“Let’s be honest about the debate here today. If you’re not recognizing that we could have a free market pressure system to contain these costs, then what you’re offering is government-controlled takeover of the pharmaceutical industry in America.’ – Rep. Tom Reed (R-NY)”

On the morning of Thursday, March 7, the House Ways & Means Committee’s Subcommittee on Health held a hearing titled Promoting Competition to Lower Medicare Drug Prices . The hearing focused a great deal on the effect of patents in the pharmaceutical industry as they relate to pricing. Although some of the Republican membership of the subcommittee pointed out issues with various proposals to limit patent protections for drugmakers, the panel acted largely as a firing squad for patents.

Opening Statements Hint at Party Lines

Rep. Lloyd Doggett (D-TX), Chairman of the House Health Subcommittee, spent much of his opening statement chastising the Big Pharma boogeyman, claiming that the industry was “pointing the finger at everyone else in the supply chain” instead of addressing the root problems that had caused the prices for drugs commonly prescribed under the Medicare Part D program to increase at 10 times the rate of inflation. He also said that 74% of pharma patent applications filed over the past 10 years weren’t for new innovative cures but rather to modify existing treatments, a measure meant to increase the period of a drug’s exclusivity which he called “evergreening.” Doggett discussed ending pay-for-delay settlements that could increase competition from generics and touted the Competitive DRUGS Act that he first introduced into the House in October 2017 as a way to prohibit such deals.

Ranking Member Rep. Devin Nunes (R-CA) acknowledged that there were broken incentives in the Medicare program, but he expressed concern that some ideas meant to reduce drug pricing were going too far, especially the confiscation of a drug company’s intellectual property if that company rejects what the government provides as its best offer to pay for the drug under Medicare Part D. “That sort of policy, the seizure of medicines by an unhappy government agent, is best left to socialist regimes, not here in the United States of America,” Nunes said. While 100 members of the majority Democratic party supported this approach, Nunes indicated that House Republicans opposed what he called the “control and confiscate agenda.” While there was no silver bullet to address bad actors in the system, Nunes said that the House could work to get the incentives right without resorting to compulsory licensing.

Pricing Transparency and Patent “Monopolies”

Speaking first on the witness panel was Robin Feldman, Director of the Institute for Innovation Law, UC Hastings School of Law. In her testimony , she argued that the price of Medicare spending for brand name drugs rose 62% between 2011 and 2015, a rise in price rate that was unsustainable for patients. “It’s tough to tell patients in Chicago to pay thousands of dollars for a drug when their cousin in Toronto pays $30,” Feldman said. She decried the lucrative rebates offered by drug companies to pharmacy benefit managers (PBMs) in deals that were kept secret from the public. Feldman also pointed to issues with patents, saying that her research showed that 75% of drugs associated with patents were not new drugs but rather covered a secondary change, such as adjusting a drug’s dosage. She advocated for the closing of tax loopholes that allow companies to deduct the cost of lobbying as well as what she called a “one and done principle,” which would allow a pharmaceutical company to select one period of exclusivity on a drug based on one patent or the drug’s period of test data exclusivity.

Following Feldman was Ameet Sarpatwari, Assistant Director of the Program on Regulation, Therapeutics, and Law, Harvard Medical School. He cited research showing that , between 2011 and 2015, net spending on prescription drugs under Medicare’s Part B and Part D plans, as well as Medicaid spending, increased 156%, 59% and 55% respectively. He also cited an October 2018 survey which found that one-third of respondents decided not to fill a prescription because of cost. Sarpatwari pushed back on the idea that the high price of drugs is necessary to promote future innovation by arguing that pharma companies spend about 20% of their revenue on research and development, less than half the average proportion of revenue spent on marketing and administrative expenses. He advocated for the greater use of value-based drug pricing while also warning against outcomes-based contracting, which offered what he called “illusory savings” based on a refund offered by manufacturers that could be largely symbolic. Sarpatwari thought that enhancing the negotiating power of the public player in a way similar to that of the Veterans Administration (VA) was a way to give Medicare better leverage.

Amy Kapczynski , Co-Director of the Global Health Justice Partnership at Yale Law School, was the first to launch with reckless abandon into the fallacy that patents provide a monopoly . This was repeated several times during the hearing by panel witnesses and subcommittee members alike. She also spoke out against lagging pharmaceutical innovation supported by pay-for-delay settlements and the creation of “patent thickets… that will eventually be invalidated as junk but that can give [companies] several more years of monopoly power.” Kapczynski advocated the use of existing law to break patents, noting that it has never been impossible for the U.S. to use a private patent if it provides fair compensation, likening the situation to one in which a railroad is being built but the last land owner who hasn’t sold demands far more than the land is worth.

