Legislature Reviews Drug Imports, Price Controls

Three important biopharma and medical device bills were the subject of public hearings at the state Capitol this week.

SB 11, addressing prescription drug access and affordability; HB 7192, which implements recommendations of the legislature’s Drug Task Force; and SB 3, regulating consumer protection, all had committee hearings.

Both SB 11 and HB 7192 were before the Human Services Committee, with the General Law Committee addressing SB 3, a reprise of a bill that failed in the 2024 session.

SB 11 is an aircraft carrier bill with more than 10 policy proposals. HB 7192 essentially repeats three of them, making it nearly impossible for legislators, industry, and the public to adequately assess all of the potential changes within their 71 pages.

Lowering Healthcare Costs ‘Core Issue’

Connecticut Bioscience Growth Council executive director Paul Pescatello reminded legislators that the core issue is lowering healthcare costs.

“In order to achieve meaningful healthcare price reform … we must recognize that drugs represent only a small part of the healthcare cost equation,” he said.

“Medicines account for only about 15% of what we in the U.S. spend on healthcare.”

Bioscience Growth Council’s Paul Pescatello

“Medicines account for only about 15% of what we in the U.S. spend on healthcare. That share of the healthcare dollar has been remarkably stable for 75 years.

“To bring meaningful change and cost savings to healthcare it is critical to examine the other 85% of the equation—surgeries and hospital stays, MRIs and CT-scans, doctors’ visits, home healthcare assistance, insurance plan design, the role of pharmacy benefits managers and other middlemen, to name only a few.”

The Bioscience Growth Council focused on four broad policy areas addressed in SB 11: drug supply chain reform, price controls, the 340B medicine discount program, and importation of drugs from Canada.

Drug Discounts, Rebates Must Flow to Patients

Pescatello emphasized the Bioscience Growth Council’s support for changes to the drug delivery supply chain, including greater transparency in the flow of drug discounts and rebates.

He noted the importance of ensuring that discounts and rebates inure to the benefit of consumers and patients, not disproportionately to PBMs and other middlemen.

For the past five years, net prices for on-patent medicines have increased at or below the rate of inflation.

Although concern over medicine price inflation is reflected in SB 11 and HB 7192’s price control provisions, the data show that for the past five years, net prices for on-patent medicines have increased at or below the rate of inflation. Such prices are projected to decline by 4% annually through 2028.

Unfortunately, the discounts and rebates that are partly responsible for this modest price increase profile often do not make their way to what patients pay at the pharmacy checkout counter.

In addition, insurance plan deductibles and coinsurance often translates into patients paying a significant portion of a medicine’s list, not discounted, price.

CPI a Flawed Measure of Medicine Inflation

SB 11 limits price increases drug manufacturers can charge for generic and off-patent drugs to the consumer price index.

Nominally keeping generic and off-patent drug price increases in line with inflation as measured by the CPI may seem reasonable, but it ignores the fact that the CPI is an average of a broad spectrum of products.

CPI does not reflect the rate of inflation for any one specific product category. The overall January CPI, for example, was 3%, but for eggs it was 15.2%.

Keeping drug price increases in line with inflation may seem reasonable, but it ignores the fact that the CPI is an average of a broad spectrum of products.

The components of the drug supply chain, including the supply chain for generic and off-patent drugs, are many and variable.

They are sourced from around the world. This is especially the case for the complex manufacturing applicable to injectable and infused biologics. 

The price increases suppliers in the generic and off-patent drug supply chain charge for ingredients can often exceed the CPI.

Since many parts of and ingredients used in drug manufacturing are sourced from overseas, currency fluctuations can have a dramatic effect on prices significantly in excess of the CPI.

Indexing Is a Form of Price Control

It’s important to recognize that tethering medicine prices to a rigid formula like the CPI is a form of price control and price controls never work.

No matter the product—flour, machinery, medicines—price controls cause shortages, delay the introduction of new products and manufacturing capacity, give rise to black markets and incentivize high introduction prices.

A rigorous study—academic or otherwise—demonstrating the effectiveness of price controls does not exist.

