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January 31, 2019
2019-0265

House Oversight and Reform Committee hearing examining the actions of drug companies in raising prescription drug prices

Executive summary

On January 29, the House Committee on Oversight and Reform held a hearing entitled "Examining the Actions of Drug Companies in Raising Prescription Drug Prices." The purpose of the hearing was to explore why drug companies are increasing prices so dramatically, how they are using the proceeds, and what steps can be taken to reduce prescription drug prices. The hearing is part of the Committee's wide-ranging investigation into the actions of drug companies in raising prescription drug prices in the United States, as well as the effects of these actions on federal and state budgets and on American families. Chairman Elijah Cummings (D-MD) opened the hearing by stating his intent to investigate drug companies and rising drug prices as a top committee priority, highlighting bipartisan agreement on the need to rein in out-of-control price increases. While Ranking Member Jim Jordan (R-OH) agreed that drug pricing should be a top committee priority, he expressed concern with the Democratic committee members initiating an investigation without input from Republicans and their intent on blaming the private sector instead of exploring how Obamacare and the federal government has disrupted the free market.

Witnesses included a mother of two insulin-dependent daughters, a representative from the AARP, and academics from Harvard Medical School, Johns Hopkins University, and the Foundation for Research on Equal Opportunity. The panelists spoke about the burden of rising prescription drug costs on patients — and especially the elderly — and expressed the need to consider policy options that will rein in patent abuses and anti-competitive behavior and encourage the development and entry of new generics and biosimilars into the market. They also discussed exploring other mechanisms to drive down prices such as through increased negotiation and formulary management, along with various legal actions to limit anti-competitive or predatory practices.

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Opening statements

Chairman Elijah Cummings (D-MD): "For the past decade, I have been trying to investigate the actions of drug companies for all sorts of drugs — old and new, generic and brand-name. We have seen time after time that drug companies make money hand over fist by raising the prices of their drugs — often without justification, and sometimes overnight — while patients are left holding the bill. The pharmaceutical industry is one of the most profitable in the world — and one of the most powerful. Fourteen drug companies each made more than $1 billion in profits just in the third quarter of 2018 … Let me be clear: there are powerful interests here that do not want us to interfere with their massive profits. But there is a strong bipartisan consensus that we must do something to rein in out-of-control price increases … We all recognize that research and development efforts on groundbreaking medications have made immeasurable contributions to the health of Americans, including new treatments and cures for diseases that have affected people for centuries. But the bottom line is that the ongoing escalation of prices by drug companies is simply unsustainable." Full statement.

Ranking Member Jim Jordan (R-OH) agreed with the Chairman that drug pricing should be a top priority for the committee, but noted his concern that Democrats initiated an investigation without the input of Republicans. He said that while Democrats are blaming the private sector and free market for rising drug prices, in reality the federal government and the Affordable Care Act (ACA/"Obamacare") have disrupted the free market. He said Congress should explore the patent process and if it is working appropriately.

Witness testimony

Antroinette Worsham, mother of two insulin-dependent daughters: "My name is Antroinette Worsham and I am the mother of two Type 1 Diabetics. My oldest daughter Antavia was diagnosed at the age of 16 and only lived 6 years due to the high cost of insulin. She started rationing her insulin in 2016 when she was kicked off BCMH Bureau for Children of Medical Handicaps. My youngest daughter Antanique was diagnosed at the age of 12, now 18. She is a freshman at the University of Toledo. I fear the same thing will happen to Antanique when she turns 21. How do pharmaceuticals think college students are supposed to be able to pay for high drug costs on top of high tuition room and board? Type 1 Diabetics need insulin to live or they will die as my daughter and other T1Ds have. When type 1 diabetics ration their insulin is causes them to go into dka (diabetes ketoacidosis). I feel type 1 diabetics do not get the attention they deserve. The rise of drug cost has impacted so many Americans and we are demanding a change NOW."Full statement.