While there are absolutely issues with high drug prices that can be solved, Douglas Holtz-Eakin, President of the American Action Forum, noted that there were many conditions that made the current situation ripe for increased drug prices. His testimony noted that 60% of American adults had at least one chronic condition and 40% had two or more conditions. The treatment of chronic diseases accounted for 86% of all U.S. healthcare costs as well as 98% of Medicare and 83% of Medicaid costs. He also noted that the way that drug pricing data was viewed has a great impact on the debate since those views can tell vastly different stories. Over the past six years, list prices for drugs have increased between 7% and 13.5%, while net prices only rose between 1.9% and 4.7% and out-of-pocket costs remained flat on average. Holtz-Eakin urged the subcommittee to look at existing policies that were causing some of the pricing issues, such as the 340B Drug Pricing Program, which has resulted in unintended consequences by reducing the number of community physician practices and driving up the cost of care for all services provided at hospitals and other health care facilities. He also echoed Kapczynski’s call to look at abuses in the U.S. Food and Drug Administration’s Risk Evaluation and Mitigation Strategies (REMS) program.

Following Holtz-Eakin was Frederick Isasi, Executive Director of Families USA, who argued in his testimony that, despite progress on reducing the number of uninsured Americans, health care costs for American families were rising faster than their paychecks. He said that 44 percent of Americans reported not going to see their doctor because they couldn’t afford it and that one-third of Americans weren’t properly taking their prescriptions because of costs. “This is a very, very simple problem,” Isasi said. “Congress created a system that provides a government-granted exclusivity to drugmakers.” (Though informed observers will note that the U.S. Constitution actually provides the basis for patent law.) “Over time, the focus of the industry has shifted from creating innovative drugs that can save lives to doubling-down on high-powered lawyers to help them find loopholes, sue competitors, and generally abuse the spirit in which federal prescription drug laws were written.”

Would a Single Drug Formulary Prohibit Certain Prescriptions?

In his questioning period, Rep. Nunes asked Holtz-Eakin about some of the potential impacts of proposed policy changes, such as a single drug formulary for Medicare Part D patients. He noted that issues regarding a single formulary used in the UK’s healthcare system prevented physicians from prescribing the muscular dystrophy drug Spinraza because it’s too expensive. He asked Holtz-Eakin if it was a real concern that the similar use of a single formulary could prevent seniors on Medicare from obtaining certain prescriptions and Holtz-Eakin said it was. Holtz-Eakin also pushed back on the Trump Administration’s Medicare Part B proposal noting a study released last October by the U.S. Department of Health and Human Services (HHS). The HHS study of 27 drugs covered by Medicare Part B showed that the U.S. paid 80% more than other countries did for those drugs but Holtz-Eakin noted that the study didn’t account for the fact that only 11 of those drugs were even available in every country surveyed.

How Could Transparency in Drug Pricing Benefit Consumers?

Greater transparency in deals struck by PBMs was an issue that came up often during the hearing. In his questioning period, Rep. Mike Thompson (D-CA) asked about problems posed by PBMs using direct and indirect remuneration fees in rural and underserved areas. Feldman answered by speaking out against the clawback system used by PBMs to assign a high price to a drug in excess of the acquisition cost of the drug. She said that independent pharmacists were being “mercilessly squeezed” by this system. If there were transparency in the deals being made by PBMs, then the market could “work its magic” in Feldman’s words. Later, Rep. Steven Horsford (D-NV) lauded steps taken by the Nevada state legislature to increase informational disclosures between PBMs and drug manufacturers and questioned why some of this information, including manufacturer rebates, was considered to be proprietary. Feldman, citing her decades of experience in IP law, found it “puzzling” to see companies claim this information as a trade secret and argued that this kind of information ought to be shared by companies who want market approval for their medications.

The positive impact of transparency on consumers was discussed by Rep. Vern Buchanan (R-FL) who told the story of one man he met at a town hall meeting in his district who was told that his wife’s MRI would cost $2,200 after he lost his insurance. After the doctor offering the MRI dropped the price to $1,800 if the man paid in cash, he made additional phone calls to shop prices around and ended up procuring the MRI for $400. While Buchanan agreed that more competition would lead to lower prices, he noted that compulsory licensing proposals could wind up with lengthy periods of litigation brought by drug manufacturers, which could take years to determine what constituted reasonable compensation to those companies.

