Freedom Line Blog

The U.S. House Energy & Commerce Committee’s Health Subcommittee today will host the third hearing in its health care affordability series, specifically examining the role providers and hospitals play in shaping the cost of care for Americans.

While the hearing will likely examine numerous issues, there is none more ripe for reform than the flawed 340B drug pricing program.

Originally enacted to help eligible safety-net providers buy medicines at steep discounts and pass the savings on to lower-income and vulnerable patients, the program has ballooned as a revenue stream for many participating hospitals and contract pharmacy chains.

As the size and complexity of the 340B program has expanded, participating hospitals and contract pharmacies have instead used the program to increase their own revenues – to the tune of $1.8 billion from 2024 to 2025 alone – rather than helping consumers, who were the law’s intended beneficiaries.

Study after study into that failure over the years has exposed how participating providers hoard tens of billions of dollars each year from drug sales occurring under the 340B program.  In fact, some of those hospitals went so far as to charge full prices to patients for discounted drugs, only to pocket the difference.  Federal agencies tasked with administering the 340B program have highlighted transparency concerns and the inability to accurately audit the program.

Fortunately, the Trump Administration has offered a proposal to actually improve matters for consumers.

Under the administration’s proposal, the 340B program would require hospitals to file claims with drug manufacturers for rebates, rather than the current process of granting those hospitals up-front drug price discounts.  With that change, the program would create a paper trail to prevent hospitals from exploiting the discounts in the shadows.

There have been similar successful real-world reforms enacted in other federal drug pricing programs such as the Medicaid Drug Rebate Program of 1990 and the Department of Veterans Affairs Federal Supply Schedule.  Each of those reforms created a more transparent paper trail that enhanced program efficiency in the way that the Trump Administration’s 340B program reform idea proposes.

Simply put, the 340B program, however well-intentioned, has proved to be a prescription for disaster.  In practice, its murky logistics has ended up benefiting participating providers at the expense of patients and increased healthcare costs.

Accordingly, as Congress continues its effort to reduce healthcare costs, it should focus on where reform and savings constitute low-hanging fruit:  the 340B program and the way it has to date served the interests of participating hospitals rather than patients.

In order to lower healthcare costs for all Americans, a pivotal and necessary realm to address remains health insurance.

It’s therefore appropriate that the United States House of Representatives Committees on Ways & Means and Energy and Commerce will hold a timely hearing this week with executives representing major U.S. insurance companies.

Currently, the health insurance industry remains highly concentrated while American consumers continue to pay higher and higher healthcare costs.  At a deeper level, Pharmacy Benefit Managers (PBMs) amount to middlemen that control prescription drugs for millions of Americans.  A majority of Americans receive health insurance through employer plans or government programs such as Medicare, which in turn cover prescription drugs through PBMs.  Those PBMs negotiate with drug companies and pay pharmacies, but throughout the process determine the drugs that insured patients may obtain and at what cost.

The problem is that PBMs operate in such an opaque and complex manner that they’re able to inflate drug costs while claiming to be working to reduce them.  It has reached a point where even the Federal Trade Commission (FTC) commenced an investigation of PBMs’ role in driving up costs for Americans.

That’s why this week’s hearing with insurance company executives is so important, and offers such a critical opportunity to make real, meaningful progress on the ongoing concern to American consumers.

It’s critical to emphasize that the answer to healthcare affordability doesn’t lie in counterproductive drug price controls or violating critical patent protections for pharmaceutical innovators.  That would do nothing to lower healthcare costs, and would instead only make critical lifesaving pharmaceuticals and healthcare innovations less available to Americans.

To improve consumer access and affordability, let’s achieve real reform where it matters – at the health insurance and PBM levels.

In recent days, we at CFIF have marked the ignominious one-year anniversary of the Biden Administration’s misnamed “Inflation Reduction Act” (IRA) by noting its particularly negative impact on pharmaceutical innovation and, in turn, the nation’s health and wellbeing.

As acknowledged by the United States Senate Committee on Homeland Security  as well as groups like the American Cancer Society, Americans are already confronting alarming and unprecedented drug shortages in the wake of the IRA.

To mark today’s date of September 13 – or 9/13 – it’s appropriate to note a different but significant 9-13:  That refers to the indefensible distinction that the IRA makes between what are known as “small-molecule” and “large-molecule” drugs.

