The House Ways and Means Health Subcommittee held a hearing on March 7 2019, entitled, "Promoting Competition to Lower Medicare Drug Prices." Subcommittee Chairman Lloyd Doggett (D-TX) opened the hearing by discussing efforts to spur competition and lower Medicare drug prices by ending anti-competitive practices such as "pay-for-delay" settlements and using Medicare bargaining power in a way similar to the Veterans Administration (VA). Subcommittee Ranking Member Devin Nunes (R-CA) voiced Republican opposition to government negotiation and the concept of competitive licensing, which would allow the government to issue a competitive license and bring competition to the market if a manufacturer refuses to negotiate on price. Throughout the hearing, subcommittee members questioned the panel on impediments to lowering Medicare drug prices through competition and suggested improvements for driving down prices.

The panelists agreed on the need to address manufacturers' practices that create barriers to entry and distort incentives, exploring pieces of legislation that tamp down on these activities, such as the CREATES Act. They also agreed, in theory, on the need to increase transparency and drive towards paying for value and encouraging innovation. Dr. Douglas Holtz-Eakin from the American Action Forum, however, disagreed with others on the panel about the issues of Medicare negotiation and competitive licensing. While others expressed support for the idea and noted that the VA has done well through negotiation and the use of a formulary, Dr. Holtz-Eakin expressed his concern with price fixing and said that the popularity and success of the Part D program has been driven by competition and choice in Part D. While several committee members equated competitive licensing to theft, Ms. Kapczynski noted the previous use during the anthrax scare, as well as in sectors such as the military. Democrats on the committee also stressed the role of the National Institutes of Health (NIH) and thus taxpayers in funding innovation, and all panelists agreed and noted support for programs to spur additional research and development (R&D). They also discussed the Administration's rebate proposal, trade policies that include protections for biologic drugs, tax benefits for direct-to-consumer advertisements, and more.

• For more information, click here.

Opening statements

Subcommittee Chairman Lloyd Doggett (D-TX): "Today, we will have a special focus on the role that competition can play in bringing down soaring prices and on the multiple barriers, deliberately constructed by the industry, to prevent competition from working effectively. One such solution is ending so-called pay-for-delay settlements where brand-name and generic manufacturers agree to anticompetitive deals that keep competition off the market. I have introduced legislation, HR 1344, the Competitive DRUGS Act, to prohibit these deals and impose tax penalties on companies that engage in this behavior … I believe that the most important of those measures is to use bargaining power to lower prices for those who rely on Medicare, much the same way that the Veteran's Administration has done for years on behalf of our veterans … Despite its immense lobbying power, despite government-funded research, despite monopoly profits, Big Pharma, I believe, has actually not done a very good job on innovating and providing the medications we need. It's seldom worried with a competitor, and so monopolies and oligopolies are not known for their innovative spirit. They're not known for that quality in any industry. Over the last decade, 74% of all pharmaceutical patent applications were not for new innovative cures, but were for modifying existing drugs, which often took the form of what's referred to as 'evergreening' simply to protect monopoly pricing, not to provide new drugs … And taxpayers have been funding a significant amount of this research. From 2010 to 2016, every single newly approved drug relied on taxpayer-funded research. The taxpayer pays for the research, the government approves the monopoly, and unlike other modern countries, the pharmaceutical company faces little or no restraint on the prices that it charges." Full statement.

Subcommittee Ranking Member Devin Nunes (R-CA): Ranking Member Nunes spoke about the committee's earlier promise to move forward in a bipartisan manner in addressing the issue of high drug prices, cautioning that some ideas advocated on the other side of the aisle amount to government overreach. In particular, he noted his concern over the proposed "confiscation" of intellectual property when a manufacturer rejects negotiation by a government entity, saying this behavior is best left to "socialist regimes." He strongly asserted that the Republicans oppose efforts to "control and confiscate" and want to instead work to ensure Americans have more options — not less — and that the pipeline of cures continue. He added that, while there is no silver bullet solution, he wants to answer three questions — why drugs in the US are the most costly, why patients are on the hook for higher prices, and why certain patients (e.g., cancer patients receiving chemotherapy) pay more than three times the cost of drugs based on the location in which they are received.

