Alexander: Americans Want to Know Who Pays for Prescription Drugs and Where That Money Goes

Posted on June 13, 2017

“More than 4 billion prescriptions are written for drugs each year for Americans who then receive those drugs at 60,000 drug stores, from doctors or hospitals and from online pharmacies. The total cost to the overall health system of these prescriptions each year is $450 billion, to be paid by taxpayers, patients, hospitals, and insurers, among others. Many of these are truly miracle drugs. They cure Hepatitis C, keep cancer at bay, stop a stroke and prevent heart attacks. According to the Centers for Disease Control and Prevention, Americans are living on average 10 years longer than their life expectancy in the 1950s. Access to innovative drugs is a major reason why.”

WASHINGTON, D.C., June 13 — United States Senator Lamar Alexander (R-Tenn.) today chaired a bipartisan Senate health committee hearing to examine the path a FDA-approved prescription drug takes from the manufacturer to patient, and how this path affects what the patient pays, saying “Americans want to know who pays for prescription drugs and where that money goes.”

“More than 4 billion prescriptions are written for drugs each year for Americans who then receive those drugs at 60,000 drug stores, from doctors or hospitals and from online pharmacies. The total cost to the overall health system of these prescriptions each year is $450 billion, to be paid by taxpayers, patients, hospitals, and insurers, among others,” Alexander said. “Many of these are truly miracle drugs. They cure Hepatitis C, keep cancer at bay, stop a stroke and prevent heart attacks. According to the Centers for Disease Control and Prevention, Americans are living on average 10 years longer than their life expectancy in the 1950s. Access to innovative drugs is a major reason why.”

Alexander continued, “Over the years this committee has produced important laws to reduce the cost of drugs before they are approved by the FDA:  for example, last year’s 21st Century Cures legislation; the Hatch-Waxman Act, which created the generic drug industry; and multiple FDA user fee agreements, which have helped fund the FDA and modernize our drug and device approval process.  

“Our focus today is on what happens to the cost of the drug after it is approved by the FDA. We will examine the path an approved drug takes from the manufacturer to patient, and how this path affects what the patient pays. 

“We hope to agree on some basic facts, such as whether prescription drug prices are going up or down, and by how much? We want to know as prescription drugs move from FDA approval through a complex process and into the hands of patients, where does the money go? What are rebates and what is their impact on consumers? Who actually pays the cost of prescription drugs?”

Alexander concluded, “This is a discussion that affects the well-being of every American family.  It is important that we work together to conduct this fact finding in a bipartisan way.”

Today’s hearing is the first of three bipartisan hearings the Senate health committee will hold on prescription drug costs. Alexander announced that the second hearing is planned for July and will be a deeper dive into the prescription drug process—“beginning with a manufacturer’s development of a drug, the different steps through which the drug travels before arriving in the patient’s hands, how this is paid for, and what the costs are at each of the different steps.” The third hearing is planned for the fall to hear from Norm Augustine and consider a report Augustine is leading from the National Academy of Sciences—the result of a project called “Ensuring Patient Access to Affordable Drug Therapies.”

The chairman’s full prepared remarks for today’s hearing are below:

The Committee is having this hearing in response to a bipartisan request led by Senators Cassidy and Franken, along with Senators Collins, Baldwin, Murkowski, Whitehouse, Capito, Sanders, Enzi and Warren.

This is the first of three hearings we plan to hold on prescription drug costs.  The purpose of this first hearing is to see if we can better understand this complex subject and agree on some basic facts.

Americans want to know who pays for prescription drugs and where that money goes.

Next month, the committee will hold a second hearing to hear about the process—beginning with a manufacturer’s development of a drug, the different steps through which the drug travels before arriving in the patient’s hands, how this is paid for, and what the costs are at each of the different steps.

In the fall, we will hold a third hearing to hear from Norm Augustine and consider a report he is leading from the National Academy of Sciences. This report is the outcome of a project called “Ensuring Patient Access to Affordable Drug Therapies.”

The United States leads the world in innovative biomedical and pharmaceutical research and development—and American patients benefit from having access to most life-saving drugs first. 

Our country produces more than twenty percent of the world’s wealth—and it is well known that we spend a large share of that wealth on our health, a much larger share than many other advanced countries.

