Published 7/1/2017
Judi Buckalew, BSN, MPH, CAE

Lawmakers Cite Lowering Drug Prices as a Top Priority

What physicians should know
Republican and Democratic members of Congress, along with President Trump, have declared their intention to lower the cost of prescription drugs. In a recent survey by the Kaiser Family Foundation, 60 percent of both Democratic and Republican members of Congress said that lowering drug prices should be a top priority, rating it as more important than solving the opioid epidemic. For Republicans, making prescription drugs less expensive was nearly as important as repealing the Affordable Care Act.

Many Americans agree that drug companies are putting profits before anything else, as reflected by the Kaiser poll, which found that 72 percent of Americans think drug costs are unreasonable and want drug companies to release information on how they set prices. Americans pay anywhere from two to six times more than the rest of the world for brand name prescription drugs.

A closer look at U.S. drug prices
What makes prescription drugs so expensive in the United States compared to other industrialized nations? While other countries' national healthcare systems directly negotiate with the pharmaceutical industry, our individual insurance groups, hospitals and plans contract for their individual consumers.

When Congress expanded the Medicare program to include prescription drugs in 2003, the country's largest single-payer healthcare system was prohibited from setting drug prices and instead must allow drug manufacturers to set the drug price. Not surprisingly, the most popular drug pricing control proposal being pushed by both Congress and President Trump is to change the law to allow Medicare to negotiate drug prices. Supporters say that if the U.S. government were allowed to negotiate drug prices for all 41 million beneficiaries enrolled in drug coverage, it would lead to lower prices across the healthcare market. Many experts are skeptical. In fact, the nonpartisan Congressional Budget Office has concluded that this proposal would result in only modest savings at best.

Even if the ban were repealed, another law stands in the way. Under Medicare, the government must cover all drugs in six protected classes—ie, broad and expensive treatment areas for patients with conditions such as cancer and depression. And, even if the Medicare negotiating ban were lifted and Medicare drug prices lowered, pharmaceutical companies would most likely respond by raising drug prices for the millions insured through large companies or private insurers.

Generic drug issues
Various issues involving generic pharmaceuticals drive the drug pricing debate. Congress wants to make it easier for generic drugs to come to market to increase competition and reduce costs. Once a generic drug enters the market, competition leads to substantially lower prices for the original brand-name product and its generic equivalents.

In most cases, generic drug products become available after the patent protection granted to the drug's original developer expires. Most brand drug patents are granted for 20 years. However, skillful patent actions by the branded drug manufacturer can extend patent protections for years and delay a generic's entry into the market. Drug manufacturers can also obtain patent extensions through changes in their drug formulations, or they will pay other companies to delay their introduction of a generic into the market.

Another reason generic drugs are slow to come to market is the significant backlog of generic drug applications at the U.S. Food & Drug Administration (FDA). A legislative proposal requiring the FDA to approve a generic drug application in no longer than 8 months is waiting consideration in the Senate.

Drug ingredients
While many policy makers believe generic drugs are the same as the branded version, this is not always the case. The FDA requires that the generic contain 80 to 125 percent of the branded drug, and that generics be "identical" to, or within an acceptable bioequivalent range, of their brand-name counterparts. The FDA's use of the word "identical," however, is a legal―not a literal―interpretation.

There are often many generic versions of the same drug and each of these can be different. Other than the active ingredient, a generic may contain many different binders and fillers and it is possible to have allergic reactions or sensitivity to these inactive ingredients. Many generic drugs are manufactured in countries where FDA inspections of the manufacturing facilities are rare, raising questions about quality control.

Another factor to consider is that not all generics are made the same way. There are generics made by the same manufacturer of the brand medication that are sold under a generic name. These are called "authorized" generics and are identical to the brand and manufactured in facilities inspected regularly by FDA.

State efforts
Legislative action to stem prescription drug price increases is not only taking place in Congress, but also in the states. Three states have already passed either price-control or price-transparency laws, with 11 additional states considering price control initiatives. In addition, 17 states are debating transparency legislation and 3 states are considering drug coupon bans. Critics of the coupons say they enable drug manufacturers to steer patients to higher cost drugs. Most states are considering bills that would require drug companies to disclose input costs, including research and development as well as marketing and advertising. Some states are considering requiring pharmacy benefit managers to disclose rebates and price concessions they negotiate with drug manufacturers.

AAOS will continue to work with Congress and state legislatures as they address various aspects of this important healthcare issue.

Judi Buckalew, BSN, MPH, CAE is senior manager, regulatory and government relations, in the AAOS Office of Government Relations. She can be reached at buckalew@aaos.org