All price controls have done is ratchet up the misery of empty store shelves and metastasizing inflation.

Price controls didn’t work when Richard Nixon tried them, didn’t work in Nazi Germany or the Soviet Union, and aren’t working in Venezuela or Zimbabwe.

When tried, all price controls have done is ratchet up the misery of empty store shelves and metastasizing inflation.

Applied to medicines, they would translate into shortages and slow, or non-existent, introduction of new, cutting-edge cures and therapies.

If the cost of ingredients for a medicine spike beyond the CPI and manufacturers can’t cover their costs, we certainly would not want government policy to be the cause of manufacturers leaving the market and consumers facing medicine shortages and empty pharmacy shelves.

SB 11 Undermines Federal 340B Program

340B-discounted drugs that are a focal point of SB 11 are made possible through a complex federal program.

The aim of the program is to extend the reduced drug pricing that is available through Medicaid to covered entities (e.g., hospitals) that serve vulnerable patient populations.

The essential purpose of the 340B program is to reduce the cost of medicines and care for those least able to afford them—the uninsured and the underinsured.

SB 11 attempts to force drug manufacturers to extend 340B drug pricing beyond the covered entities themselves to pharmacies covered entities may contract with (“contract pharmacies”).

The essential purpose of the 340B program is to reduce the cost of medicines and care for those least able to afford them.

Such arrangements heighten the potential for diversion of 340B discounts away from patients and patient care the program was intended to serve.

SB 11 exacerbates the ability of participants in the drug delivery supply chain to practice a form of arbitrage—to “game” the system by purchasing discounted 340B drugs, seeking reimbursement at a price higher than the 340B price, and diverting the price differential to themselves or others in the delivery supply chain.  

This practice undermines the original intent of the 340B program: to bolster the financial resources of nonprofits so that they can better meet the medical needs—surgeries, kidney dialysis, newborn care—of vulnerable populations they are meant to serve.

Effective 340B Reform

The reform the 340B program desperately needs is a mechanism to track or otherwise ensure that 340B discounted drugs are dispensed only to eligible patients.

That mechanism makes sure that 340B discounted drugs are not provided to Medicaid or otherwise insured patients through a pharmacy benefit manager or by a pharmacy in such a way that the dispensing party is reimbursed for a drug above its 340B discounted price.

An effective means to that end is the use of 340B “claims modifier”—an electronic tag used in electronic transactions between pharmacy benefit managers and pharmacies.

In an age where policymakers often remind us to “follow the science” and to be “data driven,” SB 11 actually bars the collection of data.

Such tagging provides a unique identifier that helps direct discounted drugs to the patients intended to be helped by the 340B program. 

Unfortunately, SB 11 is drafted in such a way as to be in opposition to effective reform. SB 11 actually prohibits transparency, barring manufacturers from requiring submission “of any claims or utilization data as a condition for allowing acquisition of a 340B drug.”  

In an age where policymakers often remind us to “follow the science” and be “data driven,” SB 11 actually bars the collection of data to confirm that 340B discounted medicines were in fact dispensed to the patients the 340B program was intended to serve.

Canadian Drug Imports: Safety, Supply Issues

Canadian drug importation as a policy solution to perceived high drug prices has a vampire-like quality to it.

Importation keeps coming up, keeps being shot down and discredited, but it won’t die.

Year after year, Canadian drug importation keeps being put forth as a solution and Canadian government officials keep making their way to the General Assembly and other state capitols reaffirming that they are thoroughly opposed to this policy.

Because of Canada’s drug price controls, supply of drugs to Canada is very tight—there are barely enough drugs for Canadians, much less enough to export to the U.S.

Canadian drug importation as a policy solution to perceived high drug prices has a vampire-like quality to it.

SB 11 and HB 7192’s importation provisions, like all such provisions in years past, require Canadian drugs imported into the U.S. to meet all safety standards for safety, efficacy, misbranding, and adulteration applicable to U.S.-sourced drugs.