Witness testimony

Robin Feldman, Director of the Institute for Innovation Law, UC Hastings School of Law: "First and foremost, close the tax loopholes that allow the drug companies to essentially deduct the costs of lobbying and other self-serving and strategic behaviors … To minimize the ability of a brand-name drug company to keep refreshing a drug's protection and using its market power to restrict competitors from the marketplace, implement a 'one and done' principle. With one-and-done, a drug would receive one period of exclusivity, and only one, under the Hatch-Waxman and Biologic systems … To begin restoring sanity to pharmaceutical markets, information must flow. That includes pricing information. All aspects of the deals, including rebates and financial benefits in any form, should be transparent, at a minimum, to the payors and the government … Through the addition of a few contractual provisions in grant agreements, the NIH and other government funding bodies could improve consumer choice and access to the drugs developed with such publicly funded research … There is no silver bullet for solving the crisis of soaring drug prices. Nevertheless, tax loophole reform, one-and-done, transparency measures, and the power of the purse (e.g., improvements to the NIH grant process) could help the pharmaceutical marketplace return to health. Our challenge as a society is to restore the balance provided by the patent and regulatory system itself, in which the inventor of a truly innovative product receives a limited period of time in which to attempt to garner a return, after which open competition reigns supreme." Testimony

Ameet Sarpatwari, Assistant Director of the Program on Regulation, Therapeutics, and Law (PORTAL), Harvard Medical School: "The fact that no CEO in last week's Senate Finance Committee hearing would commit to lowering list prices were Congress to prohibit rebates should give policymakers serious pause. Rather than seeking to eliminate PBMs, a better solution would be to set reasonable rules for their practices so that they can continue to contribute positive inputs into the system, such as promoting adherence and use of generics … Another promising avenue for reform would be to enhance the negotiating ability of public payers. Importantly, it is the ability of the Veterans Administration to set its own formulary and not cover drugs that do not offer patients added benefit that gives it greater leverage than Medicare in securing reasonable prices … Were these requirements to remain in place, greater use of value-based pricing — arriving at drugs' prices based on rigorous, transparent, and replicable analysis of their benefits — would be helpful … In pursuing value-based pricing, however, it is critical to distinguish approaches that claim its mantle but do not actually tie prices to clinical benefits … A multi-pronged approach can help combat strategies to delay or limit generic and biosimilar competition. Legislation is needed to tackle persisting problems with restricted distribution." Testimony

Amy Kapczynski, Co-Director of the Global Health Justice Partnership, Yale Law School: "First, the central policy problem in this area is that the government gives exclusive rights over drugs, and these are easily abused. Without policies to contain monopoly pricing power, the drug pricing problem cannot be solved, and indeed is poised to grow. Second, the most promising solutions are those that permit constraint on prices while also rewarding valuable innovation. The most important such proposals are those that increase the public's negotiating power to ensure fair prices. These powers must be accompanied by clear criteria to ensure that the prices agreed to are fair and will require important decisions about the backstop that will help ensure negotiations succeed. Although they will likely have less impact, Congress should also implement measures to improve the competitive environment, such as laws to prevent pay-for-delay deals. Finally, Congress should also establish new programs to support R&D, to give us better information about how to use the medicines we have, and to explore new innovation mechanisms that can improve on our current approach to R&D … The most promising solutions permit constraint on prices while also rewarding valuable innovation. With this in mind, the highest priority for Congress should be legislation that can ensure fair prices in both the public and private sectors, while also ensuring adequate returns to companies. Also important are a series of measures that can improve competition in pharmaceutical markets, and that can begin to explore alternative R&D structures as well as compensate for gaps in our current R&D system." Full Testimony

