Why Are Drug Prices So High? These Politicians Might Have The Answer

Why do Americans continue to pay the highest prices for medicine in the world? The answer lies in the fact that lawmakers have sculpted specific policies, often not found in many other nations, that boost pharmaceutical industry profits. Meanwhile, the drug industry has spent $61 million on state elections and nearly $67 million on federal elections since 2010.

Amid rising public anger over the issue, Republican President Donald Trump campaigned for president on a promise to reduce drug prices — and, as recently as Monday, excoriated Merck & Co. CEO Ken Frazier, demanding that he “LOWER RIPOFF DRUG PRICES!” Democrats, in the meantime, have long depicted themselves as fight-for-the-little-guy populists crusading against pharmaceutical industry fat cats.

However, key players from both parties have made pivotal decisions at the federal and state levels that have kept drug prices high — and pharmaceutical industry profit margins wide. As part of International Business Times’ ongoing coverage of the fight over drug prices, what follows is a look at six of those individuals, and how their actions have shaped America’s prescription drug market.

Nevada Gov. Brian Sandoval Blocked Legislation To Make Drug Pricing More Transparent

Insurance companies and pharmacy benefit managers, or PBMs, across the U.S., face at least nine class-action lawsuits alleging they attached arbitrary premiums to the prices of often less-expensive, generic prescription drugs. The plaintiffs also accuse the PBMs and insurers of imposing so-called “gag clauses” on pharmacies to keep pharmacists from telling consumers that they could save money by paying out of pocket, under the threat that the pharmacy will be kicked out of the insurer’s network if they fail to comply. The suits involve giants Cigna, Anthem, Express Scripts, CVS and UnitedHealth. According to one expert, the system could be denying customers $120 billion in discounts and rebates.

Several states — including, notably, Connecticut, an industry hotbed where the insurance commissioner is a former Cigna employee and is married to a current one — have passed bills outlawing the “gag clauses.” In North Dakota, Gov. Doug Burgum signed legislation that did just that, only to face a retaliatory lawsuit from a group representing PBMs in July.

But in Nevada, after a similar bill cleared both of the state’s legislative bodies in May, Gov. Brian Sandoval vetoed it early the next month on the grounds that it “fails to account for market dynamics that are inextricably linked to health care delivery and access to prescription drugs.” SB 265, which would’ve mandated that diabetes drug manufacturers provide 90-day notice before price increases and would’ve required health care nonprofits to disclose donations from pharmaceutical firms and trade organizations, “may create a perverse incentive for some market participants to manipulate supply in order to maximize profits,” Sandoval wrote in a statement on his decision.

Two weeks later, he shot down a Medicaid-for-all bill because he argued it would add “uncertainty” to the insurance market.

Food And Drug Administration Deputy Commissioner William Schultz Bent To Clinton-Era Expansion Of Patent Protections

In 2016, Harvard University researchers found patents are one of the main reasons drug prices are so high in the United States. Those patents give drugmakers exclusive monopoly rights to produce a medicine — thereby insulating the pharmaceutical company from price competition.

Drugmakers' patent rights were strengthened in 1995. Causing much backlash from consumer advocates, the Food and Drug Administration that year ruled pharmaceutical companies could retain a monopoly on their patented products for 20 years, a three-year extension of the previous period. Then-FDA deputy commissioner William Schultz ruled in favor of the extension, which remains in place.

At the time, the agency placed the blame on a world trade agreement extension that strengthened patent protections and was signed by then-President Bill Clinton the previous December, the consequences of which he later regretted facilitating.

Schultz went on to become a registered lobbyist from 2001 to 2009 and now “represents health care consumers, payers and providers with complex regulatory issues before the U.S. Department of Health and Human Services” and “assists drug companies, nonprofit organizations and other clients with matters before the Food and Drug Administration” for the law firm Zuckerman Spaeder LLP. He did not immediately respond to requests for comment from IBT.