Imported Canadian drugs would have to meet U.S. track-and-trace requirements and a host of actors in the Canadian and U.S. drug supply chains—pharmacies, laboratories, drug middlemen/suppliers and wholesalers—would take on liability to vouch for the imported medicines’ safety and efficacy.

Whether all of these parties would invest the time and money and assume the risk to do so is highly unlikely.

No one has definitively been able to answer the question: is a drug sourced by a Canadian pharmacy from Uzbekistan a Canadian drug suitable for export to the U.S.?

No Canadian Drugs for Florida or Colorado

It’s true that the federal Food and Drug Administration has approved efforts by other states—Florida and Colorado—to begin to set up Canadian importation schemes, but the myriad of regulatory, international relations, and safety issues have not been resolved.

In these states, as here in Connecticut, Canadian drug importation is more effective as a rhetorical political tool—to appear to be doing something about the high cost of healthcare—than an effective, workable policy.

Finally, if the goal of Canadian importation is to bring down the cost of healthcare in a meaningful way, it should be noted that SB 11 and HB 7192 will not allow importation of the costliest medicines—biologic and other infused and injected drugs.

Canadian drug importation is more effective as a rhetorical political tool than an effective, workable policy.

Many, if not most, of the most effective oncology and autoimmune treatments fall into these categories.

In sum, the Canadians are utterly opposed to importation to the U.S. of their limited supply of drugs, and no drugs have flowed or are likely to flow from Canada to Florida, Colorado, or Connecticut.

Canadian drug importation is a bridge too far not worth the time, effort, or administrative cost.

Medical Device Exemptions

Pescatello spoke before the General Law Committee about SB 3 to advocate for a clear, explicit exemption for medical devices.

SB 3 is focused on what most of us would consider items that fall into the category of consumer electronics.

However, the definitions of “connected device,” “connected device manufacturer,” and “electronic set” in SB 3 could be construed to include medical device technology.

SB 3 places patients and users of medical devices at risk.

These definitions would be applicable to an array of medical devices, including: implantable pacemakers, implantable defibrillators, portable ultrasound components, patient worn or implanted monitors, and portable radiology devices.

All of these devices can have the capability to transmit critical information about a patient’s health status to healthcare providers.

SB 3 places patients and users of medical devices at risk—access to materials, parts and tools is no substitute for the extensive training, education and expertise possessed by original equipment manufacturers.

Regulatory Controls

Medical devices are complex. They are used to diagnose disease, save lives and sustain lives.

OEMs allocate extensive resources to create comprehensive servicing protocols to ensure that their devices are properly maintained and consistently meet safety and effectiveness standards promulgated by the FDA.

Service by OEMs must adhere to strict FDA regulations for medical device maintenance and repair. Known as quality system regulation, these FDA regulations include specific instruction for training, part and component replacement, and documentation of servicing inspection and repair work.

In addition, OEMs and their authorized servicers are subject to additional FDA regulations that include reporting of adverse events, recalls, and registration with the FDA.

With third party servicers outside the FDA medical device regulatory umbrella, patients will be at risk.

This regulatory framework covering post-sale events helps ensure that all servicing to medical devices is done by properly trained and equipped technicians, that all repair work is thoroughly documented and that adverse events are reported to the FDA.

SB 3 could facilitate the work of unregulated third-party services on complex medical devices—including, but very much not limited to chemotherapy and insulin infusion pumps, ventilators, cardiac pacemakers—without proper training and potentially without appropriate (including outdated) repair equipment and replacement parts.

With third party servicers outside the FDA medical device regulatory umbrella, patients will be at risk. Any nominal cost savings would be dwarfed by interventions made necessary by faulty, unregulated repair work.

Indeed, a 2018 FDA study identified 4,300 adverse events, involving 294 severe injuries and 40 deaths, from medical device repair by unauthorized third-party providers.

Pescatello concluded his remarks by urging the committee members “to revise SB 3 to include a clear exemption for medical devices similar to the exemption provided in the federal Fair Repair Act and several states, including Minnesota, New York and Oregon.”

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Paul Pescatello is the executive director of CBIA’s Bioscience Growth Council and chair of We Work for Health Connecticut. Follow him on X @CTBio.