How Trade Agreements Could Affect Prescription Drug Prices and Drive Up Costs for Medicare

2015-12-03T11:52:00+00:00December 3rd, 2015|Medicare Policy Papers|

On October 5, negotiators for the Trans-Pacific Partnership (TPP) arrived at an agreement in principle. The full text of the agreement includes provisions that could drive up the costs of medicines in the future. These provisions relate to intellectual property, government pricing procedures, and the the ability of corporations to sue governments for their policies in international tribunals.

In a win for cost containment in the United States, other countries successfully blocked the United States Trade Representative (USTR) attempt to require a 12-year regulatory “exclusivity” period (a type of marketing monopoly) for expensive biological drugs. The final agreement requires countries to provide a minimum of five years of exclusivity. In addition to the minimum five-year period, the final text also provides an alternative option for an eight-year exclusivity period that countries can choose. The provision will not impact current law in the US, though it makes it difficult for the US to lower it beyond the five-year minimum.  The National Committee supports a lower exclusivity period to encourage the entry of biosimilar competition and, ultimately, lower costs for biologics.

Throughout the negotiations, USTR has pursued language in trade agreements, including the TPP and the Trans-Atlantic Trade and Investment Partnership (T-TIP) that could restrict the ability of countries to manage prescription drug and medical device costs in public programs.  The final TPP agreement includes several of these provisions:

  • Forcing countries to extend lengthy patent protections for pharmaceutical drugs.  As long as a patent is protected, a generic cannot be sold.  The patent holder is the only one allowed to sell a drug and can therefore demand a monopoly price for it.  Lengthy patents drive up the cost of prescription drugs. The final text of the intellectual property chapter requires countries to make patents available for new uses of existing drugs, a form of pharmaceutical monopoly “evergreening.”

  • Establishing “investor-to-state dispute settlement” (ISDS) systems in trade agreements to allow investors to challenge in international tribunals laws and regulations which they allege will hurt their profits.  Drug companies could use ISDS to challenge formularies and preferred drug lists, discounts and rebates and other policies in public programs that pay drug companies less than the price they demand.  

  • Requiring countries to adopt so-called pricing and coverage transparency provisions for their national health care systems that require justification of their pricing and reimbursement decisions. These provisions could provide ammunition for drug companies to sue governments in international tribunals under ISDS systems. The final text explicitly makes Medicare’s process for making national determinations about what products and services it covers subject to this provision.

Congressional Action on TPP

Opponents of TPP won a short-lived victory in June when trade legislation including fast-track was initially blocked by a strange-bedfellow coalition of Republicans and Democrats.  Fast-track authority provides the president with an expedited path to enacting necessary authorizing legislation for trade agreements he has negotiated. The expedited procedures allow consideration of the TPP and other trade bills once negotiations have been finalized on an up-or-down vote without the ability to amend the legislation. This effectively makes it very difficult for members of Congress to oppose trade legislation such as TPP because there are many components of the trade agreement they may support.

The temporary victory of fast track opponents in June was partially achieved because Medicare cuts were used to pay for Trade Adjustment Assistance (TAA).  TAA provides displaced workers with job training and assistance, in the form of a tax credit, to help individuals who have lost health insurance to be able to purchase health insurance. Democrats have traditionally supported TAA funding, but a majority of House Democrats joined with a majority of Republicans on June 12 to reject a TAA bill that was tied to fast track.

Ultimately, proponents of fast track prevailed when Republican leadership, which supported the bill, decoupled TAA funding from fast track. Independently, the provisions had enough votes to pass. The National Committee supports TAA, but strongly objected to cutting Medicare to pay for an unrelated program. Savings from changes in Medicare policy should be used to improve Medicare—not for other purposes. While the worst of the Medicare cuts were eventually stripped from the TAA bill that passed, a provision cutting $250 million from Medicare over the next 10 years by adjusting Medicare reimbursement for renal dialysis services for those with acute kidney injuries was enacted.

Now that negotiations have wrapped up, the fight over TPP will move to Congress for the enactment of authorizing legislation.  Under fast-track legislation, the president must give Congress at least 90 days’ notice before signing the agreement. Additionally, the International Trade Commission (ITC) must prepare an assessment of the probable economic effect of the agreement within 105 days of the president signing the agreement. This means that Congress won’t be able to vote on TPP until the beginning of 2016 at the earliest. Depending on how long the ITC takes to make its report, a TPP vote could be pushed back well into 2016.

NATIONAL COMMITTEE POSITION 

The Trans-Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment Partnership (T-TIP) would circumvent the democratic process by restricting the ability of Congress and state legislatures to manage the cost of prescription drugs and medical devices.  For these reasons, the National Committee urges Congress to oppose provisions in the TPP and T-TIP that would put Medicaid, Medicare and the affordability of medicines and medical devices at risk.

Government Relations and Policy, November 2015