CCAGW Offers Perspective on Medicare Drug Pricing Hearing- Rep. Reed | Council For Citizens Against Government Waste

CCAGW Offers Perspective on Medicare Drug Pricing Hearing- Rep. Reed

March 6, 2019

The Honorable Tom Reed
2263 Rayburn House Office Building
Washington, D.C. 20515

Dear Representative Reed,

On Thursday, the House Ways and Means Subcommittee on Health will hold a hearing, “Promoting Competition to Lower Medicare Drug Prices.” For fiscal conservatives who believe in free markets, competition is created by robust negotiations among drug manufacturers, pharmacy benefit managers, and pharmacists. For socialists in Congress, it means the government decides what a fair price should be.

Allowing the Department Health and Human Services secretary to “negotiate” drug prices in Medicare Part D will no doubt be a topic of discussion. The Council for Citizens Against Government Waste (CCAGW) has long opposed removing the “non-interference clause,” or Sec. 1860D-11(i), of the Medicare Prescription Drug Improvement Act of 2003. It states, “In order to promote competition under this part and in carrying out this part, the Secretary (1) may not interfere with the negotiations between drug manufacturers and pharmacies and PDP sponsors; and (2) may not require a particular formulary or institute a price structure for the reimbursement of covered part D drugs.”

Competitive, private-sector negotiations have been instrumental in making Medicare Part D a successful government-created program.  In 2005, the Congressional Budget Office estimated Medicare Part D would cost taxpayers $172 billion in 2015; it’s cost was $75 billion.

Proponents of allowing the secretary to negotiate prices under Medicare Part D often argue that the Department of Veterans Affairs successfully negotiates prices without price controls. This is not true. The Veterans Health Care Act requires pharmaceutical manufacturers to list covered drugs on the Federal Supply Schedule, and the prices cannot be greater than 76 percent of the non-Federal Average Manufacturer Price, minus any additional discounts as determined each year. If a drug manufacturer does not follow this requirement, it cannot sell products to the Department of Defense, the Public Health Service, the Coast Guard, and Medicaid.

A discussion may come up concerning the Trump administration’s proposal to adopt an International Pricing Index (IPI) in the Medicare Part B program. CCAGW believes the administration’s proposal is ill-advised and should not be adopted. Countries in the European Union and Canada utilize price controls to keep their drug costs down and, as a result, their biopharmaceutical research is minuscule compared to the U.S. Instead of allowing other nations to free-ride on U.S.-funded research, it would be better for the Trump administration to adopt trade policies that would require these nations to contribute to our innovation.

CCAGW agrees the payment structure for Part B outpatient drugs should be reformed. Currently, physicians are reimbursed with a statutory price control at the Average Sales Price plus 6 percent to cover administrative costs. But, applying an additional price control, the IPI, is not the answer. It would be better to adopt a free-market process, like in Medicare Part D, or perhaps reimburse the physician with an amount that is not tied to the price of the drug.

CCAGW urges you to oppose any price-controls schemes that may be discussed or proposed at tomorrow’s hearing and in any subsequent legislation. Free markets work; price controls do not.

Sincerely,

Tom Schatz
President, CCAGW

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