Specifically, the IRA imposes destructive price controls on small-molecule drugs merely 9 years following Food and Drug Administration (FDA) approval, while waiting 13 years to impose those price controls on large-molecule drugs.  Although price controls of any duration and of any type only serve to create shortages and discourage innovation, that baseless disparity in the IRA needlessly discourages investment in small-molecule pharmaceuticals.

As cogently stated by leading scientific and medical expert Daniel Skovronsky in STATReports, it’s imperative that Congress correct that unjustifiable 9-13 distinction:

[T]o researchers like me, a provision in the recently enacted Inflation Reduction Act is puzzling.  For no clear reason, it draws a distinction between large and small molecule medicines.  As part of the IRA’s Medicare price control provisions, price negotiation for small molecule medicines is allowed nine years after Food and Drug Administration approval compared with 13 years for large molecule biologics.  There is no scientific reason for this distinction, and it will have a real and detrimental impact on drug discovery and patient care.  Nine years is not enough time to recoup the deep investments into small molecule R&D before government price controls take effect.  As a result, companies will deprioritize small molecule programs, lowering the potential to create drugs using these technologies.  Congress should correct this imbalance by allowing negotiation after a full 13 years for both small-molecule medicines and their large-molecule counterparts.”

There’s simply no sound basis for that 9-13 small-molecule/large-molecule differential, and on 9/13 we urge Congress to correct this error.

CFIF recently marked the ignominious one-year anniversary of the Biden Administration’s misnamed “Inflation Reduction Act” (IRA), whose title even Biden himself admitted was mistaken.

We noted how, as a result of the IRA, drug shortages have already reached record highs, increasing by 30% between 2021 and 2022 alone, according to a report in March from the Senate Committee on Homeland Security and Governmental Affairs.  Another report from the American Cancer Society also sounded the alarm on emerging drug shortages, caused in part by drug price control policies.  Thus, just one year in, drug shortages have reached record levels under the looming threat of drug price controls, weaker intellectual property protections and regulatory browbeating.

This week, as reported by Politico, the same Biden Administration that called inflation “transitory” and insists in the face of public blowback that “Bidenomics” is somehow succeeding announced that it will soon release the first ten prescription drugs selected for its destructive price control scheme:

President Joe Biden has sought to sell health policies like the new Medicare negotiation program as part of a broader ‘Bidenomics’ agenda set to underpin his reelection campaign.  The drug pricing push, he has argued, will help counter inflation and boost the economy by slashing the amount Americans have to shell out each year for critical medicines, although prices negotiated on the first set of drugs won’t take effect until 2026.”

Given Biden’s shoddy record for accuracy and competence so far, Americans will be forgiven for their skepticism.  As we noted, the consequence of price controls will be shortages and less innovation, which we’re already witnessing.  Americans aren’t buying this “Bidenomics” pitch, and will pay a heavy price unless and until these dangerous drug price controls are reversed.

As we approach Thanksgiving, you may have heard (or personally experienced) that the cost of Thanksgiving dinner this year is up a record 20%.

Meanwhile, guess what’s actually declined in price, according to the federal government itself.  That would be prescription drug prices, which declined 0.1% last month alone.

Perhaps the Biden Administration should focus on helping everyday Americans afford Thanksgiving, rather than artificially imposing innovation-killing government price controls on lifesaving drugs, which are actually declining in price and nowhere near the inflation rate afflicting other consumer costs.

We at CFIF often highlight the clear and present danger that drug price control schemes pose to American consumers, who benefit from our private pharmaceutical sector that leads the world – by far – in innovation.  A new lung cancer treatment breakthrough in the form of Amgen’s Lumakras illustrates that interrelationship.

Simply put, Lumakras reduced the risk of progression by 34% compared to chemotherapy in patents with advanced lung cancer, which is particularly welcome considering lung cancer’s especially low survival rate (18.6% over five years, and just 5% for advanced forms).  The breakthrough required years of research and enormous amounts of investment, however, which The Wall Street Journal notes makes Lumakras the type of innovation put at risk by new drug price controls recently enacted by Congressional Democrats and the Biden Administration:

The drug is by no means a cure, but progress occurs at the margin and some patients who had what amounted to a death sentence now have hope to live.  Lumakras is also much less brutal than chemotherapy.

