Pharmaceuticals Conference

1. Pharmaceuticals Conference National State Attorney General Program at Columbia Law School May 11, 2007

2. John Rother, JD Director Policy & Strategy

3. Rx Drugs in Context

4. Costs for National Health Expenditures Projections Billions Source: CMS, National Health Accounts Overall Medicare Costs compared to Overall Health Costs

5. Rx Drug Increases in 10 years (1995 thru 2004) Big Portion of Rising HC Bill 27% Hospital Care Source: Calculations by PPI AARP using Centers for Medicare & Medicaid Services, Office of the Actuary, CY 1960-2004 National Health Expenditure Data 21% 15% Physician & Clinical Services Rx Drugs

7. U.S. Total Drug Expenditures as Percent ofNational Healthcare Expenses: 1988 to 2010 Projected % of NHE 22.1% Will have tripled share Doubled share in 10 years Today Source: Compiled by the PRIME Institute, University of Minnesota from data found in Pharmaceutical Benefits Under Medical Assistance Programs, National Pharmaceutical Council, 1975 to 2002 and in HCFA Form 64.

8. Average Rx Manufacturers’ Price Increases Far Outpacing Inflation 53.6% Years refer to change from previous year. Source: AARP Public Policy Institute April, 2007 Average % Change Inflation 20.3%

9. Distribution of Gross Revenues for U.S. Drug Companies by Expense Type Marketing, Advertising, & Administrative Costs Taxes & Other Costs $6 Net Profit Research & Development Cost of Production Source: Compiled by the PRIME Institute, University of Minnesota from data found in DHHS, CMS, Jan 2003, and from Bloomberg, analysts models, & corporate annual reports. Presented by AARP Rx Watchdog Forum February 2005

11. Generic Substitution Rates in USA, 1984-2006 Percent of Rx Filled • More than half of Rx drugs dispensed in USA are GENERIC • Yet they account for only 13% of total Rx costs

12. USA in a Global Context

13. Excesses, Gaps in US HC Spending 28% Overall Below ESAW 40% 36% 27% 82% -57% 15% -70% Rx ESAW = Estimated Spending According to Wealth Source: OECD; MGI analysis McKinsey & Company

14. Lessons from Europe • Price transparency - a precondition for good policy and fair competition • U.S. prescription drug pricing now takes place in a black box

15. The “Black Box” of U.S. Pharmaceutical Pricing

16. U.S. Pharmaceutical Supply & Payment Drug Manufacturer Pharmacy Consumer

17. U.S. Pharmaceutical Supply & Payment Drug Manufacturer Pharmacy Benefit Manager (PBM) Employer/ Plan Sponsor or Health Insurer Pharmacy Consumer Wholesale Distributor Source: AARP---Based on work of The Health Strategies Consultancy (now Avalere Health) for the Kaiser Family Foundation

18. U.S. Pharmaceutical Supply & Payment Drug Manufacturer Pharmacy Benefit Manager (PBM) Employer/ Plan Sponsor or Health Insurer Pharmacy M.D. Consumer RxRxRx Advertising Wholesale Distributor Payment for Marketing and Advertising Source: AARP---Based on work of The Health Strategies Consultancy (now Avalere Health) for the Kaiser Family Foundation

19. Lessons from Europe (con’t) • Comparative Effectiveness information held by the industry and by other governments; using effectiveness as a basis for pricing has been successful in Europe. • Truly innovative medicines should receive high reimbursement; “me-too” drugs required to show cost savings

20. State & Federal Strategies to Lower Rx Drug Costs

21. State Strategies • Large purchasing pools • Comparative Effectiveness [Oregon Evidence-based Practice Center] • Transparency [e.g. NY program requiring that pharmacies post prices online] • NH court case on physician profiling

22. Federal Strategies • Secretarial negotiation for Medicare • Very narrow rejection in Senate – needed 60 votes • With no formulary – CBO estimates no savings • Veto threat

23. Federal Strategies S. 1082, the Prescription Drug User Fee Amendments sponsored by Senator Kennedy • Reauthorize Prescription Drug User Fees that help fund FDA • Also includes some Rx drug safety provisions and other amendments • Currently on the Senate floor (and will likely pass by today) S. 316 – the Kohl-Leahy bill • Would prohibit generic manufacturers from accepting anything of value as part of a patent settlement with a brand name company • Offered as an amendment to PDUF • Unclear whether will pass as part of that measure

24. Federal Strategies S. 1088 – the Stabenow-Lott bill • “Lower Prices Reduced with Increased Competition and Efficient Development of Drugs” Act • Many of its provisions on PDUFA, offered as part of a “managers’ amendment” • Expected to pass S. 623 – the Clinton-Schumer biologics bill. • As part of PDUFA, there was a “sense of the Senate” amendment that essentially said that the Senate HELP Committee should report out a generic biologics bill by June 13 • Key players are working on proposals

25. Federal Strategies HR 1038 – • Waxman-Emerson biologics proposal - identical to the Clinton-Schumer proposal - issue moving more slowly in the House, though two hearings already held HR 380 – • Emanuel-Emerson importation proposal • This is the House companion to Dorgan-Snowe

26. Federal Strategies PDUFA Reauthorization in the House • The House moving more slowly than Senate; hasn’t drafted language yet, just starting process • Expected to move in the House, get conferenced with the Senate bill over the summer • Unknown at this time whether the House will try to include Rx safety and other measures on the PDFUA reauthorization or whether it will simply move a “cleaner” piece of legislation.

27. Federal Strategies HR 1902 – the Rush-Waxman legislation • similar to the Kohl-Leahy bill • Energy & Commerce Committee held a hearing on this issue last week • Unknown at this time whether sponsors will try to attach this to PDUFA HR 2184 – Comparative effectiveness research • Monday, Rep. Allen (D-ME) introduced legislation to expand comparative effectiveness research (including a significant increase in funding) • Senator Clinton working on similar legislation

28. Federal Strategies S. 242 – the Dorgan-Snowe importation legislation • Co-sponsored by 33 Members of Senate • Allows for safe importation of Rx drugs from abroad • Offered as amendment, the measure passed by voice vote Monday • However, “poison pill” amendment sponsored by Senator Cochran also passed by a vote of 49-40 • Requires that before any importation system can be implemented the Secretary of HHS must certify safety of imported drugs • Similar provision already part of current law • Stronger political support possible if Canada does industry negotiating for us • Unlikely to produce much in short-term savings • Plays off of public anger in being played for fools

29. Longer-Term Agenda • Generic biologics • Continuing Comparative Effectiveness studies • Focus on marketing costs • DTC advertising • Physician detailing • Payments to physicians • “Date certain” patent expiration policy

30. Consumer Strategy Consumer campaign for “Wise Use” • Counters detailing, DTC and other questionable marketing • Promotes use of generics • Fosters full compliance • Continue taking full prescription until finished • Continue on with maintenance drugs • Encourages shopping around for price • Has patient proactively inform physician about every health and Rx substance taken • Focuses patients on knowing side effects to watch for

31. Pharmaceuticals Only Part of Reform • Rx pricing, patent, advertising, and detailing practices only one component of broader health reforms needed

32. Future Agenda • The AG’s nationwide have great opportunities to influence pharmaceutical pricing by creating: • Better market rules • More effective consumer protections

33. Pharmaceuticals Conference National State Attorney General Program at Columbia Law School