Ohio - Testimony Opposing IPI Budget Provision | Council For Citizens Against Government Waste

Ohio - Testimony Opposing IPI Budget Provision

State Action

Testimony for the Ohio Senate
Finance Committee
Subcommittee on Health and Medicaid

H.B. 166 FY 2020-2021 Fiscal Operating Budget
Using an International Pricing Index for Medicaid: A Really Bad Idea

Thomas Schatz
Council for Citizens Against Government Waste

May 14, 2019

Chairman Bob Hackett, Vice-Chairman Stephan Huffman, Ranking Minority Member Cecil Thomas, and Members of the Committee:

My name is Thomas Schatz and I am president of the Council for Citizens Against Government Waste (CCAGW).  I am pleased to submit this written testimony on HB 166, the FY 2020-2021 Operating Budget.

CCAGW was founded in 1984 by the late industrialist J. Peter Grace and nationally-syndicated columnist Jack Anderson to build support for implementation of President Ronald Reagan’s Grace Commission recommendations and other waste-cutting proposals.  Since its inception, CCAGW has been at the forefront of the fight for efficiency, economy, and accountability in government.  CCAGW has more than one million members and supporters nationwide and has helped save taxpayers $1.2 trillion through the implementation of Grace Commission findings and other recommendations.

CCAGW does not accept government funds.  Eighty-five percent of the organization’s funding comes from individual contributors around the nation.  Corporate and foundation gifts account for the remaining 15 percent.

Included in HB 166, the FY 2020-2021 operating budget is a provision that would adopt an international pricing index (IPI) for Medicaid in Ohio should the Center for Medicare and Medicaid Services (CMS) adopt a similar measure for Medicare Part B.  On behalf of the 123,925 members of CCAGW in the state of Ohio, I ask that you oppose this measure.

CCAGW opposes the Trump administration’s effort to use an IPI to lower costs for drugs administered by a physician under Medicare Part B.  Most reimbursement for Medicare Part B drugs is set at the statutory requirement of the average sales price, which includes most rebates and discounts, plus six percent to cover handling costs.  (Due to sequestration cuts implemented in 2013, it is currently the ASP plus 4.3 percent until 2021.)  While CCAGW believes Medicare Part B reimbursement policy is a form of price controls and could use reform, it is at least based on an average sales price in the marketplace.

The Trump proposal would align Medicare Part B payments for drugs with a composite of prices paid in foreign countries, ignoring the fact these countries utilize price controls or the threat of compulsory licensing to keep their drug costs down.  As a result, these countries have destroyed their pharmaceutical research and must rely on U.S. pharmaceutical innovation, which for the most part, still utilizes free-markets and privately-funded healthcare.  According to the Association of the British Pharmaceutical Industry, in 2016 the U.S. led in total pharmaceutical R&D expenditures at 58 percent.  Japan came in next at 13 percent, followed by the U.K. at 7 percent.  Canada was at a measly 1 percent. 

Medicaid already uses a price control system to lower drug costs, the Medicaid Drug Rebate Program.  Currently, it is 23.1 percent of the average manufacturer price (AMP) for innovative drugs and 13 percent of the AMP for generic pharmaceuticals.  Other government-sponsored drug benefit programs, such as the 340B discount program and the VA also use price controls. 

Markets respond to pricing pressure as if it was an inflated balloon:  push down on one side and the other expands.  It should come as no surprise that drug costs are being shifted to the private sector because of government price controls already in place.  If Ohio, and the federal government, adopted the IPI system for Medicaid and Medicare Part B, it would be aggravating the problem.  Instead of expanding price-controlled systems, conservatives should be promoting free-market solutions for lowering drug costs.

One way to do this would be to respect U.S. pharmaceutical intellectual property and reject foreign price controls in trade deals.  President Trump’s Council of Economic Advisors’ February 2018 report, “Reforming Biopharmaceutical Pricing at Home and Abroad,” recognized that “foreign, developed nations, that can afford to pay for novel drugs, free-ride by setting drug prices at unfairly low levels, leaving American patients to pay for the innovation that foreign patients enjoy.”  Instead of mimicking and adopting socialistic schemes found in foreign countries, the Ohio legislature should support better trade deals and work with the U.S. Trade Representative and demand that foreign nations contribute to our research, not take advantage of it.

Ohio legislators should also ask their U.S. congressional delegation to hold the FDA’s feet to the fire to make sure the backlog of generic drugs awaiting approval can be cleared and that the provisions provided in the 21st Century Cures Act that streamline and speed up the clinical trial and approval processes for innovative drugs are being implemented.

In closing, conservative legislators should be promoting free-market alternatives for all aspects of healthcare, not adopting socialistic policies like IPI.  By adopting these policies, it makes it more difficult to oppose single-payer schemes, such as the “Medicare for All” proposal by self-proclaimed socialist Sen. Bernie Sanders (I-Vt.).  CCAGW urges you to reject an international pricing index model for the Medicaid drug program.

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