Lawmakers Introduce Bills to Reduce Drug Costs

Tim Casey

With prescription drug prices rising and governments facing dire financial situations, elected officials have recently proposed legislation that would lower drug prices. However, the plans are not always popular with the pharmaceutical industry, leading to acrimony between the constituencies over the validity of each other’s claims.

Sen. Herb Kohl (D-WI), chairman of the Special Committee on Aging, has been at the forefront of attempts to lower prescription costs. In October, he introduced the bipartisan Prescription Drug Cost Reduction Act that would require drug manufacturers to provide Medicare Part B beneficiaries with the same rebates Medicaid recipients receive.

Sens. Kohl and Chuck Grassley (R-NY) introduced the Preserve Access to Affordable Generic Drugs Act bill last January aimed at banning pay-for-delay deals, in which generic drug manufacturers receive compensation (typically cash or marketing rights) from brand drug makers. In turn, generic companies agree to delay the introduction of their cheaper products. Agreements that include payments delay entry of generics into the marketplace by an average of 17 months more than those that do not include compensation, according to a Federal Trade Commission (FTC) report released in October.

The report revealed there were 28 potential pay-for-delay deals among the 156 patent settlements filed in fiscal year 2011, which ended on September 30. According to the FTC, the negotiations involved 25 products with combined sales of >$9 billion. In fiscal year 2010, there were 31 deals, the most since the FTC began tracking data in 2003. The FTC wants to ban the practice and argues that such agreements lead to higher drug costs for consumers and government because generics are typically between 20% and 90% cheaper than their brand versions.

The Generic Pharmaceutical Association (GPhA), a trade group, has consistently defended the practice of pay for delay and settlements between brand and generic manufacturers. The organization claims data shows that generic companies win only 48% of cases involving patent disputes and says the settlements actually help generics come on the market sooner.

In response to the FTC’s report, the GPhA released a statement disputing the findings. The group said that 16 of the 22 first-time generics in 2011 would enter the market before the brand patent expired. It also cited a September 2011 analysis from the IMS Institute for Healthcare Informatics and IMS Health that found generics saved consumers and the health system $931 billion between 2001 and 2010.

“The FTC’s flawed policy on banning patent settlements would be costly for consumers, the healthcare system, and state and federal governments because it would result in delaying access to lower cost generic medicines,” said Ralph G. Neas, GPhA president and chief executive officer. “Indeed, the FTC continues to miss the fundamental point: Patent settlements speed up the availability of less costly generic drugs and save money for everyone; banning settlements and forcing drug makers to continue lengthy litigation with uncertain outcomes will be costly.”

The GPhA also disputed a November Congressional Budget Office (CBO) estimate that the Preserve Access to Affordable Generic Drugs Act would save taxpayers $4.785 billion between fiscal years 2012 and 2021. The CBO claimed the bill would reduce total drug expenditures in the United States by approximately $11 billion in the next 10 years.

“The CBO’s revised score is just the latest in a long line of faulty savings estimates on this legislation,” Mr. Neas said in a statement. “The bottom line is that settlements have never delayed generic market entry beyond the date of the patent expiration, and instead have proven to be pro-competitive and pro-consumer by making lower-cost generics available months and even years before patents have expired.”

In March 2010, the Special Committee on Aging held a hearing titled Seniors Feeling the Squeeze: Rising Drug Prices and the Part D Program, in which Sen. Kohl claimed people in the United States paid an average of double what other developed countries paid for prescription medications. Afterward, the committee sent letters to AstraZeneca, GlaxoSmithKline, Eli Lilly, Novartis, Pfizer, and Sanofi asking about the discrepancies.

According to the committee, the pharmaceutical companies said countries outside the United States implement price controls and formulary restrictions, while the United States has a market-based model. They added that regulatory environments differ significantly between the countries, too, so it is difficult to make accurate price comparisons. The drug manufacturers also said they received between 0% and 1% of their research funding from the US government.

The committee held another hearing last July titled A Prescription for Savings: Reducing Drug Costs to Medicare, in which Sen. Kohl convened a group of policy and pharmaceutical experts to discuss the issue further. Between 2000 and 2009, drug prices increased 44% more than inflation, according to data from the Kaiser Family Foundation that Sen. Kohl cited.

They proposed 9 policies to curb the increasing costs, including limiting pay-for-delay settlements, allowing Medicare to directly negotiate drug prices in Part D, and reducing incentives for doctors to prescribe brand drugs instead of the generic version.

“Rising healthcare costs are threatening our economy,” Sen. Kohl said at the hearing. “While [the Patient Protection and Affordable Care Act] was a start, it certainly has not done enough to address costs at this point. We need to do more, and we need to look at every option as we seek to provide quality care for all Americans at a cost we can afford.”