Senate committee works to understand balance between drug innovation, affordability

Drug pricing is a complex system in the United States, and costs vary significantly between different payers and consumers for a number of reasons, including rebates and discounts offered by manufacturers, drug patents, agreements with insurers, and changes from volume- to value-based payment systems. In a hearing before the U.S. Senate Committee on Health, Education, Labor & Pensions titled “The Cost of Prescription Drugs: How the Drug Delivery System Affects What Patients Pay,” experts testified about who pays for prescription drugs, and what that money pays for. In his opening statement, Committee Chair Sen. Lamar Alexander (R-Tenn) explained that this is the first of three planned hearings; the second hearing will consider the full drug delivery process and its associated costs, and the third hearing will focus on ensuring patient access to affordable drugs.

Dan Mendelson, President, Avalere Health, said in his testimony that consumer drug prices are “determined jointly by health system design, pharmaceutical company pricing, and decisions by health plans, pharmacy benefit management (PBM) practices, and other transactions involving distributors and pharmacies along the supply chain.” He explained that total costs often include payments for (1) the product; (2) services provided; (3) shipping; (4) rebates; (5) pharmacy reimbursement; and (6) costs associated with PBMs and third-party payers including reimbursement, share of rebates, and contractual obligations. Mendelson noted that most patients pay cost-sharing for prescription drugs based on list price, not net price, because many rebates are not shared directly with consumers. He added that the patient protections included in the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) led to payers increasing deductibles for consumers in order to offer lower monthly premiums. However, he said, the ACA’s cost-sharing reductions have allowed individuals using the health insurance exchange to pay less for drugs; Mendelson reminded committee members that the American Health Care Act (AHCA) (H.R. 1628) in its current form would repeal cost-sharing reductions.

Allan Coukell, Senior Director of Health Programs, Pew Charitable Trusts, testified that net pharmaceutical spending has increased 42 percent since 2006, but two-thirds of that growth has occurred in the past four years. He listed the following limitations on effective drug pricing competition:

  • monopoly pricing for new drugs;
  • lack of competition for some older drugs;
  • misaligned incentives and incomplete information for stakeholders, including payers, providers and patients at many points in the system, and
  • a historical willingness to cover new therapies without ensuring that their clinical benefits justify the price.

Coukell said that the cost of new medicines is rising, and that is largely responsible for increased drug spending—for example, high-cost specialty products, particularly biologics that are not used by many individuals, account for more than 40 percent of drug spending. He suggested that the 12 years of exclusivity granted to biologic manufacturers, particularly when compared with the five years that drug manufacturers get, is excessive.

Paul Howard, Ph. D., Senior Fellow and Director of Health Policy, Manhattan Institute, also spoke about the challenges involved with specialty medicines, such as those that treat hepatitis C, cystic fibrosis, and rheumatoid arthritis. He said noted that the vast majority of prescription drugs are “highly affordable,” and that the “outlook for innovation has never been brighter,” but mentioned the need for increased competition to reduce waste and ineffective care. Howard recommended that Congress “create incentives that reward providers who use medicines (both generic and branded) and technology to deliver care as efficiently as possible, while also empowering patients with the information they need to identify high quality providers.” He suggested changes to the 340B drug discount program, HHS and FDA coordination on safe harbors for innovative contractual arrangements, and broader Medicare, Medicaid, and patient-empowerment reforms.

Gerard Anderson, Ph.D., Professor of Medicine, Johns Hopkins University School of Medicine, also blamed high costs on specialty drugs and chronic conditions, but added that state and federal health care programs cannot afford to continue paying high prices for these expensive drugs for Medicare and Medicaid recipients, and are being forced to make “life or death decisions.” His recommendations are increasing competition and changing policies to increase access to pharmaceuticals, such as including drugs in bundled payments and accountable care organizations (ACOs) while eliminating rebates from PBMs and prescription drug plans. Anderson also recommended cracking down on abuse of orphan drug designations and allowing branded drugs to move to the generic market sooner. He suggested that negotiating drug prices, specifically by a single designated federal agency using existing authority under 28 U.S.C. §1498, and enacting price-gauging legislation.

