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AAPS asks Senate Finance Committee to Address Repeal of GPO/PBM Kickback Safe Harbor

Association of American Physicians and Surgeons
To: The United States Senate Committee on Finance:
Hearing on “Prescription Drug Affordability and Innovation:
Addressing Challenges in Today’s Market”

June 25, 2018

Chairman Hatch, Ranking Member Wyden, and Members of the U.S. Senate Committee on Finance:

There are many obstacles impeding prescription drug affordability. Yet, one especially responsible culprit is the safe harbor to Medicare anti-kickback law enjoyed by Group Purchasing Organizations (GPOs) that has been further extended by administrative guidance to Pharmacy Benefit Managers (PBMs).

The Federal statute granting this “safe harbor” is 42 U.S.C. 1320a-7b(b)(3)(C), the language of which was established by the “Omnibus Budget Reconciliation Act of 1986,” strengthened by the “Medicare and Medicaid Patient and Program Protection Act of 1987,” and subsequently ensconced in federal regulation at 42 CFR 1001.952 (j).

The provision ostensibly facilitates greater bargaining power for the purchasing of supplies and drugs.  However, the safe harbor has in practice driven up costs and scarcity by perpetuating a system rife with hidden kickbacks, rebates, and single source contracts, that financially benefit GPOs, PBMs, and large manufacturers, but constrain competition and ultimately harm patients.

It is time to repeal 42 U.S.C. 1320a-7b(b)(3)(C) and direct HHS to revoke any related regulations and guidance that protect such improper kickbacks.

Physicians Against Drug Shortages calculates that such “corrupt practices have driven up the prices of drugs sold by PBMs to individual consumers by at least $100 billion annually.”  This is in addition to the $100 billion per year in inflated supply costs that result from kickbacks to GPOs. For additional details see http://www.physiciansagainstdrugshortages.com/.

Diabetes patients are one group particularly hard hit by the collusion between PBMs and manufacturers. CBS News recently reported that “the cost of two common types of insulin increased 300 percent in the past decade” thanks in large part to kickbacks to PBMs. Contracts between GPOs, PBMs, suppliers, and manufacturers are hidden from public view, despite the fact that taxpayers fund nearly two-thirds of every dollar spent on medical care.

This Committee should request, subpoena if needed, and make public, contracts related to the sale of insulin to help shine sunlight on these secret backroom deals.  In addition it should similarly obtain copies of contracts related to other medical products that have recently seen a dramatic rise in scarcity or price: e.g. Baxter’s contracts related to saline market allocation, the Hospira (now Pfizer) contracts for fentanyl, and Mylan’s contracts for Epipen.

Meanwhile, independent physicians are providing tremendous savings to patients with in-office dispensing of prescriptions that cut out the cost increases caused by middlemen like PBMs.  For example, a 72 year old female patient with multiple chronic conditions purchases all nine of her medications through a Direct Primary Care office for $14.63/month. Through her Medicare “coverage” her cost would be $294.25 per month.

The Senate Committee on Finance has jurisdiction over S 1358, the Direct Primary Care Enhancement Act, which would increase patient access to this promising delivery model by simply clarifying that Health Savings Accounts can be used for these arrangements. We urge the Committee to expedite consideration and approval of S 1358.

In conclusion, lowering costs for care is going to mean ending the improper flow of money to middlemen profiting without adding value to patient care. We encourage the Committee to take action to end failed policies that benefit the bottom lines of these special interests and simultaneously implement solutions that hand control back to patients.

Please do not hesitate to reach out to us for further discussion about our concerns.


Jane M. Orient, MD
AAPS Executive Director

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