| PoliticoNewYork|Jan. 20, 2016
Gov. Andrew Cuomo is seeking effectively to cap the price of certain pharmaceuticals and require unprecedented transparency from manufacturers.
The governor’s new budget proposals, which are opposed by pharmaceutical companies, inject the governor and New York State into a national debate over rising drug prices, which have become a focus of the presidential campaign and a congressional inquiry.
Cuomo’s plan, should it be approved by the state Legislature, would allow the state’s health commissioner to develop a list of prescription drugs “for which there is a significant public interest in ensuring rational pricing by drug manufacturers.”
The manufacturers of the drugs on the list would then be required to provide a minimum rebate to Medicaid, which would be set by the state following an actuarial study.
Further, the governor is proposing that manufacturers provide a host of information to the state explaining how they arrive at the price of their drugs.
“He is really trying to get at transparency of drug pricing, which is not just a state issue but a national issue, and it is truly entering sacred ground that no one has been able to crack the code on,” said Assemblyman John McDonald, a Democrat who owns a pharmacy in Cohoes. “In a way, the gauntlet is being laid down on pharma.”
The state would require pharmaceutical companies to disclose the cost of developing, manufacturing, producing and distributing the drug. Cuomo wants to know the research and development costs of the drug, including payments to predecessor entities conducting research and development. The governor wants companies to disclose the total cost of all marketing and advertising costs that are directed to consumers and prescribers in New York.
Cuomo also wants the pharmaceutical companies to divulge the prices charged to other purchasers in New York, including pharmacies, pharmacy chains, pharmacy wholesalers or other direct purchasers; the average rebates and discounts provided per payer type; the average profit margin of each drug over the prior five-year period and the projected profit margin anticipated for such drug.
Priscilla VanderVeer, a spokeswoman for the Pharmaceutical Research and Manufacturers of America, which represents biopharmaceutical researchers and biotechnology companies, said her members have “significant concerns with the bill.”
“Not only will implementing price controls have a very negative impact on innovation and send a signal that risk taking will not be rewarded, but also the so-called ‘transparency’ information called for in the proposals would be virtually impossible to achieve because it does not include the cost of failures inherent in the search for new treatments and cures,” she said in an email. “The disclosure requirements also do not account for the tremendous value that these medicines bring to the broader health care system in the form of fewer complications, hospitalizations and emergency room visits, as well as healthier, more productive patients.”
The Cuomo administration did not respond to requests for comment explaining how they would come up with their list of drugs or determine their price ceiling.
Cuomo and other politicians may not need the legislation to succeed in order to meet their ultimate goal.
An article in the Rand Journal of Economics found that drug companies tend to reduce prices in response to political pressure. While past performance is not always indicative of future results, Austin Frakt, a health economist who blogs for the New York Times,wrote “there may be early signs of industry sensitivity to political pressure on prices,” and pointed to the plummeting stocks of certain pharmaceutical companies.
The issue of rising costs has taken on national prominence.
Democrats Bernie Sanders and Hillary Clinton have pledged to tackle rising prescription drug prices. Republican Marco Rubio has said “pure profiteering” and high prices threaten to “bankrupt our system.”
In New York, trade groups representing the hospitals and insurers have bemoaned the rising cost of drugs, saying these costs are passed on to consumers, which is why health care costs are rising.
VanderVeer said retail spending on medicines accounts for approximately 10 percent of all health care costs, and only 4.7 percent of Medicaid spending in New York State, but that hasn’t slowed the torrent of criticism, which peaked late last year when Martin Shkreli, the so-called “pharma-bro” and Wu-Tang Clan lover, raised the price of Daraprim more than 5,000 percent.
Shkreli, who was arrested last month in his Manhattan apartment on unrelated fraud charges, became a symbol of pharmaceutical greed, one the PhRMA has taken great pains to distance the industry from.
Despite their efforts, Shkreli’s abrasive antics coupled with reports of rising prices from well-established companies such as Pfizer have led politicians across the country to examine price controls.
“The costs are driving the market into a tizzy,” McDonald said. “It has definitely put pharma in a defensive mode.”
Many of the nation’s largest companies and their lobbyists have pushed back, arguing expensive drugs are the price we pay for innovation, that no one really pays retail price for these drugs and that the lifesaving effect of the drug is worth whatever the companies are charging.
Still, the pharmaceutical industry is facing a tough fight as hospitals, insurers and state Medicaid directors are all demanding relief, and the public is pushing its representatives to do something to reign in what are perceived to be exorbitant prices.
A recent Kaiser Health Foundation poll found the affordability of prescription drugs continues to be at the top of the public’s priority list for the president and Congress.
“It requires a federal solution,” McDonald said, “but the federal government has taken no action and therefore you can’t blame the states for being frustrated.”