This is a joint statement from TAG and Health GAP
October 16, 2019 – Although Speaker Nancy Pelosi’s bill to increase affordable access to medicines in the U.S., H.R. 3, offers halting, partial steps to reduce drug prices for some of the biggest market-impact medicines purchased by the government, its flaws are so pervasive that—unless it is substantially revised—it should be rejected.
Truly meaningful reductions in drug prices at home or abroad will only occur when brand-name pharmaceutical companies are forced to face the threat and reality of robust competition from licensed generic companies, such as is proposed in Senator Bernie Sanders’ and Representative Khanna’s Bill, and in Representative Lloyd Doggett’s bill. In both cases, failure by Big Pharma to reduce drug prices triggers licensed competition by generic manufacturers.
Drug prices are high in the U.S. because the government grants multiple monopolies on medicines benefitting Big Pharma companies. Big Pharma then games the system to get longer, stronger, and broader protections that block competition and maximize their profits. For example, the U.S. grants 20-year monopoly rights merely for “evergreening” modifications, including tweaks to active ingredients, new formulations, new dosages, new uses, and new combinations of a known medicine. It grants additional exclusive rights – monopoly protections – when a drug company conducts pediatric trials and when the medicine benefits a small, “orphan” population (fewer than 200,000 U.S. patients). The U.S. also allows companies to prevent market approval or marketing of generic equivalents by granting exclusive rights on clinical trial data and by allowing drug companies to block generic registration whenever a patent is claimed, no matter how weak.
Girded with all these stacked monopoly protections, Big Pharma does exactly what’s to be expected – it charges the highest price it thinks it can get away with when it launches a medicine. And then, because of ongoing monopoly rights, it continues to raise prices each and every year far in excess of any actually increased costs of production or even the rate of annual inflation. It does so without any justification based on disclosed and verifiable research and development expenditures, and it does so even when the U.S. and university researchers use government funds for fundamental breakthroughs and when initial drug discoveries are basically given away to drug companies with carte blanche rights to charge whatever they want.
Given systematic, persistent, and pervasive abuse of monopoly pricing power, the only truly effective deterrent to extortionate drug pricing is to allow competition. The government can already do so legally for any pharmaceutical purchases supported with federal funding, for example, for Medicaid, Medicare, Veterans Administration, armed forces, and federal prisons. It can also do so with so-called “march-in rights” where federal research funds provide the building block for later stage drug development and the medicine is not made reasonably available to the public. Rep. Doggett’s bill, unlike the H.R. 3, allows competitive licensing for such purchases when meaningful price reductions on federally funded medicines are not otherwise achieved. Senator Sanders’ bill, however, goes even further – it amends the law to allow licensing permitting generic competition in both public and private pharmaceutical markets, meaning all patients and payers would benefit.
The Pelosi bill has multiple additional flaws that must be addressed, even in the absence of licensing amendments. In order of importance, it should be revised to:
- Protect all medicine payers, including the uninsured, not just federal health programs and private insurers;
- Apply to all overpriced medicines that do not yet face significant competition instead of the paltry 25-drug minimum that is currently proposed
- Not only apply to the biggest market-impact medicines, thereby neglecting very high price drugs affecting smaller patient populations;
- Contain provisions that reduce escalating and unconscionable launch prices instead of waiting years before retroactive revenue-clawback provisions recoup even a small portion of excessive prices;
- Delete the floor on required price reductions (currently based either on the price being 20% lower than international comparators or on meeting the lowest price among comparators);
- Reject provisions that would result in the U.S. payers paying 20% more than the average comparator countries;
- Prevent annual price inflation by imposing a confiscatory tax on inflation-plus pricing benefitting all payers, not just Medicare;
- Provide protections against drug companies gaming product launches and prices in comparator countries; and
- Greatly expand transparency requirements on R&D costs, government subsidies and tax breaks, manufacturing, and marketing costs, and prices to all buyers, including rebates.
The actions that the U.S. government takes on drug pricing have far reaching consequences globally. Big Pharma together with the U.S. government has perversely used trade and diplomatic policy to bully, threaten and punish other countries that allow for non-voluntary competitive licensing even though international law clearly allows for such licensing and even though the U.S. routinely practices such licensing itself for military, environmental, and other public purposes. The licensing bills that have been proposed in Congress would provide a tremendous boost to the global fight for access to affordable medicines by affirming an internationally agreed norm on the appropriateness of compulsory licenses. Not only would H.R. 3 fail to provide shelter for compulsory licensing in other parts of the world, but it may hinder drug pricing efforts in the six countries used as international reference points. To maintain its U.S. super profits, pharma may increase its drug prices in reference countries or delay marketing access in reference countries altogether. It would be a vast improvement in all of the pending domestic bills if they stopped U.S. threats against countries lawfully using compulsory licenses to force competition that we need here.