Pennsylvania - Oppose SB 637 | Council For Citizens Against Government Waste

Pennsylvania - Oppose SB 637

State Action

November 2, 2017

Senate Committee on Banking and Insurance
Pennsylvania State Senate
Harrisburg, Penn.  17120

Dear Senator,

The Banking and Insurance Committee held a hearing on October 24, 2017, regarding SB 637, a bill that would implement certain pharmaceutical price transparency policies.  While the legislation has been amended since it was first introduced, the bill will still do nothing to lower drug costs.  In fact, if adopted, it will raise costs.  On behalf of the 79,455 members and supporters of the Council for Citizens Against Government Waste (CCAGW) in Pennsylvania, I ask that you oppose this bill.

Intense and complex negotiations occur among pharmaceutical companies, insurers, pharmacy benefit managers (PBM), pharmacists, and employers to lower drug prices and bring innovative biopharmaceuticals to patients.  The United States utilizes the free market and competition to lower costs, not the price controls that are employed in most countries.  As a result, America leads the world in biopharmaceutical research.  According to R&D Magazine’s 2016 Global Funding Forecast, the U.S. leads the world in pharmaceutical/biotech research at 56 percent.  The closest competitor is Germany at 16 percent.

While CCAGW appreciates the fact SB 637 has been amended and price controls have been removed from the legislation, the remaining transparency initiatives will raise rather than lower drug costs.  In their July 2, 2015 Federal Trade Commission commentary, “Price Transparency or TMI,” Office of Policy Planning authors Tara Isa Koslov and Elizabeth Jex noted, “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.”  They note that, “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.”

SB 637 will lead to unwarranted and unreasonable fishing expeditions and the leaking of confidential information.  The Insurance Department would be charged with reviewing and analyzing reams of data pertaining to a particular drug’s production expenses, such as total research and development costs, including any costs paid by a predecessor in developing the drug; clinical trials and regulatory costs, including those of a predecessor developer; total profit attributable to the drug; material, manufacturing, and administrative costs attributed to the drug; any costs paid by another entity in developing the drug, such as any funds from a government program; any costs utilized to acquire the drug from another corporate entity who owned the rights to the drug; a cumulative history of the average wholesale price; and total marketing and advertising costs attributed to the drug.

It is difficult to quantify exactly what was spent to create a particular drug.  Pharmaceutical companies spend tens of billions of dollars testing different compounds, many of which end up being discarded or shelved because they do not work or are unsafe.  If a drug should fail after several years of research, the scientists still need to be paid.

There will also be internal costs to the manufacturers for the accountants, lawyers, and auditors who will be needed to provide the information to the Insurance Department in an appropriate and timely manner.  These provisions will also drive up drug costs.

As with any product, an environment that fosters competition is the best way to lower drug prices.  Under current conditions, it takes between 10-12 years to get a new drug through the Food and Drug Administration (FDA) approval process, and it costs, on average, $2.6 billion to do so.  The 21st Century Cures Act, which was signed into law on December 13, 2016, has proposed new ways, such as utilizing biomarkers and real-world evidence, to modernize and speed up clinical trials.

On August 18, 2017, President Trump signed into law the reauthorization of the Generic Drug User Fee Amendments (GDUFA II).  One of the law’s primary goals is to expedite the availability of generic drugs, which make up about 90 percent of all prescriptions, yet only account for 27 percent of all drug costs.  Currently, with more than 4,100 pending generic drug applications, the FDA has a lot of work to do.

Rather than enacting bills such as SB 637, Pennsylvania state legislators should instead prod their U.S. representatives and senators to hold the FDA’s feet to the fire to make sure the agency quickly adopts the new methods envisioned in the 21st Century Cures Act and to ensure that GDUFA II will force the FDA to focus like a laser beam on reducing the generic drug approval backlog.  That would be the most effective solution to bringing down the cost of pharmaceuticals.


Tom Schatz
President, CCAGW

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