2 Kaiser Family Foundation, “10 Essential Facts about Medicare and Prescription Drug Spending,” Nov. 10, 2017.
3 White House, “President Donald J. Trump’s Blueprint to Lower Drug Prices,” fact sheet, May 11, 2018.
4 The markets agreed. “Health-care companies across the drug supply chain had been nervous in the run-up to Trump’s speech, with stocks dipping as he began his remarks before ending higher at the close of trading.” Carolyn Y. Johnson, “Trump Promises to ‘Derail the Gravy Train’ and Lower Drug prices in ‘American Patients First’ Plan,” Washington Post, May 11, 2018.
5 Associated Press, “Drug Prices Climb Despite Trump Promise, Investigation Finds,” Sept. 25, 2018.
6 U.S. Department of Health and Human Services, “HHS Advances Payment Model to Lower Drug Costs for Patients” (news release), Oct. 25, 2018.
7 Kaiser Family Foundation, “10 Essential Facts about Medicare and Prescription Drug Spending,” Nov. 10, 2017.
8 Food and Drug Administration, Office of Generic Drugs, “2016 OGD Annual Report,” Jan. 2017.
9 General Pharmaceutical Association, “Generic Drugs Continue to Deliver Billions in Savings to the U.S. Healthcare System, New Report Finds,” Oct. 19, 2016.
10 Bradley Sawyer and Nolan Sroczynski, “How Do Health Expenditures Vary Across the Population?,” Kaiser Family Foundation, Dec. 1, 2017.
11 Sawyer and Sroczynski.
12 Federal Reserve Board, “Report on the Economic Well-Being of U.S. Households in 2017,” May 2018.
13 Sawyer and Sroczynski.
14 Federal Reserve Board, 25.
15 Fortune now charges $1,000 per year for its data. Drug pricing is not the only market with inflation!
16 Bob Herman, “Pharma’s $50 Billion Tax Windfall for Investors,” Axios, Feb. 22, 2018.
17 Center for Medicare and Medicaid Services, NHE Fact Sheet, April 17, 2018.
18 Juliette Cubanski and Tricia Neuman, “The Facts on Medicare Spending and Financing,” Kaiser Family Foundation, June 22, 2018.
19 Robin Rudowitz and Rachel Garfield, “10 Things to Know about Medicaid: Setting the Facts Straight,” Kaiser Family Foundation, March 12, 2018.
20 Theodore R. R. Marmor, The Politics of Medicare, 2nd ed. (London: Routledge, 2017), 49–53, 60.
21 The health status of America’s poor—especially poor children—in the mid-1960’s is hard to imagine today. Jonathan Engel’s book chronicles a number of shocking reports of the era. One on children’s health in rural Mississippi in the early 1960s found “in child after child . . . evidence of vitamin and mineral deficiencies; serious, untreated skin infections and ulcerations; eye and ear diseases, also unattended bone disease secondary to poor food intake, the prevalence of bacterial and parasitic disease . . . children afflicted with chronic diarrhea . . . leg and arm injuries and deformities.” Another in Kentucky discovered that “children displayed skin ulcerations, tooth decay, open sores, boils, abscesses, impetigo, rat bites, and hookworm.” And a House Ways and Means Committee investigation concluded “that half of all children in the United States under the age of fifteen had never been to a dentist.” Jonathan Engel, Poor People’s Medicine: Medicaid and American Charity Care since 1965 (Durham: Duke University Press, 2006), 49, 74–75.
22 From May 1967 until February 1969 an HEW Task Force on Prescription Drugs undertook a “comprehensive study of the problems of including the costs of prescription drugs under Medicare.” Task Force on Prescription Drugs, Final Report, U.S. Department of Health, Education, and Welfare (Washington, D.C.: Office of the Secretary of Health, Education, and Welfare, 1969).
23 Supplemental “Medigap” insurance policies available to Medicare beneficiaries since the 1980’s often covered prescription drugs. See Jonathan Oberlander, The Political Life of Medicare (Chicago: University of Chicago Press, 2003), 60.
