Senator Lankford Attends First Finance Committee Hearing on Drug Pricing in America

CLICK HERE to listen to Lankford’s questions.

WASHINGTON, DC – Senator James Lankford (R-OK) today participated in his first full Committee hearing of the Senate Finance Committee. Lankford was selected to serve on the Finance Committee at the start of the 116th Congress. Today’s hearing was entitled, “Drug Pricing in America: A Prescription for Change, Part 1.” Lankford had the opportunity to question Dr. Douglas Holtz-Eakin, President of American Action Forum and former Director of the Congressional Budget Office (CBO), Dr. Mark E. Miller, Vice President of Health Care at the Laura and John Arnold Foundation, and Dr. Peter B. Bach, MAPP, Director of Memorial Sloan Kettering Center for Health Policy and Outcomes.

Lankford’s questions centered on the 340B Drug Pricing Program’s increasing costs, the Medicaid rebate program, and restructuring the way drugs are priced to increase transparency. Today’s hearing is the first in a multi-part series dealing with rising drug costs in our nation.

Transcript from Lankford’s Q&A:

Lankford: Mr. Chairman, thank you, and for all of you here and the research you have done and for what you have already done for your son and your family. Thank you for being a part of this dialogue today.

Oklahoma is currently in the process of doing a values-based pricing model, and it is something we have experimented with. Started that process, got the waiver to be able to do it. And we are going to start reimbursing for drugs based on how well they work, and if they’re not working, they get a lower cut on it. So, it’ll be an interesting model, we will come back and try and give you more data, as I hope we can interact on this in the days ahead based on what we are doing in our state with the Medicaid program.

Mr. Doug Holtz-Eakin, you mentioned earlier about 340B being what you thought was a driver of an increasing cost overall that didn’t have a chance to be able to fill in the gaps. Why? Why do you think the 340B is a reverse-incentive there?

Dr. Doug Holtz-Eakin: Well, it’s just grown enormously and, you know, when we evaluate the program, it should be, ‘Do the benefits of lower costs, the discounts that are provided by drug companies in the 340B program, flow through to lower-income Americans who need the help?’ The answer is no. There is nothing about that that flows the benefits through. You have got this program, which has large amounts of discounting, which is helpful to the hospitals and others who are benefiting from it, but it forces drug companies to raise prices elsewhere, ease the general upward pressure in other parts of the sector, and it is a classic example of how we are shifting costs around, not dealing with the underlying costs.

Lankford: Okay. Back to the previous comments we have had about rebates, if you’re going to participate in the Medicaid program, you have to give rebates as part of that formulary. What is a better way to handle this, or for us, is it just a matter of stepping in and saying, ‘Rebates were an experiment that have been done for decades, and it needs to go away?’

Holtz-Eakin: As I said in my other remarks, I think there is a real problem with the Medicaid best-price formulation to begin with. It really does inhibit the incentives, affirms to compete aggressively because if they do that then have to pass that along to the Medicaid populations a well, while I think you don’t think about the rebate in isolation, you have to think about what kind of competitor pressures you want to build into these systems, and we don’t have good competition.

Lankford: But then you have to have a situation like what we have in Oklahoma where Medicaid actually competes to be able to get a drug discount on it. We don’t do a PBMs (pharmacy benefit managers); other states have PBMs for Medicaid. We do it as a state to be able to compete for a better price and actually beat the price of a lot of PBMs.

Holtz-Eakin: If the state is willing to say no to some and yes to others and not have to honor every drug on the market, then you can do that, you can actually negotiate.

Lankford: Thoughts, Mr. Miller, on rebates.

Dr. Mark Miller: I guess a couple of things that I would say on the rebate as it relates to Medicaid: Keeping in mind that this is a public program and a taxpayer dollar, I think the motivation and requiring a rebate from the manufacturer is trying to get a good spend on the taxpayer dollar. The only thing I would say, ‘If you are going to abandon the rebate, which will double your cost as a budget expenditure, then you need to have a very aggressive structure to make sure that the prices that are coming into that program are not as high as they currently are,’ and I’m not quite sure how to advise you on that.

Lankford: And we’ve talked a lot about how do we actually get the rebate to the actual consumer who is most affected by that, I think that is part of this long term, getting out of the Medicaid portion, getting over to the private side of it, that’s a different issue. But this has become extremely complicated.

Several of you have brought up, and several of us have brought up, the issue of a flat fee basically for doing a prescription, rather than a percentage. That is currently in the Medicaid program for the pharmacist. The pharmacist doesn’t get a higher amount based on the cost of the prescription, they get a flat fee as a pharmacist, regardless of the cost of prescription, just to do the dispensing. It seems odd the physician is not in the same spot as the pharmacist is in. Somehow, we think flat fees are okay with pharmacists but flat fees are not okay for the person actually writing the script on it. Does that seem odd?

Mr. Peter Bach: I think we have all agreed that the physicians getting a percentage of the drug price is not good policy.

Lankford: Dr. Miller, you made a comment in your written testimony as well, trying to, looks like trying to dispel this argument about the high price of drugs is based on R & D (research and development). You made the statement, ‘Between 2013-2017, the five largest US based drug companies spent substantially more on marketing and administrative costs than on research and development.’

Miller: That’s right.

Lankford: What do you include in the administrative costs there?

Miller: I’m not sure I can book this through this for you right here, but we’re talking about things like marketing costs, advertising costs. Those are included in the number that we were putting together. I can come back to you and give you the details on what we put in. I just can’t do it off the top of my head.

Lankford: Sure, that’s fine, but are you trying to push back on the issue of everyone who says that says drug costs are going up because of R & D, actually is not comparable because administrative costs and marketing costs are as high as R & D costs?

I am trying to say a couple of things, and I appreciate the opportunity to spell it out. The first thing I would say to you, and again this draws on Peter’s research, The revenues that come out of the United States exceed R & D revenues by something like 70-75 percent, somewhere in that range. So, the first point is when people say R & D is driving these prices, there is a big disconnect in that. The second point we are trying to make with that, we looked at specific companies, and said ‘how does your R & D look at relieve of other expenditures in your company,’ and we found many companies that are spending much more on adverting, marking, and other administrate expenses than on R & D.

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