower priced pharmaceutical options? Do PCMA members
impose these clauses?
Answer 4. PCMA is not privy to member company contracts
with pharmacies. However, our understanding is that PBMs may
negotiate terms with pharmacies that prevent pharmacies from
suggesting drugs that would deviate from the lowest net price.
However, regardless of any terms of any contract between PBMs
and pharmacies, PCMA believes that the patient should always
pay the lowest cost-sharing possible for a given drug.
senator hassan
Question 1. In general, what portion of the annual revenue
and profits for PBMs is derived from the sale of
pharmaceuticals through mail-order and specialty pharmacies
that they own and operate?
Answer 1. PBMs typically operate as separate enterprises
from both mail order and specialty pharmacies, even when under
common ownership. Given the widely varying ownership and
organizational structures within the PBM industry, it is not
possible for PCMA to derive that figure.
Question 1(a). Do you know of any nationwide mail-order
only pharmacies that are in an individual PBM network, but not
owned by that PBM?
Answer 1(a). In short, no. In its role as a trade
association, PCMA is not a party to the contracts our member
companies negotiate with pharmacies or other entities, nor do
we see those contracts. We cannot answer this question as we
lack specific information on the extent or make-up of our
member company pharmacy networks.
Question 1(b). In your written testimony, you state that
PBMs operate outside of the pharmacy supply chain. Please
explain how it is that PBMs do not participate in the
``pharmacy supply chain'' when each of the biggest three PBMs
own their own mail-order pharmacy.
Answer 1(b). Because PBMs never take physical possession of
drugs, PCMA considers them to be outside the pharmaceutical
supply chain. To the extent that an enterprise also owns mail-
order and specialty pharmacies, then PCMA would consider those
enterprises to be in the physical supply chain as pharmacies.
However, we see the PBM as a fiscal intermediary and outside
the supply chain.
Question 2. Have there been quantitative studies that show
that rebates are required to make the pharmaceutical market
function according to normal laws of economics? Can you provide
this evidence?
Answer 2. PCMA believes that rebates per se are not
necessary to create a competitive market for branded
prescription drugs. The current rebate system was created by
drug manufacturers to comply with a decades-old court
settlement. Because PBMs work to find the lowest net cost of
drugs for their clients, PCMA would support other market-based
methods to manage cost.
Question 2(a). If manufacturers of undifferentiated
products (e.g. insulin) were required to set a single retail
price for their product (with no opportunity for rebates) how
would they set those prices?
Answer 2(a): Because drug manufacturers set prices, PCMA is
unable to shed any light on this question.
Question 2(b). In your view, would it be more or less
transparent for consumers and regulators if manufacturers were
required to set a single retail price for their product (with
no opportunity for rebates)?
Answer 2(b). PCMA strongly opposes any government action to
impose a pricing regime or schedule for prescription drugs.
PCMA notes that manufacturers do not sell drugs directly to
patients--manufacturers tend to use wholesalers, which supply
pharmacies, which ultimately dispense (and sell) drugs to
patients. Thus, prices to patients would still likely vary,
even if manufacturers set a price for each drug that could not
be discounted. As stated above, PCMA would be open to market-
based methods other than rebates to help manage the cost of
prescription drugs.
senator isakson
Question 1. This past January, the Centers for Medicare and
Medicaid Services (CMS) released a report showing how PBMs'
manipulation of rebates, discounts and other Direct and
Indirect Fees (called DIR fees) caused beneficiaries to pay
more at the counter and, more importantly, drove claims through
the Part D structure in a way that caused claims to be paid in
the ``catastrophic'' coverage level, where Medicare pays more
and the PBMs pay less. Should Congress require disclosure and
transparency of the fees, rebates, DIR fees, and other
remuneration that PBMs collect so that we and America's seniors
can better understand how their dollars are being handled by
your members?
Answer 1. The CBO examined a similar question--the
disclosure of negotiated drug rebates--and found that public
disclosure of drug rebates would have increased costs for the
Medicare program by ``facilitate(ing) tacit collusion'' among
manufacturers of drugs with very few competitors, which would
raise costs. PCMA believes the terms of PBM and pharmacy
contracts should not be disclosed for the same reasons--that
disclosure results in higher costs from tacit collusion. In
fact, CMS found earlier this year that under the current
proprietary DIR system, ``(h)igher DIR leads to lower bids and,
therefore, puts downward pressure on beneficiary premiums.''\6\
---------------------------------------------------------------------------
\6\ CMS, ``Medicare Part D-Direct and Indirect Remuneration
(DIR)'' January 19, 2017.https://www.cms.gov/Newsroom/MediaReleaseData
base/Fact-sheets/2017-Fact-Sheet-items/2017-01-19-2.html
---------------------------------------------------------------------------
Question 2. I have heard that PBMs use a methodology known
as ``Maximum Allowable Price (MAC)'' pricing to establish the
amount long-term care pharmacies are paid for the cost of
acquiring most generic drugs. The concern my constituents
shared is that MAC pricing allows PBMs to change payment rates
every day, as long as those changes are based on actual and
identifiable marketplace changes.