24 Oberlander, 46. The detailed account of how Medicare’s Part B and Medicaid got added to the original proposal of hospital insurance in 1965 is in Marmor, The Politics of Medicare, chap. 6.
25 Marmor, 89.
26 Rosemary Stevens interprets the differing standards in the following way: “presumably ‘reasonable cost’ . . . would bear a direct relationship to the actual cost of services provided. . . . For other services provided under Medicaid, states could, however, choose their own formulae and set their own payment schedules. These alternatives could include the long welfare tradition of reimbursing at less than cost, in other words, expecting providers to donate out of charity.” See Robert Stevens and Rosemary Stevens, Welfare Medicine in America: A Case Study of Medicaid (London: Routledge, 2017), 66.
27 Marmor, 89. The legislation borrowed instead from the commercial insurance practice of the time in the reasonable charge standard, with Aetna’s plan for federal employees as the particular source.
28 Statement of Austin Smith, MD, President, Pharmaceutical Manufacturers Association (PMA), in the U.S. Senate Committee on Finance, May 13, 1965, 760.
29 “Reimbursement of Drug Cost: Medical Assistance Program,” 39 Fed. Reg. 41480 (Nov. 27, 1974).
30 It took over two years for any federal regulations to be developed in this area. HEW used an interim policy for drug reimbursement of “actual acquisition cost” (“Reasonable Charges: Notice of Interim Policies and Requirements,” 33 Fed. Reg. 10233–34 (July 16, 1968)), but after a comment period settled upon a policy of “cost as defined by a state agency plus a dispensing fee.” (“Final Rule: Administration of Medical Assistance Programs: Reasonable Charges,” 34 Fed. Reg. 1243–45 (January 25, 1969).
31 “Maximum Allowable Cost (MAC) for Drugs, Notice of Proposed Rulemaking,” 39 Fed. Reg. 40247 (Nov. 15, 1974) and 41351 (Nov. 27, 1974)
32 “Final Rule—Limitations on Payment or Reimbursement for Drugs,” 40 Fed. Reg. 32109 (July 31, 1975) and 34333 (August 15, 1975). A vital aspect of Weinberger’s alternative was an attempt to increase the capacity of states to acquire accurate data on market prices so close estimations of AAC could be derived.
33 A Pharmaceutical Reimbursement Board was created within HCFA to identify the multiple source drugs for which significant federal funds were spent and then to develop a MAC for each. The Board set the MAC at the “lowest unit price” at which the drug was generally available. In 1987, this was changed to “150 percent of the published price for the least costly therapeutic equivalent.”
34 “Pharmaceutical Industry Sues HEW on Government Drug Price-Setting Program,” PMA Newsletter 27 (October 1975): 3.
35 These dispensing fees had some obvious justification. When filling prescriptions, pharmacy businesses incur costs beyond the price of the drug itself. These include expenses such as pharmacist and other employee wages, utilities, rent and overhead. Dispensing fees are paid when pharmacists are reimbursed on an EAC or MAC basis. It has not applied to funding drug costs on a UCC basis, where the cost of dispensing is built into the charge to the paying customer. From the perspective of academic policy analysis, however, there is no single, accepted, correct way to compute actual dispensing costs. There are contested questions that attend this task: the allocation of overhead, for example, how to deal with negative and positive externalities, and the computation of an enterprise’s average as opposed to marginal costs. This means that there is an irreducible uncertainty about what counts as the right dispensing fee. On the other hand, what pharmacists are willing to accept from other payers—rather than declining the business—is one basis for calculating an appropriate level of payment. The Medicaid program has never agreed to finance excess reimbursement for ingredient costs in order to make up for any shortfall in dispensing fees. The documentary record shows clearly that separate provisions were designed and implemented for each type of expense reimbursement. Both components were to be reimbursed independently of one another. The policy for Medicare has been analogous. Significant efforts have been made to reimburse providers for their cost of administration for “incident to” drugs. No “cross-subsidy” policy ever existed.