Frederick Isasi, Executive Director Families USA: "We all know that the health care financing system is complicated, and prescription drug pricing doubly so. Yet, at its core, the fundamental problem driving up prescription drug prices is astonishingly simple: flagrant abuses of the federal patent and market exclusivity laws by pharmaceutical manufacturers. Congress has sole authority over both these sections of federal law. Frankly, Congress created the rules that drug manufacturers have so blatantly abused, and it alone has the power to change those rules … One option policy makers have considered to reduce drug costs is to allow Medicare to negotiate the price it pays for pharmaceuticals. Families USA believes such a policy is a very important step towards addressing the rapidly-growing crisis around prescription drug costs. Let me be clear: Medicare drug pricing negotiation does not address the heart of the drug pricing problem, i.e., the abuses of existing patent laws and market exclusivity; but is critically important nonetheless … Families USA strongly supports Chairman Doggett's legislation, the Medicare Negotiation and Competitive Licensing Act. The bill would allow Medicare to join other payers in negotiating the price it pays for prescription drugs. If a manufacturer refuses to negotiate in good faith, the Centers for Medicare and Medicaid Services (CMS) could issue a competitive license on the drug, effectively bringing competition into the market by allowing a generic manufacturer to produce the drug." Full Testimony

Douglas Holtz-Eakin, American Action Forum: "The term 'rising drug costs' is riddled with ambiguity; list prices, net prices, out-of-pocket prices, development costs, and total spending on drugs have displayed very different patterns over time … There is rising demand for pharmacological therapies driven by an aging population, chronic disease, and the development of specialty drugs … In the face of rising demand, the only way to reduce prices efficiently is to increase supply and heighten competition … In thinking about policy actions, it is important first to recognize existing policies that exacerbate price increases. Unfortunately, several popular proposals avoid this step and are unlikely to be beneficial … While the US market has long been an environment where manufacturers are willing to invest in necessary research and development in hopes of a financial return later, more and more government regulations and taxes are reducing that incentive. Programs such as the Medicaid Drug Rebate Program and the 340B drug discount program interfere with the market incentives and shift, rather than reduce, the high cost of drug development. A more effective solution to high prices is greater competition in the supply and greater financial incentive for payers and manufacturers to keep costs and prices down." Full Testimony

Q&A

Rep. Mike Thompson (D-CA) noted the many proposals to drive down prescription drug prices and said he wants to focus on those that are transparent and do not stifle innovation or access. He asked about direct and indirect remuneration fees imposed on pharmacies in rural and underserved areas and how to improve that issue. Ms. Feldman said that this is a terrible problem in rural areas as independent pharmacists can be allies for consumers but these PBM activities can put them out of business. She suggested they focus on transparency in the deals made. When asked about the impact of rebate and pay-for-delay deals, Mr. Sarpatwari said it is a particular issue for new innovative biologic drugs and potential biosimilar competitors, as the deals benefit the parties involved but extend patents artificially. He suggested taking up legislation that would ensure these deals are publicly available to see if they are anticompetitive. He added that simply removing rebates without replacing them would be ineffective.

Rep. Devin Nunes (R-CA) asked about the UK's experience with Spinraza, a spinal and muscular atrophy drug, noting physicians' frustration that the drug was out of reach for patients. He asked if this could happen if the US moved to a single formulary under Part D. Dr. Hotz-Eakin said it is a real possibility, as seniors currently have the option of 27 different plans and moving to a single formulary could cause some drugs to not be covered. He said manufacturers have no recourse under compulsory licensing if they think the rate is not adequate, adding that other countries don't have access to more recent innovations.

Rep. Ron Kind (D-WI) said that pharma needs to step up to make sure patients have access to affordable, effective, drugs but that we also need to ensure it does not stifle innovation. Ms. Kapczynski said we should pay well for drugs that work well, but the system now incentivizes tweaking drugs rather than developing new drugs with high value. She said part of the problem is that Part D doesn't have negotiating authority. Ms. Feldman agreed that secondary patents distort incentives. Regarding high amounts of money spent in advertising, Mr. Isasi said putting prices in ads is a small step in the right direction.

Rep. Vern Buchanan (R-FL) spoke about the need for more transparency and competition. Dr. Hotz-Eakin said the biggest issues are with sole-source generics — which he said is a good place to focus, as it is not the competition we want — and with on-patent specialty drugs, where he noted there is not much else to do other than expediting access to biosimilars. When asked about getting to reasonable compensation for Part D drugs if the government were to negotiate, he said it would be very complicated to come up with a number and likely require many years of litigation. When asked why the government should not negotiate, he said need two things were needed to be effective — volume and a formulary. While HHS has the necessary volume, he said, it does not have a formulary. He said creating a national formulary would lead to access issues.