Looking at the Issue of Direct-to-Consumer Advertising

The discrepancy between marketing and R&D expenditures by drug companies was a thread picked up by Rep. Ron Kind (D-WI), who indicated that he was astounded by claims from doctors about their patients demanding a brand-name drug because of television advertisements for that medication. Isasi responded by supporting a proposal made by the Trump Administration to force manufacturers to include drug pricing information in those ads. Later, in a response to a question from Rep. Judy Chu (D-CA), Feldman noted that pharmaceutical firms can claim a business tax deduction for those ads that may be driving consumers to purchase higher-priced drugs even when cheaper alternatives exist.

Also picking up on the issue of TV ads was Rep. Brian Higgins (D-NY), who noted that the U.S. was only one of two countries that allows for direct-to-consumer advertising by pharmaceutical firms. Higgins would go on to question whether there was a conspiracy within the pharmaceutical industry to keep drug prices high, citing price-fixing allegations made in recent lawsuits filed by Humana as well as attorneys general from 47 states. He asked the panel the percentage amount by which Medicare drug prices could be reduced with greater leverage from the government and while some witnesses pointed to savings at the VA, Higgins was discouraged by the panel’s response:

“I expected more, to be truthful. You’re all here admonishing us to do more about this issue and you have a certain degree of leverage yourselves as experts in the area. And I’ve read figures that say that under the VA, there’s a 40% discount by using the market leverage of some 30 million beneficiaries. Again, this whole idea of a conspiracy is not something that I’ve brought up, it’s a lawsuit by Humana, it’s joined by 47 attorneys general. There is ample evidence to support this. We need the expertise of your industry to help us help the American people.”

Reed-Blumenauer Spat Shows the Gap Between the Parties

The partisan divide on this debate was perhaps best exemplified by an exchange between Rep. Tom Reed (R-NY) and Rep. Earl Blumenauer (D-OR) about two-thirds of the way through the hearing. While Reed, the father of a son with Type 1 diabetes, had firsthand experience with the drug pricing issue as it relates to insulin, he said that he was optimistic regarding ways to address pricing issues through market pressures created by greater pricing transparency without resorting to the confiscation of intellectual property. In such a system, Reed noted that potential competitors could stay on the sidelines until after the expensive R&D process to develop a new drug was complete and then manipulate a situation created by the government. Blumenauer followed Reed, arguing that the pharmaceutical industry was the furthest you could get from a free market because of the government’s grant of a “monopoly.” He argued that a free market for pharmaceuticals didn’t exist anywhere in the world and told Reed that he rejected his free market premise. That led to the following exchange:

REED: “Then let’s be honest about the debate here today. If you’re not recognizing that we could have a free market pressure system to contain these costs, then what you’re offering is government-controlled takeover of the pharmaceutical industry in America. And that is a fair debate to have. If you want to rely on government control in this area, that is fine. But what I do believe is that we could have market pressure drive these costs down.” BLUMENAUER: “Reclaiming my time.” REED: “And I yield back.” BLUMENAUER: “Reclaiming my time. Poppycock. And I look forward, under the–” REED: “I appreciate the substance of the debate saying poppycock.” *Laughter* BLUMENAUER: “Under the leadership of the chair, I think we can dive into this to really ferret it out, Tom, to find out what you think is free market about this, and I’m happy to have that debate with your constituents and mine. But it’s not taking over anything, we’ve already set the rules, we’ve given them a monopoly, we paid for it, we paid for the research, and I think we ought to be able to find something in between there to follow through on the proposals.”

Rep. Doggett Dismayed by the Day’s Proceedings

In his closing statement, Rep. Doggett expressed his dissatisfaction with the tenor of the day’s debate. “I view it as encouraging that there is bipartisan recognition of the serious problems so many Americans are facing with, really, prescription price gouging,” he said. “The question is whether we’ll have any bipartisan agreement on doing anything about it.”

Doggett went on to say that anyone who believes that pharmaceutical companies will yield their “monopoly” power hasn’t been observing the situation with “any level of objectivity.” He pushed back on Republican claims regarding compulsory licensing, noting that the American military had used similar tactics in order to procure patent-protected equipment at favorable rates.

“I would just close by returning to my opening comments that we have a system where the taxpayers fund much of the research, the government grants a monopoly in defiance of the free market and then there is no restraint against price, it’s whatever a sick or dying person will pay for a little more time or a little relief. That system, relying on monopolies the government has approved, is not innovating, is not meeting our needs, and we need to find ways to deal with it. I think it will take more than just tweaking the system in order to solve these problems.” – Rep. Lloyd Doggett

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