36 “Final Rule—Limitations on Payment or Reimbursement for Drugs,” 40 Fed. Reg. 32289 (July 31, 1975).
37 Stephane Jacobzone, “Pharmaceutical Policies in OECD Countries,” Four Country Conference: Pharmaceutical Policies in the U.S., Canada, Germany and the Netherlands, July 2000.
38 HHS OIG Report, “Title XIX of the Social Security Act, Limitation on Payment or Reimbursement for Drugs,” Sept. 1, 1984. We are aware of the historical disputes about how the expression AWP was employed. It was part of the rhetorical record, with different actors claiming to have a unique understanding of the practice—as opposed to the dictionary definition of the words, or plain, ordinary meaning. The historical record does not show evidence of any government statute, regulation, or official pronouncement stipulating a distinctive—i.e. different from the dictionary—meaning of “average wholesale price.” There was indeed some evidence of industry collaboration on pricing matters during the period. See “Ruling in Price-Fixing Case Provides a Look at Drug Industry,” New York Times, April 14, 1996.
39 The NARD President called attention to the group effort to block legislative change: “Just as a coalition approach worked wonders in foiling the fed’s attempt to eliminate AWP as a basis for Medicaid reimbursement,” he warned, “unfair pricing will also require a coalition. . . . NARD has talked with the National Association of Chain Drug Stores, the PMA, and the National Wholesale Druggists’ Association. They are all ‘supportive’ of the idea in l985.” (“NARD Leaders Reveal Alliance against Differential Pricing,” Drug Topics, November 18, 1985: 68–69).
40 “Law Enacted to Spur Generic Drug Market,” New York Times, September 25, 1984.
41 Another development, to be discussed later, was what came to be called the whistleblower statute of 1986 and related programs to address alleged waste and fraud in governmental payments for goods and services.
42 “Proposed Rule: Medicare and Medicaid Programs; Limits on Payments for Drugs,” 51 Fed. Reg. 29545 (August 19, 1986) and 33027 (September 18, 1986).
43 “Final Rule: Medicare and Medicaid Programs; Limits on Payments for Drugs,” 52 Fed. Reg. 28650 (July 31, 1987).
44 It should be noted that there were changes in the process of generic drug approval for Medicaid reimbursement. The point here is that the fundamental basis of reimbursement was reviewed, but not authoritatively altered. In addition, we found no evidence of a changed policy towards cross-subsidizing pharmacists. In short, the claim that in the 1980s the federal government’s Medicaid officials accepted that pharmacists should be cross-subsidized by inflating acquisition costs is without empirical foundation. Indeed, HHS rejected proposals to have pharmacists increase revenues from sources other than the dispensing fees. This does not deny that pharmacy interests regularly promoted increased revenue, wherever it could be found. That is expected from interest groups in American politics.
45 “Final Rule: Medicare and Medicaid Programs; Limits on Payments for Drugs,” 52 Fed. Reg. 28650–53 (July 31, 1987).
46 52 Fed. Reg. 28653. Some have suggested the “in the aggregate” language in this regulation changed the policy to one in which the sum of ingredient cost and dispensing cost would be considered as the standard for payment. By this reasoning, it was legitimate to pay higher than estimated ingredient costs if lower than cost payments were made for dispensing fees. We have seen no evidence that such a policy was ever implemented or that such criteria were used for evaluation. In fact, after 1987, the OIG and GAO continued to judge program performance by looking at the gap between estimated and actual ingredient acquisition costs, not any gap between the sums of the two components.
47 An exception was when a state tried to use undiscounted AWP as the method of estimating drug ingredient acquisition cost.
48 Milt Freudenheim, “Cutting the Cost of Medicaid Drugs,” New York Times, Jan. 30, 1990.
49 Milt Freudenheim, “Price Revolt Spreading on Prescription Drugs,” New York Times, Nov. 14, 1989.
50 “Skyrocketing Prescription Drug Prices,” U.S. Congressional Hearings and Majority Staff Report, Nov. 16, 1989 and Jan. 1, 1990.