Answer 2. Because there are typically multiple
manufacturers of ``MACed'' generic drugs, generic drugs are a
commoditized market, like soy beans or gasoline. The prices of
generic drugs can thus fluctuate rapidly. Because MAC pricing
relies on pricing data in the market, MAC prices may change
frequently, reflecting a dynamic market.
Question 3. Claims processing fees of $0.25 to $1.00,
charged to LTC pharmacies, are a growing concern that I have
been hearing about from my state. Most of those concerns
revolve around that fact that most claims are processed on a
computer-to-computer basis. Can you tell me the reasoning
behind PBMs charging these fees to pharmacies when the PBMs are
supposed to be reimbursing those very same pharmacies?
Answer 3. We are not privy to our companies' negotiated
contracts, but we understand that pharmacies agree to certain
fees in their contractual arrangements with PBMs. These fees
are not unlike those paid by retailers to credit card companies
in exchange for the risk of consumer fraud and for immediate
payment for purchases, or the fees that banks charge consumers
for ready access to cash through ATMs. Specifically, the fees
help support access to the PBM's IT systems, which allow
pharmacies to fill prescriptions, determine patient eligibility
and cost-sharing, and have claims adjudicated at point of sale
by nearly any benefit plan. This system essentially assists in
streamlining the process for pharmacies, which would otherwise
have to contract with individual employers and plans in order
to provide services to their enrollees. Additionally, these
fees also support maintaining help lines, benefit manuals, and
other services provided to the pharmacy by the PBM.
senator roberts
Question 1. Would striking the non-interference clause save
the government, or patients, money? What impact could it have
on access to new innovative therapies?
Answer 1. The CBO has found that striking Part D's
noninterference clause would not result in any further savings
beyond those already negotiated by PBMs, unless the government
also took steps to restrict the availability of drugs in Part
D. Without excluding many drugs and establishing a restricted
formulary, the Federal Government would get no greater savings
than Part D plans currently do. It seems unlikely that Medicare
beneficiaries would be satisfied with a single, very narrow
formulary. PCMA cannot speculate on how drug manufacturers
would respond to the incentives involved in such a policy
change.
Question 2. What obstacles exist for small, innovative,
often single product companies to have their treatment included
on a formulary? It is my understanding that there are
significant challenges for small companies when it comes to
getting insurance companies to adequately cover innovative
medicines targeting very specific disease states that represent
a significant advance for the patient's overall health and
reduce the need for other healthcare services. Can you share
some instances where small companies and their medicines don't
receive equal consideration under a coverage policy, and how it
could have significant impacts for patient access to the most
appropriate treatment option? When you negotiate, is it on each
drug individually, or if a company has more than one drug, do
you negotiate across all their products?
Answer 2. PBMs rely on Pharmacy and Therapeutics committees
(P&T committees) to advise them on drugs they must include in
their formularies. P&T committees, which typically meet
quarterly, largely comprise independent clinicians who assess
the most current drug therapies. To the extent that a therapy
is truly a breakthrough and must be covered, P&T committees
recommend coverage. The furor over pricing of the breakthrough
hepatitis C drug Sovaldi illustrates this point--until its
competition hit the market, PBMs had to recommend coverage and
include it on their formularies, even at its very high price.
Beyond that, however, in its role as a trade association, PCMA
is not a party to the terms of the negotiations of its member
companies with manufacturers. We therefore cannot more
specifically answer this set of questions.
Question 3. In your written testimony, you mention support
for ``innovations like electronic prior authorization (ePA)''.
Would you expand on your support for ePA as well as on how PCMA
sees ePA and these types of innovation positively affecting the
drug delivery system?
Answer 3. PCMA believes that the use of ePA can lower
administrative costs and in general smooth the process for all
parties involved in a prior authorization transaction,
especially patients.
Question 4. We have seen increased adoption of ePA by EHRs,
payers and pharmacies over the years, specifically in the
commercial markets. Are there any barriers your members see to
that trend continuing in the commercial market or in public
programs such as Medicare and Medicaid?
Answer 4. As PCMA understands it, not all physicians are
technologically equipped to handle ePA, and the technology
currently in the hands of providers may not have 100 percent,
real-time formulary access.
senator warren
Competition among mail-order pharmacies.
Pharmacy benefit managers (PBMs) manage prescription drug
benefits on behalf of plan sponsors, including employers and
insurers. In this role, PBMs negotiate prices for covered drugs
with drug manufacturers and maintain networks of pharmacies
where plan beneficiaries can use their insurance coverage to
fill their prescriptions. PBMs also operate their own mail-
order pharmacies, and many insurance plans are designed to
encourage use of mail-order pharmacies for the filling of
certain prescriptions.
