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Lawmakers probe role of rebates, patent deals in high drug prices

Sen. Lamar Alexander, R-Tenn., chairman of the Senate Health, Education, Labor and Pensions Committee, was on a fact-finding mission Oct. 17 to find out if rebates in the prescription drug delivery system are really necessary.

Other senators at the committee's hearing — the second in a series of three examining prescription drug prices — also wanted to know if biopharmaceutical makers were following the rules of a market-based system of competition or were finding loopholes to hold onto their monopolies, ultimately stifling rivals from selling lower-cost products.

"The prescription drug delivery system — how a drug gets from the manufacturer to the patient — is complicated," Alexander said.

While the Tennessee senator said the insurance issues he and Sen. Patty Murray, the panel's ranking member, have been trying to iron out with the Affordable Care Act were complex, "where the money goes in prescription drugs is more complicated."

"I have yet to figure out exactly where it goes," Alexander said.

The question, why rebates are needed at all, was gnawing at Alexander.

Drugmakers negotiate with insurers and pharmacy benefit managers, or PBMs — often called middlemen — on the amount of rebates, which are intended to help reduce the costs of medicines.

The rebate amounts for Medicaid — the government's insurance program for the poor — are mandated at a fixed level.

Consumers, however, are kept in the dark about how much private payers are getting back in the rebate payments they negotiate.

PBMs reduce prescription drug costs by 30% using their substantial scale and expertise to promote generics and negotiate aggressive rebates, discounts and other price concessions with drug manufacturers to lower premiums and cost-sharing, said Mark Merritt, president and CEO of the Pharmaceutical Care Management, the lobbying group for that industry.

Lori Reilly, executive vice president of policy, research and membership at the Pharmaceutical Research and Manufacturers of America, or PhRMA, said PBMs were able to secure over $100 billion in rebates and discounts in 2015.

She said PBMs commonly retain a portion of the rebates they negotiate on behalf of their health plan and employer clients.

"Unfortunately, what's happening today is those rebates and discounts are often not making their way back to patients at point of sale" at the pharmacy, Reilly said.

Alexander asked: "Wouldn't it increase transparency if the drug manufacturers just established a list price and then they negotiated with the pharmacy benefit managers or whomever else they sold to, a reduction in that price if they wanted to, and then we wouldn't have some mystery about who is getting the benefit of a rebate? Why don't we just get rid of rebates and let you negotiate directly with manufacturers, take that $100 billion a year and just reduce the list price and then wouldn't that make it simpler for us to understand where the money goes?"

Merritt responded: "We would be open to that."

PhRMA's Reilly, however, argued that PBMs and insurance companies like rebates "because they get a big check at the end of the day" and can use those dollars "to do what they want with them."

Rather than eliminate the rebates, she said PhRMA wants to see more of those funds passed back to consumers.

"There's just a lack of transparency in the entire system," said Sen. Susan Collins, R-Maine.

Upsetting the patent system

Ranking member Murray said she was more concerned about companies like AbbVie Inc., Biogen Inc. and Allergan plc that "deliberately disrupt" the "careful balance" of the U.S. patent system by pursuing settlement agreements and other types of deals "to get the longest market monopoly possible in order to benefit their bottom line."

Sen. Maggie Hassan, D-N.H., pressed Reilly on whether Allergan's deal last month transferring the ownership of its dry-eye medicine Restasis to the St. Regis Mohawk tribe in New York to use its sovereign immunity to shield the drug's patents from review by the U.S. Patent and Trademark Office — but licensing the rights back to keep marketing the drug — was consistent with the PhRMA's revised membership standards.

She noted PhRMA had expelled 22 companies in May for questionable pricing practices.

Reilly responded by saying the intellectual property system needs significant reform but did not address Allergan's membership status.

"To exploit tribal sovereign immunity to avoid competition as opposed to dealing with the patent system in my view is unacceptable," Hassan said. "I'm very concerned about the potentially devastating implications about the deal for our entire patent system."

A day before the hearing, a federal judge at the U.S. Eastern District of Texas invalidated four Restasis patents.

That case, however, is separate from the challenge at the Patent Office.

The Senate committee plans to hold its third hearing in November, where it is expected to discuss the results of a report from the National Academy of Sciences about patient access to affordable therapies.

On Oct. 16, President Donald Trump criticized drugmakers for their high prices, declaring they were "getting away with murder" — the second time he has made that claim.