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Executive Summary

Sen. Pryor (D-Ark.) is expected to introduce a bill in October that would require HHS to consider whether to reduce the market exclusivity of prescription drug products in cases where manufacturers show a continuing pattern of increasing prices faster than inflation. At a Sept. 24 press conference to release a new report by his Special Committee on Aging staff, Pryor said he will introduce legislation based on the report's recommendations. One of the recommendations would require HHS to study the feasibility of establishing a U.S. "Pharmaceutical Products Price Review Board" that would be authorized "to limit market exclusivity on certain drugs whose manufacturers refuse to price their products responsibly." The Arkansas Democrat indicated that he has drafted a bill and plans to circulate it to committee members in early October and introduce it by mid-October. Entitled "The Drug Manufacturing Industry: A Prescription for Profits," the staff report makes 11 policy recommendations that constitute the various provisions of the legislative proposal. The report suggests that legislation is needed to prevent the pharmaceutical industry from raising prescription drug prices at the inflationary rates of the 1980s throughout the 1990s. "Attempting to shame the drug manufacturing industry" by publicizing its pricing practices "is obviously not working," Pryor declared. Congress must enact "reasonable but concrete proposals . . . that more effectively and fairly deal with the drug pricing problem," Pryor maintains. The report's "policy options are offered in that spirit." The report recommends that HHS "determine how best to have manufacturers justify domestic pricing practices on existing and new drug products, especially where there are wide discrepancies between international and domestic prices." Pryor noted that Canada has established a drug price review board. In updating findings from Pryor's 1989 hearings (see following story), the report states that U.S. consumers on average pay 62% more for drugs than Canadians and 54% more than Europeans. Pryor remarked that the Canadian price review board has done "a remarkably effective job in controlling, and in some cases even turning back, price increases" of the drug industry. "We believe that such a board in our country, in our system would work very well," he said. The legislation, he said, "would force the manufacturers to come before that particular board for their price increases -- especially if those increases go beyond the cost of inflation." The legislation also is expected to require that "best prices" under Pryor's Medicaid rebate legislation enacted in 1990 be indexed retroactively to a date preceding enactment. Manufacturers reportedly have raised their best prices to reduce the size of Medicaid rebates. The indexing would have the effect of reducing prices to previously favored customers -- such as the Veterans Affairs Department and large nonprofit hospitals -- and increasing the size of price rebates to Medicaid. The report also recommends that legislation be enacted to provide inflation protection to V-A and other government purchasers. Sen. Kennedy (D-Mass.) has introduced a bill (S 1729) to restore deep discounts that formerly were provided to PHS- funded programs but have been eliminated by companies to avoid having to offer similar best prices to Medicaid ("The Pink Sheet" Sept. 23, T&G-8). The Aging Committee report notes that studies required by Pryor's Medicaid law will show whether drug manufacturers are responding to the law's best price provision "by excessively raising prices to pharmaceutical purchasers such as hospitals and HMOs." The report recommends that "if this is the case, Congress should amend the Medicaid rebate law so that the rebate is based on a 'best price' anchored to a certain date in time, increased each year by changes in inflation." Pryor said his legislation also would reduce Sec. 936 tax credits for manufacturing in Puerto Rico by the same percentage that drug company price increases exceed general inflation. The report recommends that Congress "enact legislation that would reduce the possessions tax credits of a drug manufacturer that inflates its U.S. drug prices higher than a certain percentage of the Consumer Price Index." Furthermore, the report recommends that the increased tax revenues resulting from the 936 credit limitation "should be directed to a new 'Federal Prescription Drug Trust Fund' . . . used to establish a Medicare Outpatient Prescription Drug Demonstration Project." Another provision of Pryor's proposal would limit the R&D tax credit to companies that develop products rated by FDA as providing significant therapeutic advances over previously existing therapies. The report recommends that HHS and the Treasury Department "should assess the advisability of developing a program that would restructure pharmaceutical product R&D tax credits so that they are based on the therapeutic innovativeness of the products that are brought to market." The report adds that manufacturers that "consistently bring few or no breakthrough drugs to the market and produce medications that largely duplicate what is already available should not be rewarded to the same degree" as those firms that are more consistently innovative. Pryor noted that five out of 19 top drug companies have launched no new products since 1985 yet have received R&D tax credits each year since then. Another recommendation would require FDA to publicize the government's role in developing new drugs, with an eye toward retaining partial marketing rights for the government. HHS and FDA "should develop a program that identifies and makes public the role of the federal government in bringing each new drug and biological to market," the report states. "In instances in which there is a significant federal role in bringing a new product to the market, [the government] should seek to be a co-licensee of the product with the pharmaceutical manufacturer." At a 1986 hearing, Rep. Waxman (D-Calif.) criticized Burroughs Wellcome for launching Retrovir (AZT or zidovudine) with a high price despite the fact it received substantial help in developing the AIDS drug from the National Institutes of Health. The report also recommended that the Treasury Department and HHS "be required to submit an annual report to Congress on all the federal subsidies, grants and tax incentives given to the pharmaceutical industry, and make an assessment of whether these federal subsidies are being used in the most efficient manner by the pharmaceutical industry." Pryor told the press conference that despite "countless" hearings of the Senate Finance and Aging Committees, legislation and "subtle and unsubtle" messages to the industry, manufacturers "keep pushing up their prices to an extent that truly makes our heads spin." The senator added that "it is not surprising" but "it is disappointing that after two and one-half years in office [the Bush] Administration not only has failed to develop its own concrete proposals to deal with either the health care cost prices in general but also the prescription drug inflationary prices in particular." He remarked that the Administration seems to have taken a "sedative . . . and they don't even seem to acknowledge this to be one of our problems."

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