MedTech Announces Opposition to Imposing Drug Price Caps Budget Proposal

Tuesday, March 21, 2017


Imposing Drug Price Caps Budget Proposal 

S.2007/A.3007 Part D

About MedTech 

MedTech is a trade association which connects New York State’s bioscience and medical technology (Bio/Med) industry through collaboration, education and advocacy. We are an active association of over 100 pharmaceutical, biotech and medical technology companies, their suppliers and service providers and research universities in New York State. For over 10 years we have boosted the success and growth of our members and the New York Bio/Med industry. 

New York is among the top tier of states in the size of its bioscience industry, and the scale and reach of its bioscience research complex, employing nearly 75,000 in the biosciences. The Bio/Med industry also plays a vital role in New York's economy supporting more than 205,000 jobs across all industries statewide and contributing $62.6 billion toward Gross State Product (includes direct, indirect and induced impacts.) In 2014, the pharmaceutical industry employed over 19,000, paying an average annual wage of $73,375.   

Statement of Opposition 

MedTech opposes the State’s attempt to establish pharmaceuticals price controls for the following reasons:

  • it will reduce pharmaceutical research and development investment decreasing innovation and leading to reductions in life expectancy and new therapies;
  • the proposal will send a chilling message to the life science industry ultimately driving research, development and manufacturing activities outside of the State leading to a loss of New York State jobs;
  • the proposal represents a unprecedented intrusion into the market place by a state and grants the Department of Health authority it is ill-­equipped to exercise;
  • the envisioned process places highly sensitive commercial information at risk, and
  • the proposal is legally suspect.

The proposal is particularly troubling considering the State’s attempt in the budget to attract pharmaceutical investment through the proposed $650 million life sciences initiative.  New York based pharmaceutical companies have invested significant resources in capital and job creation throughout New York State including Western New York, Long Island, the Syracuse area and in particular the lower Hudson Valley. The proposal will send a destabilizing message to the pharmaceutical market place undermining current and potential investment in the State, as well as, significantly upsetting supply chain manufacturers and discourage the stable employment of line manufacturers and graduate level students throughout our regional economies.  

The proposal is similar to a budget proposal rejected by the Legislature last year but is much more expansive as it goes well beyond the Medicaid program and establishes, for those drugs identified as high price drugs, a 60 percent surcharge (tax) on the difference between the bench mark price set at what the Department of Health deems is an appropriate price and the price charged at the first point of sale in the state for all drug sales.  The proposal grants the Department of Health extraordinary authority to review select drugs and compels manufacturers to produce to the Department voluminous and commercially sensitive information including the cost of developing, manufacturing, producing and distributing a drug;; research and development costs including payments to predecessor entities;; administrative, marketing and advertising costs. In addition to the 60 percent surcharge, the Department may require additional rebates when such drug is paid by the Medicaid program.  

The proposal represents a profound intervention into the private market place by a state.  We also note that the State will be acting as a purchaser like any other health plan in its role of operating the Medicaid program and as such, the State’s objectivity in making a determination on what constitutes appropriate value is doubtful at best.  The Department of Health is ill-­equipped to undertake the analysis suggested by the proposal and it is unclear how the State will evaluate the majority of trials which fail, the value of extending and saving lives and improvements in outcomes.  In the United Kingdom where government exercises similar market control, 80 percent of cancer medicines received some form of access restriction and in 2013 the government rejected all six new cancer medications that it reviewed.  

Reduction of In-­State Research and Development 

Most troubling, the proposal, if enacted, will lead to a reduction in research and development at a time when the promise of cutting edge science is being realized as pharmaceutical breakthroughs are leading to meaningful and new therapies for many disease states.  Bringing pharmaceuticals to the market place is costly and the majority of promising agents fail in the development process, 88 percent of clinical drug trials fail and a developed drug takes on average 10 years.  All told, pharmaceutical companies spent $51 billion on research and development in 2014.

