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Can drug companies be shamed into lowering prices?

Fiscal Times logo Fiscal Times 4/14/2017 Eric Pianin
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Related video: Access to life-saving drugs limited by high costs (provided by CNBC)

The pharmaceutical industry for years has fended off calls for government to controls prices despite the growing uproar over soaring prescription drug costs.

Time and again, Big PhRMA’s well-financed lobbying team blocked proposals for government controls at the federal and state levels. Most recently, they waged a $100 million campaign to defeat a California initiative last November that would have given the state more control over drug price hikes.

But some California lawmakers and consumer advocates haven’t given up and are taking a different tact that could have important implications for the ongoing debate in Washington and throughout the country:  Instead of resorting to government price controls to cap future price increases, lawmakers are pushing legislation that would publicly shame drug manufacturers planning huge price increases.

Under one state Senate bill awaiting a committee hearing next week, drug manufacturers doing business in California would have to formally announce planned increases in their list prices above a specified threshold and justify their action. Drug companies that have long argued that sharp drug price increases were warranted to cover their research and development costs would have to provide a detailed justification for future increases.

The bill would apply to drugs sold to state agencies, health insurers, and pharmacy benefit managers. Manufacturers that failed to provide the price hike warnings and justifications would be subject to a $1,000 civil penalty for every day they failed to comply with the law.

The measure would also generate information from health insurance companies regarding the 25 most frequently prescribed drugs, the 25 costliest drugs by total annual spending and the 25 drugs with the highest year-over-year increase in total spending by the insurance plan.

State Sen. Ed Hernandez, a Democrat from West Covina and co-author of the measure, says that Senate Bill 17 will promote much needed “transparency” in the health care system, including revelations on industry marketing strategies and the proportion of health care premiums spent on prescription drugs.

“We deserve transparency in drug prices because the prices drug companies charge for their products have nothing to do with effectiveness, research costs or even to changes in manufacturing costs,” Hernandez, a doctor, said in a statement. “The market for prescription drugs is badly broken. Patients who need access to a particular drug don’t have the option to forgo treatment or find another option when the price gets too high.”

California, like the federal government and scores of other states, struggles to keep up with the cost of prescription drugs. Over the past decade, Medi-Cal, the state’s Medicaid program for low-income people, has seen a 57 percent increase in the drugs it covers that cost $600 or more per prescription, according to one report.

Medi-Cal spent almost $482 million during the past two fiscal years on specialty drugs alone to treat the hepatitis C virus. The Medicaid program struggles as well in keeping up with the costs of other specialty drugs for treating cancer and other deadly diseases, as well as for more common brand name drugs and generic substitutes.

According to a study by Express Scripts, a major pharmacy benefit management services, the average price of brand name drugs has steadily risen by more than 200 percent since 2008, far outpacing the 11 percent overall cost-of-living increase during the same period.

Runaway drug prices emerged as a major issue during the 2016 presidential campaign and prompted President Trump to complain that drug manufacturers were “getting away with murder.”

Since taking office, Trump has floated many proposals for containing future price hikes. Those include allowing the importation of cheaper drugs from Canada, forcing the Food and Drug Administration (FDA) to speed up, even more, its review of less costly generic drugs, and empowering Medicare to more aggressively negotiate with drug companies for lower prices.

Yet Trump may have indirectly helped drug companies block shareholder initiatives aimed at bringing greater scrutiny to drug price increases when he appointed Republican Michael Piwowar, a member of Securities and Exchange Commission, to serve as acting chairman. The SEC blocked the resolutions from being voted on by shareholders at their annual meetings, Newsweek reported.

Drug company executives insist that a large share of their revenues and profits are plowed back into research and development and that some companies can spend hundreds of millions or even billions of dollars on developing new products.

But critics complain that companies are spending more on advertising and promotion than they let on, with the effect of driving up their prescription drug prices. "Behind closed doors, corporate pharmaceutical executives make life-and-death decisions for millions of Californians,” said NextGen Climate President Tom Steyer, a wealthy Democratic activist and major supporter of the California transparency bill, in a recent statement. “This important legislation will help protect our families by introducing transparency and fairness to the pricing of essential, life-saving medicines. It is an essential first step to reining in skyrocketing prescription drug prices."

During the past two years, drug companies have been largely successful in their efforts to combat a series of price transparency bills, both on Capitol Hill and in state capitals across the country. The California proposal contains a confidentiality provision that might end up hampering full disclosure of the drug companies pricing, marketing, and research practices. Moreover, the bill is prompting intense lobbying by the pharmaceutical industry which is seeking to defeat it.

According to a report by KQED Public Media for Northern California and Kaiser Health News, drug industry representatives and researchers targeted the state Capitol last week to meet with lawmakers to oppose the legislation and stress drug companies’ contributions to the California economy. Priscilla VanderVeer, a spokesperson for the Pharmaceutical Research and Manufacturers of America (PhRMA), noted that the drug industry employs 145,800 people in California, more than in any other state.

VanderVeer insisted that the Senate bill won’t do anything to help consumers. “If the problem is that patients are having a hard time affording their medicines, which we know they are, then let’s come to the table and talk about solutions that can actually help them.”

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