Rep. Brian Higgins (D-NY) discussed how pharmaceutical ads target consumers based on feeling and not medical advertising, and that the US is one of the only countries to allow this. He then discussed how the federal government is the largest purchaser of health care and yet it fails to use market leverage to drive down costs. He noted that 47 Attorneys General are suing pharmaceutical companies due to alleged price fixing. Ms. Feldman said that they could leverage this bargaining power in a way similar to the VA and it likely would reduce costs. Dr. Sarptwari agreed that it would do so and likely have little impact on meaningful innovation. Mr. Kapczynski added that the VA achieves cost saving of around 40% and other countries can also give the US an idea of savings potential.

Rep. Adrian Smith (R-NE) said competition in Medicare Part D has led to its success, noting that it is already heavily regulated. He said that a single formulary is not the answer, but rather something that is friendly to both the consumer and the scientific community. When asked to consider a drug that has already recovered its cost of R&D, but still increasing its price, Dr. Holtz-Eakin said this is a concern due to inadequate supply and abuse of market power. While you can't force people into the market, he said, you should encourage entry and there is a role there for competition policy. Ms. Feldman added that there needs to be an element of transparency in addition to competition, and Ms. Kapczynski added that pile on patents hinder competition and the government should use its leverage when this is being abused.

Rep. Terri Sewell (D-AL) discussed her constituency, which has a high rate of chronic disease. She noted her interest in value-based proposals that pay based on the value drugs provide. Dr. Sarpatwari said care needs to be taken with outcomes-based pricing, which is not tied to value and could be gamed depending on the initial price that is set. Rep. Sewell added her interest in medication access and non-adherence issues.

Rep. Kenny Marchant (R-TX) said that the main issue he hears is about out-of-pocket costs, not about discoveries or overall pricing. Ms. Feldman agreed that the out-of-pocket cost is what matters most to patients, flagging the issue of rebate deals where patients are charged higher for generics and don't see savings from negotiated rebates. Dr. Sarpatwari discussed the issue with other costs throughout the system such as high premiums, noting that systemic costs need to be addressed. Dr. Holtz-Eakin said the administration's proposed rebate rule would pass savings onto patients, adding that they should address absolute out-of-pocket costs and eliminate the coverage gap. Mr. Isasi said the biggest issue is making sure they are charging a reasonable price, adding that the Part D program was designed without bargaining power but it has worked well because there is generic competition.

Rep. Dwight Evans (D-PA) asked about drug pricing reforms under NAFTA. Ms. Feldman said the regional agreements have sections regarding biologic drugs that will harm consumers. Ms. Kapczynski added that new protections would guarantee biologic drug exclusivity for 10 years, which is a concern. Dr. Sarpatwari said there is no evidence prices would drop in the US if they were increased abroad. Dr. Holtz-Eakin said comparable protections should be provided across the world. Mr. Isasi noted that, on the state level, it is difficult for doctors to prescribe generic biologics when they come to market.

Rep. George Holding (R-NC) said his constituents all like the Part D program. Dr. Holtz-Eakin agreed the Part D program is a success and said people underestimate the power of negotiation. Regarding the Epipen, he said there are some competitors out there but they have not managed to make an impact in the market, and that it is something worth looking at.

Rep. Tom Reed (R-NY) asked the industry to come to the table to be a part of the solution, adding that the solution lies in market pressure to bring prices down. He asked who would stay in the game to innovate if it's within a system that can take a company's intellectual property if it doesn't accept a set price. Dr. Holtz-Eakin agreed that stripping property rights isn't the solution. Regarding ways to drive down out-of-pocket prices, he said that transparency is helpful, including knowing the current price of a drug when a prescription is written.

