High Drug Prices Stoke Congress’ Ire

Stack of bills and reform measures under consideration

Democrats and Republicans in Congress have found common ground when it comes to the issue of exorbitant prescription drug prices.  Both agree some measure of market-based reform is needed to alleviate the burden on individual patients and on hospitals from rising drug prices, shortages of critical medications, and the pharmaceutical industry’s anti-competitive practices.

In the current 116th Congress, a total of 134 bills related to prescription drugs have been introduced.  Three have passed the House and moved to the Senate.  Only one bill, Medicaid Services Investment and Accountability Act of 2019, has made it to the president’s desk.  The legislation, which deals with a very narrow subset of prescription drug reform – misclassification of drugs with respect to Medicaid rebate agreements for covered outpatient drugs – was signed into law.

A Reuters 2016 analysis of drug prices found that four of the nation’s top 10 drugs increased more than 100 percent since 2011.  And the prices just keep going up.

A good example is the cost of insulin.  It has roughly doubled in price between 2012 and 2016 but has rarely changed its composition since it was discovered in Canada in 1922.  But in the 1970s, recombinant DNA technology enabled mass production.  Such tweaks lead to the extension of patents and market control, which leads to anti-competitive practices.

Hospitals purchase pharmaceuticals en masse and are equally affected by anti-competitive practices, the pharmaceutical industry’s lack of transparency, and the forces of patient supply and demand. Not to mention that hospitals are also employers – the largest in most communities – and also pay for employee health benefits.  Employer health insurance costs are affected by rising prescription drug prices, resulting in higher premiums, co-pays, and out-of-pockets costs for employees.

According to a 2019 hospital industry study, average total drug spending per hospital admission increased 18.5 percent between 2015 and 2017.  The study also reported that sharp rises in drug costs force hospitals to make tough decisions about resource allocations, such as investment in new technologies, building upgrades and modernization, and even employee compensation.

Earlier this year, the Senate Finance Committee held a series of bi-partisan hearings on drug prices in America.  Representatives from health plans and executives from some of the nation’s most prominent pharmacy benefit manager (PBM) companies testified.  PBMs and their role in the drug supply chain drew lots of scrutiny from the senators.  PBMs are the middle men of sorts who negotiate with drug manufacturers and health insurers to get drugs listed on a health plan’s formulary and to establish the drug’s price.  Manufacturers offer PBMs a discount, or rebate, off the list price in order to get listed on a plan’s formulary.  However, the price savings that the PBMs achieve are not always shared with the end consumer, because PBMs keep part or all of the rebate.  This is one of the non-transparent practices that Congress seeks to clarify.  There are essentially no regulations preventing manufacturers from setting or raising prices, and there are no regulations that prevent PBMs from keeping all or part of the rebate.

The dozens of bills circulating in the halls of Congress seek the same goal – to lower the cost of prescription drugs for Americans.  A March 2019 Kaiser Poll found that nearly one in four Americans taking prescription drugs say it is difficult to afford their medications.  Respondents favor a variety of measures to rein in high drug prices, including more government regulation, such as allowing Medicare to negotiate directly with pharmaceutical manufacturers.  The Medicare Modernization Act of 2003  prohibits this direct negotiation.

Other proposed legislation looks at legalizing the importation of drugs from Canada, reforming regulations that currently enable manufacturers to game the system and delay entrance of generic drugs into the market, and a requirement that drug manufacturers disclose information related to planned price increases.

Next month, a Trump administration policy requiring drug manufacturers to list prices in television commercials takes effect.  The rule applies to drugs that are covered by Medicare and Medicaid.  However, three of the nation’s major pharmaceutical manufacturers filed suit to block the rule.  Drug makers caution that the advertised price would give viewers the false impression that they have to pay the full list price.  This brings us back to the lack of transparency issue.

It is fair to conclude that Congress will take some action this year to lower prescription drug costs for consumers and to reform anti-competitive and non-transparent practices that pervade the U.S. pharmaceutical industry.  We will have to wait and see just how far legislators are willing to push the industry.



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