Americans are concerned about the high price of drugs. The pharmaceutical industry has become a system rife with gaming. Profits are regularly prioritized over patients. Laws meant to encourage innovation, recoup private investment, and ensure patient access are too often manipulated to suppress competition and increase prices. These unscrupulous industry practices can take many forms, but the result is always the same: Drug prices increase in a captive market. Gimmicks and price increases are costly to patients and taxpayers. No conservative should defend the status quo.
That status quo frequently involves pharmaceutical companies’ making minor changes to existing drugs to gain additional market exclusivity, which keeps prices high. In the case of improvements to medicines that are innovations, this is justified. However, it appears that exclusivities are being granted where it is not justified.
The drug Duexis is an example of this. Duexis is a combination of famotidine (trade name Pepcid) and ibuprofen (Motrin). A 90-day supply of over-the-counter Pepcid costs approximately $20, and 100 tablets of Motrin cost approximately $12. Yet when these two are combined into the drug Duexis, the price rises to approximately $2,600 for a 90-day supply. Congress must ensure that regulators of the industry use the proper metrics when determining what constitutes innovation.
The status quo presents too many opportunities for manufacturers to game the system. Until Congress acted at the end of September, manufacturers could introduce “authorized generics” — drugs that are produced and sold by the same manufacturer as the brand-name drug — to the market in a way that reduced the amount of money they were required to rebate back to Medicaid programs. This practice ripped off taxpayers and kept prices artificially high. In the funding bill passed at the end of September, Congress included a portion of the Prescription Drug Pricing Reduction Act (PDPRA) to end this practice.
The trick is to rein in gimmicks and abuses while maintaining incentives for true innovation that advances science and leads to discovery of new cures. There must be a system that facilitates breakthrough treatments and miracle cures, but it needs to be sustainable for patients and taxpayers.
PDPRA, which passed the Senate Finance Committee in July, begins to restore the balance between incentivizing new drugs and returning true market forces to protect the interests of patients and taxpayers. Too often we see the same drug receive year-after-year, double-digit price increases without the justification of innovation, shortages, or other market forces. No matter how high the cost arbitrarily increases, Medicare pays the bill. By requiring manufacturers to rebate the increased amount by which drugs covered under Medicare Part D exceed the rate of inflation, we protect taxpayers from bad actors exploiting Medicare and taxpayers. Manufacturers can still set the price at the amount they want, but the taxpayer will not automatically pick up the tab.
PDPRA makes important changes to the structure of the Part D program. Pharmacy Benefit Managers (PBMs), used by Part D drug plans, should be incentivized to control costs for patients. But under the current system, when the cost of a medication rises above what is called the catastrophic level, the patient remains liable for 5 percent of the list price and the taxpayers for 80 percent. Under this provision, it helps the PBM for the patient to go into the catastrophic level because that offloads their obligation to the patient and to the government. PDPRA ends this negative incentive by changing how the Part D program is structured, so PBMs have more incentive to negotiate the best deal.
By eliminating the 5 percent patient contribution and capping out-of-pocket spending for those with high costs, PDPRA gives beneficiaries peace of mind and confidence that they can afford the medication they need.
Fiscal conservatives concerned about the deficit and debt should support PDPRA. This legislation cracks down on gimmicks, promotes competition, allows continued innovation, and sheds more light on an opaque system. It does all this while lowering costs for Medicare and Medicaid and reducing spending on taxpayer-funded programs by over $100 billion. PDPRA has the support of Republicans and Democrats, meaning that it is a bill that can cut through partisan politics and be signed into law.
Americans are demanding relief from high drug prices. PDPRA is a major step to providing that relief.
Chuck Grassley is the senior U.S. senator from Iowa. Bill Cassidy is the senior U.S. senator from Louisiana.