Some independent and specialty pharmacies have alleged that
PBMs engage in abusive, anti-competitive practices to deny
pharmacies access to their networks and instead steer customers
toward PBM-owned mail-order pharmacies.\1\1 Pharmacies argue
that PBMs identify minor offenses and use them as a
justification for canceling contracts in order to direct more
customers to the PBM-owned mail-order service. For instance,
several specialty pharmacies suing Express Scripts, one of the
Nation's largest PBMs, have alleged that Express Scripts looks
for ``minor issues concerning [ . . . ] compliance with the
terms of their provider contracts,'' which are then ``trumped
up into material breaches'' and used to justify termination
from the pharmacy network.\2\ PillPack, a specialty mail-order
pharmacy with a presence in Massachusetts, raised similar
concerns last year when it alleged that Express Scripts had
accused the pharmacy of contract violations in order to exclude
a competitor to Express Scripts' own mail-order pharmacy from
its network.\3\
---------------------------------------------------------------------------
\1\ Katie Thomas, ``Specialty Pharmacies Say Benefit Managers Are
Squeezing Them Out,''TheNewYorkTimes(October 26, 2017) (online at:
https://www.nytimes.com/2017/01/09/business/specialty-pharmacies-say-
benefit-managers-aresqueezing-them-out.html-r=0).
\2\ Mary Anne Pazanowski, ``Express Scripts, Pharmacies Collide
over Network Cutes,'' BloombergBNA(March 2, 2017) (online at:https://
www.bna.com/express-scripts-pharmacies-n57982084674/).
\3\ Curt Woodward, ``PillPack Ends Spat with Huge Prescription
Benefits Company,'' TheBostonGlobe (April 29, 2016) (online at: http://
www.bostonglobe.com/business/2016/04/29/pillpack-patches-contract-spat-
with-huge-benefitscompanhy/dDS6AKjGmqfnh0lSSfM08H/
story.html'event=event12).
---------------------------------------------------------------------------
Question 1(a). How many of PCMA's members own or operate
mail-order pharmacies?
Answer 1(a). It is our understanding that PCMA members
generally offer both mail-service and specialty pharmacy
benefits, which also operate through mail and rapid consumer
delivery services. Most PCMA members handle major aspects of
mail-service and specialty pharmacy operations even if they do
not own the actual facility that fulfills the prescription.
Additionally, the majority of PCMA members own mail-order
prescription fulfillment facilities as well as specialty
pharmacies.
Question 1(b). What share of PCMA members that own or
operate mail-order pharmacies maintain pharmacy networks that
include other, independent mail-order pharmacies?
Answer 1(b). In its role as a trade association, PCMA is
not a party to the contracts our member companies negotiate
with pharmacies or other entities, nor do we see those
contracts. We cannot answer this question, as we lack specific
information on the extent or make-up of our member company
pharmacy networks.
Question 1(c). Independent pharmacies, including mail-order
pharmacies, are regulated by state and Federal standards that
govern licensing, accreditation, and other credentialing
requirements. Do PCMA members typically impose additional
licensing and accreditation conditions that go beyond state and
Federal requirements on pharmacies participating in their
networks? If so, what purpose do these additional requirements
serve?
Answer 1(c). As stated above, PCMA is not a party to the
contracts our member companies negotiate with pharmacies or
other entities, nor do we see those contracts. It is our
understanding that PBMs may require or prefer network
pharmacies to earn accreditation beyond state licensing.
Requiring accreditation is common in many other areas of health
care network formation, such as physician groups or hospitals.
Accreditation provides greater certainty with respect to
pharmacy quality and service than state licensing alone would
indicate. Accreditation assesses capabilities including, for
example, having plans to rapidly recover business continuity
from a natural disaster, a program for compliance with health
records privacy laws, and proper training for all pharmacy
staff in carrying out their duties, which state licensure alone
does not require. These are just a few examples of many.
Question 1(d). Under what circumstances do PCMA members
typically audit pharmacies participating in their networks?
Answer 1(d). As stated above, PCMA does not have access to
its member companies' pharmacy contracts, but it is our
understanding that such contracts typically include audit
rights. Medicare Part D plans, by law, are themselves audited
by CMS every 3 years. To ensure they meet CMS standards, they
would need consistently to audit pharmacies that serve
enrollees. PCMA assumes that private payers may have similar
requirements as Medicare. In addition, to ensure that
pharmacies are complying with their contracts and not
defrauding payers, PBMs would have to audit them periodically.
PBMs' impact on drug prices
PBMs argue that their role in the drug supply chain helps
constrain the growth of prescription drug prices. For instance,
in your written testimony submitted to the Senate Committee on
Health, Education, Labor, and Pensions, you stated: ``By
negotiating price concessions from drug companies and
recommending strategies that promote generics and more
affordable pharmacies, PBMs have played a key role in
restraining the rise of overall drug costs to low single-digit
increases over the past few years.''
While PBMs generate revenue from contracts with clients
that have an interest in reducing the overall cost of
prescription drugs purchased by plan beneficiaries, PBMs also
own and operate their own pharmacies. As a consequence, PBMs
also generate revenue from the sale of prescription drugs. A
2005 investigation by the Federal Trade Commission examined
potential conflicts of interest in this dual role and found
``strong evidence that in 2002 and 2003, PBM's ownership of
mail-order pharmacies generally did not disadvantage plan
sponsors'' and that there was no evidence of PBMs using various
methods to steer pharmacy customers toward more expensive drugs
in order to increase profits.\4\ The FTC concluded that
``competition in this industry can afford plan sponsors with
sufficient tools to safeguard their interests.''
