Testimony before the New York State Assembly Committee on Health

Prescription Drug Marketing and Purchasing Reform: The Impact on Accessibility and Affordability

New York, NY

Mr. Chairman, thank you for the opportunity to testify before your committee today.  To introduce myself, I am Grace-Marie Turner, president of the Galen Institute, a non-profit health and tax policy research organization that I founded in 1995 to promote a more informed debate over free-market solutions to the problems in our health sector. 

I asked to speak today to offer some ideas about the larger environment of rising health costs and particularly prescription drug expenditures.  I would like to suggest that there may be alternative ways that your committee may wish to consider to solve those problems while providing physicians and patients more control over choices involving medications.

I am concerned about legislation that takes us down a path of additional or expanded price controls on drugs and more and more rules and regulations that add new costs to the system. I would suggest that each of the bills that you have called this hearing to discuss could have unintended consequences by adding more costs to the system and further restricting the choices that doctors need to prescribe the most appropriate medicines for their patients.

A. 3848 in particular would expand state price controls and forced rebates for prescription drugs to a much larger segment of New York’s population.  Expanding state bulk purchasing and discount programs are an effort to further ratchet down spending on prescription drugs.  Many members of the Assembly argue that other countries have regimes in place to limit the amount that the state pays for prescription drugs for citizens enrolled in government-dominated health coverage.  But as a result, those countries seldom pay a fair share of the costs of development of those drugs – estimated to be upwards of $1 billion for each new drug that pharmaceutical companies bring to market.  Because much of the market in this country is free of those controls on prices – and restrictions on access to new drugs – American consumers bear a disproportionate share of the research and development costs of new drugs.  But the other side of that equation is the reality that this country provides the engine for pharmaceutical research for the planet.  We have held conferences in Washington in which European health policy experts pleaded with U.S. policymakers not to follow the path that their countries have taken in decimating their research-based pharmaceutical industries.  Not only have they lost tens of thousands of good, high-paying scientific jobs, but they also realize that if the U.S. were to join the international movement toward price controls, that research into new cures for cancer, Alzheimer’s, Parkinson’s, and many other fatal and crippling diseases would slow or even come to a halt.

New York State, as powerful an economic force as it is, cannot fix the problem of a global imbalance in R&D expenditures.

I’d like to suggest an alternative path, one that has demonstrated success.

When Congress created the new prescription drug benefit for the Medicare program, it started with a belief in the power of competition and consumer choice.  Recognizing that price controls are a dead-end street and that restrictions on access would harm the very seniors they were trying to help, they created a program in which private drug plans would negotiate with pharmaceutical companies to get the lowest prices, and then those plans would compete to give the best deal to seniors on price and choice of drugs.

Just yesterday, the acting administrator of the Centers for Medicare and Medicaid Services (CMS) Kerry Weems announced that Medicare’s prescription drug benefit is providing drug coverage to more seniors and is costing taxpayers less than predicted.

The overall ten-year projected cost of the Medicare drug benefit is $117 billion less than was estimated last summer.  And that number is below the earlier, downwardly-revised projections.  Health and Human Services Secretary Michael Leavitt attributes the lower overall projected costs to lower estimates of plan spending, higher rebates from drug manufacturers, and the slowing of drug cost trends.

Mr. Weems says the net projected Medicare cost of the drug benefit now is $243.7 billion, or 38.5 percent less than the 10-year (2004-2013) estimate used to score the Medicare drug benefit in 2003.

In addition, more seniors are benefiting from the program.  Mr. Weems said that 1.5 million more Medicare enrollees signed up for the Medicare Part D program during the recent enrollment season that ended December 31, bringing the total number of Medicare beneficiaries with drug coverage to 39.5 million.

So we have a proven example that competition and choice can work in a major public program.

In the private sector, we have seen consumer demand for lower-cost drugs lead to a major program initiated by Wal-Mart to sell hundreds of generic drugs for $4 for a month’s supply.  Many other retailers and pharmacies have followed suit.  One grocery chain, Publix Foods based in Florida, says that if someone has a prescription for a generic antibiotic, their pharmacies will fill it at no charge.  This is the competitive marketplace at work.