Catherine Alicia Georges, EdD, RN, FAAN, National Volunteer President, AARP: "Prescription drug prices are a high priority for AARP and its members. Older Americans struggle to afford needed and life-saving medications. Most Medicare beneficiaries live on modest incomes, with an annual median of just over $26,000. One-quarter have incomes of just over $15,000. One-quarter have less than $15,000 in savings. This is not a population that has the resources to absorb rapidly escalating prescription drug prices, and many are facing the very real possibility of being unable to afford the medications they need … It is long past time for Congress to take action to reign in high drug prices. Thoughtful efforts to help reduce prescription drug prices could save tens of billions of dollars for patients, taxpayers and our health care system. More importantly, they will help ensure that all Americans have affordable access to the drugs that they need to get and stay healthy."Full statement.

Aaron Kesselheim, MD, JD, MPH, Associate Professor of Medicine, Program on Regulation, Therapeutics and Law, Harvard Medical School: "Over the past few decades, the US pharmaceutical industry has become among the most consistently profitable industry sectors in the world, in part because we give drug manufacturers wide latitude to set the prices for their products. But the prices set at a level to maximize manufacturer revenues and are often well beyond the clinical value that the drugs provide, because the marketplace is fractured and inefficient. Recently, there has been growing recognition that patients can no longer afford their medications at these prices, and the system is increasingly paying extremely high prices for drugs, far beyond costs in other comparable countries. The solution to this problem involves intelligent legislation and regulation to ensure that US patients and payors pay prices commensurate with the clinical value that the drugs provide, and to ensure that even expensive drugs face generic or biosimilar competition after a reasonable and fair time frame, as originally envisioned by the Patent Act."Full statement.

Gerard Anderson, PhD, Professor of Health Policy and Management, Bloomberg School of Public Health, Johns Hopkins University: "The House Oversight Committee should ask branded drug companies to explain why they increased prices for specific drugs … should use its investigative authority to understand how drug companies allocate costs to research … should examine the timing of orphan drug applications to see if the drug companies are gaming the system … should ask the PBM/PDPs how they estimate the amounts of DIR that they expect to receive and why they continually underestimate these amounts … should ask the Medicare program if they believe the system is being gamed … should ask PBM/PDPs how they develop the formularies and why certain branded drugs were chosen instead of generic drugs … should review internal drug company records to determine their reasons for the support of coupons and patient assistance programs and their influence on designing these independent charity patient assistance programs … should investigate the contributions drug companies are making to patient advocacy organizations." Full statement.

Avik S. A. Roy, MD, President, The Foundation for Research on Equal Opportunity: "Congress will need to act to reform laws that lead to higher prescription drug prices. Specifically, the BCPI Act should be reformed so as to harmonize its provisions with those of Hatch-Waxman. Biosimilar manufacturers should be able to gain conditional approval with lower-cost Phase IIb studies, and Congress should replicate Hatch-Waxman's provisions regarding therapeutic substitution at the pharmacy level for biosimilar medicines. Congress should give the FDA clear statutory authority to approve generic and biosimilar medicines delivered through specialized devices. And the FDA should grant 'fast track' authority to investigational drugs that would bring competition to diseases where there are monopolies today … When it comes to the de facto clinical monopolies that occur when companies raise prices on patients taking medications for chronic diseases in excess of consumer inflation, Congress should grant the Federal Trade Commission the authority to consider such practices as anti- competitive under federal antitrust laws. The FTC should have the authority to sue companies that take advantage of medically vulnerable patients to raise their prices well in excess of growth in their underlying costs of manufacturing and sales." Full statement.

Rep. Eleanor Norton (D-DC) asked why senior citizens are having trouble affording prescription drugs when on Medicare. Ms. Georges said the average income is only $26,000 and increasing out-of-pocket prices are often too much to handle.

Rep. Mark Green (R-TN) noted the perverse incentives and cost shifting between payers, providers, and patients, saying that the market is not competitive due to structural issues that must be fixed. Dr. Roy said that the currently system of price exclusivity in the patent system benefits private industry despite being created by the government.

