CCAGW to Senate Finance: Oppose S. 637

June 1, 2017

U.S. Senate
Committee on Finance
219 Dirksen Senate Office Building
Washington, D.C.  20510

Dear Senator,

The Council for Citizens Against Government Waste (CCAGW) has long stood against government interference in the pricing of prescription pharmaceuticals, including so-called “transparency” legislation that purportedly will allow patients and employers to determine whether a pharmaceutical’s price is justified and to what extent rebates, discounts, and price concessions are passed on to drug plan sponsors and patients.  CCAGW is therefore opposed to S. 637, the “Creating Transparency to Have Drug Rebates Unlocked (C-Thru) Act,” which would unnecessarily expose proprietary information and establish price controls that would adversely affect Medicare Part D, Medicare Advantage, and qualified health benefit plans that participate in the Affordable Care Act exchanges.  If the bill should become law, it will not lower drug prices or create more competition; it will do the opposite.

S. 637 would require the Secretary of Health and Human Services (HHS) to post on a public website price negotiation information that is confidential under Section 1150A of the Social Security Act; Pharmacy Benefit Managers [PBM] Transparency Requirements.  If S. 637 should become law, the aggregated amount and the type of rebates, discounts, or price concessions (excluding bona fide service fees) that a PBM negotiates, which are attributable to patient utilization and passed through to a plan sponsor, would be exposed to the public, limiting sensitive negotiation tactics and competition.

CCAGW agrees with a July 2, 2015, Federal Trade Commission (FTC) commentary, “Price Transparency or TMI,” by Office of Policy Planning authors Tara Isa Koslov and Elizabeth Jex. They wrote, “Is more information about prices always a good thing for consumers and competition?  Too much transparency can harm competition in any market, including in health care markets.”  The article noted that while more information can be useful for consumers to make choices among available options, it “is not universally good.  When it goes too far, it can actually harm competition and consumers.  Some types of information are not particularly useful to consumers, but are of great interest to competitors.  We are especially concerned when information disclosures allow competitors to figure out what their rivals are charging, which dampens each competitor’s incentive to offer a low price, or increases the likelihood that they can coordinate on higher prices.”

S. 637 also sets a minimum percent discount to be passed through to the plan sponsor, which would be determined by the Secretary of HHS.  This is a price control.  The legislation would change the definition of a “negotiated price” under Part D in an effort to, according to the bill’s sponsor, enable “Part D enrollees to fully benefit from discounts and rebates provided by drug manufactures.”

In a March 23, 2017 analysis, “C-THRU’s Proposed Changes to Negotiated Prices – A Demonstration of the Part D Program’s Complexities and Misunderstandings,” Mintz Levin attorneys Susan Berson and Tara Dwyer argued that S. 637 would raise prices for beneficiaries.  Beneficiary cost-sharing is not simply based on the price between the PBM and the manufacturer but on negotiations up and down the supply chain.  For example, cost reductions may be based on a pharmacy’s volume or its dispensing rate of generic drugs.  As a result, this provision in the bill would interfere with a PBMs’ ability to negotiate and obtain price concessions from manufacturers and pharmacies on behalf of a plan’s sponsor.

Furthermore, the non-interference clause in Medicare Part D, which has allowed robust private-sector negotiations to occur, has helped make the program one of the few that has cost less than predicted.  In 2005, the Congressional Budget Office estimated Medicare Part D would cost taxpayers $172 billion by 2015; its actual 2015 cost was $75 billion.

Consumers want to know the price they will pay to the pharmacy.  Exposing pricing negotiations among PBMs, pharmacies, wholesalers, and drug manufacturers would cause prices to increase and encourage tacit collusion.  We urge the Finance Committee to not consider this legislation.

Sincerely,

Tom Schatz
President, CCAGW

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