---------------------------------------------------------------------------
\4\ Federal Trade Commission,
PharmacyBenefitManagers:OwnershipofMail-OrderPharmacies(August 2005)
(online at:https://www.ftc.gov/reports/pharmacy-benefit-managers-
ownership-mail-order-pharmacies-Federal-trade-commission-report).
---------------------------------------------------------------------------
However, since the FTC's analysis was conducted,
competitive dynamics in the pharmacy market have continued to
shift. In particular, the pharmacy benefit manager industry has
seen substantial consolidation. Some observers have alleged
that consolidation, as well as mergers between pharmacies and
PBMs, ``creates a conflict of interest'' and ``could push up
drug prices.''\5\
---------------------------------------------------------------------------
\5\ Brian S. Feldman, ``Big Pharmacies Are Dismantling the
Industry that Keeps US Drug Prices Even Sort-Of under Control,''
Quartz(March 17, 2016) (online at:https://qz.com/636823/big-pharmacies-
are-dismantling-the-industry-that-keeps-us-drug-costs-even-sort-of-
under-control/).
---------------------------------------------------------------------------
Question 2(a). In your testimony, you stated that ``PCMA's
member companies harness market forces and competition to
corral drug costs and deliver high-quality benefits and
services to their payer clients and enrollees.'' How has
consolidation in the PBM industry impacted market competition
and PBMs' ability to ``corral drug costs''?
Answer 2(a). There are dozens of PBMs in the U.S. that
offer a wide range of services and options to payers, allowing
these payers to meet their unique program needs. While it is
true that three PBMs together have a large share of the market,
the market remains dynamic and competitive. PBMs that are
substantially smaller than those with the majority of the
market have had success in winning significant employer
business, including large employer accounts. The smaller PBMs
compete by trying to differentiate themselves from larger PBMs
by emphasizing different services, such as individualized
account management support, and offering customized PBM
offerings.
Competition and innovation in the PBM industry are driving
change. In just the past year we've seen:
LPublic speculation of a merger of a major PBM/
pharmacy chain with a large insurer
LThe creation of a joint venture by Walgreens and
Prime Therapeutics
LAnthem announce it is starting a pharmacy benefit
manager function in 2020 when its current PBM contract expires
LRite-Aid's acquisition of Envision Rx
LThe merger of Optum and Catamaran
LThe acquisition of LDI by Diplomat
Additionally, the giant consumer retail purchasing and
delivery service Amazon is taking material steps to possibly
enter the PBM industry.\7\ This market activity involving PBMs,
payers, and pharmacies indicates dynamic industries in flux,
but one constant is competition. As recently as 2012, the FTC
has maintained that the PBM industry is competitive.\8\
---------------------------------------------------------------------------
\7\ https://www.cnbc.com/2017/05/16/amazon-selling-drugs-
pharamaceuticals.html
\8\ Federal Trade Commission, ``Statement of the Federal Trade
Commission Concerning the Proposed Acquisition of Medco Health
Solutions by Express Scripts, Inc.'' FTC File No. 111-0210. April 2,
2012.
---------------------------------------------------------------------------
Question 2(b). What practices do PCMA members employ to
safeguard against conflicts of interest between their pharmacy
businesses and their contracts to negotiate drug prices on
behalf of plan sponsors?
Answer 2(b). PCMA notes that the FTC in 2005 found no
conflicts of interest with business entities owning both a PBM
and a mail-order pharmacy, and we believe that existing market
conditions make that finding still applicable. Further, it is
our understanding that standard terms of contracts and
accreditation typically require disclosure of any conflicts of
interest.
senator whitehouse
Question 1. During the hearing, we discussed ``de facto''
monopolies of prescription drugs, or monopolies that occur
outside of the patent and exclusivity protections granted to
new drugs. You all acknowledged that we have seen instances of
industry outsiders taking advantage of these de facto
monopolies and dramatically increasing the prices of drugs.
Addressing this unfair price manipulation in a targeted way
will require the proper identification of de facto monopolies.
How can we ensure de facto monopolies are correctly identified?
Answer 1. PCMA supported the work of Senators Collins and
McCaskill in introducing the ``Making Pharmaceutical Markets
More Competitive Act'' as an important first step toward
creating a more competitive generic drug marketplace. PCMA was
pleased this concept was later offered as an amendment by
Senators Collins and Franken to the Food and Drug
Administration Reauthorization Act of 2017. Specifically, the
FDA will now be required to publish a list of generic drugs
where there are three or fewer competitors in the market and to
expedite the review of generic drug applications where
competition is limited. PCMA believes policies such as these
can curb the kinds of outrageous actions such as recently seen
with price spikes of Daraprim.
Question 2. While we want to make sure people can afford
their medications, it strikes me that patient assistance
programs that reduce out-of-pocket costs for patients also
serve to help companies maintain their market share, even when
there is a lower-cost drug available that is just as effective.
What effect do patient assistance programs have on costs to
patients and to the overall health care system? How could
Congress help ensure patient assistance programs don't mean
wasteful spending of our health care dollars, while still
preserving patient access?
Answer 2. Some schemes masquerading as patient assistance
programs are really marketing schemes. Such programs will tend
to help patients purchase only one drug and may not be means
tested. Drug copay coupons are the most common form of this
activity.