HELP Committee hears ardent support for next round of user fee agreements

Four witnesses expressed their support of the continuation of FDA user fee agreements before the Senate Committee on Health, Education, Labor, and Pensions (HELP) on April 4, 2017. These user fee agreements cover prescription drugs, biosimilar drugs, generic drugs, and medical devices (PDUFA, BDUFA, GDUFA, and MDUFA, respectively), requiring manufacturers to pay fees that fund the FDA’s approval processes. According to the witnesses, continuing to impose these fees is vital to ensuring the successful development and approval of future therapies.

Testimony

David Gaugh, a senior vice president of the Association for Accessible Medicines (AAM), emphasized the necessity of the partnership between the pharmaceutical industry and the FDA. Although there has been significant growth in the generic and biosimilar industries, he reminded the committee that the FDA is underfunded and depends on the user fees to speed up the approval process. The AAM also believes that the GDUFA program will incentivize competition by reducing the number of FDA review cycles, removing barriers to drug approval for companies and access to therapies for patients.

Scott Whitaker, president and CEO of the Advanced Medical Technology Association (AvaMed), felt the same way about MDUFA. He believes that the decline in the number of medical technology startups and venture capital investment in recent years is due to the length of time to develop devices, seek approval, and enter them into the stream of commerce. Whitaker noted the MDUFA IV agreement builds upon the provisions in the 21st Century Cures Act (Cures Act) to continually improve the efficiency of the approval process while maintaining strict standards for safety and effectiveness.

Cynthia Bens, vice president at Alliance for Aging Research, and Kay Holcombe, senior vice president at Biotechnology Innovation Organization (BIO), also expressed their support for the programs. Bens lauded Congress for allowing patient organizations to participate in the user fee negotiations, and expressed thanks to the FDA for allowing the Alliance to provide feedback throughout the negotiating process. She highlighted strengthening the FDA’s workforce, increased patient-focused drug and device development methods, and advancing clinical trials as positive outcomes from the user fees. Holcomb also stressed the necessity of integrating patient input into the decision-making process, noting that patients are best able to weigh in on the risks and benefits of treatment. Holcombe believes that the new round of user fee agreements will provide better program sustainability and financial transparency, allowing the FDA to better manage personnel, ramp up approval timelines, and develop innovative clinical trial designs.

Senate hearing on individual market goes off-track fast, gets partisan

A Senate committee hearing on how to stabilize the individual health insurance market quickly devolved into a platform to make partisan comments and score political points regarding the proposed repeal and replacement of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). This occurred despite the efforts of the committee chairman to focus the committee on a transition plan for the individual market and the statements of the committee witnesses, which were non-partisan and conciliatory.

The Chairman’s remarks. In his introductory remarks, Sen. Lamar Alexander (R-TN), Chairman of the Senate Committee on Health, Education, Labor & Pensions, expressed his hope that the committee could put aside the partisan talking points and come together to find solutions to ensure the viability of the individual health insurance market during the transition from the ACA. The individual mandate to obtain health insurance was created by section 1510 of the ACA.

Alexander noted that the individual market makes up only 6 percent (18 million beneficiaries nationwide) of the total health insurance market, with only 4 percent covered through the ACA Exchanges. He further noted that some health care plans have pulled out of the Exchanges and many individuals may have only one plan to choose from. He asked the panel and the committee to focus on three questions: (1) Is there really instability in the individual markets? (2) If so, what needs to be done? (3) By what date must it be done?

The Ranking Member’s remarks. Ranking Member Patty Murray’s (D-WA) opening statement showed that she had no intention of following Alexander’s plea for a non-partisan hearing. Instead, she began by stating that while the individual market had always been a problem, the ACA helped to solve that problem, and now the Republican’s plan to repeal the ACA without a concrete plan for replacement is creating chaos in the health care system. She also went outside the individual market focus of the hearing and claimed that Republican policies would cut Medicare and Planned Parenthood. She termed the Trump Administration efforts as “TrumpCare by sabotage” and urged the Republicans to reverse their course and stop repeal of the ACA. She concluded by sarcastically suggesting that you “can’t repair the roof while Republican Party is burning the house down.”

Sen. Tim Scott (R-SC) responded to Sen. Murray’s comments with “the house may be on fire, but it was on fire before we got here.” He was also able to get one witness to concede that the individual market had already been destabilized by specific provisions of the ACA itself, including the essential health benefit requirement, special enrollment periods and extended grace periods that have allowed individuals to game the system, medical loss ratios, and having premiums for young people set higher than the penalties for not having coverage.

