May 03, 2016

Time to Address Overpriced Prescription Drugs

By Richard Fiesta, Executive Director, Alliance for Retired Americans

Congress has talked a lot about the problem of overpriced prescription drugs. However, action to make prices affordable seems to be in short supply on Capitol Hill.

Valeant Pharmaceuticals International Inc.’s outgoing chief executive, Mike Pearson, and billionaire investor Bill Ackman offered long-overdue apologies and concessions to lawmakers last Wednesday at a Senate Special Committee on Aging hearing on the price of drugs. The company was harshly criticized in the media and at the hearing for its business practices – and rightfully so.

Mike Pearson

Ackman, whose hedge fund is now a major shareholder in the drugmaker, and Pearson both said it was a mistake to jack up the prices of drugs after buying them – but only long after the strategy provided their firms with enormous profits.

Lawmakers in the House and Senate have chastized Valeant over the cost of two heart drugs, Isuprel and Nitropress, that Valeant acquired and soon after raised their prices by 525% and 212%, respectively.

Valeant is but one company with overpriced prescription drugs.

A New York Times piece last week noted that despite the withering criticism of many members of Congress, drug prices continue to rise. Last month, Johnson & Johnson raised its prices on several top-selling products, including the leukemia drug Imbruvica, the diabetes treatment Invokana, and Xarelto, an anti-clotting drug, according to a research note published last week by an analyst for Leerink, an investment bank.

The government should use its bulk purchasing power to obtain the best possible price for pharmaceuticals under Medicare, as is currently done for veterans and low-income Medicaid beneficiaries.

A 2015 study released by the Inspector General of the Department of Health and Human Services examined 200 brand-name drugs and found that they were at least twice as expensive on average through Medicare than Medicaid.

The Medicare Modernization Act of 2003, which created the Part D drug program, explicitly prohibits the government from negotiating lower prices under Medicare. Furthermore, the law transferred the drug benefits of dual-eligibles – individuals who qualify for Medicare and Medicaid – to Medicare.

In response to higher drug spending growth and heightened attention to drug prices, some policymakers are proposing to allow Medicare to negotiate the price of prescription drugs. This proposal is supported by 83 percent of the public, including a majority of both Democrats (93%) and Republicans (74%).

Under Medicare, dual-eligibles no longer qualify for discounts. This forces the government to pay higher drug prices for these beneficiaries. The law produced windfalls worth billions of dollars for the pharmaceutical industry. Senator Bill Nelson (D-FL) and Representative Kathy Castor (D-FL) have filed bills, S. 1083 and H.R. 2005, that would require drugmakers to provide Medicare the same rebates as Medicaid. The Congressional Budget Office estimates the proposal would address overpriced prescription drugs by saving $121 billion over 10 years.

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