WASHINGTON, D.C. – U.S. Senator Bob Menendez (D-N.J.), a senior member of the Senate Finance Committee, questioned witnesses during a hearing entitled “Drug Shortages: Examining Supply Challenges, Impacts, and Policy Solutions from a Federal Health Program Perspective.”
The Senator highlighted how the generic drug market’s competition, based primarily on price, drives prescription drug shortages. The Senator also questioned Dr. Immaculada Hernandez, Professor of Pharmaceutical Sciences at the University of California, about how the increased concentration among drug purchasers drives race to the bottom pricing and comprises supply chains.
“Dr. Hernandez, in the market for generic drugs, sellers compete primarily on price, creating what I believe is a “race to the bottom.” Research has shown that the lowest- priced generic medications carry substantially greater shortage risks. And in the face of narrow margins and declining profitability some manufacturers exit the market for certain drugs, or shut down entirely,” Menendez said. “Wholesale distributors purchase drugs from manufacturers, they store them, and they sell drugs to pharmacies and clinicians. These ventures collectively account for an estimated 90 percent of all domestic generic drug purchases and leverage their market power to serve as price setters for generic products.”
The Senator asked Dr. Marta Woisnska, Senior Fellow for the Schaeffer Initiative on Health Policy at the Brookings Institute, if there are sufficient financial incentives for generic drug purchasers to prioritize quality and reliability in their purchasing decisions. The Senator also asked what kinds of incentives Congress should consider if there are not sufficient financial incentives.
“Dr. Wosinska, as we’ve heard, the generic drug market is one that largely encourages competition on price alone. This makes it challenging for generic manufacturers to invest in additional capacity, manufacturing upgrades, and quality control,” Menendez said. “As a result, manufacturers can experience quality issues that result in facilities going offline or drugs being discarded. Further, generic drug purchasers appear to have limited information about manufacturer and facility quality management.”
The Senator concluded by asking witnesses if there are payment and contracting reforms that can help enhance predictability and stability with respect to generic drug pricing, payments, and volume commitments.
“For many drugs, Medicare is the largest payer in the United States. Medicare Parts A and B typically reimburse providers for inexpensive generic drugs as part of a bundle of services and supplies, rather than on an individual drug basis. By design, these bundled payments increase downward pressure on pricing and these cost constraints impact contractual pricing arrangements across the supply chain,” Menendez said.
Sen. Menendez has long advocated for creating a more affordable health care system for every New Jerseyan and Americans across the country. Last year, he helped pass the Inflation Reduction Act, which capped the price of insulin at $35 a month for seniors on Medicare, and he authored a provision that also capped Medicare beneficiaries’ out-of-pocket costs at $2,000 a year.
In June, Sen. Menendez, alongside Sens. Marsha Blackburn (R-Okla.), Ron Wyden (D-Ore.), Mike Crapo (R-Idaho), Jon Tester (D-Mont.), and Roger Marshall (R-Kan.), led the introduction of the Patients Before Middlemen (PBM) Act that will delink the compensation of PBMs from drug prices in order to better align incentives that will help lower the cost of prescription drugs for Medicare Part D beneficiaries. In July, they successfully advanced the legislation out of the Senate Finance Committee as part of the Modernizing and Ensuring PBM Accountability (MEPA) Act.
In March, Sen. Menendez questioned witnesses during a Senate Finance Committee about the impact PBMs have on the prescription drug supply chain and how their warped incentive structure drives up prices for patients and consumers. The Senator emphasized how PBMs prefer prescription drugs with a higher list price versus those with a lower list price because they can obtain larger rebates. PBMs do this even though the patient would pay significantly less if they selected the drug with the lower list price.