Oregon - Oppose H.B. 2387 | Council For Citizens Against Government Waste

Oregon - Oppose H.B. 2387

State Action

June 20, 2017

Oregon House of Representatives
900 Court Street, N.E.
Salem, Oregon  97301

Dear Representative,

The House Committee in the Joint Committee on Ways and Means is currently considering H.B. 2387, which has been amended several times in an effort to “improve” the bill.  But it continues to utilize price controls and does nothing to lower the cost of prescription drugs for patients and taxpayers.  In addition to price controls, H.B. 2387 creates onerous transparency requirements that would cripple the private-sector drug pricing market in Oregon, drive up costs, and ultimately harm patients.  On behalf of the 32,171 supporters and members of the Council for Citizens Against Government Waste (CCAGW) in Oregon, I urge that you and your colleagues oppose this bill.

H.B. 2387, as amended, continues to utilize the Wholesale Acquisition Cost (WAC) as the benchmark for determining an excessive price increase.  Since the WAC is a list price from which rebates, discounts, and other price concessions are negotiated, it does not represent the final cost that a health plan or patient usually pays.

The legislation would impose extraordinarily complex and expensive compliance burdens on manufacturers.  Companies would have to provide 90 days’ notice if a drug’s price increase exceeds a certain percentage over a 12-month period based on the WAC and provide detailed budgetary and pricing data, much of it proprietary, to the Department of Consumer and Business Services, to justify the price increase.  Components of the required disclosed information include research and development costs for a drug, the cost to obtain approval from the Food and Drug Administration (FDA); marketing costs; expected sales; the manufacturer’s financial position, including profitability; administrative expenses; and, the cost of the drug for countries that are members of the Organisation for Economic Co-Operation and Development (OECD) countries.

These burdensome requirements will do nothing to lower drug costs for patients at the pharmacy.  Requiring a 90-day notice of a price increase would set off warning bells for wholesalers and suppliers, which could lead to hoarding and shortages.  Furthermore, using the price of drugs in OECD countries is a poor metric to determine whether a price increase is justified.  OECD countries utilize price controls on pharmaceuticals.  As a result, these countries have meager biopharmaceutical research compared to the United States.  According to R&D Magazine’s Winter Global R&D Forecast (p. 21), the U.S. dominates in the biopharmaceutical research sector at 56 percent, while Germany, the closest competitor, is only 16 percent.

If a drug price should be declared unjustified by the Department of Consumer and Business Services, the agency would set the price that the Department determines would be justified depending on some amorphous formula based on the costs incurred by a payer’s enrollees of the prescription drug.  The Department would also arbitrarily set the “justified” drug cost and manufacturers would be required to pay a rebate to the payers.  This is prima facie objectionable; but even if it made sense, there is no requirement in the legislation to pass along the rebates to the patient.

The transparency requirements and price controls contained in this legislation will do nothing to lower drug costs.  I urge you to read the December 2016 issue paper, “Pharmaceutical Price Controls: A Prescription for Disaster,” which discusses the history of price controls and the harmful effects they cause to any market. 

I also urge you to read 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, “[i]s 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.”

It is understandable that legislators, government officials, and consumers are concerned about high drug prices, but an environment that fosters competition is the better approach to lowering prices.  It takes 10 to 12 years to get a new drug through the FDA approval process and costs about $2.6 billion to do so.  The 21st Century Cures Act (P.L. 114-255), which was signed into law on December 13, 2016, provides new methodologies, such as biomarkers and real-world evidence, to speed up clinical trials and the approval process.

In addition, the House Energy and Commerce Committee unanimously passed H.R. 2430, the FDA Reauthorization Act of 2017, on June 7, 2017.  The Senate Health, Education, Labor, and Pensions Committee passed its version of user fee reauthorization, S. 934, on May 11. 2017.  The legislation reauthorizes user fees for the FDA pharmaceutical industry and includes the Generic Drug User Fee Amendments (GDUFA II), which will speed up the availability of generic drugs to consumers.  Currently, with a backlog of more than 4,000 generic drug applications, the FDA has a lot of work to do.

Therefore, rather than passing H.B. 2387, members of the Oregon Legislature should instead appeal to the Oregon Congressional delegation to hold the FDA’s feet to the fire to make sure the agency quickly adopts the new methods found in the 21st Century Cures Act, and ensure that GDUFA II will force the FDA to focus like a laser beam on reducing the generic drug backlog.  That would be the most effective solution for bringing down drug costs.

On behalf of Oregon consumers and taxpayers, I urge you to oppose H.B. 2387.


Thomas Schatz


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