August 30, 2022

THE TANGLED HISTORY OF DRUG PRICING REFORMS

By Margaret Foster Riley

On August 16, 2022, President Biden signed the Inflation Reduction Act (IRA) of 2022. Among the provisions in the legislation are some hotly contested drug pricing reforms that, for the first time, give the Centers for Medicare and Medicaid (CMS) real power to reduce the prices of drugs used by its beneficiaries. Specifically, beginning in 2023, drug companies will be required to pay rebates if the prices of their drugs rise faster than the inflation rate. In 2025, Medicare beneficiaries in Part D will have an annual $2000 out-of-pocket cap for drug purchases. In 2026, HHS will begin to “negotiate” the prices for 10 of the most expensive drugs covered under Medicare Parts B & D which have no generic or biosimilar counterparts. By 2029, Medicare will be able to negotiate prices for 20 such drugs.

Some people view these provisions as relatively modest. They will certainly reduce government expenditures, but the benefits are limited to Medicare recipients and could even potentially increase costs for individuals with commercial health insurance. Negotiated prices will only involve a tiny proportion of drugs taken by Americans.  But viewed from an historical lens, these aspects of the legislation are extraordinary. The IRA represents the end of a more than 60-year impasse wherein proponents of drug pricing reform tried and repeatedly failed to achieve such reforms in an expensive and fiercely-fought battle with drug companies.

It all started in 1957. Senator Estes Kefauver (D-TN), who had been Adlai Stevenson’s running mate in 1955, became chair of the Senate Judiciary Committee’s powerful Subcommittee on Antitrust and Monopoly. Using that pulpit, Kefauver launched months of dramatic hearings on drug pricing, modeled on his successful Senate hearings on organized crime in 1950. Kefauver opened the hearings with a statement that could easily have been made today: “While this country has the best drugs in the world, it would appear from the great number of letters which the subcommittee has received that many of our citizens are experiencing difficulty in being able to purchase them.” 

In a show of political theater, Kefauver hauled the CEOs of many of the major drug companies in to testify before the committee. Each of them expressed sympathy with the plight of Americans needing drugs for their health care. But the testimony of Schering’s CEO was also representative of many; he said that the problem was not that drug prices were too high, but rather that Americans were too poor. The CEOs also warned, introducing a theme that continues to be the centerpiece of their opposition in 2022, that drug pricing reforms would severely impact United States’ pharmaceutical innovation.

In 1961, Kefauver introduced the Drug Industry Antitrust Act. The bill amended the 1938 Food, Drug and Cosmetic Act to give the Food and Drug Administration (FDA) a new gatekeeper role by requiring approved drugs to show efficacy as well as safety, new inspection authorities for FDA, advertising restrictions and major intellectual property reforms that would have significantly reduced the exclusivity period for drugs marketed in the United States, entirely eliminated the patentability of drugs that involved minor modifications over existing drugs, and limited the ability of companies use patent withdrawals to share royalties.

In 1962, Kefauver’s hand was significantly improved by the thalidomide tragedy; hundreds of birth defects were caused by a drug approved in Europe for morning sickness. Americans became much more interested in comprehensive reform of the drug development process. But the drug companies fought back. They could live with, even welcome, efficacy requirements. They were willing to grant FDA new inspection authorities. What they could not countenance were intellectual property limitations and drug pricing controls. They successfully lobbied powerful Democratic and Republican senators who, much to Kefauver’s dismay, stripped the drug pricing and patent requirements out of the bill. The final legislation, known as the “Kefauver-Harris Amendment of 1962.” is still the most significant amendment to the Food Drug and Cosmetic Act. But the failure to include drug pricing provisions in that legislation signaled the end of drug pricing reform for decades. For one thing, the Kennedy administration needed the pharmaceutical industry to help with continuing issues with Cuba.

By 1962, the Bay of Pigs debacle and the Cuban Missile Crisis were largely behind the Kennedy Administration, but Cuba continued to hold more than 1,000 men as prisoners of war from the Bay of Pigs. Kennedy needed some piece of leverage to get them back. Sanctions levied on Cuba had created a health care emergency due to a severe shortage of critical medicines and those medicines became a critical bargaining chip. Attorney General Robert Kennedy met with Lloyd Cutler, then counsel to the Pharmaceuticals Manufacturers Association (PMA, the precursor to today’s PhRMA), and representatives of many of the drug companies. After the meeting, almost 50 different pharmaceutical companies agreed to donate the medicines needed and those were shipped to Cuba. The prisoners of war were returned. No explicit agreements appear to have been made, but drug pricing was off the table. Estes Kefauver died after suffering a heart attack on the Senate floor in 1963.

August 8, 2022

ATTEMPTED MURDER OF OBAMACARE BY A THOUSAND CUTS

By Margaret Foster Riley 

Most Republican legislators have given up on a full-fledged repeal of the Affordable Care Act, popularly known as Obamacare, largely because it turns out that the ACA has broad popular appeal across the political spectrum. And last year’s Supreme Court decision in California v. Texas probably put away the last legal attempt to kill the legislation entirely. But that does not insulate the ACA against other judicial incursions, and the ACA seems fated to suffer the judicial equivalent of attempted murder by a thousand cuts. One of the most serious of those threats is a lawsuit that was filed in a Texas District court, Kelley v. Becerra, in which plaintiffs argue that the provisions in the ACA that require insurers to provide preventive care without cost sharing requirements are unconstitutional. Those preventive services include cancer screenings, vaccinations, and contraception. That aspect of the ACA is one of the most popular features of the legislation.

The gist of the plaintiffs’ argument is that because Congress did not itemize exactly which treatments would be covered, but instead left those determinations to the United States Preventive Services Task Force (PSTF), the Advisory Committee of Immunization Practices (ACIP), and the Health Resources and Services Administration (HRSA), that constitutes an impermissible delegation of Congress’s role, and the provisions are therefore unconstitutional. The district court heard arguments on July 26, and the judge, who has demonstrated broad hostility to the ACA generally (he ruled that the ACA was unconstitutional in California v. Texas), is likely to hold for the plaintiffs. That won’t end the litigation; it will likely be appealed all the way to the Supreme Court and that may take years. But if the district court judge holds for the plaintiffs, insurers will be allowed to require cost-sharing at least until the litigation is fully resolved, which in turn may discourage individuals from availing themselves of preventive treatments.

All of this might seem curious because the elimination of cost-sharing requirements is almost as popular with Republican voters as it is with Democratic voters. But there are bigger issues at stake. With the ACA, Congress delegated the determinations of which services should be required to the PSTF, ACIP, and HRSA because it was impossible to know in 2010 which services might be required down the road. If Congress had itemized each service, a new law would have been required to add or subtract services. For many decades, this has been viewed as an appropriate delegation of congressional power. But if you believe in small government, such delegations have led to the bloat of the administrative state. Recently, a number of justices on the Supreme Court have signaled an interest in reviving a much broader interpretation of the non-delegation doctrine. How that plays out will have implications that go beyond health care.