The witnesses. The committee witnesses included Julie Mix McPeak, Comissioner of the Tennessee Department of Commerce and Insurance; Marilyn Tavenner, former CMS Administrator and current President and Chief Executive Officer of America’s Health Insurance Plans; Janet Trautwein, Chief Executive Officer of the National Association of Health Underwriters; and Steve Beshear former Democrat Governor of Kentucky from 2007 to 2015.

All of the witnesses were in agreement that the individual health insurance market does not react well to the uncertainty that currently exists. And three of the four witness agreed that the number of plans available are dropping and the premiums are rising.

When asked by Alexander for a deadline for when Congress must act, the witness stated by the end of March at the latest. This, they stated, was because rates must be set by mid-July and plans approved by the various states by August.

McPeak. In her statement, McPeak testified that, “In short, Tennessee’s ACA individual market experience since 2014 has meant fewer marketplace carriers for Tennessee consumers, less competition across the state, and higher priced premiums for available products. In addition, we have seen existing FFM carriers move towards narrower networks, further limiting consumers’ access to providers of their choosing.”

She stated that there are only three ACA carriers in Tennessee, with only one choice in 73 of the 85 counties. In addition, she stated that premium rate increases have ranged from 42 to 62 percent in her state. She did not call for a delay in the repeal of the ACA, but, instead, asked Congress to allow states to tailor health care plans to fit their needs and urged an open and transparent repeal and replace process so that carriers can prepare adequately.

Tavenner. In her statement, Tavenner admitted that parts of the ACA have not worked well. She stressed that certainty in the individual market is essential. She recommended: (1) continuing to provide subsidies such as the advanced premium tax credits and cost-sharing reduction payments in their entirety; and (2) making full federal reinsurance payments for 2016, as this funding is important for plans to effectively cover the needs of high-need patients, including those with chronic conditions.

Tavenner also recommended several policies to help promote a more stable and workable transition for consumers and families, including:

  • Using premium tax credits to encourage younger people to get coverage.
  • Creating incentives for people to keep their coverage through the transition.
  • Beginning in 2017, establish a federally funded, transitional risk pool program would offset some of the costs of serving patients who have the most complex health conditions and need the most care.
  • Eliminating taxes and fees such as the health insurance tax, which will reduce premiums and promote affordability.
  • Effectively verifying the eligibility of those signing up for coverage during special enrollment periods, and shortening the 3-month grace period for non-payment of premiums so that it is better aligned with state laws and regulations (e.g. 30-day period).
  • Protecting people who are eligible for public programs from being inappropriately steered into the commercial insurance market.

Trautwein. Trautwein called for immediate stabilization of the individual market. She attributed the higher cost of individual plans to rules allowing healthy individuals to drop in and out of plans without consequences and allowing special enrollment periods without requiring upfront documentation and allowing inappropriate coaching by enrollers. She recommended:

  • Requiring guaranteed access to individual coverage and with state-level financial backstops for catastrophic risks.
  • Giving pre-existing condition credit for prior individual market coverage to ensure true heath insurance portability from one individual market policy to another.
  • Standardizing state requirements regarding the consideration of pre-existing conditions.
  • Improving federal group-to-individual coverage portability provisions so that people can transition directly from employer coverage to individual coverage without hurdles.
  • Stabilizing individual market rates by requiring more standardization as to how individual market carriers determine pricing.
  • Increasing consumer protections regarding individual market coverage rescissions.
  • Making it easier for employers to help people purchase individual health insurance.
  • Providing federal financial assistance to keep individual health insurance coverage affordable, including enhanced deductibility, subsidies for low-income individuals, and federal financial support for qualified state financial backstop programs.
  • Ensuring that all Americans have health insurance coverage.
  • Allowing state implementation of enhanced consumer protections with a federal fallback enforcement mechanism.

Beshear. In his statement, Beshear gushed about the ACA and what it did to increase the number of people with health coverage in Kentucky. He claimed that his creation of a state exchange and the expansion of Medicaid added 500,000 to the insured roles in Kentucky. He stated that he does not view the ACA as a partisan issue, but rather a tool to address health insurance problems. He believes that the ACA works and that Congress’ challenge is to make it work better.