Will the US Government Step in to Regulate Drug Prices?
Policy + Politics

Will the US Government Step in to Regulate Drug Prices?


With federal prosecutors investigating the generic drug industry for alleged price fixing, speculation that Congress will step in next year to find ways to contain soaring prescription drug prices is more than a rumor. They could also crack down on unscrupulous marketing tactics that have gouged consumers, health insurers and government agencies.

 Bloomberg first reported on Thursday that federal prosecutors could bring charges against a dozen or more prominent generic drug companies for price collusion. While the identities of those companies is still unknown, a number of major companies including Mylan, the makers of EpiPen; Teva Pharmaceutical Industries, the largest generic drug company in the world, and Endo International, have acknowledged in Securities and Exchange Commission (SEC) filings over the past two years that they were subpoenaed by for information on their pricing policies and “communications with competitors,” according to The Wall Street Journal reported.

Related: How Mylan Gouged the Pentagon on the Cost of Its Drug Dispenser

The reports sent stock prices for Endo, Teva and Mylan tumbling yesterday and provided added grist for industry critics warning that Republican and Democratic lawmakers may have no choice next year but to crack down on manufacturers of both generic and more expensive brand-name drugs to placate angry constituents.

David Maris, an analyst for Wells Fargo and a long-time critic of the drug industry, said in a note to clients on Thursday that companies may well be in for tumultuous times after Tuesday’s election and that “we are less concerned about the financial impact of fines” than “how items like this [investigation] can bring calls for controls and oversight,” The New York Times reported.

Democratic and Republican politicians alike have clamored for action to rein in the prices of both generic and more expensive brand-named drugs that have added hundreds of billions of dollars to the nation’s annual health care costs and blown huge holes in the budgets of Medicare and Medicaid, the Department of Veterans Affairs, the federal prison system and other agencies and programs that provide health care.

Related: Mylan EpiPen: One Piece of a Complicated U.S. Pricing System

Prominent politicians ranging from Democratic presidential nominee Hillary Clinton and democratic socialist Sen. Bernie Sanders of Vermont to Republican Sen. John McCain of Arizona and GOP Rep. Jason Chaffetz of Utah, the chair of the House Oversight and Government Reform Committee, have all taken hard lines against the pharmaceutical industry’s pricing practices.

Clinton, for example, has called for creation of a government commission with authority to compete with or penalize drug companies like Mylan, Valeant and Turing that have jacked up the prices of lifesaving drugs that have been on the market for years. She has also championed proposals to allow Medicare to negotiate prices, cap monthly drug costs and broaden consumer access to safe, high quality generic alternatives through the emergency importation of drugs from Canada.

Meanwhile, McCain and Sen. Tammy Baldwin (D-WI) have teamed up behind a bill that would require companies to warn the Department of Health and Human Services of price hikes of more than 10 percent and then justify them. And Chaffetz and Ranking Member Elijah Cummings (D-MD) in September led a hard-hitting oversight hearing into Mylan’s six-fold increase in the price of EpiPen, the epinephrine auto-injector used to treat allergic reactions.

However, much will depend on the outcome of next Tuesday’s presidential and congressional elections, health care policy and political experts agree. If the Democrats hold the White House and regain a majority in the Senate, then there likely will be a major push for reforms and price containment, even while proposals would likely face stiff resistance in the House, where the Republicans are almost certain to preserve a majority.

Related: Clinton Calls for Powerful New Panel to Crack Down on Drug Price-Gouging

If Republican presidential nominee Donald Trump defeats Clinton and the Republicans hang onto control of the Senate, major reforms might on the back burner. Their priority would almost certainly focus on repealing the Affordable Care Act.

Robert Laszewski, president of Health Policy Strategy Associates, a consulting firm, said in an interview Friday that “There obviously is a problem with generic drug prices . . . so that the more that comes out [about drug company wrongdoing], the more there is a movement to regulate drugs.”

“But that’s a Democratic issue, not a Republican issue,” he insisted. “So it’s all going to be caught up in whatever the politics of 2017 are, which we don’t know yet. If the House stays Republican, there’s not going to be a lot of progress. If Clinton is elected, the House stays Republican, the Senate could go either way, I just think we’ve got gridlock for the next two years. I don’t see any movement on anything.”

But that doesn’t account for Clinton’s contributions from the pharmaceutical industry to her campaign: 

Source: OpenSecrets

Another seasoned observer of the drug industry and health care issues who declined to be named for this article said that “I do think the popular outrage will lead to a serious effort next year, but the shape of that is still unclear.” He added that “The industry would be smart to support some limited remedies, but so far hasn't seen the need to do so.”

Related: Two Big Reasons Prescription Drug Prices Are So Much Higher in the US

The Pharmaceutical Research and Manufacturers of America (PhRMA), the leading advocacy group for the drug industry, declined to comment on the federal investigation and its possible legislative ramifications. There is little doubt, however, that the congressional indictment of the pharmaceutical industry is substantial and growing.

For instance, drug manufacturers increased the prices of nearly 400 generic drugs by over 1,000 percent between 2008 and 2015, according to a recent government study. Many of those companies do not develop the drugs themselves but acquire the manufacturing rights and then raise the prices.

Gilead Sciences drew sharp criticism for its retail pricing of Sovaldi and Harvoni, two biometric drugs highly effective in the treatment of the hepatitis C virus that cost as much as $100,000 for a full treatment. Top officials of Valeant Pharmaceuticals were forced to apologize to Congress last April after they purchased the rights to Nitropress and Isuprel, two heart and blood pressure medicines, and then raised their prices by 212 percent and 525 percent, respectively.

Turing Pharmaceuticals, previously headed by hedge fund manager and drug industry “bad boy” Martin Shkreli, purchased the license for an anti-parasitic drug called Daraprim and then raised the price by over 5,000 percent.