51 In 1989, the members of the Senate Special Committee on Aging heard testimony by Gerald Mossinghoff, President of the Pharmaceutical Manufacturers’ Association, indicating that “average wholesale price is not determined by our companies. It’s determined in part by surveys done of our companies.” Skyrocketing Prescription Drug Prices: Hearings, Before the Special Committee on Aging, United States Senate, 101st Cong. 157 (1989) (statement of Gerald Mossinghoff).
52 For evidence of the extent to which the Merck program and eventual OBRA 1990 deal were seen as a trade of rebates for open formularies, see “Merck Is Offering to Cut Drug Costs of Medicaid Uses,” New York Times, April 21, 1990; “PMA Board Approves Medicaid Rebate Plan,” PMA Newsletter, Oct. 1, 1990; and “Medicaid Best-Price Drug Plan Written into Budget Summit Agreement,” PMA Newsletter, Oct. 8, 1990.
53 OBRA 90 defined the original rebate formulas. For single-source and innovator-generic drugs, the rebate is the greater of 15.1 percent of the AMP or the full difference between the AMP and best price available in the market place. Rebates for generic drugs were initially a flat 10 percent of the AMP, and increased to 11 percent after 1993.
54 Manufacturers are supposed to pay states a Unit Rebate Amount (URA) for each of their drugs based on the application of the appropriate formula.
55 Robert Pear, “The Struggle in Congress; Most in US Will Feel Effect of Shift in Spending Priorities,” New York Times, October 28, 1990.
56 Consider this New York Times report: “But a lobbyist for the drug industry, who would speak only on the condition of anonymity, said ‘We are surprised that Senator Pryor is surprised. I don’t know what else he would have expected. It’s logical that companies would re-examine their prices if Congress passes a law saying that Medicaid, which accounts for 10 percent of our revenues, must get the best price given to any pharmaceutical customer in the country.’” Robert Pear, “Medicaid Is Denied Discounted Drugs Despite a New Law,” New York Times, Feb. 18, 1991).
57 Fiona Scott-Morton and Mark Duggan, The Effect of Medicaid Regulations on Drug Product Introductions and Pharmaceutical Prices, April 5, 2004, introduction p. 2 and conclusion p. 2.
58 The OIG reports over this period focused on the gap between estimated and actual drug acquisition costs. Eleven OIG reports in 1996–97 focused on Medicaid’s drug payment experience in a sample of states. Two others in 1997 and 2001 focused on similar issues in Medicare outpatient drug reimbursement.
59 VAC was a home infusion provider in Florida that brought a qui tam suit against National Medical Care (NMC) in the early 1990s. Their principal officers alleged violations under the Stark anti-fraud statute. Eight years later, in 2000, NMC (by then a unit of Fresenius) settled with the United States for $486 million. At that time, the settlement was “the largest case of its kind.” See Jennifer Steinhauer, “Justice Dept. Finds Success Chasing Health Care Fraud,” New York Times, Jan. 23, 2001.
60 USA Today reported on the growing concern of congressional investigators, and noted that “some of the documents . . . come from a whistleblower, Ven-ACare pharmacy.” See Julie Appleby, “Drugmakers Accused of ‘Unethical’ Pricing,” USA Today, Sept. 27, 2000.
61 Medicare Drug Reimbursements: A Broken System for Patients and Taxpayers: Joint Hearing, Before the Subcommittee on Health and the Subcommittee on Oversight and Investigations, 107 Cong. (2001).
