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Executive Summary

Senate Labor & Human Resources Committee member Hatch (R-Utah) urged rejection of both of Sen. Pryor's (D-Ark.) bills for instituting Medicaid discounts for outpatient prescription drugs, in testimony to the Sept. 17 hearing of the Senate Finance Committee's Subcommittee on Health for Families and the Uninsured. Hatch said he opposed Pryor's measures "and similar proposals, because they not only hamper the current discussions [that is, negotiations between pharmaceutical companies with states] but also because they rely on price controls, therapeutic substitution, and/or the development of formularies." Maintaining that only three of 10 drugs coming on the market "ever recapture their development costs," he said "any proposal that artificially caps charges may harm the incentive to develop new therapies." While any Medicaid legislation is under the Senate Finance Committee's jurisdiction, Hatch's position as the top ranking Republican on Labor & Human Resources provides a key platform for addressing health policy. All of HHS's health programs (with the exception of Medicare and Medicaid) are under Labor's purview. Pointing to competition from generic drugs encouraged by Hatch's and Rep. Waxman's (D-Calif.) 1984 Drug Price Competition and Patent Term Restoration Act, Hatch said "we can achieve real and substantial savings from market forces without distorting the delicate balance of innovation and regulation." Most of his testimony focused on the Waxman/Hatch law. While agreeing that increasing Medicaid spending must be addressed, Hatch suggested there should be some way to "score the savings" resulting from the Waxman/Hatch law and present pharmaceutical company contracts with state Medicaid programs. The Utah legislator noted that "patents on more than 70 drugs, representing $5.5 bil. in sales in the year 1985 alone, have expired since 1984. Because the market share of namebrand drugs is reduced by upwards of 50% within two years after patent expiration, research-based companies have contributed significantly to lower health care costs," Hatch maintained. Sen. Pryor countered Hatch by noting the increase in the prices of many brand products as they go off-patent. Sen. Bradley (D), who has a large proportion of the drug industry based in his homestate of New Jersey, applauded modifications made in Pryor II, but expressed concern about how the Medicaid savings proposals would affect research-based pharmaceutical companies. The "pressure is to seek to save as much as we can so that we can cover more people who are in need of that for health care. At the same time," Bradley continued, "the pharmaceutical industry has a long track record of successful research that has created products that have made life better for millions of people in this country and all around the world." Bradley voiced concern that federal legislation "will be a rigid system of price controls that could very well introduce some serious market distortions. Now, price controls always seem like a good idea until you get into them for a couple of years." However, he added: "Today we have before us a potentially realistic approach [Pryor's second bill, S 3029] that could be ways that could meet everyone's requirements." At the Finance subcommittee hearing, congressional Office of Technology Assessment analyst Judith Wagner presented a study of cost containment, with a focus on R&D. She suggested that strengthening generic substitution would have a "minimal impact" on research investments. "Because generic competition occurs at the end of a drug's product life-cycle, lower expected returns many years in the future when patents expire are much less important to the R&D decision." Wagner said a study of New York Medicaid prescriptions in 1989 found that 63% of claims for multisource drugs were for brandname products. Similarly, Florida recently found that 40% of prescriptions for multisource drugs were filled with innovator products.

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