And there are a number of innovative state programs using information to better control expenditures on prescription drugs, while improving patient care.

One example is a program implemented in several states that is using information to control unnecessary spending on drugs.  The eMPOWERx program supplies a secure, wireless device to physicians so they can access 100-day prescription history for each of their Medicaid patients. That information is then integrated with the state Medicaid’s preferred drug list, along with drug information, interaction screening tools, and best practices in certain behavioral health categories. eMPOWERx also features e-prescribing to minimize prescription errors.

The Florida Agency for Health Care Administration (AHCA) implemented the eMPOWERx program in 2003 and has since received CMS’s “best practice” recognition for implementing a safe and effective approach to lowering state prescription costs. More than 3,000 physicians in Florida can exchange information electronically on their Medicaid patients’ medications to prevent adverse drug interactions, over-prescribing of the same or similar drug by different physicians, or the improper use of narcotics.  The program costs $2 million for every 1,000 prescribers and saved $50 million over the first two years.

In February 23, 2005, the Governor’s Health Information Infrastructure Advisory Board issued an interim report that said:  “The program has consistently reported high return on investment to the state, demonstrating that the implementation of successful health information technology infrastructure can save lives and save money. It would be highly advisable for one or more pilot projects to build on that considerable footprint, expanding the program to include other patient populations and/or other types of health information (e.g., lab values, encounter data, etc.).”

Mississippi has implemented a similar program.  Its annual cost is $500,000 for 225 prescribers.  The savings were $14.4 million in 2006.

Rather than burdening physicians with additional restrictions on prescribing, imposing new regulatory and paperwork burdens on the system, and going further down the futile path of price controls, new programs like this show there is a different way.

The private marketplace has enormous untapped power, showing that competition and choice are compatible with cost savings.  Working in partnership with physicians, innovative information technology companies, and companies in the health sector can show a different path that will lead to better care and continued progress on the new drugs that our health care system so desperately needs.

Thank you for the opportunity to testify today.  I would be happy to provide additional information.

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Prescription Drug Marketing and Purchasing Reform: The Impact on Accessibility and Affordability

New York, NY

Mr. Chairman, thank you for the opportunity to testify before your committee today.  To introduce myself, I am Grace-Marie Turner, president of the Galen Institute, a non-profit health and tax policy research organization that I founded in 1995 to promote a more informed debate over free-market solutions to the problems in our health sector. 

I asked to speak today to offer some ideas about the larger environment of rising health costs and particularly prescription drug expenditures.  I would like to suggest that there may be alternative ways that your committee may wish to consider to solve those problems while providing physicians and patients more control over choices involving medications.

I am concerned about legislation that takes us down a path of additional or expanded price controls on drugs and more and more rules and regulations that add new costs to the system. I would suggest that each of the bills that you have called this hearing to discuss could have unintended consequences by adding more costs to the system and further restricting the choices that doctors need to prescribe the most appropriate medicines for their patients.

A. 3848 in particular would expand state price controls and forced rebates for prescription drugs to a much larger segment of New York’s population.  Expanding state bulk purchasing and discount programs are an effort to further ratchet down spending on prescription drugs.  Many members of the Assembly argue that other countries have regimes in place to limit the amount that the state pays for prescription drugs for citizens enrolled in government-dominated health coverage.  But as a result, those countries seldom pay a fair share of the costs of development of those drugs – estimated to be upwards of $1 billion for each new drug that pharmaceutical companies bring to market.  Because much of the market in this country is free of those controls on prices – and restrictions on access to new drugs – American consumers bear a disproportionate share of the research and development costs of new drugs.  But the other side of that equation is the reality that this country provides the engine for pharmaceutical research for the planet.  We have held conferences in Washington in which European health policy experts pleaded with U.S. policymakers not to follow the path that their countries have taken in decimating their research-based pharmaceutical industries.  Not only have they lost tens of thousands of good, high-paying scientific jobs, but they also realize that if the U.S. were to join the international movement toward price controls, that research into new cures for cancer, Alzheimer’s, Parkinson’s, and many other fatal and crippling diseases would slow or even come to a halt.

