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As Drug Price Hikes Outpace Inflation, Vaupel Proposes Transparency Commission

March 20, 2018

The price of prescription drugs has increased so dramatically that they have produced a public outcry, such as when the EpiPen jumped from $57 in 2007 to $600 in 2017.

In 2015, the price of the parasite treatment Daraprim jumped from $13.50 to $750 overnight. 

These are hardly isolated cases. The price of brand name prescription drugs has increased at a rate that outpaces inflation by 150 percent, Karen JONAS, of the Michigan Association of Health Plans, told the House Health Policy Committee Wednesday. 

Reviewing Medicaid claims from 2016 and 2017, Jonas said, “78 drugs had price increases between 100 percent and 999 percent. Over 280 drugs had price increases between 25 percent and 100 percent during this one year alone.” 

She was testifying in support of HB 5223, sponsored by Health Policy Committee Chair Hank Vaupel (R-Fowlerville), which is designed to shine a light on the price-setting process for medications. 

Under the proposal, drug companies would need to file an annual report with the state for any drug treatment costing customers more than $10,000 a year. The company would need to explain the costs of making and distributing prescription drugs in the state, including the cost of research and development, as well as the costs of marketing and advertising. 

The bill would also create a Prescription Drug Cost Advisory Commission, which would review the reports, and if it found any company violated the Michigan Antitrust Reform Act or Michigan Consumer Protection Act, would report it to the Attorney General’s office. 

“Drug prices have gone up incredibly fast and they are, in fact, or have been, the fastest growing segment of the health care industry with costs increasing, in some instances, 1,000 percent over a couple of years. We hear constantly of people making choices between food and medication,” Vaupel said, explaining the need for his bill. 

He also said the bill was not an attack on drug companies. 

“Drug companies have legitimate expenses and legitimate issues that they deal with. This bill also is not in its final form either. We will be working this bill a little more before bringing it out,” he said. 

Others were not so kind to the drug companies. 

Jonas noted that prescription drugs made up 5.6 percent of health care expenditures nationally in 1990. Today, drugs are 22.1 percent of all health care expenditures. 

“When price increases occur on medications currently on the market, this cost increase is not due to research and development and can be anti-competitive and, in some cases, price gouging,” Jonas said. 

Saumil Pandya, spokesman for the Pharmaceutical Research and Manufacturers of America (RhRMA), said thousands of drugs are developed that never make it to market because they are eliminated in pre-clinical and clinical trials. 

“These companies are failing almost nine out of 10 times. So what is the cost of that?” Pandya said. “From 1988 to 2014, there were 127 attempts to launch a treatment or cure for Alzheimer’s. Only four of those products came to market, 123 failed. But that wasn’t wasted effort. They learned. The companies learned more and the science built on itself, so hopefully one day we will have a cure for Alzheimer’s. So when a company sets a price for a product that actually does launch, one of the very few that actually make it to market, what they are trying to do is not only dial in the research and development costs for that particular medicine, but for all the tries where they failed, where they were not successful.” 

There may also be costs for research for other products that are in the pipeline, Pandya said. 

There is a problem with the increasing price of drugs, he said. It lies more with insurers and pharmacy benefit managers (PBMs), who get discounts and rebates from the manufacturers, but don’t pass the savings along to consumers. 

That upset Rep. Abdullah Hammoud (D-Dearborn). 

“The frustration I have is nobody who testifies is willing to say you’re a part of the problem. Here is the solution that we think we can address from our end. Everyone who testifies today, or before, will always say, ‘They are the culprit.’ That is one of the biggest frustrations that we as legislators and residents have is that no one willing to say, ‘We are adding to the problem.'” 

Hammoud contended if it really takes 100 attempts to come up with a successful drug, explaining that to consumers would help them understand the price-setting process. 

“Would not shining that light from your end, at least, then cast a shadow on everyone else down the pipeline before it comes down to the consumer?” he said. 

Mark Cook, of Blue Cross Blue Shield of Michigan, was harsher in his reaction. 

“I would characterize some of the previous testimony that I heard as, kind of, look over here at this shiny object. Let’s not talk about issues that are driving some of the costs. It is not us, it’s the other guy,” Cook said. 

Cook said the drug prices are increasing at an unsustainable rate. 

“Last year for the first time ever, we paid out more in pharmaceutical costs than we did in hospital costs in Michigan and that number . . . is an unsustainable cost. Anything that would help shed some light on where some of these giant increases are going, we think, will help public policy and help communication in the end,” Cook said. 

Cook contended to the committee that price increases often occur in the last few years that the manufacturer still holds a patent on the drug, before generics will be enter the market. 

He also argued that while drug makers often blame high costs on research, they actually spend twice that amount on advertising and marketing their pharmaceuticals. 

Vaupel said he would call for further testimony on the bill before it comes up for a vote. He also said many have agreed to participate in workgroups to alter the bill into a stronger proposal. 

He said he anticipates the bill should be ready for a vote sometime this summer. 

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