62 Medicare Drug Reimbursements, 107 Cong. 48 (2001).
63 Medicare Drug Reimbursements, 107 Cong. 88 (2001).
64 Medicare Physician Payment: Geographic Adjusters Appropriate but Could Be Improved with New Data, GAO-HRD-93-93: 3.
65 Oberlander, 123–24.
66 Medicare Program: Fee Schedule for Physicians’ Services (Proposed Rules), 56 Fed. Reg. 25800–1 (June 5, 1991).
67 Medicare Program: Fee Schedule for Physicians’ Services (Final Rules), 56 Fed. Reg. 59507 (November 25, 1991).
68 Medicare Program: Fee Schedule for Physicians’ Services (Final Rules), 56 Fed. Reg. 59524.
69 The practice and malpractice expense components of physician reimbursement continued to be paid on the basis of historical charges and were not scheduled to be rolled into the rbrvs methodology until 1999, when they would be implemented over three years. This plan was ultimately delayed by BIPA 1999.
70 Information on False Claims Act Litigation, GAO-06-320R (December 15, 2005): 26. Recoveries grew as well; the New York Times reported that “from 1997 to 2000, recovery in civil fraud cases grew by more than 50 percent, and last year, of the $1.5 billion recovered by the federal government from fraud cases generally, $840 million was from those involving healthcare.” Jennifer Steinhauer, “Justice Dept. Finds Success Chasing Health Care Fraud,” New York Times, Jan. 23, 2001.
71 “Prescription for Power,” Common Cause, June 2001. No one can claim that lobbying is illegal; it is of course part of the American political world, accepted as defending one’s interests before governmental authority. Such lobbying helped to defeat President Clinton’s AAC plan.
72 “Remarks by the President in Radio Address to the Nation,” White House Office of the Secretary, Dec. 13, 1997.
73 For instance, in 1997, the BBA contained a requirement for the HHS Secretary to study the effects of the 95 percent of AWP policy and report to Congress by July 1, 1999 (Balanced Budget Act of 1997, Pub. L. No. 105-33, 111 Stat. 251 (1997)). The HHS report found mixed evidence on the question of whether the AWP rate of growth accelerated. A Chicago Tribune report notes that Abbott raised the AWP for one drug, Lupron, by 10 percent from 1998 to 1999, “offacting (sic) the lower government allowance.” This was precisely the concern some in the Congress had in mind when ordering the study. See Andrew Zujac and Laurie Cohen, “Feds Probe Abbott Venture’s Drug Sales,” Chicago Tribune, May 23, 1999.
A second instance was in 1999, when Congress passed the Medicare, Medicaid and schip Balanced Budget Refinement Act (BBRA). (Medicare, Medicaid and schip Balanced Budget Refinement Act of 1999, Pub. L. No. 106-113, 113 Stat. 1501 (1999).) There, one provision required the GAO to study the “adequacy of Medicare payments to oncologists” under the recently implemented rbrvs overhaul for administrative expenses.
74 Medicare, Medicaid and schip Benefits Improvement and Protection Act of 2000, Pub. L. No. 106-554, 114 Stat. 2763 (2000).
75 The GAO concluded that physicians were able to obtain “incident-to” drugs at prices well below AWP. “For most physician administered drugs, the average discount from AWP ranged from 13 to 34 percent. Two physician administered drugs had discounts of 65 percent and 86 percent.” (Payments for Covered Outpatient Drugs Exceed Providers’ Cost, GAO-01-1118 (September 2001): 4.) Oncologist administrative costs—reimbursed by the practice expense rbrvs component rolled out in 1999—were 8 percent higher than with the old charge-based system. Another component—practice expenses associated with nonphysician care—was found to be somewhat underpaid.
76 Medicare, Medicaid and schip Benefits Improvement Act of 2000, Pub. L. No. 106-554, 114 Stat. 2763 (2000), sec. 429.
77 DeParle tried to use DOJ AWPs for certain part B drugs. Congress in an interim bill, labeled as a Medicare Anti-Fraud Bill, relieved HCFA of the statutory obligation to use AWP, however. (This occurred after Bliley’s letters to HCFA following his initial investigation.) It required, with Stark’s approval, that HCFA take no such action until the completion of a GAO study also required by the bill. The presentation of the GAO study occurred at the Sept. 21, 2001, hearings at which substantial additional information was provided to the Congress as detailed above.