Rep. Stephen Lynch (D-MA) discussed an analysis by the Teamsters Union that found their insurance pays more for prescription drugs than what someone with a drug store discount card would pay, despite having their plan negotiated by a PBM. He also noted that the VA has much lower rates due to direct negotiation with drug manufacturers and asked why Medicare shouldn't be allowed to negotiate. Dr. Anderson said the VA has many more drugs on its formularies than most private insurers or Medicare plans due to restrictions by PBMs. He added that passing the "gag clause" legislation last year was a good step toward letting patients know when it is cheaper to pay cash for prescriptions.

Rep. Thomas Massie (R-KY) spoke about how the patent system incentivizes research and investment into lifesaving drugs and devices, but acknowledged that patents were not intended to last forever. Dr. Roy said the U.S. government regulates biosimilars differently than other drugs and as a result has fewer and more expensive biosimilars on the market compared to Europe.

Rep. Gerry Connolly (D-VA) spoke about the need to look into the ethics behind raising drug prices solely to maximize profit and the impact on public health. He asked why drug prices are different in other countries. Dr. Kesselheim said other countries negotiate directly with manufacturers and use evidence to value what drugs are worth. When asked why insulin is so high, he responded that companies are changing the delivery system, which enables them to retain exclusivity through new patents.

Rep. Mark Meadows (R-NC) asked what the panel thought of the Administration's reforms to Medicare Part B. Dr. Roy said changing the 6% administration fee would align physicians' financial interests with those of the patients to lower priced drugs. His organization also concluded the countries cited by the administration upon which to peg prices were the wrong ones and noted Switzerland, the Netherlands, and Denmark would be more appropriate due to their more market-based systems. When asked about different prices of drugs by payers, Dr. Anderson said they have different market power and said PBMs play a role in the private system.

Rep. Raja Krishnamoorthi (D-IL) asked about provisions in the US-Mexico-Canada trade deal that would increase the period of exclusivity for new biologics. Dr. Georges said the AARP is concerned about the length of exclusivity for drugs, especially for biologics. Dr. Anderson said it's nearly impossible to find all of the patents covering biologic drugs, which makes it much harder for companies to create biosimilar versions.

Rep. Jody Hice (R-GA) asked about the connection between higher drug costs and the ACA. Dr. Roy discussed changes to Medicare Part D that reduced the level of cost-sharing for seniors in the "donut hole," effectively resulting in price increases because of misaligned incentives, and said the ACA required insurance plans to cover certain drugs even when a cheaper generic was available. He said repealing the ACA could lead to lower prescription drug spending, but would likely also increase out-of-pocket costs for families currently covered under the ACA.

Rep. Harley Rouda (D-CA) discussed how some companies are gaming the system to extend exclusivity and price gouge. Dr. Kesselheim agreed and said some companies reformulate versions of their products to get new patents and pull old versions off the market to eliminate competition. He also discussed how companies buy-off other companies challenging the new patents and suggested it should be more difficult to patent incrementally changed products.

Rep. James Comer (R-KY) asked about the impact of a single payer system on prescription drug prices. Dr. Roy said he supports universal coverage through private insurance due to the success of Medicare Part D in keeping costs down for enrollees and taxpayers. Dr. Anderson said it would be difficult for HHS to negotiate prices for every drug covered by a single payer system. When asked about the impact of research and development under such a system, Dr. Roy that many clinical trials run by the NIH and by academic medical centers lack the rigor to get new drugs FDA approved.

Rep. Katie Hill (D-CA) asked about potential harm from direct to consumer advertising. Ms. Georges emphasized the importance of price transparency in advertising. When asked about payments from pharma to physicians, Dr. Kesselheim said that research shows this drives increased prescribing patterns. Dr. Anderson added there is no evidence of a correlation between the price of a drug and the amount spent by a company on R&D.

Rep. Bob Gibbs (R-OH) expressed concern that R&D will become disincentivized. Dr. Anderson said that the government invests in basic research and companies buy promising research rather than investing in it themselves, but that the real problem is gaming of the system through patent protections. Regarding orphan drugs, Dr. Anderson said six of the top ten drugs have orphan titles but are used much more broadly. He added that REMS abuses are preventing generic drug companies from getting access to product in order to create generic versions.