Considered illegal in Federal health programs, copay
coupons are banned in Medicare and Medicaid, but are still
allowed in the commercial market in most instances. Drug
companies rely on financial subsidy programs to increase
product uptake among insured patients, to encourage patients to
ignore similarly effective, but more affordable options to
treat their conditions. By targeting drugs with sub-optimal
formulary placement, drug manufacturers use these programs to
rapidly increase product utilization outside the boundaries of
traditional insurance processes.
PCMA supports programs that facilitate patient access to
specialty and high-cost drugs when appropriate. We do not,
however, support programs that undermine formulary design.
Payer costs rise unjustifiably when enrollees choose expensive
drugs over equally effective, more affordable options, and
since the use of copay coupons reduces the utilization of these
more affordable options, restrictions on copay coupon use can
be part of a solution to help slow the rising cost of
prescription drug coverage.
PCMA supports applying anti-kickback statute to coupons
used in coverage purchased through health care exchanges to
prevent their use in these plans, as is the case in Medicare
and Medicaid.
Response by Thomas E. Menighan to Questions of Senator Alexander,
Senator Murray, Senator Bennet, Senator Cassidy, and Senator Whitehouse
chairman alexander
Question 1. What is the role of rebates, and do we need
them?
Answer 1. During the October hearing, rebates were
discussed in the context of those provided by manufacturers to
pharmacy benefit managers (PBMs). Generally, APhA opposes
rebates given from the manufacturer to the PBM because it sets
up a framework that artificially raises point-of-sale prices,
which can increase patients' costs and speed up the rate at
which they reach the Part D coverage gap. In addition, because
pharmacies do not receive any benefit from these rebates, they
are unable to pass on savings to patients. With regard to
manufacturers' pricing policies, APhA supports pharmaceutical
industry adoption of a ``transparent pricing'' system which
would eliminate hidden discounts, free goods, and other subtle
economic devices. The lack of a transparent pricing framework
negatively impacts the ability of CMS to oversee the Part D
program.
Question 2. How do rebates affect your industry? Do your
members contract and get paid based on the public ``list''
price, or using a ``net'' price that takes into account
rebates.
Answer 2. Savings from rebates given from manufacturers to
PBMs are not passed on to pharmacies and APhA is not aware of
such rebates' savings being passed onto patients. Due to a lack
of transparency, it is difficult to determine the extent to
which patients benefit from these rebates, if at all. In fact,
rebates between manufacturers and PBMs can inflate the point-
of-sale price of prescription medication.
Pharmacies purchase their drugs from wholesale
distributors. That purchase price is generally based on the
volume of purchases the pharmacy or chain or health system can
achieve. The more volume purchased, the lower the price, just
as in any supply chain in America. But these differences are
generally narrow, and totally disconnected from the pricing
offered by a PBM to a pharmacy to participate in a network.
Simply, the contract price between a PBM and a pharmacy for
medications is not based on what that pharmacy actually pays
for the medications. Consequently, the amount reimbursed to the
pharmacy by the PBM may be less than the pharmacy's cost to
acquire the medication. In addition, it is not clear if the
value PBMs give a drug in their formularies and benefit design
incorporates the price the pharmacist pays to obtain it. Our
member pharmacists have indicated they are experiencing more
and more products with a negative payment, in which the payer's
reimbursement does not cover the cost of providing the
medication.
With regard to contracting and list pricing, there is no
standard contract between pharmacists and insurers, PBMs and
other payers. Therefore, there is no one set of ``list'' or
``net'' pricing used. Pricing offered by PBMs is reported by
our members to lag when prices rise and excel when prices fall.
Many payer contract prices, as well as terms and conditions are
`take it or leave it', and do not provide an opportunity for
meaningful negotiation between parties.
Question 3. Would you support a policy that would allow
supply chain participants to contract for lower prices on the
front end rather than after the fact with rebates?
Answer 3. Currently, pharmacy chains, or pharmacies in
buying groups, aggregate buying power to negotiate with
suppliers (typically wholesalers) for small discounts on prices
charged to wholesalers from manufacturers. Much of the
wholesale industry trade with brand name manufacturers is pass
through, with fees paid by manufacturers to wholesalers to
distribute their products.
APhA would need to see details regarding the referenced
policy. APhA would not support a policy that enables more
members of the supply chain to retroactively clawback money
from pharmacies. Regulations regarding Direct and Indirect
Remuneration (DIR) were established to make transparent the
rebates secured by PBMs from manufacturers. These rebates, as
noted earlier, are not connected in any way to the prices paid
by pharmacies to their suppliers for these medications.
However, PBMs have taken their required reporting of rebates to
CMS as an opportunity to ``recover'' their disclosed rebates
from pharmacies, who do not benefit from the rebates in the
first place.
APhA strongly opposes fees imposed by Medicare Part D plan
sponsors and their PBMs that retroactively reduce the payments
PBMs earlier approved and paid to pharmacies. These pharmacies
have already paid the prices charged to them by their suppliers
and have dispensed these medicines to Medicare beneficiaries.