Yet the drug might not have been developed had the Medicare take-it-or-leave-it negotiations that Democrats recently enacted been in effect earlier.  Their price controls will penalize in particular small-molecule drugs like Lumakras that have the potential to help large numbers of patients.  Within six years, Lumakras could be targeted by bureaucrats for price controls and the payoff on Amgen’s investment could vanish.

The reason for that is simple.  Straightforward economic principles dictate the inevitable negative blowback from government price controls, whether in the form of 1970s gas lines here in the U.S. or food shortages in Venezuela.

Even the United Nations World Health Organization (WHO) warns explicitly about these negative consequences of price controls on drug innovation:

[P]rice controls, combined with the threat of market lockout or intellectual property infringement, prevent drug companies from charging market rates for their products, while delaying the availability of new cures to patients living in countries implementing those policies.  

Closer to home, a recent University of Chicago study quantified the destructive effect of drug price controls on future lifesaving innovations:

The United States has fewer restrictions on price than other countries, but the Biden Administration has announced their goal to lower drug prices through greater price regulation…  [N]ew drug approvals will fall by 32 to 65 approvals from 2021 to 2029 and 135 to 277 approvals from 2030 to 2039.  These significant drops in new drug approvals will lead to delays in needed drug therapies, resulting in worse health outcomes for patients.  

As the University of Chicago points out, the U.S. maintains a more market-oriented approach to pharmaceutical innovation than other developed nations, which benefits American consumers.  Of 270 new medicines introduced here in the U.S. since 2011, for instance, Canadians could only access 52% of them, the Germans 67%, the British 64%, the French 53%, the Japanese 48% and the Australians just 41%.  Moreover, the U.S. accounts for two-thirds of all new drugs introduced to the world.

The real-world numbers speak for themselves.  Americans benefit immensely from our world-leading pharmaceutical sector, and Lumakras offers just the latest welcome example.  The sooner the recent drug price control schemes are repealed or scaled back, the more Americans who suffer from cancer and other ailments stand to benefit.

CFIF has continuously sounded the alarm on dangerous drug price control efforts, which will only do what artificial price controls always do – cause shortages of the very products they attempt to regulate.  The numbers speak for themselves.

Today, The Wall Street Journal editorial board cogently addresses the looming bankruptcy of Medicare and Social Security, and along the way nicely makes that point that we and others have been making, while also pointing out that drug prices have actually remained flat while prices for other products and services have skyrocketed:

Democrats blame Big Pharma for bankrupting Medicare, but annual Part D prescription drug costs have grown on average 1% over the last five years.  That’s far less than inflation, GDP and other Medicare spending. Even expensive drugs that grow spending in the short run can reduce long-term health spending.

Consider Hepatitis C treatments, which public-health scolds lambasted as too pricey when they launched nearly a decade ago.  Prices have since plummeted 75% from about $100,000 per course thanks to market competition.  A Department of Health and Human Services analysis estimates the treatments reduce patient health costs by about $16,000 annually and will save Medicaid $12 billion after this year.

Once the hospital trust fund runs dry, spending will have to be slashed by 10%.  The Democratic solution is to let Medicare “negotiate” drug prices — their euphemism for price controls.  But this will reduce the incentive to develop innovative treatments for hard-to-treat conditions like Alzheimer’s.  The result may be higher Medicare spending over the long term.“

Artificial government efforts to impose price controls never work, whatever the product, whatever the time and whatever the flimsy rationalization.  America leads the world in producing lifesaving pharmaceuticals – 2/3 of all new drugs introduced worldwide, in fact – so we mustn’t tolerate Biden Administration or Congressional efforts to try this failed proposal yet again.  The stakes for us all are too high to re-learn that lesson the hard way.

Regrettably, the White House today announced an executive order that effectively imports drug price controls from foreign nations with socialized healthcare systems.  We at CFIF strongly oppose the order and encourage immediate reconsideration.  Below is CFIF President Jeffrey Mazzella’s statement:

“Price controls simply do not work, regardless of the product targeted or the location they’re attempted, and real-world experience establishes that pharmaceutical price controls are no different.  The new executive order would impose what’s known as an International Pricing Index (IPI) for U.S. drugs administered by the federal government, meaning that foreign governments’ drug price controls would suddenly control our own reimbursement rates.  That would upend our current system, which has actually already reduced the cost of the 50 most popular Medicare Part B drugs sold by approximately 1%.  Our current system already includes the discounts negotiated between hospitals, healthcare plans and payers.  In contrast, foreign governments whose price control schemes we would import don’t negotiate, but instead dictate prices while threatening to violate patent rights and employ a ‘take it or leave it’ approach.

