Trans-Pacific Partnership & U.S. State Efforts to Control Drug Prices
Democracy and Trade
U.S. trade policy seeks to limit the
systems of evidence-based pricing used by foreign countries to control
pharmaceutical costs. However, U.S.
state governments use the same types of strategies to control costs for
Medicaid and other programs that purchase drugs. Negotiated discounts lead to large cost savings, which states rely upon
to continue to serve low-income Americans.
All systems of evidence-based pricing
are unique, but they typically involve the comparison the safety, efficacy and
cost-effectiveness of new medicines to existing therapeutic equivalents. Pharmacy and Therapeutic (P&T) Committees
construct open formularies known as Preferred Drug Lists (PDLs) which steer patients
towards favored drugs. Though federal
law ensures Medicaid patients can access unlisted drugs, manufacturers are
willing to offer substantial discounts to be included in the PDLs.
The Free Trade Agreements (FTAs) negotiated
with Australia and Korea contained provisions that place conditions on the
construction of formularies. Both FTAs require
governments to offer higher reimbursements for ‘innovative’ or ‘patented’
products than generics. This conflicts with
many U.S. state laws and/or regulations that require PDLs or pharmacists to
favor less expensive medicines
whenever possible. For instance:
- 10-144 MaineCare Benefits Manual, Chapter II, § 80 instructs the P&T Committee to
consider costs when two drugs are equally safe and effective. The regulation
also mandates generic substitution when FDA-approved generics are
- N.Y. Pub. Health Law § 272(10) (McKinney 2010) instructs committee members to
consider cost when two drugs have comparable safety and efficacy.
- 18 V.S.A. § 4605 (Vermont) requires pharmacists to substitute generic drugs for brand
name drugs, even if the branded drug is prescribed, unless otherwise instructed
by the subscriber or if the purchaser agrees to pay the difference in price.
The Australia and Korea FTAs also
require governments to grant drug companies more access to the P&T
committees that construct formularies. The FTAs set up various procedural roadblocks – including appeals
processes – that favor the industry over the governments in the
negotiations. Few states would meet
State governments have warned
repeatedly that these provisions could interfere with their health programs. In response to state lobbying, the Korea FTA contained a ‘carve-out’ to
protect Medicaid from the provisions of the FTA. Though trade officials may view their efforts
to push back against evidence-based drug pricing as only affecting foreign
nations, we view them as an effort to establish new international norms
favoring the branded industry over government entities. We expect that that the
industry will eventually seek to apply these norms in the United States. (See forumdemocracy.net for examples of
letters, submissions, and testimony by elected state officials.)
Other trade policy vehicles are used
to limit the effective negotiation of pharmaceutical prices abroad. US Trade Representative Ron Kirk has expressed
support for a Pfizer-sponsored proposal for a trade agreement to “set
disciplines” on reference pricing. His
office’s annual Special 301 Report continues to criticize trading partners for price
negotiations, even though the issue falls outside of the Report’s legislated
mandate to focus on intellectual property.
Currently, the USTR is drafting
negotiating text for the Trans Pacific Partnership (TPP). This will be the first new FTA for the Obama
Administration. State leaders have
urge Ron Kirk and his staff to exclude any provisions on pharmaceutical pricing
from the text of the TPP, as well as any future agreements.