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How Washington can address skyrocketing prescription drug costs

Jul 17, 2017
In The News

Ranking Member Frank Pallone, Jr. spoke today at the Center for American Progress on ways to make prescription drugs more affordable. Here are his prepared remarks:

Prescription drug prices are higher than ever and American families and our health care system are suffering from staggering price hikes.

In 2015, prescription drug spending outpaced all other health care services. Next year, annual drug spending is expected to reach more than $500 billion here in the U.S.

As a result, many Americans face real barriers to accessing the medications they need. And our entire health care system — including public programs — are strained.

Making prescription drugs more affordable for the average consumer should be an issue that all of us, Republicans and Democrats, can support.

A Kaiser Family Foundation poll released in May found that six in ten Americans said that lowering the cost of prescription drugs should be a “top priority” for the President and Congress.

Despite a swell of grassroots advocacy and strong support from the President on this issue, we have yet to see any movement in Congress.

Last week, as part of the user fee reauthorization bill, the House passed a sense of the Congress urging HHS to work with Congress to lower the cost of prescription drugs.

Those were nice words, but now we need action, and unfortunately we haven’t seen any, despite our repeated requests for Congressional hearings.

It’s time to find workable solutions. Drug pricing is a complex issue that will require more than one policy solution.

While there may not be a silver bullet to address this problem, Congress must take a serious look at all solutions that will help American families to afford the medications they depend on.

So, here are some of my thoughts on ways to lower costs for consumers in both the public and private markets.


One way to address drug prices is to help generics and biosimilars come to market faster through ending anticompetitive behaviors by the brand drug companies. Today, some drug brand companies are delaying generic and biosimilar competition by using Risk Evaluation and Mitigation Strategies or REMS programs to block access to samples of branded drug products. Without access to these samples, generic and biosimilar manufacturers are unable to do the development work needed to bring a high quality, low cost generic or biosimilar to market, preventing consumer access to these low cost alternatives.

How big is the problem — according to a July 2014 study conducted by Matrix Global Advisors, the ongoing abuse of REMS and REMS-like programs costs the U.S. health system $5.4 billion annually.

We can begin to address drug prices by providing a pathway for generic and biosimilar manufacturers to access samples of branded products by passing the FAST Generics Act. This legislation establishes an FDA-approved authorization process for generic and biosimilar manufacturers to obtain samples of these branded products while also ensuring the safe use of these products.

Integrity of Regulatory Exclusivity

We must also protect the integrity of the regulatory exclusivity process. Exclusivity protects certain drug treatments from competition for a set period of time to allow drug manufacturers time to recoup their research and development investment.

Today, drug manufacturers retain this lucrative incentive even if they have violated criminal or civil law. For example, drug manufacturers may be found guilty for overcharging government health programs, or illegally promoting the unapproved use of a drug treatment and still maintain the benefit of market exclusivity.

This is wrong. They should lose the right to exclusivity for the related product. Bad actors should not be rewarded, and I would hope this would deter the pharmaceutical industry from committing abuses.

Penalties for Misclassification in the Medicaid Drug Rebate Program

We should also institute strong penalties for drugs that are misclassified under the Medicaid Drug Rebate Program.

EpiPen is the best example of why this policy is needed. EpiPen is considered a branded drug, however, the manufacturer of EpiPen, Mylan, had classified the EpiPen as a generic drug for purposes of the Medicaid Drug Rebate Program. This classification subjected EpiPen to a much lower rebate under the program, potentially costing Medicaid more than $1.27 billion.

Stronger penalties will make companies think twice before taking these actions.

Medicare Price Negotiation

There is also a great deal that we can do within our government health systems of Medicare and Medicaid.

First off, we should give Medicare the ability to negotiate prices with the drug companies. This is a no brainer. It’s already being done by the VA and through Tricare, the Military’s health care plan. Even President Trump agrees on this one, but Congressional Republicans continue to fight it.

Under Medicare Part D the HHS Secretary is statutorily restricted by a noninterference clause from having any role in negotiating or setting drug prices. Giving the HHS Secretary the authority to negotiate drug prices on behalf of millions of Medicare beneficiaries and taxpayers could provide some of the leverage needed to lower drug costs. And this would be particularly important for high-priced drugs where there is no competition and where smaller private plans may be less able to negotiate lower prices.

