Inconsistent Support of Innovation, Jobs, and American Competitiveness

Two important health policy debates are occurring in Washington, D.C. this week.  One is regarding the future of medicine in America via a PDUFA (Prescription Drug User Fee Act) hearing by the House Energy and Commerce Subcommittee on Health. The second is the future of the American economy via deficit reduction talks in the White House and on Capitol Hill.  Both of these debates will have a significant impact on the future of biopharmaceutical innovation, patient access to medicines, and jobs in the United States.

Let's begin with the hearing on PDUFA.

Yesterday was the first hearing for the PDUFA V re-authorization. The primary purpose for PDUFA, if I may boil it down to the basics, is to provide a framework for the FDA in regards to how medicines are reviewed and brought to market. Yet, the implications of PDUFA stretch beyond simple drug review to impact medical innovation, competitiveness, and the importance of the biomedical industry.  Several Members of Congress highlighted the importance of ensuring innovation to bring new breakthrough therapies to patients and increase America's competitiveness. 

  • The Health Subcommittee Chairman Joseph R. Pitts (R- PA) stated, "If PDUFA is not reauthorized, this study estimates that 130,000 to 260,000 jobs would be lost." He stipulates this by saying, "the drug industry employs thousands of people here in the United States, providing good jobs that we cannot afford to lose."
  • Ranking Member Frank Pallone, Jr. (D-NJ) echoed the Chairman's sentiment by saying, "America's competitiveness depends on our ability to innovate. I hope we can move forward on PDUFA in a bipartisan manner like we did in 2007."   
  • House Energy and Commerce Chairman Fred Upton (R-MI) further emphasized the importance of the biopharmaceutical industry. "One area this committee will examine is the lack of predictability and certainty at FDA.  These problems at FDA appear to be stifling American innovation, costing American jobs, and hurting American patients."

We agree with many of the statements made today at the hearing.  Medical innovation and the biopharmaceutical industry are critical components of both the future of health care and the future of American economy, competitiveness, and jobs.  Yet there are times that policymakers in Washington are inconsistent.  This is one of those times. 

While virtually all Members of Congress support our industry and patients when it comes to PDUFA (and the importance of innovation and competitiveness that come along with it), others are looking to impose a tax on the industry that would not only hinder innovation and potentially access to medicines but negatively impact the economy with an estimated loss of 100,000 - 260,000 jobs in the industry.  The proposed tax is in the form of a Medicare Part D mandatory rebate to the federal government for dual-eligibles, or those who qualify for health benefits under both Medicare and Medicaid.

In efforts to reduce the federal deficit, Rep. Henry Waxman (D-CA) and Senator Jay Rockefeller (D-WV) propose to generate Medicare savings by mandating that pharmaceutical manufacturers directly pay the federal government an additional, Medicaid-style, rebate for their drugs purchased by dual-eligibles. (As a side note, through a private-market, competitive bidding process - without the interference of price controls - Medicare Part D has already operated at costs that are estimated to be over 40% lower than projected). On the surface, this may seem like a solid proposal to curb health care costs and reduce the deficit, but this is not the case.  This tax would be used as a means to reduce federal spending, though in reality, such a policy would have a minimal impact on the federal deficit, would not reduce health care costs, and would have a very negative impact on our industry.

Let me explore some of the wonky details.  In a June blog, I discussed a report by the Congressional Budget Office warning that enactment of the above provisions in the America's Affordable Health Choices Act of 2009 would increase premiums of Part D beneficiaries by an average of 5 percent in 2011, increasing to 20 percent by 2019.  The CBO estimates that Part D beneficiaries will save on payments for prescription drugs, which can help offset the cost of increased premiums.  This would only be the case, however, if the rebates actually went to the consumers and their plans.  Rather than pay the additional rebates to Part D plans, where net savings directly advantage the plan's beneficiaries, the proposed drug rebates go to the federal government, where money is highly fungible.  Thus, Medicare budget savings would get lost elsewhere in the federal budget, and Medicare beneficiaries would incur the incidence of this tax in other ways. 

Further supporting CBO's evidence, a Working Paper released last week by the American Enterprise Institute confirmed that Washington's controls over rebates would simply and unjustly shift costs to health care consumers.  Again, average premiums will rise and pharmaceutical manufacturers are forced into perverse incentives: Fixed, mandatory rebates on Part D prescription drugs "would reduce manufacturers' incentives to invest in R&D on products that would be expected to have significant Medicare sales," according to another CBO report.  This could stifle potential breakthrough discoveries to treat Parkinson's, Alzheimer's, arthritis, osteoporosis, and other diseases that disproportionately affect the elderly.

Experts agree that real health care cost-savings can come from innovative medicines and preventative treatments that keep patients out of the hospital.  A rebate that ultimately harms patients and innovative drug manufacturers is both short-sighted and ineffective.  A tax on the industry has real implications, including:

  • A loss of 100,000 or more high-paying, high-skilled jobs supported across our industry over the next 10 years;
  • A reduced investment in the R&D needed to discover new treatments;
  • Higher Medicare premiums; and
  • Increases in drug prices elsewhere.

We encourage those within the industry and those who support medical innovation and wish to foster American competitiveness to oppose efforts to enact a tax on the industry.