Prescription Drug Costs Best Addressed By Competition, Not Price Controls

Dear Chair Wyden, Ranking Member Crapo, and Members of the Committee:

On behalf of National Taxpayers Union (NTU), the nation’s oldest taxpayer advocacy organization, I write in regard to your March 16 hearing, “Prescription Drug Price Inflation: An Urgent Need to Lower Drug Prices in Medicare.”^[1]

NTU has conducted research and advocacy on prescription drug pricing policy, which significantly impacts American taxpayers, in Congress and the states for decades. We have long believed that prescription drug policy should focus on increasing market competition and providing targeted, fiscally responsible relief for patients facing high costs, rather than artificially setting prices or forcing private manufacturers into deeply imbalanced negotiations with the federal government. Unfortunately, several recent proposals in the House and Senate have leaned heavily into these price controls and faux ‘negotiations.’^[2]

We write once again to urge lawmakers to pursue narrow, targeted solutions for Americans facing high drug costs, rather than sweeping tax-and-mandate schemes that will ultimately push the cost bubble for researching, developing, manufacturing, and delivering prescription drugs on to other parts of the private health sector.

Below, we briefly review some of NTU’s recent work on prescription drug policy, and share some recommendations that would offer more tangible and lasting cost relief for patients than federal price controls.

NTU’s Recent Work on Prescription Drug Policy

In November 2021, NTU analyzed the broad outlines of a deal negotiated between moderate Democrats and liberals to include prescription drug pricing provisions in the FY 2022 reconciliation bill, formerly known as the Build Back Better Act (BBBA).^[3]

We noted that the negotiated deal among Democratic lawmakers included three broad planks: 1) a requirement for Medicare to negotiate the prices of prescription drugs on a top-down basis, replacing private-sector negotiations between Part D plans and drug manufacturers, 2) inflation caps in Medicare Parts B and D that would require manufacturers to rebate Medicare when increasing the price of their drugs beyond a broad measure of consumer inflation, and 3) reform and redesign of the Part D prescription drug benefit for seniors.

Of the first plank, requiring Medicare negotiation, we argued that:

“...requiring Medicare to negotiate drug prices would upend private-sector negotiations happening every year in Part D. And by seeking hundreds of billions of dollars in the form of higher taxes or rebates, policymakers could undermine the resources necessary to develop new and improved prescription drugs for patients in America and around the world.”^[4]

Of the second plank, inflation caps in Medicare, we noted in July 2021 that:

“To peg the allowable price Medicare will pay for a prescription drug to a broad measure of price increases like the Consumer Price Index (CPI) is to effectively attempt to set the price of the drug. While there are obvious examples of abusive price increases that are clearly not tied to market conditions, such as Martin Shkreli increasing the price of malaria and HIV medicine from $13.50 to $750, manufacturers can and do weigh more than just CPI in setting the price of drugs. Private payers in Part D should be able to push back on what they deem to be excessive price increases in negotiations with manufacturers, and private payer negotiations also affect the price of drugs in Part B because Part B reimbursement is based on average sales price.”^[5]

NTU also led a coalition of taxpayer, consumer, and free-market advocates who wrote to Congress in December 2021, warning of the impacts these two planks in BBBA could have on generic drug competition:

“We are also deeply concerned about the impact these two proposals could have on generic drug and biosimilar development. The top-down negotiation requirement is structured in such a way that it will undermine the carefully balanced policy that provides space for generic drug and biosimilar manufacturers to develop products that offer lower-cost alternatives to popular brand-name drugs.

…The inflation caps are also as damaging to generic manufacturers as they are to others, if not more so. Applying a broad-based measure of consumer price growth to the growth of a medical product is clunky at best, and could severely undermine manufacturers’ ability to account for the cost growth of developing, manufacturing, and distributing their products at worst.”^[6]

Generic drugs have helped push down the costs of brand-name products for decades since the passage of the landmark, bipartisan Hatch-Waxman Act in 1984, and even a co-author of that legislation, former Sen. Orrin