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Transparency key to making medicines more affordable, experts tell Senate panel

Making prescription drugs more affordable in the U.S. may hinge on whether biopharmaceutical companies can be compelled — either on their own volition or under congressional mandate — to be more transparent, witnesses told lawmakers.

Given drugmakers, insurers and pharmacy benefit managers, or PBMs, so far have shown no interest in volunteering their pricing information, it will likely take a requirement from Congress to make the data public, said Norman Augustine, a former chairman and CEO of Lockheed Martin Corp., who led a special panel convened by the U.S. National Academies of Science, Engineering and Medicine.

Greater pricing transparency from drug manufacturers and other members of the supply chain was one of eight recommendations the National Academies panel said would be necessary to improve the affordability of prescription medicines in the U.S., Augustine told the Senate's Health, Education, Labor and Pensions Committee at a Dec. 12 hearing.

A lack of transparency has made it possible for biopharmaceutical companies, insurers and PBMs to blame each other — something that "takes place a good deal in this arena" — as the main contributors for high and rising drug costs, he told lawmakers.

"If we are going to fix the problem, we have to understand what the problems are," Augustine said. "But the fact is, we don't know with great confidence where the money is going."

When 20% of Medicare dollars are spent on prescription drugs and healthcare makes up 18% of the U.S. gross domestic product, "I don't know how individuals, employers or you all who make the laws to take care of these matters can make intelligent decisions without transparency at any level," said cancer patient David Mitchell, president and founder of the nonprofit advocacy group Patients for Affordable Drugs.

"Markets function with transparency," he told the senators. "In the absence of transparency, bad things happen."

"We believe price transparency, up and down, starting with the setting of the retail price and the justification for it, is so important, and especially if the drug is invented using taxpayer money," Mitchell said. He noted that an analysis published in 2011 in the public policy journal Health Affairs showed that about 50% of all major new breakthrough drugs approved in the U.S. were invented with money provided by the federal government.

Mitchell said it was particularly important for the public to know what is going on with manufacturer rebates negotiated by PBMs and the amounts those entities are pocketing or paying to health plans.

"We don't know what's going on there," he said.

Sen. Rand Paul, R-Ky., said: "It's so complicated nobody understands it. Drug companies are the only ones with the data."

Paul suggested Congress could "mandate transparency or mandate getting rid of rebates or go back to the beginning," before a 1996 court ruling changed the way drugmakers could discount their products.

Legislative action?

Rebates were the focus of attention at a hearing the Senate committee held in October, the panel's chairman, Sen. Lamar Alexander, R-Tenn., noted.

The Dec. 12 hearing was the third and final scheduled session in a series focused on drug pricing held this year by the Senate panel. Alexander held the first hearing in June.

For now, the hearings appear to be simply an opportunity for lawmakers to vent over the high prices Americans pay for their prescription drugs and to hear from various stakeholders on the matter, given Alexander has not disclosed any plans for his committee to work on any new legislation.

The Tennessee senator noted that he convened the hearings at the request of Sens. Bill Cassidy, R-La., and Al Franken, D-Minn., who led a bipartisan group of senators in seeking the sessions.

Franken, who announced last week that he was resigning in the coming weeks from the Senate, urged his colleagues to expeditiously "carry forward this work after I'm gone," and pass a bill he introduced last spring, the Improving Access to Affordable Prescription Drugs Act.

Franken said the bill would meet many of the National Academies committee's recommendations, including forbidding drugmakers from counting direct-to-consumer advertising of their medicines as a tax-deductible business expense.

"Advertising puts doctors in somewhat of a controversial position of having to defend their judgment against the advertising," Augustine said.

The industry would be better off if it quit advertising and stood on the merits of its products, he said. "But that's not going to happen," he acknowledged. So getting rid of the tax deduction is likely the best way to discourage advertising, Augustine said.

Franken's bill also calls for permitting Medicare to negotiate directly with drugmakers on prices of prescription drugs — another recommendation made by the National Academies panel.

"The negotiating process works in most every other element of the U.S. economy," Augustine said.

But with pharmaceuticals, "all the strength is on the seller side," because patients do not have the option to walk away from a product that is essential for keeping them well.

So they need the purchasing power of the federal government behind them to lower drug prices, Augustine said.

Gaming the system

The National Academies panel also called for Congress to find ways to stop drugmakers from gaming the system, like "evergreening" of exclusivity protection, in which manufacturers add new patents to old medicines to extend their monopolies and block generic competition.

The panel also urged Congress to ban so-called pay-for-delay deals, in which innovators pay generic competitors to keep their lower-cost alternatives off the market for a period.

"It is OK in America to have a monopoly. It is not OK to abuse your monopoly power," said Douglas Holtz-Eakin, president of the American Action Forum and a former director of the nonpartisan Congressional Budget Office.

Some recent circumstances involving drugmakers trying to block competition "appear to be just sheer abuse of monopoly power," which Holtz-Eakin said should be referred to the antitrust authorities and "should be prosecuted."

He did not identify which companies he meant, but Augustine called out Allergan plc specifically for transferring its patents for its big moneymaker Restasis to the St. Regis Mohawk Tribe to use its sovereign immunity to protect the product against competitors — a deal that has been highly criticized.

"That damages the industry as a whole," Augustine said. "The pharmaceutical industry does a disservice to itself when these things take place."