Intuitively, we understand that price controls will lead to a reduction in research and development investments and that perspective is supported by literature, as numerous studies have demonstrated that pharmaceutical price caps lead to a meaningful reduction in research and development investment.  A 2008 Rand study found that regulatory approaches like price caps “may generate modest savings in the best cases, but risk much larger costs as decreased innovation leads to reductions in life expectancy.” (1)  A National Bureau of Economic Research report found that a 40-­50 percent reduction in drug prices will lead to a 30 to 60 percent reduction in early stage research and development projects. (2) Finally, a literature review of empirical studies on the effects of government price regulation found that “price regulation has adverse consequences on the cost and quality of medical care” including reducing research and development investment and new drug discoveries leading to a reduction in patient longevity and higher expenditures for other forms of medical care. (3) 

Intrusion Upon Proprietary Information 

The proposal is not only an intrusive governmental interjection into the private market but also mandates that pharmaceutical companies provide the State with highly sensitive, confidential and proprietary information. The State’s Freedom of Information Law does not offer any guarantee that the information would be exempt from disclosure as that determination is made after the information has been submitted and the State receives a request for the information.  Considering the highly sensitive nature of such information, it is foreseeable that companies may respond by declining to provide the information which may restrict access to innovative therapies for Medicaid recipients.  The ability of the State to routinely request such highly sensitive commercial information for its own commercial purposes also sets an ominous precedent. 

Meaningful Checks on Brand Pharmaceutical Price Increases Already Exist 

The Medicaid program has numerous and less intrusive mechanisms right now under federal and state law and the activity of private market participants to properly address purchasing of life saving pharmaceuticals.  Under federal law, pharmaceutical manufacturers pay a rebate of 23.1% of average manufacturer’s price (4).  Federal law also requires that any best price achieved by any market purchaser is extended to the Medicaid program.  Federal law also protects against price increases greater than the consumer price index and imposes an additional rebate for any increase greater than that amount.  The State has also created a preferred drug list and has imposed access barriers to many pharmaceuticals largely on the basis of price.  

Additionally, the State utilizes managed care companies to administer the Medicaid program.  Like the State, health plans utilize preferred drug lists and leverage the purchasing power of pharmaceutical benefit managers, the two largest of which cover 90 million and 85 million lives respectively.  In comparison, the State’s total population is approximately 20 million and the State’s Medicaid population is approximately 5 million.  Managed care plans also impose access barriers to pharmaceuticals including the omission of drugs from their formularies and requiring prior approval from a prescriber.  Finally, the State enjoys the robust competition in the pharmaceutical sector itself.  The drive to discover and bring to market innovative products increases competition, drives down total health care costs and improves outcomes. 

Legal Implications 

The proposal is also legally suspect.  Federal patent law preempts any law that interferes with the pricing of patented drugs, biologics, or devices. (5) Federal courts have found that “the underlying determination about the proper balance between innovators’ profit and consumer access to medication…is exclusively one for Congress,” (6) and the Hatch-­Waxman Act extended the patent term for pharmaceuticals in order to “create a significant, new incentive which would result in increased expenditures for research and development, and ultimately in more innovative drugs. (7) The proposal directly interferes with drug manufacturers’ ability to price their products by allowing the State to effectively enjoin them from raising prices through a mandated surcharge. The Federal Circuit struck down substantially similar D.C. law prohibiting “any patented drug from being sold…for an [undefined] excessive price” and imposing injunction, fines, and treble damages for violators. (8)

For all of the above reasons, MedTech requests your opposition to State price controls for pharmaceuticals.

View the formal letter of opposition here.

 1 Adamson, David Regulating Drug Prices Rand Corporation (2008) (emphasis added). 

2 Abbott, Thomas and Vernon, John The Cost of US Pharmaceutical Price Reductions: A Financial Simulation Model of R&D Decisions, National Bureau of Economic Research Working Paper 11114 (Feb. 2004). 

3 Kessler, Daniel The Effects of Pharmaceutical Price Controls on the Cost and Quality of Medical Care: A Review of Empirical Literature (June, 2004).  

4 Prior to 2010, the rebate level was 15.1%. 

5 Ultra-­‐‑Precision Mfg., Ltd. V. Ford Motor Co., 411 F.3d 1369, 1377 (Fed. Cir. 2005). 6 Biotech. Indus. Org. v. Dist. Of Columbia (BIO), 496 F.3d 1374 (Fed. Cir. 2007). 

7 H.R. Rep. 98-­‐‑857,18. 

8 BIO, 496 F.3d at 1365-­‐‑66.

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