Rep. Debbie Wasserman Schultz (D-FL) asked how drug companies justify insulin price increases when they have made minimal changes to the drug. Dr. Anderson said that there is no real justification.

Rep. Glen Grothman (R-WI) noted that the FDA has approved increasing numbers of generics each year. Dr. Anderson said the important next step is to place them on PBM formularies, also adding that there are only a few biosimilars on the market compared to around 50 in Europe. He said the FDA has approved a handful but that many are stuck in legal battles over patents, also warning that because biosimilars are not completely interchangeable they may not have as big of an impact on driving down prices.

Rep. John Sarbanes (D-MD) discussed the pharmaceutical industry's lobbying power and said it's not helping people afford their medicine. Ms. Worsham asked that Congress help with affordability and driving transparency around costs.

Rep. Chip Roy (R-TX) accused the AARP for opposing past health care bills due to royalties it earns on Medigap coverage and said the AARP doesn't spend enough of its money on ensuring people are fully covered. Ms. Georges said they opposed bills that included age taxes on the elderly and added that the AARP's finances are public information.

Rep. Peter Welch (D-VT) discussed the need to stop patent evergreening, the exploitation of orphan drug protections, and preventing competitors from accessing product samples for the creation of generics. He asked about the impact of price negotiations on the size of a formulary. Dr. Anderson said VA formularies are negotiated between the government and manufacturers, whereas Medicare Part D formularies use PBMs and are half as large. He said the VA is proof that negotiation does not lead to limited access.

Rep. Mark DeSaulnier (D-CA) said the pharmaceutical industry has shifted from being physician-run toward being run by venture capitalists that focus on marketing and profit. Dr. Kesselheim said patients and providers both need transparency on drug implications as well as cost.

Rep. Ro Khanna (D-CA) said every drug approved by the FDA in recent years started out with an NIH investment. Dr. Kesselheim agreed that the US government plays an important role, noting that pharmaceutical manufacturers rely on academic medical institutions for basic research functions but do the important job of translating the initial research into an actual medication.

Rep. Alexandria Ocasio-Cortez (D-NY) asked about the federal government's role in research. Dr. Kesselheim said the government acts as an early investor but there is no return on investment made back to the government. He also said the VA pays about 31% less than Medicare for certain drugs and they get lower prices through negotiation and the ability to exclude drugs on its formulary. Dr. Anderson said he supports the use of reference pricing for determining Medicare drug prices while Dr. Kesselheim disagreed and argued that the government determine a reasonable price and negotiate with the drug companies directly. Ms. Georges added that AARP supports allowing HHS to negotiate with the manufacturers.

Rep. Ayanna Pressley (D-MA) asked about the impact of drug price increases on providers. Dr. Anderson said Maryland limits hospitals to 3% spending growth every year and hospitals are forced to make other cuts when drug prices increase more than that, such as letting nurses go. Ms. Georges added that treatment is hindered when people ration or share their medications.

Rep. Rashida Tlaib (D-MI) asked what is leading to this behavior by drug companies. Dr. Anderson said they are driven by maintaining market share which leads them to want to retain their patents. Dr. Kesselheim suggested health systems look at using older versions of medications that may have the same clinical outcomes, such as a study where a hospital used older versions of insulin with the same effect.

Rep. Carolyn Maloney (D-NY) asked why some pharmacies do not sell generic versions of insulin despite provider and patient demand. Dr. Kesselheim said it is not being produced as much and the government could step in to change this. Dr. Anderson discussed CivicaRx, a new nonprofit drug company comprised of a consortium of hospitals that plan to make generic versions of drugs such as insulin.

Rep. Jim Jordan (R-OH) spoke again about how the ACA is a major cause of increased health spending, and Dr. Anderson said the major trend is an increase in private sector prices, to which Rep. Jordan disagreed. Rep. Jordan continued to make the point that the ACA and the public sector are driving the increase in health care costs across the board.

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