DIR disclosure was originally designed to capture rebates and
other mechanisms not included at the point-of-sale. However,
the DIR disclosure by PBMs to CMS are now being used beyond
their original purpose to retroactively adjust pharmacies
payment months after the sale, sometimes below the price paid
by the pharmacy. Because point-of-sale prices paid by
beneficiaries is calculated based on the contracted price
before DIR is extracted, DIR fees charged to pharmacies do not
positively impact what patients pay but rather, increase the
point-of-sale price. This can result in the beneficiary paying
more because the patient's cost-sharing may be based on sales
prices.
senator murray
Question 1. In the written testimonies submitted to the
committee, there is a lot of blame shifting when it comes to
where the fault of high drug prices lays. We can all agree that
our complex health system is inefficient, but, for that reason,
the blame is shared, and everyone bears responsibility to fix
the problem.
Please provide more than one policy proposal, which does
not involve any other members of the supply chain, that your
industry in particular could implement, either with or without
the help of Congress or the Administration, to bring down costs
for patients and families, including the reasons why you
believe it would bring down costs.
Answer 2. To efficiently use resources, meaning both
dollars and clinicians, APhA suggests several reforms that
enhance patient access and outcomes while improving
transparency in the pharmacy marketplace:
(1) Pass the Pharmacy and Medically Underserved Areas
Enhancement Act (H.R. 592 / S. 109). This bill, with strong
bipartisan support would enable medically underserved Medicare
beneficiaries to better access health care through pharmacist-
provided care services. As the medication expert on the care
team, pharmacists possess knowledge and expertise to optimize
the impact of medications, patient care, and health outcomes
and consequently, the viability of the Medicare program. The
importance of medication-related services cannot be overstated,
especially in the Medicare program. Medications are the primary
method of treating chronic disease and are involved in 80
percent of all treatment regimens. Moreover, the United States
spends nearly $300 billion annually on medication-related
problems, including nonadherence. Accordingly, not only will
S.109 increase beneficiaries' access to health care, it will
help improve their outcomes--particularly those impacted by
medications. APhA appreciates the support by many Committee
members for the Pharmacy and Medically Underserved Areas
Enhancement Act and urges its swift passage to allow
pharmacists to deliver these vital services as providers in
medically underserved areas. APhA also requests the Committee's
consideration of policies that include pharmacists as an
eligible provider or clinician, such as in advanced payment
models (APMs). These models often refer to Part B's named
providers, which disincentivizes the optimal use of the entire
patient care team, including pharmacists, to deliver effective
and quality care efficiently.
(2) We also encourage the Committee, when considering drug
policy changes, to look beyond isolated components of health
care to determine drug cost and value. Because health coverage
is frequently analyzed in a silo by the benefit type such as
inpatient, outpatient, and drug coverage, a patient's overall
services, costs and outcomes may never be reviewed
comprehensively. Policies cannot continue to consider drug and
medical coverage, and their related costs and outcomes,
separately if we are to achieve true value in health care.
Current coverage and payment policies related to prescription
drugs place incentives on the short-term, focusing on cost
containment for the product rather than weighing the overall
clinical benefit to the patient and the impact to their medical
costs. Breaking down the many silos within our health care
system will help address that $300 billion dollars spent on
medication-related problems--many of which are preventable.
(3) Suboptimal health information technology (HIT) systems
continue to be a barrier to the exchange of pertinent health
information necessary for optimal coordination of care in
various practice settings. For example, unless pharmacists are
part of an integrated system or practice, pharmacists are
frequently blocked from the electronic exchange of relevant
clinical and billing information with other health care
providers, insurers, etc. Such restrictions impede the ability
of patients, the health care system and payers like Medicare,
to benefit from coordinated, team-based care. Pharmacists are
the most accessible health care professional and may be the
only one in many communities. We encourage the Committee to
look at mechanisms and incentives to facilitate pharmacists'
ability to access and exchange information through Electronic
Health Records (EHRs)--essential to team-based coordinated
care.
senator bennet
Question 1. In your testimony, each of you indicated that
there is some role for value-based arrangements that health
plans can set up with drug manufacturers for outcomes-based
reimbursement. However, there are still relatively few of these
arrangements in place.
I recently sent a letter with Senators Cassidy, Warner, and
Young to request a GAO study on value-based arrangements. We
asked GAO to assess the savings potential for consumers and the
government in outcomes-based arrangements.
What do you expect we will find in this study?
Answer 1. There are a number of publicly disclosed value-
based purchasing arrangements between pharmaceutical
manufacturers and payers. While we anticipate the GAO study
will not focus on pharmacists, if it did, we would expect the
GAO would find most, if not all, of these arrangements fail to
reimburse pharmacists for the services they provide to improve
medication outcomes, thus impeding real value.
Question 2. What impediments exist to creating outcomes-
based reimbursements?
Answer 2. Numerous studies have shown that medication
management and other pharmacist-provided services improve
medication outcomes for patients, yet, pharmacists are often
not reimbursed for these services under Medicare, or from
private payers. Any value-based arrangements need to include
and adequately reimburse pharmacists for the value of the
services they provide.
As noted above, the health care system cannot continue to
cover and evaluate the drug and medical benefit separately. New
Medicare payment and delivery models, such as ACOs, focus on
coordinated care and value, but do not include drug coverage.