Rep. Earl Blumenauer (D-OR) said the current system is far from the free market, given the exclusive rights and monopolies that the federal government allows. He asked what prevents someone from going back to the original insulin and entering the market. Ms. Feldman said you could make those drugs but you can't get them to patients if plans won't pick them up due to deals they've made. Dr. Sarpatwari added that there is marketing to physicians on top of direct-to-consumer advertising. Rep. Blumenauer said they should dive into debate and really explore what the free market looks like in this context.

Rep. Bradley Schneider (D-IL) said that diabetes makes up $1 out of every $4 spent in the US health care system, adding that insulin spending increased dramatically. Mr. Isasi agreed that there is no real competition for insulin due to slight patent tweaks, with some insulin increasing 300% over 10 years. When asked about Eli Lilly's announcement regarding an authorized generic, Dr. Sarpatwari said they should be worried about what this means because the discount is still a drop in the bucket and that authorized generics lead to more profits for these companies. Dr. Holtz-Eakin said introducing competition keeps the pressure up.

Rep. Jimmy Gomez (D-CA) noted that three companies were sued in 1941 for price gouging, saying it is not a new issue and we shouldn't be here 70 years down the road still debating this issue. Ms. Feldman said patent protections should be "one and done," saying that there should be a period of protection but when it ends, it ends. When asked about distinguishing from a genuine innovation, she said to let the drug company decide which patent it uses. Regarding list price hikes, Ms. Kapczynski agreed there should be specific price hike legislation.

Rep. Steven Horsford (R-NV) noted the Nevada state legislature took steps to require increased drug price transparency, including disclosures of rebates and funding. He asked about increased transparency and making sure patients are at the center of the debate. Ms. Feldman said it sounds like what she would recommend on the national level, and that the closer we are to a free and fair market the better we'll be. When asked about drug companies claiming administration and marketing costs are proprietary information, Ms. Feldman said she finds it puzzling and it should be open.

Rep. Mike Kelly (R-PA) expressed his concerns about compulsory licensing, saying that nothing drives improved products more than competition and we can't get into a space where we're setting prices. Dr. Holtz-Eakin added that you can't determine true value without incorporating the beneficiary, saying that we need to leverage market forces through mechanisms that increase transparency, such as the proposed rebate rule. Ms. Feldman said we need the market to function in a transparent manner and right now consumers are flying blind. Ms. Kapczynski said that compulsory licensing is not "theft" as some on the committee called it, noting that Alex Azar did it during the anthrax crisis at HHS when Bayer was trying to gouge the government on price, using the laws that existed to do so.

Rep. Tom Rice (R-SC) said that the government took control of the health insurance markets in 2014 in an effort to drive competition but the exact opposite happened, so the answer is to move more toward a free market and not toward more government interference. Ms. Kapczynski noted that the US pharmaceutical industry is so innovative in a large part because of the investment on the government side and that there are ways to tighten standards so we are not issuing more patents for trivial innovations. Rep. Rice asked for specific changes the witnesses would want to see in the system in terms of these patents. Dr. Holtz-Eakin discussed the tradeoffs between engendering innovation and limiting high prices, saying that we must find a middle ground. When asked how to fix the problem where drugs are not patent protected but no one wants to make it, Mr. Isasi said we need to change the incentives to encourage the production of more needed drugs, such as improved antibiotics.

Rep. Lloyd Doggett (D-TX) wrapped up the hearing by saying he was encouraged by the bipartisan interest but concerned about a path forward. He noted that he wants President Trump to follow candidate Trump in terms of his promises around drug prices. He said that Republicans do not offer an alternative to negotiation despite it working at the VA and said while they call competitive licensing "theft," it has been used many times. Ms. Kapczynski agreed it is used in many areas including the military, such as for bullets and passport scanners, noting that it has existed in law since the 1940s. When asked about his negotiation and competitive licensing bill, Dr. Sarpatwari said it does a good job of rewarding companies for transformative innovation and demonstrating comparative effectiveness and safety. Rep. Doggett continued to discuss a GAO report that found only 13% of new drug approvals were actually innovative drugs. Dr. Sarpatwari said it is a struggle to keep innovating but that the industry has sustained itself through price increases on existing drugs, with 60% of profits coming from price hikes.

———————————————