In 2015, according to the Centers for Medicare and Medicaid Services, health care spending totaled nearly 18 percent of our Gross Domestic Product, and prescription drugs were about 10 percent of that spending, and closer to 15 percent when you consider prescription drugs administered in hospitals.

At around the same time in 2014, the World Bank shows the United Kingdom was spending 9.8 percent of its gross domestic product on health care; Germany was spending 11.1 percent, and Finland was spending 9.6 percent.

More than 4 billion prescriptions are written for drugs each year for Americans who then receive those drugs at 60,000 drug stores, from doctors or hospitals and from online pharmacies. The total cost to the overall health system of these prescriptions each year is $450 billion, to be paid by taxpayers, patients, hospitals, and insurers, among others. 

Many of these are truly miracle drugs. They cure Hepatitis C, keep cancer at bay, stop a stroke and prevent heart attacks.

According to the Centers for Disease Control and Prevention, Americans are living on average 10 years longer than their life expectancy in the 1950s. Access to innovative drugs is a major reason why. 

In 2003, Congress passed the Medicare Part D Prescription Drug program, which provides drugs to about 41 million Americans over 65 years of age. The Congressional Budget Office estimates that prescription drugs for those on Medicare will cost taxpayers and patients $94 billion this year.

While safe prescription drugs have become an integral part of American family lives today, all of this is relativity new.

In 1906, Congress passed the Federal Food and Drugs Act, which added regulatory responsibilities to the Food and Drug Administration’s scientific mission by prohibiting interstate commerce in misbranded and adulterated foods, drinks and drugs.

In 1938, this was updated to require a manufacturer to show that each new drug must be safe before it comes to market, starting a new system of drug regulation.   

It was only in 1941 that FDA, in response to the Insulin Amendment, first began to require that a drug be tested and certified for purity and potency, the first being insulin for the treatment of diabetes. During the next decade and beyond came approval of mass produced penicillin, other antibiotics, and a broader range of drugs. 

Developing and approving a drug today is a lengthy and costly process. According to the Tufts Center for the Study of Drug Development, from beginning the research and development phase through FDA approval, developing a new drug takes on average 10 to 15 years and can cost close to $2.6 billion.

And success is far from guaranteed. Fewer than 12 percent of drugs that make it to phase I clinical trials are finally approved by the FDA.

According to Research!America, the United States spent $159 billion on Medical Health and Health Research and Development  in 2015.  The National Institutes of Health funded roughly 19 percent or $29.6 billion. $12.6 billion or 8 percent was funded by universities and independent research institutes.

Other federal and state governmental entities funded 5 percent or $7.8 billion.  Four percent or $4.7 billion was funded by foundations and professional societies.  Additionally, 15 percent or $24.4 billion was funded by the medical device industry and other non-biopharma private industry. The largest share, 49 percent or $78.2 billion, was funded by the biopharmaceutical industry.

It is from these investments that we can expect to see the medical miracles that National Institutes of Health Director Francis Collins has predicted will occur during the next decade: artificial pancreas for those with diabetes, new cancer cures, a vaccine for Zika and HIV/AIDS and a universal flu vaccine, medicines to identify individuals at risk for Alzheimer’s before symptoms are apparent as well as provide them with effective therapies to slow or even prevent the disease.

Over the years this committee has produced important laws to reduce the cost of drugs before they are approved by the FDA:  for example, last year’s 21st Century Cures legislation;  the Hatch-Waxman Act, which created the generic drug industry; and multiple FDA user fee agreements, which have helped fund the FDA and modernize   our drug and device approval process.   

Our focus today is on what happens to the cost of the drug after it is approved by the FDA.    

We will examine the path an approved drug takes from the manufacturer to patient, and how this path affects what the patient pays. 

We hope to agree on some basic facts such as whether prescription drug prices are going up or down, and by how much?

We want to know as prescription drugs move from FDA approval through a complex process and into the hands of patients, where does the money go?

What are rebates and what is their impact on consumers?

Who actually pays the cost of prescription drugs?

This is a discussion that affects the well-being of every American family.  It is important that we work together to conduct this fact finding in a bipartisan way.