While there are many proposals that have been developed for price negotiation, the first step must be a repeal of the noninterference clause by Congress. It’s long past time for Congress to take this action.

Medicaid Negotiating Pool

We should also create a federal-state Medicaid negotiating pool for high-cost drugs. Today, under the Medicaid Drug Rebate Program, drug manufacturers that want to sell their drugs to state Medicaid agencies must enter into rebate agreements with the Secretary. States may also negotiate additional supplemental rebates.

Over the past several years, many states have tried to join together to leverage purchasing power for high-cost drugs, but CMS does not have the authority to facilitate negotiation between states and drug manufacturers. As a result, billions of dollars in supplemental rebates each year are potentially lost.

We should allow CMS and participating state Medicaid programs to partner with a private sector contractor to negotiate supplemental rebates from drug manufacturers. This new and voluntary Medicaid purchasing pool for high-cost drugs would aim to negotiate better prices on behalf of the program.

Generics in Medicare Part D Program

Beyond negotiation, we should also look at greater financial incentives for generic drug utilization in the Medicare Part D program, as well as improvements to our Part D appeals process to ensure that no senior leaves the pharmacy without their medications in hand.

One way to encourage consumers to choose lower-cost generic options is to offer the lowest possible copayments for those items. Across Medicare Part D, keeping generic copayments low has resulted in billions of dollars’ worth in savings to consumers and to the program. However, while generics use is quite high throughout the Part D program overall, it is much lower within the Low Income Subsidy (LIS) population. LIS enrollees make up a majority of beneficiaries with the highest drug spending — yet their copayment amounts are set in statute. This means that Part D plans cannot lower generic copayment amounts on their own to encourage the use of the lower cost option in the way that plans are able to across the rest of the program.

Lowering the generic copay can help save money for these seniors and for the federal government.

The Medicare Part D appeals process should also be streamlined and improved. Today, the appeals process is not transparent, and beneficiaries often experience confusion about their rights and options when denied coverage at the pharmacy counter.

Additional Medicare Improvements

There are some other changes we can make within Medicare. We should provide some additional relief now by fully closing the Part D Doughnut Hole in 2018–two years sooner than under current law.

And we should reduce costs for seniors and for the Medicare program by tying reimbursement in the Medicare Part B program to the most common dosage of a drug. Every year, billions of dollars in drugs are discarded here in the U.S. because drug manufacturers package drugs in vials that contain too much of the drug for most doses. This could incentivize drug companies to manufacture vials that more closely match the patient population, resulting in less excess and less waste

Transparency and Accountability of Drug Companies and Their Prices

Finally, it’s time to bring some transparency and accountability to drug prices.

For the past two years the Medicare and Medicaid Drug Spending Dashboards provided a first-of-its-kind online interactive tool where the public could view drug spending and utilization on certain drugs in both programs. While not perfect, this data is a first, and very important, effort to bring transparency of drug costs in health coverage for more than 120 million Americans.

The Trump Administration should continue this important work. While the Dashboards have begun tracking drugs with the highest annual price increases, no information is currently available as to the reasons behind these price increases.

Congress should take additional steps to institute reporting requirements for manufacturers in the Medicaid Drug Rebate Program and in Medicare if a manufacturer increases the price of a covered outpatient drug significantly from the previous fiscal year.

This would be an important next step. By providing greater transparency into the costs associated with prescription drugs, the federal government will have greater insight into whether a price increase for a prescription drug is reasonable.

It would also be nice to see drug companies become more transparent. Sanofi and Johnson and Johnson have taken some strong steps on transparency. Both companies have agreed to disclose their drug price increases each year. Sanofi also announced it will put limits on how much it will increase drug prices annually. This is a great first step, but much more needs to be done.

Transparency requirements exist elsewhere in our health system, and this policy is a reasonable step forward to align prescription drugs with other parts of our health care system.

In Conclusion

Ensuring patient access to affordable and innovative prescription drugs should be of the upmost importance to all of us in Congress, especially as drug prices continue to rise at an alarming rate. I plan to work with my colleagues on the Committee to develop comprehensive legislation in the fall that includes each of these areas, and potentially others to help us bring down drug prices.

It’s time to find workable solutions that will incentivize competition in the pharmaceutical marketplace and encourage the development of affordable and high quality drugs, while also monitoring steep prescription drug price increases when they arise.