78 These prices had been collected from a federal/state investigation originating from the VAC qui tam allegations. Namfcu Letters from Feb. 16, 2000, and May 18, 2000.
79 Centers for Medicare and Medicaid Services Program Memorandum, “An Additional Source of Average Wholesale Price Data in Pricing Drugs and Biologicals Covered by the Medicare Program,” HCFA-Pub. 60AB (Washington, D.C.: U.S. Department of Health and Human Services, 2000).
80 “An Additional Source.”
81 Medicare Prescription Drug, Improvement and Modernization Act of 2003, Pub. L. No. 108-173, 117 Stat. 2066 (2003).
82 Robert Pear and Robin Toner, “A Final Push in Congress,” New York Times, Nov. 23, 2003; and see GovTrack, vote totals on the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.
83 Medicare Prescription Drug, Improvement and Modernization Act of 2003, Pub. L. No. 108-173, 117 Stat. 2066 (2003), sec. 301-2239. The new reimbursement formula would be 106 percent of ASP.
84 Average Sales Price is the weighted average of all nonfederal sales to wholesalers net of chargebacks, discounts, rebates, and other benefits tied to the purchase of the drug product, whether it is paid to the wholesaler or the retailer.
85 Martin Sipkoff, “As Drug Payment Model Changes, Confusion Grows among Insurers,” Managed Care (Feb. 1, 2017).
86 Kaiser Family Foundation analysis of CMS 2006-18 Part D plan files.
87 Cubanski and Neuman.
88 Cubanski and Neuman.
89 Medicaid beneficiary data downloaded from the Kaiser Family Foundation, “Total Monthly Medicaid and CHIP Enrollment,” exhibit A.
91 Stephen W. Schondelmeyer and Leigh Purvis, “Trends in Retail Prices of Specialty Prescription Drugs Widely Used by Older Americans, 2006 to 2015,” AARP Public Policy Institute.
92 Ben Popken, “EpiPen Price Hike Has Parents of Kids with Allergies Scrambling ahead of School Year,” NBC News, Aug. 17, 2016.
93 “I think it will be huge,” former Turing chief executive Martin Shkreli wrote in a Aug. 27, 2015 email after his company bought a decades-old drug and made plans to hike its price more than 5,000 percent. “Almost all of it is profit and I think we will get three years of that or more. Should be a very handsome investment for all of us.” Quoted in Ed Silverman, “‘Pow!’ ‘It will be huge.’ Emails Show Shkreli’s Team Exulting at Drug Price Hike,” Stat, Feb. 2, 2016.
94 Bram Sable-Smith, “Insulin Prices Have More Than Doubled in the Last 6 Years—and Now People Are Dying Because They Can’t Afford the Drug,” Time, Sept. 13, 2018.
95 Randi Hutter Epstein and Rachel Strodel, “Diabetes Patients at Risk from Rising Insulin Prices,” New York Times, June 22, 2018.
96 Kaiser Family Foundation, “10 Essential Facts about Medicare and Prescription Drug Spending.”
97 Meg Tirrell, “In Drug Price Hearing, Congress Tries to Answer Some Basic Questions,” CNBC, June 13, 2017. David Nather, “‘It’s Not Funny, Mr. Shkreli. People Are Dying,” Stat, Feb. 4, 2016.
98 Health at a Glance 2017: OECD Indicators (OECD, 2017), 22. U.S. men live on average to the age of 76.3, OECD men 77.9. U.S. women live on average to the age of 81.2, OECD women 83.1.