New York State, as powerful an economic force as it is, cannot fix the problem of a global imbalance in R&D expenditures.

I’d like to suggest an alternative path, one that has demonstrated success.

When Congress created the new prescription drug benefit for the Medicare program, it started with a belief in the power of competition and consumer choice.  Recognizing that price controls are a dead-end street and that restrictions on access would harm the very seniors they were trying to help, they created a program in which private drug plans would negotiate with pharmaceutical companies to get the lowest prices, and then those plans would compete to give the best deal to seniors on price and choice of drugs.

Just yesterday, the acting administrator of the Centers for Medicare and Medicaid Services (CMS) Kerry Weems announced that Medicare’s prescription drug benefit is providing drug coverage to more seniors and is costing taxpayers less than predicted.

The overall ten-year projected cost of the Medicare drug benefit is $117 billion less than was estimated last summer.  And that number is below the earlier, downwardly-revised projections.  Health and Human Services Secretary Michael Leavitt attributes the lower overall projected costs to lower estimates of plan spending, higher rebates from drug manufacturers, and the slowing of drug cost trends.

Mr. Weems says the net projected Medicare cost of the drug benefit now is $243.7 billion, or 38.5 percent less than the 10-year (2004-2013) estimate used to score the Medicare drug benefit in 2003.

In addition, more seniors are benefiting from the program.  Mr. Weems said that 1.5 million more Medicare enrollees signed up for the Medicare Part D program during the recent enrollment season that ended December 31, bringing the total number of Medicare beneficiaries with drug coverage to 39.5 million.

So we have a proven example that competition and choice can work in a major public program.

In the private sector, we have seen consumer demand for lower-cost drugs lead to a major program initiated by Wal-Mart to sell hundreds of generic drugs for $4 for a month’s supply.  Many other retailers and pharmacies have followed suit.  One grocery chain, Publix Foods based in Florida, says that if someone has a prescription for a generic antibiotic, their pharmacies will fill it at no charge.  This is the competitive marketplace at work.

And there are a number of innovative state programs using information to better control expenditures on prescription drugs, while improving patient care.

One example is a program implemented in several states that is using information to control unnecessary spending on drugs.  The eMPOWERx program supplies a secure, wireless device to physicians so they can access 100-day prescription history for each of their Medicaid patients. That information is then integrated with the state Medicaid’s preferred drug list, along with drug information, interaction screening tools, and best practices in certain behavioral health categories. eMPOWERx also features e-prescribing to minimize prescription errors.

The Florida Agency for Health Care Administration (AHCA) implemented the eMPOWERx program in 2003 and has since received CMS’s “best practice” recognition for implementing a safe and effective approach to lowering state prescription costs. More than 3,000 physicians in Florida can exchange information electronically on their Medicaid patients’ medications to prevent adverse drug interactions, over-prescribing of the same or similar drug by different physicians, or the improper use of narcotics.  The program costs $2 million for every 1,000 prescribers and saved $50 million over the first two years.

In February 23, 2005, the Governor’s Health Information Infrastructure Advisory Board issued an interim report that said:  “The program has consistently reported high return on investment to the state, demonstrating that the implementation of successful health information technology infrastructure can save lives and save money. It would be highly advisable for one or more pilot projects to build on that considerable footprint, expanding the program to include other patient populations and/or other types of health information (e.g., lab values, encounter data, etc.).”

Mississippi has implemented a similar program.  Its annual cost is $500,000 for 225 prescribers.  The savings were $14.4 million in 2006.

Rather than burdening physicians with additional restrictions on prescribing, imposing new regulatory and paperwork burdens on the system, and going further down the futile path of price controls, new programs like this show there is a different way.

The private marketplace has enormous untapped power, showing that competition and choice are compatible with cost savings.  Working in partnership with physicians, innovative information technology companies, and companies in the health sector can show a different path that will lead to better care and continued progress on the new drugs that our health care system so desperately needs.

Thank you for the opportunity to testify today.  I would be happy to provide additional information.

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About the author