© Ioulia Bolchakova | 123rf.com

In response to rapidly increasing prescription drug prices and congressional inability or unwillingness to intervene, individual states are attempting to address the issue. While Californians approved a ballot initiative for recreational marijuana in November of 2016, state voters also turned down one aimed at curbing the high cost of prescription drugs. The California Drug Price Relief Act, or Proposition 61, sought to limit the state’s health programs from paying more than the U.S. Department of Veterans Affairs (VA), which receives the steepest discounts in the country, according to Reuters. Pharma companies lobbying against Proposition 61 spent $100 million to defeat it.

Proposition 61’s opponents, led by global drugmakers such as Pfizer Inc and Amgen Inc, spent around $106 million. They argued that it would benefit only 12 percent of Californians, while putting the other 88 percent, and veterans across the country, at risk of higher drug costs.

The defeat of the measure: “reaffirms the power of the biomedical lobby,” according to Brian Abrahams, a Senior Biotechnology Analyst at CIBC World Markets. Stuart Schweitzer, a professor of health policy and management at the University of California, said the measure would have only had a modest impact on state drug costs. Nevertheless, “They wanted to draw a line in the sand.”  A similar proposition will be on Ohio’s 2017 November ballot.

U.S. New and World Report said New York State approved rules in April of 2017 that will put pressure on pharmaceutical companies if they want to continue doing business in the state. If Pharma companies don’t agree to voluntarily rebate or return money to the state if prescription medication spending is projected to exceed the sum of medical inflation plus 5 percent, New York State could initiate a series of reviews using scientific studies and other information to evaluate whether specific medications are overpriced. “Drug makers generally object to such reviews and often dispute their results.” The NY State Medicaid Director said the law created an incentive for pharmaceutical companies to collaborate and give the state rebates.

New York is not the only state taking action. Vermont lawmakers passed legislation requiring justification for price increases that are driving up spending in state programs like Medicaid. In March of 2017 Maryland lawmakers passed legislation, still not signed by the governor, directing Medicaid to notify the state attorney general when off-patent or generic drugs have “an excessive price increase.” The new law also sets financial penalties if the pharmaceutical company can’t justify the price hike. Louisiana officials are looking into whether a rarely used federal law could be used to “sidestep patents and allow government programs to get lower-cost generic versions of pricey hepatitis C treatments.”

In August of 2017, JAMA gave greater details about the New York legislation in: “Value-Based Pricing and State Reform of Prescription Drug Costs.” Hwang et al. said if the rate of drug spending growth exceeded the 10-year average inflation plus 5% in 2017-2018 or 4% in 2018-2019, the state department of health would be authorized to identify and refer high-cost drugs to a drug utilization review board to determine a target rebate amount. The provisions are likely to trigger a review this year. The board may consider the effectiveness of the drug, its therapeutic alternatives, and the seriousness and prevalence of the disease in formulating its recommendation for a value-based price.

If the state and manufacturer fail to agree on a rebate that is at least 75% of the difference between the drug’s current price and value-based price, the state may waive provisions that currently require managed care plans to cover medically necessary drugs in certain protected classes, including antidepressants, antiretrovirals, and hermatologic drugs. Furthermore, if total drug expenditures continue to increase faster than inflation despite these new rebates, the state may implement more aggressive actions to promote use of clinical alternatives, including directing managed care plans to remove drugs from their formularies that lack new rebate agreements.

The pharmaceutical industry is taking steps to prepare to do battle against these and other steps taken to rein in drug prices. The pharmaceutical lobby, PhRMA (Pharmaceutical Research and Manufacturers of America), is increasing membership dues by 50 percent to raise an additional $100 million PER YEAR to fund its ongoing fight over drug prices.  “PhRMA has consistently ranked among the biggest lobbying spenders in Washington over the past few years.” By August of 2016, it had already spent $11.8 million that year, making it the fourth-largest lobbying group in Washington DC. TV advertising in 2017 was to target how “new drugs could add years to patients’ lives, as well as the years of complex research needed to develop a drug.”

The Intercept reported that newspapers in the Washington D.C. area were getting swamped in April of 2017 with ads warning of the dire consequences of proposals to lower drug prices. The groups placing the ads had no obvious connections to pharmaceutical companies. The ads appeared in the Washington Post, Washington Times, Roll Call, The Hill and Politico just as legislators were taking up proposals to lower drug prices. As it turned out, the organizations had undisclosed financial ties to PhRMA.

A bill proposed by Senator Al Franken would reverse a 2003 law prohibiting Medicare from using its collective bargaining power to negotiate lower drug prices. Legislators who wrote the 2003 bill worked closely with PhRMA lobbyists while drafting the legislation. The bill’s sponsor later became the president of PhRMA.  Franken and others introduced the “Improving Access to Affordable Prescription Drugs Act” on March 29, 2017. Here is a five-page summary of the bill. A companion bill to “Improving Access to Affordable Prescription Drugs Act” was introduced in the House on the same day.

Some of its provisions would include several current problems with prescription drug costs. It would close the coverage gap in Medicare Part D coverage (known as the donut hole) in 2018, two years earlier than under current law. Tax credits given to pharmaceutical companies for their direct-to-consumer (DTC) advertisements would be eliminated. (WE WERE GIVING PHARMA COMPANIES TAX CREDITS WHEN THEY TRY TO GET US TO BUY THEIR DRUGS?) It would allow individuals, wholesalers and licensed U.S. pharmacies to import prescription drugs manufactured at FDA-inspected facilities from licensed Canadian sellers.

Significantly, Section 201 would allow the Secretary of Health and Human Services to negotiate with drug companies to lower prescription drug prices. It directs the Secretary to “prioritize negotiations on specialty and other high-priced drugs.” Under existing law, unlike Medicaid and the VA, Medicare is not allowed to leverage its purchasing power to negotiate lower drug prices.

STAT News reported that the Thursday before the November 2017 election, Andy Slavitt, the acting administrator for Medicare and Medicaid Services, said the rising costs for prescription drugs “will put unsustainable pressure on the Medicare program, and action is going to be necessary to address them.” He was addressing the BioPharma Congress, an industry conference. He said: “Drug costs have become the health policy issue Americans are most anxious to see us act on, and we have a responsibility to them to explore all the options available us to make their medications more affordable.” He told those at the conference that we could have both innovation and affordability. “These two goals shouldn’t be in opposition.”

In every-forward looking industry outside of health care, we see that competition actually fuels innovation, and affordability improves alongside the development of new technologies. . . . There are plenty of policy options and certainly a number of ways innovators like you can choose to respond – from disputing the math and fighting it, to looking for win-wins.

So far, it seems Pharma is ignoring the message. They are still trying to convince the American public and U.S. lawmakers that innovation in drug development will dry up if price caps are enacted.

The debate over the cost of drug development has been going on since the late 1950s, believe it or not. An often-quoted 2003 study, “The Price of Innovation,” which was published in the Journal of Health Economics, estimated it cost $802 million in 2000 dollars to bring a new drug to market. PhRMA’s 2014 profile found that estimate low and said it actually costs $1.2 billion to develop a new drug. However, “Demythologizing the High Costs of Pharmaceutical Research,” in the journal BioSocieties, suggested the true research and development costs were a median of about $43.4 million per new drug. That is about 5.4% of “The Price of Innovation’s” cost projection and 3.6% of the PhRMA estimate. See “Pharma and Its Golden Hoard” for a further discussion of what a new drug costs.