99 Payment Policies to Manage Pharmaceutical Costs, a report from the Pew Charitable Trusts, March 2017.
100 “Just a few years ago, infection with the hepatitis C virus guaranteed a slow and certain death for many. Available treatments were effective in about half of all patients, and the side effects could be awful. Things changed in 2014, when a new medication called Harvoni was approved to treat the infection. With cure rates approaching 99 per cent and far fewer side effects, the medication became an instant blockbuster. Sales topped $13.8 billion in 2015. But then an odd thing happened—sales began to drop precipitously. Harvoni, in conjunction with four other hepatitis C drugs, is projected to generate only $4 billion this year, a three-fold decline in as many years. Part of this decline is due to new competitors entering the market. But according to analysts at Goldman Sachs, another reason could be that the drug’s cure-rate erodes its own market. In a private report leaked to news outlets in April 2018, the Goldman Sachs analysts caution against investments in pharmaceutical or biotechnology companies aiming to develop outright cures, and cite Harvoni as a case study. It’s a simple point to make—if profit is your goal, then a product that eradicates its own demand might not be a wise investment.” Clayton Dalton, “Chronic,” Aeon, Aug. 7, 2018.
101 See W. H. Shrank, et al., “The Epidemiology of Prescriptions Abandoned at the Pharmacy,” Annals of Internal Medicine 153, no. 10 (November 16, 2010): 633–40: “Overall, 3.27 percent of index prescriptions were abandoned. . . . Prescriptions with copayments of $40 to $50 and prescriptions costing more than $50 were 3.40 times and 4.68 times more likely, respectively, to be abandoned than prescriptions with no copayment.”
102 Robyn Tamblyn, et al., “The Incidence and Determinants of Primary Nonadherence with Prescribed Medication in Primary Care: A Cohort Study,” Annals of Internal Medicine 160, no. 7 (April 1, 2014): 441–50.
103 Peter A. Ubel, et al., “Study of Physician and Patient Communication Identifies Missed Opportunities to Help Reduce Patients’ Out-of-Pocket Spending,” Health Affairs 35, no. 4 (April 2016): 654–61.
104 Stuart Silverstein, “Swarms of Drug Lobbyists and Campaign Cash Stymie Bid to Restrain Medicare Prescription Costs,” FairWarning, Oct. 18, 2016. The foremost example of this “revolving door” was Representative Billy Tauzin of Louisiana. As chairman of the powerful energy and commerce committee, he shepherded the Medicare Modernization Act of 2003 through Congress. The law added a drug benefit to the Medicare program, but prohibited the federal government from negotiating prices on behalf of beneficiaries. Instead, such powerful negotiating leverage would be diffused among hundreds of private health plans, or sponsors. (See Pear and Hulse, “A Final Push in Congress.”) That year, while still in Congress, Mr. Tauzin paid over a $1 million for a large Texas hunting ranch. He invited executives and lobbyists with interests before his committee to join a new hunting club on the property as dues paying members. Months after the bill’s passage, in 2004, the Pharmaceutical Research and Manufacturers of America hired him as their chief lobbyist, at a whopping salary of $2 million per year. (See Robert Pear, “House’s Author of Drug Benefit Joins Lobbyists,” New York Times, Dec. 16, 2004.) Amazingly, none of this suspicious activity seems to have broken any laws.
105 Of course, there are economic strategies as well as political ones. Drug companies engage in a range of strategies to extend the durations of patent protection and market exclusivity. These include preventing generic companies from acquiring the brand drugs necessary to complete clinical trials, and making small, insignificant alterations to an existing drug to gain additional years of protection. See Aaron Kesselheim, Jerry Avon, Ameet Sarpatwari, “The High Cost of Prescription Drugs in the United States: Origins and Prospects for Reform,” Journal of the American Medical Association 316, no. 8 (August 23–30, 2016): 858–71. Probably the most egregious of these business strategies is actually paying generic drug companies to refrain from bringing their drugs to market. In 2013, the Federal Trade Commission filed suit against such arrangements. The FTC argued that such payments were a way to inhibit competition in the marketplace and thus illegal. After a federal appeals court upheld the legality of such payments, the FTC appealed to the United States Supreme Court. The Court agreed in June 2013 that such deals could indeed be a violation of antitrust law, but did not find a presumption that they were always illegal. The number of such deals has fallen in recent years, but the practice continues.