Question 3. We have seen reports that in some cases,
patients who fill prescriptions are charged a copay that is
higher than the cash price of the drug and may not be given the
chance to choose the less costly option.
What have you heard from pharmacists on how widespread this
practice may be?
Answer 3. We have heard from our members that this is a
common practice of PBMs. A June 2016 survey of 600 pharmacists
by the National Community Pharmacists Association confirms this
position. The findings from the survey stated, ``Sometimes PBM
corporations impose ``gag clauses'' that prohibit community
pharmacists from volunteering the fact that a medication may be
less expensive if purchased at the ``cash price'' rather than
through the insurance plan. In other words, the patient has to
affirmatively ask about pricing. Most pharmacists (41 percent)
said they encountered these restrictions at least 10 times
during the past month.'' \1\ While it may be difficult to
measure the prevalence of such restrictions, it is also
difficult for pharmacists to remember which plan restricts, and
which one allows these disclosures. Prohibitions of ``gag
clauses'' would make the system more transparent.
---------------------------------------------------------------------------
\1\ See, http://www.ncpa.co/pdf/dir--fee--pharamcy--survey--june--
2016.pdf
---------------------------------------------------------------------------
senator cassidy
Question 1. In determining Direct & Indirect Remunerations,
do you believe Part D plan sponsors should utilize quality and
performance measures that are applicable to the services
provided by retail and specialty pharmacies?
Answer 1. It is important to clarify that pharmacists
services are not covered under Medicare Part B, and Part D does
not cover most pharmacist-provided services with the exception
of medication therapy management (MTM) and immunizations.
However, pharmacists are willing to engage in value-based
delivery and payment systems and have the outcomes of their
services be measured. Therefore, APhA encourages Medicare
statutes and policy be amended to treat pharmacists like other
health care practitioners which lays needed groundwork to
improve access and quality. In addition, we reiterate the need
to measure outcomes, quality and cost comprehensively rather
than separately in each Medicare program (e.g. Parts A, B, D).
APhA supports the Improving Transparency and Accuracy in
Medicare Part D Drug Spending Act, S. 413, which prohibits
Medicare Part D plan sponsors/PBMs from retroactively reducing
payment on clean claims submitted by pharmacies under Medicare
Part D, which would:
LLower Medicare costs for taxpayers. Virtually all
catastrophic costs in Part D are borne by the government. These
costs are fueled by pharmacy DIR fees, which have more than
tripled in recent years.
LBoost transparency in drug pricing. Prohibiting
these pharmacy fees will make Medicare Plan Finder more
accurate and facilitate better CMS oversight.
LGive seniors reduced cost-sharing and greater
budget predictability. Beneficiaries who use their drug plan to
fill prescriptions are negatively impacted by pharmacy DIR
fees. This is because retroactive fees lead to inflated drug
costs that are the basis for beneficiary cost-sharing amounts.
LPreserve access to independent community
pharmacies. Locally owned pharmacies provide enhanced patient
care, and are often located in underserved rural and inner-city
areas. The number of U.S. independent community pharmacies has
declined the past five years and a recent study estimated 3
million rural residents are at risk of losing the only pharmacy
in their community with the next nearest pharmacy over 10 miles
away, a trend exacerbated by DIR.
Question 2. What role do you believe retail and specialty
pharmacies should play in combating the opioid abuse epidemic?
Answer 2. Pharmacists Role/ Pharmacists' Care Services. As
the medication experts on the patient's health care team,
pharmacists play an important role in preventing prescription
drug misuse and abuse. Pharmacists are involved in pain
management programs that include medication tapering services,
work in medication assisted treatment programs, and furnish
naloxone where authorized. Depending on state authority,
pharmacists working under collaborative practice agreements can
initiate, monitor, modify, and discontinue medication therapy,
including opioids, and order and interpret laboratory tests in
collaboration with other members of the health care team.
Pharmacists see the patient's complete medication profile and
can help bridge the communication gap between health care
providers by coordinating and providing medication-related
services. Pharmacists are part of the team helping patients
with legitimate pain management needs achieve treatment goals.
Pharmacies often serve as an access point for patients to
receive care and to dispose of their medications through take-
back receptacles.
In addition, pharmacists are required by DEA regulations to
ensure that prescriptions for controlled substances are issued
for a legitimate medical purpose by a practitioner acting in
the usual course of professional practice (See United States
Drug Enforcement Administration, Practitioner's Manual, 2006:30
``Federal courts have long recognized that it is not possible
to expand on the phrase `legitimate medical purpose in the
usual course of professional practice' in a way that will
provide definitive guidelines to address all the varied
situations physicians may encounter''). [Pharmacist's
corresponding responsibility]
Medication Assisted Treatment (MAT). Pharmacists' roles in
the provision of medication-assisted treatment continues to
grow, however, their ability to help patients is stunted
because they are not eligible to obtain a DATA-waiver.