Clinton NIH Director Harold Varmus Killed The “Reasonable Pricing” Rule

Should drugs developed at taxpayer expense be sold to Americans at sky high prices? In the past, the federal government passed a rule saying no — but that rule was rescinded in 1995 by Harold Varmus, the Clinton-appointed director of the National Institutes of Health (NIH).

The original rule emerged in 1989, when the George H. W. Bush administration decided to do something about the high cost of the first available AIDS drug, AZT. That medicine, which had been developed with federal research grants, hit the market at the cost of $8,000 a year, or more than $16,000 in today’s dollars. After a public outcry, the Bush administration implemented a “reasonable pricing” rule for pharmaceutical companies, like the makers of AZT, that received an exclusive license to sell drugs that were developed with government funding. The goal of the rule was to ensure taxpayers could afford drugs they helped pay to develop.

The rule was implemented as a clause added to Cooperation Research and Development Agreements (CRADAs), which are agreements that allow the National Institutes of Health to provide resources and intellectual property to researchers in industry and academia. AZT was developed with the help of a CRADA, and, as the New York Times noted in 1989, “what makes the cost of AZT hard to swallow is that all the invention and much of the risk was undertaken by the Federal Government.”

But the insertion of “reasonable pricing” clauses in CRADA agreements ended in 1995, when Varmus rescinded the rule, which had drawn criticism for its ambiguity.

In a press release announcing the change, the NIH noted that very few CRADAs produced new “intellectual property and products” and said the “reasonable pricing” clause discouraged industry from partnering with government and even prevented government scientists from obtaining “access to research materials and scientific expertise from their private sector counterparts.”

Varmus, who went on to chair the National Cancer Institute under President Obama, said at the time that a review of the clause “indicated that the pricing clause has driven industry away from potentially beneficial scientific collaborations with [Public Health Service] scientists without providing an offsetting benefit to the public.”

“Eliminating the clause will promote research that can enhance the health of the American people,” Varmus said.

The next year, then-Rep. Bernie Sanders introduced a bill in congress to reinstate the rule. The bill never made it to the floor a vote. Sanders introduced the bill again in 1998 and 1999, and he is expected to introduce a similar bill this year.

Donna Shalala: Prohibiting Drug Imports, Even As Other Industrialized Countries Allow Them

A recent Congressional Budget Office report found that if Americans were allowed to import lower-priced drugs from places like Canada, it would save government agencies alone $6 billion. But thanks to former Health and Human Services Secretary Donna Shalala, Americans are still prohibited from engaging in such importation.

That prohibition originally came out of a 1987 law dealing with drug manufacturing. Under the statute, drug companies are permitted to manufacture medicines anywhere in the world and import them for sale in the United States, but American wholesalers and consumers are prohibited from engaging in the same kind of importation. The result: when a prescription drug is sold in Canada for a lower price than it is sold in the United States, American consumers are not permitted to buy that medicine at the reduced international price.

As a book by researchers at Wake Forest University and the University of Uppsala puts it: “Because the U.S. is the only country that allows pharmaceutical manufacturers to set the prices of their medications, the (law) may unintentionally protect the manufacturer-set prices in this country” — and insulate those prices from international competition.

At the tail end of Clinton’s presidency — with Sanders leading headline-grabbing bus trips to Canada to spotlight the situation — lawmakers defied pharmaceutical lobbyists and passed legislation to repeal the prohibition. The bill would have allowed the kind of cross-border importation of medicine that occurs in Europe — and that has helped reduce healthcare spending there. But despite those other industrialized countries success with safe importation, Shalala refused to certify that importation could be done safely. Shalala’s move effectively killed the legislation — even though it had been passed by Congress and signed by the president.

“The flaws and loopholes contained in the reimportation provision make it impossible for me to demonstrate that it is safe and cost-effective,” Shalala declared.

Since that episode, bills to allow importation have continued to be proposed in Congress, but pharmaceutical industry lobbyists have convinced Republican and Democratic lawmakers to block them.