“As a direct consequence of foreign nations’ price control approaches that disrespect patent rights, those nations receive far fewer new lifesaving and life-improving drugs than American consumers.  For example, 96% of all new cancer drugs over the past decade were made available to U.S. consumers.  In contrast, only 56% of those same drugs became available in Canada, only 50% became available in Japan and only 11% in Greece, as just three examples.  Simply put, consumers in nations whose governments impose drug price controls don’t enjoy access to nearly as many new drugs as Americans, or nearly as soon.  As The Wall Street Journal found, that’s why America outpaces European nations in terms of cancer survival rates, among other advantages.

“Even the Trump Administration itself has highlighted the destructive effect of importing foreign price controls.  In 2018, its Council of Economic Advisers affirmed that, “If the United States had adopted the centralized drug pricing policy in other developed nations twenty years ago, then the world may not have highly valuable treatments for diseases that required significant investment.”

“Currently, the United States accounts for nearly two-thirds of all new drugs introduced worldwide, and our more market-oriented system and protection of patent rights explains why.  Very few potential new drugs ever reach the market, due to astronomical research and development costs, lengthy government safety tests, laboratory effectiveness trials, possible product liability lawsuits, patent protection limitations and other bureaucratic hassles.  Imposing artificial price controls would add to those headwinds by making it less possible to recover the massive costs of developing new medicines and R&D, leading to fewer new drugs for U.S. consumers.

“Instead of importing foreign nations’ price control schemes and their consequences, America should be exporting our superior system to their shores.

“Today’s executive order contravenes the Trump Administration’s broader agenda of deregulation, free-market approaches and strong intellectual property (IP) protections.  Hopefully, the White House quickly realizes the potentially catastrophic consequences of this order, lest American consumers suffer in the same way as consumers in the foreign nations that impose the price controls that it now seeks to import.

“In his State of the Union Address earlier this year, President Trump reassured Americans that, ‘To those watching at home tonight, I want you to know that we will never let socialism destroy American healthcare.’  Unfortunately, the White House’s executive order announced today regarding drug prices would do precisely that.

“We therefore urge President Trump to reconsider this potentially catastrophic order in the strongest possible terms.”

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Senator Martha McSally (R – Arizona) has broadly proven herself a stalwart ally of conservatives, libertarians and the Trump Administration in her brief tenure on Capitol Hill.  A former U.S. Air Force A-10 pilot, her votes have confirmed President Trump’s phenomenal array of judicial nominees and advanced his economic agenda to bring us arguably the greatest economic conditions in history.

She must be careful, however, to avoid potentially catastrophic missteps on the issue of healthcare and prescription drugs.

Specifically, Sen. McSally has introduced legislation and supported other Senate Finance Committee proposals that would introduce drug price controls from socialist foreign healthcare systems to the U.S., empower the Department of Health and Human  Services (HHS) to directly and bureaucratically negotiate pharmaceutical prices, allow importation of potentially dangerous drugs from foreign countries and introduce components that would erode our world-leading patent system.

It’s not by accident that the U.S. accounts for over two-thirds of all new lifesaving and life-improving pharmaceuticals introduced to the world – it’s the direct result of our strong patent protections here, and our more market-oriented approach.  In contrast, foreign nations that have introduced the principles contained in some of Sen. McSally’s legislation and bills that she supports inevitably suffer shortages, as even the United Nations World Health Organization (WHO) has acknowledged:

Every time one country demands a lower price, it leads to lower price reference used by other countries.  Such price controls, combined with the threat of market lockout or intellectual property infringement, prevent drug companies from charging market rates for their products, while delaying the availability of new cures to patients living in countries implementing those policies.

Of all new cancer drugs developed worldwide between 2011 and 2018, 96% were available to American consumers. Meanwhile, only 56% of those drugs became available in the Canda, 50% in Japan and just 11% in Greece, as just three examples. Patients in nations imposing drug price controls simply don’t receive access to new pharmaceuticals as quickly as Americans, if they ever receive them at all.

Senator McSally mustn’t sacrifice her conservative principles on behalf of prescription drug legislation that will make matters worse for American consumers, not better.  She should withdraw her proposed bill and renounce the Senate Finance Committee’s proposal, and instead support more market-based solutions that have proven effective not only with pharmaceuticals, but across all economic realms.