Currently, 48 states and the District of Columbia allow
pharmacists to enter into collaborative practice agreements \2\
with physicians and other prescribers to provide advanced care
to patients, which may include components of MAT. APhA is aware
of at least six states that allow pharmacists to prescribe
Schedule III, IV and V controlled substances under a
collaborative practice agreement. The Comprehensive Addiction
and Recovery Act (CARA) of 2016 expanded the law to allow nurse
practitioners and physicians assistants to obtain a DATA waiver
and provided SAMHSA with authority to modify eligibility
requirements to obtain DATA waiver. Pharmacist involvement in
MAT for opioid use disorders helps improve access and outcomes,
while reducing the risk of relapse. \3\, \4\ Pharmacists'
capabilities are recognized by the Food & Drug Administration
(FDA) \5\ and in SAMSHA's 2015 Federal Guidelines for Opioid
Treatment Programs. \6\ The pharmacy community is united and
has taken a cohesive position regarding the need to allow
pharmacists to obtain a DATA waiver. \7\ Allowing pharmacists
to obtain a DATA-waiver will increase access to MAT and address
treatment gaps that become more apparent as the opioid epidemic
evolves.
---------------------------------------------------------------------------
\2\ Collaborative practice agreements create a formal practice
relationship between a pharmacist and another health care provider and
specify what patient care services--beyond the pharmacist's typical
scope of practice- can be per
\3\ DiPaula, B.A. & Menachery, E. (Mar/Apr 2015). Physician-
pharmacist collaborative care model for buprenorphine-maintained
opioid-dependent patients, Journal of the American Pharmacists
Association, 55(2), 187-192.
\4\ Raisch, W. (2002). Opioid Dependence Treatment, Including
Buprenorphine/Naloxone, Pharmacology & Pharmacy, 36(2), 312-321.
\5\ Food & Drug Administration, Information for Pharmacist.
SUBOXONE (buprenorphine HCl/naloxone HCl dihydrate, sublingual tablet)
and SUBUTEX (buprenorphine HCl, sublingual tablet), available at:
http://www.fda.gov/downloads/Drugs/DrugSafety/
PostmarketDrugSafety%InformationforPatientsandProviders/
UCM191533.pdf(last accessed November 16, 2015).
\6\ Substance Abuse and Mental Health Services Administration
(SAMHSA), U.S. Department of Health and Human Services, (March 2015),
Federal Guidelines for Opioid Treatment Programs, available at: http://
store.samhsa.gov/shin/content/PEP15-FEDGUIDEOTP/PEP15-FEDGUIDEOTP.pdf,
last accessed: May 18, 2016.
\7\ See Joint Statement for the Record: American Pharmacists
Association (APhA), Academy of Managed Care Pharmacy (AMCP), American
Society of Consultant Pharmacists (ASCP), American Society of Health-
System Pharmacists (ASHP), College of Psychiatric and Neurologic
Pharmacists (CPNP), National Association of State Pharmacy Associations
(NASPA) and National Community Pharmacists Association (NCPA),
available at:http://www.pharmacist.com/sites/default/files/files/
Joint20Statement20for20the20Record20on2020MAT20to20Energy20and20Commerce
20Hearing-10-25-2017.pdf
---------------------------------------------------------------------------
senator whitehouse
Question 1. During the hearing, we discussed ``de facto''
monopolies of prescription drugs, or monopolies that occur
outside of the patent and exclusivity protections granted to
new drugs. You all acknowledged that we have seen instances of
industry outsiders taking advantage of these de facto
monopolies and dramatically increasing the prices of drugs.
Addressing this unfair price manipulation in a targeted way
will require the proper identification of de facto monopolies.
How can we ensure de facto monopolies are correctly identified?
Answer 1. APhA recognizes the difficulty in identifying
patterns indicative of a de facto monopoly. We encourage
Congress to require research regarding factors that can be used
to better predict when a de facto monopoly may occur. Such
research should incorporate members of the supply chain,
including pharmacists, and also include recommendations
regarding steps that FTC, FDA, and other government agencies
may take to prevent price increases. In addition, APhA notes
that stakeholders have indicated manufacturers are using Risk
Evaluation and Mitigation Strategy (REMS) Programs
inappropriately to delay generic drug development and
marketing. APhA recommends research include reviewing REMS
programs and whether they are serving as barrier to generic
drug development and supporting de facto monopolies.
Question 2. While we want to make sure people can afford
their medications, it strikes me that patient assistance
programs that reduce out-of-pocket costs for patients also
serve to help companies maintain their market share, even when
there is a lower-cost drug available that is just as effective.
What effect do patient assistance programs have on costs to
patients and to the overall health care system? How could
Congress help ensure patient assistance programs don't mean
wasteful spending of our health care dollars, while still
preserving patient access?
Answer 2. Patient assistance programs may be created for a
variety of purposes, including helping patients to access
medications. The components and requirements of these programs
vary. In some circumstances, pharmacists act as an intermediary
to identify patient assistance programs for patients to help
maintain their access to needed medications. Because patient
assistance programs vary substantially and change, APhA and our
members do not have the resources to perform a review of
current programs in attempt to determine their value and impact
on patients and the overall health care system. APhA encourages
research be conducted to better answer Senator Whitehouse's
question.
With regards to transfer incentives which may be provided
via patient assistance programs, APhA advocates for the
elimination of coupons, rebates, discounts, and other
incentives provided to patients that promote the transfer of
prescriptions between competitors.
[Whereupon, at 12:10 p.m., the hearing was adjourned.]
[all]