As A Congressman And Lobbyist, Billy Tauzin Made Sure Medicare Could Not Negotiate Drug Prices

Various studies have shown the federal government could save billions of dollars a year by having Medicare use its huge market power to negotiate — or require — lower drug prices for the program's beneficiaries. But Medicare is restricted from negotiating lower drug prices because of a legislation spearheaded by then-Rep. Billy Tauzin.

Tauzin served as a congressman from Louisiana from 1980 to 2004 (he switched parties from Democrat to Republican in 1995). He retired from the House shortly after he served a pivotal role in passing the 2003 Medicare Part D expansion, which added prescription drugs to the health care costs the program covered, as the chair of the Energy and Commerce Committee. His contributions to the Medicare expansion included ensuring the government couldn’t use its expanded drug buying power to negotiate for cheaper drug prices on behalf of American seniors.

Despite many attempts by lawmakers over the years to change the law and allow Medicare to negotiate for prices, the prohibition remains in effect, despite a 2015 Kaiser Family Foundation poll that found the idea is supported by 93 percent of Democrats and 74 percent of Republicans.

Shortly after the Medicare expansion passed, Tauzin resigned from congress and became the President and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA), despite telling a hometown newspaper in June 2003 he would “complete my term and run for re-election in 2004.” In taking over PhRMA, Tauzin became the leader of one of the most powerful lobbying groups in American history, and saw his annual salary increase tenfold. He used the group’s influence to lead the industry’s $273 million lobbying effort on the Affordable Care Act in 2009, which was the most expensive lobbying effort by any industry in a single year, according to the Center for Responsive Politics.

As part of that effort, Tauzin brokered a deal with the Obama administration that would preserve his industry’s ability to set its own prices. In exchange for $80 billion over 10 years from big pharma to help cover the uninsured and lower drug prices for seniors, the White House promised Tauzin it would stand against any effort by lawmakers to allow the government to negotiate the prices of drugs bought through Medicare. That deal might have saved the industry $76 billion, according to one 2008 estimate by the House Energy and Commerce's Investigations subcommittee. The subcommittee found that allowing Medicare to negotiate for its drugs like the much smaller Medicaid program would have lowered the program’s drug costs by $156 billion.

But that $76 billion wasn’t enough for the pharmaceutical companies that comprise PhRMA. While Tauzin reportedly believed the passage of Obamacare was inevitable, and was trying to find a way to carve out some protections for his industry in its negotiation, his industry benefactors believed he gave too much away. Under pressure to resign, he left his job as the head of PhRMA in early 2010.

HHS Secretary Sylvia Burwell, NIH chief Francis Collins Refused To “March In” And Take Control Of Runaway Price Increases

Plenty of the new drugs entering the market stem from federally-funded research provided by the National Institutes of Health, among other sources. Under a 1980 law, the Bayh-Dole Act, federal agencies at the root of that funding can march in and license the resulting patents if they feel such action is needed to protect consumers. The government’s ability to do so is called, unsurprisingly, a march-in right — something top federal officials have refused to exercise.

In January 2016, 51 lawmakers urged then-Secretary of Health and Human Services Sylvia Burwell and current NIH Director Francis Collins to use their march-in right as part of an effort to lower the cost of a prostate cancer drug, the price of which had risen to $129,000 annually in the U.S. at the time.

Burwell, whose agency oversees the NIH, deferred to Collins, writing in March of that year, “After consulting with the NIH, we believe the statutory criteria are sufficiently clear and additional guidance is not needed.” Collins reiterated that rejection in a separate letter that June, citing a 77-percent rise in sales of the drug between 2013 and 2014 and a projected 51-percent increase between 2014 and 2015 as evidence that the drug is not “in short supply.” The Bayh-Dole Act, he noted, applied to the “availability to and use by the public,” and the medication was “broadly available.”

The NIH has faced five other petitions pushing for the use of its march-in rights. No federal agency has ever acted on those rights.